SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A-2
Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
Date of Report (Date of Earliest Event Reported):
March 28, 2000
U.S. Wireless Data, Inc.
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(Exact Name of Registrant as Specified in its Charter)
Colorado 0-22848 84-1178691
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(State or other (Commission (IRS Employer
jurisdiction File Number) Identification No.)
of incorporation)
805 Third Avenue, 8th Floor
New York, NY 10022
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(Address of principal executive offices)
Registrant's Telephone Number, including
area code (212) 750-7766
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(Former Address, if changed since last report)
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Item 1: Change of Control
All references to "we" or "us" contained in this Form 8-K refer to U.S.
Wireless Data, Inc. The following descriptions of agreements we have entered
into are summaries and are qualified by reference to the agreements we are
filing as exhibits to this report.
We have entered into a series of transactions which may be deemed to
constitute a change of control. The transactions are outlined below:
1. As previously reported, we issued warrants, exercisable at $.01 per
share, to purchase an aggregate of 15,000,000 shares of our Common Stock
(13,636,364 shares to ComVest Capital Management, LLC, an affiliate of
Commonwealth Associates, L.P., and 1,363,636 shares to Dean M. Leavitt, our
Chairman and Chief Executive Officer). ComVest exercised its warrant with
respect to 7,920,000 shares, representing 25% of our outstanding Common Stock,
and Mr. Leavitt exercised his warrant with respect to 792,000 shares in March
2000. The remaining warrants owned by ComVest (which are not fully exercisable
until our shareholders approve an amendment to our Articles of Incorporation to
increase the number of authorized shares of our Common Stock) would represent an
additional 18% of our Common Stock if they are exercised.
2. Commonwealth acted as placement agent in a private placement pursuant to
which 506.16 Units have been sold at $100,000 per Unit for aggregate proceeds of
$50,616,000 as of March 28, 2000. Each Unit consists of 10,000 shares of our
Series C Convertible Preferred Stock (which is initially convertible into 66,667
shares of our Common Stock) and warrants to purchase Common Stock equal to 25%
of the number of shares into which the Series C Convertible Preferred is
convertible.
Description of Series C Convertible Preferred Stock
The Series C Convertible Preferred has a liquidation preference of $10
per share, plus accrued and unpaid dividends. The holders of Series C
Convertible Preferred are entitled to vote their shares of Series C Convertible
Preferred on an as-converted basis with the holders of Common Stock as a single
class on all matters submitted to a vote of the shareholders, except as
otherwise required by applicable law and except that the holders of Series C
Convertible Preferred voting separately as a class have the right to elect two
directors to our Board of Directors.
Each share of Series C Convertible Preferred is convertible at any
time, subject to the approval by our shareholders of an amendment to our
Articles of Incorporation to increase our number of authorized shares of Common
Stock, at the option of the holder, into a number of shares of Common Stock
determined by dividing the liquidation value by the conversion price, initially
$1.50 per share, which is subject to adjustment for stock splits,
recapitalizations and other similar events. If we issue shares of Common Stock
at a price per share less than the then current conversion price, then, subject
to certain exceptions, the conversion price will be automatically reduced to
such lower price and the number of shares issuable upon conversion of the Series
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C Convertible Preferred shall be increased proportionately. The Series C
Convertible Preferred automatically converts into Common Stock (a) if, at any
time commencing three months after June 17, 2000, the average closing bid price
of our Common Stock exceeds 300% of the conversion price for 20 consecutive
trading days or (b) upon a public offering of our securities that raises gross
proceeds in excess of $30,000,000, provided the shareholders have approved an
increase in our authorized capital to allow for the conversion of the Series C
Convertible Preferred.
The terms of the Series C Convertible Preferred may be amended,
modified or waived by an agreement among us, Commonwealth and a committee to be
designated by Commonwealth whose members hold in the aggregate not less than 20%
of the outstanding Series C Convertible Preferred. Currently, on an as converted
basis, the Series C Convertible Preferred represents approximately 51% of our
outstanding voting capital stock, assuming the shareholders have approved an
increase in our authorized capital to allow for the conversion of the Series C
Convertible Preferred.
Description of Warrants
Each warrant sold with a Series C Preferred Unit is exercisable for a
period of seven years for an aggregate number of shares of Common Stock equal to
25% of the number of shares into which the Series C Convertible Preferred are
convertible at an exercise price equal to the then conversion price. The initial
exercise price is $1.50 per share, subject to adjustment under the same
circumstances as the Series C Convertible Preferred. The warrants are callable
for a nominal price at our option on 30 days' notice to the holders of the
warrants if (a) the average closing bid price of our Common Stock for 20
consecutive trading days exceeds 300% of the exercise price, as adjusted, (b)
our Common Stock is trading on a national securities exchange or Nasdaq SmallCap
or National Market Systems, or (c) a registration statement covering the warrant
shares has been declared effective and the warrant shares are not otherwise
subject to any lock-up restrictions.
The terms of the warrants may be amended, modified or waived by an
agreement among us, Commonwealth and a committee to be designated by
Commonwealth whose members hold in the aggregate not less than 20% of the
outstanding warrants. Currently, on an as exercised basis, the warrants
represent approximately 11% of our outstanding voting capital stock, assuming
the shareholders have approved an increase in our authorized capital to allow
for the exercise of the Series C Convertible Preferred.
Registration Rights and Lock-Up Agreement
We have agreed to file a registration statement with respect to the
shares of Common Stock issuable upon conversion of the Series C Convertible
Preferred and exercise of the warrants under the Securities Act of 1933, as
amended, within nine months of the closing of the private placement transaction.
We have also agreed to certain "piggyback" registration rights with respect to
the shares of Common Stock issuable upon conversion of the Series C Convertible
Preferred and the exercise of the warrants.
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Each investor who purchased Units in the private placement agreed that
it will not sell, transfer or otherwise dispose of any of our securities sold in
the private placement for a period of one year following the closing of the
transaction. Thereafter, investors may not sell, transfer or dispose of more
than 25% of such securities during each of the following four 90-day periods.
The lock-up period may be extended by Commonwealth for up to an additional six
months from the closing of any public offering that is consummated prior to the
end of the initial lock-up period, in which event there shall be no further
lock-up at the end of such period. Our officers, directors and certain other
existing shareholders agreed to substantially the same lock-up provisions on
shares of Common Stock owned or acquired by them.
Affiliated Purchases
Several of our officers and directors purchased Units in the private
placement. Dean M. Leavitt, our Chief Executive Officer and Chairman purchased
2.5 Units, Charles I. Leone, our Chief Financial Officer and Chief Operating
Officer purchased 1 Unit and Robert E. Robichaud, our former Chief Financial and
Accounting Officer, Treasurer and Secretary purchased .75 of a Unit. Edwin
Cooperman, one of our directors, purchased 1 Unit and each of Michael S. Falk
and Amy Newmark, both also directors, purchased 2.5 Units. Barry Kaplan, also
one of our directors, purchased 25 Units. Mr. Kaplan also received from
Commonwealth at no charge a warrant to purchase 1.5 Units exercisable at
$100,000 per Unit.
