<PAGE>
REGISTRATION NO. 33-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
---------------
MDU COMMUNICATIONS INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4841 84-1342898
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
108-11951 HAMMERSMITH WAY
RICHMOND, B.C.
CANADA V7A 5H9
(604) 277-8150
(Address and Telephone Number of Registrant's Executive Offices)
ROBERT A. BIAGIONI
108-11951 HAMMERSMITH WAY
RICHMOND, B.C.
CANADA V7A 5H9
(604) 277-8150
(Name, Address and Telephone Number of Agent for Service)
---------------
COPY TO:
William G. Pusch
Eugenie D. Mansfield
Odette Polintan
Davis Wright Tremaine LLP
2600 Century Square
1501 Fourth Avenue
Seattle, WA 98101-1688
(206) 622-3150
---------------
Approximate Date of Commencement of Proposed Sale to Public: As soon
as practicable after this registration statement becomes effective.
---------------
If any of the securities being registered on this form are being
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act, 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, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
<PAGE>
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 registration
statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
- --------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
TITLE OF SECURITIES TO BE REGISTERED REGISTERED(1) SHARE PRICE FEES
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock issuable upon conversion of 3,637,200 $3.28 (2) $11,930,016.00 (2) $3,316.54
Series A convertible preferred stock
Common stock issuable upon exercise of 3,241,749 $0.75-$2.50 (3) $ 4,459,561.50 (3) $1,239.76
warrants
Common stock issuable upon exercise of 250,000 $1.50-$2.00 (4) $ 384,963.75 (4) $ 107.02
options
Common stock 3,480,485 $3.28 (2) $11,415,990.80 (2) $3,173.65
- -------------------------------------------------------------------------------------------------------------------------
TOTAL 10,609,434 -- $28,190,532.05 $7,836.97
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The number of shares being registered represents our good faith
estimate of the maximum number of shares we may issue upon (a)
conversion of our Series A convertible preferred stock, and (b)
exercise of common stock purchase warrants and stock options. For
purposes of estimating the number of shares of common stock to be
included in this registration statement, we calculated the maximum
number of shares of common stock issuable in connection with:
- the conversion of all of the Series A convertible preferred stock
at a conversion ratio of one-to-one; and
- the exercise of all of the warrants and options.
The actual number of shares of common stock received upon conversion of
the Series A convertible preferred stock and exercise warrants and
options may vary from this number. In addition to the shares set forth
in the table, the amount of shares to be registered under this
registration statement includes an indeterminate number of shares
issuable in respect of the Series A convertible preferred stock,
warrants and options, as such number may be adjusted as a result of
stock splits, stock dividends and similar transactions in accordance
with Rule 416 under the Securities Act of 1933.
(2) Based on the average of the reported best bid and best ask prices of
the common stock reported on the OTC Bulletin Board on April 24, 2000,
for the purpose of calculating the registration fee in accordance with
Rule 457(c) under the Securities Act of 1933.
(3) Based on warrant exercise prices which range from US$0.75 to US$2.50
per share.
(4) Based on option exercise prices which range from US$1.50 to US$2.00
per share.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT FILES 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 BECOMES EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE.
<PAGE>
PROSPECTUS
10,609,434 SHARES
MDU COMMUNICATIONS INTERNATIONAL, INC.
COMMON STOCK
---------------
MDU COMMUNICATIONS We have prepared this prospectus to allow
INTERNATIONAL, INC. Selling Stockholders to sell up to
108-11951 Hammersmith Way 10,609,434 shares of our common stock
Richmond, British Columbia which the Selling Stockholders currently
Canada V7A 5H9 hold or may acquire upon:
- conversion of our outstanding Series A
convertible preferred stock; or
- exercise of warrants and options to
purchase shares of our common stock.
SELLING STOCKHOLDERS: We are registering these shares by filing
a registration statement with the
Securities and Exchange Commission using a
See page ___ for the names of the "shelf" registration process. This
Selling Stockholders process allows the Selling Stockholders
to sell their common stock over a period
of time and in varying amounts, as
described under "Plan of Distribution."
TRADING MARKET AND SYMBOL: We will receive no proceeds from the
conversion of the Series A convertible
preferred stock or the sale of any of our
NASD OTC Bulletin Board - MDTV common stock by the Selling Stockholders.
We will receive the proceeds from the
Selling Stockholders' exercise of warrants
and options. However, the Selling
Stockholders are under no obligation to
exercise the warrants and options.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this prospectus is ____________, 2000
<PAGE>
PRESENTATION OF OUR FINANCIAL AND OTHER INFORMATION
Unless we indicate otherwise, financial information in this prospectus
has been prepared in accordance with United States generally accepted
accounting principles. We present our financial information in Canadian
dollars. In this prospectus, except where we indicate, all dollar amounts are
in Canadian dollars. References to "$" or "Cdn$" are to Canadian dollars and
references to "US$" are to U.S. dollars.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..............................................................................1
Risk Factors....................................................................................5
Cautionary Note Regarding Forward-Looking Statements............................................8
Use of Proceeds.................................................................................8
Price Range of Common Stock and Related Stockholder Matters.....................................9
Management's Discussion and Analysis of Financial Condition and Results of Operations..........10
Business.......................................................................................16
Management.....................................................................................24
Certain Transactions...........................................................................27
Legal Proceedings..............................................................................27
Principal Stockholders.........................................................................28
Selling Stockholders...........................................................................29
Plan of Distribution...........................................................................31
Description of Capital Stock...................................................................31
Changes In and Disagreements With Accountants..................................................35
Legal Matters..................................................................................35
Experts........................................................................................35
Where You Can Find Additional Information......................................................36
Index to Financial Statements.................................................................F-1
</TABLE>
-------------------
Except as otherwise required by the context, all references in this
prospectus to (a) "we," "us," "our," or "Company" refer to the consolidated
operations of MDU Communications International, Inc., a Delaware corporation,
and its wholly-owned subsidiaries, MDU Communications Inc., a Canadian
corporation, and MDU Communications (USA) Inc., a Washington corporation, and
(b) "you" refers to prospective investors in the common stock. Unless otherwise
indicated or unless the context otherwise requires, all information in this
prospectus assumes the conversion of all the shares of Series A convertible
preferred stock and the exercise of all the warrants and options by the Selling
Stockholders as more fully described in "Selling Stockholders," "Description of
Capital Stock" and "Plan of Distribution."
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
- --------------------------------------------------------------------------------
NOTE: This summary contains basic information about us and this
offering. Because it is a summary, it does not contain all of the
information that may be important to you. You should read the entire
prospectus carefully, including the section entitled "Risk Factors," and
our Consolidated Financial Statements and the related Notes to those
statements included in this prospectus. This prospectus contains certain
forward-looking statements. The cautionary statements made in this
prospectus should be read as being applicable to all related
forward-looking statements wherever they appear in this prospectus. Our
actual results could differ materially from those discussed in this
prospectus. See "Cautionary Note Regarding Forward-Looking Statements."
- --------------------------------------------------------------------------------
OUR BUSINESS
We provide digital satellite television services to residents of
multi-dwelling unit properties ("MDUs"). MDUs include apartment buildings,
condominiums, gated communities, universities, nursing homes, hospitals,
hotels, motels, and other properties having multiple units located within a
defined area.
We offer two types of digital television services, digital set-top
television services and satellite master antennae television ("SMATV")
services, to the residents of MDUs. We provide our services under access
agreements with MDU property owners. Many of these agreements give us the
exclusive right to provide digital satellite television services to the
residents of the MDU properties.
We have entered into a long-term agreement with Star Choice
Communications Inc. ("Star Choice") to establish and maintain distribution
systems and sell Star Choice satellite programming packages to the residents of
Canadian MDU properties. Star Choice is one of the only two satellite
broadcasters licensed to operate in Canada. We expect to enter into a similar
arrangement in the near future with a United States provider of satellite
television programming and provide our services to MDUs in the United States.
We earn our revenue through the sale of digital satellite television
programming packages to the MDU residents. Under our agreement with Star
Choice, we earn digital access fees and a percentage of the fees charged by
Star Choice to digital set-top subscribers. In SMATV systems, our earnings
result from the difference between the wholesale price charged to us by program
providers and the price we charge for the programming package.
We provide and install our television viewing infrastructure into MDU
properties at our cost. This includes installation of a digital television
satellite dish, off-air antennae, internal wiring, and signal routing and
decoding equipment, including television set-top boxes.
We have been providing our digital satellite television services in
Canada since November 1998. As of March 2000, we had approximately 12,400
subscribers in 160 properties throughout Canada. We are currently expecting to
begin operations and marketing to building owners in selected metropolitan
areas in the United States in May 2000.
Recently, we have begun offering security monitoring services to
residents of our MDU properties, using the existing or our installed
infrastructure. We have entered into a three-year agreement with ADT Security
Services Canada, Inc. under which we are authorized to resell their service
in exchange for an up-front subscriber fee and a revenue sharing fee for 36
months. In addition, we are in the process of developing high-speed Internet
access services and we are seeking distribution arrangements with
telecommunications carriers to resell long distance telephone services. We
expect to begin offering our Internet access services by May 2000 and our
long distance telephone services during the fall of 2000.
THE MDU MARKET
The North American MDU marketplace represents a large niche market of
potential telecommunications customers. As of March 2000, there were over four
million MDU television households in Canada out of a total of 11.8 million
television households. In the United States, there were over 25 million MDU
television households out of a total of 100 million television households. Our
goal is to become a significant provider of bundled MDU products and services,
using products and services that are available in the marketplace, to the North
American MDU marketplace.
- --------------------------------------------------------------------------------
1
<PAGE>
- --------------------------------------------------------------------------------
Historically, the MDU market has been served almost exclusively by local
cable television operators. Generally, these providers used analog technology
and MDU residents could not access digital or competitive services. Many cable
companies have begun the process of upgrading to a digital signal; however, this
transition will require significant capital outlays and time to complete.
We believe that today's MDU market offers us a very good business
opportunity because:
- - Advances in communications and information technology have created a large
demand for new state-of-the-art services such as digital satellite
television.
- - Regulatory changes in Canada and United States authorizing the provision of
digital satellite television services has given television viewers the
opportunity to choose the provider of their television programming based on
quality of signal, cost and variety of programming.
- - Our marketing program focuses on that choice and the benefits of using
satellite television programming over cable programming.
- - There exists a significant percentage of MDU households that are either not
served or are under-served by either cable television providers or the
digital satellite television program providers.
- - To date, Star Choice and other digital satellite television program
providers have focused on the single family residence market because of the
lower cost of deployment and fewer technical difficulties than those
incurred in MDU properties.
THE INDUSTRY
The home entertainment and video programming industry continues to
develop competitive alternatives and consumer choices. The major choices in the
industry are: cable systems, direct-to-home satellite service (including SMATV
systems), wireless cable systems, and broadcast television. There are other
competitors in the field, such as Internet video providers, home video sales
and rentals, and even local telephone companies.
The cable system providers have continued to grow and dominate this
industry in terms of subscriber penetration, the number of programming services
available, audience ratings and expenditures on programming. However, for
non-cable systems, direct broadcast satellite providers dominate the delivery
of multi-channel video programming distribution systems.
Technological advances are rapidly occurring that permit all of these
various system providers to increase both:
- - quantity of service (i.e., an increased number of channels using the same
amount of bandwidth or spectrum space), and
- - types of offering (i.e., interactive services).
In addition, operators and distributors are developing and deploying advanced
technologies, especially digital compression, in order to deliver additional
video options and other services, such as Internet access and telephony to
their customers.
CORPORATE HISTORY
Our Canadian operating company, MDU Communications Inc. ("MDU Canada"),
was formed in British Columbia in March 1998. In November 1998, MDU Canada's
shareholders sold all of their MDU Canada stock to Alpha Beta Holdings, Ltd.,
an inactive U.S. public reporting company, in exchange for Alpha Beta stock,
and renamed it "MDU Communications International, Inc." Alpha Beta was
incorporated in Colorado in July 1995, but never conducted any significant
business activities and was essentially inactive in November 1998.
In April 1999, we reincorporated in Delaware. In March 2000, we formed
MDU Communications (USA) Inc., a Washington corporation ("MDU USA") to conduct
business in the U.S. We now operate as a holding company with MDU Canada and
MDU USA as our wholly-owned subsidiaries.
Our common stock currently trades under the symbol "MDTV" on the OTC
Bulletin Board.
PRINCIPAL EXECUTIVE OFFICES
Our principal executive offices are located at 108-11951 Hammersmith Way,
Richmond, British Columbia, Canada V7A 5H9 and our telephone number is (604)
277-8150. Our website is located at "www.mduc.com."
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
THE OFFERING
<TABLE>
<S> <C>
COMMON STOCK OFFERED BY SELLING STOCKHOLDERS: 10,609,434 shares (1)
COMMON STOCK OUTSTANDING BEFORE THIS OFFERING: 13,371,820 shares (2)
COMMON STOCK TO BE OUTSTANDING AFTER THIS OFFERING: 20,500,769 shares (3)
USE OF PROCEEDS FROM CONVERSION OF SERIES A We will not receive any proceeds from conversion of
CONVERTIBLE PREFERRED STOCK AND SALE OF COMMON the Series A convertible preferred stock or the sale of
STOCK: the shares of our common stock offered by the Selling
Stockholders.
USE OF PROCEEDS FROM EXERCISE OF WARRANTS AND We will receive the exercise price of any warrants and
OPTIONS: options that are exercised by the Selling Stockholders.
Assuming exercise of all of the warrants and options,
the proceeds to us would be approximately
US$4,844,525. We intend to use any proceeds from
exercise of the warrants and options for working
capital and general corporate purposes.
NASD OTC BULLETIN BOARD SYMBOL: "MDTV"
</TABLE>
- ----------------------------
(1) This number consists of (a) 7,128,949 shares of common stock that we
have reserved for issuance upon conversion of the Series A convertible
preferred stock and exercise of the warrants and options held by the
Selling Stockholders and (b) 3,480,485 shares of common stock now owned
by the Selling Stockholders. See "Selling Stockholders."
(2) Based on our outstanding common stock as of March 27, 2000, which
includes the 3,480,485 shares of common stock beneficially owned by
certain of the Selling Stockholders.
(3) This number does not include (a) 3,050,360 shares reserved as of March
27, 2000 for issuance upon exercise of outstanding stock options
granted under our 2000 Incentive Stock Option Plan, or (b) any shares
of common stock issued by us in transactions occurring after the date
of this prospectus.
RISK FACTORS
Potential investors should carefully consider the risk factors set
forth under the caption "Risk Factors" beginning on page 5 and the other
information included in this prospectus prior to purchasing our common stock.
An investment in our common stock involves a high degree of risk. We have a
limited operating history and anticipate losses and negative operating cash
flow for the foreseeable future. Our operations are dependent on the viability
of our unproven business model, our relationships with strategic partners and
key vendors, and the availability of additional capital. See "Risk Factors" for
a description of these and other risks.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY FINANCIAL DATA
The following summary financial information was derived from our
historical consolidated financial statements. You should read this information
in conjunction with the Consolidated Financial Statements and the related
Notes, and the discussion in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," contained elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, THREE MONTHS ENDED DECEMBER 31,
-------------------------------------------------------------------
(ALL AMOUNTS IN CANADIAN DOLLARS) 1998(1) 1999 1998 1999
---- ---- ---- ----
(AUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues............................. $ 0 $ 566,698 $ 1,944 $ 311,888
Gross profit............................. 0 227,128 90 128,937
Operating expenses....................... (97,845) (2,752,788) (592,718) (794,690)
Net loss................................. (97,845) (2,525,660) (592,628) (665,753)
Net loss applicable to common
stockholders............................. $(97,845) $(2,525,660) $(592,628) $(665,753)
========= ============ ========== ===========
Basic and diluted loss per share......... $ (0.02) $ (0.28) $ (0.07) $ (0.06)
Shares used in computing basic and diluted
loss per share........................... 8,581,335 9,114,668 8,852,639 10,347,710
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1999
---- ----
(AUDITED) (UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital deficiency................................................. $(2,304,410) $(2,098,337)
Total assets............................................................... 4,000,578 4,076,534
Total liabilities.......................................................... 2,621,892 2,552,144
Total stockholders' equity................................................. $ 1,378,686 $ 1,524,390
</TABLE>
- -------------------
(1) Since we began operations on March 26, 1998, the information for the year
ended September 30, 1998, does not reflect a full 12 months of results.
- --------------------------------------------------------------------------------
4
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------
NOTE: You should consider carefully the following risks before you decide to
buy our common stock. We have described these risks and uncertainties under the
following general categories: "Risks Related to Our Business," "Risks Related
to the Industry" and "Risks Related to Our Common Stock." Our business,
financial condition or results of operations could be materially and adversely
affected by any of these or other risks. In that case, the trading price of our
common stock could decline, and you may lose all or part of the money you paid
to buy our common stock. You should also consider the risks and uncertainties
associated with forward-looking statements included in this prospectus with
respect to our plans, objectives, expectations, and intentions. See "Cautionary
Note Regarding Forward-Looking Statements."
- --------------------------------------------------------------------------------
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED HISTORY OF OPERATIONS ON WHICH TO EVALUATE OUR POTENTIAL FOR
FUTURE SUCCESS.
We are a start-up company with a short history of commercial
operations. Our business is, therefore, subject to all of the risks inherent in
a company with little or no operating history. To establish viable commercial
operations, among other things, we must:
- secure adequate capital to fund (1) expansion of our services and
our territories, (2) acquisition or leasing of necessary equipment
needed to expand our business, and (3) working capital and capital
expenditures until we have positive cash flow (which may not occur
for the foreseeable future or at all);
- attract and retain management, technical, sales and marketing and
other personnel; and
- obtain market acceptance of our services and respond to
competitive pressures.
WE HAVE A HISTORY OF LOSSES AND WE EXPECT LOSSES FOR THE FORESEEABLE FUTURE.
Since our inception, we have incurred significant losses and we
continue to incur losses, resulting primarily from costs related to installing
our systems in a rapidly increasing number of MDU properties and general
corporate overhead. At December 31, 1999, we had an accumulated deficit of
$3,289,258. As a result of our business plan to continue expansion in Canada
and to begin expansion into the United States, we expect to incur losses for
the foreseeable future. We believe these expenditures are necessary to
implement our business plan. If our revenue growth is slower than we anticipate
or our operating expenses exceed our expectations, our losses may be
significantly greater. We may never achieve or sustain profitability.
WE WILL NEED FURTHER CAPITAL.
We currently anticipate that our available funds will be sufficient to
meet our needs for working capital, capital expenditures and business expansion
through the fourth quarter of fiscal 2000, which ends September 30, 2000. After
that time we will need to raise additional funds. Also, we may need to raise
additional funds sooner in order to fund more rapid expansion, to develop new
or enhanced services, to respond to competitive pressures or to acquire
complementary products, businesses or technologies. There can be no assurance
that additional financing will be available on terms favorable to us or at all.
If adequate funds are not available or are not available on acceptable terms,
we may not be able to fund expansion, respond to competitive pressures, or take
advantage of unanticipated acquisition opportunities. Such inability could
negatively impact our business.
WE DEPEND SIGNIFICANTLY ON OUR STRATEGIC RELATIONSHIPS WITH OUR PROGRAMMING
PROVIDERS.
Under our agreement with Star Choice, we may not maintain distribution
systems or market direct-to-home satellite broadcast services for others in
Canada. Any agreement we enter into with United States program providers could
have similar restrictions. Consequently, we are totally dependent on our
program providers for satellite signals and programming. Events at our program
providers, which we cannot control, could adversely affect us. Moreover, the
satellite communications and programming industry is regulated and regulations
may be enacted that could have an adverse effect on our program providers.
Termination of these contracts would have a material adverse effect on us.
5
<PAGE>
COMPETITION IN OUR INDUSTRY IS INTENSE AND GROWING, AND WE MAY BE UNABLE TO
COMPETE EFFECTIVELY.
The satellite communications and programming industry is highly
competitive, and we expect competition to intensify in the future. Satellite
television systems face competition from several sources, such as traditional
hard-wire cable companies, satellite receivers, direct broadcast satellites,
wireless cable, and other alternative methods of distributing and receiving
television transmissions. In addition, while we have historically faced limited
competition in the MDU market, ExpressVu recently announced that it would begin
to target the MDU market in the Toronto area. Further, premium movie services
offered by cable and satellite television systems have encountered significant
competition from the home video cassette recorder industry. In areas where
several local off-air VHF/UHF broadcast signals can be received without the
benefit of cable television, cable television systems have also experienced
competition from the availability of broadcast signals generally and have found
market penetration more difficult. We do not have significant market share in
any of our markets. Our competitors in each of our existing and future markets
have greater financial, technical, marketing and other resources, including
brand or corporate name recognition, than we do. In addition, a continuing
trend towards business combinations and alliances in this industry may create
significant new competitors for us. Many of these combined entities will have
resources far greater than ours. These combined entities may provide bundled
packages of communications video programming or cable services, including
local, long distance and digital subscriber line services, that compete
directly with the services we now offer or may offer in the future. These
entities may also offer services sooner and at more competitive rates than we
do. No assurance can be given that we will compete successfully with hard-wire
cable and other pay television systems, or other companies engaged in providing
services provided by us.
WE ARE GROWING RAPIDLY, AND EFFECTIVELY MANAGING OUR GROWTH MAY BE DIFFICULT.
We are currently experiencing a period of significant expansion. In
order to execute our business plan, we must continue to grow significantly.
This growth will strain our personnel, management, systems, policies and
procedures and other resources. To manage our growth, we must implement
adequate operational and financial systems and controls and recruit, train and
manage new employees. We cannot be certain that we will be able to integrate
new executives and other employees into our organization effectively. If we do
not implement adequate systems and controls, recruit, integrate and retain
necessary personnel or otherwise manage growth effectively, our business,
results of operations and financial condition would be materially and adversely
affected.
WE DEPEND ON OUR KEY PERSONNEL TO OPERATE OUR BUSINESS, AND WE MAY NOT BE ABLE
TO HIRE ENOUGH ADDITIONAL MANAGEMENT AND OTHER PERSONNEL AS OUR BUSINESS GROWS.
Our performance is substantially dependent on the continued services
of our executive officers and other key employees, particularly Sheldon B.
Nelson, President and CEO, Robert A. Biagioni, CFO, and Gary J. Monaghan,
President of MDU Canada. The loss of the services of any of our executive
officers could materially and adversely affect our business. Additionally, we
believe we will need to attract, retain and motivate talented management and
other highly skilled employees, particularly those with technical backgrounds,
to be successful. Competition for employees that possess knowledge of both the
satellite communications and programming industry and our target market is
intense. We may be unable to retain our key employees or attract, assimilate
and retain other highly qualified employees in the future.
WE MAY BE ADVERSELY IMPACTED BY CHANGES IN FOREIGN CURRENCY EXCHANGE RATES.
We do not currently engage in significant operating transactions
denominated in United States dollars so any change in the Canadian/US dollar
exchange rate does not currently have a material effect on our operating cash
flows. However, as we expand our operations into the United States, exchange
rates may have a material adverse effect.
RISKS RELATING TO OUR INDUSTRY
CANADIAN REGULATIONS COULD ADVERSELY AFFECT US.
We are not directly regulated by the Canadian Radio-television and
Telecommunications Commission ("CRTC"). Our primary program provider, Star
Choice is licensed by and subject to regulation by the CRTC, under a license
that expires in 2002. The CRTC's failure to renew Star Choice's license, or
changes in the laws, policies and regulations that may modify the present
regulatory environment, would directly affect Star Choice and we are unable to
predict the impact of such laws or regulations on Star Choice's operations. In
addition, preliminary CRTC regulations that allow us to obtain competitive
access to an MDU's internal wiring may not be adopted in a final form that is
favorable to us, which would have a material adverse effect on our business.
Finally, there can be no assurance that
6
<PAGE>
material and adverse changes in regulations affecting the digital
direct-to-home services business, and the broadcasting industry, in general
will not occur in the future.
We do not believe our operations will be subject to regulation when we
expand our operations into the United States, but there could be regulations in
the future that could affect us. As in Canada, our programming providers will
be subject to regulatory matters that could have a material adverse effect on
our future U.S. operations.
WE FACE THE RISK OF SYSTEMS INTERRUPTIONS AND CAPACITY CONSTRAINTS.
The satisfactory performance, reliability and availability of our
services is critical to our reputation and to our ability to attract and retain
customers and maintain adequate customer service levels. From time to time, we
have experienced temporary system interruptions for a variety of reasons,
including software bugs and lack of reliable integration between various
elements of our systems and those of our users. We may not be able to correct a
problem in a timely manner. Because some of the reasons for a systems
interruption may be outside of our control, we may not be able to remedy a
problem quickly or at all. Any future system interruption that results in the
unavailability of our services could result in negative publicity, which would
negatively affect our business.
RISKS RELATED TO OUR COMMON STOCK
SINCE OUR STOCK IS SUBJECT TO THE PENNY STOCK RULES, INVESTORS MAY FIND IT
DIFFICULT TO SELL THEIR STOCK.
Our common stock is subject to penny stock rules promulgated by the
Securities and Exchange Commission. The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock, to deliver a
standardized risk disclosure document that provides information about penny
stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the
market value of each penny stock held in the customer's account. In addition,
the penny stock rules require that prior to a transaction in a penny stock the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for our
common stock and make it more difficult to sell our common stock.
YOUR HOLDINGS MAY BE DILUTED IN THE FUTURE.
You may experience substantial dilution of your investment in our
common stock upon conversion of our Series A convertible preferred stock and
upon the exercise of our outstanding stock options and warrants. As of March
27, 2000:
- Each share of our outstanding Series A convertible preferred stock
was convertible into one share of our common stock for a total of
3,637,200 shares.
- 3,241,749 shares of common stock are reserved for issuance upon
exercise of outstanding warrants, at exercise prices ranging from
US$0.75 to US$2.50 per share. All of these warrants are currently
exercisable.
- 3,250,360 shares of common stock are reserved for issuance upon
exercise of outstanding stock options at exercise prices ranging
from US$1.00 to US$5.00 per share. Of such stock options,
1,193,609 are currently exercisable.
In addition, if we raise additional capital through the sale of
additional capital stock or the issuance of debt that is convertible into our
capital stock, then your percentage ownership of our stock will be reduced, you
may experience additional dilution, and the new stock or debt may have rights,
preferences and privileges senior to those of our common stock.
OUR COMMON STOCK PRICE IS HIGHLY VOLATILE.
The market price of our common stock has been, and is likely to
continue to be, highly volatile. For example, between December 2, 1998, when
our common stock began being quoted on the OTC Bulletin Board, and March 31,
2000, the price of our common stock ranged from US$0.31 to US$9.00 per share.
Purchasers of our common stock may
7
<PAGE>
not be able to resell their shares following periods of volatility because of
the market's adverse reaction to volatility. We cannot assure you that our
stock will trade at or above historic levels or sustain its current market
price.
SHARES ELIGIBLE FOR FUTURE SALE BY OUR CURRENT STOCKHOLDERS MAY ADVERSELY
AFFECT OUR STOCK PRICE.
If our stockholders sell substantial amounts of our common stock in
the public market in the future, including the 10,609,434 offered by the
Selling Stockholders under this prospectus, then the market price of our common
stock could fall and our ability to raise capital through the sale of our
securities could be impaired. To date, we have had limited trading volume in
our common stock and the shares of common stock offered by the Selling
Stockholders constitutes a significant portion of our outstanding common stock.
Our certificate of incorporation authorizes the issuance of 50,000,000
shares of common stock. At March 27, 2000, 13,371,820 shares of common stock
were outstanding. The future issuance of all or part of the remaining
authorized common stock may result in substantial dilution in the percentage of
our common stock held by our existing stockholders. Also, any stock we sell in
the future may be valued on an arbitrary basis by us and the issuance of shares
of common stock for future services, acquisitions or other corporate actions
may have the effect of diluting the value of the shares held by existing
stockholders.
MUCH OF OUR STOCK IS OWNED BY MANAGEMENT.
Our current executive officers and directors beneficially own or have
voting control over outstanding shares of our common stock and hold presently
exercisable options to acquire our common stock, which taken together
constitute approximately 15% of our common stock. Accordingly, these
individuals will have the ability to influence the election of our directors.
Also, this concentration of ownership may have the effect of delaying,
deterring or preventing a change in control.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements." In some cases,
you can identify forward-looking statements by terminology such as "may,"
"will," "should," "could," "expects," "plans," "intends," "anticipates,"
"believes," "estimates," "predicts," "potential" or "continue" or the negative
of such terms and other comparable terminology. These forward-looking
statements include, without limitation, statements about our market
opportunity, our strategies, competition, expected activities and expenditures
as we pursue our business plan, and the adequacy of our available cash
resources. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. The information set forth
under the headings "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," identify important additional
factors that could materially adversely affect our actual results and
performance. We claim the protection of the safe harbor for forward-looking
statements provided by the Private Securities Litigation Reform Act of 1995.
USE OF PROCEEDS
We will not receive any proceeds upon conversion of the Series A
convertible preferred stock or upon sale of shares of our common stock by the
Selling Stockholders.
We will receive the exercise price of any warrants and options that
are exercised by the Selling Stockholders. Assuming exercise of all of the
Selling Stockholders' warrants and options, the gross proceeds to us would be
approximately US$4,844,525. We intend to use any proceeds from exercise of the
warrants and options for working capital and general corporate purposes.
8
<PAGE>
PRICE RANGE OF COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET PRICE
Our common stock is not traded on a national securities exchange or
the Nasdaq Stock Market. It has been quoted on the OTC Bulletin Board under the
symbol "MDTV" since December 2, 1998. The range of high and low bid quotations
on the OTC Bulletin Board during each fiscal quarter since December 2, 1998, as
reported by Bloomberg, L.P., is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR 2000
----------------
QUARTER ENDED HIGH LOW
------------- ----- -----
<S> <C> <C>
December 31, 1999 $1.88 $0.31
March 31, 2000 $9.00 $2.13
<CAPTION>
FISCAL YEAR 1999
----------------
QUARTER ENDED HIGH LOW
------------- ----- -----
<S> <C> <C>
December 31, 1998 $1.56 $1.31
March 31, 1999 $2.69 $1.44
June 30, 1999 $2.38 $1.06
September 30, 1999 $1.72 $0.63
</TABLE>
These quotations are in U.S. Dollars and reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not represent actual
transactions.
As of March 27, 2000, we had approximately 67 holders of record of our
shares of Common Stock.
"PENNY STOCK" RULES
Our common stock is a "penny stock" which is subject to Rule 15g-9
under the Securities Exchange Act of 1934. It is considered penny stock because
it is not listed on a national exchange or Nasdaq, we have been in business
less than three years and have net tangible assets of less than US$5,000,000,
and our average annual revenue has not exceeded US$6,000,000 in the past three
years.
As a result, broker-dealers must comply with additional sales
practices requirements. Broker-dealers must determine that the investment is
suitable for the buyer and receive the buyer's written agreement to the
transaction before they can sell our common stock to buyers who are not the
broker-dealer's established customers or institutional accredited investors. In
addition, broker-dealers must deliver to the buyer before the transaction a
disclosure schedule which explains the penny stock market and its risks,
discloses the commissions to be paid to the broker-dealer, discloses the
stock's bid and offer quotations, and discloses if the broker-dealer is the
sole market maker in the stock.
DIVIDEND POLICY
We have not paid any cash dividends and we do not anticipate that we
will pay cash dividends on our common stock in the foreseeable future. Payment
of cash dividends is within the discretion of our Board of Directors and will
depend, among other factors, upon our earnings, financial condition and capital
requirements.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
NOTE: This section contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements are not guarantees of our
future performance. They are subject to risks and uncertainties related to
business operations, some of which are beyond our control. Our actual results
may differ materially from those anticipated in these forward-looking
statements. See "Cautionary Note Regarding Forward-Looking Statements."
- --------------------------------------------------------------------------------
OVERVIEW
We earn our revenue through the sale of satellite television
programming packages to MDU residents. Under agreements with our programming
providers, we earn a percentage of the fees charged to the subscriber. We also
earn a digital access fee for our digital set-top box service.
We have been providing our digital satellite television services in
Canada since November 1998. As of March 31, 2000, we had approximately 12,400
subscribers in 160 buildings throughout Canada. We expect to begin U.S.
operations in approximately May 2000 and have started marketing to building
owners in selected metropolitan areas.
In addition, we recently began offering other services, such as
in-suite security monitoring services, to residents of our MDU properties.
Also, we are in the process of developing products to provide high speed
Internet access and long distance telephone services. We expect to begin
offering our Internet access services by May 2000 and our long distance
telephone services during the fall of 2000.
We have incurred operating losses since our inception and do not
expect to generate profitable operations until fiscal 2001 or later. Our
funding of our operating expenses, working capital needs and capital
commitments is dependent upon our ability to raise financing through public and
private placements of both equity and debt securities, in addition to revenues
from operations.
BASIS OF PRESENTATION
Our consolidated financial statements at and for the fiscal years
ended September 31, 1998 and 1999, and for the three-month periods ended
December 31, 1998 and 1999, and their respective Notes ( "Consolidated
Financial Statements") have been stated in Canadian dollars and have been
prepared in accordance with accounting principles generally accepted in the
United States, consistently applied. We have designated the Canadian dollar as
our functional and reporting currency on the basis that our principal business
and activities are located and conducted in Canada. We have accounted for the
business combination of Alpha Beta Holdings, Ltd. and MDU Communications Inc.
as a reverse acquisition whereby MDU Communications Inc. was identified as the
acquirer and the assets and liabilities of Alpha Beta Holdings, Ltd. were
acquired at fair value. In accordance with generally accepted accounting
principles for reverse acquisitions, our consolidated financial statements
reflect the historical results of MDU Communications Inc. and the related
assets and liabilities at their historic cost. The operations of Alpha Beta
Holdings, Ltd., being the legal parent but accounting subsidiary, are reflected
in the consolidated financial statements from November 22, 1998, and its assets
and liabilities are reflected at their fair value at the date of acquisition.
Since Alpha Beta Holdings, Ltd. was essentially inactive prior to the business
combination, the following discussion will relate to our continuing Canadian
operations.
RESULTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO THE PERIOD FROM INCEPTION
(MARCH 26, 1998) TO YEAR ENDED SEPTEMBER 30, 1998
REVENUES. Our 1999 fiscal year's revenue of $566,698 was comprised of
69% SMATV revenue, 20% net programming revenue from Star Choice and 11% from
digital access fees ("set-top revenue"). SMATV revenue represented
approximately 8,700 subscribers, most of which had been added by January 1999,
and the set-top revenue represented approximately 2,900 subscribers who were
acquired over the last 9 months of the fiscal year. Fiscal 1998 revenues were
$0 as from the period from inception, March 26, 1998, to September 30, 1998.
That period was spent in planning with no SMATV or set-top subscribers.
DIRECT COSTS AND SALES EXPENSES. Fiscal 1999 direct costs were
$339,570 and were primarily comprised of SMATV programming and maintenance
costs. Direct costs were 60% of net revenue in fiscal 1999. Salaries, wages,
10
<PAGE>
commissions and benefits make up 35% of the sales expense. In-suite
installation of set-top boxes represents 26% of sales expense and the balance
of 39% is primarily travel, advertising, consulting and telephone expense,
which includes $116,149 non-cash stock option compensation charges (see below).
There was no direct costs or sales expense for fiscal 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
("G&A") expenses increased 1,332% to $1,401,399 in fiscal 1999, from $97,845 in
fiscal 1998, due to our market expansion, as follows:
- Advertising, promotion, travel and vehicle expenses were $128,755
or 9.2% of total G&A and represented an increase of $84,198 over
fiscal 1998.
- Occupancy, office, telephone costs, repairs and maintenance were
$178,175 or 12.7% of G&A and represented an increase of $166,998
over fiscal 1998.
- Wages were $519,834 or 37.1% of G&A and includes non-cash stock
option compensation charges (see below) of $222,000. No wages were
recorded in fiscal 1998 but $26,500 in management fees was paid to
companies controlled by officers and directors as compensation for
services rendered.
- Professional and consulting fees were $307,559 or 21.9% of G&A,
which includes non-cash stock option compensation charges (see
below) of $177,445, and represented an increase of $293,976 over
fiscal 1998.
- Other non-cash charges consisting of amortization expense were
$195,260 or 13.9% of total G&A in fiscal 1999. No amortization was
recognized in fiscal 1998.
- The balance of G&A in fiscal 1999 consisted of interest and
foreign exchange losses of $71,816, or 5.1% of total G&A, and
represented an increase of $69,788 over fiscal 1998.
STOCK OPTION COMPENSATION CHARGES. We account for our stock-based
employee compensation plans under APB No. 25 whereby compensation cost is
recorded for the excess, if any, of the quoted market price of the common
shares over the exercise price at the date of the grant for all employee common
stock options issued. During fiscal 1999, compensation cost in the amount of
$222,000 was recorded for options to purchase 300,000 shares of our common
stock which we granted to directors, officers and employees at a weighted
average exercise price of US$1.00. In addition, we granted stock options to
purchase 100,000 common shares of the Company at an option price of US$1.50 for
consultative and other services provided by a relative of the company
president. The fair value of these options in the amount of $177,445 has been
recorded as a consulting expense (see note 7(c) to the Notes to the
Consolidated Financial Statements). No stock option compensation charges were
recognized in fiscal 1998.
NET LOSS. We reported a net loss of $2,525,660 for the year ended
September 30, 1999. The increase in net loss compared to the year ended
September 30, 1998 period was primarily attributable to the operating cost of
installing systems and obtaining over 11,600 subscribers in over 135
properties. These operating costs were comprised of personnel, sales, and
general and administrative expenses totaling $2,752,788. These costs also
include the non-cash stock option compensation charges discussed above. In
fiscal 1998 we reported a loss of $97,845 consisting only of general and
administrative expenses for the period from inception to September 30, 1998.
RESTATEMENT. Subsequent to the issuance of our September 30, 1999
consolidated financial statements, our management determined that the fair
value of options issued to certain non-employees for services rendered during
the period should have been reported as sales expense, rather than capitalized
to property and equipment. As a result, the accompanying consolidated financial
information as of and for the year ended September 30, 1999 has been restated
from the amounts previously reported to give effect to an additional $116,149
of sales expense, a reduction in amortization expense of $4,210 and a
corresponding reduction in property and equipment of $111,939. See Note 16 to
the Consolidated Financial Statements.
THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1998
REVENUE. Our revenue for the three months ended December 31, 1999 of
$311,888 was comprised of 33% SMATV revenue, 40% net programming revenue from
Star Choice and 18% from digital access fees and 9% from equipment sales. SMATV
revenue represented approximately 8,547 subscribers and the set-top revenue
represented approximately 3,426 subscribers, compared to SMATV revenue of
$1,944 and 57 SMATV subscribers for the same period of the prior year.
11
<PAGE>
DIRECT COSTS AND SALES EXPENSES. Direct costs are primarily comprised
of SMATV programming and maintenance costs plus equipment costs and are 59% of
revenue for the three months ended December 31, 1999 compared to 95% for the
same period of the prior year. Salaries, wages, commissions and benefits make
up 74% of the sales expenses for the three months ended December 31, 1999 and
the balance of 26% is primarily travel, advertising, consulting and telephone
expenses. There were no sales expenses in fiscal 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. G&A expense for the three
months ended December 31, 1999 were $462,667 as compared to $476,928 for the
corresponding period in 1998. This 3% decline in G&A period over period is
primarily because of non-cash stock option compensation charges incurred in
1998. Excluding the non-cash stock option charges of $399,445 in 1998 results
in an increase of $385,184 or 497%, which is more representative of the
increase in overall business activity. Advertising, promotion, travel and
vehicle costs were $27,402 for the three months ended December 31, 1999 or
5.9% of G&A, compared to $9,218 for the corresponding period in 1998, an
increase of 197%. Office, occupancy, repairs and maintenance, and telephone
costs were $83,323 for the three months ended December 31, 1999 or 18.0% of
G&A, compared to $13,520 for the corresponding period in 1998 for an increase
of 516%. Wages, professional and consulting fees for the three months ended
December 31, 1999 were $249,831 or 54.0% of G&A, including $53,125 of
consulting expense represented by the fair value of common stock issued for
services, but down from 1998's $439,269, due to non-cash stock option
compensation charges. Foreign exchange gains of $96,512 and interest expense
of $25,353 for the three months ended December 31, 1999 compared to $1,461 in
interest expense for the corresponding period in 1998. Other non-cash charges
consisted of amortization expense of $130,293 or 28.2% of G&A compared to only
$5,610 in 1998.
STOCK OPTION COMPENSATION CHARGES. For the three months ended
December 31, 1998, $399,445 of the G&A expense and $50,000 in sales expense
were non-cash stock option compensation and consulting charges. We account
for our stock based employee compensation plans under APB No. 25 whereby
compensation cost is recorded for the excess, if any, of the quoted market
price of the common shares over the exercise price at the date of the grant
for all employee common stock options issued. Compensation cost in the amount
of $222,000 was recorded for the three months ended December 31, 1998 for
options to purchase 300,000 shares of our common stock granted to directors,
officers and employees at a weighted average exercise price of US$1.00. In
addition, we granted stock options to purchase 100,000 of our common shares
at an option price of US$1.50 for consultative and other services provided by
a relative of our company president. The fair value of these options in the
amount of $177,445 has been recorded as a consulting expense. See note 7(c)
on the Notes to the Consolidated Financial Statements. Stock option
compensation charges in the amount of $50,000 were recorded as sales expenses
for the three months ended December 31, 1998 based on the fair value of stock
options issued to suppliers, calculated on the date an eligible supplier
completes the performance required to earn the options.
NET LOSS. We reported a net loss of $665,753 for the three months
ended December 31, 1999, up from a net loss of $592,628 for the three months
ended December 31, 1998. When the non-cash stock option compensation charges of
$449,445 are excluded from the 1998 net loss, the increase is primarily
attributable to the increased costs to operate over 11,973 subscribers in over
142 properties compared to 57 subscribers for the same period of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO YEAR ENDED SEPTEMBER 30, 1998
CASH POSITION. At September 30, 1999, we had cash and cash equivalents
of $43,621 compared to $19,506 at September 30, 1998.
OPERATING ACTIVITIES. Net cash of $310,643 was used in operating
activities during fiscal 1999. The primary operating use of cash was from our
net loss of $2,525,660 which was partially offset by $710,854 of non-cash
charges, represented by $195,260 in amortization and $515,594 in stock option
compensation charges. In addition, we recorded as a source of cash $1,504,163
from changes in working capital. In 1998, net cash of $83,621 was used in
operating activities primarily from our net loss less cash provided by changes
in working capital.
INVESTING ACTIVITIES. Net cash of $3,662,251 were used in investing
activities during fiscal 1999, which was mainly comprised of purchases of
telecommunications equipment used in the reception of the digital satellite
signal, and certain intangible assets less cash acquired with Alpha Beta
Holdings, Ltd. In 1998, $47,033 was expended on the purchase of furniture and
equipment.
12
<PAGE>
FINANCING ACTIVITIES. We generated net cash of $3,997,009 from
financing activities during fiscal 1999. In fiscal 1998 we generated net cash
of $150,160 from financing activities.
In fiscal 1999, our financing activities were:
- The exercise of options to purchase 640,000 shares of our common
stock at an exercise price of US$1.50 per share for net cash
proceeds of US$960,000 or $1,474,184.
- The issuance of demand convertible notes payable for proceeds of
$829,644 (the "Convertible Notes"). The Convertible Notes accrued
interest at various rates between 8.75% and 9.0%. The Convertible
Notes were convertible, as to principal and interest, at the
option of the note holder into fully paid non-assessable shares of
our common stock at original conversion prices between US$1.75 and
US$2.00 (see note 6 on the Notes to the Consolidated Financial
Statements). As of September 16, 1999, we were unable to repay the
Convertible Notes upon demand by the note holders, and the
Convertible Notes were re-negotiated with extensions at the same
rates of interest to between February 28, 2000 and June 30, 2000.
The conversion prices were amended to between US$0.50 and
US$0.625.
- The issuance of 5,213,835 shares of our common stock to effect the
acquisition of Alpha Beta Holdings, Ltd.
- Proceeds from the issuance of notes payable of $125,000. Our
initial funding was by way of six private demand notes totaling
$275,000 bearing interest at 7.5%. We repaid the six demand notes
on December 15, 1998 from warrant exercise proceeds.
- In May 1999, we received subscriptions for 670,000 shares of our
common stock at an issue price of US$1.75 per share for proceeds
of US$1,172,500 or $1,721,361. Expenses of the offering were
$176,437. These shares were subsequently issued in November 1999.
- In August and September 1999, we received US$168,000 or $248,102
on account of subscriptions for 420,000 units at US$0.40 per unit,
each unit consisting of one share of common stock and a two-year
warrant to purchase one share of common stock for US$0.75 per
share. These shares and warrants were subsequently issued in
November 1999 as part of a total of 1,482,750 unit offering.
In fiscal 1998, our financing activities were $150,000 received from
the issuance of notes payable.
WORKING CAPITAL. At September 30, 1999 and 1998, our working capital
deficiencies were $2,304,410 and $144,718, respectively. The deficiencies,
funding to expand our business through acquisition of new subscribers and
funding for our anticipated operating deficits for the following fiscal years
caused us to pursue opportunities to raise financing through private placements
of equity.
THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1998
CASH POSITION. At December 31, 1999, we had cash and cash equivalents
of $68,324 compared to $829,293 at December 31, 1998. The decrease in the our
cash position is mainly due to proceeds received from the exercise of warrants
and proceeds from share subscriptions and convertible notes issued in December
1998, and these proceeds have been used for our operating and investing
activities during 1999.
OPERATING ACTIVITIES. Net cash of $663,705 was used in operating
activities during 1999. The primary operating use of cash was from our net loss
of $665,753 which was partially offset by $198,418 of non-cash charges,
represented by $130,293 in amortization, $53,125 in consulting fees paid in
shares and $15,000 in stock option compensation charges. In addition, we
recorded as a use of cash $196,370 from changes in working capital. In 1998,
net cash of $128,050 was used in operating activities. The primary operating
use of cash in 1998 was from our net loss of $592,628 which was partially
offset by $455,055 of non-cash charges, represented by $5,610 in amortization
and $449,445 in stock option compensation charges. In addition, we recorded as
a source of cash $9,523 from changes in working capital.
INVESTING ACTIVITIES. Net cash of $69,923 was used in investing
activities during the three months ended December 31, 1999 compared to $436,501
for the same period of the prior year. In 1999, we were operating at reduced
levels of deployment due to cash funding constraints and only $69,923 was used
to purchase property and equipment. In
13
<PAGE>
1998, we spent $157,689 on the acquisition of SMATV subscribers, and $314,034
on purchases of telecommunications equipment used in the reception of the
digital satellite signal, less cash acquired with Alpha Beta Holdings, Ltd.
FINANCING ACTIVITIES. We generated net cash of $758,331 from financing
activities during the three months ended December 31, 1999 as follows:
- In November 1999, we received subscriptions for 1,062,750 units at
US$0.40 per unit, each unit consisting of one share of common
stock and a two-year warrant to purchase one share of common stock
for US$0.75 per share. These shares and warrants were issued in
November 1999 as part of a total of 1,482,750 unit offering with
total issue expenses of $23,187.
- In December 1999, we received a subscription for 125,000 shares of
common stock at US$0.80 per share. These shares were subsequently
issued in February 2000.
- In December 1999, we received US$75,000 or $110,250 on account of
a subscription for 100,000 units at US$0.75 per unit, each unit
consisting of one share of common stock and a two-year warrant to
purchase one share of common stock for US$1.00 per share. These
shares and warrants were subsequently issued in February 2000 as
part of a total of 699,999 unit offering.
During the three months ended December 31, 1998, we generated net cash
of $1,374,338 from the following:
- The exercise of warrants for 640,000 of our shares of common stock
generated proceeds of US$960,000 or $1,474,184.
- Proceeds of notes payable contributed $125,000 and during the
period we paid out the balance owing on the notes payable totaling
$275,000.
On October 13, 1999, we entered into an agency agreement with Canaccord
Capital Corporation to assist us with raising funds and future listing on the
Canadian Venture Exchange.
WORKING CAPITAL. As at December 31, 1998, we had working capital of
$805,546 and at December 31,1999 we had a working capital deficiency of
$2,098,337. The deficiencies, funding to expand our business through
acquisition of new subscribers and funding for our anticipated operating
deficits for the following fiscal years caused us to pursue opportunities to
raise financing through private placements of equity.
MARKET RISK
We are exposed to market risk related to changes in interest and
foreign exchange rates, each of which could adversely affect the value of our
current assets and liabilities. We have not entered into any forward currency
contracts or other financial derivatives to hedge foreign exchange risk, hence,
we are subject to such risk from foreign currency transactions and translation
gains and losses. We do not currently engage in significant operating
transactions denominated in foreign currencies so any change in the CDN/US
dollar exchange rate would not have a material effect on our current operating
cash flows.
We do not currently have an interest-bearing investment portfolio nor
liabilities subject to variable interest rates. As a result, any change in the
prime interest rate would not have a material impact on our future operating
results or cash flows based on the terms of existing liabilities.
CAPITAL COMMITMENTS AND CONTINGENCIES
We have access agreements with the owners of MDU properties to supply
our television viewing systems and services to the residents of those
properties; however, we have no obligation to build out those properties and no
penalties will accrue if we elect not to do so. See "Business--Our
Strengths--Access Agreements.
14
<PAGE>
RECENT EVENTS
COMMON STOCK.
PRIVATE PLACEMENTS. On February 3, 2000, we completed seven private
placements to non-U.S. persons pursuant to Regulation S of the Securities Act.
One private placement consisted of 125,000 common shares at US$0.80 per share
for gross proceeds of US$100,000. The other private placements consisted of
699,999 units at US$0.75 per unit for gross proceeds of US$525,000. Each unit
consisted of one common share and one common share purchase warrant exercisable
for two years at US$1.00 per share. The net cash proceeds to us of these
private placements was $918,750 (US$625,000).
CANACCORD AGREEMENT TERMINATION. On January 5, 2000, we terminated an
agency agreement with Canaccord Capital Corporation since Canaccord had not
raised any funding for us. Under our settlement agreement with Canaccord, we
cancelled the 100,000 shares of common stock originally issued to them, and
issued them 50,000 shares of common stock and a payment of $12,622 as full
payment for their services.
CONVERSION OF CONVERTIBLE PROMISSORY NOTES. On February 28, 2000 and
March 8, 2000, the Convertible Promissory Notes totaling $829,644, together
with interest, were converted into 997,736 shares of common stock.
GIBRALT SETTLEMENT. We entered into a mutual settlement and release
with Gibralt Capital Corporation terminating an agreement to raise debt
financing. We issued two-year warrants to Gibralt to purchase 750,000 shares
of our common stock for $2.50 per share in connection with that settlement
and release.
PREFERRED STOCK
PRIVATE PLACEMENT. On January 28, 2000, we raised US$7,725,000 (net of
agency fees) through a private placement of our Series A convertible preferred
stock to accredited investors. In connection with the offering, we entered into
a Registration Rights Agreement under which we agreed to have a Registration
Statement, which registers the shares of common stock issuable upon conversion
of the Series A convertible preferred stock for resale, declared effective by
the SEC by June 26, 2000. See "Description of Capital Stock - Registration
Rights." See "Description of Capital Stock" for a summary of the rights and
preferences of the Series A convertible preferred stock.
AGENCY AGREEMENT. In connection with the offering of Series A
convertible preferred stock, we entered into an agency agreement with Haywood
Securities Inc. Under that agreement, Haywood Securities Inc. agreed to provide
services in connection with the issuance and sale of the Series A convertible
preferred stock and the qualification of the common stock issuable upon
conversion, including assisting in obtaining requisite regulatory approvals. In
consideration of these services, we delivered to Haywood Securities Inc.:
- a commission of US$618,000, paid by issuance of 247,200 Series A
convertible preferred stock,
- a corporate finance fee of US$750,000, paid by issuance of 300,000
shares of the Series A convertible preferred stock, and
- a warrant to acquire an underlying warrant which is in turn
exercisable into up to 309,000 shares of common stock for a period
of one year at a price of US$2.50 per share.
FUTURE CAPITAL REQUIREMENTS
The net proceeds of our recent common and preferred stock offerings
should be sufficient to allow us to expand our deployment of service in Canada
and to enter the U.S. market as planned during fiscal 2000. We may require
additional capital in the future to fund (1) deployment of satellite TV
services in excess of our expectations during fiscal 2000, (2) strategic
acquisitions of existing subscriber bases or businesses, or (3) complementary
services that may prove beneficial to us. We may seek funding from a
combination of sources, including additional private placements of equity or
debt. No assurance can be given that additional funding would be available on
terms acceptable to us or at all.
15
<PAGE>
BUSINESS
OVERVIEW
We provide high quality digital satellite television services to
residents of multi-dwelling unit properties (MDUs). MDUs include apartment
buildings, condominiums, gated communities, universities, nursing homes,
hospitals, hotels, motels, and other properties having multiple units located
within a defined area.
We have a contractual relationship with Star Choice Communications
Inc. under which we market its satellite programming to the Canadian MDU
market. We provide our services under access agreements with MDU property
owners. The access agreements give us the exclusive right to provide digital
satellite television services to the residents of the MDU properties and a
right of first refusal for all other new telecommunications services. As of
March 2000, we had installed or were in the process of deploying our systems in
160 MDU properties, and were serving approximately 12,400 subscribers, in
Canada. We had entered into letters of intent or access agreements that will
allow us to wire and market to residents in approximately 200 additional MDU
properties, providing an additional potential customer base of over 32,000
Canadian subscribers.
Our goal is to build an infrastructure and service system throughout
the major MDU markets in North America to deliver television programming and
other services. Our strategy is to focus initially on geographical markets
which have a high concentration of MDU properties. In Canada, we have focused
to date on major metropolitan markets such as Vancouver, Toronto, Calgary,
Edmonton, Winnipeg, and Halifax.
We intend to pursue a similar strategy in the United States
marketplace, which is estimated to have over 25 million MDU television
households. We are in the process of negotiating a contract with a major U.S.
programming provider to market digital satellite television programming to the
U.S. market. We expect to open our first U.S. sales office in New York and
begin actively marketing to the U.S. MDU marketplace in May 2000. We anticipate
locating our second U.S. sales office in San Francisco, California.
We earn our revenue through the sale of digital satellite television
programming packages to the MDU residents. We do not charge the MDU property
owners for our equipment or for installation of the infrastructure.
We believe that we can compete effectively with cable television
providers, our major competitor in the MDU marketplace, for subscribers.
Advances in communications and information technology have created a large
demand for new state-of-the-art services such as digital satellite television.
In addition, regulatory changes in Canada and United States governing digital
satellite television services has given television viewers the opportunity to
choose the provider of their television programming based on quality of signal,
cost and variety of programming. Our marketing program focuses on that choice
and the benefits of subscribing to satellite television programming instead of
cable programming.
Recently, we have begun offering security monitoring services to our
subscribers, using the existing or our installed infrastructure. We have
signed a contract with ADT Security Services Canada, Inc. to market their
in-suite monitoring security programs in Canada. We anticipate entering into
a similar arrangement with a U.S. security monitoring service in the near
future. In addition, we are in the process of negotiating relationships
through which we will be able to provide high-speed Internet access services
to our MDU residents. We are also negotiating distribution arrangements with
telecommunications carriers to resell long distance telephone services to our
MDU residents. We expect to begin offering our Internet access services
during the spring of 2000 and our long distance telephone service during the
fall of 2000.
We believe that there will be opportunities to grow and enhance our
profitability and competitive position through the acquisition of complementary
companies, technologies and services. We intend to pursue acquisitions that we
believe will provide the opportunity for increased sales penetration with
existing customers and new sales to potential customers, and that will extend
and vertically integrate our products and technologies.
OUR SERVICES
We offer both digital set-top television viewing systems and satellite
master antennae television (SMATV; pronounced "smat vee") viewing systems and
services to the residents of MDUs. Both of our systems use state-of-the-art
wireless digital satellite equipment. This equipment receives scrambled
broadcast signals transmitted from our broadcasters' satellites and decodes
them for viewing, which eliminates the need for a cable television provider.
Broadcast signals are distributed to each MDU unit via cable run throughout the
property.
16
<PAGE>
Currently, approximately 30% of our MDU subscribers use our digital
set-top systems and, as a result of our acquisition of a SMATV subscriber base
shortly after our formation, 70% use our SMATV systems. However, we believe
that the potential market for our digital set-top system is far larger than
that for SMATV systems. We intend to focus our marketing efforts on sale of our
digital set top services, and expect the percentages of digital set-top and
SMATV system revenues to be reversed within a year.
We employ a technical service staff who, in connection with
independent contractors, install and service the satellite and cable
signal distribution systems. Our direct marketing sales representatives
install the set-top boxes in properties equipped with our digital set-top
system. We provide this equipment and its installation to the MDU property
and to subscribing residents at no initial cost to them. Our cost to provide
and install this equipment depends on the type and age of the MDU property
and the number of potential subscribers. We generally only deploy into MDU
properties where we project that our subscriber revenue will cover our
equipment and installation costs within 24 months of deployment.
DIGITAL SET-TOP SYSTEM AND SERVICE
Our digital set-top television viewing system and service can either
replace, or exist in competition with, the existing cable service in MDU
properties. Our service can be provided without disrupting existing cable
services; no MDU resident is obliged to subscribe to our programming if they
would prefer to remain with cable, regardless of whether their neighbours are
subscribers.
Our digital set-top system and service provides the following benefits
to MDU owners and residents:
- The MDU property is enhanced due to the availability of choice in
television service providers and new services.
- Subscribers do not have to sign any conditional sales or service
contracts.
- Technology upgrades are provided free of charge as they become
available.
- Every subscriber receives a digital set-top receiver that provides
better picture and sound quality than analog cable television, and
instant access to pay per view movies and special events at the
touch of a button. Cable services generally only provide digital
set-top receivers to their premium pay channel subscribers for a
higher monthly fee.
INFRASTRUCTURE. The required infrastructure for a digital set-top
system consists of: a single one-meter satellite dish to receive satellite
broadcast signals and an "off air" antenna to receive local television
signals, which are mounted on the roof of the MDU property; a cable backbone
distribution system which is channeled through the building and connected to
the existing cable distribution system to the individual suites; and a
television set-top box (with remote control) which decodes the broadcast
signals on each television in each suite. The set-top box takes the place of
all of the Head End (as defined below) equipment used in a SMATV system,
except for the satellite dish.
PROGRAMMING. Star Choice provides all of the digital television
programming and performs all of the billing and collection functions on our
existing digital set-top subscriptions. In addition, Star Choice operates a
call center that is open 24 hours a day, seven days a week. Star Choice
provides MDU customers' with a variety of program packages and viewing options.
Prices for the basic package of programs range from $14.99 per month to $52.99
per month for the platinum package, which includes movie services and a
selection of approximately 120 other channels. The regular programming
available to subscribers through our digital set-top service provides the
following features:
- Subscribers have more control over their program choices and do
not have to pay for program packages that they do not wish to
subscribe to.
- Subscribers receive all their local TV stations as well as the
digital satellite services.
- Subscribers have more channel choices than they would from the
majority of cable companies.
- Subscribers receive an interactive program guide feature built
into the set-top receiver that makes finding favorite channels and
programming the VCR for taping easy.
- Subscribers have a choice of billing options including monthly
billing.
17
<PAGE>
REVENUES. MDU has two primary sources of revenue from its digital
set-top service: programming revenue and digital access fee revenue. Currently,
our monthly revenue per subscriber for our digital set-top service ranges from
approximately $17.35 to $18.35.
PROGRAMMING REVENUE. Under our contract with Star Choice, we receive
30% of the gross subscriber revenues from our sale of Star Choice programming
within our MDU properties. The average MDU subscriber currently spends
approximately $38 per month on Star Choice programming, excluding pay per view
purchases, which generates revenues to us of approximately $11.40 per month per
subscriber.
DIGITAL ACCESS FEE REVENUE. We currently charge subscribers in our MDU
properties a digital access fee ranging from $5.95 to $7.95 per month for use
of our digital set-top receiver. Approximately 20% of our subscribers have
multiple set-top receivers. Star Choice includes this amount in its
monthly billing to the subscriber. Upon receipt of the subscribers' payments,
Star Choice remits 100% of the digital access fees to us.
SMATV SYSTEM AND SERVICE
SMATV is a private cable system and service that is used to replace
existing cable service in MDU properties. Our Star Choice agreement allows us
to purchase customized programming packages at a wholesale rate and to resell
them to our SMATV properties, much like a cable television supplier would. MDU
owners and residents benefit from our SMATV service for a number of reasons:
- Our charge for the programming package is generally less than the
rate the property owner was paying for cable service.
- The program package delivered to the residents is custom tailored
to suit their needs, and therefore people do not pay for
television services they do not want to watch.
- Our rates are guaranteed for a longer term than cable rates, which
have increased substantially over the past five years.
- Our MDU residents receive a television signal that is of superior
quality than that provided by most cable services.
INFRASTRUCTURE. The infrastructure we install for a SMATV system
(called the "Head End") consists of one or more satellite antennas, several
satellite receivers, decoders, processors, modulators and related accessories
which receive the television broadcast signals and distribute them to the
residents. The Head End is connected to the property's pre-existing cable
system, which distributes the broadcast signal received by the satellite
antennas within the property.
PROGRAMMING. Unlike our digital set-top system where each resident
subscribes to our service separately, in a SMATV system the MDU owner purchases
from us a package of television programming which is available to all of the
property's residents. We work with the property owner to custom tailor the
package of television programming to suit the needs of the residents located in
the property.
REVENUES. We do not charge the MDU owner any initial fee for our SMATV
system equipment or installation. Instead, we charge the owner a monthly rate
for the programming package, based on the total number of suites in the
property. In SMATV systems, our earnings result from the difference between the
wholesale price charged to us by program providers, such as Star Choice, and
the price we charge for the programming package.
OTHER EXISTING AND FUTURE SERVICES
IN-SUITE SECURITY MONITORING SERVICES. We currently supply each of our
properties with a front door security camera system as part of our digital
set-top and SMATV systems. The camera allows residents to view the building's
front door and lobby area on their television sets. In addition, we recently
signed an agreement with ADT Security Services Canada, Inc., Canada's leading
electronic security monitoring company, that allows us to offer monitored home
security services to residents of our MDU properties. Under the terms of that
agreement, we market ADT's services to property owners, managers and residents,
and receive a customer activation fee for each subscriber to whom we sell this
service plus a residual revenue stream.
18
<PAGE>
HIGH-SPEED INTERNET ACCESS. We are in the process of developing a
high-speed Internet access service system for our hotel and residential MDU
properties. These systems consist of various configurations of the following:
- Contracting with a virtual host service to provide
authentication, e-mail, news, web hosting and other services;
- Contracting with a virtual point of presence provider;
- A leased high-speed telecommunications line;
- Wiring, server and modem technology to provide an in-building
network connecting individual suites with the high-speed
telecommunications line; and
- Customer premises equipment connecting the customer to the
in-building network.
Currently, most MDU residents access the Internet through a dial-up
service. However, dial-up access has several drawbacks including delays,
frequent busy signals and dropped calls. The demand for high-speed Internet
access is growing rapidly, as standard dial-up networks become increasingly
congested with the growing number of Internet users. The only high-speed
internet access currently available to many Canadian MDU residents is through
cable modem services. In order to facilitate the transition of potential MDU
television subscribers away from cable programming to our digital satellite
programming, we believe that we must also provide high-speed Internet access.
Once implemented, our service is intended to deliver high-speed Internet
access, plus technical and customer support, to our subscribers over existing
telephone wiring, so that our subscribers have no further need for a cable
connection. In addition, we believe that once implemented, our system and
service will deliver better, more secure Internet access to our subscribers
at pricing competitive with cable modem services. However, there is no
assurance that we will be able to negotiate equipment, carrier and service
contracts under acceptable terms, or that we will be able to to realize profit
from our high-speed Internet access service.
LONG DISTANCE TELEPHONE SERVICES. We are currently negotiating a
distribution agreement with a telecommunications carrier to resell long
distance telephone services. Our goal is to begin offering this service to our
MDU subscribers during the fall of 2000. However, there is no assurance that we
will be able to negotiate such an agreement or implement this service by that
time or at all.
ACCESSORIES. Our sales representatives offer remote control units,
power bars and other television viewing accessories to our MDU subscribers
under a distribution agreement we have with Recoton Corp.
OUR STRENGTHS
In addition to the high quality of our digital television viewing
programming and the choices that our products offer to MDU residents, we
believe that our access agreements with MDU property owners and our strategic
alliances represent significant competitive and business strengths of our
Company.
ACCESS AGREEMENTS
Our access agreements with the owners of MDU properties grant us
exclusive rights to provide digital satellite television services at an MDU
property for a term of five years and a right of first refusal for all other
new telecommunications services. However, our access agreements generally do
not bind us to deploy our service within any particular time during the term
or at all. This gives us the flexibility to deploy only on those properties
that, after our preliminary market research, we determine meet our
profitability criteria. There is no penalty to us if we decide not to deploy
a property, and we may still decide to deploy on the property at some later
point during the agreement term if the economics become favourable.
To date, normally we have not been required to pay access fees to MDU
owners. However, in the U.S. MDU marketplace access fees are common for
exclusive access agreements and generally consist of an initial payment or
residual fees, or some combination of both. Following the U.S. trend, we
anticipate that increases in competition will cause us to pay access fees to
property owners for exclusive access at some point in the future.
As of March 2000, we had access agreements or letters of intent to
service approximately 360 MDU properties. We believe the fact that we have
obtained flexible long-term exclusive access agreements without paying access
fees will give us a significant advantage over future competitors.
STRATEGIC ALLIANCE WITH STAR CHOICE
In August 1998, we entered into a long-term System Operation
Agreement with Star Choice. Under this agreement, we establish and maintain
distribution systems in MDUs throughout Canada, and act as a commissioned
sales agent for the marketing of Star Choice programming to the residents of
our Canadian MDU properties. We incur only the costs associated with
implementation of our services, and do not pay any of Star Choice's
programming or broadcasting costs.
19
<PAGE>
Under our Star Choice agreement, we may not maintain distribution
systems or market digital satellite television services for other program
providers in Canada. We are not, however, prohibited from contracting with
other program providers in connection with our SMATV services. Consequently, we
are totally dependent on Star Choice for our digital set-top programming.
During the fiscal year ended September 30, 1999, revenues from Star Choice were
31% of our total revenues. Star Choice is not required to use us on an
exclusive basis and could either contract with others to install distribution
systems and market programming in MDUs or undertake such activities directly
through its retail stores, as it does to single-family television households.
Our agreement with Star Choice automatically renews at the end of the
initial ten-year term ending August 27, 2008 for successive five-year terms
unless either party gives notice of termination 60 days before the end of any
term. Either party may terminate for the other's breach, bankruptcy or
unapproved assignment of the agreement. In addition, Star Choice may terminate
the agreement at any time if (1) the terms of Star Choice's license from the
CRTC prohibit or materially impair its ability to provide programming to us, or
(2) it is determined that we do not have the authority to perform our
obligations under the agreement.
THE INDUSTRY
The home entertainment and video programming industry continues to
develop competitive alternatives and consumer choices. The major choices in the
industry are: cable systems, direct-to-home satellite systems (DTH), wireless
cable systems, and broadcast television. There are other competitors, such as
Internet video providers, home video sales and rentals, and even telephone
companies. However, the cable system providers have continued to grow and
dominate this industry in terms of subscriber penetration, the number of
programming services available, audience ratings and expenditures on
programming. However, DTH providers dominate the delivery of non-cable
multi-channel video programming distribution systems.
DIRECT-TO-HOME SATELLITE SYSTEMS
Digital DTH systems provide subscribers with superior picture and
sound quality, more control over their programming choices, more channels to
choose from, and more competitive prices than offered by cable providers. DTH
systems include the digital set top and SMATV systems that we offer.
In a DTH system, video and audio programming is transmitted by a
broadcaster, such as Star Choice, via a satellite to a satellite dish at the
subscriber's location. DTH systems include high-power digital systems which
transmit to small (approximately one meter) receiving dish antennas, and
low-power analog systems which transmit to large receiving dish antennas. A
digital DTH system typically consists of one or more up-link centers, one or
more geostationary satellites and the subscriber's receiving equipment. The
majority of digital DTH broadcasters deliver their programming to subscribers
via commercial satellite. At the up-link center, equipment combines,
compresses, encodes and transmits or up-links the programming to transponders
located on the broadcaster's satellite. The transponders receive and amplify
the digital signal and transmit it to subscribers' receiving dishes within the
footprint covered by the satellite. The receiving dish either sends the digital
signal to the subscribers' digital set-top box or to the SMATV head end,
depending on the television viewing system in place on the property, both of
which decode the digital signal and convert it into an analog signal compatible
with the subscriber's television set.
Currently, there are only two satellite broadcasters licensed to
operate in Canada: Star Choice and ExpressVu. Star Choice is wholly-owned
subsidiary of Canadian Satellite Communications Inc. ExpressVu is a
wholly-owned subsidiary of BCE Inc. In the last few years, these two companies
have built a subscriber base of over approximately 800,000 households, or
approximately 6.8% of the 11.8 million Canadian television households. Both
Star Choice and ExpressVu have historically focused on the sale of programming
to single-family dwellings primarily through retail and commercial stores.
However, ExpressVu recently announced that it will begin marketing its services
to MDUs in the Toronto area. We believe that these two companies have focused
on the single family market because of the high percentage of television
households that are single-family dwellings, the minimal technical challenges
in deployment and the difficulty in effectively marketing services to MDU
property owners, managers and residents. By limiting their focus, we believe
that the two companies have left a sizeable niche in the marketplace for
distribution of DTH systems to MDU residents.
COMPETITION
The home entertainment and video programming industry is highly
competitive, and we expect competition to intensify in the future. We face our
most significant competition from hard-wire cable operators. In addition, our
20
<PAGE>
competition includes other DTH providers, wireless cable, off-air broadcasters,
home video cassette industry and gray market products.
Our competitors generally have greater financial, technical, marketing
and other resources, including brand or corporate name recognition, than we do.
In addition, a continuing trend towards business combinations and alliances in
the industry may create significant new competitors with resources far greater
than ours. These combined entities may provide bundled packages of television
services that compete directly with the services we offer. These entities may
also offer services sooner and at more competitive rates than we do. There is
no assurance that we will compete successfully with our current or future
competitors.
OTHER DTH PROVIDERS. Due to the unique characteristics required to
effectively serve the MDU digital television viewing market, we are not aware
of any other companies that provide digital satellite television viewing
systems on a national scope in Canada. We do face competition from local and
regional providers of DTH services in Canada, and also occasionally from Star
Choice or ExpressVu retailers who agree to service an MDU in their area. In
addition, ExpressVu has recently announced that it will begin actively
marketing its services directly to MDUs in the Toronto area and we expect this
deployment to expand to other metropolitan markets in the future. We expect
that the lack of a national competitor will change over time, but believe
that our direct marketing program and our favorable agreement with Star
Choice will make it difficult for new entrants to the Canadian MDU market to
compete effectively with us, at least initially. However, we recognize that
this window of opportunity may not remain open indefinitely.
HARDWIRED CABLE SYSTEMS. Cable companies currently dominate the market
in terms of subscriber penetration, the number of programming services
available, audience ratings and expenditures on programming. In Canada,
traditional cable companies such as Rogers Communications, Inc., Shaw
Communications, Inc. and Le Groupe Videotron Ltee. dominate the market, serving
an estimated 70% of the 11.8 million Canadian television households. However,
within the last few years, the CRTC has implemented a number of reforms to
increase competition in the marketplace.
The majority of cable operators currently use analog technologies
which produce inferior quality video and sound compared to digital
technologies, and which permit the transmission of less than 40 channels.
Many cable operators have begun the process of upgrading to a digital signal;
however, this transition requires significant capital outlays and time to
deploy. Cable operators are also beginning to offer telephony, although the
use of integrated facilities remains primarily experimental. In the meantime,
we believe that DTH providers like us have a window of opportunity in which
to acquire and consolidate a significant subscriber base by providing a
higher quality signal and up to 200 video and audio channels at a comparable
price to most cable operators' current service.
OFF-AIR BROADCASTERS. The majority of Canadian households which are
not serviced by cable operators are either unserviced or are serviced only by
broadcast networks and local television stations ("off-air broadcasters").
Off-air broadcasters send signals through the air which are received by
traditional television antennas at the customer's property. Signals are
accessible to anyone with an antenna, and programming is funded by advertisers.
Audio and video quality is limited, and service can be adversely affected by
weather or by buildings blocking a signal.
WIRELESS CABLE SYSTEMS (MULTI-CHANNEL MULTI-POINT DISTRIBUTION
SERVICES (MMDS)). MMDS systems are a hybrid of cable transmission and off-air
broadcasting. MMDS was developed as an alternative where hard-wired cable
systems are unavailable or not possible. MMDS programming is transmitted by
local cable operators in a scrambled form through the air via microwave
frequencies to a small microwave dish at the subscriber's property, which
converts the signal to a frequency band used by standard cable services.
However, this system generally requires a direct "line-of-sight" from the
transmission facility to the subscriber's receiving dish, which limits its
range and capability of being received. There are very few MMDS providers
operating in Canada and serve regional markets only.
GRAY MARKET PRODUCTS. "Gray market" products and programming services
are those that are not licensed to be sold in Canada. Prior to the Canadian
government's approval of the provision of DTH services, some Canadians,
including MDU owners, purchased U.S. based systems and operated them in Canada.
However, use of these systems is declining. Canadian DTH services now offer
much of the same programming, better reception, warranty service and support,
and do not operate in violation of Canadian law. Also, many retailers of the
U.S. based equipment have been subjected to legal actions aimed at eliminating
the sale of unauthorized equipment and reception of unauthorized television
programming. We believe these factors have and will continue to reduce the use
of U.S.-based systems in Canada.
21
<PAGE>
MARKETING
STRATEGY
Our marketing strategy is to focus on geographical markets in North
America which have a high concentration of MDU properties. The number of
decision makers in each of these dense markets is generally a relatively small
group. When we enter a new geographical market we focus on reaching those
decision makers in the shortest time possible. We believe that our marketing
strategy is unique in that, unlike any competitor of which we are aware, we not
only market our services to owners and building managers, but also to each
resident of the MDU property through our direct marketing and telemarketing
teams.
IMPLEMENTATION
Our marketing strategy is implemented by our regional sales offices in
the targeted geographical market. Our regional sales managers market our SMATV
and digital set-top services to MDU property owners and managers. Our direct
sales managers focus on developing relationships with the resident managers at
each of our MDU properties. They also coordinate, train and deploy our direct
marketing sales representatives, who present our direct marketing program to
residents of our MDU properties. In addition, our telemarketing team, located
in our home office in Richmond, British Columbia, coordinates its activities
with our direct sales teams during initial system deployment. We believe that
our direct marketing and telemarketing program gives us a significant marketing
advantage over competitive service providers in MDU properties. However, there
is no assurance that this advantage would be sufficient to sustain our business
if Star Choice or ExpressVu decide to actively market to MDUs.
When we first install our digital set-top service in an MDU property,
the property and resident suites are equipped with marketing materials and
decals clearly identifying the property as a building that is "MDU WIRED" and
offering residents a choice of service provider. Our sales representatives give
a sales presentation and system demonstration first to the resident manager and
then to each of the residents in the property on a one-to-one basis. In
addition, they offer each resident the opportunity to preview our digital
satellite service for free for 30 days, and describe our other products.
Following our initial marketing campaign at an MDU property, a sales
representative will visit the property periodically to work with new residents.
As part of our access agreements, resident managers of our MDU properties
provide us with monthly resident move in and move out information, and
encourage new residents to contact us for digital satellite service. We provide
the resident managers with marketing materials to assist in explaining our
"digital upgrade" process and our 30-day free service preview offer.
DIRECT MARKETING SALES FORCE
Our direct marketing sales force is currently comprised of
approximately 30 direct marketing sales representatives working from six
regional sales offices in Canada. In addition to conducting sales presentations
and system demonstrations, our sales representatives install the digital
set-top receivers in the suites if that is the service which we are providing.
Our sales representatives are compensated through a combination of salary and
commissions earned on their sale of programming and other service subscriptions
to the MDU residents.
CANADIAN GOVERNMENT REGULATION
REGULATION OF OUR BUSINESS
Canada's Broadcasting Act and the Telecommunications Act (the
"Broadcasting Act") is implemented by the CRTC. The CRTC regulates all matters
relating to broadcasting and telephony, whether cable or wireless, ranging from
program content, local and long distance telephony, broadcasting delivery
infrastructure and pricing, except Internet services which are not regulated.
Our program provider, Star Choice, must operate in accordance with the
Broadcasting Act as well as in accordance with CRTC-imposed "conditions of
license" to maintain its license. The current term of Star Choice's license
from the CRTC expires on August 31, 2002. Since Star Choice is our sole source
for programming, we would be adversely affected if Star Choice were to
encounter regulatory difficulties or if its license is not renewed by the CRTC.
As a programming reseller, we are not regulated by the CRTC. In
addition, under a CRTC license exemption, we can provide MDU residents with
off-air antennae for the receipt of local television broadcasting not carried
by Star
22
<PAGE>
Choice, so long as the distribution system inside the building is owned and
controlled by the MDU property owner. Our access agreements that provide for
local television access are designed to comply with this exemption.
POTENTIAL PRICING DEREGULATION
Over the last few years, the CRTC has issued public notices stating
that it anticipates deregulation of pricing in the broadcasting industry once a
competitive market has been achieved. The CRTC currently defines the
achievement of a competitive market as occurring when the number of subscribers
lost by an incumbent cable broadcasting distribution undertaking exceeds 5%. To
date, pricing has not been deregulated. While the CRTC does not regulate the
rates charged by Star Choice to its customer or by us to our customers,
deregulation of broadcast industry pricing generally could affect the prices
that we can charge our customers in a manner which could have an adverse effect
on our business.
PRELIMINARY REGULATION OF CABLE OWNERSHIP
Before January 1, 1998, the CRTC required that a cable television
company own all cables from the distribution panel in an MDU to and including
the "subscriber drop," which is the wall plate in each subscriber's suite.
These cable wirings are commonly called inside wires. However, the CRTC has
enacted preliminary regulations opening the use of inside wires to all
competitors for no charge, regardless of ownership of the inside wires. This
regulatory change created the opportunity for us to install and connect our new
cable distribution systems to the inside wires of each MDU subscriber's suite
in order to provide Star Choice programming and other services to our
subscribers in direct competition with the incumbent cable company.
The CRTC has not finalized regulations relating to either the
ownership of inside wires or the technical feasibility of bandwidth sharing,
another open issue. However, we have attempted to conform our current operating
practices with the current preliminary regulations as well as the anticipated
final regulations. There is no assurance, however, that the final regulations
will be favorable to us, and, if not, they would have a material adverse effect
on our business and financial results.
EMPLOYEES AND CONTRACTORS
As of March 31, 2000, we had approximately 64 full-time employees and
one independent contractor. Of these employees, 43 were in sales and marketing,
10 were in operations, and 12 were in administration. None of our employees are
represented by a labor union. We have experienced no work stoppages and believe
that our employee relations are good.
FACILITIES
Our headquarters are in Richmond, British Columbia, where we
centralize our accounting, marketing and other administrative functions. The
office is home to the our senior management team, our subscription management
system, operations and telemarketing centre. We also maintain offices in
Dartmouth, Nova Scotia to service the Halifax, Nova Scotia area, in
Mississauga, Ontario to service the metroplitan Toronto area, and in Winnipeg,
Manitoba to serve the Prairie provinces and all of our SMATV system customers.
Our Calgary and Edmonton sales representatives work from home offices. We
expect to open our first U.S. sales office in New York in May 2000.
We currently lease all of our facilities. The table below describes
each of our offices and the basic terms of our leases:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
APPROXIMATE
LOCATION OFFICE TYPE SQUARE FEET LEASE EXPIRATION
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Richmond, executive offices, 6,070 December 31, 2001
British Columbia administration, sales (three leases); May 31,
office 2001 (one lease)
-------------------------------------------------------------------------------------------------
Dartmouth, Nova Scotia administration 1,000 May 30, 2001
-------------------------------------------------------------------------------------------------
Winnipeg, Manitoba sales office 1,900 August 31, 2002
-------------------------------------------------------------------------------------------------
Mississauga, Ontario sales office 1,559 July 31, 2004
-------------------------------------------------------------------------------------------------
</TABLE>
*The rental rate for the Ontario premises increases every year to a maximum
amount of $14,028 during the last term year from August 1, 2003 to July 31,
2004.
23
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers and their ages are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Sheldon B. Nelson 38 President, Chief Executive Officer and
Director
Robert A. Biagioni 43 Chief Financial Officer, Secretary and
Director
Gary J. Monaghan 40 President of MDU Canada
</TABLE>
SHELDON B. NELSON. Mr. Nelson has served as President, Chief Executive
Officer and a Director since November 1998. From 1983 to 1998, he was President
of 4-12 Electronics Corporation, a provider of products and services to the
Canadian satellite, cable, broadcasting and SMATV industries.
ROBERT A. BIAGIONI. Mr. Biagioni, a Chartered Accountant, has been the
Chief Financial Officer and a Director since February 2000 and Secretary
since November 1999. From 1986 to present, Mr. Biagioni has been the
President of Corus Financial Group which provides financial and operating
consulting in the United States and Canada, primarily in real estate,
technology and manufacturing. Mr. Biagioni has held senior financial roles
with The HTM Group, First Merchant Group, Telsoft Mobile Data Inc. (now MDSI
Mobile Data Solutions Inc.) and Sand River Resources Ltd. (now Rio Fortuna
Explorations Corp.).
GARY J. MONAGHAN. Mr. Monaghan has served as President of MDU Canada
since November 1999, and from 1998 to November 1999 as Vice President, Sales
and Marketing of MDU Canada. Mr. Monaghan's experience in the cable
television and satellite communications industries started with Rogers Cable
where he was employed from 1983 to 1989. He was Regional Marketing Manager
for Shaw Cablesystems from 1989 to 1994. He ran his own satellite television
company from 1994 until his bankruptcy in 1997. Mr. Monaghan joined 4-12
Electronics Corporation as General Manager in April 1997 until December 1997.
SIGNIFICANT EMPLOYEES
Our significant employees and their ages are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Joseph M. Strang 39 Director of International Sales, MDU Canada
Richard W. Hazell 34 Director of Technical Services, MDU Canada
John W. Mattice 39 Vice President, Finance and Administration,
MDU Canada
Patrick J. Cunningham 32 Vice President, U.S. Operations
</TABLE>
JOSEPH M. STRANG. Mr. Strang joined MDU Canada in 1999 as Vice
President of Direct Sales and Marketing. Mr. Strang was Director of Sales and
Marketing for Westcom Communications from 1996 to 1999. From 1994 to 1996 he was
President of Universal Satellite.
RICHARD W. HAZELL. Mr. Hazell has been our Director of Technical
Services since December 1998. He was a lead technical officer with Scientific
Atlanta in Atlanta, Georgia, responsible for providing marketing and technical
support in Asia, Europe and Latin America from August 1996 to December 1998. In
1991 he founded, constructed and managed a cable television company in British
Columbia and sold the company in 1992. In addition, from 1993 to 1995 he
co-founded a cable television infomercial channel that broadcast throughout
Canada and the U.S.
24
<PAGE>
JOHN W. MATTICE. Mr. Mattice joined us in February 2000 as Vice
President of Finance and Administration. Mr. Mattice is a Chartered Accountant.
He was Chief Financial Officer for Catamaran Ferries International Inc. from
1997 to February 2000, and performed various duties with the Office of the
Group Comptroller, Corporate Services Division and Assistant Controller of B.C.
Hydro from 1992 to 1997. From 1985 to 1991, he was an Audit Senior with Manning
Jamison, Chartered Accountants.
PATRICK J. CUNNINGHAM. Mr. Cunningham joined our company in March 2000
as Vice President of U.S. Operations. Mr. Cunningham is responsible for the
implementation of our business plan and expansion of our operations in the
United States. Mr. Cunningham held various positions with SkyView World Media,
LLC and its subsidiaries from June 1995 to March 2000, and was a maintenance
team leader with Schneider International, Inc. from September 1994 until June
1995.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding compensation paid
during our fiscal years ended September 30, 1998 and 1999, our only two fiscal
years, to our chief executive officer. None of our other most highly
compensated executive officers had annual salaries and bonuses exceeding
$100,000 during those fiscal years.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------- ----------------------------------------------
FISCAL SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY OPTIONS(#) COMPENSATION
- --------------------------- ----------------------- ----------------------------------------------
<S> <C> <C> <C> <C>
Sheldon B. Nelson, President and 1998 -0-(1) -0- -0-
Chief Executive Officer 1999 $50,000 175,000 $7,750(2)
</TABLE>
- --------------------
(1) Mr. Nelson became the President and Chief Executive Officer on July 27,
1998. During fiscal year 1998 the Company did not engage in any business
activities.
(2) Auto allowance.
OPTIONS GRANTED IN FISCAL YEAR 1999
The following table provides information with respect to options
granted during fiscal 1999 to the executive officer named in the Summary
Compensation Table:
<TABLE>
<CAPTION>
NUMBER OF SHARES % OF TOTAL OPTIONS
UNDERLYING OPTIONS GRANTED TO EMPLOYEES EXERCISE PRICE PER
NAME GRANTED IN FISCAL YEAR SHARE (US$) EXPIRATION DATE
---- ---------------------- ---------------------- --------------------- -----------------
<S> <C> <C> <C> <C>
Sheldon B. Nelson 175,000 58% $1.00 11/24/03
</TABLE>
MANAGEMENT AGREEMENTS
Mr. Nelson, Mr. Biagioni and Mr. Monaghan have each entered into a
management agreements with us. Under these agreement, they receive annual
salaries of $180,000, $162,000, and $159,000, respectively. The agreements also
grant them the right to receive bonuses as determined by the Board of Directors
and to participate in our incentive stock option plans. The agreements require
them to maintain all confidential and proprietary information relating to our
business in confidence and to not be employed or enter into contracts with
persons or entities that compete directly with us during the 12 months
following termination of their respective agreements. Mr. Nelson and Mr.
Monaghan's agreement with us are employment agreements and Mr. Biagioni's
agreement is a consulting agreement between us and his corporation, Corus
Financial Corp.
Each of our significant employees listed above is also party to an
employment agreement with us.
25
<PAGE>
COMPENSATION OF DIRECTORS
Our directors do not receive cash compensation for their services as
directors or members of committees of the Board of Directors, but are eligible
to receive stock options. We reimburse directors for their reasonable expenses
incurred in attending meetings.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our Bylaws provide that, to the fullest extent permitted by the
Delaware General Corporation Law (DGCL), we shall indemnify our directors and
officers, and may indemnify its employees and agents. Such indemnification may
be made only if the person to be indemnified acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of our company, and with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. The Bylaws further provide that our company may enter into an
indemnification agreement pursuant to which our company will indemnify a
director, officer, employee or agent to the fullest extent permitted by the
DGCL. At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents in which indemnification is
required or permitted, and we are not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of our company pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
STOCK OPTION PLANS
We currently have two stock option plans under which we may grant
options to purchase shares of our common stock. The plans are summarized as
follows as of March 27, 2000:
<TABLE>
<CAPTION>
AUTHORIZED OPTIONS OPTIONS OPTIONS
PLAN NAME EFFECTIVE DATE OPTIONS GRANTED AVAILABLE EXERCISED
- --------- -------------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
2000 Stock Option Plan February 5, 2000 4,000,000 3,175,360 824,640 125,000
Supplier Stock Option Plan December 31, 1998 215,135 100,000 115,135 0
</TABLE>
Both plans are administered by the board of directors who have sole
discretion and authority to determine individuals eligible for awards. The
conditions of exercise of each grant are determined by the board of directors at
the time of the grant.
2000 STOCK OPTION PLAN. Our 2000 Incentive Stock Option Plan (the
"2000 Plan") authorizes the grant of options to our officers, directors,
employees, consultants and advisors. Our Directors/Officers Non-Qualified Stock
Option Plan and our Employees' Incentive Stock Option Plan were both terminated
and the 265,276 options outstanding under those plans were consolidated into
the 2000 Plan. Upon adopting the 2000 Plan, the board of directors granted an
additional 2,785,084 options to certain of our directors, officers, employees
and consultants at an exercise price of US$5.00 per share. As of March 27,
2000, options to purchase 125,000 shares of common stock had been exercised,
and 3,050,360 options were outstanding. Of the outstanding options, 1,193,609
options are presently exercisable and 1,856,751 options are unvested and vest
over a three-year period.
SUPPLIER PLAN. Our Supplier Stock Option Plan (the "Supplier Plan")
authorizes the grant of a specified number of five-year options to certain key
suppliers if they successfully complete specified work for us. If a supplier
who has received options ceases to be a key supplier, then that supplier's
options expire 30 days after the cessation date. As of March 27, 2000, we had
granted a total of 100,000 options under the Supplier Plan. These options were
exercisable at prices ranging from US$1.50 and US$2.00 and expire between March
2004 and March 2005. Options for 50,000 shares will be granted to one of our
current suppliers upon completion of its specified work. As of March 27, 2000,
all of the outstanding options under the Supplier Plan were currently
exercisable, and no options issued under the Supplier Plan had been exercised.
All of the shares of common stock issuable under these options are being
offered for sale by this prospectus.
26
<PAGE>
CERTAIN TRANSACTIONS
SUPPLY CONTRACT WITH 4-12 ELECTRONICS CORPORATION AND GRANT OF OPTIONS
4-12 Electronics Corporation is a Manitoba corporation owned by Chris
Nelson, who is Sheldon B. Nelson's brother. Sheldon B. Nelson served as
president of 4-12 Electronics Corporation until December 31, 1998. In December
1998, we purchased certain contracts to supply satellite television services to
MDU properties from 4-12 Electronics Corporation for $200,000. The purchase
included the related equipment leases, licenses and satellite reception
equipment located at the SMATV properties. We believe that the amount paid
represented the fair market value of the acquired assets.
CONSULTING SERVICES BY CHRIS NELSON
In December 1998, we granted Chris Nelson a five-year stand-alone
option to purchase 100,000 shares of the Company's common stock at an exercise
price of US$1.50 per share in consideration for consulting services in
connection with transiting assets we purchased from 4-12 Electronics
Corporation. This option may be exercised in whole or in part at any time until
December 31, 2003. As of March 31, 2000, none of these options had been
exercised. All of the shares of common stock issuable under this option are
being offered for sale by this prospectus.