3. As part of its compensation, Commonwealth received warrants to
purchase 126.5 Units, exercisable at $100,000 per Unit , a commission of 7% of
the gross proceeds raised in the Private Placement, which is equal to
$3,543,120, and a structuring fee of 3% of the gross proceeds raised in the
Private Placement, which is equal to $1,518,480. Pursuant to a prior agreement
with Peter J. Solomon Securities Company Limited relating to financing
transactions entered into by us, we issued to Peter J. Solomon Securities
Company warrants to purchase 25.3 Units exercisable at $100,000 per Unit and
paid a fee equal to $400,000.
4. Commonwealth has the right under an Agency Agreement to designate
two directors of our Board of Directors and the following individuals gave
proxies to Commonwealth to vote for the election of such designees: Dean M.
Leavitt, our Chairman, Chief Executive Officer and a member of our Board of
Directors, Charles I. Leone, our Chief Financial Officer and Chief Operating
Officer, John H. Perveiler, our Vice President/National Sales Manager, Marc R.
Shultz, our Vice President of Business Development, and Barry Kaplan, Alvin Rice
and Chester Winter, each members of our Board of Directors, and John M.
Liviakis.
5. As previously disclosed, four new directors joined our Board of
Directors on March 29, 2000, including Michael S. Falk, a designee of
Commonwealth and the co-founder and Chief Executive Officer of Commonwealth.
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As a result of the foregoing, Commonwealth Associates may be deemed to
control us.
Item 5. Other Items.
A portion of the proceeds from the private placement described above were
used as follows:
We redeemed 1,500,000 shares of our Series B Convertible Preferred Stock
from Bold Street, LLC, for a price equal to 125% of the liquidation value of the
Series B Convertible Preferred, plus accrued dividends, and a warrant, expiring
April 30, 2004, to purchase 150,000 shares of Common Stock at $2.28 per share.
In connection with such redemption, Bold Street waived certain accrued
penalties. Bold Street received certain "piggyback" registration rights as to
the shares of Common Stock underlying the warrant.
We redeemed 227,353 shares of our Series B Convertible Preferred and
$1,000,000 of our outstanding 6% Convertible Debentures from RBB Bank
Aktiengesellschaft for a price equal to 125% of the liquidation value or
principal amount, as applicable, of the Series B Convertible Preferred and
Debentures. In connection with such redemption, RBB Bank also waived certain
accrued penalties.
The balance of the 6% Convertible Debentures have been converted into
Common Stock and 227,352 shares of Series B Convertible Preferred remain
outstanding.
In addition, as a result of the financing transactions described above,
anti-dilution provisions of certain outstanding warrants were triggered and we
were required to adjust the exercise prices and the number of shares of our
Common Stock issuable upon the exercise of such warrants. Upon the exercise of
these warrants, we will be required to issue an additional 823,801 shares of our
Common Stock.
Item 7: Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits
3. Certificate of Amendment to Articles of Incorporation filed March
10, 2000 (including Certificate of Correction filed March 16,
2000).*
4.1 Form of Unit Warrant*
4.2 Form of Subscription Agreement*
4.3 Form of Placement Agent Warrant*
4.4 Form of Peter J. Solomon Securities Company Limited Warrant*
4.5 Form of Bold Street, LLC Warrant*
10 Agency Agreement dated as of February 14, 2000, between the
Registrant and CommonWealth Associates, L.P.
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* Previously filed
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: April 24, 2000
U.S. WIRELESS DATA, INC.
By: /s/ Dean M. Leavitt
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Dean M. Leavitt
Chief Executive Officer
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U.S. WIRELESS DATA, INC.
AGENCY AGREEMENT
Commonwealth Associates, L.P.
830 Third Avenue
New York, New York 10022
February 14, 2000
Gentlemen:
U.S. Wireless Data, Inc., a Colorado corporation (the "Company"), proposes
to offer for sale to "accredited investors," in a private placement (the
"Offering"), up to a maximum of 250 units (the "Units") at $100,000 per Unit,
each Unit consisting of: (i) 10,000 shares of the Company's Series C Convertible
Preferred Stock (the "Preferred Shares") and warrants (the "Warrants") to
purchase a number of shares of the Company's common stock (the "Common Stock")
equal to 25% of the number of shares into which the Preferred Shares are
convertible. The maximum of 250 Units may be increased by up to 400 Units at the
discretion of the Placement Agent (as defined below). The Offering will be made
on a "best efforts" basis.
The Units will be offered pursuant to those terms and conditions mutually
acceptable to you and the Company as reflected in a Confidential Private
Placement Memorandum prepared by the Company in form and substance satisfactory
to you and your counsel, and as supplemented or amended from time to time (the
"Memorandum"). The Units are being offered in accordance with Section 4(2) of
the Securities Act of 1933, as amended (the "1933 Act") and Regulation D
promulgated thereunder.
Commonwealth Associates, L.P. will serve as placement agent (the "Placement
Agent") in connection with the Offering.
The Memorandum (including the exhibits thereto), as it may be amended or
supplemented from time to time, and the form of proposed subscription agreement
between the Company and each subscriber for the Offering (the "Subscription
Agreement") and the exhibits which are part of the Memorandum and/or
Subscription Agreement are collectively referred to herein as the "Offering
Documents."
The Company will prepare and deliver to you a reasonable number of copies
of the Offering Documents in form and substance satisfactory to you and your
counsel.
Each prospective investor subscribing to purchase Units ("Subscriber") will
be required to deliver, among other things, a Subscription Agreement and a
confidential purchaser questionnaire ("Questionnaire") in the form to be
provided to offerees. Capitalized terms used herein, unless otherwise defined or
unless the context otherwise indicates, shall have the same meanings provided in
the Offering Documents.
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1. Appointment of Placement Agent.
(a) You are hereby appointed exclusive Placement Agent of the Company
(subject to your right to have selected dealers ("Selected Dealers") in good
standing with the National Association of Securities Dealers ("NASD")
participate in the Offering) during the offering period for the Offering herein
specified for the purposes of assisting the Company in finding qualified
Subscribers.
The offering period for the Offering (the "Offering Period") shall
commence on the day the Offering Documents are first made available to you by
the Company for delivery in connection with the offering for sale of the Units
and shall continue until the earlier to occur of: (i) the sale of the Maximum
Offering, including the Over-Allotment Option; or (ii) March 31, 2000. The day
that the Offering Period terminates is hereinafter referred to as the
"Termination Date." The Termination Date may be extended for up to 30 days at
the option of the Placement Agent.
(b) Subject to the performance by the Company of all of its
obligations to be performed under this Agreement and to the completeness and
accuracy of all representations and warranties of the Company contained in this
Agreement, the Placement Agent hereby accepts such agency and agrees to use its
best efforts to assist the Company in finding qualified Subscribers for the
Offering. It is understood that the Placement Agent has no commitment to sell
the Units. Your agency hereunder is not terminable by the Company except upon
termination of the Offering Period.
(c) Subscriptions for Units shall be evidenced by the execution by
Subscribers of a Subscription Agreement. No Subscription Agreement shall be
effective unless and until it is accepted by the Company. The Placement Agent
shall not have any obligation to independently verify the accuracy or
completeness of any information contained in any Subscription Agreement or the
authenticity, sufficiency, or validity of any check delivered by any prospective
investor in payment for Units.