LEGAL PROCEEDINGS
From time to time, we may be subject to legal proceedings which could
have a material adverse effect on our business. The following are summaries of
currently pending legal proceedings.
SHAW CABLESYSTEMS LTD.
Shaw Cablesystems Ltd. commenced a lawsuit against us in the Court of
Queen's Bench of Alberta, Judicial District of Edmonton, on June 25, 1999. Shaw
alleges that our opening of junction boxes constitutes trespass on their
properties and seeks interim and permanent injunctive relief, damages of
$2,000,000, interest and costs. Shaw has agreed with us that no further steps
will be taken in this legal proceeding until we have completed our negotiations
with Shaw with respect to customer connection procedures. If the negotiations
are unsuccessful and Shaw prevailed in this litigation, we would be materially
adversely affected.
WHISTLER CABLE TELEVISION LTD.
Whistler Cable Television Ltd. commenced a lawsuit against us in The
Supreme Court of British Columbia on July 14, 1999. Other defendants are
Whistler Resort Management Ltd. and The Owners, Strata Plan No. LMS3230.
Plaintiff alleges that its personal property was taken and seeks return of its
personal property or damages in the alternative, damages resulting from breach
of the Broadcasting Act, R.S.C. 1991, C.11, an injunction against use of its
personal property, interest and costs. This case is in the pre-discovery phase.
We believe that an unsuccessful defense of this lawsuit would not have a
material adverse effect on us.
PRINCIPAL STOCKHOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 27, 2000 as to
the number of shares of our common stock and Series A convertible preferred
stock beneficially owned by (a) each person (including any "group") known to
own more than 5% of the outstanding common stock or more than 5% of the
outstanding Series A convertible preferred stock, (b) each director, (c) the
executive officer named in the Summary Compensation Table, and (d) all
directors and executive officers as a group. Except as otherwise specified,
each named beneficial owner has sole voting and investment power with respect
to the shares set forth opposite his or its name.
27
<PAGE>
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE PREFERRED
COMMON STOCK STOCK
---------------------------------- ------------------------------------
NAME AND ADDRESS NO. OF SHARES PERCENT NO. OF SHARES PERCENT
OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS BENEFICIALLY OWNED OF CLASS
- ---------------------------- ------------------ -------- ------------------ --------
<S> <C> <C> <C> <C>
Sheldon B. Nelson, President, Chief 1,065,807(1) 7.76% 0 *
Executive Officer and Director
1504 - 170 Hargrave Street
Winnipeg, MB R3C 3H4 CAN
Robert A. Biagioni, Chief Financial 283,333(2) 2.07% 0 *
Officer, Secretary and Director
305 - 250 West Fourth Street
North Vancouver, BC V7M 1H7 CAN
Gary J. Monaghan, President of MDU 733,333(3) 5.45% 0 *
Canada
415 Eastbourne Road
Kelowna, BC V1X 5K7 CAN
Haywood Securities Inc. 856,200(4) 6.02% 547,200 15.04%
Suite 1100, 400 Burrard Street
Vancouver, BC V6C 3A6 CAN
Belvedere Consultancy Ltd. 855,337 6.40% 0 *
c/o Bull Housser & Tupper
3000 - 1055 West Georgia Street
Vancouver, BC V6E 2K3 CAN
Gibralt Capital Corporation 850,000(5) 5.98% 100,000 *
Suite 2000, 1177 West Hastings Street
Vancouver, BC V6E 2K3 CAN
531287 B.C. Ltd. 800,500(6) 5.63% 0 *
Suite 597, 1027 Davie Street
Vancouver, BC V6E 4L2 CAN
Douglas J. Irving 697,150(7) 5.21% 0 *
4331 Candlewood Drive
Richmond, BC V7C 4V9 CAN
Wistaria Trust 694,640 5.19% 0 *
Moore Stephens International
Services (BVI) Limited, in trust
for the Wistaria Trust
Abbot Building, P.O. Box 3186
Road Town Tortola,
British Virgin Islands
BPI Canadian Small Companies Fund 550,000(8) * 550,000 15.12%
151 Yonge Street, Seventh Floor
Toronto, ON M5C 2W7 CAN
Deans Knight Capital Management 200,000(8) * 200,000 5.50%
#730, 999 West Hastings Street
Vancouver, BC V6C 2W2 CAN
Lagunitas Partners LP 320,000(8) * 320,000 8.80%
c/o Gruber & McBaine
50 Osgood Place, PH
San Francisco, CA 94133
All officers and directors as a group 2,082,473(9) 14.76% 0 *
</TABLE>
- --------------------------
* Less than 5%
28
<PAGE>
(1) Includes 699,140 shares held of record or beneficially owned by 567780 BC
Ltd., a British Columbia corporation wholly owned by The Sheldon Nelson
Family Trust whose trustees are Sheldon Nelson and his sister, Nicole
Nelson, and 366,667 shares subject to options exercisable within 60 days.
(2) Includes 283,333 shares subject to options exercisable within 60 days.
(3) Includes 644,640 shares held of record or beneficially owned by 565423 BC
Ltd., a British Columbia corporation wholly owned by Mr. Monaghan, his
spouse and trusts for minor children, and 88,693 shares subject to options
exercisable within 60 days.
(4) Includes 547,200 shares of Series A convertible preferred stock
convertible into 547,200 shares of common stock within 60 days and
warrants to purchase 309,000 shares of common stock exercisable within 60
days.
(5) Includes 100,000 shares of Series A convertible preferred stock
convertible into 100,000 shares of common stock within 60 days and
warrants to purchase 750,000 shares of common stock exercisable within 60
days.
(6) Includes 400,250 shares of common stock and warrants to purchase 400,250
shares of common stock exercisable within 60 days.
(7) Includes 572,150 shares of common stock held of record by 571321
B.C. Ltd., a British Columbia corporation wholly owned by Mr. Irving, his
spouse and children, and 125,000 shares of common stock held of record by
Mr. Irving.
(8) Consists of Series A convertible preferred stock convertible into the
number of shares of common stock shown in the table.
(9) Includes 1,343,780 shares of common stock held beneficially by the
executive officers and directors and options to purchase 738,693 shares of
common stock exercisable within 60 days.
SELLING STOCKHOLDERS
This prospectus relates to the offering by the persons listed below
(collectively, the "Selling Stockholders") for sale of shares of our common
stock acquired in private placement transactions, including those which may be
acquired upon conversion of our Series A convertible preferred stock or upon
exercise of options and warrants. Unless otherwise indicated, shares of common
stock were owned of record on March 27, 2000 by each Selling Stockholder. The
Selling Stockholders are offering the common stock for their own accounts. No
Selling Stockholder, to our knowledge, has had a material relationship with us
during the last three years, other than as an owner of our securities, except
for Haywood Securities Inc. and Douglas J. Irving. Haywood Securities Inc.'s
activities in connection with the sale of our Series A convertible preferred
stock is described under "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Recent Events - Preferred Stock
Offering." Douglas J. Irving was a director and chief financial officer and
secretary from the commencement of our operations until January 31, 2000.
Assuming that all of the shares offered by the Selling Stockholders
are sold, none of the Selling Stockholders will beneficially own any shares of
our common stock after this offering, except for Douglas J. Irving who will
continue to beneficially own 572,150 shares or 4.1% of our outstanding common
stock after the offering.(1)
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF COMMON STOCK BEFORE THE OFFERING
----------------------------------------------------------------------
NUMBER OF SHARES OWNED AND OFFERED
SELLING STOCKHOLDER UNDER THIS PROSPECTUS PERCENT OF CLASS(1)
------------------- --------------------- --------------------
<S> <C> <C>
531287 B.C. Ltd.(2) 800,500 5.65%
666521 Ontario Inc.(3) 58,000 *
ACE Corporation(3) 80,000 *
Aton Select Fund(3) 80,000 *
Avenir Capital Corp.(3) 74,000 *
29
<PAGE>
Banque Privee Edmon De Rothschild SA(3) 40,000 *
Bel Cal Holdings(3) 95,000 *
Belvedere Consultancy Ltd. 855,337 6.01%
BPI Canadian Small Companies Fund(3) 550,000 3.95%
Britcomm Communications Ltd.(4) 60,000 *
Broadwater Capital Corp.(2) 675,000 4.81%
Brunswick Limited(3) 95,000 *
Canaccord Capital Corporation 50,000 *
Capmax Investments Ltd.(3) 26,000 *
Casurina Limited Partnership(3) 150,000 1.11%
CW Marketing Ltd.(3) 40,000 *
Deans Knight Capital Management(3) 200,000 1.47%
Dunrovin Holdings Ltd.(2) 500,000 3.60%
Gibralt Capital Corporation(5) 850,000 5.98%
Glenarriff Investments(3) 40,000 *
Global Strategy Canada Growth Fund(3) 100,000 *
Global Strategy Investment Funds, portfolio 90,000 *
manager for Investors Group Equity Fund(3)
Gruber & McBaine International ITF 100,000 *
Lagunitas Partners LP(3)
Gruber, Jon D.(3) 80,000 *
Haywood Securities Inc. ITF Charles Lyall(2) 266,666 1.96%
Haywood Securities Inc. ITF Lyall
Family Trust(2) 330,000 2.41%
Haywood Securities Inc.(6) 856,200 6.02%
Haywood Securities Inc. ITF Vista
Del Mar Ltd.(2) 266,666 1.96%
Howlett, Martha(3) 28,000 *
Irving, Douglas J. 125,000 *
Jacobs, William(3) 40,000 *
Kaimer Investment Corp.(3) 30,000 *
Lagunitas Partners LP(3) 320,000 2.34%
Lawrence, David 142,399 1.05%
Laxton, John Noel(3) 90,000 *
M.H. Holdings Inc.(7) 420,000 3.05%
Mazur, Stephen J.(3) 40,000 *
Murdoch, Blair(3) 28,000 *
National Bank Financial ITF John Freisen(2) 330,000 2.41%
Navesink Limited(3) 45,000 *
Nelson, Chris(8) 100,000 *
Oceanic Securities Inc. #3(2) 200,000 1.47%
Oceanic Securities Inc. #5(2) 200,000 1.47%
Old Canada Investment Corporation Limited(3) 50,000 *
Providence Securities (Bahamas) Ltd. 125,000 *
Rozel International Holding Limited(2) 266,666 1.96%
Safecrest Ltd.(3) 50,000 *
Sagit Investment Management Ltd.(9) 240,000 1.76%
Simpson, Don(3) 40,000 *
Stephan, Rod(3) 40,000 *
Strand Management Corporation(3) 40,000 *
Thomas, Gren(3) 28,000 *
Tuscarora Capital Inc.(3) 58,000 *
US Global Investors (Guernsey) Ltd.(3) 50,000 *
Vertex One Management Inc.(3) 40,000 *
Winmark Capital Inc.(3) 35,000 *
----------
TOTAL 10,609,434 44.12%
</TABLE>
- ---------------------------
* Less than 1%.
30
<PAGE>
(1) Computed on the basis of the 13,371,820 shares of common stock outstanding
on March 27, 2000 and rights to acquire common stock within 60 days of
March 27, 2000 through conversion of preferred stock and exercise of
warrants and options.
(2) 50% of these shares are issuable upon the exercise of warrants with an
exercise price of US$0.75 or US$1.00 per share. The warrants are currently
exercisable and expire in November 2001 or February 2002.
(3) Consists of Series A convertible preferred stock currently convertible
into common stock.
(4) Consists of common stock issuable upon exercise of currently exercisable
options for between US$1.50 and US$2.00 per share which expire between
April 2004 and March 2005.
(5) Consists of (a) 100,000 shares of Series A convertible preferred stock
which are immediately convertible into common stock, and (b) 750,000
shares of common stock issuable upon exercise of a currently exercisable
warrant at US$2.50 per share which expires in March 2002.
(6) Consists of (a) 547,200 shares of Series A convertible preferred stock
which are immediately convertible into common stock, and (b) 309,000
shares of common stock issuable upon exercise of a currently exercisable
warrant at US$2.50 per share which expires in January 2001.
(7) Includes (a) 165,000 shares of common stock issuable upon exercise of a
currently exercisable warrant at US$0.75 per share which expires in
November 2001, and (b) 40,000 shares of common stock issuable upon the
exercise of currently exercisable options at US$1.50 per share which will
expire in March 2004.
(8) Consists of 100,000 shares of common stock issuable upon the exercise of a
currently exercisable option at US$1.50 per share which expires in
December 2003.
(9) Includes (a) 100,000 shares of common stock issuable upon the exercise of
a currently exercisable warrant at US$1.00 per share which expires in
February 2002, and (b) 40,000 shares of Series A convertible preferred
stock which are immediately convertible into common stock.
PLAN OF DISTRIBUTION
The shares being offered by the Selling Stockholders will be sold from
time to time in one or more transactions (which may involve block transactions):
- on the OTC Bulletin Board or on such other market on which the
common stock may from time to time be trading,
- in privately-negotiated transactions,
- through the writing of options on the shares,
- short sales, or
- any combination of the above.
The sale price to the public may be the market price prevailing at the
time of sale, a price related to such prevailing market price, at negotiated
prices or such other price as the Selling Stockholders determine from time to
time. The shares may also be sold pursuant to Rule 144. The Selling Stockholders
have the sole and absolute discretion not to accept any purchase offer or make
any sale of shares if they deem the purchase price to be unsatisfactory at any
particular time.
The Selling Stockholders may also sell the shares directly to market
makers acting as principals and/or broker-dealers acting as agents for
themselves or their customers. Such broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the Selling Stockholders
and/or the purchasers of shares for whom such broker-dealers may act as agents
or to whom they sell as principal or both, which compensation as to a
particular
31
<PAGE>
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and at
their own risk. It is possible that a selling stockholder will attempt to sell
shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price. There
can be no assurance that all or any of the shares offered by this prospectus
will be issued to, or sold by, the Selling Stockholders. The Selling
Stockholders and any brokers, dealers or agents, upon effecting the sale of any
of the shares offered by this prospectus, may be deemed "underwriters" as that
term is defined under the Securities Act of 1933 or the Securities Exchange Act
of 1934, or the rules and regulations thereunder.
The Selling Stockholders, alternatively, may sell all or any part of
the shares offered by this prospectus through an underwriter. No Selling
Stockholder has entered into an agreement with a prospective underwriter. If a
Selling Stockholder enters into such an agreement or agreements, the relevant
details will be set forth in a supplement or revision to this prospectus.
The Selling Stockholders and any other persons participating in the
sale or distribution of the shares will be subject to applicable provisions of
the Securities Exchange Act of 1934 and the rules and regulations thereunder,
including, without limitation, Regulation M, which may restrict certain
activities of, and limit the timing of purchases and sales of any of the shares
by the Selling Stockholders or any other such person. Furthermore, under
Regulation M, persons engaged in a distribution of securities are prohibited
from simultaneously engaging in market making and certain other activities with
respect to such securities for a specified period of time prior to the
commencement of such distributions, subject to specified exceptions or
exemptions. All of these limitations may affect the marketability of the shares.
We have agreed to indemnify certain of the Selling Stockholders,
against certain liabilities, including liabilities under the Securities Act of
1933, or to contribute to payments such Selling Stockholders may be required to
make in respect of such liabilities.
DESCRIPTION OF CAPITAL STOCK
The following description of our securities and various provisions of
our Certificate of Incorporation are summaries and are not necessarily
complete. Reference is made to the Certificate of Incorporation, a copy of
which has been filed with the SEC as an exhibit to our registration statement
of which this prospectus constitutes a part, for a more complete description.
Our authorized capital stock consists of (a) 50,000,000 shares of
common stock, par value US$0.001 per share, of which 13,371,820 shares were
issued and outstanding as of March 27, 2000 and (b) 5,000,000 shares of
preferred stock, par value US$0.001 per share. 4,100,000 shares of our
preferred stock have been designated Series A convertible preferred stock, of
which 3,637,200 were issued and outstanding as of March 27, 2000.
COMMON STOCK
Holders of common stock are entitled to one vote per share on all
matters submitted to a vote of the stockholders, including the election of
directors. The common stock carries no preemptive rights and is not
convertible, redeemable or assessable. The holders of common stock are entitled
to dividends in such amounts and at such times as may be declared by the Board
of Directors out of legally available funds. If we go into liquidation,
dissolution or winding up, the holders of common stock are entitled to ratably
receive our net assets available after payment or provision for payment of all
debts and other liabilities, subject to prior rights of holders of preferred
stock then outstanding, if any. All outstanding shares of common stock are
fully paid and nonassessable.
PREFERRED STOCK
Our Certificate of Incorporation authorizes the issuance of 5,000,000
shares of preferred stock which may be issued in series with the powers,
designations, preferences and relative rights of each series to be provided for
in resolutions adopted by the board of directors pursuant to the authority to
do so set forth in our Certificate of Incorporation.
Our Board of Directors approved a certificate of designation creating
a series of preferred stock designated as the Series A convertible preferred
stock, and authorizing the issuance of up to 4,100,000 shares of Series A
convertible
32
<PAGE>
preferred stock, which was filed with the Delaware Secretary of State effective
January 26, 2000. The following is a summary of the rights and preferences of
the Series A convertible preferred stock:
- - DIVIDENDS: The Series A convertible preferred stock does not bear any
dividends. However, so long as Series A convertible preferred stock is
outstanding, no dividends may be declared on the common stock or any other
subsequently designated and issued junior securities without the prior
consent of the holders of a majority of the outstanding shares Series A
convertible preferred stock.
- - LIQUIDATION PREFERENCE: In the event of our Company's bankruptcy,
insolvency, appointment of a receiver, dissolution or similar events and
there are assets and funds available for distribution to the holders of our
capital stock, the holders of the outstanding shares of Series A
convertible preferred stock will receive an amount equal to US$2.50 per
share, plus an amount equal to all declared and unpaid dividends on the
Series A convertible preferred stock, prior to any distribution to the
holders of common stock or any junior stock. Holders of the Series A
convertible preferred stock shall not be entitled to any further
distribution in the event of any liquidation, dissolution or winding-up of
our affairs. If our assets are not sufficient to pay in full the
liquidation payments payable to the holders of outstanding Series A
convertible preferred stock, then the holders shall share equally and
ratably in the distribution of assets in proportion to the full liquidation
preference, including all declared and unpaid dividends, to which each is
entitled. Neither the sale, conveyance, exchange or transfer (for cash,
shares of stock, securities or other consideration) of all or substantially
all of our property or assets nor the consolidation or merger of our
Company with or into one or more entities shall be deemed to be a
liquidation, dissolution or winding-up of our affairs.
- - CONVERSION RIGHTS: The Series A convertible preferred stock is immediately
convertible, at the option of the holder, into our common stock at a
conversion ratio of one share of common stock for one share of Series A
convertible preferred stock until the Qualification Date, defined as the
earlier of (i) the date we receive a receipt for a final prospectus from
the British Columbia Securities Commission and a registration statement for
sale of the common stock issuable upon conversion of the Series A
convertible preferred stock is effective under the Securities Act of 1933,
or (ii) January 28, 2001. If the Qualification Date has not occurred by
June 26, 2000, the conversion ratio is 1.15 shares of common stock for each
share of Series A convertible preferred stock. The conversion ratio is also
subject to adjustment as a result of stock splits, stock dividends, merger,
consolidation or exchange of shares for periods during which the
registration statement of which this prospectus is a part is not effective.
- - AUTOMATIC CONVERSION: If any of the Series A convertible preferred stock
has not been converted by the holders during the earlier of (a) five days
after the date of this prospectus, or (b) January 28, 2001, such Series A
convertible preferred stock shall be automatically converted into common
stock without any further action on the part of the holders.
- - VOTING RIGHTS: The holders of Series A convertible preferred stock will be
entitled to receive notice of and to attend all meetings of our
stockholders, to vote on all matters, including without limitation the
election of directors, and will be entitled to one vote per share. Except
as otherwise required under the Delaware General Corporate Law, the holders
of the Series A convertible preferred stock and the holders of the common
stock shall vote together and not as separate classes.
WARRANTS AND OPTIONS
WARRANTS
As of March 27, 2000, we had issued warrants to purchase 3,241,749
shares of our common stock outstanding, including warrants to purchase 309,000
shares of common stock issued to Haywood Securities Inc. in connection with our
Series A convertible preferred stock offering. All of the shares underlying
these warrants are being registered for sale under this prospectus. The
warrants contain exercise prices ranging from US$0.75 to US$2.50 per share, and
expire between November 2001 and March 2002.
OPTIONS
As of March 27, 2000, we had outstanding options to purchase 3,250,360
shares of our common stock, consisting of 3,050,360 options outstanding under
our 2000 Plan, 100,000 options outstanding under our Supplier Plan, and 100,000
options outstanding on a stand-alone basis. See "Management - Executive
Compensation - Benefit Plans" and "Certain Transactions". The shares of common
stock issuable upon exercise of the Supplier Plan options (plus
33
<PAGE>
50,000 options not yet issued under the Supplier Plan) and the stand-alone
options are being registered for sale under this prospectus.
REGISTRATION RIGHTS
Under a registration rights agreement with the holders of the Series A
convertible preferred stock, we agreed to register the shares of common stock
issuable upon conversion of shares of Series A convertible preferred stock.
This prospectus is part of the registration statement intended to satisfy this
obligation. The registration rights agreement requires us to file a
registration statement with respect to the shares and to have the registration
statement be declared effective by June 26, 2000. We must also keep the
registration statement effective until all of the common stock offered pursuant
to such registration statement has been sold. We are responsible for the
payment of all of our fees and costs associated with the registration of the
common stock covered by the registration statement. We are required to
indemnify and hold harmless each holder of such common stock and its
representatives against: (1) any untrue statement of a material fact in the
registration statement; (2) any untrue statement or alleged untrue statement
contained in any preliminary prospectus if used prior to the effective date of
the registration statement; or (3) any violation or alleged violation of the
Securities Act of 1933 or the Exchange Act of 1934. Under the registration
rights agreement, the holders of the Series A convertible preferred stock also
have the right to include all or a part of their common stock in a registration
filed by us for purposes of a public offering in the event that we fail to
satisfy our other obligations as to the registration of the common stock
acquired by them.
We have also agreed to register the shares underlying certain of the
warrants held by certain of the Selling Stockholders for sale under this
prospectus.
DELAWARE ANTI-TAKEOVER LAW
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW.
If our common stock is authorized for quotation on the NASDAQ Stock
Market, we will be subject to the provisions of Section 203 of the Delaware
Corporation Law ("Section 203") regulating corporate takeovers. Section 203
prevents certain Delaware corporations, including those whose securities are
quoted on the NASDAQ Stock Market, from engaging, under certain circumstances,
in a "business combination" with any "interested stockholder" (a stockholder
who acquired 15% or more of a corporation's outstanding voting stock without
the prior approval of a corporation's board of directors) for three years
following the date that such stockholder became an "interested stockholder." A
Delaware corporation may "opt out" of Section 203 with an express provision in
its original certificate of incorporation, or an express provision in its
bylaws resulting from a stockholders' amendment approved by at least a majority
of the outstanding voting shares. We have not "opted out" of the application of
Section 203.
CHARTER PROVISIONS WITH ANTI-TAKEOVER EFFECTS.
Our Certificate of Incorporation contains provisions that may have the effect
of discouraging certain transactions involving an actual or threatened change
in control of our company. The Certificate of Incorporation grants to the board
of directors the authority to issue shares of preferred stock in one or more
series without stockholder approval. The ability to issue such preferred stock
could have the effect of discouraging unsolicited acquisition proposals or
making it more difficult for a third party to commence such acquisition.
TRANSFER AGENT AND REGISTRAR
Corporate Stock Transfer Corp. is the transfer agent and registrar for
our common stock.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The following changes of independent accountants have occurred:
1. Nelson, Mayoka & Company, P.C. were principal independent
accountants for Alpha Beta Holdings, Ltd. and audited its balance sheet at
September 30, 1998 and the related statements of operations, stockholders'
equity and cash flows for the fiscal year ended September 30, 1998.
34
<PAGE>
2. Deloitte & Touche LLP were principal independent accountants for
MDU Communications International, Inc. and audited its balance sheet as at
September 30, 1999 and September 30, 1998 and the related consolidated
statements of operations, shareholders' equity (deficit) and cash flows for the
year ended September 30, 1999 and the period from inception, March 26, 1998 to
September 30, 1998, and are expected to continue as our principal independent
accountant. Deloitte & Touche LLP were engaged to be our principal independent
accountants on or about August 18, 1999.
In connection with the change of principal independent accountants:
(i) Nelson, Mayoka & Company, P.C. was dismissed on or about November 2,
1998, the date Alpha Beta Holdings, Ltd. completed the acquisition of
all of the issued and outstanding stock of MDU Communications, Inc.
(ii) None of the principal accountant's reports on the financial statements
described above contained an adverse opinion or disclaimer of opinion
and none were modified as to uncertainty, audit scope, or accounting
principles.
(iii) The decision to change accountants was approved by the board of
directors.
(iv) There were no disagreements with Nelson, Mayoka & Company, P.C. on any
matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
LEGAL MATTERS
The validity of the issuance of common stock offered by this
prospectus has been passed upon for us by Davis Wright Tremaine LLP, Seattle,
Washington.
EXPERTS
The balance sheets as of September 30, 1998 and 1999, and the
statements of operations, changes in stockholders' equity (deficit) and cash
flows for the year ended September 30, 1999, the period from inception of the
development stage to September 30, 1999, and the period from inception,
March 26, 1998 to September 30, 1998, included in this prospectus and the
related financial statement schedules included elsewhere in the registration
statement have been audited by Deloitte & Touche LLP, independent auditors,
as stated in their reports appearing herein and elsewhere in the registration
statement of which this prospectus is a part, and have been so included in
reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission (SEC) a
registration statement on Form SB-2. This prospectus, which is a part of the
registration statement, does not contain all of the information included in the
registration statement. Certain information is omitted and you should refer to
the registration statement and its exhibits. With respect to references made in
this prospectus to any contract, agreement or other document of MDU
Communications, such references are not necessarily complete and you should
refer to the exhibits attached to the registration statement for copies of the
actual contract, agreement or other document. You may review a copy of the
registration statement, including exhibits, at the SEC's public reference room
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 or Seven
World Trade Center, 13th Floor, New York, New York 10048 or Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Please call the
SEC at 1-800-SEC-0330 for further information on the operation of the public
reference rooms.
We also file annual, quarterly and current reports, proxy statements
and other information with the SEC. You may read and copy any reports,
statements or other information on file at the public reference rooms. You can
also request copies of these documents, for a copying fee, by writing to the
SEC.
35
<PAGE>
Our SEC filings and the registration statement can also be reviewed by
accessing the SEC's Internet site at http://www.sec.gov, which contains
reports, proxy and information statements and other information regarding
registrants that are filed electronically with the SEC.
36
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report...................................................................................F-2
Consolidated Balance Sheets....................................................................................F-3
Consolidated Statements of Operations..........................................................................F-4
Consolidated Statement of Cash Flows...........................................................................F-5
Consolidated Statement of Shareholders' Equity (Deficit).......................................................F-6
Notes to the Consolidated Financial Statements.................................................................F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
MDU Communications International, Inc.
(A development stage company)
We have audited the accompanying consolidated balance sheets of MDU
Communications International, Inc. (a development stage company) as at
September 30, 1999 and 1998, and the related consolidated statements of
operations, shareholders' equity (deficit) and cash flows for the year ended
September 30, 1999, the period from inception of the development stage to
September 30, 1999, and the period from inception, March 26, 1998, to
September 30, 1998. 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 in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company (a development stage
company) as at September 30, 1999 and 1998 and the results of its operations and
cash flows for the year ended September 30, 1999, the period from inception of
the development stage to September 30, 1999, and the period from inception,
March 26, 1998, to September 30, 1998 in accordance with accounting principles
generally accepted in the United States.
As discussed in Note 16, the accompanying consolidated financial statements have
been restated.
/s/ Deloitte & Touche LLP
Chartered Accountants
Vancouver, British Columbia
December 3, 1999 (except for Note 16
for which the date is February 3, 2000)
COMMENTS BY AUDITORS FOR U.S. READERS ON
CANADA--U.S. REPORTING CONFLICTS
To the Shareholders of
MDU Communications International, Inc.
(A development stage company)
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
Note 2 to the consolidated financial statements. Our report to the shareholders
dated December 3, 1999 (except for Note 16 for which the date is February 3,
2000) is expressed in accordance with Canadian reporting standards, which do not
permit reference to an uncertainty in the Independent Auditors' Report when the
uncertainty is adequately disclosed in the financial statements.
/s/ Deloitte & Touche LLP
Chartered Accountants
Vancouver, British Columbia
December 3, 1999 (except for Note 16
for which the date is February 3, 2000)
F-2
<PAGE>
MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN CANADIAN DOLLARS)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, September 30, September 30,
1999 1999 1998
------------ ------------------- -------------
(Unaudited) (As restated - see
Note 16)
<S> <C> <C> <C>
ASSETS
CURRENT
Cash $ 68,324 $ 43,621 $ 19,506
Prepaid expenses and deposits 30,002 15,407 7,593
Accounts receivable
Trade 321,424 178,607 --
Sales tax and other 34,057 79,847 --
- -------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 453,807 317,482 27,099
PROPERTY AND EQUIPMENT, net (Note 5) 3,503,470 3,556,386 47,033
INTANGIBLE ASSETS
(net of accumulated amortization of $29,814;
September 30, 1999 - $22,361) 119,257 126,710 --
- -------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 4,076,534 $ 4,000,578 $ 74,132
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
LIABILITIES
CURRENT
Accounts payable $ 1,541,608 $ 1,648,193 $ 15,867
Wages payable 10,000 37,451 --
Other accrued liabilities 172,187 106,604 5,950
Notes payable (Note 6) 828,349 829,644 150,000
- -------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 2,552,144 2,621,892 171,817
- -------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS' EQUITY (Deficit)
Share capital (Note 7) 3,906,565 1,559,720 160
Share purchase options 649,445 649,445 --
Share subscriptions received (Note 8) 257,638 1,793,026 --
Accumulated deficit (3,289,258) (2,623,505) (97,845)
- -------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY (Deficit) 1,524,390 1,378,686 (97,685)
- -------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 4,076,534 $ 4,000,578 $ 74,132
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
CONTINUING OPERATIONS (Note 2)
See accompanying notes to the consolidated financial statements
F-3
<PAGE>
MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period For the period For the period
from inception from inception from inception
the development For the three For the three of the development For the March 26,
stage to months ended months ended stage to Year ended 1998
December 31, December 31, December 31, September 30, September 30, to September 30,
1999 1999 1998 1999 1999 1998
--------------- ------------- ------------- ------------------ ------------- ---------------
(Unaudited) (Unaudited) (Unaudited) (As restated - (As restated
see Note 16) --see Note 16)
<S> <C> <C> <C> <C> <C> <C>
REVENUE $ 878,586 $ 311,888 $ 1,944 $ 566,698 $ 566,698 $ --
DIRECT COSTS 522,521 182,951 1,854 339,570 339,570 --
- ----------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 356,065 128,937 90 227,128 227,128 --
- ----------------------------------------------------------------------------------------------------------------------------------
SALES EXPENSE 1,683,412 332,023 115,790 1,351,389 1,351,389 --
- ----------------------------------------------------------------------------------------------------------------------------------
GENERAL AND ADMINISTRATIVE
EXPENSES
Advertising and promotion 116,257 7,085 -- 109,172 78,014 31,158
Amortization 325,553 130,293 5,610 195,260 195,260 --
Consulting 230,570 53,125 177,445 177,445 177,445 --
Foreign exchange loss (gain) (57,017) (96,512) -- 39,495 39,495 --
Interest 59,702 25,353 1,461 34,349 32,321 2,028
Investor Relations 42,977 42,977 7,850 -- -- --
Management fees 26,500 -- -- 26,500 -- 26,500
Office 73,409 16,241 7,529 57,168 54,103 3,065
Occupancy 102,873 33,044 3,563 69,829 64,429 5,400
Professional fees 222,472 78,775 (1,876) 143,697 130,114 13,583
Repairs and maintenance 19,747 8,446 321 11,301 11,301 --
Telephone 76,646 25,592 2,107 51,054 48,342 2,712
Travel 64,268 14,617 6,840 49,651 38,826 10,825
Vehicle 20,189 5,700 2,378 14,489 11,915 2,574
Wages 637,765 117,931 263,700 519,834 519,834 --
- ----------------------------------------------------------------------------------------------------------------------------------
1,961,911 462,667 476,928 1,499,244 1,401,399 97,845
- ----------------------------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD $ (3,289,258) $ (665,753) $ (592,628) $ (2,623,505) $ (2,525,660) $ (97,845)
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
BASIC AND DILUTED
LOSS PER COMMON SHARE $ (0.06) $ (0.07) $ -- $ (0.28) $ (0.02)
- ----------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 10,347,710 8,852,639 -- 9,114,668 8,581,335
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements
F-4
<PAGE>
MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(EXPRESSED IN CANADIAN DOLLARS)
(AMOUNTS FOR THE PERIOD SUBSEQUENT TO SEPTEMBER 30, 1999 ARE UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION> Share
Subscriptions Warrants/options
Common stock Received to purchase shares
------------------------ --------------------- ------------------ Accumulated
Shares Amount Shares Amount Amount Deficit Total
---------- ----------- -------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issued for cash at inception,
March 26, 1998 160 $ 160 -- $ -- $ -- $ -- $ 160
Net loss for the period
from inception (March 26, 1998)
to September 30, 1998 -- -- -- -- -- (97,845) (97,845)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1998 160 160 -- -- -- (97,845) (97,685)
- ------------------------------------------------------------------------------------------------------------------------------------
Issued for cash 3,367,500 50,155 -- -- -- -- 50,155
Issued on business acquisition
(Note 7) 5,213,675 35,222 35,222
Exercise of warrants 640,000 1,474,183 -- -- -- -- 1,474,183
Grant of employees' options -- -- -- -- 222,000 -- 222,000
Suppliers' options issued
and issuable -- -- -- -- 250,000 -- 250,000
Issue of options to consultant -- -- -- -- 177,445 -- 177,445
Issued for cash (net of expenses
of the issue of $176,437) -- -- 670,000 1,544,924 -- -- 1,544,924
Issued for cash -- -- 420,000 248,102 -- -- 248,102
Net loss for the year
ended September 30, 1999 -- -- -- -- -- (2,525,660) (2,525,660)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1999
(as restated see Note 16) 9,221,335 $ 1,559,720 1,090,000 $ 1,793,026 $ 649,445 $(2,623,505) $ 1,378,686
- ------------------------------------------------------------------------------------------------------------------------------------
Issued for subscriptions 1,090,000 1,793,026 (1,090,000) (1,793,026) -- -- --
Issued for cash 1,062,750 500,694 -- -- -- -- 500,694
Issued for services 100,000 53,125 -- -- -- 53,125
Issued for cash -- -- 225,000 257,638 -- -- 257,638
Net loss for the three months
ended December 31, 1999 -- -- -- -- -- (665,753) (665,753)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 11,474,085 $ 3,906,565 225,000 $ 257,638 $ 649,445 $(3,289,258) $ 1,524,390
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements
F-5
<PAGE>
MDU COMMUNICATIONS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period For the period For the period
from inception from inception from inception
the development For the three For the three of the development For the March 26,
stage to months ended months ended stage to Year ended 1998
December 31, December 31, December 31, September 30, September 30, to September 30,
1999 1999 1998 1999 1999 1998
--------------- ------------- ------------- ------------------ ------------- ---------------
(Unaudited) (Unaudited) (Unaudited) (As restated--see (As restated
Note 16) --see Note 16)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss for the period $ (3,289,258) $ (665,753) $ (592,628) $ (2,623,505) $ (2,525,660) $ (97,845)
Adjustments to reconcile
net loss for the period
to cash used in
operating activities
Amortization 325,553 130,293 5,610 195,260 195,260 --
Non-cash portion of wages
expense (Note 7 (c)(ii)) 222,000 -- 222,000 222,000 222,000 --
Non-cash consulting expense
(Note 7 (c)(iii)) 177,445 -- 177,445 177,445 177,445 --
Non-cash portion of sales
expense (Note 7 (c)(i)) 131,149 15,000 50,000 116,149 116,149 --
Consulting fee settled
with shares 53,125 53,125 -- -- -- --
Change in operating assets
and liabilities:
Prepaid expenses and deposits (30,002) (14,595) (46,511) (15,407) (7,814) (7,593)
Accounts receivable (355,481) (97,027) (32,761) (258,454) (258,454) --
Accounts payable 1,541,608 (106,585) 58,647 1,648,193 1,632,326 15,867
Wages payable 10,000 (27,451) -- 37,451 37,451 --
Other accrued liabilities 155,892 49,288 30,148 106,604 100,654 5,950
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating
activities (1,057,969) (663,705) (128,050) (394,264) (310,643) (83,621)
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Cash acquired on acquisition
of subsidiary (Note 4) 35,222 -- 35,222 35,222 35,222 --
Purchase of property and
equipment (3,665,357) (69,923) (314,034) (3,595,435) (3,548,402) (47,033)
Purchase of intangible assets (149,071) -- (157,689) (149,071) (149,071) --
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in
investing activities (3,779,206) (69,923) (436,501) (3,709,284) (3,662,251) (47,033)
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from notes payable 275,000 -- 125,000 275,000 125,000 150,000
Repayment of notes payable (275,000) -- (275,000) (275,000) (275,000) --
Proceeds from convertible
notes payable 829,644 -- -- 829,644 829,644 --
Proceeds from issue of
common stock 551,007 500,693 50,154 50,315 50,155 160
Proceeds from exercise
of warrants 1,474,184 -- 1,474,184 1,474,184 1,474,184 --
Proceeds from share
subscriptions received 2,050,664 257,638 -- 1,793,026 1,793,026 --
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by
financing activities 4,905,499 758,331 1,374,338 4,147,169 3,997,009 150,160
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH 68,324 24,703 809,787 43,621 24,115 19,506
CASH, BEGINNING OF PERIOD -- 43,621 19,506 -- 19,506 --
- ----------------------------------------------------------------------------------------------------------------------------------
CASH, END OF PERIOD $ 68,324 $ 68,324 $ 829,293 $ 43,621 $ 43,621 $ 19,506
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid $ 10,863 $ 7,030 $ 3,833 $ 32,321 $ 32,321 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Interest received $ 5,504 $ 38 $ 96 $ 5,466 $ 5,466 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Income taxes paid $ -- $ -- $ -- $ -- $ -- $ --
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SUPPLEMENTAL CASH FLOW DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
During the year ended September 30, 1999, the Company recorded non-cash
additions to property and equipment in the amount of $133,851 representing the
fair value of share purchase options issued to suppliers. See Note 7 (c)(i).
During the three months ended December 31, 1999, the Company issued 100,000
common shares valued at $53,125 in exchange for services (Note 7 (b)).
See accompanying notes to the financial statements
F-6
<PAGE>
MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
IS UNAUDITED)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
Prior to the acquisition described in Note 4 below, MDU Communications
International, Inc. (formerly Alpha Beta Holdings, Ltd.)
("International" or the "Company") was essentially inactive. On
November 2, 1998 the Company agreed to acquire all of the issued and
outstanding common shares of MDU Communications Inc. ("MDU") and on
November 24, 1998, the Company changed its name from Alpha Beta
Holdings, Ltd. to MDU Communications International, Inc. MDU, a
Canadian incorporated telecommunications company, is a national system
operator for Star Choice Communications, Inc. and provides delivery of
home entertainment and information technology to residents of
multi-dwelling units such as apartment buildings, condominiums, gated
communities, hotels and motels.
The acquisition of MDU has been accounted for as a reverse acquisition
on the basis that the former shareholders of MDU now control the
affairs of the Company. As a result, these consolidated financial
statements of the Company include the accounts of International (the
accounting subsidiary) and MDU (the accounting parent) for the period
subsequent to the effective date of the reverse acquisition described
in Note 4. The comparative figures for periods prior to the reverse
acquisition represent the historical results of operations, cash flows
and financial position of the accounting parent, MDU.
2. CONTINUING OPERATIONS
The financial statements have been prepared on the going concern basis
of accounting which contemplates realization of assets and liquidation
of liabilities in the ordinary course of business. The Company has
limited financial resources, has incurred operating losses since
inception and does not expect to generate profitable operations until
fiscal 2001 or later. In addition, on September 20, 1999, the Company
received a demand for payment with respect to outstanding notes payable
with a principle value of $733,652. The Company has negotiated an
extension to the repayment terms of these notes to June 30, 2000. The
Company has also negotiated an extension to the repayment terms of
notes payable in the amount of $95,992 until February 28, 2000. The
Company's funding of its initial operating expenses, working capital
needs and capital commitments is dependent upon its ability to raise
additional financing. The Company is currently pursuing both equity and
debt securities and has engaged an investment banker to assist it in
raising financing through a public equity offering. There can be no
assurance that the Company will be successful in its efforts to raise
additional financing through these offerings or, if available, that the
Company will be able to obtain it on acceptable terms and continue as a
going concern. The financial statements do not include any adjustments
that might result from the outcome of these uncertainties. Adjustments,
if any, would affect the carrying value and classification of assets
and liabilities and the amount of the net loss and accumulated deficit.
Subsequent to December 31, 1999 the Company issued 3,637,200 Series A
convertible Preferred Stock in exchange for cash proceeds of
US$7,725,000 ($10,915,186) (Note 15).
F-7
<PAGE>
MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
IS UNAUDITED)
- --------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with
accounting principles generally accepted in the United States and
reflect the significant accounting polices described below. In the
opinion of management all adjustments necessary to present fairly the
financial position, results of operations and cash flows at December
31, 1999 and for all interim periods presented have been made. Interim
results are not necessarily indicative of results for a full year.
(A) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements are issued under the
name of the Company, being the legal parent, but are
considered a continuation of the activities and operations of
MDU Communications Inc. (see Note 4). All inter-company
balances and transactions are eliminated.
(B) DEVELOPMENT STAGE ENTERPRISE
The Company is a development stage enterprise as defined in
Statement of Financial Accounting Standard ("SFAS") No. 7,
"Accounting and Reporting by Development Stage Enterprises."
The Company's planned principal operations have commenced, but
there has been no significant revenue therefrom. At present,
the Company is devoting most of its efforts to activities such
as raising capital, research and development of bundled
technological services with its Direct To Home TV services to
multi-dwelling unit properties and developing customer
markets.
(C) USE OF ESTIMATES
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
F-8
<PAGE>
MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
IS UNAUDITED)
- --------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated
amortization. Costs of connecting and disconnecting service
are expensed. Amortization of property and equipment is
provided using the declining balance method at the following
rates:
Telecommunications equipment, installed 14.5%
Computer equipment 20%
Furniture and fixtures 20%
Direct costs of placing telecommunications equipment into
service and major improvements are capitalized.
The Company performs a review for the impairment of long-lived
assets whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Under Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets To Be Disposed Of" an impairment loss is
recognized when estimates of future cash flows expected to
result from the use of an asset and its eventual disposition
are less than its carrying amount. No impairment losses have
been identified by the Company for the three months ended
December 31, 1999 and 1998; year ended September 30, 1999 and
the period from inception, March 26, 1998 to September 30,
1998.
(E) INTANGIBLE ASSETS
Intangible assets consist of a customer list and related
contracts which were acquired from a relative of the president
of the Company and are being amortized on the straight-line
basis over five years. Management regularly reviews the
carrying value of intangible assets based upon future expected
cash flows. To date, no impairment has been indicated.
F-9
<PAGE>
MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
IS UNAUDITED)
- --------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(F) REVENUE RECOGNITION
The Company recognizes revenue on provision of satellite
programming to customers in the period the related services
are provided.
(G) LOSS PER COMMON SHARE
Basic loss per share is computed by dividing net loss
applicable to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of
securities by including other common share equivalents,
including stock options and redeemable convertible notes
payable, in the weighted average number of common shares
outstanding for a period, if dilutive. For the three months
ended December 31, 1999 and December 31, 1998, the year ended
September 30, 1999 and the period from inception, March 26,
1998, to September 30, 1998, basic and diluted loss per common
share are equivalent as the effect of common shares issuable
upon the exercise of options or warrants or on conversion of
debt would be anti-dilutive. As of December 31, 1999 the
Company had outstanding securities and subscriptions which
were convertible into 1,398,157 (March 31, 2000 - 10,129,309)
common shares which would be potentially dilutive in the
future.
(H) FOREIGN EXCHANGE
The accounts of the Company and its foreign subsidiaries are
expressed in Canadian dollars, its functional currency.
Monetary assets and liabilities denominated in foreign
currencies are translated at the rate in effect at the balance
sheet date. Other balance sheet items and revenues and expense
are translated at the rates prevailing on the respective
transaction dates. Translation gains and losses relating to
current monetary items and revenue and expenses denominated in
foreign currencies are included in income.
(I) STOCK-BASED COMPENSATION
As permitted under SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company has accounted for employee and
director stock options in accordance with Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and has made the pro forma disclosures
required by SFAS No. 123 in Note 7.
F-10
<PAGE>
MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
IS UNAUDITED)
- --------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(I) STOCK-BASED COMPENSATION (CONTINUED)
Under APB No. 25, compensation charges arise from those
situations where options are granted at an exercise price
lower than the fair value of the underlying common shares.
These amounts are amortized as a charge to operations over the
vesting periods of the stock options.
Stock-based compensation charges to other than employees are
recorded over the period that the related stock option or
warrant is earned. The amount of the compensation is based on
the fair value of the option or warrant at the applicable
measurement date.
(J) COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income," established
standards for the reporting and display of comprehensive
income and its components (revenue, expenses, gains and
losses) in a full set of general-purpose financial statements.