(d) The Placement Agent and/or its affiliates will be investors in the
Offering.
2. Representations and Warranties of the Company. The Company represents
and warrants to the Placement Agent and each Selected Dealer, if any, as
follows:
(a) Securities Law Compliance. The offer, offer for sale, and sale of
the Units have not been registered with the United States Securities and
Exchange Commission (the "SEC"). The Units are to be offered, offered for sale
and sold in reliance upon the exemptions from the registration requirements of
Section 5 of the 1933 Act. The Company will use its best efforts to conduct the
Offering in compliance with the requirements of Regulation D of the General
Rules and Regulations under the 1933 Act, and the Company will file all
appropriate notices of offering with the SEC. The Company has prepared the
Offering Documents. The Offering Documents will not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances in which they were made,
not misleading. If at any time prior to the completion of the Offering or other
termination of this Agreement any event shall occur as a result of which it
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might become necessary to amend or supplement the Offering Documents so that
they do not include any untrue statement of any material fact or omit to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances then existing, not misleading, the Company will
promptly notify you and will supply you with amendments or supplements
correcting such statement or omission. The Company will also provide the
Placement Agent for delivery to all offerees and purchasers and their
representatives, if any, any information, documents and instruments which the
Placement Agent deems reasonably necessary to comply with applicable state and
federal law.
(b) Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Colorado and has
all requisite corporate power and authority to own and lease its properties, to
carry on its business as currently conducted and as described in the Offering
Documents, to execute and deliver this Agreement and to carry out the
transactions contemplated by this Agreement, as appropriate, and is duly
licensed or qualified to do business as a foreign corporation in each other
jurisdiction in which the conduct of its business or ownership or leasing of its
properties requires it to be so qualified, except where the failure to be so
licensed or qualified would not, in the aggregate, have a material adverse
effect on the business or financial condition of the Company (a "Material
Adverse Effect").
(c) Capitalization. The authorized, issued and outstanding capital
stock of the Company prior to the consummation of the transactions contemplated
hereby is as set forth in Schedule 2(c) to this Agreement. All issued and
outstanding shares of the Company are validly issued, fully paid and
nonassessable and such shares have not been issued in violation of the
preemptive rights of any stockholder of the Company. All prior sales of
securities of the Company were either registered under the 1933 Act and
applicable state securities laws or exempt from such registration, and no
security holder has any rescission rights with respect thereto.
(d) Warrants, Preemptive Rights, Etc. Except as set forth in or
contemplated by Schedule 2(d) to this Agreement, there are not, nor will there
be immediately after the Closing (as hereinafter defined), any outstanding
warrants, options, agreements, convertible securities, preemptive rights to
subscribe for or other commitments pursuant to which the Company is, or may
become, obligated to issue any shares of its capital stock or other securities
of the Company and the Placement will not cause any anti-dilution adjustments to
such securities or commitments except as set forth in Schedule 2(d) to this
Agreement.
(e) Subsidiaries and Investments. Other than as set forth in Schedule
2(e) to this Agreement, the Company has no subsidiaries and the Company does not
own, directly or indirectly, any capital stock or other equity ownership or
proprietary interests in any other corporation, association, trust, partnership,
joint venture or other entity.
(f) Financial Statements. The financial information presented in the
Company's filings pursuant to the Securities Exchange Act of 1934, as amended
(the "1934 Act"), is accurate in all material respects. The financial statements
are hereinafter referred to collectively as the "Financial Statements." The
Financial Statements have been prepared in conformity with generally accepted
accounting principles ("GAAP") consistently applied and show all material
liabilities, absolute or contingent, of the Company required to be recorded
thereon and present fairly the financial position and results of operations of
the Company as of the dates and for the periods indicated.
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(g) Absence of Changes. Since the date of the Financial Statements,
except with respect to matters of which the Company has notified you in writing
or as otherwise described in the Memorandum, the Company has not incurred any
liabilities or obligations, direct or contingent, not in the ordinary course of
business, or entered into any transaction not in the ordinary course of
business, which is material to the business of the Company, and, except as set
forth in Schedule 2(g) to this Agreement or as otherwise described in the
Memorandum, there has not been any change in the capital stock of, or any
incurrence of long-term debt by, the Company, or any issuance of options,
warrants or other rights to purchase the capital stock of the Company, or any
adverse change or any development involving, so far as the Company can now
reasonably foresee, a prospective adverse change in the condition (financial or
otherwise), net worth, results of operations, business, key personnel or
properties which would be material to the business or financial condition of the
Company, and the Company has not become a party to, and neither the business nor
the property of the Company has become the subject of, any material litigation
whether or not in the ordinary course of business.
(h) Title. Except as set forth in or contemplated by Schedule 2(h) to
this Agreement, the Company has good and marketable title to all properties and
assets owned by it, free and clear of all liens, charges, encumbrances or
restrictions, except such as are not significant or important in relation to the
Company's business; all of the material leases and subleases under which the
Company is the lessor or sublessor of properties or assets or under which the
Company holds properties or assets as lessee or sublessee are in full force and
effect, and the Company is not in default in any material respect with respect
to any of the terms or provisions of any of such leases or subleases, and no
material claim has been asserted by anyone adverse to rights of the Company as
lessor, sublessor, lessee or sublessee under any of the leases or subleases
mentioned above, or affecting or questioning the right of the Company to
continued possession of the leased or subleased premises or assets under any
such lease or sublease. The Company owns or leases all such properties as are
necessary to its operations as described in the Offering Documents.
(i) Proprietary Rights. Except as set forth in or contemplated by
Schedule 2(i) to this Agreement, the Company owns or possesses enforceable
rights to use all patents, patent applications, trademarks, service marks,
copyrights, trade secrets, processes, formulations, technology or know-how used
in the conduct of its business (the "Proprietary Rights"). The Company has not
received any notice of any claims, nor does it have any knowledge of any
threatened claims, and knows of no facts which would form the basis of any
claim, asserted by any person to the effect that the sale or use of any product
or process now used or offered by the Company or proposed to be used or offered
by the Company infringes on any patents or infringes upon the use of any such
Proprietary Rights of another person and, to the best of the Company's
knowledge, no others have infringed the Company's Proprietary Rights.
(j) Litigation. Except as set forth in or contemplated by Schedule
2(j) to this Agreement, there is no material action, suit, investigation,
customer complaint, claim or proceeding at law or in equity by or before any
arbitrator, governmental instrumentality or other agency now pending or, to the
knowledge of the Company, threatened against the Company (or basis therefor
known to the Company), the adverse outcome of which would have a Material
Adverse Effect. The Company is not subject to any judgment, order, writ,
injunction or decree of any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign which have a Material Adverse Effect.