The Company has no comprehensive income items, other than the
net loss, in any of the periods presented.
(K) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's cash, accounts receivable,
accounts payable, accrued liabilities at September 30, 1998
and 1999 and December 31, 1999 and the $150,000 note payable
outstanding at September 30, 1998 are estimated to approximate
their carrying values due to the relative liquidity or
short-term nature of these instruments. Due to the short term
maturities of the convertible notes payable, the fair value of
these convertible instruments are also estimated to
approximate the book value at September 30, 1999 and at
December 31, 1999.
(L) CREDIT CONCENTRATION
Financial instruments that potentially subject the Company to
a concentration of credit risk consist principally of accounts
receivable. Accounts receivable from Star Choice
Communications, Inc. (Note 10) at December 31, 1999,
represented 78% of total trade accounts receivable (September
30, 1999 - 76%; September 30, 1998 - Nil%). The Company
provides an allowance for bad debts based on historical
experience and specifically identified risk. At September 30,
1999, September 30, 1998 and December 31, 1999 there was no
allowance for doubtful accounts.
F-11
<PAGE>
MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
IS UNAUDITED)
- --------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(M) RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the Accounting Standards Executive Committee of
the American Institute of Certified Public Accounts issued
Statement of Position 98-5, "Reporting on the Costs of
Start-up Activities" (SOP 98-5). Under SOP 98-5, the cost of
start-up activities should be expensed as incurred. The
Company expects that the adoption of SOP 98-5 will not have a
material impact on its financial position or results of
operations. The Company will be required to adopt SOP 98-5 in
fiscal 2000.
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and hedging
activities. SFAS No.133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement
of financial position and measure those instruments at fair
value. In 1999, SFAS No. 137 delayed the required
implementation by the Company of SFAS No. 133 to fiscal year
2001. The effect of implementation of SFAS No. 133 on the
Company's financial position or results of operations has not
been determined.
4. ACQUISITION OF SUBSIDIARY
On November 22, 1998, the Company completed the acquisition of all of
the issued and outstanding common shares of MDU in exchange for
5,213,835 common shares of the Company.
The business combination of the Company and MDU has been accounted for
as a reverse acquisition whereby MDU was identified as the acquirer and
the assets and liabilities of the Company were acquired by MDU at fair
value. Fair value has been estimated as $35,222 being the amount of the
sole asset, cash, of International at the date of acquisition. In
accordance with generally accepted accounting principles for reverse
acquisitions these consolidated financial statements reflect the
historical results of MDU since its formation, and the MDU assets and
liabilities at their historic cost. The operations of the Company,
being the legal parent and accounting subsidiary, are reflected from
November 22, 1998 and its assets and liabilities are reflected at their
fair value at the date of acquisition.
Net assets of the Company at date of
acquisition are as follows:
<TABLE>
<S> <C>
Assets
Cash $ 35,222
Liabilities --
- ---------------------------------------------------------------------------------
Net assets acquired $ 35,222
</TABLE>
F-12
<PAGE>
MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
IS UNAUDITED)
- --------------------------------------------------------------------------------
5. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
December 31, September 30, September 30,
1999 1999 1998
------------ ------------- -------------
(Unaudited) (As restated
see Note 16)
<S> <C> <C> <C>
Telecommunications equipment, installed $3,474,828 $3,295,475 $ 8,308
Telecommunications equipment, not yet placed in service 197,248 320,944 --
Computer equipment 39,391 38,020 11,308
Furniture and fixtures 87,741 74,847 27,417
- -----------------------------------------------------------------------------------------------------------------------------
3,799,208 3,729,286 47,033
Less: accumulated amortization (295,738) (172,900) --
- -----------------------------------------------------------------------------------------------------------------------------
$3,503,470 $3,556,386 $47,033
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-13
<PAGE>
MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
IS UNAUDITED)
- --------------------------------------------------------------------------------
6. NOTES PAYABLE
The notes payable are summarized as follows:
<TABLE>
<CAPTION>
December 31, September 30, September 30,
1999 1999 1998
--------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C>
i) Demand convertible note payable with a maturity value of Cdn. $250,000,
bearing interest at 8.75%, per annum compounded monthly and due June 30,
2000 (September 30, 1999 - past due as of August 16, 1999). $ 250,000 $ 250,000 $ --
ii) Demand convertible note payable with a maturity value of U.S. $65,000,
bearing interest at 9.00% per annum compounded monthly and due
February 28, 2000. 95,778 -- --
iii) Demand convertible note payable with a maturity value of U.S. $327,500
bearing interest at 8.75% per annum compounded monthly and due June 30,
2000 (September 30, 1999 - past due as of September 15, 1999). 482,571 483,652 --
iv) Demand convertible note payable with a maturity value of U.S. $40,000,
bearing interest at 9.00% per annum compounded monthly and past due as of
August 31, 1999. -- 59,072 --
v) Demand convertible note payable with a maturity value of U.S. $25,000,
bearing interest at 9.00% per annum compounded monthly and past due as of
August 31, 1999. -- 36,920 --
vi) Notes payable with an aggregate maturity value of Cdn. $150,000, bearing
interest at 7.5% per annum compounded monthly and repayable on demand. -- -- 150,000
- ----------------------------------------------------------------------------------------------------------------------------
$ 828,349 $ 829,644 $ 150,000
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-14
<PAGE>
MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
IS UNAUDITED)
- --------------------------------------------------------------------------------
6. NOTES PAYABLE (CONTINUED)
All or any part of the principal amount of the notes outstanding at
September 30, 1999 and any interest thereon is convertible, at the
option of the holder, on or before the due date, into fully paid and
non-assessable common shares of the Company at a conversion price of
U.S. $2.00 per common share in the case of the notes described in Notes
6(iv) and (v), above, and at a conversion price of U.S. $1.75 in the
case of those described in Notes 6(i) and (iii). The notes are
unsecured. The Company was unable to repay the notes on their
respective due dates and on September 16, 1999 the Company received a
demand for payment with respect to outstanding notes payable with a
principal value of $733,652 (Notes 6(i) and (iii)). The Company was in
default at September 30, 1999.
On October 19, 1999, the Company negotiated an extension to the
original repayment terms of notes payable in the amount of $732,571 to
June 30, 2000 (Notes 6 (i) and (iii), above). The renegotiated demand,
unsecured, convertible notes bear interest at 8.75%. All or any portion
of the principal, and any interest thereon, is convertible, at the
option of the holder, on or before the due date, into fully paid and
non-assessable common shares of the Company at a conversion price of
U.S.$0.625 per common share. On October 19, 1999 the Company also
negotiated an extension to the original repayment terms of notes
payable in the amount of $95,778 (Notes 6 (iv) and (v), above), to
February 28, 2000. The renegotiated demand, unsecured, convertible note
(Note 6(ii), above) bears interest at 9%. All or any portion of the
principal, and any interest thereon, is convertible, at the option of
the holder, on or before the due date, into fully paid and
non-assessable common shares of the Company at a conversion price
U.S.$0.50 per common share.
On February 28, 2000, the note payable in the amount of $95,778 plus
accrued interest was converted to 142,399 fully paid and non-assessable
common shares of the Company at a conversion price of US$0.50 per
common share. On March 8, 2000, notes payable totalling $732,571 plus
accrued interest were converted to 855,337 fully paid and
non-assessable common shares of the Company at a conversion price of
US$0.625 per common share. At March 31, 2000 there were no further
notes outstanding.
7. SHARE CAPITAL
(a) AUTHORIZED
The Company's authorized share capital consists of 50,000,000
common shares with a par value of $0.001 per share and
5,000,000 shares of preferred stock also with a par value of
$0.001 per share.
F-15
<PAGE>
MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
IS UNAUDITED)
- --------------------------------------------------------------------------------
7. SHARE CAPITAL (CONTINUED)
(b) A reconciliation of issued and outstanding share capital of
the Company to amounts previously reported in Alpha Beta
Holdings Ltd. at September 30, 1998 is as follows
Common shares:
<TABLE>
<CAPTION>
Number of
shares Amount
-------------- -----------
<S> <C> <C>
Balance, September 30, 1998 1,701,000 $ 1,277
Share consolidation on a 10 for 1 basis (1,530,900) --
--------------------------------------------------------------------------------------------------
Balance, September 30, 1998, post share consolidation 170,100 1,277
Issued for cash 3,197,400 49,879
--------------------------------------------------------------------------------------------------
Balance prior to business combination 3,367,500 51,156
Adjustment of stated value of common shares
at reverse acquisition to value of common shares
of MDU (Note 4) -- (841)
Issued on acquisition of the Company (Note 4) 5,213,835 35,222
--------------------------------------------------------------------------------------------------
Balance subsequent to reverse acquisition 8,581,335 85,537
Exercise of warrants 640,000 1,474,183
- ----------------------------------------------------------------------------------------------------------------
Balance, September 30, 1999 9,221,335 1,559,720
- ----------------------------------------------------------------------------------------------------------------
Issued for cash and subscriptions 2,152,750 2,293,720
Issued for services 100,000 53,125
- ----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 11,474,085 $ 3,906,565
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
F-16
<PAGE>
MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
IS UNAUDITED)
- --------------------------------------------------------------------------------
7. SHARE CAPITAL (CONTINUED)
(c) STOCK OPTION PLANS
(i) Suppliers' Stock Option Plan ("Suppliers' Plan")
On December 31, 1998 the Company established a stock
option plan pursuant to which certain key suppliers
of the Company will be granted options on completion
of specified activities. Under the terms of the
Suppliers' Plan, eligible suppliers can earn options
to purchase an aggregate of 215,135 common shares of
the Company. Details of options issued to date under
the Suppliers' Plan are as follows:
<TABLE>
<CAPTION>
Weighted
average
Number of exercise price
options U.S.$
---------- ---------------
<S> <C> <C>
Outstanding at inception of the Company
(March 26, 1998) and at September 30, 1998 -- $ --
Granted and fully vested 73,885 1.50
Exercised -- --
----------------------------------------------------------------------------
Outstanding and exercisable at
September 30, 1999 and December 31, 1999 73,885 $ 1.50
----------------------------------------------------------------------------
----------------------------------------------------------------------------
</TABLE>
In addition to the stock options under the Suppliers'
Plan issued to September 30, 1999, the Company is
obligated to issue an additional 19,429 options to
purchase common shares of the Company at exercise
prices of U.S.$1.75 to U.S. $2.00 per share and
exercisable for five years from the date of issue.
These options had not been granted at September 30,
1999 or December 31, 1999.
On March 13, 2000, the Company granted 26,115 options
(19,429 of which were earned and recorded at
September 30 and December 31, 1999) to a supplier
under the Suppliers' Plan described above.
F-17
<PAGE>
MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
IS UNAUDITED)
- --------------------------------------------------------------------------------
7. SHARE CAPITAL (CONTINUED)
(c) STOCK OPTION PLANS (CONTINUED)
(i) Suppliers' Stock Option Plan ("Suppliers' Plan")
(continued)
Under the requirements of SFAS No. 123, "Accounting
for Stock-Based Compensation," ("SFAS No. 123") the
Company has recorded stock based compensation charges
in the amount of $250,000 during the year ended
September 30, 1999 ($133,851 as additional capital
costs of telecommunications equipment and $116,149 as
sales expense) (three months ended December 31, 1999
- $15,000 as sales expense; three months ended
December 31, 1998 - $Nil). These charges are based on
the fair value of the stock options issued and
issuable to suppliers calculated on the date an
eligible supplier completes the performance required
to earn the options. This amount is determined using
a Black Scholes option pricing model assuming a
weighted average annualized volatility of the
Company's share price of approximately 114%. For
details of the other material assumptions used in
determination of the fair value of these options see
Note 7 (c)(ii).
Under the requirements of SFAS No. 123, the Company
will record further stock based compensation charges
in the period ended March 31, 2000 in the amount of
$67,516 in connection with the 26,115 stock options
granted at March 13, 2000 as additional capital costs
of telecommunications equipment. This charge is based
on the fair value of the stock options, calculated on
the date the options were granted to the supplier as
that is the date the supplier's obligation to the
Company was completed. The amount was determined
using a Black Scholes option pricing model.
F-18
<PAGE>
MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
IS UNAUDITED)
- --------------------------------------------------------------------------------
7. SHARE CAPITAL (CONTINUED)
(c) STOCK OPTION PLANS (CONTINUED)
(ii) Directors'/Officers' and Employees' Stock Option
Plans ("Employee Plans")
On November 24, 1998 the Company established Employee
Plans whereby certain employees, officers and
directors will be granted options to purchase up to
an aggregate of 600,000 common shares of the Company.
Details of options issued to date under the Employee
Plans are as follows:
<TABLE>
<CAPTION>
Weighted
average
Number of exercise price
options U.S.$
--------- --------------
<S> <C> <C>
Outstanding at inception of the Company
(March 26, 1998) and at September 30, 1998 -- $ --
Granted and fully vested 300,000 1.00
Exercised -- --
----------------------------------------------------------------------------
Outstanding and exercisable at
September 30, 1999 and December 31, 1999 300,000 $ 1.00
----------------------------------------------------------------------------
----------------------------------------------------------------------------
</TABLE>
The Company accounts for its stock-based employee
compensation plans under APB No. 25 whereby
compensation cost is recorded for the excess, if any,
of the quoted market price of the common shares over
the exercise price at the date of grant for all
employee stock options issued. For the three months
ended December 31, 1999 compensation cost in the
amount of $Nil (three months ended December 31, 1998
- $222,000; year ended September 30, 1999 - $222,000;
period from inception, March 26, 1998 to September
30, 1998 - $Nil;) has been recorded under this
method.
F-19
<PAGE>
MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
IS UNAUDITED)
- --------------------------------------------------------------------------------
7. SHARE CAPITAL (CONTINUED)
(c) STOCK OPTION PLANS (CONTINUED)
(ii) Directors'/Officers' and Employees' Stock Option
Plans ("Employee Plans") (continued)
An alternative method of accounting for employee
stock options is SFAS No. 123. Under SFAS No. 123
employee stock options are valued at the grant date
using a fair value method and the estimated fair
value of the options is amortized to expense over
the options' vesting period. The following pro forma
financial information present the net loss for the
period and loss per common share had the Company
adopted SFAS No. 123.
<TABLE>
<CAPTION>
For the period from Three months Three months
inception of the ended ended
development stage to December 31, December 31,
December 31, 1999 1999 1998
-------------------- ------------ -------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Pro forma net
loss for the period $(3,672,648) $(665,753) $(976,018)
--------------------------------------------------------------------------
Pro forma loss
per common share $ -- $ (0.06) $ (0.11)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
For the period from
inception of the Year ended Year ended
development stage to September 30, September 30,
September 30, 1999 1999 1998
-------------------- ------------- -------------
(as restated
--see Note 16)
<S> <C> <C> <C>
Pro forma net
loss for the period $ (3,006,895) $ (2,909,050) $ (97,845)
----------------------------------------------------------------------------------
Pro forma loss
per common share $ -- $ (0.32) $ (0.01)
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
</TABLE>
Using the fair value method for stock-based
compensation, as described in SFAS No. 123,
additional compensation costs of approximately $Nil
would have been recorded for the three months ended
December 31, 1999 (three months ended December 31,
1998 - $383,390; year ended September 30, 1999 -
$383,390; period from inception, March 26, 1998, to
September 30, 1998 - $Nil). This amount is determined
using a Black Scholes options pricing model assuming
no dividends are to be paid, vesting on date of
grant, an expected term of five years, a weighted
average annualized volatility of the Company's share
price of 136% and a weighted average annualized risk
free interest rate of 5.50%.
F-20
<PAGE>
MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
IS UNAUDITED)
- --------------------------------------------------------------------------------
7. SHARE CAPITAL (CONTINUED)
(c) STOCK OPTION PLANS (CONTINUED)
(iii) Other stock options
At December 31, 1998 the Company granted stock
options to purchase 100,000 common shares of the
Company at an option price of U.S.$1.50 in
recognition of consultative and other services
provided by a relative of the Company's president.
These options may be exercised in whole or in part at
anytime until December 31, 2003. The fair value of
these options in the amount of $177,445 at date of
grant has been recorded as consulting expense during
the three months ended December 31, 1998 (year ended
September 30, 1999 - $177,445). For details of the
material assumptions used in determination of the
fair value of these options see Note 7(c)(ii).
Prior to the acquisition of the Company as described
in Note 4, Alpha Beta Holdings Ltd. had granted
options to purchase 640,000 share of common stock of
the Company at an exercise price of U.S.$1.50 and an
expiry date of November 5, 1999. In December 1998,
these options were exercised resulting in proceeds
to the Company of U.S.$960,000 ($1,474,184).
The following table summarizes information concerning
stock options outstanding at September 30, 1999 and
December 31, 1999:
<TABLE>
<CAPTION>
Number of Exercise
Options Price U.S.$ Expiry Date
--------- ----------- -----------------
<S> <C> <C>
300,000 $ 1.00 November 24, 2003
100,000 1.50 December 31, 2003
40,000 1.50 March 1, 2004
33,885 1.50 April 1, 2004
</TABLE>
The weighted average exercise price of all options
outstanding at September 30, 1999 and December 31,
1999 is U.S. $1.18. No options have been exercised to
December 31, 1999. However, on March 3, 2000, 125,000
common shares in the Company were issued on exercise
of 125,000 stock options for cash proceeds of
US$125,000 ($181,000).
(d) WARRANTS
In November 1999 the Company sold 1,482,750 units comprised of
one share of common stock and a warrant to purchase one share
of common stock for US$0.75 per share, for a period of two
years, for US$0.40 per unit.
F-21
<PAGE>
MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
IS UNAUDITED)
- --------------------------------------------------------------------------------
8. SHARE SUBSCRIPTIONS RECEIVED
On May 28, 1999 the Company received subscriptions to purchase 670,000
shares for net proceeds after expenses of the issue of $1,544,924.
These shares were issued on November 19, 1999. On September 15, 1999
the Company received additional subscriptions to purchase 420,000
units comprised of one share of common stock and a two-year warrant to
purchase one share of common stock for US$0.75 per share, for US$0.40
per unit, for net proceeds of $248,102. These units were also issued
in November 1999.
In December 1999 the Company received subscriptions for 125,000
shares of common stock at US$0.80 per share for aggregate
consideration of $147,270. In addition, the Company received
subscriptions to purchase 100,000 units, consisting of one common
share and one common share purchase warrant exercisable for two years
at US$1.00 per share, for US$0.75 per unit, resulting in aggregate
consideration of $110,368. These units were issued on February 3, 2000.
9. COMMITMENTS AND CONTINGENCIES
(i) Under the terms of certain operating lease for equipment and
premises, the Company is obligated to make annual net rental
payments as follows:
<TABLE>
<CAPTION>
Fiscal year ended
September 30, 1999 Amount
------------------ -------------
<S> <C>
2000 $ 87,698
2001 82,217
2002 38,048
2003 13,644
2004 and thereafter 11,690
--------------------------------------------------------------
$ 233,297
--------------------------------------------------------------
--------------------------------------------------------------
</TABLE>
(ii) The Company has been named as the Defendant in an action by
Shaw Cable Systems Ltd. ("Shaw") in which Shaw seeks an
injunction and $2 million in damages as a result of alleged
trespass and loss of business as a result of certain
activities allegedly carried out by the Company. Shaw and the
Company have jointly agreed that no further steps will be
taken in this action by either party until the parties have
completed their current negotiations with respect to customer
connection procedures. Given the preliminary stage of the
proceedings, it is not presently possible to estimate or
determine whether there will be any loss to the Company, and
the amount, if any, of such loss will be recorded in the
period in which it becomes determinable. However, if the
negotiations are unsuccessful and if Shaw were successful in
its claim for damages, the Company's unsuccessful defence
would have a material adverse effect on the Company's
financial condition and operations.
F-22
<PAGE>
MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
IS UNAUDITED)
- --------------------------------------------------------------------------------
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
(iii) The Company has also been named as a Defendant in a claim by
Whistler Cable Television Ltd. claiming damages for
conversion, the return of personal property, an injunction and
costs. The Company has filed a Defense disputing the
Plaintiff's has any legal right to bring the action, and
alleging that in any event the amount of damages suffered, if
any, is minimal. This case is still in the pre-discovery
phase. Given the preliminary stage of the proceedings, it is
not presently possible to estimate or determine whether there
will be any loss to the Company, and the amount, if any, of
such loss will be recorded in the period in which it becomes
determinable.
(iv) The Company has received letters from counsel for Rogers
Cablesystems ("Rogers") threatening legal action based on
certain activities allegedly done by the Company. The
Company's solicitors have replied to the concerns expressed in
each of those letters and there have been no further steps
taken by Rogers or its counsel with respect to any of the
matters. The Company continues to negotiate with Rogers with
respect to other matters of joint interest, including a
proposed Protocol to govern service conversion issues.
10. STRATEGIC ALLIANCE
In August 1998, the Company entered in a ten-year System Operation
Agreement with two five year renewal options, with Star Choice
Communications, Inc. ("Star Choice"). The Company is responsible for
establishing and maintaining distribution systems in multi-unit
dwellings throughout Canada and acts as a commissioned sales
representative for Star Choice to market Star Choice programming to the
residents of multi-unit dwellings in which the Company has installed
systems. Residents that choose to subscribe to the service pay a
monthly access fee in addition to the program fees charged by Star
Choice for programming ordered by the customer.
The Company's contract with Star Choice gives the Company a 30% share
of gross subscriber revenues from the sale of Star Choice programming
services plus 100% of a digital access fee within the multi-unit
dwellings for a period of 10 years, with renewal clauses.
The Company will incur only the cost associated with the implementation
of its services, and will not share any of Star Choice's programming or
broadcasting costs. Under the agreement, the Company may not maintain
distribution systems or market direct-to-home satellite broadcast
services for other satellite operators in Canada.
The Company's revenues are significantly dependent on its strategic
alliance with Star Choice. During the three months ended December 31,
1999, revenue from Star Choice accounted for 36% of total recorded
revenues of the Company (three months ended December 31, 1998 - Nil%;
year ended September 30, 1999 -36%; period from inception, March 26,
1998, to September 30, 1998 - Nil%).
F-23
<PAGE>
MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
IS UNAUDITED)
- --------------------------------------------------------------------------------
11. GOVERNMENT REGULATIONS
Satellite broadcasting and distribution of Canadian television signals
to cable operators in Canada are regulated by the Canadian Radio
Television-Telecommunications Commission (CRTC). Star Choice and
Express Vu are the only two licensees that have been approved by the
CRTC to distribute television and information services by
direct-to-home digital satellite transmissions in Canada. Both must
operate in accordance with CRTC imposed "conditions of license" to
maintain their licences. Also, they must comply with the Canadian
Broadcasting Act. Since the Company in its role as a system operator
for Star Choice is significantly dependent on Star Choice for
programming, it would be adversely affected if Star Choice encountered
regulatory problems.
12. INCOME TAXES
A reconciliation of the statutory federal Canadian income tax rate and
the Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
For the period from Three months Three months
inception of the ended ended
development stage to December 31, December 31,
December 31, 1999 1999 1998
-------------------- ------------ ------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Canadian statutory income tax rate 45.6% 45.6% 45.6%
Non-deductible expenses (9.4) (0.5) (0.4)
Tax loss carry forwards not
recognized in period of loss (36.2) (45.1) (45.2)
- -------------------------------------------------------------------------------------------------
Actual tax rate -- -- --
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
For the period from Period from
inception of the Year ended March 26, 1998
development stage to September 30, to September 30,
September 30, 1999 1999 1998
-------------------- ------------- ----------------
<S> <C> <C> <C>
Canadian statutory income tax rate 45.6% 45.6% 45.6%
Non-deductible expenses (9.4) (9.7) (1.0)
Tax loss carry forwards not
recognized in period of loss (36.2) (35.9) (44.6)
- -----------------------------------------------------------------------------------------------------
Actual tax rate -- -- --
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
F-24
<PAGE>
MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
IS UNAUDITED)
- --------------------------------------------------------------------------------
12. INCOME TAXES (CONTINUED)
The Company had no income tax expense for the three months ended
December 31, 1999 and 1998, for the year ended September 30, 1999 or
for the period from inception, March 26, 1998 to September 30, 1998 as
a result of significant incurred losses. Additionally, the Company has
provided a full valuation allowance for net deferred tax assets at
December 31, 1999 and September 30, 1999 and 1998, since realization of
these benefits cannot be reasonably assured. At December 31, 1999 and
September 30, 1999 and 1998, deferred tax (liabilities) assets are
comprised of the following:
<TABLE>
<CAPTION>
December 31, September 30, September 30,
1999 1999 1998
------------ ------------- -------------
Unaudited)
<S> <C> <C> <C>
Gross deferred tax liabilities:
Amortization $ (160,574) $ (219,845) $ (854)
Gross deferred tax assets:
Operating loss carry forwards 1,336,291 1,023,997 44,568
- -------------------------------------------------------------------------------------------------
Net deferred tax assets 1,175,717 804,152 43,714
Less: valuation allowance (1,175,717) (804,152) (43,714)
- -------------------------------------------------------------------------------------------------
$ -- $ -- $ --
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
At September 30, 1999 the Company's fiscal year end, the Company had
loss carry forwards available to be applied against future years'
taxable income in the amount of $2,245,608 of which $97,738 will expire
on September 30, 2005 and the balance on September 30, 2006.
13. SEGMENTED INFORMATION
The Company operates in one industry segment. The Company's operations
are comprised of providing delivery of home entertainment and
information technology to multi-unit dwellings. Substantially all of
the Company's operations, assets, employees and revenues are located in
Canada.
14. RELATED PARTY TRANSACTIONS
The Company purchased equipment and satellite subscribers on December
31, 1998 for $157,689 from a relative of the Company's President. In
addition, the Company granted stock options to a relative of the
Company's President to purchase 100,000 common shares of the Company at
an exercise price of U.S. $1.50 until December 21, 2003, in exchange
for consultative services. See Note 7 (c)(iii).
F-25
<PAGE>
MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
IS UNAUDITED)
- --------------------------------------------------------------------------------
15. SUBSEQUENT EVENTS
(a) On January 5, 2000 the Company cancelled an agency
agreement with a third party. Under the terms of the
settlement arrangement, the Company cancelled 100,000 common
shares issued in exchange for services in the three months
ended December 31, 1999, issued an additional 50,000 shares
and paid cash of $12,622 in full settlement of all services.
(b) On February 3, 2000 the Company completed several private
placements. One private placement consisted of 125,000 common
shares at US$0.80 per share for gross proceeds of US$100,000.
The other private placements consisted of 699,999 units at
US$0.75 per unit for gross proceeds of US$525,000. Each unit
consisted of one common share and one common share purchase
warrant exercisable for 2 years at US$1.00 per share. The net
cash proceeds from these private placements amounted to
$918,750 (US$625,000).
(c) On January 28, 2000, the Company issued 3,637,200 shares of
Series A Convertible Preferred Stock (the "Preferred Shares"),
at an issue price of US$2.50 per share, in exchange for cash
proceeds of US$7,725,000 and services with a fair value of
US$1,368,000 for total gross proceeds, prior to expenses of
the issue, of US$9,093,000. The Preferred Shares are
immediately convertible, at the option of the holder, at a
conversion ratio of one common share for one Preferred Share,
until the "Qualification date", defined as the earlier of (i)
the date the Company receives a receipt for its final
prospectus from the British Columbia Securities Commission and
a registration statement for the underlying common shares
filed with the United States Securities and Exchange
Commission becomes effective or (ii) January 28, 2001.
However, if the Qualification date has not occurred by June
26, 2000, then the shares convert at a ratio of 1.15 common
shares for each Preferred Share. Any Preferred Shares that
have not been converted by the holder by the Qualification
date will automatically convert at a ratio of one common share
to one Preferred Share. In connection with the issuance of the
Preferred Shares, the Company issued 309,000 share purchase
warrants that provide the right to purchase one Preferred
Share at the issue price of US$2.50 per share. The warrants
were assigned a value of US$1,549,004.
The Preferred Shares have a beneficial conversion feature
totalling $10,905,557 (US$7,543,966), measured as the
difference between the conversion price most beneficial to the
investor, of US$2.17, and the fair value of the underlying
common stock at the time of issuance, limited to the amount of
the proceeds received, less an amount allocated to additional
paid-in capital to recognize the fair value of the warrants.
The beneficial conversion feature is recognized at issuance as
an increase in the loss applicable to common shareholders in
the calculation of the basic loss per share for the six months
ended March 31, 2000.
F-26
<PAGE>
MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
IS UNAUDITED)
- --------------------------------------------------------------------------------
15. SUBSEQUENT EVENTS (CONTINUED)
(d) In February 2000, 125,000 employee stock options were
exercised for proceeds of US$125,000 resulting in the issue of
125,000 common shares. (Note 7(c)(iii)).
(e) On February 1, 2000 the Company entered into consulting
agreements with three suppliers whereby the consultants were
granted an aggregate of 170,000 stock options for provision of
specified activities on an ongoing basis. The options are
exercisable at US$5.00 and expire February 5, 2005. As
described in Note 7 (c)(i), under the requirements of SFAS No.
123, the Company will record stock based compensation charges
based on the fair value of the stock options issued to the
consultants calculated on the date the options were granted.
The cost of the consulting agreements will be recognized by
the Company over the term of the service provided, which is
estimated to be approximately five years. Consulting expense
in the amount of $34,776 will be recorded for the three months
ended March 31, 2000.
(f) On February 5, 2000 the Company approved the 2000 Incentive
Stock Option Plan ("2000 Option Plan") whereby certain
employees, officers, directors and consultants of the Company
and its affiliates were granted options to purchase 2,875,360
common shares of the Company, of which 2,785,084 have an
option price of US$5.00, being the closing price of the
Company's stock on February 4, 2000. The options have vesting
periods ranging from grant date to three years after the grant
date, and an expiry date of February 5, 2005. The 170,000
consultants options described in Note 15(c) are included in
the 2,785,084 options. The remaining 90,276 options were
granted as part of the Employee Plan (refer Note 7 (c)(ii))
and were redesignated to be included in the 2000 Option Plan.
These options are exercisable at US$1.00, are fully vested and
have an expiry date of February 5, 2005.
(g) On March 22, 2000, the Company issued a warrant to purchase
750,000 shares of common stock of the Company exercisable at
any time during the two-year period commencing March 1, 2000,
at an exercise price of US$2.50 per share to Gibralt Capital
Corporation ("Gibralt"). As described in note 7 (c)(i), under
the requirements of SFAS No. 123, the Company will record a
charge in the amount of $4,241,424 (US$2,925,927) as
additional financing expense based on the fair value of the
warrants issued to Gibralt at March 1, 2000.
F-27
<PAGE>
MDU COMMUNICATIONS INTERNATIONAL, INC.
(FORMERLY ALPHA BETA HOLDINGS, LTD.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
(INFORMATION AS AT AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
IS UNAUDITED)
- --------------------------------------------------------------------------------
16. RESTATEMENT
Subsequent to the issuance of the Company's September 30, 1999
consolidated financial statements, the Company's management determined
that the fair value of warrants issued to certain non-employees for
services rendered during the period should have been reported as sales
expense, rather than capitalized to property and equipment. As a
result, the accompanying September 30, 1999 consolidated financial
statements have been restated from the amounts previously reported to
recognize an additional $116,149 of sales expense, a reduction to
amortization expense of $4,210 and a corresponding reduction to
property and equipment of $111,939. A summary of the significant
effects of the restatement is as follows:
<TABLE>
<CAPTION>
As Previously
Reported As Restated
-------------- -----------
<S> <C> <C>
At September 30, 1999
Property and equipment $ 3,668,325 $ 3,556,386
Accumulated deficit (2,511,566) (2,623,505)
For the year ended September 30, 1999
Sales expenses 1,235,240 1,351,389
Amortization expense 199,470 195,260
Net loss (2,413,721) (2,525,660)
Basic and diluted loss per share (0.26) (0.28)
For the period from inception of the
development stage to September 30, 1999
Sales expenses 1,235,240 1,351,389
Amortization expense 199,470 195,260
Net loss $ (2,511,566) $(2,623,505)
</TABLE>
F-28
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation includes provisions that
limit the personal liability of the directors for monetary damages for breach
of their fiduciary duty of directors. The Certificate of Incorporation provides
that, to the fullest extent provided by the Delaware General Corporation Law
("DGCL"), the directors will not be personally liable for monetary damages for
breach of their fiduciary duty as directors. The DGCL does not permit a
provision in a corporation's certificate of incorporation that would eliminate
such liability (1) for any breach of a director's duty of loyalty to the
corporation or its stockholders, (2) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (3) for any
unlawful payment of a dividend or unlawful stock repurchase or redemption, as
provided in Section 174 of the DGCL, or (4) for any transaction from which a
director derived an improper personal benefit.
While these provisions provide the directors with protection from
awards for monetary damages for breaches of their duty of care, they do not
eliminate such duty. Accordingly, these provisions will have no effect on the
availability of equitable remedies such as an injunction or rescission based on
a director's breach of his or her duty of care. The provisions described above
apply to an officer of our Company only if he or she is a director of the
Company and is acting in his or her capacity as director, and do not apply to
the officers of the Company who are not directors.
The Company's Bylaws provide that, to the fullest extent permitted by
the DGCL, it shall indemnify the directors and officers, and may indemnify its
employees and agents. Such indemnification may be made only if the person to be
indemnified acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Company, and with respect
to any criminal action or proceeding, had no reasonable cause to believe such
person's conduct was unlawful. The Bylaws further provide that the Company may
enter into an indemnification agreement pursuant to which the Company will
indemnify a director, officer, employee or agent to the fullest extent
permitted by the DGCL. At present, there is no pending litigation or proceeding
involving any directors, officers, employees or agents in which indemnification
is required or permitted, and the Company is not aware of any threatened
litigation or proceeding that may result in a claim for such indemnification.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses incurred in connection
with the sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimated
except the SEC registration fee.
<TABLE>
<S> <C>
SEC registration fee....................................................... $ 7,837
Printing expenses.......................................................... 10,000
Legal fees and expenses.................................................... 150,000
Accounting fees and expenses............................................... 30,000
Blue sky fees and expenses, including legal fees........................... 15,000
Miscellaneous.............................................................. 5,000
------
TOTAL............................................................. $ 217,837
</TABLE>
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Sales of securities within the past three years without registration
under the Securities Act of 1933 ("1933 Act") were as follows (all amounts in
US dollars, except as otherwise noted):
A. PREFERRED STOCK
In January 2000, the Company issued 3,090,000 shares of Series A
convertible preferred stock for $7,725,000 to 37 institutional and
accredited investors. Haywood Securities Inc. acted as placement agent and
received (a) 247,200 shares of Series A convertible preferred stock as
payment of a $618,000 commission, (b) 300,000 shares of Series A
convertible preferred stock as a $750,000 corporate finance fee, and (c)
warrants to acquire 309,000 shares of common stock for a period of one year
at a price of $2.50 per share. Each of these issuances were made without
registration under Rule 506 under Regulation D ("Rule 506").
B. COMMON STOCK
1. OCTOBER 1998: Prior to the business combination of the Company and MDU
Communications, Inc. ("MDU Canada"), the Company issued 2,997,400 shares of
common stock were sold for cash in the aggregate amount of $29,974 to ten
non-U.S. institutional investors. These sales were made without
registration under Rule 504 under Regulation D ("Rule 504"). No commissions
were paid in connection with these transactions.
2. NOVEMBER 1998: Prior to the business combination of the Company and MDU
Canada, the Company issued 200,000 shares of common stock were sold for
cash in the aggregate amount of $2,000 to one non-U.S. institutional
investor and six non-U.S. individual investors. These sales were made
without registration under Rule 504. No commissions were paid in
connection with these transactions.
3. NOVEMBER 1998: In connection with the business combination of the Company
and MDU Canada, the Company exchanged 5,213,835 shares of its common stock
for all of the outstanding capital stock of MDU Canada, which is now our
wholly-owned subsidiary. The former MDU Canada stockholders are the holders
of those shares. The exchange was made without registration under Section
4(2) of the 1933 Act. No commissions were paid in connection with this
transaction.
4. MAY 1999: The Company sold 670,000 shares of common stock for cash in the
aggregate amount of $1,172,500 from two non-U.S. institutional investors
under subscription agreements executed in May 1999. These transactions were
made without registration under Section 4(2) of the 1933 Act. No
commissions were paid in connection with these transactions.
5. OCTOBER 1999/JANUARY 2000: Pursuant to an agency agreement with Canaccord
Capital Corporation, the Company issued 100,000 shares of common stock as a
corporate finance fee. When the agency agreement was terminated in January
2000, the Company cancelled the previously issued shares and issued 50,000
shares of common stock to Canaccord as final settlement for their services.
These issuances were made without registration under Section 4(2) of the
1933 Act. No commissions were paid in connection with these transactions.
6. NOVEMBER 1999 (UNIT OFFERING): The Company sold 1,482,750 units comprised
of one share of common stock and a two-year warrant to purchase one share
of common stock for $0.75 per share, for $0.40 per unit. These sales were
made without registration under Regulation S of the 1933 Act ("Regulation
S"). Commissions totaling $19,520 were paid to National Bank Financial and
Claymore Holdings.
7. FEBRUARY 2000: The Company sold 125,000 shares of common stock for $0.80
per share under subscription agreements executed in December 1999 for gross
proceeds of $100,000. These sales were made without registration under
Regulation S. No commissions were paid in connection with these
transactions.
8. FEBRUARY 2000 (UNIT OFFERING): The Company sold 699,999 units comprised of
one share of common stock and a two-year warrant to purchase one share of
common stock for $1.00 per share, for $0.75 per unit, for gross
II-2
<PAGE>
proceeds of $525,000, under subscription agreements executed in December
1999 and January 2000. These transactions were made without registration
under Regulation S. No commissions were paid in connection with these
transactions.
C. WARRANTS
MARCH 2000: The Company issued a warrant for 750,000 shares of common stock
exercisable at $2.50 per share for two years pursuant to a mutual release
and agreement to Gibralt Capital Corporation. This issuance was made
without registration under Section 4(2) of the 1933 Act. No commission was
paid in connection with this warrant.
D. OPTIONS
1. NOVEMBER 1998: Prior to the business combination of the Company and MDU
Canada, the Company issued one-year options to purchase 640,000 shares of
common stock for cash at $1.50 per share to two non-U.S. investors. These
options were exercised in December 1998. These issuances were made without
registration under Section 4(2) of the 1933 Act. No commissions were paid
in connection with these issuances.
2. 1998 DIRECTORS'/OFFICERS' NON-QUALIFIED STOCK OPTION PLAN: In November
1998, we granted five-year options under our 1998 Directors'/Officers'
Non-Qualified Stock Option Plan as follows: (a) options to purchase 175,000
shares of common stock at $1.00 per share were granted to Sheldon B.
Nelson, which have now been consolidated into our 2000 Plan, and (b)
options to purchase 125,000 shares of common stock at $1.00 per share were
granted to Douglas J. Irving, all of which he has now exercised. These
grants were made to non-U.S. persons in reliance upon the exemption from
registration offered by Section 4(2) of the 1933 Act.
3. DECEMBER 1998: A five-year option to purchase 100,000 shares of common
stock at $1.50 per share was issued to Chris Nelson, a non-U.S. person, for
consulting services. This grant was made without registration under Section
4(2) of the 1933 Act. No commission was paid in connection with this grant.
4. SUPPLIER PLAN: In March and April 1999 we issued five-year options to
purchase 73,885 shares of common stock at $1.50 per share to two key
suppliers. In March 2000 we issued five-year options to purchase 26,115
shares of common stock at prices from $1.75 to $2.00 per share to a
supplier pursuant to the 1998/99 Suppliers Option Plan earned to September
30, 1999. These options were made to non-U.S. persons without registration
under Section 4(2) of the 1933 Act.
5. 2000 PLAN: In February 2000, we granted five-year options under our 2000
Plan as follows: (a) options to purchase 90,276 shares of common stock at
$1.00 per share were granted to employees for services rendered up to
September 30, 1999, and (b) options to purchase 2,785,084 shares of common
stock at $5.00 per share were granted to directors, officers, employees and
consultants. The 2000 Plan will be registered under a Form S-8 registration
statement in the near future.
E. CONVERTIBLE PROMISSORY NOTES
1. APRIL/JUNE 1999: Two convertible promissory notes, one in the principal
amount of Cdn$250,000, due August 15, 1999, and the other in the principal
amount of $327,500 due September 15, 1999, were issued to one non-U.S.
investor. Both notes accrued interest at 8.75%. The Cdn$250,000 note was
convertible into common stock at any time prior to the maturity date at a
conversion price of $2.00 per share. The $327,500 note was convertible into
common stock at a conversion price of $1.75 per share. Both notes were
extended on October 19, 1999 until June 30, 2000, on similar terms except
the conversion price on both notes was amended to $0.625 per share. In
March 2000, outstanding principal of Cdn$250,000 and $327,500, together
with interest of Cdn$20,293.50 and $21,313.40, was converted into 855,337
shares of common stock at a conversion price of $0.625 per share. These
issuances were made without registration under Section 4(2) of the 1933
Act. No commissions were paid in connection with these issuances.
II-3
<PAGE>
2. MAY/JUNE 1999: Two convertible promissory notes in the aggregate principal
amount of $65,000 and both due on August 31, 1999, were issued to one
accredited, sophisticated investor. The two notes were replaced by a single
convertible promissory note in the principal amount of $65,000 due on
February 28, 2000 and bearing interest at 9%. The replacement note is
convertible into common stock at any time prior to maturity at a conversion
price of $0.50 per share. In February 2000, these notes were converted into
142,399 shares of common stock upon conversion of the $65,000 promissory
note plus interest of $6,199.70, at a conversion price of $0.50 per share.
These issuances were made without registration under Section 4(2) of the
1933 Act. No commissions were paid in connection with these issuances.
ITEM 27. EXHIBITS.
See "Index to Exhibits."
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
1. To 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 set forth in the registration statement; and
(iii) include any additional or changed material information on the
plan of distribution.
2. That, for determining liability under the Securities Act, it
will treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering.
3. To file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described in
Item 24, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, MDU Communications International, Inc. certifies that it has
reasonable grounds to believe that it meets all of the requirements for filing
on Form SB-2 and authorized this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Richmond, British
Columbia, Canada on April 27, 2000.
MDU COMMUNICATIONS INTERNATIONAL, INC.
By /s/ Sheldon B. Nelson
--------------------------------------
President/Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, as
amended, this registration statement was signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<S> <C> <C>
/s/ Sheldon B. Nelson Director and principal April 27, 2000
- -------------------------------------------- executive officer
Sheldon B. Nelson
/s/ Robert A. Biagioni Director and principal April 27, 2000
- -------------------------------------------- financial officer
Robert A. Biagioni
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C>
2.1 Acquisition Agreement dated November 2, 1998 between
Alpha Beta Holdings, Ltd. and MDU Communications Inc. (1)
3.1 Certificate of Incorporation (1)
3.2 Certificate of Designations of the Preferences and
Relative Participating, Optional and Other Special Rights
of Series A Convertible Preferred Stock and
Qualifications, Limitations and Restrictions Thereof (4)
3.3 Bylaws (1)
3.4 Amendment to Bylaws (2)
4.1 See Article IV of Certificate of Incorporation filed as
Exhibit 3.1 and Exhibit 3.2
4.2 Sheldon Nelson Stock Option Agreement dated
November 24, 1998 (1)
4.3 Douglas Irving Stock Option Agreement dated
November 24, 1998 (fully exercised) (1)
4.4 Chris Nelson Stock Option Agreement dated
December 31, 1998 (1)
4.5 Form of Warrant to Purchase Common Stock used in
Winter 1999/2000 Unit offerings (4)
4.6 Warrant to Purchase Common Stock, dated
January 28, 2000 to Haywood Securities Inc. from the
Company (4)
4.7 Warrant to Purchase Common Stock, dated
March 1, 2000, from the Company to Gibralt Capital
Corporation (4)
5.1 Legal Opinion of Davis Wright Tremaine LLP *
10.1 System Operator Agreement dated August 27, 1998 between
Star Choice Communications Inc. and MDU Communications
Inc. (1)
10.2 Agreement dated December 31, 1998 between 4-12
Electronics Corporation and MDU Communications Inc. (1)
10.3 Suppliers' Stock Option Plan for 1998/99 (4)
10.4 2000 Incentive Stock Option Plan (ISO & Non-ISO) (4)
10.5 Registration Rights Agreement, dated January 28, 2000,
between the Company and Haywood Securities Inc. (4)
10.6 Agency Letter, dated January 28, 2000, between the
Company and Haywood Securities Inc. (4)
10.7 Form of Replacement Convertible Promissory Note and
Loan Agreement, dated October 19, 1999, issued by MDU
Canada to National Day Corporation for US$250,000 and
327,500, and to David Lawrence for US$65,000 (each
fully converted and cancelled in February and March
2000, respectively) (4)
10.8 Letter Agreement, dated October 13, 1999, and Mutual
Release, dated January 5, 2000, between the Company and
Canacord Capital Corporation *
10.9 Letter Agreement, dated November 18, 1999, between MDU
Canada and MBT Capital, and Assignment Agreement, dated
January 14, 2000, between MBT Capital, Merbanco Capital
Inc., 33678652 Canada Inc. and Gibralt Capital
Corporation *
10.10 Letter Agreement dated February 16, 2000, Mutual
Release dated March 1, 2000, and Letter Agreement
regarding registration rights, dated March 16, 2000,
between the Company, MDU Canada and Gibralt Capital
Corporation *
10.11 Management Employment Agreement, dated February 1, 2000,
between the Company and Sheldon Nelson (4)
10.12 Management Services Agreement, dated January 31, 2000,
between the Company and Corus Financial Corp. (4)
10.13 Management Employment Agreement, dated February 1, 2000,
between the Company and Gary Monaghan (4)
10.14 Headquarters Facility Leases (4)
15.1 Letter on unaudited interim financial condition *
16.1 Letter of Nelson, Mayoka & Company, P.C. on change in
Certifying Accountant (3)
21 Subsidiaries of the Company (4)
23.1 Consent of Deloitte & Touche LLP *
23.2 Consent of Davis Wright Tremaine LLP - see Exhibit 5.1
27 Financial Data Schedule (4)
</TABLE>
- ---------------------
(1) Incorporated by reference from Form 10-SB filed on May 12, 1999
(2) Incorporated by reference from Form 10-KSB filed on December 27, 1999
(3) Incorporated by reference from Form 10-SB/A, Amendment No. 2 filed on
February 4, 2000
(4) Filed with this Form SB-2
* To be filed by amendment
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF DESIGNATIONS OF THE
PREFERENCES AND RELATIVE PARTICIPATING,
OPTIONAL AND OTHER SPECIAL RIGHTS OF
SERIES A CONVERTIBLE PREFERRED STOCK AND
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF
- --------------------------------------------------------------------------------
Pursuant to Section 151 of the
Delaware General Corporation Law
- --------------------------------------------------------------------------------
MDU Communications International, Inc. (the "Corporation"), a corporation
organized and existing under the Delaware General Corporation Law, does hereby
certify that, pursuant to authority conferred upon the board of directors of the
Corporation (the "Board of Directors") by its Certificate of Incorporation (the
"Certificate of Incorporation"), and pursuant to the provisions of Section 151
of the Delaware General Corporation Law (the "DGCL"), said Board of Directors,
on January 26, 2000, duly approved and adopted a resolution to read as follows:
RESOLVED, that, pursuant to the authority vested in
the Board of Directors by its Certificate of Incorporation,
the Board of Directors does hereby create, authorize and
provide for the issuance of Series A Convertible Preferred
Stock, par value $.001 per share, in an amount not to exceed
4,100,000 shares, having the designations, preferences and
relative participating, optional and other special rights and
the qualifications, limitations and restrictions thereof that
are set forth in the Certificate of Incorporation and in this
Resolution as follows:
1. DESIGNATION. There is hereby created out of the authorized and
unissued Preferred Stock of the Corporation a class of Preferred Stock
designated as the "Series A Convertible Preferred Stock." The number of shares
constituting such class shall not exceed 4,100,000 and are referred to as the
"Series A Convertible Preferred Stock." The liquidation preference of the Series
A Convertible Preferred Stock shall be $2.50 per share.