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(k) Non-Defaults; Non-Contravention. Except as set forth in or
contemplated by Schedule 2(k) to this Agreement or as described in the
Memorandum, the Company is not in violation of or default under, nor will the
execution and delivery of this Agreement or any of the Offering Documents or the
Fund Escrow Agreement (as defined herein) or consummation of the transactions
contemplated herein or therein result in a violation of or constitute a default
in the performance or observance of any obligation under: (i) its Articles of
Incorporation, or its By-laws; or (ii) any indenture, mortgage, contract,
material purchase order or other agreement or instrument to which the Company is
a party or by which it or its property is bound, where such violation or default
would have a Material Adverse Effect; or (iii) any material order, writ,
injunction or decree of any court of any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, where such violation or default would have a Material
Adverse Effect, and there exists no condition, event or act which constitutes,
nor which after notice, the lapse of time or both, could constitute a default
under any of the foregoing, which in either case would have a Material Adverse
Effect.
(l) Taxes. Except as set forth in or contemplated by Schedule 2(l) to
this Agreement, the Company has filed all Federal, state, local and foreign tax
returns which are required to be filed by it or otherwise met its disclosure
obligations to the relevant agencies and all such returns are true and correct
in all material respects. The Company has paid or adequately provided for all
tax liabilities of the Company as reflected on such returns or pursuant to any
assessments received by it or which it is obligated to withhold from amounts
owing to any employee, creditor or third party. The Company has properly accrued
all taxes required to be accrued by GAAP consistently applied. The tax returns
of the Company have never been audited by any state, local or Federal
authorities. The Company has not waived any statute of limitations with respect
to taxes or agreed to any extension of time with respect to any tax assessment
or deficiency.
(m) Compliance With Laws; Licenses, Etc. Except as set forth in or
contemplated by Schedule 2(m) to this Agreement, the Company has not received
notice of any violation of or noncompliance with any Federal, state, local or
foreign, laws, ordinances, regulations and orders applicable to its business
which has not been cured, the violation of, or noncompliance with which, would
have a Material Adverse Effect. The Company has all material licenses and
permits and other governmental certificates, authorizations and permits and
approvals (collectively, "Licenses") required by every Federal, state and local
government or regulatory body for the operation of its business as currently
conducted and the use of its properties, except where the failure to be licensed
or possess a permit would not have a Material Adverse Effect. The Licenses are
in full force and effect and to the Company's knowledge no violations currently
exist in respect of any License and no proceeding is pending or threatened to
revoke or limit any thereof.
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(n) Authorization of Agreement, Etc. This Agreement has been duly and
validly authorized, executed and delivered by the Company and the execution,
delivery and performance by the Company of this Agreement, the Subscription
Agreement and the Fund Escrow Agreement have been duly authorized by all
requisite corporate action by the Company and when delivered, constitute or will
constitute the legal, valid and binding obligations of the Company, enforceable
in accordance with their respective terms, subject to applicable laws regarding
insolvency and to principles of equity.
(o) Authorization of Shares, Etc. The issuance, sale and delivery of
the Warrants, the Preferred Shares and the Agent's Warrants (all as defined
herein) have been duly authorized by all requisite corporate action of the
Company. When so issued, sold and delivered in accordance with the Offering
Documents for the consideration set forth therein, the Warrants, the Preferred
Shares and the Agent's Warrants will be duly executed, issued and delivered and
will constitute valid and legal obligations of the Company enforceable in
accordance with their respective terms and, in each case, will not be subject to
preemptive or any other similar rights of the stockholders of the Company or
others which rights shall not have been waived prior to the initial closing of
the Offering (the "Initial Closing").
(p) Authorization of Reserved Shares. Except as set forth in or
contemplated by Schedule 2(p) to this Agreement, the issuance, sale and delivery
by the Company of the shares of Common Stock issuable upon exercise of the
Warrants and the Agent's Warrants and conversion of the Preferred Shares (the
"Reserved Shares") have been duly authorized by all requisite corporate action
of the Company, and the Reserved Shares have been duly reserved for issuance
upon exercise of all or any of the Warrants and Agent's Warrants and conversion
of all or any of the Preferred Shares and when so issued, sold, paid for and
delivered for the consideration set forth in the Offering Documents, the
Reserved Shares will be validly issued and outstanding, fully paid and
nonassessable, and not subject to preemptive or any other similar rights of the
stockholders of the Company or others which rights shall not have been waived
prior to the Initial Closing.
(q) Exemption from Registration. Assuming (i) the accuracy of the
information provided by the respective Subscribers in the Subscription Documents
and (ii) that the Placement Agent has complied in all material respects with the
provisions of Regulation D promulgated under the 1933 Act, the offer and sale of
the Units and the Preferred Shares pursuant to the terms of this Agreement are
exempt from the registration requirements of the 1933 Act and the rules and
regulations promulgated thereunder. The Company is not disqualified from the
exemption under Regulation D by virtue of the disqualifications contained in
Rule 505(b)(2)(iii) or Rule 507 promulgated thereunder.
(r) Registration Rights. Except as set forth in or contemplated by
Schedule 2(r) to this Agreement, and except with respect to holders of the
Units, the Preferred Shares, the Warrants and the Agent's Warrants, and except
as set forth in Schedule 2(r) hereto, no person has any right to cause the
Company to effect the registration under the 1933 Act of any securities of the
Company. The Company shall grant registration rights under the 1933 Act to the
investors in the Offering and/or their transferees as more fully described in
the Subscription Agreement (with respect to the Offering).
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(s) Brokers. Neither the Company nor any of its officers, directors,
employees or stockholders has employed any broker or finder in connection with
the transactions contemplated by this Agreement other than the Placement Agent.
(t) Title to Securities. When certificates representing the Preferred
Shares, the Warrants and the Agent's Warrants have been duly delivered to the
purchasers participating in the Offering, and payment shall have been made
therefor, the several purchasers shall receive from the Company good and
marketable title to such securities free and clear of all liens, encumbrances
and claims whatsoever (with the exception of claims arising through the acts or
omissions of the purchasers and except as arising from applicable Federal and
state securities laws), and the Company shall have paid all taxes, if any, in
respect of the original issuance thereof.
(u) Right of First Refusal. Except as set forth in or contemplated by
Schedule 2(u) to this Agreement, and except for the right of first refusal
granted to the Placement Agent herein, no person, firm or other business entity
is a party to any agreement, contract or understanding, written or oral
entitling such party to a right of first refusal with respect to offerings by
the Company.
3. Closing; Placement and Fees.
(a) Closing of the Offering. Provided the funds representing the sale
of the Units shall have cleared, the Initial Closing shall take place at the
offices of the Placement Agent, 830 Third Avenue, New York, New York within
three business days thereafter (but in no event later than five days following
the Termination Date), which closing date may be accelerated or adjourned by
agreement between the Company and the Placement Agent. At the Initial Closing,
payment for the Units issued and sold by the Company shall be made against
delivery of the Preferred Shares and Warrants comprising such Units. In
addition, subsequent closings of the Offering (if applicable) may be scheduled
at the discretion of the Company and Placement Agent, each of which shall be
deemed a "Closing" hereunder.