2. RANKING. The Series A Convertible Preferred Stock shall rank (i) prior
to the Common Stock and any other class or series of capital stock of the
Corporation hereafter created (unless, with the consent of the Holders of Series
A Convertible Preferred Stock obtained in accordance with SECTION 12, such class
or series of capital stock specifically, by its terms, ranks senior to or PARI
PASSU with the Series A Convertible Preferred Stock) (collectively, with the
Common Stock, "Junior Shares"); (ii) PARI PASSU with any class or series of
capital stock of the Corporation hereafter created (with the consent of the
Holders of Series A Convertible Preferred Stock obtained in accordance with
SECTION 12) specifically ranking, by its terms, on parity with the Series A
Convertible Preferred Stock ("Parity Shares"); and (iii) junior to any class or
series of capital stock of the Corporation hereafter created (with the consent
of the Holders of Series A Convertible Preferred Stock obtained in accordance
with SECTION 12) specifically ranking, by its terms, senior to the Series A
Convertible Preferred Stock ("Senior Shares"), in each case as to distributions
of assets upon liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary.
3. DIVIDENDS. Holders of the outstanding Series A Convertible Preferred
Stock shall be entitled to receive, when, as and if declared by the Board of
Directors, out of funds legally available therefor, dividends on each share of
Series A Convertible Preferred Stock equal in an amount per share being paid to
the holders of the Common
<PAGE>
Stock, and no dividends shall be paid on the outstanding shares of the Common
Stock unless dividends in the same amount per share are paid on outstanding
Series A Convertible Preferred Stock. Nothing herein contained shall in any way
or under any circumstances be construed or deemed to require the Board of
Directors to declare, or the Corporation to pay or set apart for payment, any
dividends on the Series A Convertible Preferred Stock at any time.
4. LIQUIDATION PREFERENCE. In the event of any voluntary or involuntary
liquidation, dissolution or winding-up of affairs of the Corporation, the
Holders of Series A Convertible Preferred Stock then outstanding shall be
entitled to be paid, out of the assets of the Corporation available for
distribution to its stockholders, an amount in cash equal to the liquidation
preference of $2.50 per share, plus an amount equal to all declared and unpaid
dividends on the Series A Convertible Preferred Stock, before any payment shall
be made or any assets distributed to the holders of any of the Junior Shares.
Except as provided in the preceding sentence, Holders of Series A Convertible
Preferred Stock shall not be entitled to any further distribution in the event
of any liquidation, dissolution or winding-up of the affairs of the
Corporation. If the assets of the Corporation are not sufficient to pay in full
the liquidation payments payable to the Holders of outstanding Series A
Convertible Preferred Stock, then such Holders shall share equally and ratably
in such distribution of assets in proportion to the full liquidation
preference, including all declared and unpaid dividends, to which each is
entitled.
For the purposes of this SECTION 4, neither the sale, conveyance, exchange
or transfer (for cash, shares of stock, securities or other consideration) of
all or substantially all of the property or assets of the Corporation nor the
consolidation or merger of the Corporation with or into one or more entities
shall be deemed to be a liquidation, dissolution or winding-up of the affairs
of the Corporation.
5. VOTING RIGHTS. The Holders of Series A Convertible Preferred Stock
shall be entitled to receive notice of and to attend all meetings of the
stockholders of the Corporation, to vote on all matters, including without
limitation the election of directors, and shall be entitled to one vote per
share. Except as otherwise required under the DGCL, the Holders of the Series A
Convertible Preferred Stock and the holders of the Common Stock shall vote
together and not as separate classes.
6. CONVERSION.
(i) CONVERSION RIGHT AND RATIO. The Holders of Series A Convertible
Preferred Stock shall be entitled to convert their Series A Convertible
Preferred Stock into shares of Common Stock on any Business Day during the
Conversion Period on the ratio (the "Conversion Ratio") of one share of Common
Stock for each share of Series A Convertible Preferred Stock; PROVIDED, that if
the Qualification Date does not occur on or before the 150th day following the
Issue Date, each share of Series A Convertible Preferred Stock thereafter
converted shall be convertible on the basis of 1.15 shares of Common Stock for
each share of Series A Convertible Preferred Stock.
(ii) AUTOMATIC CONVERSION. If any of the Series A Convertible
Preferred Stock has not been converted by the Holders thereof during the
Conversion Period, such Series A Convertible Preferred Stock shall be deemed to
have been converted into Common Stock by such Holder immediately prior to the
Conversion Deadline without any further action on the part of such Holders.
Certificates evidencing any such Series A Convertible Preferred Stock shall be
deemed to evidence such Common Stock until certificates evidencing such Common
Stock shall have been issued to the Holder in exchange for the certificates
evidencing such Series A Convertible Preferred Stock.
(iii) ADJUSTMENT OF CONVERSION RATIO. The Conversion Ratio shall be
subject to adjustment from time to time if any of the following shall occur
during the Conversion Period and Series A Convertible Preferred Stock is then
outstanding:
(a) ADJUSTMENT DUE TO STOCK SPLIT, STOCK DIVIDEND, ETC. If the
number of outstanding shares of Common Stock is increased or decreased by a
stock split, stock dividend, combination, reclassification, rights offering or
other similar event (an "Adjustment Event"), then the Conversion Ratio shall be
adjusted and calculated such that the Holders of Series A Convertible Preferred
Stock shall thereafter have the right to receive upon
<PAGE>
conversion of the Series A Convertible Preferred Stock, upon the basis and upon
the terms and conditions specified herein and in lieu of the shares of
Underlying Common Stock immediately theretofore issuable upon conversion, such
stock, securities or assets which the Holders of Series A Convertible Preferred
Stock would have been entitled to receive had the Series A Convertible
Preferred Stock been converted in full immediately prior to the Adjustment
Event (without regard to any limitations on conversion contained herein), and
in any such case appropriate provisions shall be made with respect to the
rights and interests of the Holders of Series A Convertible Preferred Stock to
the end that the provisions hereof (including, without limitation, provisions
for adjustment of the Conversion Ratio) shall thereafter be applicable, as
nearly as may be practicable in relation to any securities or assets thereafter
deliverable upon the conversion of Series A Convertible Preferred Stock.
(b) ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If there
shall be any merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event, as a result of which shares of Common
Stock shall be changed into the same or a different number of shares of another
class or classes of stock or securities of the Corporation or another entity,
or in case of any sale or conveyance of all or substantially all of the assets
of the Corporation other than in connection with a plan of complete liquidation
of the Corporation, then the holders of Series A Convertible Preferred Stock
shall thereafter have the right to receive upon conversion of the Series A
Convertible Preferred Stock, upon the basis and upon the terms and conditions
specified herein and in lieu of the shares of Common Stock immediately
theretofore issuable upon conversion, such stock, securities or assets which
the holders of Series A Convertible Preferred Stock would have been entitled to
receive in such transaction had the Series A Convertible Preferred Stock been
converted in full immediately prior to such transaction (without regard to any
limitations on conversion contained herein), and in any such case appropriate
provisions shall be made with respect to the rights and interests of the
Holders of Series A Convertible Preferred Stock to the end that the provisions
hereof (including, without limitation, provisions for adjustment of the
Conversion Ratio shall thereafter be applicable, as nearly as may be
practicable in relation to any securities or assets thereafter deliverable upon
the conversion of Series A Convertible Preferred Stock. The Corporation shall
not effect any transaction described in this subsection (b) unless (i) it first
gives, to the extent practical, thirty (30) days' prior written notice of the
record date of the special meeting of stockholders to approve, or if there is
no such record date, the consummation of, such merger, consolidation, exchange
of shares, recapitalization, reorganization or other similar event or sale of
assets (during which time the Holders of Series A Convertible Preferred Stock
shall be entitled to convert the Series A Convertible Preferred Stock) and (ii)
the resulting successor or acquiring entity (if not the Corporation) assumes by
written instrument the obligations of the Corporation under this Certificate of
Designation (including under this subsection (b)). The above provisions shall
similarly apply to successive consolidations, mergers, sales, transfers or
share exchanges.
(c) ADJUSTMENT DUE TO DISTRIBUTION. Subject to SECTION 12, if
the Corporation shall declare or make any distribution of its assets (or rights
to acquire its assets) to holders of Common Stock as a dividend, stock
repurchase, by way of return of capital or otherwise (including any dividend or
distribution to the Corporation's shareholders in cash or shares (or rights to
acquire shares) of capital stock of a subsidiary (I.E., a spin-off)) (a
"Distribution"), then the Holders of Series A Convertible Preferred Stock shall
be entitled, upon any conversion of shares of Series A Convertible Preferred
Stock after the date of record for determining shareholders entitled to such
Distribution, to receive the amount of such assets which would have been
payable to the Holder with respect to the shares of Common Stock issuable upon
such conversion had such Holder been the holder of such shares of Common Stock
on the record date for the determination of shareholders entitled to such
Distribution.
(d) PURCHASE RIGHTS. Subject to SECTION 12, the Corporation
issues any convertible securities or rights to purchase stock, warrants,
securities or other property (the "Purchase Rights") pro rata to the record
holders of the Common Stock, then the Holders of Series A Convertible Preferred
Stock will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such holder could have acquired if
such holder had held the number of shares of Common Stock acquirable upon
conversion of the Series A Convertible Preferred Stock (without regard to any
limitations on conversion contained herein) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase
Rights, or, if no such record is taken, the date as of which the record holders
of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.
<PAGE>
(iv) MECHANICS OF CONVERSION. To convert Series A Convertible
Preferred Stock into Underlying Common Stock (other than automatic conversion
in accordance with SECTION 6(ii)), a Holder shall: (i) give written notice at
least three Business Days prior to the date specified therein as the conversion
date to the Corporation, which notice shall specify the number of shares of
Series A Convertible Preferred Stock to be converted, and (ii) surrender the
original certificates representing the Series A Convertible Preferred Stock
being converted, duly endorsed, to the Corporation. The Corporation shall not
be obligated to issue certificates evidencing the shares of Common Stock
issuable upon conversion of Series A Convertible Preferred Stock, unless the
certificates evidencing the Series A Convertible Preferred Stock being
converted are delivered to the Corporation.
Upon the surrender of certificates evidencing the Series A Convertible
Preferred Stock being converted, the Corporation shall, within three Business
Days after such surrender, issue and deliver (or cause its transfer agent to so
issue and deliver) to or upon the order of the Holder (i) that number of shares
of Common Stock for the portion of the shares of Series A Convertible Preferred
Stock converted as shall be determined in accordance with this Certificate of
Designations and (ii) a certificate representing the balance of the shares of
Series A Convertible Preferred Stock not converted, if any.
Fractional shares issuable upon the conversion of Series A Convertible
Preferred Stock will be rounded down to the nearest whole number based on the
aggregate number of shares of Series A Convertible Preferred Stock then being
converted by the Holder thereof.
7. FINANCIAL AND OTHER INFORMATION. The Holders of the Series A
Convertible Preferred Stock shall be entitled to all financial statements,
notices of meetings, proxy materials and other information provided or sent to
the holders of the Common Stock.
8. REISSUANCE OF SERIES A CONVERTIBLE PREFERRED STOCK. Series A
Convertible Preferred Stock that have been issued and reacquired in any manner,
including shares purchased or redeemed, converted or exchanged, shall (upon
compliance with any applicable provisions of the DGCL) have the status of
authorized and unissued shares of Preferred Stock undesignated as to series and
may be redesignated and reissued as part of any series of Preferred Stock;
provided that such reacquired shares shall not otherwise be reissued as Series
A Convertible Preferred Stock.
9. BUSINESS DAY. If any payment or conversion shall be required or
permitted by the terms of this Certificate of Designations to be made on a day
that is not a Business Day, such payment or conversion shall be made on the
immediately succeeding Business Day.
10. DEFINITIONS. As used in this Certificate of Designations, the
following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and VICE VERSA),
unless the context otherwise requires.
"ADJUSTMENT EVENT" has the meaning ascribed to it in SECTION
6(iii)(a).
"BOARD OF DIRECTORS" has the meaning defined in the first paragraph
of this Certificate of Designations.
"BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York, New York
and Vancouver, British Columbia are authorized or obligated by law or executive
order to close.
"COMMON STOCK" means the Corporation's Common Stock, par value $.001
per share.
"CONVERSION DEADLINE" is the date that is the earlier of (i) the
fifth Business Day following the Qualification Date and (ii) the first
anniversary of the Issue Date.
"CONVERSION PERIOD" means the period commencing on the Issue Date and
ending at 4:00 p.m.,
<PAGE>
Vancouver, British Columbia time, on the Conversion Deadline.
"CONVERSION RATIO" has the meaning defined in SECTION 6(i).
"DGCL" has the meaning defined in the first paragraph of this
Certificate of Designations.
"HOLDER" means a holder of Series A Convertible Preferred Stock as
reflected in the share books of the Corporation.
"ISSUE DATE" means the date of the original issuance of the Series A
Convertible Preferred Stock.
"JUNIOR SHARES" has the meaning defined in SECTION 2.
"PARITY SHARES" has the meaning defined in SECTION 2.
"QUALIFICATION DATE" means the date on which the Company has both (i)
filed a preliminary prospectus and a (final) prospectus, and obtained receipts
for each such prospectus, in British Columbia and all other provinces in Canada
in which persons purchasing Series A Convertible Preferred Stock on the Issue
Date are resident, qualifying for distribution the Underlying Common Stock, and
(ii) filed with the SEC, and obtained effectiveness of, the Shelf Registration
Statement.
"SEC" means the United States Securities and Exchange Commission.
"SENIOR SHARES" has the meaning defined in SECTION 2.
"SHELF REGISTRATION STATEMENT" means a "shelf" registration statement
of the Corporation which covers the Underlying Common Stock on an appropriate
form for an offering to be made on a delayed or continuous basis pursuant to
Rule 415 under the 1933 Act, or any similar rule that may be adopted by the
SEC, and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the prospectus
contained therein, all exhibits thereto and all documents incorporated or
deemed to be incorporated by reference therein.
"1933 ACT" means the United States Securities Act of 1933, as amended.
"UNDERLYING COMMON STOCK" means the Common Stock issuable or issued
to Holders of the Series A Convertible Preferred Stock upon conversion thereof.
11. RESTRICTIONS ON TRANSFER. Each certificate evidencing shares of
Series A Convertible Preferred Stock shall contain a legend substantially to
the following effect unless the Corporation determines otherwise:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
ACT OF ANY STATE (COLLECTIVELY, THE "SECURITIES LAWS"). THEY
MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES LAWS OR
AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE
SECURITIES THAT AN EXEMPTION UNDER THE SECURITIES LAWS IS
AVAILABLE AND THAT SUCH REGISTRATION IS NOT REQUIRED.
12. PROTECTIVE PROVISIONS. So long as shares of Series A Convertible
Preferred Stock are outstanding, the Corporation shall not, without first
obtaining the approval (by vote or written consent, as permitted by the DGCL)
of the Holders of at least two-thirds of the then outstanding shares of Series
A Convertible Preferred Stock:
<PAGE>
(a) alter or change the rights, preferences or privileges of the
Series A Convertible Preferred Stock so as to affect adversely the Holders of
the Series A Convertible Preferred Stock;
(b) create any new class or series of capital stock having a
preference over, or ranking PARI PASSU with, the Series A Convertible Preferred
Stock as to distributions of assets upon liquidation, dissolution or winding up
of the Corporation;
(c) increase the authorized number of shares of Series A Convertible
Preferred Stock;
(d) issue any Senior Shares or Parity Shares.
In the event Holders of at least two-thirds of the then outstanding
shares of Series A Convertible Preferred Stock agree to allow the Corporation
to alter or change the rights, preferences or privileges of the shares of
Series A Convertible Preferred Stock, so as to affect the Series A Convertible
Preferred Stock, then the Corporation will deliver notice of such approved
change to the Holders of the Series A Convertible Preferred Stock that did not
agree to such alteration or change (the "Dissenting Holders") and Dissenting
Holders shall have the right for a period of thirty (30) days to convert into
Common Stock pursuant to the terms of this Certificate of Designations as they
exist prior to such alteration or change or continue to hold their shares of
Series A Convertible Preferred Stock.
A number of shares of the authorized but unissued Common Stock
sufficient for the full conversion of the Series A Convertible Preferred Stock
outstanding shall at all times be reserved by the Corporation, free from
preemptive rights for such conversion. In addition, if the Corporation shall
issue any securities or make any change in its capital structure as provided in
SECTION 6 which would change the number of shares of Common Stock into which
each share of Series A Convertible Preferred Stock shall be convertible, the
Corporation shall at the same time make proper provision so that thereafter
there shall be a sufficient number of shares of Common Stock authorized and
reserved, free from preemptive rights, for conversion of the outstanding Series
A Convertible Preferred Stock.
IN WITNESS WHEREOF, said MDU Communications International, Inc. has
caused this Certificate to be signed by Sheldon B. Nelson, its President, this
26th day of January, 2000.
MDU COMMUNICATIONS INTERNATIONAL, INC.
By: /s/ Sheldon B. Nelson
---------------------
Name: Sheldon B. Nelson
Title: President
<PAGE>
EXHIBIT 4.5
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND NO INTEREST
THEREIN MAY BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED
OR OTHERWISE TRANSFERRED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND THE APPLICABLE
STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION OR THE
ISSUER OF THESE SECURITIES RECEIVES AN OPINION OF LEGAL
COUNSEL SATISFACTORY TO THE ISSUER STATING THAT SUCH
TRANSACTION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS.
MDU COMMUNICATIONS INTERNATIONAL, INC.
--------------------
WARRANT TO PURCHASE COMMON STOCK
This is to certify that, for value received and subject to the terms and
conditions set forth below, _____________________________________ is entitled to
purchase at any time on or after __________________________, and on or before
______________________, and MDU Communications International, Inc., a Delaware
corporation ("the Company"), promises and agrees to sell and issue, up to 50,000
shares of Common Stock (hereinafter defined) at a price of Ninety Cents ($0.90)
per share ("Exercise Price").
This Warrant is issued subject to the following terms and conditions:
1. DEFINITIONS. Except as may be otherwise clearly required by the
context, the following terms shall have the following meanings:
"COMMON STOCK" means the Common Stock of the Company.
"COMPANY" means MDU Communications International, Inc., a Delaware
corporation.
"EXERCISE PRICE" means the price at which a Warrant Holder may
purchase one share of Common Stock (or Securities obtainable in lieu of one
share of Common Stock) upon exercise of Warrants as determined from time to time
pursuant to the provisions hereof.
"SECURITIES" means the Common Stock or other securities obtained or
obtainable upon exercise of the Warrants.
"WARRANT HOLDER" means the person named in the initial paragraph of
this certificate or any successor who is a record holder of Warrants.
<PAGE>
"WARRANTS" means the warrants evidenced by this certificate or by any
certificate obtained upon transfer or partial exercise of Warrants.
2. EXERCISE OF WARRANTS. All or any part of the Warrants may be exercised
by surrendering this certificate, together with appropriate instructions, duly
executed by the Warrant Holder, or by its duly authorized attorney, at the
office of the Company, 108 - 11951 Hammersmith Way, Richmond, British Columbia,
Canada, or at such other office or agency as the Company may designate by
written notice to the Warrant Holder, accompanied by payment in full, in lawful
money of the United States of the Exercise Price payable for the Securities
being issued on exercise of such Warrants. If fewer than all the Warrants
evidenced by this certificate are exercised, the Company will, upon such
exercise, execute and deliver to the Warrant Holder a new certificate (dated the
date hereof), in form and tenor substantially similar to this certificate,
evidencing the Warrants not exercised. The Securities to be obtained on exercise
of the Warrants shall be deemed to have been issued, and any person exercising
the Warrants shall be deemed to have become a holder of record of those
Securities, as of the date of the surrender of this certificate and the payment
of the Exercise Price.
3. ADJUSTMENTS IN CERTAIN EVENTS. The number, class and Exercise Price of
Securities for which this certificate may be exercised are subject to adjustment
from time to time upon the happening of certain events as follows:
(a) STOCK DIVIDENDS, SPLITS, ETC. If the outstanding shares of the
Company's Common Stock are divided into a greater number of shares or a dividend
in stock is paid on the Common Stock, the number of shares of Common Stock which
may be purchased under this certificate shall be proportionately increased and
the Exercise Price proportionately decreased; and, conversely, if the
outstanding shares of Common Stock are combined into a smaller number of shares
of Common Stock, the number of shares of Common Stock which may be purchased
under this certificate shall be proportionately reduced and the Exercise Price
proportionately increased. The increases and reductions provided for in this
SECTION 3(a) shall be made with the intent and, as nearly as practicable, the
effect that neither the percentage of the total equity of the Company obtainable
on exercise of the Warrants nor the aggregate Exercise Price for such percentage
upon such exercise shall be affected by any event described in this SECTION
3(a).
(b) MERGERS, CONSOLIDATIONS, ETC. In case of any change in the Common
Stock of the Company through merger, consolidation, reclassification,
reorganization, partial or complete liquidation, or other change in the capital
structure of the Company (not including the issuance of additional shares of
Common Stock by the Company other than by stock split or stock dividend), then,
as a condition of the change in the capital structure of the Company, lawful and
adequate provision shall be made so that the holder of this certificate will
have the right thereafter to receive upon the exercise of the Warrants the kind
and amount of shares of stock or other securities or property to which it would
have been entitled if, immediately prior to such merger, consolidation,
reclassification, reorganization, recapitalization, or other change in the
capital structure, it had held the number of shares of Common Stock obtainable
upon the exercise of the Warrants. In any such case, appropriate adjustment
shall be made in the application of the provisions set forth herein with respect
to the rights and interest thereafter of the Warrant Holder, to the end that the
provisions set forth herein shall thereafter be applicable, as nearly as
2
<PAGE>
reasonably may be possible, in relation to any shares of stock or other property
thereafter deliverable upon the exercise of the Warrants. The Company will not
permit any change in its capital structure described in this SECTION 3(b) to
occur unless the issuer of the shares of stock or other securities to be
received by the holder of this certificate, if not the Company, agrees to be
bound by and comply with the provisions of this certificate.
(c) DETERMINATION AND NOTICE OF EXERCISE PRICE. When any adjustment
is required to be made in the number of shares of Common Stock, Exercise Price,
other securities, or the property purchasable upon exercise of the Warrants as
provided in SECTION 3(b), the Company shall promptly determine the new Exercise
Price, number of such shares or other securities or property purchasable upon
exercise of the Warrants and (i) prepare and retain on file a statement
describing in reasonable detail the method used in arriving at the new Exercise
Price or number of such shares or other securities or property purchasable upon
exercise of the Warrants and (ii) cause a copy of such statement to be mailed to
the Warrant Holder within sixty (60) days after the date when the event giving
rise to the adjustment occurred.
(d) NO FRACTIONAL SHARES. No fractional shares of Common Stock or
other Securities will be issued in connection with the exercise of any Warrants,
but the Company shall pay, in lieu of fractional shares, a cash payment therefor
on the basis of (i) the mean between the bid and asked prices in the
over-the-counter market or the closing price on a national securities exchange
on the day immediately prior to exercise or (ii) such other means of determining
the fair market value of the Common Stock as is approved by the Company's Board
of Directors.
(e) ISSUANCE OF PREFERRED SECURITIES, ETC. If preferred securities of
the Company or securities of any subsidiary of the Company are distributed pro
rata to holders of any or all of the Company's Common Stock, such number of
securities shall be distributed to the Warrant Holder upon exercise of his
rights hereunder as such Warrant Holder or assignee would have been entitled to
if this Warrant had been exercised prior to such distribution. The provisions
with respect to adjustment of the Company's Common Stock provided in this
SECTION 3 shall also apply to the preferred securities and securities of any
subsidiary to which the Warrant Holder or his assignee shall be entitled under
this SECTION 3(e).
(f) NO ADJUSTMENTS UPON EXERCISE OF WARRANTS. Notwithstanding
anything herein to the contrary, there shall be no adjustment made hereunder on
account of the sale of the Common Stock purchasable upon exercise of the
Warrants.
4. RESERVATION OF SHARES. The Company agrees that the number of shares of
Common Stock or other Securities sufficient to provide for the exercise of the
Warrants upon the basis set forth above shall at all times during the term of
the Warrants be reserved for exercise.
5. VALIDITY OF SECURITIES. All Securities delivered upon the exercise of
the Warrants shall be duly and validly issued in accordance with their terms,
and the Company will pay all documentary and transfer taxes, if any, in respect
of the original issuance thereof upon exercise of the Warrants.
3
<PAGE>
6. INVESTMENT REPRESENTATION. The Warrant Holder represents and warrants
that it has acquired the Warrants, and will acquire the Common Stock or other
Securities, if any, upon exercise of the Warrants, for its own account for
investment and not with a view to the sale or other disposition of all or any
part of the Warrants, Common Stock or other Securities. The Warrants, and the
Common Stock or other Securities acquired or to be acquired upon exercise of the
Warrants, may not be sold, transferred or otherwise hypothecated unless in the
opinion of counsel for the Company the Warrants, Common Stock or other
Securities may be sold, transferred or otherwise hypothecated without
registration under the Act and any applicable state securities laws.
An appropriate legend to the foregoing effect and of the type commonly
placed on certificates evidencing privately placed securities may be placed on
all certificates evidencing Securities.
7. NO RIGHTS AS A SHAREHOLDER. Except as otherwise provided herein, the
Warrant Holder shall not, by virtue of ownership of Warrants, be entitled to any
rights of a shareholder of the Company but shall, upon written request to the
Company, be entitled to receive such quarterly or annual reports as the Company
by mail shall distribute to its shareholders.
8. NOTICE. Any notices required or permitted to be given hereunder shall
be in writing and may be served personally or by mail; and if served by mail,
shall be addressed as follows:
If to the Company: MDU Communications International, Inc.
108 - 11951 Hammersmith Way
Richmond, B.C. V7A 5H9 CANADA
If to the Warrant Holder: at the address furnished by the
Warrant Holder to the Company
for the purpose of notice.
Any notice so given by mail shall be deemed effectively given 48 hours
after mailing when deposited in the United States mail, registered or certified
mail, return receipt requested, postage prepaid and addressed as specified
above. Any party may by written notice to the other specify a different address
for notice purposes.
9. APPLICABLE LAW. This Certificate shall be governed by and construed in
accordance with the laws of the State of Delaware.
DATED as of ___________, ____, _______.
MDU COMMUNICATIONS INTERNATIONAL, INC.
By
----------------------------------
Its
----------------------------------
4
<PAGE>
EXHIBIT 4.6
NEITHER THIS WARRANT NOR THE SHARE PURCHASE WARRANTS ISSUABLE UPON THE EXERCISE
OF THIS WARRANT HAVE BEEN QUALIFIED UNDER THE SECURITIES LAWS OF ANY OF THE
PROVINCES OF CANADA. FOR THE PURPOSES OF THE SECURITIES ACT (BRITISH COLUMBIA)
THIS WARRANT AND THE SHARE PURCHASE WARRANTS ISSUABLE UPON THE EXERCISE OF THIS
WARRANT ARE SUBJECT TO A HOLD PERIOD AND MAY NOT BE TRADED IN BRITISH COLUMBIA
UNTIL AFTER THE EXPIRY OF THE HOLD PERIOD, EXCEPT AS PERMITTED BY THE SECURITIES
ACT (BRITISH COLUMBIA) AND REGULATIONS MADE THEREUNDER.
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED, OR THE SECURITIES ACT OF ANY STATE (COLLECTIVELY, THE
"SECURITIES LAWS"). THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES LAWS OR AN OPINION OF
COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES THAT AN EXEMPTION UNDER
THE SECURITIES LAWS IS AVAILABLE AND THAT SUCH REGISTRATION IS NOT REQUIRED.
MDU COMMUNICATIONS INTERNATIONAL, INC.
(a Delaware corporation)
THIS IS TO CERTIFY THAT for value received HAYWOOD SECURITIES INC. (the
"Holder") is entitled to acquire from MDU COMMUNICATIONS INTERNATIONAL, INC.
(the "Company") for no additional consideration and in the manner and subject to
the restrictions and adjustments set forth herein, one non-transferable common
share purchase warrant (the "Agent's Underlying Warrant") in the form attached
hereto as Exhibit "A".
The warrants ("Warrants") represented by this certificate may be exercised, at
any time and from time to time (the "Exercise Period") commencing on the date
hereof and ending at 4:00 p.m. (Vancouver time) (the "Time of Expiry") on the
date that is the earlier of: (i) the fifth business day following the day (the
"Qualification Date") on which a receipt for a (final) prospectus filed by the
Company with respect to the distribution of, among other securities, the Agent's
Underlying Warrant issuable upon exercise of the Warrants has been obtained from
the British Columbia Securities Commission; and (ii) the first anniversary of
the date hereof. If the Warrants have not been so exercised during the Exercise
Period, the Warrants will be deemed to have been exercised by the Holder
(without any further action on the part of the Holder or the Company)
immediately prior to the Time of Expiry. Upon the exercise or deemed exercise of
the rights represented by this certificate in accordance with the terms hereof,
the Agent's Underlying Warrant shall be deemed to have been issued and the
Holder shall be deemed to have become the holder of record of such securities on
the date of such exercise or deemed exercise.
<PAGE>
The Warrants may be exercised by the Holder, in whole or in part, by surrender
of this certificate at the office of the Company at 108 - 11951 Hammersmith Way,
Richmond, B.C. V7A 5H9 during its normal business hours, together with the
Notice of Exercise attached hereto completed and signed by the Holder. Surrender
of this certificate will be deemed to have been effected only on personal
delivery thereof to, or, if sent by mail or other means of transmission, on
actual receipt thereof by, the Company at the office specified above.
In the event of any exercise, deemed or otherwise, of the Warrants, a
certificate representing the Agent's Underlying Warrants shall be delivered to
the Holder within a reasonable time, not exceeding two business days after the
Warrants have been duly exercised and this certificate has been surrendered to
the Company.
THE FOLLOWING ARE THE TERMS AND CONDITIONS
REFERRED TO IN THIS WARRANT CERTIFICATE
1. COVENANTS OF THE COMPANY. The Company covenants that:
(a) the Common Shares issuable upon the due exercise of the Agent's Underlying
Warrant will, upon issuance, be fully paid and non-assessable and free of
all liens, charges and encumbrances; and
(b) during the period within which the Warrants may be exercised, the Company
will at all times have authorized and reserved, a sufficient number of
Common Shares to provide for the exercise of the Agent's Underlying
Warrant.
2. EXPIRATION OF WARRANTS. On and after the date of exercise or deemed
exercise of the Warrants, the Holder will have no rights hereunder except to
receive, upon surrender of this certificate to the Company, a certificate
representing the Agent's Underlying Warrant.
3. DENOMINATIONS. On presentation at the principal office of the Company in
Richmond, British Columbia, this certificate may be exchanged for one or more
certificates of different denominations evidencing in the aggregate the same
number of Warrants as the certificate being exchanged.
4. NO RIGHTS AS COMMON SHAREHOLDER. The holding of this certificate will not
constitute the Holder as a shareholder of the Company or entitle him to any
right or interest in respect thereof except as otherwise provided herein.
5. NOTICE. Any notice or other communication required to be given to the
Holder under this Warrant shall be delivered or telecopied as follows:
Haywood Securities Inc.
11th Floor Commerce Place
400 Burrard Street
Vancouver, B.C. V6C 3A6
Attention: Mr. Fabio Banducci
2
<PAGE>
Telecopy No. (604) 643-2305
ANY NOTICE OR OTHER COMMUNICATION SO GIVEN SHALL BE DEEMED TO HAVE BEEN GIVEN
AND RECEIVED WHEN DELIVERED, IF DELIVERED, AND UPON TRANSMISSION, IF TELECOPIED,
AND IF THE DATE OF SUCH TRANSMISSION IS NOT A BUSINESS DAY, ON THE NEXT ENSUING
BUSINESS DAY.
6. GENERAL MATTERS. This certificate shall be governed by and construed in
accordance with the laws of the Province of British Columbia. Time will be of
the essence hereof.
IN WITNESS WHEREOF the Company has caused this certificate to be signed as of
January 28, 2000.
MDU COMMUNICATIONS INTERNATIONAL, INC.
By:
/s/ Sheldon Nelson c/s
- ---------------------------------
(AUTHORIZED SIGNATORY)
3
<PAGE>
NOTICE OF EXERCISE
To: MDU COMMUNICATIONS INTERNATIONAL, INC.
108 - 11951 Hammersmith Way,
Richmond, B.C. V7A 5H9
(1) The undersigned holder of the Warrants represented by the within Warrant
Certificate hereby exercises the right under such Warrant to be issued the
Agent's Underlying Warrant issuable under the Warrants.
(2) The undersigned holder hereby irrevocably directs that the Agent's
Underlying Warrant be issued and delivered as follows:
NAME(S) IN FULL ADDRESS(ES)
- ----------------------------------- -----------------------------------------
- ----------------------------------- -----------------------------------------
- ----------------------------------- -----------------------------------------
- ----------------------------------- -----------------------------------------
(Please print full name in which certificates are to be issued.)
DATED this _____ day of ____________, _______
- ----------------------------------- -----------------------------------------
Signature of Witness Signature of Holder
- ----------------------------------- -----------------------------------------
Print Name of Witness Name of Holder
- ----------------------------------- -----------------------------------------
Address of Witness Address of Holder
<PAGE>
EXHIBIT A
NEITHER THIS WARRANT NOR THE COMMON SHARES ISSUABLE UPON THE EXERCISE OF THIS
WARRANT HAVE BEEN QUALIFIED UNDER THE SECURITIES LAWS OF ANY OF THE PROVINCES OF
CANADA. FOR THE PURPOSES OF THE SECURITIES ACT (BRITISH COLUMBIA), THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT ARE SUBJECT TO
A HOLD PERIOD AND MAY NOT BE TRADED IN BRITISH COLUMBIA UNTIL AFTER THE EXPIRY
OF THE HOLD PERIOD, EXCEPT AS PERMITTED BY THE SECURITIES ACT (BRITISH COLUMBIA)
AND REGULATIONS MADE THEREUNDER.
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED, OR THE SECURITIES ACT OF ANY STATE (COLLECTIVELY, THE
"SECURITIES LAWS"). THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES LAWS OR AN OPINION OF
COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES THAT AN EXEMPTION UNDER
THE SECURITIES LAWS IS AVAILABLE AND THAT SUCH REGISTRATION IS NOT REQUIRED.
THIS WARRANT IS NOT TRANSFERABLE AND WILL BE VOID AND OF NO
VALUE UNLESS EXERCISED WITHIN THE LIMITS HEREIN PROVIDED
MDU COMMUNICATIONS INTERNATIONAL, INC.
(a Delaware corporation)
WARRANT FOR THE PURCHASE OF 309,000 SHARES OF COMMON STOCK
THIS IS TO CERTIFY THAT, for value received, HAYWOOD SECURITIES INC. (the
"Holder") is entitled to subscribe for and purchase 309,000 fully paid and
non-assessable shares of the Common Stock (the "Common Shares") of MDU
Communications International, Inc. (the "Company") at a purchase price per share
(the "Exercise Price") of US$2.50. This Warrant is exercisable at any time up to
4:00 P.M. Vancouver time on January 28, 2001 (the "Time of Expiry") subject,
however, to the provisions and adjustments and upon the terms and conditions
hereinafter set forth.
The rights represented by this Warrant may be exercised by the Holder, in whole
or in part (but not as to a fractional Share), by surrender of this Warrant at
the office of the Company at 108 - 11951 Hammersmith Way, Richmond, B.C.
V7A 5H9, during its normal business hours, together with the subscription form
attached hereto completed and signed by the Holder and a certified cheque
payable to or to the order of the Company in payment of the Exercise Price for
the number of Common Shares subscribed for. Upon the exercise of the rights
represented by this Warrant and payment of the Exercise Price in accordance with
the terms hereof, the Common Shares for which the Holder has subscribed and
purchased shall be deemed to have been issued and the Holder shall be deemed to
have become the holder of record of such shares on the date of such exercise and
payment.
<PAGE>
In the event of any exercise of the rights represented by this Warrant,
certificates for the Common Shares so purchased shall be delivered to the Holder
within a reasonable time, not exceeding two business days after the rights
represented by this Warrant have been duly exercised and, unless this Warrant
has expired, a new Warrant representing the number of Common Shares, if any,
with respect to which this Warrant shall not then have been exercised shall also
be issued to the Holder within such time.
The Company covenants and agrees that the Common Shares which may be issued upon
the due exercise of the rights represented by this Warrant will, upon issuance,
be fully paid and non-assessable and free of all liens, charges and
encumbrances. The Company further covenants and agrees that during the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved, a sufficient number of
Common Shares to provide for the exercise of the rights represented by this
Warrant.
THE FOLLOWING ARE THE TERMS AND CONDITIONS
REFERRED TO IN THIS WARRANT
1. In case the Company shall at any time subdivide its outstanding Common
Shares into a greater number of shares, the Exercise Price shall be
proportionately reduced and the number of subdivided Common shares entitled to
be purchased proportionately increased, and conversely, in case the outstanding
Common Shares of the Company shall be consolidated into a smaller number of
shares, the Exercise Price shall be proportionately increased and the number of
consolidated Common Shares entitled to be purchased hereunder shall be
proportionately decreased.
If any capital reorganization or reclassification of the capital stock of
the Company, or the merger, amalgamation or arrangement of the Company with
another corporation shall be effected, then as a condition of such
reorganization, reclassification, merger, amalgamation or arrangement, adequate
provision shall be made whereby the holder hereof shall have the right to
purchase and receive upon the basis and upon the terms and conditions specified
in this Warrant and in lieu of the Common Shares immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby,
such shares of stock, or other securities as may be issued with respect to or in
exchange for such number of outstanding Common Shares equal to the number of
Common Shares purchasable and receivable upon the exercise of this Warrant had
such reorganization, reclassification, merger, amalgamation or arrangement not
taken place. The Company shall not effect any merger, amalgamation or
arrangement unless prior to or simultaneously with the consummation thereof the
successor corporation (if other than the Company) resulting from such merger,
amalgamation or arrangement assumes by written instrument executed and mailed or
delivered to the holder of this Warrant the obligation to deliver to such holder
such shares of stock or securities in accordance with the foregoing provisions
as such holder may be entitled to purchase.
6
<PAGE>
2. In case at any time:
(a) the Company shall pay any dividend payable in stock upon its Common
Shares or make any distribution to the holders of its Common Shares;
(b) the Company shall offer for subscription pro rata to the holders of
its Common Shares any additional shares of stock of any class or other
rights;
(c) there shall be any subdivision, consolidation, capital reorganization,
or reclassification of the capital stock of the Company, or merger,
amalgamation or arrangement of the Company with, or sale of all or
substantially all of its assets to, another corporation; or
(d) there shall be a voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
then, and in any one or more of such cases, the Company shall give to the holder
of this Warrant, at least twenty day's prior written notice of the date on which
the books of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights, or for determining rights to vote
with respect to such subdivision, consolidation, reorganization,
reclassification, merger, amalgamation, arrangement, dissolution, liquidation or
winding-up and in the case of any such subdivision, consolidation,
reorganization, reclassification, merger, amalgamation, arrangement, sale,
dissolution, liquidation or winding-up, at least twenty days' prior written
notice of the date when the same shall take place. Such notice in accordance
with the foregoing clause, shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the holders of Common
Shares shall be entitled thereto, and such notice in accordance with the
foregoing shall also specify the date on which the holders of Common Shares
shall be entitled to exchange their Common Shares for securities or other
property deliverable upon such subdivision, consolidation, reorganization,
reclassification, merger, amalgamation, arrangement, sale, dissolution,
liquidation or winding-up as the case may be. Each such written notice shall be
given by first class mail, registered postage prepaid, addressed to the holder
of this Warrant at the address of such holder, as shown on the books of the
Company.
3. As used herein, the term "Common Shares" shall mean and include the
Company's authorized shares of Common Stock as constituted on January 28, 2000,
and shall also include any capital stock of any class of the Company hereafter
authorized which shall not be limited to a fixed sum or percentage in respect of
the rights of the holders thereof to participate in dividends and in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding-up of the Company.
4. This Warrant shall not entitle the Holder to any rights as a shareholder of
the Company, including without limitation, voting rights, except that the
Company shall concurrently furnish to the Holder a copy of all notices which are
furnished to holders of the common shares.
5. This Warrant and all rights hereunder are not transferable.
6. On presentation at the principal office of the Company in Richmond, British
Columbia one or more Warrant Certificates may be exchanged for one or more
Warrant Certificates of different denominations evidencing in the aggregate the
same number of Warrants as the Warrant Certificate or Warrant Certificates being
exchanged.
7
<PAGE>
7. Time is of the essence hereof.
8. This Warrant shall be governed by and construed in accordance with the laws
of the Province of British Columbia.
MDU COMMUNICATIONS INTERNATIONAL, INC., intending to be contractually bound, has
caused this Warrant to be signed by its duly authorized officer under its
corporate seal, and this Warrant to be dated ___________________, 2000.
MDU COMMUNICATIONS INTERNATIONAL, INC.
By:
c/s
- ---------------------------------
(AUTHORIZED SIGNATORY)
8
<PAGE>
EXHIBIT 4.7
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR APPLICABLE STATE
SECURITIES LAWS, AND NO INTEREST THEREIN MAY BE SOLD, DISTRIBUTED, ASSIGNED,
OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS
COVERING ANY SUCH TRANSACTION OR THE ISSUER OF THESE SECURITIES RECEIVES AN
OPINION OF LEGAL COUNSEL SATISFACTORY TO THE ISSUER STATING THAT SUCH
TRANSACTION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS.
MDU COMMUNICATIONS INTERNATIONAL, INC.
--------------------
WARRANT TO PURCHASE COMMON STOCK
This is to certify that, for value received and subject to the terms and
conditions set forth below, _________________________, is entitled to
purchase at any time on or after ___________ and on or before ___________,
and MDU Communications International, Inc., a Delaware corporation ("the
Company"), promises and agrees to sell and issue, up to _______ shares of
Common Stock (hereinafter defined) at a price of ________ (US$_____) per
share ("Exercise Price").
This Warrant is issued subject to the following terms and conditions:
1. DEFINITIONS. Except as may be otherwise clearly required by the
context, the following terms shall have the following meanings:
"COMMON STOCK" means the Common Stock of the Company.
"COMPANY" means MDU Communications International, Inc., a Delaware
corporation.
"EXERCISE PRICE" means the price at which a Warrant Holder may
purchase one share of Common Stock (or Securities obtainable in lieu of one
share of Common Stock) upon exercise of Warrants as determined from time to
time pursuant to the provisions hereof.
"SECURITIES" means the Common Stock or other securities obtained or
obtainable upon exercise of the Warrants.