(b) Conditions to Placement Agent's Obligations. The obligations of
the Placement Agent hereunder will be subject to the accuracy of the
representations and warranties of the Company herein contained as of the date
hereof and as of each closing date of the Offering, to the performance by the
Company of its obligations hereunder and to the following additional conditions:
(i) Due Qualification or Exemption. (A) The Offering will become
qualified or be exempt from qualification under the securities laws of the
several states pursuant to paragraph 4(c) below not later than the Closing Date,
and (B) at the Closing Date no stop order suspending the sale of the Units shall
have been issued, and no proceeding for that purpose shall have been initiated
or threatened;
(ii) No Material Misstatements. Neither the Blue Sky
qualification materials nor the Offering Documents, nor any supplement thereto,
will contain any untrue statement of a fact which in the opinion of the
Placement Agent is material, or omits to state a fact, which in the opinion of
the Placement Agent is material and is required to be stated therein, or is
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading;
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(iii) Compliance with Agreements. The Company will have complied
with all agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to each Closing;
(iv) Corporate Action. The Company will have taken all necessary
corporate action, including, without limitation, obtaining the approval of the
Company's Board of Directors, for the execution and delivery of this Agreement,
the performance by the Company of its obligations hereunder and the Offering
contemplated hereby;
(v) Opinion of Counsel. The Placement Agent shall receive the
opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP, counsel to the Company,
and/or of Ireland, Stapleton, Pryor & Pascoe, P.C., substantially to the effect
that:
(A) the Company is validly existing and in good standing under
the laws of State of Colorado, has all requisite corporate power and
authority necessary to own or hold its respective properties and
conduct its business and is duly qualified or licensed to do business
as a foreign corporation in each other jurisdiction in which the
ownership or leasing of its properties or conduct of its business
requires such qualification, except where the failure to so qualify or
be licensed would not have a Material Adverse Effect;
(B) each of this Agreement, the Subscription Agreement, the
Preferred Shares, the Warrants, the Agent's Warrants and the Fund
Escrow Agreement has been duly and validly authorized, executed and
delivered by the Company, and is the valid and binding obligation of
the Company, enforceable against it in accordance with its terms,
subject to any applicable bankruptcy, insolvency or other laws
affecting the rights of creditors generally and to general equitable
principles;
(C) the authorized, issued and outstanding capital stock of the
Company as of the date hereof (before giving effect to the
transactions contemplated by this Agreement) is as set forth in
Schedule 2(c) hereto. To such counsel's knowledge, there are no
outstanding warrants, options, agreements, convertible securities,
preemptive rights or other commitments pursuant to which the Company
is, or may become, obligated to issue any shares of its capital stock
or other securities of the Company other than as set forth in Schedule
2(d). All of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and
nonassessable and to such counsel's knowledge have not been issued in
violation of the preemptive rights of any securityholder of the
Company;
(D) assuming (i) the accuracy of the information provided by the
Subscribers in the Subscription Documents; and (ii) that the Placement
Agent has complied with the requirements of section 4(2) of the 1933
Act (and the provisions of Regulation D promulgated thereunder), the
issuance and sale of the Units is exempt from the registration
requirements set forth in Section 5 of the 1933 Act;
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(E) neither the execution and delivery of this Agreement or the
Subscription Agreement nor compliance with the terms hereof or
thereof, nor the consummation of the transactions herein or therein
contemplated, nor the issuance of the Warrants, the Preferred Shares
or the Agent's Warrants, has, nor will, conflict with, result in a
breach of, or constitute a default under the Articles of Incorporation
or By-laws of the Company, or any material contract, instrument or
document known to such counsel and identified to us by the Company as
material, to which the Company is a party, or by which it or any of
its properties is bound or violate any applicable law, rule,
regulation, judgment, order or decree known to us of any governmental
agency or court having jurisdiction over the Company or any of its
properties or business;
(F) to the best of such counsel's knowledge, there are no claims,
actions, suits, investigations or proceedings before or by any
arbitrator, court, governmental authority or instrumentality pending
or, to such counsel's knowledge, threatened against or affecting the
Company or involving the properties of the Company which might
materially and adversely affect the business, properties or financial
condition of the Company or which might materially adversely affect
the transactions or other acts contemplated by this Agreement or the
validity or enforceability of this Agreement, except as set forth in
or contemplated by the Offering Documents or in Schedule 3(b)(v)(F) to
this Agreement; and
(G) such counsel has reviewed the Offering Documents and nothing
has come to the attention of such counsel to cause them to have reason
to believe that the Offering Documents contained any untrue statement
of a material fact required to be stated therein or omitted to state
any material fact required to be stated therein or necessary to make
the statements therein not misleading (except for the financial
statements, notes thereto and other financial information and
statistical data contained therein, as to which such counsel need
express no opinion).
(vi) Officers' Certificate. The Placement Agent shall receive a
certificate of the Company, signed by the Chief Executive Officer and Chief
Financial Officer thereof, that the representations and warranties contained in
Section 2 hereof are true and accurate in all material respects at such closing
with the same effect as though expressly made at such closing.
(vii) Stockholder Consents. The Placement Agent shall have
received copies of such duly executed waivers and consents from the holders of
the Company's outstanding securities as counsel to the Placement Agent deems
necessary or important for completion of the Offering.
The obligation of the Placement Agent to consummate the Offering is subject
to the following additional conditions:
(viii) Fund Escrow Agreement. The Placement Agent shall receive a
copy of a duly executed escrow agreement in the form previously delivered to you
regarding the deposit of funds pending the closing(s) of the Offering with a
bank or trust company acceptable to the Placement Agent (the "Fund Escrow
Agreement").
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(ix) Lock-Up Agreements. The Placement Agent shall receive
agreements from each officer, director and principal stockholder of the Company
to the effect that such individual shall not sell, transfer or otherwise dispose
of any of their securities of the Company for a period of 12 months from the
Initial Closing (the "Initial Lock-Up Period") and thereafter will sell,
transfer or dispose of no more than 25% of their securities of the Company in
any subsequent 90-day period; provided, however, that at the discretion of the
Placement Agent, the Initial Lock-Up Period may be extended for up to an
additional six months from the Closing of any public offering which is
consummated prior to the end of the Initial Lock-Up Period, in which event there
shall be no further lock-up at the end of such period.
(x) Board of Directors; Irrevocable Proxy. The Company's Board of
Directors shall consist of seven members, and for a period of three years from
the Closing, two of such directors shall be designated by the Placement Agent.
The holders of the Preferred Shares shall be entitled to elect two of the seven
directors. The Placement Agent shall receive the irrevocable proxies described
in Section 4(k) hereof.
(xi) Designation of Preferred. The Company shall have filed the
Articles of Amendment to the Amended Articles of Incorporation with the
Secretary of State of the State of Colorado.
(c) Blue Sky. Counsel to the Company will prepare and file the
necessary documents so that offers and sales of the securities to be offered in
the Offering may be made in certain jurisdictions. It is understood that such
filings may be based on or rely upon: (i) the representations of each Subscriber
set forth in the Subscription Agreement delivered by such Subscriber; (ii) the
representations, warranties and agreements of the Company set forth in Section 2
of this Agreement; and (iii) the representations of the Company set forth in the
certificate to be delivered at each closing pursuant to paragraph (vi) of
Section 3(b).
(d) Placement Fee and Expenses.
(i) Offering. Simultaneously with payment for and delivery of the
Preferred Shares at each closing of the Offering, the Company shall: (A) pay to
the Placement Agent a sales concession equal to 7% of the aggregate purchase
price of the Units sold ; (B) pay to the Placement Agent a structuring fee equal
to 3% of the aggregate purchase price of the Units sold; (C) reimburse the
Placement Agent for up to $300,000 of accountable expenses, representing the
maximum aggregate amount of the Placement Agent's accountable expenses,
inclusive of the Placement Agent's expenses in Section 4(b), for which the
Company shall be liable; and (D) issue to the Placement Agent or its designees
seven-year warrants in the form attached hereto as Appendix A to purchase 25% of
the Units to be issued to investors in the Offering (the "Agent's Warrants").
The Company shall also pay all expenses in connection with the qualification of
the Preferred Shares under the securities or Blue Sky laws of the states which
the Placement Agent shall designate, including legal fees and filing fees.
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(ii) Interest. In the event that for any reason the Company shall
fail to pay to the Placement Agent all or any portion of the fees payable
hereunder when due, interest shall accrue and be payable on the unpaid cash
balance due hereunder from the date when first due through and including the
date when actually collected by the Placement Agent, at a rate equal to four
percent above the prime rate of Citibank, N.A., in New York, New York, computed
on a daily basis and adjusted as announced from time to time.
(e) Bring-Down Opinions and Certificates. If there is more than one
Closing, then at each such Closing there shall be delivered to the Placement
Agent updated opinion and certificate as described in (v) and (vi) of Section
3(b) above, respectively.
(f) No Adverse Changes. There shall not have occurred, at any time
prior to the applicable closing (i) any domestic or international event, act or
occurrence which has materially disrupted, or in the Placement Agent's opinion
will in the immediate future materially disrupt, the securities markets; (ii) a
general suspension of, or a general limitation on prices for, trading in
securities on the New York Stock Exchange or the Nasdaq - Amex Stock Exchange or
in the over-the-counter market; (iii) any outbreak of major hostilities or other
national or international calamity; (iv) any banking moratorium declared by a
state or federal authority; (v) any moratorium declared in foreign exchange
trading by major international banks or other persons; (vi) any material
interruption in the mail service or other means of communication within the
United States; (vii) any material adverse change in the business, properties,
assets, results of operations, or financial condition of the Company; or (viii)
any change in the market for securities in general or in political, financial,
or economic conditions which, in the Placement Agent's reasonable judgment,
makes it inadvisable to proceed with the applicable Placement.
4. Covenants of the Company.
(a) Use of Proceeds. The net proceeds of the Offering will be used by
the Company substantially as set forth in the Memorandum. Except as set forth on
Schedule 4(a) to this Agreement or as described in the Memorandum, the Company
shall not use any of the proceeds from the Offering to repay any indebtedness of
the Company (other than trade payables in the ordinary course), including but
not limited to indebtedness to any current executive officers, directors or
principal stockholders of the Company.
(b) Expenses of Offering. The Company shall be responsible for, and
shall bear all expenses directly incurred in connection with, the proposed
Offering including, but not limited to, (i) legal fees of the Company's counsel
relating to the costs of preparing the Offering Documents and all amendments,
supplements and exhibits thereto and preparing and delivering all Placement
Agent and selling documents, Warrant and Preferred Share certificates; and (ii)
blue sky fees, filing fees and the fees and disbursements of Placement Agent's
counsel in connection with blue sky matters (the "Company Expenses"). In
addition, the Company shall reimburse the Placement Agent for all of its
out-of-pocket expenses incurred in connection with the Offering, including,
without limitation the Placement Agent's mailing, printing, copying, telephone,
travel, background searches, due diligence investigations, legal and consulting
fees or other similar expenses (the "Placement Agent Expenses") up to $300,000.
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(c) Notification. The Company shall notify the Placement Agent
immediately, and in writing, (i) when any event shall have occurred during the
period commencing on the date hereof and ending on the later of the last Closing
or the Termination Date as a result of which the Offering Documents would
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and (ii) of the receipt of any notification with respect to the
modification, rescission, withdrawal or suspension of the qualification or
registration of the Units, or of any exemption from such registration or
qualification, in any jurisdiction. The Company will use its best efforts to
prevent the issuance of any such modification, rescission, withdrawal or
suspension and, if any such modification, rescission, withdrawal or suspension
is issued and you so request, to obtain the lifting thereof as promptly as
possible.
(d) Blue Sky. The Company will use its best efforts to qualify or
register the securities to be offered in the Offering for offering and sale
under, or establish an exemption from such qualification or registration under,
the securities or "blue sky" laws of such jurisdictions as you may reasonably
request; provided however, that the Company will not be obligated to qualify as
a dealer in securities in any jurisdiction in which it is not so qualified. The
Company will not consummate any sale of securities pursuant to the Offering in
any jurisdiction in which it is not so qualified or in any manner in which such
sale may not be lawfully made.
(e) Form D Filing. The Company shall file five copies of a Notice of
Sales of Securities on Form D with the SEC no later than 15 days after the sale
of the Units and no later than 15 days after the first sale of the Preferred
Shares. The Company shall file promptly such amendments to such Notices on Form
D as shall become necessary and shall also comply with any filing requirement
imposed by the laws of any state or jurisdiction in which offers and sales are
made. The Company shall furnish the Placement Agent with copies of all such
filings.
(f) Press Releases, Etc. The Company shall not, during the period
commencing on the date hereof and ending on the last to occur of the Termination
Date or the second anniversary of the Final Closing, issue any press release or
other communication, or hold any press conference with respect to the Company,
its financial condition, results of operations, business, properties, assets, or
liabilities, or the Offering, without the prior consent of the Placement Agent,
which consent shall not be unreasonably withheld. The Company shall not include
information with respect to the Offering or use the Placement Agent's name in
any press release, advertisement or on any web site maintained by the Company
with out the prior written consent of the Placement Agent.
(g) Key-Man Insurance. Within 60 days of the Initial Closing, the
Company shall use its best efforts to obtain a $5,000,000 "key-man" life
insurance policy on the life of Dean M. Leavitt and shall keep such policy in
effect until the expiration of the lock-up period set forth in Section 3(b)(ix)
hereof.
(h) O&D Insurance. Within 30 days of the Initial Closing, the Company
shall obtain at least $5,000,000 of officers and directors liability insurance
(the "O&D Policy") and shall keep such policy in effect during such period as
the Placement Agent has the right to designate one or more members of the
Company's Board of Directors or one or more such designees serve as directors.
The Company shall not cancel or materially decrease the coverage of the O&D
Policy without giving the Placement Agent at least 30 days' prior written
notice.
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(i) Executive Compensation. Except as required pursuant to employment
agreements existing as of the date hereof, the compensation of the Company's
executive officers shall not increase during the one-year period following the
Initial Closing without the approval of a majority of the independent members of
the Board of Directors.