"WARRANT HOLDER" means the person named in the initial paragraph of
this certificate or any successor who is a record holder of Warrants.
"WARRANTS" means the warrants evidenced by this certificate or by any
certificate obtained upon transfer or partial exercise of Warrants.
<PAGE>
2. EXERCISE OF WARRANTS. All or any part of the Warrants may be
exercised by surrendering this certificate, together with appropriate
instructions, duly executed by the Warrant Holder, or by its duly authorized
attorney, at the office of the Company, 108 - 11951 Hammersmith Way,
Richmond, British Columbia, Canada, or at such other office or agency as the
Company may designate by written notice to the Warrant Holder, accompanied by
payment in full, in lawful money of the United States of the Exercise Price
payable for the Securities being issued on exercise of such Warrants. If
fewer than all the Warrants evidenced by this certificate are exercised, the
Company will, upon such exercise, execute and deliver to the Warrant Holder a
new certificate (dated the date hereof), in form and tenor substantially
similar to this certificate, evidencing the Warrants not exercised. The
Securities to be obtained on exercise of the Warrants shall be deemed to have
been issued, and any person exercising the Warrants shall be deemed to have
become a holder of record of those Securities, as of the date of the
surrender of this certificate and the payment of the Exercise Price.
3. ADJUSTMENTS IN CERTAIN EVENTS. The number, class and Exercise Price
of Securities for which this certificate may be exercised are subject to
adjustment from time to time upon the happening of certain events as follows:
(a) STOCK DIVIDENDS, SPLITS, ETC. If the outstanding shares of the
Company's Common Stock are divided into a greater number of shares or a
dividend in stock is paid on the Common Stock, the number of shares of Common
Stock which may be purchased under this certificate shall be proportionately
increased and the Exercise Price proportionately decreased; and, conversely,
if the outstanding shares of Common Stock are combined into a smaller number
of shares of Common Stock, the number of shares of Common Stock which may be
purchased under this certificate shall be proportionately reduced and the
Exercise Price proportionately increased. The increases and reductions
provided for in this SECTION 3(a) shall be made with the intent and, as
nearly as practicable, the effect that neither the percentage of the total
equity of the Company obtainable on exercise of the Warrants nor the
aggregate Exercise Price for such percentage upon such exercise shall be
affected by any event described in this SECTION 3(a).
(b) MERGERS, CONSOLIDATIONS, ETC. In case of any change in the
Common Stock of the Company through merger, consolidation, reclassification,
reorganization, partial or complete liquidation, or other change in the
capital structure of the Company (not including the issuance of additional
shares of Common Stock by the Company other than by stock split or stock
dividend), then, as a condition of the change in the capital structure of the
Company, lawful and adequate provision shall be made so that the holder of
this certificate will have the right thereafter to receive upon the exercise
of the Warrants the kind and amount of shares of stock or other securities or
property to which it would have been entitled if, immediately prior to such
merger, consolidation, reclassification, reorganization, recapitalization, or
other change in the capital structure, it had held the number of shares of
Common Stock obtainable upon the exercise of the Warrants. In any such case,
appropriate adjustment shall be made in the application of the provisions set
forth herein with respect to the rights and interest thereafter of the
Warrant Holder, to the end that the provisions set forth herein shall
thereafter be applicable, as nearly as reasonably may be possible, in
relation to any shares of stock or other property thereafter deliverable upon
the exercise of the Warrants. The Company will not permit any change in its
capital structure described in this SECTION 3(b) to occur unless the issuer
of the shares of stock or other securities to be received by the holder of
this certificate, if not the Company, agrees to be bound by and comply with
the provisions of this certificate.
(c) DETERMINATION AND NOTICE OF EXERCISE PRICE. When any
adjustment is required to be made in the number of shares of Common Stock,
Exercise Price, other securities, or the property purchasable upon exercise
of the Warrants as provided in SECTION 3(b), the Company shall promptly
determine the new Exercise Price, number of such shares or other securities
or property purchasable upon exercise of
<PAGE>
the Warrants and (i) prepare and retain on file a statement describing in
reasonable detail the method used in arriving at the new Exercise Price or
number of such shares or other securities or property purchasable upon
exercise of the Warrants and (ii) cause a copy of such statement to be mailed
to the Warrant Holder within sixty (60) days after the date when the event
giving rise to the adjustment occurred.
(d) NO FRACTIONAL SHARES. No fractional shares of Common Stock or
other Securities will be issued in connection with the exercise of any
Warrants, but the Company shall pay, in lieu of fractional shares, a cash
payment therefor on the basis of (i) the mean between the bid and asked
prices in the over-the-counter market or the closing price on a national
securities exchange on the day immediately prior to exercise or (ii) such
other means of determining the fair market value of the Common Stock as is
approved by the Company's Board of Directors.
(e) ISSUANCE OF PREFERRED SECURITIES, ETC. If preferred securities
of the Company or securities of any subsidiary of the Company are distributed
pro rata to holders of any or all of the Company's Common Stock, such number
of securities shall be distributed to the Warrant Holder upon exercise of his
rights hereunder as such Warrant Holder or assignee would have been entitled
to if this Warrant had been exercised prior to such distribution. The
provisions with respect to adjustment of the Company's Common Stock provided
in this SECTION 3 shall also apply to the preferred securities and securities
of any subsidiary to which the Warrant Holder or his assignee shall be
entitled under this SECTION 3(e).
(f) NO ADJUSTMENTS UPON EXERCISE OF WARRANTS. Notwithstanding
anything herein to the contrary, there shall be no adjustment made hereunder
on account of the sale of the Common Stock purchasable upon exercise of the
Warrants.
4. RESERVATION OF SHARES. The Company agrees that the number of shares
of Common Stock or other Securities sufficient to provide for the exercise of
the Warrants upon the basis set forth above shall at all times during the
term of the Warrants be reserved for exercise.
5. VALIDITY OF SECURITIES. All Securities delivered upon the exercise
of the Warrants shall be duly and validly issued in accordance with their
terms, and the Company will pay all documentary and transfer taxes, if any,
in respect of the original issuance thereof upon exercise of the Warrants.
6. INVESTMENT REPRESENTATION. The Warrant Holder represents and
warrants that it has acquired the Warrants, and will acquire the Common Stock
or other Securities, if any, upon exercise of the Warrants, for its own
account for investment and not with a view to the sale or other disposition
of all or any part of the Warrants, Common Stock or other Securities. The
Warrants, and the Common Stock or other Securities acquired or to be acquired
upon exercise of the Warrants, may not be sold, transferred or otherwise
hypothecated unless in the opinion of counsel for the Company the Warrants,
Common Stock or other Securities may be sold, transferred or otherwise
hypothecated without registration under the Act and any applicable state
securities laws.
An appropriate legend to the foregoing effect and of the type commonly
placed on certificates evidencing privately placed securities may be placed
on all certificates evidencing Securities.
7. NO RIGHTS AS A SHAREHOLDER. Except as otherwise provided herein,
the Warrant Holder shall not, by virtue of ownership of Warrants, be entitled
to any rights of a shareholder of the Company but shall, upon written request
to the Company, be entitled to receive such quarterly or annual reports as
the
<PAGE>
Company by mail shall distribute to its shareholders.
8. NOTICE. Any notices required or permitted to be given hereunder
shall be in writing and may be served personally or by mail; and if served by
mail, shall be addressed as follows:
If to the Company:
MDU Communications International, Inc.
108 - 11951 Hammersmith Way
Richmond, B.C. V7A 5H9, CANADA
If to the Warrant Holder:
at the address furnished by the Warrant
Holder to the Company in the subscription
agreement for the purpose of notice.
Any notice so given by mail shall be deemed effectively given 48 hours
after mailing when deposited in the United States mail, registered or
certified mail, return receipt requested, postage prepaid and addressed as
specified above. Any party may by written notice to the other specify a
different address for notice purposes.
9. APPLICABLE LAW. This Certificate shall be governed by and construed
in accordance with the laws of the State of Delaware.
DATED as of _______________.
MDU COMMUNICATIONS INTERNATIONAL, INC.
per:
Corporate Secretary
<PAGE>
WARRANT EXERCISE
I/We, _____________________________, hereby exercise __________________ common
share purchase warrants pursuant to Warrant 2000-B001and register the issued
shares as follows:
REGISTRATION INFORMATION
Please register the issued Common Shares as follows:
Name:
---------------------------------------
(Please print)
Address:
------------------------------------
------------------------------------
------------------------------------
If the Warrant Holder is an individual, please complete the following:
- -------------------------------- --------------------------------
Signature of Witness Signature of Warrant Holder
- -------------------------------- --------------------------------
Name of Witness (Please Print) Name of Warrant Holder (Please Print)
If the Warrant Holder is a corporation, please have a duly authorized signatory
sign here and complete the section below:
THE CORPORATE SEAL of: )
)
- ------------------------------- )
(Name of Warrant Holder) was hereunto) c/s
affixed in the presence of: )
)
- ------------------------------- )
Authorized Signatory )
)
<PAGE>
EXHIBIT 4.8
NEITHER THIS WARRANT NOR THE SHARE PURCHASE WARRANTS ISSUABLE UPON THE
EXERCISE OF THIS WARRANT HAVE BEEN QUALIFIED UNDER THE SECURITIES LAWS OF ANY
OF THE PROVINCES OF CANADA. FOR THE PURPOSES OF THE SECURITIES ACT (BRITISH
COLUMBIA) THIS WARRANT AND THE SHARE PURCHASE WARRANTS ISSUABLE UPON THE
EXERCISE OF THIS WARRANT ARE SUBJECT TO A HOLD PERIOD AND MAY NOT BE TRADED
IN BRITISH COLUMBIA UNTIL AFTER THE EXPIRY OF THE HOLD PERIOD, EXCEPT AS
PERMITTED BY THE SECURITIES ACT (BRITISH COLUMBIA) AND REGULATIONS MADE
THEREUNDER.
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES ACT OF ANY STATE (COLLECTIVELY,
THE "SECURITIES LAWS"). THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES LAWS OR
AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES THAT AN
EXEMPTION UNDER THE SECURITIES LAWS IS AVAILABLE AND THAT SUCH REGISTRATION
IS NOT REQUIRED.
MDU COMMUNICATIONS INTERNATIONAL, INC.
(a Delaware corporation)
THIS IS TO CERTIFY THAT for value received HAYWOOD SECURITIES INC. (the
"Holder") is entitled to acquire from MDU COMMUNICATIONS INTERNATIONAL, INC.
(the "Company") for no additional consideration and in the manner and subject
to the restrictions and adjustments set forth herein, one non-transferable
common share purchase warrant (the "Agent's Underlying Warrant") in the form
attached hereto as Exhibit "A".
The warrants ("Warrants") represented by this certificate may be exercised,
at any time and from time to time (the "Exercise Period") commencing on the
date hereof and ending at 4:00 p.m. (Vancouver time) (the "Time of Expiry")
on the date that is the earlier of: (i) the fifth business day following the
day (the "Qualification Date") on which a receipt for a (final) prospectus
filed by the Company with respect to the distribution of, among other
securities, the Agent's Underlying Warrant issuable upon exercise of the
Warrants has been obtained from the British Columbia Securities Commission;
and (ii) the first anniversary of the date hereof. If the Warrants have not
been so exercised during the Exercise Period, the Warrants will be deemed to
have been exercised by the Holder (without any further action on the part of
the Holder or the Company) immediately prior to the Time of Expiry. Upon the
exercise or deemed exercise of the rights represented by this certificate in
accordance with the terms hereof, the Agent's Underlying Warrant shall be
deemed to have been issued and the Holder shall be deemed to have become the
holder of record of such securities on the date of such exercise or deemed
exercise.
<PAGE>
2
The Warrants may be exercised by the Holder, in whole or in part, by surrender
of this certificate at the office of the Company at 108 - 11951 Hammersmith Way,
Richmond, B.C. V7A 5H9 during its normal business hours, together with the
Notice of Exercise attached hereto completed and signed by the Holder. Surrender
of this certificate will be deemed to have been effected only on personal
delivery thereof to, or, if sent by mail or other means of transmission, on
actual receipt thereof by, the Company at the office specified above.
In the event of any exercise, deemed or otherwise, of the Warrants, a
certificate representing the Agent's Underlying Warrants shall be delivered to
the Holder within a reasonable time, not exceeding two business days after the
Warrants have been duly exercised and this certificate has been surrendered to
the Company.
THE FOLLOWING ARE THE TERMS AND CONDITIONS
REFERRED TO IN THIS WARRANT CERTIFICATE
1. COVENANTS OF THE COMPANY. The Company covenants that:
(a) the Common Shares issuable upon the due exercise of the Agent's Underlying
Warrant will, upon issuance, be fully paid and non-assessable and free of
all liens, charges and encumbrances; and
(b) during the period within which the Warrants may be exercised, the Company
will at all times have authorized and reserved, a sufficient number of
Common Shares to provide for the exercise of the Agent's Underlying
Warrant.
2. EXPIRATION OF WARRANTS. On and after the date of exercise or deemed
exercise of the Warrants, the Holder will have no rights hereunder except to
receive, upon surrender of this certificate to the Company, a certificate
representing the Agent's Underlying Warrant.
3. DENOMINATIONS. On presentation at the principal office of the Company in
Richmond, British Columbia, this certificate may be exchanged for one or more
certificates of different denominations evidencing in the aggregate the same
number of Warrants as the certificate being exchanged.
4. NO RIGHTS AS COMMON SHAREHOLDER. The holding of this certificate will not
constitute the Holder as a shareholder of the Company or entitle him to any
right or interest in respect thereof except as otherwise provided herein.
5. NOTICE. Any notice or other communication required to be given to the
Holder under this Warrant shall be delivered or telecopied as follows:
Haywood Securities Inc.
11th Floor Commerce Place
400 Burrard Street
Vancouver, B.C. V6C 3A6
Attention: Mr. Fabio Banducci
Telecopy No. (604) 643-2305
<PAGE>
3
ANY NOTICE OR OTHER COMMUNICATION SO GIVEN SHALL BE DEEMED TO HAVE BEEN GIVEN
AND RECEIVED WHEN DELIVERED, IF DELIVERED, AND UPON TRANSMISSION, IF TELECOPIED,
AND IF THE DATE OF SUCH TRANSMISSION IS NOT A BUSINESS DAY, ON THE NEXT ENSUING
BUSINESS DAY.
6. GENERAL MATTERS. This certificate shall be governed by and construed in
accordance with the laws of the Province of British Columbia. Time will be of
the essence hereof.
IN WITNESS WHEREOF the Company has caused this certificate to be signed as of
January 28, 2000.
MDU COMMUNICATIONS INTERNATIONAL, INC.
By:
/s/ Sheldon Nelson c/s
- ------------------
(AUTHORIZED SIGNATORY)
<PAGE>
NOTICE OF EXERCISE
To: MDU COMMUNICATIONS INTERNATIONAL, INC.
108 - 11951 Hammersmith Way,
Richmond, B.C. V7A 5H9
(1) The undersigned holder of the Warrants represented by the within
Warrant Certificate hereby exercises the right under such Warrant to be
issued the Agent's Underlying Warrant issuable under the Warrants.
(2) The undersigned holder hereby irrevocably directs that the Agent's
Underlying Warrant be issued and delivered as follows:
NAME(S) IN FULL ADDRESS(ES)
- --------------------------------- ----------------------------------------
- --------------------------------- ----------------------------------------
- --------------------------------- ----------------------------------------
- --------------------------------- ----------------------------------------
(Please print full name in which certificates are to be issued.)
DATED this _____ day of ____________, _______
- ---------------------------------- -----------------------------------
Signature of Witness Signature of Holder
- ---------------------------------- -----------------------------------
Print Name of Witness Name of Holder
- ---------------------------------- -----------------------------------
Address of Witness Address of Holder
<PAGE>
EXHIBIT A
NEITHER THIS WARRANT NOR THE COMMON SHARES ISSUABLE UPON THE EXERCISE OF THIS
WARRANT HAVE BEEN QUALIFIED UNDER THE SECURITIES LAWS OF ANY OF THE PROVINCES OF
CANADA. FOR THE PURPOSES OF THE SECURITIES ACT (BRITISH COLUMBIA), THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT ARE SUBJECT TO
A HOLD PERIOD AND MAY NOT BE TRADED IN BRITISH COLUMBIA UNTIL AFTER THE EXPIRY
OF THE HOLD PERIOD, EXCEPT AS PERMITTED BY THE SECURITIES ACT (BRITISH COLUMBIA)
AND REGULATIONS MADE THEREUNDER.
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED, OR THE SECURITIES ACT OF ANY STATE (COLLECTIVELY, THE
"SECURITIES LAWS"). THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES LAWS OR AN OPINION OF
COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES THAT AN EXEMPTION UNDER
THE SECURITIES LAWS IS AVAILABLE AND THAT SUCH REGISTRATION IS NOT REQUIRED.
THIS WARRANT IS NOT TRANSFERABLE AND WILL BE VOID AND OF NO VALUE UNLESS
EXERCISED WITHIN THE LIMITS HEREIN PROVIDED
MDU COMMUNICATIONS INTERNATIONAL, INC.
(a Delaware corporation)
WARRANT FOR THE PURCHASE OF 309,000 SHARES OF COMMON STOCK
THIS IS TO CERTIFY THAT, for value received, HAYWOOD SECURITIES INC. (the
"Holder") is entitled to subscribe for and purchase 309,000 fully paid and
non-assessable shares of the Common Stock (the "Common Shares") of MDU
Communications International, Inc. (the "Company") at a purchase price per share
(the "Exercise Price") of US$2.50. This Warrant is exercisable at any time up to
4:00 P.M. Vancouver time on January 28, 2001 (the "Time of Expiry") subject,
however, to the provisions and adjustments and upon the terms and conditions
hereinafter set forth.
The rights represented by this Warrant may be exercised by the Holder, in whole
or in part (but not as to a fractional Share), by surrender of this Warrant at
the office of the Company at 108 - 11951 Hammersmith Way, Richmond, B.C. V7A
5H9, during its normal business hours, together with the subscription form
attached hereto completed and signed by the Holder and a certified cheque
payable to or to the order of the Company in payment of the Exercise Price for
the number of Common Shares subscribed for. Upon the exercise of the rights
represented by this Warrant and payment of the Exercise Price in accordance with
the terms hereof, the Common Shares for which the Holder has subscribed and
purchased shall be deemed to have
<PAGE>
6
been issued and the Holder shall be deemed to become the holder of record of
such shares on the date of such exercise and payment.
In the event of any exercise of the rights represented by this Warrant,
certificates for the Common Shares so purchased shall be delivered to the Holder
within a reasonable time, not exceeding two business days after the rights
represented by this Warrant have been duly exercised and, unless this Warrant
has expired, a new Warrant representing the number of Common Shares, if any,
with respect to which this Warrant shall not then have been exercised shall also
be issued to the Holder within such time.
The Company covenants and agrees that the Common Shares which may be issued upon
the due exercise of the rights represented by this Warrant will, upon issuance,
be fully paid and non-assessable and free of all liens, charges and
encumbrances. The Company further covenants and agrees that during the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved, a sufficient number of
Common Shares to provide for the exercise of the rights represented by this
Warrant.
THE FOLLOWING ARE THE TERMS AND CONDITIONS
REFERRED TO IN THIS WARRANT
1. In case the Company shall at any time subdivide its outstanding
Common Shares into a greater number of shares, the Exercise Price shall be
proportionately reduced and the number of subdivided Common shares entitled
to be purchased proportionately increased, and conversely, in case the
outstanding Common Shares of the Company shall be consolidated into a smaller
number of shares, the Exercise Price shall be proportionately increased and
the number of consolidated Common Shares entitled to be purchased hereunder
shall be proportionately decreased.
If any capital reorganization or reclassification of the capital stock
of the Company, or the merger, amalgamation or arrangement of the Company with
another corporation shall be effected, then as a condition of such
reorganization, reclassification, merger, amalgamation or arrangement, adequate
provision shall be made whereby the holder hereof shall have the right to
purchase and receive upon the basis and upon the terms and conditions specified
in this Warrant and in lieu of the Common Shares immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby,
such shares of stock, or other securities as may be issued with respect to or in
exchange for such number of outstanding Common Shares equal to the number of
Common Shares purchasable and receivable upon the exercise of this Warrant had
such reorganization, reclassification, merger, amalgamation or arrangement not
taken place. The Company shall not effect any merger, amalgamation or
arrangement unless prior to or simultaneously with the consummation thereof the
successor corporation (if other than the Company) resulting from such merger,
amalgamation or arrangement assumes by written instrument executed and mailed or
delivered to the holder of this Warrant the obligation to deliver to such holder
such shares of stock or securities in accordance with the foregoing provisions
as such holder may be entitled to purchase.
2. In case at any time:
6
<PAGE>
7
(a) the Company shall pay any dividend payable in stock upon its
Common Shares or make any distribution to the holders of its
Common Shares;
(b) the Company shall offer for subscription pro rata to the holders
of its Common Shares any additional shares of stock of any class
or other rights;
(c) there shall be any subdivision, consolidation, capital
reorganization, or reclassification of the capital stock of the
Company, or merger, amalgamation or arrangement of the Company with,
or sale of all or substantially all of its assets to, another
corporation; or
(d) there shall be a voluntary or involuntary dissolution, liquidation
or winding-up of the Company;
then, and in any one or more of such cases, the Company shall give to the holder
of this Warrant, at least twenty day's prior written notice of the date on which
the books of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights, or for determining rights to vote
with respect to such subdivision, consolidation, reorganization,
reclassification, merger, amalgamation, arrangement, dissolution, liquidation or
winding-up and in the case of any such subdivision, consolidation,
reorganization, reclassification, merger, amalgamation, arrangement, sale,
dissolution, liquidation or winding-up, at least twenty days' prior written
notice of the date when the same shall take place. Such notice in accordance
with the foregoing clause, shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the holders of Common
Shares shall be entitled thereto, and such notice in accordance with the
foregoing shall also specify the date on which the holders of Common Shares
shall be entitled to exchange their Common Shares for securities or other
property deliverable upon such subdivision, consolidation, reorganization,
reclassification, merger, amalgamation, arrangement, sale, dissolution,
liquidation or winding-up as the case may be. Each such written notice shall be
given by first class mail, registered postage prepaid, addressed to the holder
of this Warrant at the address of such holder, as shown on the books of the
Company.
3. As used herein, the term "Common Shares" shall mean and include the
Company's authorized shares of Common Stock as constituted on January 28, 2000,
and shall also include any capital stock of any class of the Company hereafter
authorized which shall not be limited to a fixed sum or percentage in respect of
the rights of the holders thereof to participate in dividends and in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding-up of the Company.
4. This Warrant shall not entitle the Holder to any rights as a shareholder of
the Company, including without limitation, voting rights, except that the
Company shall concurrently furnish to the Holder a copy of all notices which are
furnished to holders of the common shares.
5. This Warrant and all rights hereunder are not transferable.
6. On presentation at the principal office of the Company in Richmond, British
Columbia one or more Warrant Certificates may be exchanged for one or more
Warrant Certificates of different denominations evidencing in the aggregate the
same number of Warrants as the
7
<PAGE>
8
Warrant Certificate or Warrant Certificates being exchanged.
7. Time is of the essence hereof.
8. This Warrant shall be governed by and construed in accordance with the laws
of the Province of British Columbia.
MDU COMMUNICATIONS INTERNATIONAL, INC., intending to be contractually bound, has
caused this Warrant to be signed by its duly authorized officer under its
corporate seal, and this Warrant to be dated ___________________, 2000.
MDU COMMUNICATIONS INTERNATIONAL, INC.
By:
- ---------------------------------- c/s
(AUTHORIZED SIGNATORY)
8
<PAGE>
EXHIBIT 4.9
2000-C001
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR
APPLICABLE STATE SECURITIES LAWS, AND NO INTEREST THEREIN MAY BE SOLD,
DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION OR THE
ISSUER OF THESE SECURITIES RECEIVES AN OPINION OF LEGAL COUNSEL
SATISFACTORY TO THE ISSUER STATING THAT SUCH TRANSACTION IS EXEMPT FROM
THE REGISTRATION REQUIREMENTS.
MDU COMMUNICATIONS INTERNATIONAL, INC.
--------------------
WARRANT TO PURCHASE COMMON STOCK
This is to certify that, for value received and subject to the terms
and conditions set forth below, GIBRALT CAPITAL CORPORATION is entitled to
purchase at any time on or after March 1, 2000, and on or before March 1,
2002, and MDU Communications International, Inc., a Delaware corporation
("the Company"), promises and agrees to sell and issue, up to 750,000 shares
of Common Stock (hereinafter defined) at a price of two dollars and fifty
cents US (US$2.50) per share ("Exercise Price").
This Warrant is issued subject to the following terms and conditions:
1. DEFINITIONS. Except as may be otherwise clearly required by the
context, the following terms shall have the following meanings:
"COMMON STOCK" means the Common Stock of the Company.
"COMPANY" means MDU Communications International, Inc., a Delaware
corporation.
"EXERCISE PRICE" means the price at which a Warrant Holder may
purchase one share of Common Stock (or Securities obtainable in lieu
of one share of Common Stock) upon exercise of Warrants as determined
from time to time pursuant to the provisions hereof.
"SECURITIES" means the Common Stock or other securities obtained or
obtainable upon exercise of the Warrants.
"WARRANT HOLDER" means the person named in the initial paragraph of
this certificate or any successor who is a record holder of Warrants.
<PAGE>
"WARRANTS" means the warrants evidenced by this certificate or by any
certificate obtained upon transfer or partial exercise of Warrants.
2. EXERCISE OF WARRANTS. All or any part of the Warrants may be
exercised by surrendering this certificate, together with appropriate
instructions, duly executed by the Warrant Holder, or by its duly authorized
attorney, at the office of the Company, 108 - 11951 Hammersmith Way,
Richmond, British Columbia, Canada, or at such other office or agency as the
Company may designate by written notice to the Warrant Holder, accompanied by
payment in full, in lawful money of the United States of the Exercise Price
payable for the Securities being issued on exercise of such Warrants. If
fewer than all the Warrants evidenced by this certificate are exercised, the
Company will, upon such exercise, execute and deliver to the Warrant Holder a
new certificate (dated the date hereof), in form and tenor substantially
similar to this certificate, evidencing the Warrants not exercised. The
Securities to be obtained on exercise of the Warrants shall be deemed to have
been issued, and any person exercising the Warrants shall be deemed to have
become a holder of record of those Securities, as of the date of the
surrender of this certificate and the payment of the Exercise Price.
3. ADJUSTMENTS IN CERTAIN EVENTS. The number, class and Exercise Price
of Securities for which this certificate may be exercised are subject to
adjustment from time to time upon the happening of certain events as follows:
(a) STOCK DIVIDENDS, SPLITS, ETC. If the outstanding shares of the
Company's Common Stock are divided into a greater number of shares or a
dividend in stock is paid on the Common Stock, the number of shares of Common
Stock which may be purchased under this certificate shall be proportionately
increased and the Exercise Price proportionately decreased; and, conversely,
if the outstanding shares of Common Stock are combined into a smaller number
of shares of Common Stock, the number of shares of Common Stock which may be
purchased under this certificate shall be proportionately reduced and the
Exercise Price proportionately increased. The increases and reductions
provided for in this SECTION 3(a) shall be made with the intent and, as
nearly as practicable, the effect that neither the percentage of the total
equity of the Company obtainable on exercise of the Warrants nor the
aggregate Exercise Price for such percentage upon such exercise shall be
affected by any event described in this SECTION 3(a).
(b) MERGERS, CONSOLIDATIONS, ETC. In case of any change in the
Common Stock of the Company through merger, consolidation, reclassification,
reorganization, partial or complete liquidation, transfer of assets or other
change in the capital structure of the Company (not including the issuance of
additional shares of Common Stock by the Company other than by stock split or
stock dividend) (the "Capital Reorganization"), then, as a condition of such
Capital Reorganization, lawful and adequate provision shall be made so that
the holder of this certificate will have the right thereafter to receive upon
the exercise of the Warrants the kind and amount of shares of stock or other
securities or property to which it would have been entitled if, immediately
prior to such Capital Reorganization, it had held the number of shares of
Common Stock obtainable upon the exercise of the Warrants. In any such case,
appropriate adjustment shall be made in the application of the provisions set
forth herein with respect to the rights and interest thereafter of the
Warrant Holder, to the end that the provisions set forth herein shall
thereafter be applicable, as nearly as reasonably may be possible, in
relation to any shares of stock or other property thereafter deliverable upon
the exercise of the Warrants. The Company will not permit any Capital
Reorganization described in this SECTION 3(b) to occur unless the issuer of
the shares of stock or other securities to be received by the holder of this
certificate, if not the Company, agrees to be bound by and comply with the
provisions of this certificate.
2
<PAGE>
(c) DETERMINATION AND NOTICE OF EXERCISE PRICE. When any adjustment
is required to be made in the number of shares of Common Stock, Exercise
Price, other securities, or the property purchasable upon exercise of the
Warrants as provided in this SECTION 3, the Company shall promptly determine
the new Exercise Price, number of such shares or other securities or property
purchasable upon exercise of the Warrants and (i) prepare and retain on file
a statement describing in reasonable detail the method used in arriving at
the new Exercise Price or number of such shares or other securities or
property purchasable upon exercise of the Warrants and (ii) cause a copy of
such statement to be mailed to the Warrant Holder within sixty (60) days
after the date when the event giving rise to the adjustment occurred.
(d) NO FRACTIONAL SHARES. No fractional shares of Common Stock
or other Securities will be issued in connection with the exercise of any
Warrants, but the Company shall pay, in lieu of fractional shares, a cash
payment therefor on the basis of the mean between the bid and asked prices in
the over-the-counter market or the closing price on a national securities
exchange on the day immediately prior to exercise.
(e) ISSUANCE OF OTHER SECURITIES, ETC. If other securities of
the Company or securities of any subsidiary of the Company are distributed
pro rata to holders of any or all of the Company's Common Stock, such number
of securities shall be distributed to the Warrant Holder upon exercise of his
rights hereunder as such Warrant Holder or assignee would have been entitled
to if this Warrant had been exercised prior to such distribution. The
provisions with respect to adjustment of the Company's Common Stock provided
in this SECTION 3 shall also apply to such other securities and securities of
any subsidiary to which the Warrant Holder or his assignee shall be entitled
under this SECTION 3(e).
4. RESERVATION OF SHARES. The Company agrees that the number of shares
of Common Stock or other Securities sufficient to provide for the exercise of
the Warrants upon the basis set forth above shall at all times during the
term of the Warrants be reserved for exercise.
5. VALIDITY OF SECURITIES. All Securities delivered upon the exercise of
the Warrants shall be duly and validly issued in accordance with their terms,
and the Company will pay all documentary and transfer taxes, if any, in
respect of the original issuance thereof upon exercise of the Warrants.
6. INVESTMENT REPRESENTATION. The Warrant Holder represents and warrants
that it has acquired the Warrants, and will acquire the Common Stock or other
Securities, if any, upon exercise of the Warrants, for its own account for
investment and not with a view to the sale or other disposition of all or any
part of the Warrants, Common Stock or other Securities. The Warrants, and the
Common Stock or other Securities acquired or to be acquired upon exercise of
the Warrants, may not be sold, transferred or otherwise hypothecated unless
in the opinion of counsel for the Company the Warrants, Common Stock or other
Securities may be sold, transferred or otherwise hypothecated without
registration under the Act and any applicable state securities laws.
An appropriate legend to the foregoing effect and of the type
commonly placed on certificates evidencing privately placed securities may be
placed on all certificates evidencing Securities.
7. NO RIGHTS AS A SHAREHOLDER. Except as otherwise provided herein, the
Warrant Holder shall not, by virtue of ownership of Warrants, be entitled to
any rights of a shareholder of the Company but shall, upon written request to
the Company, be entitled to receive such quarterly or annual reports as the
Company by mail shall distribute to its shareholders.
3
<PAGE>
8. NOTICE. Any notices required or permitted to be given hereunder shall
be in writing and may be served personally or by mail; and if served by mail,
shall be addressed as follows:
If to the Company:
MDU Communications International, Inc.
108 - 11951 Hammersmith Way
Richmond, B.C. V7A 5H9, CANADA
If to the Warrant Holder:
Gibralt Capital Corporation
Suite 2000, 1177 West Hastings Street
Vancouver, B.C. V6E 2K3 CANADA
Any notice so given by mail shall be deemed effectively given 48 hours
after mailing when deposited in the United States mail, registered or
certified mail, return receipt requested, postage prepaid and addressed as
specified above. Any party may by written notice to the other specify a
different address for notice purposes.
9. APPLICABLE LAW. This Certificate shall be governed by and construed
in accordance with the laws of the State of Delaware.
DATED as of March 1, 2000.
MDU COMMUNICATIONS INTERNATIONAL, INC.
per: /s/ Sheldon Nelson, President
--------------------------------
Authorized Signatory
4
<PAGE>
WARRANT EXERCISE
I/We, _____________________________, hereby exercise __________________
common share purchase warrants pursuant to Warrant 2000-C001and register the
issued shares as follows:
REGISTRATION INFORMATION
Please register the issued Common Shares as follows:
Name: ______________________________
(Please print)
Address:______________________________
______________________________
______________________________
If the Warrant Holder is an individual, please complete the following:
- -------------------------------- --------------------------------
Signature of Witness Signature of Warrant Holder
- -------------------------------- --------------------------------
Name of Witness (Please Print) Name of Warrant Holder (Please Print)
If the Warrant Holder is a corporation, please have a duly authorized signatory
sign here and complete the section below:
THE CORPORATE SEAL of: )
)
- ------------------------------- )
(Name of Warrant Holder) was hereunto) c/s
affixed in the presence of: )
)
- ------------------------------- )
Authorized Signatory )
)
5
<PAGE>
EXHIBIT 10.3
MDU COMMUNICATIONS INTERNATIONAL, INC.
(THE "COMPANY")
SUPPLIERS' STOCK OPTION PLAN FOR 1998/99
THIS PLAN is made effective as of December 31, 1998.
WHEREAS the Company has agreed to establish a stock option plan
pursuant to which the key suppliers of MDU Communications Inc. and the Company
(the "Optionees") are granted options to purchase shares of the Company on terms
and subject to the conditions herein;
NOW THEREFORE in consideration of the premises and provisos herein
contained, the Company agrees to the following Plan:
1. The Company hereby establishes a key supplier stock option plan (the
"Plan") for 1998/99 pursuant to which the Optionees are granted options
to purchase up to 215,135 shares of the Company as follows:
(a) options to acquire up to 22,500 common shares of the Company
at $1.50 U.S. will be granted to Britcom Communications upon
successful completion of technical work at the Brent Gardens
Complex; and
(b) options to acquire 11,385 common shares of the Company at
$1.50 U.S. will be granted to Britcom Communications upon
successful completion of technical work at the Dynasty,
Richmond Residences, The Monarch, and The Spot, based on 23
stock options per suite passed (for a total of 495 suites for
the four buildings); and
(c) for a designated block of 50 buildings, options to acquire
12,375 common shares of the Company at $1.75 U.S. will be
granted to the Britcom Communications upon successful
completion of the first 15 buildings, based on a formula which
will not exceed 8.25 stock options per suite passed; and
options to acquire 16,500 common shares of the Company at
$2.00 U.S. on the next 20 buildings based on a formula that
will not exceed 8.25 options per suites passed; and options to
acquire 12,375 common shares of the Company at $2.50 U.S. on
the last 15 buildings based on a formula that will not exceed
8.25 options per suites passed; and
(d) for additional marketing and printing work for the Company,
options to acquire 40,000 common shares of the Company at
$1.50 U.S. will be granted to Direct Focus on or about March
1, 1999, plus an additional 25,000 options at $1.50 U.S. on or
about September 30, 2000, plus an additional 25,000 options at
$1.50 U.S. on or about September 30, 2001, and
(e) options to acquire 50,000 common shares of the Company at
$1.50 U.S. will be granted to Visawest Capital Group on or
about September 30, 1999, based on investor relations work
achieved during the Company's 1999 fiscal year.
subject to the following conditions;
(a) the option price will be as stipulated above;
(b) the options may be exercised in whole or in part during the
term hereof;
(c) the options are non-assignable and non-transferable;
(d) to exercise the option the Optionee shall give written notice
to the Company prior to the Expiry Date;
(e) payment for any shares of the Company purchased by the
Optionee hereunder shall be made by cash or cheque payable to
the Company against delivery of certificates representing the
shares so purchased;
<PAGE>
(f) this Plan and the allotment and grant of stock options
hereunder are subject to compliance with all applicable
securities legislation and regulatory bodies. The Company
undertakes to use its best efforts to secure all such
approvals as may be required;
(g) any amendment to this Plan shall require the approval of the
Board of Directors of the Company;
2. (a) the term of the Option Agreement shall commence on the date
of the grant of each specific option and shall continue from
such commencement date up to and including five subject years
from the date hereof, (the "Expiry Date") subject to
paragraphs 2(b) and 2(c) hereto;
(b) if the Optionee shall cease to be a key supplier of the
Company, then their option agreement will terminate 30 days
following the date of cessation.
3. In the event of:
(a) any reduction in the number of shares of the Company due to
consolidation thereof;
(b) any increase in the number of shares of the Company
outstanding due to subdivision thereof, or
(c) any reclassification of shares of the Company.
An appropriate adjustment shall be made in the number or kind of shares
issuable pursuant to the exercise of the option hereunder subsequent to
any such change in the number of kind of outstanding shares becoming
effective.
4. This Agreement constitutes and expresses the whole plan of the parties
hereto regarding stock options for 1998/99.
5. Any notice required to be given hereunder shall be properly given if
sent by prepaid registered mail to the party concerned at the party's
last known address. Any such notice mailed as aforesaid shall be deemed
to have been delivered on the second day of mailing thereof. No
alternation or amendment to this Agreement shall take effect unless the
same shall be in writing and duly executed by all the parties in the
same manner as this Agreement.
6. The legal costs relating to this Plan and the grant of any stock
options hereunder, and to securing all such approvals as may be
necessary hereto, including legal costs relating to the qualification
for sale to the public of any shares resulting from the exercise of the
options hereunder, shall be the responsibility of the Company.
IN WITNESS WHEREOF this Plan has been executed on the date and in the
year first above written.
Approved by the Board of Directors of
MDU COMMUNICATIONS
INTERNATIONAL, INC.
in the presence of:
/s/ Sheldon Nelson
- -------------------------------------
Director
/s/ Doug Irving
- -------------------------------------
Director
2
<PAGE>
EXHIBIT 10.4
MDU COMMUNICATIONS INTERNATIONAL, INC.
THE 2000 INCENTIVE STOCK OPTION PLAN (ISO & NON-ISO)
1. INTERPRETATION
1.1 DEFINED TERMS - For the purposes of this Plan, the following
terms shall have the following meanings:
(a) "AFFILIATE" means a Parent Corporation or a Subsidiary
Corporation of a corporation;
(b) "ASSOCIATE" means, where used to indicate a relationship with
any Person,
(i) any relative of that Person,
(ii) any person of the opposite sex to whom that Person is
married or with whom that Person is living in a
conjugal relationship outside marriage,
(iii) any relative of a Person mentioned in clause (ii) who
has the same home as that Person,
(iv) any partner of that Person,
(v) any trust or estate in which such Person has a
substantial beneficial interest or as to which such
Person serves as trustee or in a similar capacity, or
(vi) any corporation of which such Person beneficially
owns, directly or indirectly, voting securities
carrying more than ten percent of the voting rights
attached to all outstanding voting securities of the
corporation;
(c) "BENEFICIAL OWNER" of a security includes any Person who,
directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise has voting power over
the security or the power to dispose or direct the disposition
of the security, and any Person who uses a trust or other
arrangement with the purpose or effect of divesting such
Person of beneficial ownership as part of a plan to evade the
reporting requirements of section 13 of the Exchange Act shall
be deemed to be the Beneficial Owner of the security;
(d) "BOARD" means the Board of Directors of the Company;
(e) "CODE" means the United States Internal Revenue Code of 1986,
as amended from time to time;
(f) "COMMITTEE" means a committee of the Board appointed in
accordance with this Plan, or if no such committee is
appointed, the Board itself;
(g) "COMPANY" means MDU Communications International, Inc.
(h) "DATE OF GRANT" means the date on which a grant of an Option
is effective;
(i) "DIRECT OR INDIRECT OWNERSHIP" of securities by a Person is
calculated in accordance with the following rules:
<PAGE>
2
(i) the Person shall be deemed to own stock owned,
directly or indirectly, by or for his brothers and
sisters (including half-brothers and half-sisters),
spouse, ancestors and lineal descendants, and
(ii) stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust, shall be
deemed to be owned proportionately by or for its
shareholders, partners or beneficiaries;
(j) "DISABILITY" means a medically determinable physical or mental
impairment expected to result in death or to last for a
continuous period of not less than 12 months which causes an
individual to be unable to engage in any substantial gainful
activity;
(k) "DISPOSITION" includes a sale, exchange, gift, or transfer of
legal title, but does not include a pledge, hypothecation,
transfer from a descendent to an estate, transfer by bequest
or inheritance, or the other excepted circumstances referred
to in section 424(c) of the Code;
(l) "DOMESTIC RELATIONS SUCCESSOR" means a person entitled to
receive transfer of ownership of an Option pursuant to a
Qualified Domestic Relations Order;
(m) "EFFECTIVE DATE" means the effective date of this Plan, which
is February 5, 2000;
(n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended;
(o) "FAIR MARKET VALUE" means:
(i) where the Shares are listed for trading on a stock
exchange or over the counter market, the closing
price of the Shares on the stock exchange or over the
counter market which is the principal trading market
for the Shares, as may be determined for such purpose
by the Committee;
(ii) where the Shares are not listed for trading on a
stock exchange or over the counter market, the value
which is determined by the Committee to be the fair
value of the Shares, taking into consideration all
factors that the Committee deems appropriate,
including, without limitation, recent sale and offer
prices of the Shares in private transactions
negotiated at arm's length;
(p) "GUARDIAN" means the guardian, if any, appointed for an
Optionee;
(q) "ISO" means an Option granted to an employee of the Company
that qualifies as an "incentive stock option" for purposes of
section 422 of the Code and is therefore subject to favorable
tax treatment under the Code;
(r) "ISO OPTIONEE" means an Optionee to whom an ISO has been
granted;
(s) "MODIFICATION" means any change in the terms of an Option
which gives the Optionee additional benefits under the Option,
but such change shall not include a change in the terms of an
Option:
(i) to make the Option not transferable other than by
will or the laws of descent and distribution,
(ii) to make the Option exercisable only by the Optionee
during his lifetime,
(iii) in the case of an Option not immediately exercisable
in full, to accelerate the time within which the
Option may be exercised, or
<PAGE>
3
(iv) attributable to the issuance or assumption of an
Option by reason of a corporate merger,
consolidation, acquisition of property or stock,
separation, reorganization or liquidation if the new
Option or assumption of the old Option does not give
the Optionee additional benefits which he did not
have under the old Option;
(t) "NON-ISO" means an Option that is not an "incentive stock
option" for purposes of section 422 of the Code, and is
therefore not subject to favorable tax treatment under the
Code;
(u) "NON-ISO OPTIONEE" means an Optionee to whom a Non-ISO has
been granted;
(v) "OPTION" means an option to purchase Shares granted pursuant
to the terms of this Plan;
(w) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionee, specifying the terms of the Option
being granted to the Optionee under this Plan;
(x) "OPTION PRICE" means the price at which an Option is
exercisable to purchase Shares;
(y) "OPTIONEE" means a person to whom an Option has been granted;
(z) "PARENT CORPORATION" means any corporation in an unbroken
chain of corporations ending with the Company if, at the Date
of Grant, each corporation other than the Company owns stock
possessing 50 percent or more of the total combined voting
power of all classes of stock in one of the other corporations
in such chain;
(aa) "PERSON" means a natural person, company, government, or
political subdivision or agency of a government; and where two
or more Persons act as a partnership, limited partnership,
syndicate or other group for the purpose of acquiring, holding
or disposing of securities of an issuer, such syndicate or
group shall be deemed to be a Person;
(bb) "PLAN" means this Stock Option Plan of the Company;
(cc) "PRIOR PLANS" mean the Employees' Incentive Stock Option Plan
for 1998/99 and the 1998 Directors'/Officers' Stock Option
Plan of the Company approved on November 24, 1998.
(dd) "QUALIFIED DOMESTIC RELATIONS ORDER" means a judgment or order
which relates to the provision of child support, alimony
payments or marital property rights to a spouse, former
spouse, child or other dependent of an Optionee, made pursuant
to domestic relations law of a state of the United States, and
which meets all the requirements of section 414(p) of the
Code;
(ee) "QUALIFIED SUCCESSOR" means a person who is:
(i) entitled to ownership of an Option upon the death of
an Optionee, pursuant to a will or the applicable
laws of descent and distribution upon death, or
(ii) a Domestic Relations Successor of an Optionee;
(ff) "SHARES" means the voting common stock with par value of
$0.001 per share in the capital of the Company;
(gg) "SUBSIDIARY CORPORATION" means any corporation in an unbroken
chain of corporations beginning with the Company if, at the
Date of Grant, each of the corporations other than the last
corporation owns stock possessing 50 percent or more of the
total combined voting power of all classes of stock in one of
the other corporations in such chain;
(hh) "TERM" means the period of time during which an Option is
exercisable;
<PAGE>
4
(ii) "TERMINATING EVENT" means:
(i) the dissolution or liquidation of the Company,
(ii) a merger or consolidation of the Company with one or
more corporations as a result of which, immediately
following such merger or consolidation, the
shareholders owning a majority of the Company,
immediately prior to the merger or consolidation, as
a group will hold less than a majority of the
outstanding capital stock of the surviving
corporation,
(iii) the sale or other disposition of all or substantially
all of the assets of the Company,
(iv) the occurrence of an event whereby any Person or
entity becomes the Beneficial Owner of Shares
representing 50% or more of the combined voting power
of the voting securities of the Company, or
(v) a material change in the capital structure of the
Company that is deemed to be a Terminating Event by
virtue of the last sentence of Section 11.1 of this
Plan or by virtue of Section 11.4 of this Plan;
(jj) "TERMINATION FOR CAUSE" means dismissal for willful material
misconduct or failure to discharge duties, conviction or
confession of a crime punishable by law (except minor
violations), the performance of an illegal act involving moral
turpitude while purporting to act in the Company's behalf, or
engaging in activities directly in competition or antithetical
to the best interests of the Company. If an Optionee is
suspended pending an investigation of whether or not the
Optionee shall be terminated for cause, all Optionee's rights
under any option granted under this Plan shall likewise be
suspended during the period of investigation.
2. STATEMENT OF PURPOSE
2.1 PRINCIPAL PURPOSES - The principal purposes of this Plan are
to provide the Company, and its Affiliates, with the advantages of the incentive
inherent in stock ownership on the part of employees, officers, directors, and
consultants responsible for the continued success of the Company; to create in
such individuals a proprietary interest in, and a greater concern for, the
welfare and success of the Company; to encourage such individuals to remain with
the Company and its Affiliates; and to attract new employees, officers,
directors and consultants to the Company and its Affiliates.
2.2 ISOS AND NON-ISOS - Under this Plan, the Company may grant
either ISOs or Non-ISOs. Each ISO granted hereunder is intended to constitute an
"incentive stock option," for the purposes of section 422 of the Code, and this
Plan and each such ISO is intended to comply with all of the requirements of
Section 422 of the Code and of all other provisions of the Code applicable to
"incentive stock options" and to plans issuing the same. Each Non-ISO granted
hereunder is intended to constitute an Option that is not an "incentive stock
option" for the purposes of section 422 of the Code, and that does not comply
with the requirements of Section 422 of the Code.
2.3 BENEFIT TO SHAREHOLDERS - This Plan is expected to benefit
shareholders by enabling the Company and its Affiliates to attract and retain
personnel of the highest caliber by offering them an opportunity to share in any
increase in value of the Shares resulting from their efforts.
<PAGE>
5
3. ADMINISTRATION
3.1 BOARD OR COMMITTEE - This Plan shall be administered by the
Board or by a Committee appointed in accordance with Section 3.2 or 3.4(b)
below.
3.2 APPOINTMENT OF COMMITTEE - The Board may at any time appoint a
Committee, consisting of not less than two of its members, to administer this
Plan on behalf of the Board in accordance with such terms and conditions as the
Board may prescribe, consistent with this Plan. Once appointed, the Committee
shall continue to serve until otherwise directed by the Board. From time to
time, the Board may increase the size of the Committee and appoint additional
members, remove members (with or without cause) and appoint new members in their
place, fill vacancies however caused, or remove all members of the Committee and
thereafter directly administer this Plan.
3.3 QUORUM AND VOTING - A majority of the members of the Committee
shall constitute a quorum, and, subject to the limitations in this Section 3,
all actions of the Committee shall require the affirmative vote of members who
constitute a majority of such quorum. Members of the Committee who are not
Disinterested Persons may vote on any matters affecting the administration of
this Plan or the grant of Options pursuant to this Plan, except that no such
member shall act upon the granting of an Option to himself (but any such member
may be counted in determining the existence of a quorum at any meeting of the
Committee during which action is taken with respect to the granting of Options
to him).
3.4 ADMINISTRATION OF PLAN UPON REGISTRATION OF EQUITY
SECURITIES - In the event the Company registers any of its equity securities
pursuant to Section 12 of the Exchange Act, it is the intention of the Company
that this Plan, and options granted under this Plan, comply in all respects with
Rule 16 b-3 under the Exchange Act, as it may be amended from time to time, and
if any Plan provision is later found not to be in compliance with such Rule, the
provision shall be deemed null and void, and in all events this Plan shall be
construed in favor of its meeting the requirements of Rule 16 b-3.
Notwithstanding anything in this Plan to the contrary, the Board, in its
absolute discretion, may bifurcate this Plan so as to restrict, limit or
condition the use of any provision of this Plan to participants who are officers
and directors subject to Section 16 (b) of the Exchange Act without so
restricting, limiting or conditioning other Plan participants. In particular,
it is the intent of the Board that options granted under this Plan to officers
and directors shall comply with the requirements of Rule 16 b-3 as amended from
time to time.
3.5 POWERS OF COMMITTEE - Any Committee appointed under Section
3.2 or 3.4(b) above shall have the authority to do the following:
(a) administer this Plan in accordance with its express terms;
(b) determine all questions arising in connection with the
administration, interpretation, and application of this Plan,
including all questions relating to the value of the Shares;
(c) correct any defect, supply any information, or reconcile any
inconsistency in this Plan in such manner and to such extent
as shall be deemed necessary or advisable to carry out the
purposes of this Plan;
(d) prescribe, amend, and rescind rules and regulations relating
to the administration of this Plan;
(e) determine the duration and purposes of leaves of absence from
employment which may be granted to Optionees without
constituting a termination of employment for purposes of this
Plan;
(f) do the following with respect to the granting of Options:
(i) determine the employees, officers, directors, or
consultants to whom Options shall be granted, based
on the eligibility criteria set out in this Plan,
(ii) determine whether such Options shall be ISOs or
Non-ISOs,
<PAGE>
6
(iii) determine the terms and provisions of the Option
Agreement to be entered into with any Optionee (which
need not be identical with the terms of any other
Option Agreement),
(iv) amend the terms and provisions of Option Agreements,
provided the Committee obtains:
(A) the consent of the Optionee; and
(B) the approval of any stock exchange on which
the Company is listed,
(v) determine when Options shall be granted,
(v) determine the number of Shares subject to each
Option, and
(g) make all other determinations necessary or advisable for
administration of this Plan.
3.6 OBTAIN REGULATORY APPROVALS - In administering this Plan the
Committee will obtain any regulatory approvals, which may be required pursuant
to applicable securities law or the rules of any stock exchange on which the
Company is listed.
3.7 ADMINISTRATION BY COMMITTEE - The Committee's exercise of the
authority set out in Section 3.5 shall be consistent with the intent that ISOs
issued under this Plan be qualified under the terms of Section 422 of the Code,
and that Non-ISOs shall not be so qualified. All determinations made by the
Committee in good faith on matters referred to in Section 3.5 shall be final,
conclusive, and binding upon all Persons. The Committee shall have all powers
necessary or appropriate to accomplish its duties under this Plan. In addition,
the Committee's administration of this Plan shall in all respects be consistent
with the policies and rules of any stock exchange or over the counter market on
which the Shares are listed.
4. ELIGIBILITY
4.1 ELIGIBILITY FOR ISOS - ISOs may be granted to any employee of
the Company or an Affiliate, including directors or officers of the Company who
are employees of the Company or an Affiliate. An Optionee who is not an employee
of the Company or an Affiliate is not eligible to receive an ISO under this
Plan.
4.2 ELIGIBILITY FOR NON-ISOS - Non-ISOs may be granted to any
employee, officer, director or consultant of the Company or an Affiliate.
4.3 NO VIOLATION OF SECURITIES LAWS - No Option shall be granted
to any Optionee unless the Committee has determined that the grant of such
Option and the exercise thereof by the Optionee will not violate the securities
law of the jurisdiction where the Optionee resides.
5. SHARES SUBJECT TO THE PLAN
5.1 NUMBER OF SHARES - The Committee, from time to time, may grant
Options to purchase an aggregate of up to 4,000,000 Shares, subject to
regulatory approval, to be made available from authorized, but unissued or
reacquired, Shares. In calculating the foregoing 4,000,000 Shares, the Committee
shall include all Shares subject to options outstanding prior to the Effective
Date of this Plan. The foregoing number of Shares shall be adjusted, where
necessary, to take account of the events referred to in Section 11 hereof.
5.2 DECREASE IN NUMBER OF SHARES SUBJECT TO PLAN - Upon exercise
of an Option, the number of Shares thereafter available under this Plan and
under the Option shall decrease by the number of Shares as to which the Option
was exercised.
<PAGE>
7
5.3 EXPIRY OF OPTION - If an Option expires or terminates for any
reason without having been exercised in full, the unpurchased Shares subject
thereto shall again be available for the purposes of this Plan.
5.4 RESERVATION OF SHARES - The Company will at all times reserve
and keep available such number of Shares as shall be sufficient to satisfy the
requirements of this Plan.
5.5 ROLLOVER OF OPTIONS GRANTED UNDER THE PRIOR PLANS. Effective
upon the approval of the Board of this Plan, the options granted under the Prior
Plans shall be included and rolled over to the Plan, and such options granted
under the Prior Plans shall hereinafter be governed by the Plan.
6. OPTION TERMS
6.1 OPTION AGREEMENT - With respect to each Option to be granted
to an Optionee, the Committee shall specify the following terms in the Option
Agreement between the Company and the Optionee:
(a) whether such Option is an ISO or a Non-ISO;
(b) the number of Shares subject to purchase pursuant to such
Option;
(c) the Date of Grant;
(d) the Term, provided that:
(i) the Term shall in no event be more than ten years
following the Date of Grant; and
(ii) if an ISO Option is granted to an Optionee who on the
Date of Grant has Direct or Indirect Ownership of
more than 10% of the total combined voting power of
all classes of stock of the Company, the Term of the
Option shall not exceed five years;
(e) the Option Price, provided that,
(i) the Option Price shall not be less than the Fair
Market Value of the Shares; and
(ii) if an ISO Option is granted to an Optionee who on the
Date of Grant has Direct or Indirect Ownership of
more than 10% of the total combined voting power of
all classes of stock of the Company, then the Option
Price shall be at least 110% of the Fair Market Value
of the Shares on the Date of Grant;
(f) any vesting schedule upon which the exercise of an Option is
contingent; and
(g) such other terms and conditions as the Committee deems
advisable and are consistent with the purposes of this Plan.
6.2 NO GRANT AFTER TEN YEARS FROM EFFECTIVE DATE - No Option shall
be granted under this Plan later than ten years from the Effective Date of this
Plan. Except as expressly provided herein, nothing contained in this Plan shall
require that the terms and conditions of Options granted under this Plan be
uniform.
6.3 NO DISPOSITION FOR SIX MONTHS - An Optionee who is subject to
section 16 of the Exchange Act shall not make a Disposition of any Shares issued
upon exercise of an Option unless at least six months has elapsed between the
Date of Grant of the Option and the date of Disposition of the Shares issued
upon exercise of such Option.
<PAGE>
8
7. LIMITATION ON GRANTS OF OPTIONS
7.1 NON-ISO IF EXCEED $100,000 (U.S.) - If the aggregate Fair
Market Value of:
(a) Shares underlying ISOs which have been granted to an Optionee
under this Plan and which are exercisable for the first time
during a calendar year, and
(b) Shares underlying incentive stock options which have been
granted to such Optionee under any other plan of the Company
and which are exercisable for the first time during that
calendar year,
exceeds $100,000 (U.S.), measured as of the Date of Grant, as such amount may be
adjusted from time to time under Section 422(d) of the Code, then to the extent
of such excess such Options shall be treated as Non-ISOs.
7.2 ISO OPTIONEE OWNING GREATER THAN 10% OF VOTING SECURITIES -
The Committee may grant an ISO to an employee of the Company who, at the Date
of Grant, owns securities of the Company representing more than 10% of the
total combined voting power of all classes of stock of the Company only if:
(a) the Option Price is at least 110% of the Fair Market Value of
the Shares at the Date of Grant; and
(b) the Term is five years or less.
8. EXERCISE OF OPTION
8.1 METHOD OF EXERCISE - Subject to any limitations or conditions
imposed upon an Optionee pursuant to the Option Agreement or Section 6 above,
an Optionee may exercise an Option by giving written notice thereof to the
Company at its principal place of business or as otherwise indicated by the
Company in writing.
8.2 PAYMENT OF OPTION PRICE - The notice described in Section 8.1
shall be accompanied by full payment of the aggregate Option Price to the extent
the Option is so exercised, and full payment of any amounts the Company
determines must be withheld for tax purposes from the Optionee pursuant to the
Option Agreement. Such payment shall be:
(a) in lawful money (US funds) in cash or by check;
(b) at the discretion of the Committee and if such form of payment
is permitted under the corporate laws then governing the
Company, by delivery of the Optionee's personal recourse note
bearing interest at a rate deemed appropriate by the
Committee;
(c) at the discretion of the Committee, and subject to all
applicable securities laws, through delivery by the Optionee
and/or withholding by the Company, of Shares having a market
value as of the date of exercise equal to the cash exercise
price of the Option plus any amounts that the Company
determines must be withheld from the Optionee for U.S. or
Canadian tax purposes. The market value of each of the Shares
on the date of delivery shall be determined in good faith by
the Committee, which determination shall be binding for all
purposes hereunder; or
(d) at the discretion of the Committee, by any combination of
Sections 8.2(a) to 8.2(c) above.
8.3 ISSUANCE OF STOCK CERTIFICATE - As soon as practicable after
exercise of an Option in accordance with Sections 8.1 and 8.2 above, the Company
shall issue a stock certificate evidencing the Shares with respect to which the
Option has been exercised. Until the issuance of such stock certificate, no
right to vote or receive dividends or any other rights as a shareholder shall
exist with respect to such Shares, notwithstanding the exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date the stock certificate is issued, except as provided
in Section 11 below.
<PAGE>
9
9. TRANSFERABILITY OF OPTIONS
9.1 NON-TRANSFERABLE - Except as provided otherwise in this
Section 9, Options are non-assignable and non-transferable.
9.2 DEATH OF OPTIONEE - If the employment of an Optionee as an employee
or consultant of the Company or an Affiliate, or the position of an Optionee as
a director of the Company or an Affiliate, terminates as a result of his or her
death, any Options held by such Optionee shall pass to the Qualified Successor
of the Optionee, and
(a) in the case of an ISO, shall be exercisable by the Qualified
Successor for a period of six months following such death, and
(b) in the case of a Non-ISO, shall be exercisable by the
Qualified Successor for a period of 12 months following such
death.
9.3 DISABILITY OF OPTIONEE - If the employment of an Optionee as
an employee or consultant of the Company or an Affiliate, or the position of an
Optionee as a director of the Company, is terminated by the Company by reason of
such Optionee's Disability, any Option held by such Optionee that could have
been exercised immediately prior to such termination of employment shall be
exercisable by such Optionee, or by his Guardian, for a period of one year
following the termination of employment of such Optionee.
9.4 DISABILITY AND DEATH OF OPTIONEE - If an Optionee who has
ceased to be employed by the Company, or an Affiliate, by reason of such
Optionee's Disability dies within six months after the termination of such
employment, any Option held by such Optionee that could have been exercised
immediately prior to his or her death shall pass to the Qualified Successor of
such Optionee, and shall be exercisable by the Qualified Successor
(a) in the case of an ISO, for a period of six months following
the death of such Optionee, and
(b) in the case of a Non-ISO, for a period of 12 months following
the death of such Optionee.
9.5 QUALIFIED DOMESTIC RELATIONS ORDER - In the event that a
Qualified Domestic Relations Order mandates the transfer of any Option that
could have been exercised immediately prior to the issuance of such order, such
Option shall pass to the Domestic Relations Successor, and shall be exercisable
by such person or persons in accordance with the terms of the applicable Option
Agreement.
9.6 VESTING - Options held by a Qualified Successor or
exercisable by a Guardian shall, during the period prior to their termination,
continue to vest in accordance with any vesting schedule to which such Options
are subject.
9.7 UNANIMOUS AGREEMENT - If two or more persons constitute the
Qualified Successor or the Guardian of an Optionee, the rights of such
Qualified Successor or such Guardian shall be exercisable only upon the
unanimous agreement of such persons.
9.8 DEEMED NON-INTERRUPTION OF EMPLOYMENT - Employment shall be
deemed to continue intact during any military or sick leave or other bona fide
leave of absence if the period of such leave does not exceed 90 days or, if
longer, for so long as the Optionee's right to re-employment with the Company,
or an Affiliate, is guaranteed either by statute or by contract. If the period
of such leave exceeds 90 days and the Optionee's re-employment is not so
guaranteed, then his or her employment shall be deemed to have terminated on
the ninety-first day of such leave.
<PAGE>
10
10. TERMINATION OF OPTIONS
10.1 TERMINATION OF OPTIONS - To the extent not earlier exercised
or terminated in accordance with section 9 above, an Option shall terminate at
the earliest of the following dates:
(a) the termination date specified for such Option in the Option
Agreement;
(b) where the Optionee's position as an employee, consultant or
director of the Company, or an Affiliate, is Terminated for
Cause effective as of the date of such Termination for Cause;
(c) where the Optionee's position as an employee, consultant or
director of the Company, or an Affiliate, terminates for a
reason other than the Optionee's Disability, death, or
termination for just cause, 30 days after such date of
termination, or upon the Optionee making written application
to the Committee and receiving the written consent of the
Committee, which consent may be given at the discretion of the
Committee, up to 90 days after such date of termination;
(d) the date of any sale, transfer, assignment or hypothecation,
or any attempted sale, transfer, assignment or hypothecation,
of such Option in violation of Section 9.1 above; and
(e) the date specified in Section 11.2 below for such termination
in the event of a Terminating Event.
11. ADJUSTMENTS TO OPTIONS
11.1 ALTERATION IN CAPITAL STRUCTURE - If there is a material
alteration in the capital structure of the Company resulting from a
recapitalization, stock split, reverse stock split, stock dividend, or
otherwise, the Committee shall make such adjustments to this Plan and to the
Options then outstanding under this Plan as the Committee determines to be
appropriate and equitable under the circumstances, so that the proportionate
interest of each holder of any such Option shall, to the extent practicable,
be maintained as before the occurrence of such event. Such adjustments may
include, without limitation (a) a change in the number or kind of shares of
stock of the Company covered by such Options, and (b) a change in the Option
Price payable per share; provided, however, that the aggregate Option Price
applicable to the unexercised portion of existing Options shall not be altered,
it being intended that any adjustments made with respect to such Options shall
apply only to the price per share and the number of shares subject thereto. For
purposes of this Section 11.1, neither (i) the issuance of additional shares of
stock of the Company in exchange for adequate consideration (including
services), nor (ii) the conversion of outstanding preferred shares of the
Company into Shares shall be deemed to be material alterations of the capital
structure of the Company. If the Committee determines that the nature of a
material alteration in the capital structure of the Company is such that it is
not practical or feasible to make appropriate adjustments to this Plan or to the
Options granted hereunder, such event shall be deemed a Terminating Event for
the purposes of this Plan.
11.2 TERMINATING EVENTS - Subject to Section 11.3, all Options
granted under this Plan shall terminate upon the occurrence of a Terminating
Event, unless the Board decides otherwise prior to or in conjunction with the
Termination Event.
11.3 NOTICE OF TERMINATING EVENT - The Committee shall give notice
to Optionees not less than thirty days prior to the consummation of a
Terminating Event. Upon the giving of such notice, all Options granted under
this Plan shall become immediately exercisable, notwithstanding any contingent
vesting provision to which such Options may have otherwise been subject.
11.4 CORPORATE REORGANIZATION - In the event of a "reorganization"
as defined in this Section 11.4 in which the Company is not the surviving or
acquiring corporation, or in which the Company is or becomes a wholly-owned
subsidiary of another corporation after the effective date of the
reorganization, then unless provision is made by the acquiring corporation for
the assumption of each Option granted under this Plan, or the substitution of an
option therefore, such that no Modification of any such Option occurs, all
Options granted under this Plan shall terminate and such event shall be deemed a
Terminating Event. For purposes of this Section 11.4, reorganization
<PAGE>
11
shall mean any statutory merger, statutory consolidation, sale of all or
substantially all of the assets of the Company, or sale, pursuant to an
agreement with the Company, of securities of the Company pursuant to which the
Company is or becomes a wholly-owned subsidiary of another corporation after the
effective date of the reorganization.
11.5 ACCELERATION OF DATE OF EXERCISE - The Committee shall have
the right to accelerate the date of exercise of any installment of any Option;
provided that, without the consent of the Optionee with respect to any Option,
the Committee shall not accelerate the date of any installment of any Option
granted to an employee as an ISO (and not previously converted into a Non-ISO
pursuant to Section 13 below) if such acceleration would violate the annual
vesting limitation contained in Section 422(d) of the Code, as described in
Section 7.1 above.
11.6 DETERMINATIONS TO BE MADE BY COMMITTEE - Adjustments and
determinations under this Section 11 shall be made by the Committee, whose
decisions as to what adjustments or determination shall be made, and the extent
thereof, shall be final, binding, and conclusive.
12. TERMINATION AND AMENDMENT OF PLAN
12.1 TERMINATION OF PLAN - Unless earlier terminated as provided in
Section 11 above or in Section 12.2 below, this Plan shall terminate on, and no
Option shall be granted under this Plan, after ten years has passed from the
Effective Date of this Plan.
12.2 POWER OF COMMITTEE TO TERMINATE OR AMEND PLAN - Subject to the
approval of any stock exchange on which the Company is listed, the Committee may
terminate, suspend or amend the terms of this Plan; provided, however, that,
except as provided in Section 11 above, the Committee may not do any of the
following without obtaining, within 12 months either before or after the
Committee's adoption of a resolution authorizing such action, approval by the
affirmative votes of the holders of a majority of the voting securities of the
Company present, or represented, and entitled to vote at a meeting duly held in
accordance with the applicable corporate laws, or by the written consent of the
holders of a majority of the securities of the Company entitled to vote:
(a) increase the aggregate number of Shares which may be issued
under this Plan;
(b) materially modify the requirements as to eligibility for
participation in this Plan, or change the designation of the
employees or class of employees eligible to receive ISOs under
this Plan;
(c) materially increase the benefits accruing to participants
under this Plan; or
(d) make any change in the terms of this Plan that would cause the
ISOs granted hereunder to lose their qualification as
"incentive stock options" under Section 422 of the Code.
12.3 NO GRANT DURING SUSPENSION OF PLAN - No Option may be granted
during any suspension, or after termination, of this Plan. Amendment,
suspension, or termination of this Plan shall not, without the consent of the
Optionee, alter or impair any rights or obligations under any Option previously
granted.
13. CONVERSION OF ISOS INTO NON-ISOS
13.1 CONVERSION OF ISOS INTO NON-ISOS - At the written request of
any ISO Optionee, the Committee may in its discretion take such actions as may
be necessary to convert such Optionee's ISOs (or any installments or portions
of installments thereof) that have not been exercised on the date of conversion
into Non-ISOs at any time prior to the expiration of such ISOs, regardless of
whether the Optionee is an employee of the Company at the time of such
conversion. Such actions include, but shall not be limited to, extending the
exercise period of such ISOs. At the time of such conversion, the Committee,
with the consent of the Optionee, may impose such conditions on the exercise of
the resulting Non-ISOs as the Committee in its discretion may determine,
provided that such conditions are consistent with this Plan. Nothing in this
Plan shall be deemed to give any Optionee the right to have such Optionee's ISOs
converted into Non-ISOs, and no such conversion shall occur until and unless the
Committee takes
<PAGE>
12
appropriate action. The Committee, with the consent of the Optionee, may also
terminate any portion of any ISO that has not been exercised at the time of such
conversion.
14. CONDITIONS PRECEDENT TO ISSUANCE OF SHARES
14.1 COMPLIANCE WITH SECURITIES LAWS - Shares shall not be issued
pursuant to the exercise of any Option unless the exercise of such Option and
the issuance and delivery of such Shares comply with all relevant provisions of
law, including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, any applicable state or provincial securities law, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
upon which the Shares may then be listed or otherwise traded.
14.2 REPRESENTATIONS BY OPTIONEE - As a condition precedent to the
exercise of any Option, the Company may require the Optionee to represent and
warrant, at the time of exercise, that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such representations and
warranties are required by any applicable law.
14.3 REGULATORY APPROVAL TO ISSUANCE OF SHARES - The Company's
inability to obtain authority from any regulatory body having jurisdiction,
which authority is deemed by the Company's counsel to be necessary to the
lawful issuance and sale of any Shares hereunder, shall relieve the Company of
any liability with respect to the failure to issue or sell such Shares.
15. USE OF PROCEEDS
15.1 USE OF PROCEEDS - Proceeds from the sale of Shares pursuant
to the Options granted and exercised under this Plan shall constitute general
funds of the Company and shall be used for general corporate purposes.
16. NOTICES
16.1 NOTICES - All notices, requests, demands and other
communications required or permitted to be given under this Plan and the Options
granted under this Plan shall be in writing and shall be either served
personally on the party to whom notice is to be given, in which case notice
shall be deemed to have been duly given on the date of such service; telefaxed,
in which case notice shall be deemed to have been duly given on the date the
telefax is sent; or mailed to the party to whom notice is to be given, by first
class mail, registered or certified, return receipt requested, postage prepaid,
and addressed to the party at his or its most recent known address, in which
case such notice shall be deemed to have been duly given on the tenth postal
delivery day following the date of such mailing.
17. MISCELLANEOUS PROVISIONS
17.1 NO OBLIGATION TO EXERCISE - Optionees shall be under no
obligation to exercise Options granted under this Plan.
17.2 NO OBLIGATION TO RETAIN OPTIONEE - Nothing contained in this
Plan shall obligate the Company to retain an Optionee as an employee, officer,
director, or consultant for any period, nor shall this Plan interfere in any
way with the right of the Company to reduce such Optionee's compensation.
17.3 BINDING AGREEMENT - The provisions of this Plan and each
Option Agreement with an Optionee shall be binding upon such Optionee and the
Qualified Successor or Guardian of such Optionee.
17.4 USE OF TERMS - Where the context so requires, references
herein to the singular shall include the plural, and vice versa, and references
to a particular gender shall include either or both genders.
<PAGE>
13
18. SHAREHOLDER APPROVAL TO PLAN
18.1 SHAREHOLDER APPROVAL TO PLAN - This Plan must be approved by a
majority of the votes cast at a meeting of the shareholders of the Company.
19. EFFECTIVE DATE OF PLAN
19.1 EFFECTIVE DATE OF PLAN - This Plan was adopted by the Board
of Directors on February 5, 2000 and will be submitted to the shareholders of
the Company for approval at the next annual or extra-ordinary general meeting of
the shareholders of the Company. The Effective Date of this Plan is February 5,
2000, provided that any Options granted pursuant to this Plan prior to the date
on which shareholder approval to this Plan is given may not be exercised until
this Plan and any such Options receive shareholder approval.
<PAGE>
EXHIBIT 10.5
MDU COMMUNICATIONS INTERNATIONAL, INC.
Series A Convertible Preferred Stock
REGISTRATION AGREEMENT
January 28, 2000
Haywood Securities Inc.
11th Floor Commerce Place
400 Burrard Street
Vancouver, B.C.
Canada V6C 3A6
AS AGENT FOR THE SUBSCRIBERS LISTED ON EXHIBIT A
Ladies and Gentlemen:
MDU Communications International, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell (such issuance and sale, the "Initial
Placement") to the parties listed on the attached EXHIBIT A (the "Holders") for
whom you are acting as agent (the "Agent") in connection with the purchase and
sale of an aggregate of 3,090,000 shares of the Company's Series A Convertible
Preferred Stock, par value $0.001 ("Series A Shares"). The Series A Shares will
be convertible into shares of the Company's Common Stock pursuant to the
Certificate of Designations (the "Certificate of Designations") with respect to
the Series A Shares attached hereto as EXHIBIT B. As consideration for your
agreement to act as the Agent, the Company has also agreed to issue you Series A
Shares (the "Agent Shares") and warrants (the "Agent Warrants") which are
convertible into the Company's Common Stock. As an inducement to you to purchase
the Series A Shares on behalf of the Holders and to accept the Agent Shares and
the Agent Warrants, the Company agrees with you, (i) for your benefit, and (ii)
for the benefit of the Holders as to the Series A Shares and the Common Stock
issuable upon conversion of the Series A Shares, as follows:
1. DEFINITIONS. Capitalized terms used herein without definition shall have
the respective meanings set forth in the Purchase Agreement. As used in this
Agreement, the following capitalized terms shall have the following meanings:
"ACT" means the Securities Act of 1933, as amended, and the rules and
regulations of the SEC promulgated thereunder.
"AFFILIATE" of any specified person means any other person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling",
"controlled by" and "under common control with"), as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the
D-1
<PAGE>
direction of the management or policies of such person, whether through the
ownership of voting securities or by agreement or otherwise.
"AGENT" has the meaning set forth in the preamble hereto.
"AGENT SHARES" has the meaning set forth in the preamble hereto.
"AGENT WARRANTS" has the meaning set forth in the preamble hereto.
"CERTIFICATE OF DESIGNATIONS" has the meaning set forth in the preamble
hereto.
"CLOSING DATE" means January 31, 2000.
"COMMON STOCK" means the Common Stock, par value $0.001 per share, of the
Company, as it exists on the date of this Agreement and any other shares of
capital stock or other securities of the Company into which such Common Stock
may be reclassified or changed, together with any and all other securities which
may from time to time be issuable upon conversion of Series A Shares. Unless the
context otherwise requires, "Common Stock" as used herein refers to the Common
Stock issuable upon conversion of the Series A Shares and the Agent Shares, and
upon exercise of the Agent Warrants.
"DTC" has the meaning set forth in Section 3(k) hereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"HOLDER" means the persons listed on EXHIBIT A, the Agent and their
permitted transferees.
"MAJORITY HOLDERS" means the Holders of a majority of the then outstanding
aggregate principal amount of Common Stock registered under a Shelf Registration
Statement; provided that Common Stock which has been sold or otherwise
transferred pursuant to the Shelf Registration Statement shall not be included
in the calculation of Majority Holders.
"NOTICE AND QUESTIONNAIRE" means a Notice of Registration Statement and
Selling Securityholder Questionnaire substantially in the form of EXHIBIT C
hereto.
"PROSPECTUS" means the prospectus included in any Shelf Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A under the Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Common Stock covered by such Shelf Registration
Statement, and all amendments and supplements to such prospectus, including all
documents incorporated or deemed to be incorporated by reference in such
prospectus.
"RULE 144" means Rule 144 (or any successor provision) under the Act.
"SEC" means the Securities Exchange Commission.
<PAGE>
"SERIES A SHARES" has the meaning set forth in the preamble hereto.
"SHELF REGISTRATION" means a registration effected pursuant to Section 2
hereof.
"SHELF REGISTRATION PERIOD" has the meaning set forth in Section 2(c)
hereof.
"SHELF REGISTRATION STATEMENT" means a "shelf" registration statement of
the Company pursuant to the provisions of Section 2 hereof which covers all of
the Common Stock issuable upon conversion of the Series A Shares and the Agent
Shares, and upon exercise of the Agent Warrants, on an appropriate form for an
offering to be made on a delayed or continuous basis pursuant to Rule 415 under
the Act, or any similar rule that may be adopted by the SEC, and all amendments
and supplements to such registration statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all documents incorporated or deemed to be incorporated by
reference therein.
"SUSPENSION PERIOD" has the meaning set forth in Section 2(d) hereof.
All references in this Agreement to financial statements and schedules and
other information which is "contained", "included", or "stated" in the Shelf
Registration Statement, any preliminary Prospectus or Prospectus (and all other
references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is incorporated
or deemed to be incorporated by reference in such Shelf Registration Statement,
preliminary Prospectus or Prospectus, as the case may be; and all references in
this Agreement to amendments or supplements to the Shelf Registration Statement,
any preliminary Prospectus or Prospectus shall be deemed to mean and include the
filing of any document under the Exchange Act, after the date of such Shelf
Registration Statement, preliminary Prospectus or Prospectus, as the case may
be, which is incorporated or deemed to be incorporated by reference therein.
2. CANADIAN REGISTRATION AND U.S. SHELF REGISTRATION STATEMENT. (a) As soon
as practicable following the Closing Date, the Company shall (a) prepare and
file a preliminary prospectus and a (final) prospectus, and use reasonable
commercial efforts to obtain receipts for each such prospectus, in British
Columbia and all other provinces of Canada in which persons purchasing the
Series A Shares on the Closing Date are resident, to qualify for distribution,
and (b) file with the SEC, and thereafter use reasonable commercial efforts to
obtain effectiveness of, the Shelf Registration Statement under the Act covering
resales of the Common Stock. The Company shall supplement or amend the Shelf
Registration Statement if required by the rules, regulations or instructions
applicable to the registration form used by the Company for the Shelf
Registration Statement, if required by the Act, the Exchange Act or the SEC.
(b) (1) Not less than 30 calendar days prior to the effectiveness of
the Shelf Registration Statement, the Company shall mail the Notice and
Questionnaire to the Holders of Common Stock issuable upon conversion of the
Series A Shares. No Holder shall be entitled to be named as a selling
securityholder in the Shelf Registration Statement, and no Holder shall be
entitled to use the Prospectus forming a part thereof for resales of Common
Stock at any time, unless such Holder has returned a completed and signed Notice
and Questionnaire to the Company by the deadline for responses set forth
therein; PROVIDED, HOWEVER, that Holders shall
<PAGE>
have at least 20 calendar days from the date on which the Notice and
Questionnaire is first mailed to such Holders to return a completed and
signed Notice and Questionnaire to the Company.
(2) After the Shelf Registration Statement has become effective,
the Company shall, upon the request of any Holder of Common Stock that has not
returned a completed Notice and Questionnaire, promptly send a Notice and
Questionnaire to such Holder. The Company shall not be required to take any
action to name such Holder as a selling securityholder in the Shelf Registration
Statement or to enable such Holder to use the Prospectus forming a part thereof
for resales of Common Stock until such Holder has returned a completed and
signed Notice and Questionnaire to the Company and the Company is otherwise
amending the Shelf Registration Statement. In such case the Company will include
such Holder as a selling shareholder in the amendment to the Shelf Registration
Statement.
(c) The Company shall keep the Shelf Registration Statement
continuously effective under the Act, in order to permit the Prospectus forming
part thereof to be usable by all Holders until the earliest of (i) one year from
the Qualification Date (as defined in the Certificate of Designations), (ii) the
date on which all the Common Stock issuable upon conversion of the Series A
Shares may be sold by non-affiliates ("affiliates" for such purpose having the
meaning set forth in Rule 144) of the Company pursuant to paragraph (k) of Rule
144 (or any successor provision) promulgated by the SEC under the Act, and (iii)
the date as of which all the Common Stock has been transferred pursuant to Rule
144 under the Securities Act (or any similar provision then in force) or sold
pursuant to the Shelf Registration Statement (in any such case, such period
being called the "Shelf Registration Period"). The Company will, subject to
Section 2(d), prepare and file with the SEC such amendments and post-effective
amendments to the Shelf Registration Statement as may be necessary to keep the
Shelf Registration Statement continuously effective for the Shelf Registration
Period; subject to Section 2(d), cause the related Prospectus to be supplemented
by any required supplement, and as so supplemented to be filed pursuant to Rule
424 (or any similar provisions then in force) under the Act; and, comply in all
material respects with the provisions of the Act with respect to the disposition
of all securities covered by the Shelf Registration Statement during the
applicable period in accordance with the intended methods of disposition by the
sellers thereof set forth in such Shelf Registration Statement as so amended or
such Prospectus as so supplemented.
(d) The Company may suspend the use of the Prospectus for a period not
to exceed 60 days in any three-month period or for three periods not to exceed
an aggregate of 90 days in any twelve-month period (the "Suspension Period") for
valid business reasons, to be determined by the Company in its sole reasonable
judgment (not including avoidance of the Company's obligations hereunder),
including, without limitation, the acquisition or divestiture of assets, public
filings with the SEC, pending corporate developments and similar events;
provided that the Company promptly thereafter complies with the requirements of
Section 3(j) hereof, if applicable. The Company shall provide notice to the
Holders of a Suspension Period as required under Section 3(c)(1)(iv) hereof.
3. REGISTRATION PROCEDURES. In connection with any Shelf Registration
Statement, the following provisions shall apply:
<PAGE>
(a) The Company shall furnish to you, not less than 5 business days
prior to the filing thereof with the SEC, a copy of any Shelf Registration
Statement, and each amendment thereof (including amendments caused by the filing
by the Company with the SEC of a report required by the Exchange Act), a copy of
any Prospectus, and each amendment or supplement, if any, to the Prospectus
included therein and shall use its best efforts to reflect in each such
document, when so filed with the SEC, such comments as you or counsel designated
by you reasonably may propose if such comments are received by the Company not
more than three business days after to your receipt of such Shelf Registration
Statement, Prospectus or amendment or supplement thereto.
(b) The Company shall ensure that (i) any Shelf Registration Statement
and any amendment thereto and any Prospectus forming part thereof and any
amendment or supplement thereto comply in all material respects with the Act and
the rules and regulations thereunder, (ii) any Shelf Registration Statement and
any amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(iii) any Prospectus forming part of any Shelf Registration Statement, and any
amendment or supplement to such Prospectus, does not include an untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading; provided that the Company makes no representation or
agreement with respect to information with respect to any Holder provided or
required to be included in any Shelf Registration or Prospectus pursuant to the
Act or the rules and regulations thereunder and which information is included
therein in reliance upon and in conformity with information furnished to the
Company in writing by or on behalf of any such Holder.
(c) (1) The Company, as promptly as reasonably practicable, shall
advise you, each Holder that has returned a completed and signed Notice and
Questionnaire to the Company and the transfer agent for the Common Stock (the
"Transfer Agent") and, if requested by you or any such Holder, confirm such
advice in writing:
(i) when a Shelf Registration Statement and any amendment thereto
has been filed with the SEC and when the Shelf Registration Statement
or any post-effective amendment thereto has become effective;
(ii) of any request by the SEC for amendments or supplements to
the Shelf Registration Statement or the Prospectus or for additional
information;
(iii) of the determination by the Company that a post-effective
amendment to the Shelf Registration Statement would be appropriate;
and
(iv) of the commencement or termination of any Suspension Period
(which advice in the case of clauses 3(c)(ii)-(iv) shall be accompanied by
an instruction to suspend the use of the Prospectus until the requisite
changes have been made).
<PAGE>
(2) The Company shall advise you, each Holder that has returned a
completed and signed Notice and Questionnaire to the Company and the
Transfer Agent and, if requested by you or any such Holder, confirm
such advice in writing:
(i) of the issuance by the SEC of any stop order suspending the
effectiveness of the Shelf Registration Statement or the initiation of
any proceedings for that purpose;
(ii) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Common Stock
included in any Shelf Registration Statement for sale in any
jurisdiction or the initiation or threat of any proceeding for such
purpose; and
(iii) of the suspension of the use of the Prospectus pursuant to
Section 2(d) hereof or of the happening of any event that requires the
making of any changes in the Shelf Registration Statement or the
Prospectus so that, as of such date, the statements therein are not
misleading and the Shelf Registration Statement or the Prospectus, as
the case may be, does not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein (in the case of the
Prospectus, in light of the circumstances under which they were made)
not misleading
(which advice shall be accompanied by an instruction to suspend the use of
the Prospectus until the requisite changes have been made).
(d) The Company shall use its best efforts to obtain the withdrawal of
any order suspending the effectiveness of any Shelf Registration Statement or
the lifting of any suspension of the qualification (or exemption from
qualification) of the Common Stock for offer or sale in any jurisdiction at the
earliest possible time.
(e) The Company shall furnish to each Holder of Common Stock included
within the coverage of any Shelf Registration Statement, without charge, at
least one copy of such Shelf Registration Statement and any post-effective
amendment thereto, including financial statements and schedules and all
materials incorporated therein by reference, and, if the Holder so requests in
writing, all exhibits (including those incorporated by reference).
(f) The Company shall, during the Shelf Registration Period, deliver
to each Holder of Common Stock included within the coverage of any Shelf
Registration Statement, without charge, as many copies of the Prospectus
(including each preliminary Prospectus) included in such Shelf Registration
Statement and any amendment or supplement thereto as such Holder may reasonably
request; and, except during the continuance of any Suspension Period, the
Company consents to the use of the Prospectus or any amendment or supplement
thereto by each of the selling Holders in connection with the offering and sale
of the Common Stock covered by the Prospectus or any amendment or supplement
thereto.
(g) Prior to any offering of Common Stock pursuant to any Shelf
Registration Statement, the Company shall register or qualify or cooperate with
the Holders of Common
<PAGE>
Stock included therein in connection with the registration or qualification
(or exemption from such registration or qualification) of such Common Stock
for offer and sale, as the case may be, under the securities or blue sky laws
of such jurisdictions as any such Holders reasonably request in writing and
do any and all other acts or things necessary or advisable to enable the
offer and sale in such jurisdictions of the Common Stock covered by such
Shelf Registration Statement; PROVIDED, HOWEVER, that the Company will not be
required to (A) qualify generally to do business in any jurisdiction where it
is not then so qualified or to (B) take any action which would subject it to
general service of process in any such jurisdiction where it is not then so
subject.
(h) The Company shall, and shall use its best efforts to cause the
Transfer Agent to, cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Common Stock to be sold
pursuant to any Shelf Registration Statement to third-party buyers of such
Common Stock, free of any restrictive legends and in such denominations and
registered in such buyers' names as Holders may request prior to sales of Common
Stock pursuant to such Shelf Registration Statement. Prior to any such sale, the
Holders shall deliver to the Transfer Agent for cancellation legended
Certificates representing a number of shares of Common Stock corresponding to
the number of shares of Common Stock to be sold, and shall include in such
delivery a signed Request for Issuance of Unlegended Stock Certificate Upon
Sale, in the form of EXHIBIT D hereto, to the Company and to the Transfer Agent.
(i) Subject to the exceptions contained in (A) and (B) of paragraph
(g) hereof, the Company shall use its best efforts to cause the Common Stock
covered by the applicable Shelf Registration Statement to be registered with or
approved by such other federal, state and local governmental agencies or
authorities, and self-regulatory organizations in the United States as may be
necessary to enable the Holders to consummate the disposition of such Common
Stock as contemplated by the Shelf Registration Statement; without limitation to
the foregoing, the Company shall make all filings and provide all such
information as may be required by the National Association of Securities
Dealers, Inc. (the "NASD") in connection with the offering under the Shelf
Registration Statement of the Common Stock and shall cooperate with each Holder
in connection with any filings required to be made with the NASD by such Holder
in that regard.
(j) Upon the occurrence of any event contemplated by Section 3(c)(2)
above and subject to Section 3(a) hereof, the Company shall promptly prepare and
file with the SEC a post-effective amendment to any Shelf Registration Statement
or an amendment or supplement to the related Prospectus or any document
incorporated therein by reference or file a document which is incorporated or
deemed to be incorporated by reference in such Shelf Registration Statement or
Prospectus, as the case may be, so that, as thereafter delivered to purchasers
of the Common Stock included therein, the Shelf Registration Statement and the
Prospectus, in each case as then amended or supplemented, will not include an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein (in
the case of the Prospectus in light of the circumstances under which they were
made) not misleading and in the case of a post-effective amendment, cause it to
become effective as promptly as practicable; provided that the Company's
obligations under this paragraph (j) shall be suspended if the Company has
suspended the use of the Prospectus in
<PAGE>
accordance with Section 2(d) hereof and given notice of such suspension to
the Holders, it being understood that the Company's obligations under this
Subsection (j) shall be automatically reinstated at the end of such
Suspension Period.
(k) The Company shall use its reasonable best efforts to cause The
Depository Trust Company ("DTC") on the first business day following the
effective date of any Shelf Registration Statement hereunder or as soon as
possible thereafter to remove (i) from any existing CUSIP number assigned to the
Common Stock any designation indicating that the Common Stock are "restricted
securities", which efforts shall include delivery to DTC of a letter executed by
the Company substantially in the form of EXHIBIT E hereto and (ii) any other
stop or restriction on DTC's system with respect to the Common Stock.
(l) The Company shall use its best efforts to comply with all
applicable rules and regulations of the SEC and shall make generally available
to its security holders as soon as practicable but in any event not later than
15 months after (i) the effective date of the applicable Shelf Registration
Statement, (ii) the effective date of each post-effective amendment to any Shelf
Registration Statement, and (iii) the date of each filing by the Company with
the SEC of an Annual Report on Form 10-K or 10KSB that is incorporated by
reference or deemed to be incorporated by reference in the Shelf Registration
Statement, an earnings statement satisfying the provisions of Section 11(a) of
the Act and Rule 158 promulgated by the SEC thereunder.
(m) The Company shall cause all Common Stock issued upon conversion of
the Series A Shares to be listed on each quotation system or securities exchange
on which the Common Stock is then listed no later than the date the applicable
Shelf Registration Statement is declared effective and, in connection therewith,
to make such filings as may be required under the Exchange Act and to have such
filings declared effective as and when required thereunder.
(n) If requested in writing by a Holder and at the Holder's expense,
the Company shall use its best efforts to promptly incorporate in a Prospectus
supplement or post-effective amendment to a Shelf Registration Statement such
information as a Holder may provide from time to time to the Company in writing
for inclusion in a Prospectus or any Shelf Registration Statement concerning
such Holder and the distribution of such Holder's Common Stock and shall make
all required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after being notified in writing of the matters to be
incorporated in such Prospectus supplement or post-effective amendment, provided
that the Company shall not be required to take any action under this Section
3(n) that is not, in the reasonable opinion of counsel for the Company, in
compliance with applicable law.