(j) Restrictions on Issuances of Securities. During the period
commencing on the date hereof and ending on the later of (i) the Final Closing
or (ii) the Termination Date, the Company will not, without the prior written
consent of the Placement Agent, issue additional shares of Common Stock, other
than pursuant to the exercise of options or warrants outstanding on the date
hereof, or grant any warrants, options or other securities of the Company,
except for options under the Company's stock option plans.
(k) Board Designees; Irrevocable Proxy. The Company's Board of
Directors shall consist of seven members, four of whom are designated by the
Placement Agent and the investors acting together. The Placement Agent shall
receive an irrevocable proxy from each of the officers and directors of the
Company granting the Placement Agent a proxy to vote their shares for the
election of directors solely for the purpose of enforcing the Placement Agent's
rights described in this Section 4(k). Any director designated by the Placement
Agent and/or the investors may be replaced by the Placement Agent or the
investors at any time. In addition, in the event that any director designated by
the Placement Agent and/or the investors resigns or for any reason no longer
serves as a director, then the Placement Agent shall designate a replacement for
such director.
(l) Right of First Refusal. In the event the Company terminates the
Offering for any reason or for no reason, or if the Placement Agent terminates
the Offering as a result of the breach of any representations, warranties or
covenants contained in this Agreement or the Company's failure to satisfy any of
the conditions to closing set forth herein, then the Placement Agent shall have
the right of first refusal (the "Right of First Refusal") for a period of one
year from the date of such termination to act as exclusive placement agent or
financial advisor in connection with the Company raising any capital of
$1,000,000 or more or in connection with any merger, sale or acquisition. The
Company further agrees that if the Bridge Financing is consummated, the
Placement Agent shall have the Right of First Refusal for a period of one year
from the date the Bridge Financing is completed to lead manage (if the Company
uses any lead manager) any future private placement of debt (which shall not
include for the purposes hereof any senior secured bank financing) or equity
securities of the Company raising gross proceeds of $30,000,000 or less.
Accordingly, if during such period the Company intends to engage in any of the
above-referenced transactions, the Company shall notify you in writing of such
intention and of the proposed terms of the transaction. The Company shall
thereafter promptly furnish you with such information concerning the business,
condition and prospects of the Company as you may reasonably request. If within
20 business days of the mailing by registered mail addressed to the Placement
Agent of such notice of intention and statement of terms you do not accept in
writing such offer to act as underwriter or agent with respect to such offering
or investment banker with respect to such transaction, upon the terms proposed,
the Company shall be free to negotiate terms with other underwriters or agents
with respect to such offering or investment banker with respect to such
transaction, and to effect such offering or transaction on such proposed terms.
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(m) Independent Auditors. During the three-year period following the
Initial Closing, the Company will not switch auditors, other than to a "Big
Five" accounting firm, without the approval of a majority of the independent
members of the Board of Directors.
(n) Quarterly Communications. Within 45 days after the end of each
fiscal quarter, the Company shall (i) send to the Placement Agent (x) a letter
setting forth the results of operations for the fiscal quarter and management's
analysis thereof and (y) a schedule of all securities issuances by the Company,
including the issuances of shares pursuant to the cashless exercise provisions
of any options or warrants, and (ii) present an update on the affairs of the
Company at the offices of the Placement Agent for the investors and employees of
the Placement Agent. In addition, within 90 days after the end of each fiscal
year, the Company shall send to the investors a shareholders letter in form and
substance reasonably satisfactory to the Placement Agent setting forth the
results of operations for the fiscal year and management's analysis thereof.
(o) Transmittal Letters. Within five days after each closing of the
Offering, the Placement Agent shall receive copies of all letters from the
Company to the investors transmitting the securities sold in such Placement and
shall receive a letter from the Company confirming transmittal of the securities
to the investors.
(p) Future Transactions.
(i) The Company agrees that if at time within one year from the
later of (A) December 23, 1999 or (B) the date of the Closing (the "Effective
Date"), the Company (or any of its subsidiaries or affiliated entities or
successors) obtains any financing from any person or entity introduced by the
Placement Agent, the Company will pay to the Placement Agent the fees set forth
in Section 3(d) above.
(ii) The Company agrees that if, at any time within one year of
the Effective Date, the Company enters into or consummates any merger or other
business combination, or any acquisition or sale of 25% or more of the stock or
assets of such selling entity (each, a "Sale Transaction") with any person or
entity introduced by the Placement Agent, the Company will pay to the Placement
Agent a fee equal to three percent (3%) of the "total consideration" paid to or
received by the Company and its shareholders in such Sale Transaction, such fee
to be paid at the closing of the transaction to which it relates in the same
manner, kind and proportion as the consideration paid in such transaction. For
purposes hereof, "total consideration" shall include, but not be limited to,
cash, the face or fair market value of any debt or equity securities issued, any
long-term debt assumed or paid off, and any severance, non-compete or other
payments in excess of standard amounts.
(iii) Provided that the Offering is consummated for at least $15
million in gross proceeds, the Company agrees that in the event the Company,
within three years from the Closing, merges with or into another entity, or 50%
or more of the assets or stock of the Company are sold (other than in the
Offering or by exercise of outstanding options and warrants after giving effect
thereto), it will pay to the Placement Agent a fee equal to one percent (1.0%)
of the total consideration paid in such sale transaction, payable upon
consummation of the transaction.
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5. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Placement
Agent and each selected dealer, if any, and their respective shareholders,
directors, officers, agents and controlling persons (an "Indemnified Party")
against any and all loss, liability, claim, damage and expense whatsoever (and
all actions in respect thereof), and to reimburse the Placement Agent for
reasonable legal fees and related expenses as incurred (including, but not
limited to the costs of investigating, preparing or defending any such action or
claim whether or not in connection with litigation in which the Placement Agent
is a party and the costs of giving testimony or furnishing documents in response
to a subpoena or otherwise), arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Offering Documents or the
omission or alleged omission therefrom of a material fact necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading, provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, liability, claim, damage or
expense arises out of or is based upon any untrue statement of a material fact
or alleged untrue statement or a material fact provided by the Placement Agent
in writing to the Company specifically for use in the Offering Documents, or
arises out of or is based upon the gross negligence of the Placement Agent or
any of its shareholders, directors, officers, employees or controlling persons;
(b) The Company agrees to indemnify and hold harmless an Indemnified
Party to the same extent as the foregoing indemnity, against any and all loss,
liability, claim, damage and expense whatsoever directly arising out of the
exercise by any person of any right under the 1933 Act or the 1934 Act or the
securities or Blue Sky laws of any state on account of violations of the
representations, warranties or agreements set forth in Section 2 hereof.
(c) Promptly after receipt by an Indemnified Party under this Section
of notice of the commencement of any action, the indemnified party will, if a
claim in respect thereof is to be made against the Company under this Section,
notify in writing the Company of the commencement thereof; but the omission so
to notify the Company will not relieve it from any liability which it may have
to the Indemnified Party otherwise than under this Section except to the extent
the defense of the claim is prejudiced. In case any such action is brought
against an Indemnified Party, and it notifies the Company of the commencement
thereof, the Company will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to the Indemnified Party, and after notice from
the Company to the Indemnified Party of its election so to assume the defense
thereof, the Company will not be liable to the Indemnified Party under this
Section for any legal or other expenses subsequently incurred by the Indemnified
Party in connection with the defense thereof other than reasonable costs of
investigation (provided the Company has been advised in writing that such
investigation is being undertaken). The Indemnified Party shall have the right
to employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be at the expense
of the Company if the Company has assumed the defense of the action with counsel
reasonably satisfactory to the Indemnified Party; provided that the fees and
expenses of such counsel shall be at the expense of the Company if (i) the
employment of such counsel has been specifically authorized in writing by the
Company or (ii) the named parties to any such action (including any impleaded
parties) include both the Indemnified Party or Parties and the Company and, in
the reasonable judgment of counsel for the Indemnified Party, it is advisable
for the Indemnified Party or Parties to be represented by separate counsel due
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to an actual conflict of interest (in which case the Company shall not have the
right to assume the defense of such action on behalf of an Indemnified Party or
Parties), it being understood, however, that the Company shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys for all the Indemnified Parties. No
settlement of any action against an Indemnified Party shall be made unless such
an Indemnified Party is fully and completely released in connection therewith.
6. Contribution.
To provide for just and equitable contribution, if (i) an Indemnified Party
makes a claim for indemnification pursuant to Section 5 but it is found in a
final judicial determination, not subject to further appeal, that such
indemnification may not be enforced in such case, even though this Agreement
expressly provides for indemnification in such case, or (ii) any indemnified or
indemnifying party seeks contribution under the 1933 Act, the 1934 Act, or
otherwise, then the Company (including for this purpose any contribution made by
or on behalf of any officer, director, employee or agent for the Company, or any
controlling person of the Company), on the one hand, and the Placement Agent and
any Selected Dealers (including for this purpose any contribution by or on
behalf of an indemnified party), on the other hand, shall contribute to the
losses, liabilities, claims, damages, and expenses whatsoever to which any of
them may be subject, in such proportions as are appropriate to reflect the
relative benefits received by the Company, on the one hand, and the Placement
Agent and the Selected Dealers, on the other hand; provided, however, that if
applicable law does not permit such allocation, then other relevant equitable
considerations such as the relative fault of the Company and the Placement Agent
and the Selected Dealers in connection with the facts which resulted in such
losses, liabilities, claims, damages, and expenses shall also be considered. In
no case shall the Placement Agent or a Selected Dealer be responsible for a
portion of the contribution obligation in excess of the compensation received by
it pursuant to Section 3 hereof or the Selected Dealer Agreement, as the case
may be. No person guilty of a fraudulent misrepresentation shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this Section 6, each person, if any, who
controls the Placement Agent or a Selected Dealer within the meaning of Section
15 of the 1933 Act or Section 20(a) of the 1934 Act and each officer, director,
stockholder, employee and agent of the Placement Agent or a Selected Dealer,
shall have the same rights to contribution as the Placement Agent or the
Selected Dealer, and each person, if any who controls the Company within the
meaning of Section 15 of the 1933 Act or Section 20(a) of the 1934 Act and each
officer, director, employee and agent of the Company, shall have the same rights
to contribution as the Company, subject in each case to the provisions of this
Section 6. Anything in this Section 6 to the contrary notwithstanding, no party
shall be liable for contribution with respect to the settlement of any claim or
action effected without its written consent. This Section 6 is intended to
supersede any right to contribution under the 1933 Act, the 1934 Act, or
otherwise.
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7. Miscellaneous.
(a) Survival. Any termination of the Offering without consummation
thereof shall be without obligation on the part of any party except that the
indemnification provided in Section 5 hereof and the contribution provided in
Section 6 hereof shall survive any termination and shall survive the Final
Closing for a period of five years.
(b) Representations, Warranties and Covenants to Survive Delivery. The
respective representations, warranties, indemnities, agreements, covenants and
other statements as of the date hereof shall survive execution of this Agreement
and delivery of the Units and Preferred Shares for a period of three years after
such event.
(c) No Other Beneficiaries. This Agreement is intended for the sole
and exclusive benefit of the parties hereto and their respective successors and
controlling persons, and no other person, firm or corporation shall have any
third-party beneficiary or other rights hereunder.
(d) Governing Law; Resolution of Disputes. This Agreement shall be
governed by and construed in accordance with the law of the State of New York
without regard to conflict of law provisions. The Placement Agent and the
Company will attempt to settle any claim or controversy arising out of this
Agreement through consultation and negotiation in good faith and a spirit of
mutual cooperation. Should such attempts fail, then the dispute will be mediated
by a mutually acceptable mediator to be chosen by the Placement Agent and the
Company within 15 days after written notice from either party demanding
mediation. Neither party may unreasonably withhold consent to the selection of a
mediator, and the parties will share the costs of the mediation equally. Any
dispute which the parties cannot resolve through negotiation or mediation within
six months of the date of the initial demand for it by one of the parties may
then be submitted to the courts for resolution. The use of mediation will not be
construed under the doctrine of latches, waiver or estoppel to affect adversely
the rights of either party. Nothing in this paragraph will prevent either party
from resorting to judicial proceedings if (a) good faith efforts to resolve the
dispute under these procedures have been unsuccessful or (b) interim relief from
a court is necessary to prevent serious and irreparable injury.
(e) Counterparts. This Agreement may be signed in counterparts with
the same effect as if both parties had signed one and the same instrument.
(f) Notices. Any communications specifically required hereunder to be
in writing, if sent to the Placement Agent, will be sent by overnight courier
providing a receipt of delivery or by certified or registered mail to it at:
Commonwealth Associates, L.P., 830 Third Avenue, New York, New York 10022, Att:
Carl G. Kleidman, Esq., with a copy to Paul, Hastings, Janofsky & Walker LLP,
345 California Street, 29th Floor, San Francisco, California 94133, Attn: Thomas
R. Pollock, Esq., and if sent to the Company, will be sent by overnight courier
providing a receipt of delivery or by certified or registered mail to it at:
U.S. Wireless Data, Inc., 2200 Powell Street, Suite 800, Emeryville, California
94608, Attn: Dean M. Leavitt, with a copy to Squadron, Ellenoff, Plesent &
Sheinfeld LLP, 551 Fifth Avenue, New York, New York 10176, Att: Kenneth Koch,
Esq.
(g) Entire Agreement. This Agreement constitutes the entire agreement
of the parties with respect to the matters herein referred and supersedes all
prior agreements and understandings, written and oral, between the parties with
respect to the subject matter hereof. Neither this Agreement nor any term hereof
may be changed, waived or terminated orally, except by an instrument in writing
signed by the party against which enforcement of the change, waiver or
termination is sought.
17
<PAGE>
If you find the foregoing is in accordance with our understanding, kindly
sign and return to us a counterpart hereof, whereupon this instrument along with
all counterparts will become a binding agreement between us.
Very truly yours,
U.S. WIRELESS DATA, INC.
By:
----------------------------------
Name:
Title:
Agreed:
COMMONWEALTH ASSOCIATES, L.P.
By: Commonwealth Associates Management Company, Inc.,
its general partner
By:
---------------------------------------------
Name:
Title:
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