(o) Each Holder agrees that, upon receipt of notice of the happening
of an event described in Sections 3(c)(1)(ii) through and including 3(c)(1)(iv)
and Sections 3(c)(2)(i) through and including 3(c)(2)(iii), each Holder shall
forthwith discontinue (and shall cause its agents and representatives to
discontinue) disposition of Common Stock and will not resume disposition of such
Common Stock until such Holder has received copies of an amended or supplemented
Prospectus contemplated by Section 3(j) hereof, or until such Holder is advised
in writing by the Company that the use of the Prospectus may be resumed or that
the relevant Suspension Period has been terminated, as the case may be, provided
that, the foregoing shall not
<PAGE>
prevent the sale, transfer or other disposition of Common Stock by a Holder
in a transaction which is exempt from, or not subject to, the registration
requirements of the Act, so long as such Holder does not and is not required
to deliver the applicable Prospectus or Shelf Registration Statement in
connection with such sale, transfer or other disposition, as the case may be.
4. REGISTRATION EXPENSES. The Company shall bear its and the Agent's
legal and other expenses incurred in connection with the negotiation,
preparation and performance of this Agreement. The Holders shall each bear such
legal and other expenses as they shall incur.
5. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each Holder of
Common Stock covered by any Shelf Registration Statement, the directors,
officers, employees and agents of each such Holder and each person who controls
any such Holder within the meaning of either the Act or the Exchange Act against
any and all losses, claims, damages or liabilities, joint or several, to which
they or any of them may become subject under the Act, the Exchange Act or other
Federal or state law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Shelf Registration Statement as originally filed
or in any amendment thereof, or in any preliminary Prospectus or Prospectus, or
in any amendment thereof or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, and agrees to
reimburse each such indemnified party, as incurred, for any legal or other
expenses reasonably incurred by any of them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of any such Holder specifically for inclusion
therein. This indemnity agreement will be in addition to any liability which the
Company may otherwise have.
(b) Each Holder of Common Stock covered by a Shelf Registration
Statement, by execution and delivery of a Notice and Questionnaire, severally
and not jointly agrees to indemnify and hold harmless (i) the Company, (ii) each
of its directors, (iii) each of its officers who signs such Shelf Registration
Statement and (iv) each person who controls the Company within the meaning of
either the Act or the Exchange Act to the same extent as the foregoing indemnity
from the Company to each such Holder, but only with reference to written
information relating to such Holder furnished to the Company by or on behalf of
such Holder specifically for inclusion in the documents referred to in the
foregoing indemnity. This indemnity agreement will be in addition to any
liability which any such Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
5 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 5, notify the
<PAGE>
indemnifying party in writing of the commencement thereof; but the failure so
to notify the indemnifying party (i) will not relieve it from liability under
paragraph (a) or (b) above unless and to the extent it did not otherwise
learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses; and (ii) will not, in
any event, relieve the indemnifying party from any obligations to any
indemnified party other than the indemnification obligation provided in
paragraph (a) or (b) above. The indemnifying party shall be entitled to
appoint counsel of the indemnifying party's choice at the indemnifying
party's expense to represent the indemnified party in any action for which
indemnification is sought (in which case the indemnifying party shall not
thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be reasonably satisfactory to the
indemnified party. Notwithstanding the indemnifying party's election to
appoint counsel to represent the indemnified party in an action, the
indemnified party shall have the right to employ separate counsel (including
local counsel), and the indemnifying party shall bear the reasonable fees,
costs and expenses of such separate counsel (and local counsel) if (i) the
use of counsel chosen by the indemnifying party to represent the indemnified
party would present such counsel with a conflict of interest; (ii) the actual
or potential defendants in, or targets of, any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available
to the indemnifying party; (iii) the indemnifying party shall not have
employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of the
institution of such action; or (iv) the indemnifying party shall authorize
the indemnified party to employ separate counsel at the expense of the
indemnifying party. An indemnifying party will not, without the prior written
consent of the indemnified party, settle or compromise or consent to the
entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified parties
are actual or potential parties to such claim or action) unless such
settlement, compromise or consent includes an unconditional release of such
indemnified party from all liability arising out of such claim, action, suit
or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 5 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall have an obligation to
contribute to the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating or
defending same) (collectively "Losses"), as incurred, to which such indemnified
party may be subject in such proportion as is appropriate to reflect the
relative benefits received by such indemnifying party, on the one hand, and such
indemnified party, on the other hand, from the Initial Placement and the Shelf
Registration Statement which resulted in such Losses. If the allocation provided
by the immediately preceding sentence is unavailable for any reason, the
indemnifying party and the indemnified party shall contribute in such proportion
as is appropriate to reflect not only such relative benefits but also the
relative fault of such indemnifying party, on the one hand, and such indemnified
party, on the other hand, in connection with the statements or omissions which
resulted in such Losses as well as any other relevant equitable considerations.
Benefits received by the Company shall be deemed to be
<PAGE>
equal to the total net proceeds from the sale of the Series A Shares (before
deducting expenses). Benefits received by the Holders shall be deemed to be
equal to the value of receiving Common Stock registered under the Act. The
parties agree that it would not be just and equitable if contribution were
determined by pro rata allocation or any other method of allocation which
does not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 5, each person who
controls a Holder within the meaning of either the Act or the Exchange Act
and each director, officer, employee and agent of such Holder shall have the
same rights to contribution as such Holder, and each person who controls the
Company within the meaning of either the Act or the Exchange Act, each
officer of the Company who shall have signed the Shelf Registration Statement
and each director of the Company shall have the same rights to contribution
as the Company, subject in each case to the applicable terms and conditions
of this paragraph (d).
(e) The provisions of this Section 5 will remain in full force and
effect, regardless of any investigation made by or on behalf of any Holder, or
the Company or any of the officers, directors or controlling persons referred to
in Section 5 hereof, and will survive the sale by a Holder of shares of Common
Stock covered by a Shelf Registration Statement.
6. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company has not, as of the date
hereof, entered into nor shall it, on or after the date hereof, enter into, any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders herein or otherwise conflicts with the provisions hereof.
(b) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, qualified,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Company has obtained the written
consent of the Majority Holders. Notwithstanding the foregoing, a waiver or
consent to departure from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders whose Common Stock are being sold
pursuant to a Shelf Registration Statement and that does not directly or
indirectly affect the rights of other Holders may be given by the Majority
Holders, determined on the basis of Common Stock being sold rather than
registered under such Shelf Registration Statement.
(c) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
telecopier, or air courier guaranteeing overnight delivery:
(1) if to you, initially at the address set forth in the
Subscription Agreements;
(2) if to any Holder, at the most current address given by such
Holder to the Company in accordance with the provisions of this
Section 6(c), which address
<PAGE>
initially is, with respect to each Holder, the address of such Holder
maintained by the registrar of the Common Stock, with a copy in like
manner to you; and
(3) if to the Company, initially at its address set forth in the
Subscription Agreements.
All such notices and communications shall be deemed to have been duly
given when received, if delivered by hand or air courier, and when sent, if sent
by first-class mail or telecopier with receipt confirmed.
You, the Holders or the Company by notice to the other may designate
additional or different addresses for subsequent notices or communications.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including, without the need for an express assignment or any consent by the
Company thereto, subsequent Holders. The Company hereby agrees to extend the
benefits of this Agreement to any Holder and any such Holder may specifically
enforce the provisions of this Agreement as if an original party hereto. In the
event that any other person shall succeed to the Company by merger,
consolidation or purchase of assets, then such successor shall enter into an
agreement, in form and substance reasonably satisfactory to the Holders, whereby
such successor shall assume all of the Company's obligations under this
Agreement.
(e) COUNTERPARTS. This agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) HEADINGS. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(g) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF DELAWARE.
(h) SEVERABILITY. In the event that any one of more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired
or affected thereby, it being intended that all of the rights and privileges of
the parties shall be enforceable to the fullest extent permitted by law.
(i) COMMON STOCK OR SERIES A SHARES HELD BY THE COMPANY, ETC.
Whenever the consent or approval of Holders of a specified percentage of Common
Stock is required hereunder, Common Stock or Series A Shares held by the Company
or its Affiliates shall not be counted in determining whether such consent or
approval was given by the Holders of such required percentage.
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and you.
Very truly yours,
MDU COMMUNICATIONS INTERNATIONAL, INC.
By /s/ Sheldon Nelson
-----------------------------
Name: Sheldon Nelson
Title: President
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
HAYWOOD SECURITIES, INC.,
As Agent for the Holders
By /s/ Fabio Banducci
-------------------------------
Name: Fabio Banducci
Title:
-----------------
<PAGE>
EXHIBIT 10.6
HAYWOOD SECURITIES INC.
11th Floor Commerce Place
400 Burrard Street
Vancouver, B.C. V6C 3A6
January 28, 2000
MDU Communications International, Inc.
108 - 11951 Hammersmith Way
Richmond, B.C.
V7A 5H9
Dear Sirs:
We understand that MDU Communications International, Inc. (the "Corporation")
wishes Haywood Securities Inc. (the "Agent") to act as its exclusive agent to
offer for sale by way of private placement to investors resident in British
Columbia, Alberta, Manitoba, Ontario and the United States (the "Qualifying
Jurisdictions") up to 3,090,000 shares (the "Investor Preferred Stock") of
Series A Convertible Preferred Stock having a par value per share of $0.001 of
the Corporation (the "Preferred Stock") at a price per share of US$2.50 (the
"Offering Price") for aggregate gross proceeds of up to $7,725,000. The
Preferred Stock will have the rights and restrictions set out in Schedule A. All
references to dollars are to U.S. dollars unless otherwise indicated.
The Agent hereby agrees to act as the Corporation's exclusive agent to offer the
Investor Preferred Stock for sale on a reasonable commercial efforts basis, upon
the terms and subject to the conditions set forth below. In consideration of the
services to be rendered by the Agent in connection with the issuance and sale of
the Investor Preferred Stock and qualification of the Underlying Shares (as
defined below), including, without limitation, acting as financial adviser to
the Corporation, assisting the Corporation in the preparation of relevant
documentation, assisting the Corporation in obtaining duly completed and signed
Subscription Agreements, acting as the Corporation's sponsor in connection with
listing its Common Stock on the Canadian Venture Exchange (the "Exchange"),
assisting the Corporation in obtaining requisite regulatory approvals in
connection with the preparation and finalization of a preliminary prospectus
(the "Preliminary Prospectus") and a final prospectus (the "Prospectus") and any
amendments thereto qualifying, among other things, the issuance of the shares of
Common Stock (the "Underlying Shares") issuable upon conversion of Preferred
Stock, the Corporation shall on the Closing Date (as defined at paragraph 6.1):
(a) pay to the Agent 8% (the "Commission") of the gross proceeds
arising from the sale of the Investor Preferred Stock, which payment shall be
satisifed by the
<PAGE>
issuance to the Agent of such number of shares of Preferred Stock as is equal
to the quotient of the Commission and $2.50 (the "Commission Shares");
(b) issue to the Agent 300,000 shares of Preferred Stock (the
"Corporate Finance Shares"); and
(c) grant to the Agent an option (the "Agent's Warrant") in the form
attached hereto as Schedule B, entitling the Agent to acquire a warrant (the
"Agent's Underlying Warrant"). The Agent's Underlying Warrant will entitle the
Agent to acquire such number of shares of Common Stock of the Corporation as is
equal to 10% of the number of Investor Preferred Stock sold, for a period of one
year following the Closing Date at a price per share equal to the Offering
Price. The issuance of the Agent's Underlying Warrant upon exercise of the
Agent's Warrant shall be qualified by the Preliminary Prospectus and the
Prospectus, and the Agent's Shares (as defined below) issuable upon exercise of
the Underlying Warrant shall be included in the Common Stock of the Company that
will be registered under the United States Securities Act of 1933 (the "1933
Act") pursuant to the Registration Agreement between the Company and the Agent
relating to the Underlying Shares.
The Agent may appoint other registered dealers as its agent (the "Sub-Agent") to
assist in the offering contemplated hereby.
1. NATURE OF TRANSACTIONS
1.1 Each purchaser (a "Purchaser") of Investor Preferred Stock shall
purchase under one or more of the exemptions (the "Exemptions") from the
prospectus requirements of the securities legislation of the Qualifying
Jurisdictions contemplated by the form of Subscription Agreement (the
"Subscription Agreement") attached as Schedule C.
1.2 The Agent shall conduct its activities in connection with the
distribution of the Investor Preferred Stock in compliance with all
applicable laws and regulatory requirements.
2. REPRESENTATIONS AND WARRANTIES
2.1 The Corporation covenants, represents and warrants to the Agent and
the Purchasers, and acknowledges that the Purchasers are relying on such
covenants, representations and warranties in purchasing the Investor
Preferred Stock and that they are intended to be contractually enforceable by
the Purchasers or any one or more of them against the Corporation
notwithstanding that the Purchasers are not parties to this agreement, that:
(a) the books and records of the Corporation fairly and correctly set
out and disclose in all material respects, in accordance with generally accepted
accounting principles, the financial position of the Corporation on a
consolidated basis as of the date hereof, and all material financial
transactions of the Corporation on a consolidated basis have been accurately
recorded in the said books and records. With the exception of forecasts,
projections or estimates referred to below, all information and other data
<PAGE>
(together, the "Information") relating to the Corporation furnished by or on
behalf of the Corporation to the Agent or the Purchaser is, or, in the case
of historical information, was at the date of preparation true, accurate,
complete and correct in all material respects, and does not or did not, as
the case may be, contain any "misrepresentation", as that term is defined in
the Securities Act (British Columbia) (hereafter, a "Misrepresentation"). Any
projections and forecasts relating to the Corporation provided by or on
behalf of the Corporation to the Agent have been prepared in good faith with
the assistance of competent professional advisors and are based upon
assumptions which, in light of the circumstances under which they are made,
are reasonable. The Corporation is not aware of any undisclosed facts or
information that could materially impact upon such projections and forecasts;
(b) the Corporation and MDU Communications Inc. have been duly
incorporated and organized and are validly existing and in good standing under
the laws of their respective jurisdiction of incorporation and have all
requisite corporate power and authority to carry on their respective businesses
as now conducted and as presently proposed to be conducted, to own, lease and
operate their respective properties and assets and, in the case of the
Corporation, to carry out the provisions hereof;
(c) the Corporation has no "subsidiaries" (as such term is defined in
the CANADA BUSINESS CORPORATIONS ACT (the "CBCA"), except for MDU Communications
Inc. (the "Subsidiary"), a corporation under the CBCA;
(d) to the best of its knowledge, after due enquiry, the Corporation
and the Subsidiary are conducting their respective businesses in compliance in
all material respects with all applicable licensing and anti-pollution
legislation, regulations or by-laws, environmental protection legislation,
regulations or by-laws or other similar legislation, regulations or by-laws or
other lawful requirements of any governmental or regulatory bodies which are
applicable to the Corporation or the Subsidiary. The Corporation is not aware of
any such legislation, regulation, by-law or lawful requirement presently in
force or proposed to be brought into force by any governmental or regulatory
authority which the Corporation anticipates it or the Subsidiary will be unable
to comply with without materially adversely affecting the business of the
Corporation or the Subsidiary;
(e) the Corporation or the Subsidiary is the beneficial owner of the
properties, business and assets, or the interest in the properties, business and
assets, referred to in the consolidated financial statements of the Corporation
most recently filed with the United States Securities and Exchange Commission,
and any and all agreements pursuant to which the Corporation or the Subsidiary
holds any such interest in property, business or assets are in good standing
under the applicable laws;
(f) the authorized capital of the Corporation is as set forth on
Schedule D, of which the number of shares set forth on Schedule D are issued and
outstanding, all of such shares being fully paid and non-assessable and the only
outstanding options, warrants or other rights to acquire any shares or other
securities of the Corporation are as set forth on Schedule D; and all of the
issued and outstanding shares in the capital of the Subsidiary are owned,
beneficially and of record, by the Corporation, all such shares have
<PAGE>
been issued as fully paid and non-assessable, and there are no outstanding
options, warrants or other rights to acquire any shares or other securities
of the Subsidiary;
(g) the audited consolidated balance sheets of the Corporation as at
September 30, 1999, and the audited consolidated statements of cash flow and
shareholders' equity for the period from inception to September 30, 1999, have
been prepared in accordance with generally accepted accounting principles in the
United States applied on a basis consistent with those of previous periods and
present fairly:
(i) the assets, liabilities (whether accrued, absolute,
contingent or otherwise) and the financial condition of the Corporation as at
September 30, 1999; and
(ii) the revenues, expenses and changes in financial position
of the Corporation for the period from inception to September 30, 1999;
(h) no material adverse change, financial or otherwise, in the assets,
liabilities (contingent or otherwise), business, financial condition, capital or
prospects of the Corporation has occurred since September 30, 1999;
(i) the Corporation is not in default or breach of, and the execution
and delivery of, and the performance and compliance with the terms of this
agreement, the Subscription Agreements, the Agent's Warrant, the Agent's
Underlying Warrant and all other agreements and other instruments to be executed
in connection herewith (collectively, the "Transaction Documents") does not and
will not result in any breach of, or constitute a default under, and does not
and will not create a state of facts which, after notice or lapse of time or
both, would result in a breach of or constitute a default under, in any material
respect, any term or provisions of the articles, by-laws, or resolutions of the
Corporation, or any indenture, agreement (written or oral), lease or other
document to which the Corporation is a party or by which it is bound, or any
judgment, decree or order, or to its knowledge, statute, rule or regulation
applicable to the Corporation, which default or breach might reasonably be
expected to materially adversely affect the business, operations, assets,
capital or condition (financial or otherwise) of the Corporation;
(j) the Corporation has full corporate authority and capacity to enter
into the Transaction Documents and to perform its obligations under them, and
this agreement, and the Transaction Documents will, on the Closing Date, be duly
authorized, executed and delivered by the Corporation;
(k) this agreement and the Transaction Documents will on the Closing
Date be, legal, valid and binding obligations of the Corporation, enforceable
against the Corporation in accordance with their respective terms, subject to
the laws relating to creditors' rights generally and equitable remedies and
except to the extent that the enforcement of rights to indemnity and waiver of
contribution may be limited by applicable law;
(l) the Corporation has full corporate authority and capacity to issue
the Investor Preferred Stock, the Corporate Finance Shares, the Commission
Shares, the
<PAGE>
Underlying Shares, the Agent's Warrant, the Agent's Underlying Warrant and
the shares (the "Agent's Shares") issuable upon the exercise thereof, and, on
the Closing Date, the Agent's Warrant will be duly and validly created,
authorized and issued, and the Investor Preferred Stock, the Corporate
Finance Shares, the Commission Shares, the Underlying Shares and the Agent's
Shares will be duly and validly authorized and allotted for issuance, and
upon such issuance shall be issued as fully paid and non-assessable;
(m) no consent of any third party is required in connection with the
transactions contemplated by the Transaction Documents, except to the extent
that this agreement and the Transaction Documents contemplate obtaining receipts
for the Preliminary Prospectus and the Prospectus and effecting registration
under the 1933 Act of the Underlying Shares and the Agent's Shares;
(n) no securities regulatory authority has issued any order preventing
or suspending trading in any securities of the Corporation, and the Corporation
has not been, and is not currently, in default of any requirement of the
securities laws of any jurisdiction to which it is subject;
(o) except as stated in the financial statements of the Corporation, no
litigation, administrative proceeding, arbitration or other proceeding before or
of any court, tribunal, arbitrator or regulatory or other governmental body or
dispute with any regulatory or other governmental body is presently in process
or, to the best of the knowledge and information of the Corporation, pending or
threatened against the Corporation which, if determined adversely to the
Corporation might have a material adverse effect on the financial condition,
results of operations, business or prospects of the Corporation, or which would
materially impair the ability of the Corporation to consummate the transactions
contemplated hereby or to duly observe and perform any of its covenants or
obligations herein or in the Transaction Documents;
(p) the business and property of the Corporation and the Subsidiary
is, to the best of the Corporation's knowledge after due enquiry, in
compliance in all material respects with all Environmental Laws (as defined
below), and there are no facts known after due enquiry by the Corporation
which could give rise to a notice of non-compliance with any Environmental
Laws. The term "Environmental Laws" means all applicable laws, rules,
regulations, orders, policies, guidelines, notices, approvals and permits
relating to environmental or occupational health and safety matters, in
effect as at the date hereof, including, without limitation, those pertaining
to reporting, licensing, permitting, investigation, remediation and clean-up
in connection with any release or threat of release of a Contaminant or
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transportation, handling and the like of a Contaminant.
The term "Contaminant" means any substance or material that is prohibited,
controlled or regulated by any governmental authority, including without
limitation, any contaminants, pollutants, petroleum, its derivatives,
by-products or other hydrocarbons, dangerous substances or goods, asbestos,
toxic or hazardous substances or materials, controlled products, wastes
involving hazardous wastes and any other materials that are by their nature
hazardous, either in fact or as defined in or pursuant to any Environmental
Laws;
<PAGE>
(q) there are , to the best of the knowledge of the Corporation
after due enquiry, no existing claims, demands, damages, expenses, suits,
proceedings, actions, negotiations, or causes of action of any nature
whatsoever, whether threatened or pending, arising out of the presence on any
property in respect of which the Corporation or the Subsidiary has an
interest, either past or present, of any Contaminant, or out of any past or
present activity conducted on any such property, involving any Contaminant or
any violation of any Environmental Law;
(r) the Corporation shall not reject any Subscription Agreement
tendered by the Agent, unless all such subscriptions tendered by the Agent
exceed the number of shares of Investor Preferred Stock offered hereunder; and
(s) the Corporation shall conduct its activities in connection with the
distribution of the Investor Preferred Stock in compliance with all applicable
laws and regulatory requirements and, without limiting the foregoing:
(i) all solicitations, offerings and other selling efforts
carried out by the Corporation in connection with the distribution of the
Investor Preferred Stock have been and will be made in accordance with the
Exemptions; and
(ii) no advertising of the Investor Preferred Stock has been
or will be made by the Corporation in any media whatsoever;
(t) the Corporation has not made any form of general solicitation
within the meaning of Rule 502(c) of Regulation D ("Regulation D") under the
1933 Act in connection with the offer of Preferred Stock contemplated by this
Agreement; and
(u) none of the Corporation or any of its predecessors or affiliates
have been subject to any order or other proceeding described in Rule 507 of
Regulation D enjoining such person for failure to comply with Rule 503 of
Regulation D.
3. COVENANTS OF THE CORPORATION
3.1 The Corporation covenants with the Purchasers and the Agent, as
covenants that are intended to be contractually enforceable by the Purchasers
or one or more of them against the Corporation, notwithstanding the
Purchasers are not parties to this agreement, as follows:
(a) subject to Section 3.1(k) below, the Corporation shall file the
Preliminary Prospectus and use its reasonable commercial efforts to obtain
receipts for the Preliminary Prospectus and the Prospectus qualifying the
distribution of the Underlying Shares and the Agent's Underlying Warrant
(subject to the Agent assisting the Corporation in the preparation and filing
of, and execution of the certificate page of, the Preliminary Prospectus and the
Prospectus) from each of the relevant securities regulatory authorities in the
Qualifying Jurisdictions within Canada as soon as possible in compliance with
all applicable laws, and the Corporation shall notify the Agent in writing
forthwith upon obtaining such receipts;
<PAGE>
(b) the Corporation shall use its best efforts to list its Common Stock
on the NASDAQ or the Exchange (subject to the Agent acting as the Corporation's
sponsor for listing on the Exchange);
(c) prior to the filing of the Preliminary Prospectus and the
Prospectus, the Corporation shall allow the Agent to participate fully in the
preparation of such documents and any amendments to them, and shall allow the
Agent to conduct all due diligence which the Agent may require, acting
reasonably, in order to fulfill its obligations as Agent and in order to enable
the Agent responsibly to execute the agent's certificate in such documents. The
Corporation shall cause to be delivered to the Agent such legal opinions as the
Agent or its counsel may require, acting reasonably, in connection with material
issues relating to, or discovered in the course of, such due diligence;
(d) during the period from the date of this agreement to the completion
of the distribution of the securities qualified for distribution under the
Preliminary Prospectus and the Prospectus, the Corporation shall promptly
discuss with the Agent and immediately thereafter notify the Agent in writing of
any material adverse change (actual, anticipated or threatened), financial or
otherwise, in the assets, liabilities (contingent or otherwise), business,
financial condition, capital or prospects of the Corporation;
(e) during the period from the signing of the Preliminary Prospectus to
the completion of the distribution of the securities qualified for distribution
under the Preliminary Prospectus and the Prospectus, the Corporation shall
promptly discuss with the Agent and immediately thereafter notify the Agent in
writing of (i) any actual or proposed "material change" (as that term is defined
under applicable securities laws and policies) in respect of the Corporation and
(ii) any change of any nature that would result in the Preliminary Prospectus,
the Prospectus or any amendment (a "Prospectus Amendment") to any such documents
containing a Misrepresentation (as defined in paragraph 2.1(a)) or which would
result in any of such documents not complying with the laws of the Qualifying
Jurisdictions;
(f) the Corporation shall indemnify and hold the Purchasers and the
Agent harmless from and against any loss or damage sustained as a result of:
(i) any misrepresentation, breach of warranty or
non-fulfillment of any covenant on the part of the Corporation hereunder or
under the Information, or from any misrepresentation in or omission from any
certificate or other instrument furnished or to be furnished to the Agent or the
Purchasers under this agreement except a misrepresentation or omission relating
solely to either or both of the Agent or the Purchasers; and
(ii) any and all actions, suits, proceedings, demands,
assessments and judgments alleging or finding the existence of any of the
foregoing, and all legal costs, fees and other expenses incidental to any of the
foregoing;
(g) the Corporation will use its best efforts to cause to be delivered
to the Agent prior to (or, if agreed to by the Agent, within a reasonable period
thereafter not
<PAGE>
exceeding 3 business days ) the filing of the Preliminary Prospectus and the
Prospectus (and any Prospectus Amendment) in the Qualifying Jurisdictions a
certificate signed by the Chief Executive Officer and by the Chief Financial
Officer of the Corporation under its corporate seal, dated the date of the
Preliminary Prospectus, the Prospectus (and any Prospectus Amendment), as the
case may be, addressed to the Agent, in a form satisfactory to the Agent,
acting reasonably, to the effect that each such officer has carefully
examined the Preliminary Prospectus, the Prospectus (or any Prospectus
Amendment), as the case may be, and each such document (any Prospectus
Amendment taken with the document it amends) contains full, true and plain
disclosure of all material facts in relation to the Corporation and the
securities offered in such document, and since the respective dates as of
which information is given therein, the Corporation has not incurred any
material liabilities or obligations (absolute, accrued, contingent or
otherwise) or entered into any transaction not in the ordinary course of
business; there has been no material change in the assets, financial
position, business or results of operations of the Corporation and, to the
best of their knowledge and information, there has occurred no event and
exists no state of facts that, under the applicable securities laws and the
terms of this agreement, is required to be set forth in an amendment to the
Preliminary Prospectus, the Prospectus (or any Prospectus Amendment), as the
case may be, that has not been so set forth;
(h) the Corporation shall cause the Corporation's auditors to deliver
to the Agent a comfort letter, in form and substance satisfactory to the Agent,
acting reasonably, dated the date of the Prospectus and addressed to the Agent
and the directors of the Corporation verifying the financial information and
accounting data contained in the Prospectus and matters involving changes or
developments since the respective dates as of which specified financial
information is given in the Prospectus to a date not more than 2 business days
prior to the date of such letter. A similar letter shall be delivered to the
Agent with respect to any Prospectus Amendment, where financial information has
changed;
(i) the Corporation will deliver to the Agent, upon written request and
without cost to the Agent, as many copies of the Preliminary Prospectus, the
Prospectus and any Prospectus Amendment as the Agent may require, acting
reasonably, for the purposes contemplated hereunder, within 3 business days of
any such request; and
(j) if the Agent believes that the prospectus exemption provided by
Ontario Securities Commission Rule 72-501 is, or will be, available in respect
of first trades in Underlying Shares held by Purchasers resident in Ontario, and
if the Agent delivers to the Corporation waivers from the Purchasers resident in
Ontario of the Corporation's obligation to file a Preliminary Prospectus and
Prospectus in Ontario, in form and substance satisfactory to the Corporation,
acting reasonably, the Corporation shall, at the option of the Agent exercisable
by written notice to the Corporation:
(i) not file the Preliminary Prospectus and the Prospectus
with the Ontario Securities Commission; and
<PAGE>
(ii) if the Preliminary Prospectus has been filed with the
Ontario Securities Commission, do everything required to withdraw the
Preliminary Prospectus from the Ontario Securities Commission.
3.2 The Corporation's delivery to the Agent of the Preliminary
Prospectus, the Prospectus and any Prospectus Amendment signed by the
Corporation shall constitute:
(a) the Corporation's representation and warranty to the Agent that
each such document at the time of its filing complies with the requirements of
applicable securities laws and that all of the information and statements
contained therein (except information or statements furnished by and relating
solely to the Agent), contain no Misrepresentation and constitute full, true and
plain disclosure of all material facts relating to the Corporation and the
securities qualified for distribution; and
(b) the Corporation's consent to the use by the Agent of such documents
in connection with the distribution in the Qualifying Jurisdictions of the
securities qualified for distribution.
4. COVENANTS OF THE AGENT
4.1 Subject to completion of the sale of the Investor Preferred Stock on
the Closing Date, the Agent covenants with the Corporation as follows:
(a) the Agent will if, acting in good faith, it reasonably believes
that to do so is in accordance with applicable securities laws and the terms of
the certificate being signed, upon the request of the Corporation, execute the
certificate page of the Preliminary Prospectus and the Prospectus (and any
Prospectus Amendment) presented to it for execution and will assist the
Corporation in obtaining any requisite regulatory approvals and receipts in
connection with the preparation and filing of such documents;
(b) the Agent will if, acting in good faith, it reasonably believes
that to do so is in accordance with its obligations under the rules and policies
of the Exchange, sponsor the Corporation for listing on the Exchange; and
(c) the Agent will assist the Corporation in facilitating the
conversion of the Investor Preferred Stock and the issuance of the Underlying
Shares.
5. CONDITIONS IN FAVOUR OF THE PURCHASERS AND THE AGENT
5.1 The following are conditions of the Agent's obligations under this
agreement and the Purchasers' obligations to close the purchase of Investor
Preferred Stock, which conditions the Corporation shall use its reasonable
best efforts to have fulfilled at or prior to the Closing Time (as defined in
section 6.1) and which conditions may be waived in writing in whole or in
part by the Agent, on its own behalf and on behalf of the Purchasers:
(a) the Corporation shall have issued the Corporate Finance Shares and
the Commission Shares and granted the Agent's Warrant;
<PAGE>
(b) the Corporation shall have made all necessary filings and obtained
all necessary approvals, consents and acceptances of appropriate regulatory
authorities in order to permit the Corporation to issue and sell the Investor
Preferred Stock to the Purchasers as contemplated hereby, and evidence of such
approval satisfactory to the Agent, acting reasonably, shall have been delivered
to the Agent;
(c) the Corporation shall have delivered to the Agent a certified
resolution of the board of directors authorizing and approving this agreement
and the Transaction Documents, and such other matters as the Agent may require,
acting reasonably;
(d) the Corporation shall have delivered to the Agent a favourable
legal opinion from the Corporation's counsel addressed to the Agent, the Agent's
counsel and the Purchasers with respect to such matters as the Agent may
require, acting reasonably;
(e) the Corporation shall have delivered to the Agent the Transaction
Documents, each in form and on terms satisfactory to the Agent, acting
reasonably, executed by the Corporation;
(f) the Corporation shall have delivered to the Agent a definitive
certificate or certificates representing, in the aggregate, all of the Investor
Preferred Stock subscribed for under the Subscription Agreements (and issuable
under this agreement), registered as required by the Subscription Agreements;
(g) the Corporation shall have complied in all material respects with
all of the terms and conditions of this agreement which it is required to comply
with at or prior to the Closing Time; and
(h) the Corporation shall have delivered to the Agent a certificate
signed by the Chief Executive Officer and by the Chief Financial Officer of the
Corporation under its corporate seal, dated the Closing Date, addressed to the
Agent, to the effect that after due enquiry:
(i) the representations and warranties of the Corporation
contained in this agreement, and in any certificate of the Corporation delivered
pursuant hereto or in connection herewith, are true and correct as of the
Closing Time with the same force and effect as if made at and as of the Closing
Time after giving effect to the transactions contemplated hereby;
(ii) the Corporation has duly complied in all material
respects with all of the covenants of the Corporation contained herein and
satisfied all the conditions contained herein on its part to be performed or
satisfied at or prior to the Closing Time; and
(iii) no order, ruling or determination having the effect of
suspending the sale or ceasing the trading of the Preferred Stock or the Common
Stock has been issued and no proceedings for that purpose have been instituted
or are pending or are, to their knowledge and information, contemplated or
threatened under any of the applicable securities laws or by any regulatory
authority.
<PAGE>
6. CLOSING
6.1 Closing of the purchase and sale of the Investor Preferred Stock
will occur at 10:00 a.m. (the "Closing Time") on January 28, 2000 (the
"Closing Date"), or such other date and time as the Agent may specify,
provided that such date is on or before February 28, 2000.
6.2 At closing the Corporation shall deliver to the Agent, on behalf of
the Purchasers, a certificate or certificates representing the Investor
Preferred Stock, registered in accordance with the Subscription Agreements,
against payment to the Corporation by certified cheque or bank draft of the
aggregate purchase price payable for the Investor Preferred Stock pursuant to
the Subscription Agreements tendered at closing less all amounts payable by
the Corporation to the Agent pursuant to this Agreement.
7. INDEMNITY
7.1 The Corporation shall protect and indemnify the Agent and its
directors, officers, employees and agents (the "Indemnified Parties") from
and against all losses, claims, costs, damages and liabilities caused by or
arising directly or indirectly by reason of:
(a) any information or statement (except any information or statement
furnished by and relating solely to the Agent) contained in the Preliminary
Prospectus, the Prospectus or any Prospectus Amendment or in any other document
or material filed or delivered pursuant hereto or in connection herewith
(including, without limitation, the Information), being or being alleged to be a
Misrepresentation; or
(b) any order made or any inquiry, investigation or proceeding
commenced or threatened by any securities regulatory or other authority, based
upon any Misrepresentation or alleged Misrepresentation (except a
Misrepresentation or alleged Misrepresentation relating solely to the Agent) in
the Preliminary Prospectus, the Prospectus or any Prospectus Amendment or in any
other document or material filed or delivered pursuant hereto or in connection
herewith (including, without limitation, the Information) (except any document
or material delivered or filed solely by the Agent) preventing or restricting
the trading in or the sale or distribution of the any securities issuable in
connection, directly or indirectly, with the transactions contemplated by this
agreement in any of the Qualifying Jurisdictions.
If any claim contemplated by this paragraph 7 is asserted against any of the
Indemnified Parties, or if any potential claim contemplated by this paragraph
comes to the knowledge of any of the Indemnified Parties, the Indemnified Party
concerned shall notify the Corporation as soon as possible of the nature of such
claim (provided that any failure to so notify shall not affect the Corporation's
liability under this paragraph) and the Corporation shall, subject as
hereinafter provided, be entitled (but not required) to assume the defence on
behalf of the Indemnified Party of any suit brought to enforce such claim. Any
such defence shall be through legal counsel acceptable to the Indemnified Party
and no admission of liability shall be made by the Corporation or the
Indemnified Party without, in each case, the prior written consent of all the
parties hereto, such consent not to be unreasonably withheld. An Indemnified
Party shall have the right to employ
<PAGE>
separate counsel in any such suit and participate in the defence thereof but
the fees and expenses of such counsel shall be at the expense of the
Indemnified Party unless: (i) the Corporation fails to assume the defence of
such suit on behalf of the Indemnified Party within a reasonable period of
receiving notice of such suit, provided that the expiration of such period
shall be deemed to occur on the second clear business day immediately
preceding the date by which the Indemnified Party is required by law (in the
absence of agreement to the contrary) to take action (such as the filing of
an appearance or its equivalent) in connection with defending such suit; (ii)
the employment of such counsel has been authorized by the Corporation; or
(iii) the named parties to any such suit include both the Indemnified Party
and the Corporation and the Indemnified Party shall have been advised by
counsel that there may be one or more legal defences available to the
Indemnified Party which are different from or in addition to those available
to the Corporation (in each of which cases the Corporation shall not have the
right to assume the defence of such suit on behalf of the Indemnified Party
but shall be liable to pay the reasonable fees and expenses of counsel for
the Indemnified Party).
7.2 If the indemnity provided for in paragraph 7.1 is declared by a
court of competent jurisdiction to be illegal or unenforceable for any
reason, the Agent and the Corporation shall contribute to the aggregate of
all losses, claims, costs, damages, expenses or liabilities of the nature
provided for above such that the Agent shall be responsible for that portion
represented by the percentage that the Commission received by the Agent under
this agreement bears to the gross proceeds realized from the offering of
Investor Preferred Stock and the Corporation shall be responsible for the
balance, provided that, in no event, shall the Agent be responsible for an
amount in excess of the Commission. Notwithstanding the foregoing, a person
guilty of fraudulent misrepresentation, bad faith or gross negligence shall
not be entitled to contribution from any other party. Any party entitled to
contribution will, promptly after receiving notice of commencement of any
claim, action, suit or proceeding against such party in respect of which a
claim for contribution may be made against another party or parties under
this paragraph, notify such party or parties for whom contribution may be
sought. In no case shall such party from whom contribution may be sought be
liable to contribute pursuant to this agreement unless such notice shall have
been provided, but the omission to so notify such party shall not relieve the
party from whom contribution may be sought from any other obligation it may
have otherwise than under this paragraph. The right to contribution provided
in this paragraph shall be in addition to and not in derogation of any other
right to contribution which the Agent may have by statute or otherwise by law.
8. TERMINATION
8.1 The Agent may at any time, without liability on its part and by
notice in writing given to the Corporation, terminate its obligations
hereunder if, after the date hereof:
(a) any order to cease or suspend trading in any securities of the
Corporation, or prohibiting or materially restricting the distribution of any
securities issuable in connection, directly or indirectly, with the transactions
contemplated by this agreement is made, or proceedings are announced or
commenced for the making of any such order, by any securities commission or
similar regulatory authority, or by any other competent
<PAGE>
authority, not based solely upon the activities or alleged activities of the
Agent or any Sub-Agent, and has not been rescinded, revoked or withdrawn;
(b) any inquiry, investigation (whether formal or informal) or other
proceeding in relation to the Corporation or any of its directors or senior
officers is announced or commenced by any securities commission or similar
regulatory authority, any stock exchange or by any other competent authority,
not based solely upon the activities or alleged activities of the Agent or any
Sub-Agent, if, in the Agent's opinion, acting reasonably, the announcement or
commencement thereof materially adversely affects the trading or distribution of
any of the securities issuable in connection, directly or indirectly, with the
transactions contemplated by this agreement;
(c) there shall have occurred or be anticipated any material adverse
change, as determined by the Agent in its discretion, acting reasonably,
financial or otherwise, in the assets, liabilities (contingent or otherwise),
business, condition, capital or prospects (financial or otherwise) of the
Corporation;
(d) in the Agent's opinion, acting reasonably, it would be
impracticable or unprofitable to offer or continue to offer the Investor
Preferred Stock for sale or there has developed, occurred or come into effect
any financial occurrence or any catastrophe of national or international
consequence, any governmental action, law or regulation, or any other occurrence
of any nature whatsoever which, in the opinion of the Agent, acting reasonably,
seriously adversely affects or would seriously adversely affect the North
American financial markets, the Corporation's business or the distribution of
the Investor Preferred Stock; or
(e) the Corporation is in breach of, default under or non-compliance
with any representation, warranty, term or condition of this agreement.
8.2. Any termination pursuant to the terms of this agreement shall be
effected by notice in writing delivered to the Corporation, provided that no
termination shall discharge or otherwise affect any obligation of the
Corporation under paragraphs 7.1, 7.2 or 10.1. The rights of termination
contained in paragraph 8.1 are in addition to, and without prejudice to, any
other rights or remedies the Agent may have at law or in equity.
9. RIGHT OF FIRST REFUSAL
9.1 Subject to paragraph 9.2, the Corporation will notify the Agent in
writing of the terms of any further equity financing or financing involving
the issuance of convertible securities that it requires or proposes to obtain
during the 12 months following the Closing Date and the Agent will have the
right of first refusal to provide any such financing. The right of first
refusal must be exercised by the Agent within 10 business days following the
receipt of the notice by notifying the Corporation in writing that it will
provide such financing on the terms set out in the notice. If the Agent fails
to give notice within the 10 business days that it will provide such
financing upon the terms set out in the notice, the Corporation will then be
free to make other arrangements to obtain financing from another source on
the same terms or on terms no less favourable to the Corporation, subject to
obtaining the acceptance of the applicable regulatory authorities.
<PAGE>
The right of first refusal will not terminate if, on receipt of any notice
from the Corporation under this paragraph, the Agent fails to exercise the
right.
9.2 The provisions of paragraph 9.1 shall not apply in respect of
efforts by the Corporation to obtain a financing through a broker/dealer
registered under the securities laws of the United States, provided that if
the Corporation is able to obtain such a financing during the 12 months
following the Closing Date, the Agent shall have the right to participate in
not less than 40% of such financing.
10. EXPENSES
10.1 Whether or not the transactions contemplated by this agreement
proceed or complete, all reasonable expenses of or incidental to the
transactions contemplated by this agreement and the Agent's sponorship of the
Corporation for the purpose of listing on the Exchange, including without
limitation, reasonable expenditures incurred by the Agent in connection with
the Agent's due diligence, preparation for marketing presentations and the
holding of information meetings, the Agent's out of pocket costs related to
information meetings and travel, the Agent's costs in having a report
prepared in connection with the Company, if required or advisable in the
opinion of the Agent, acting reasonably, and the reasonable fees and
disbursements of the Agent's counsel, shall be borne by the Corporation.
11. MISCELLANEOUS
11.1 Any notice or other communication to be given hereunder shall be in
writing and delivered or telecopied as follows:
If to the Corporation to:
MDU Communications International, Inc.
108-11951 Hammersmith Way
Richmond, British Columbia
V7A 5H9
Attention: Sheldon Nelson
Telecopy No. (604) 277-8301
with a copy to:
Catalyst Corp. Finance Lawyers
#1100 - 1055 West Hastings Street
Vancouver, B.C. V6E 2E9
Attention: David Toyoda
Telecopy No. (604) 443-7000
<PAGE>
and:
Davis Wright Tremaine LLP
2600 Century Square
1501 4th Ave
Seattle, WA 98101
Attention: Mr. William Pusch
Telecopy No. (206) 628-7699
If to the Agent to:
Haywood Securities Inc.
11th Floor Commerce Place
400 Burrard Street
Vancouver, B.C. V6C 3A6
Attention: Fabio Banducci
Telecopy No. (604) 643-2305
with a copy to:
Getz Prince Wells
1810-1111 West Georgia St.
Vancouver, B.C.
V6E 4M3
Attention: Drew Wells
Telecopy No. (604) 685-9798
Any such notice or other communication shall be deemed to have been given and
received on the day after being telecopied or upon delivery if delivered, or, if
such day is not a business day in the location where it is telecopied or
delivered, on the next following business day.
11.2 The covenants, representations and warranties of the Corporation
contained in this agreement and contained in any certificates or documents
submitted pursuant to or in connection with the transactions provided for
herein shall survive the closing of the purchase and sale of the Investor
Preferred Stock and the conversion thereof, and shall continue in full force
and effect. The Purchasers are entitled to rely on the representations and
warranties of the Corporation contained herein or in any certificates or
documents submitted pursuant to or in connection with the transactions
provided for herein, notwithstanding any investigation which the Agent, or
the Purchasers may undertake or which may be undertaken on the Agent's or the
Purchasers behalf.
<PAGE>
11.3 The Agent may waive in whole or in part any breach of, default
under or non-compliance with any representation, warranty, term or condition
of this agreement, or extend the time for compliance, without prejudice to
any of its rights in respect of any other representation, warranty, term or
condition of this agreement or any breach of, default under or non-compliance
with them, provided that any such waiver or extension shall be binding on the
Agent only if it is in writing.
11.4 If one or more of the provisions contained in this agreement is
determined to be invalid, illegal or unenforceable in any respect, such
provision shall either be severed from this agreement or this agreement shall
be construed as if such provision had never been contained in it.
11.5 This agreement may be executed in one or more counterparts, both of
which together shall constitute one and the same agreement.
11.6 This agreement, together with the Registration Rights Agreement
between the Agent and the Corporation relating to the Underlying Shares,
constitutes the entire agreement between the parties with respect to its
subject matter, and supersedes any prior agreements with respect thereto
between the Corporation and the Agent, including, without limitation, the
letter of intent between the Corporation and the Agent dated January 6, 2000.
11.7 This agreement shall be governed by and construed in accordance with
the laws of British Columbia and each of the parties hereby irrevocably
submits to the non-exclusive jurisdiction of the courts of British Columbia.
11.8 Time shall be of the essence hereof.
If this letter accurately reflects the terms of the transaction which the Agent
and the Corporation are to enter into, and if such terms are agreed to by the
Corporation, please communicate acceptance by executing two copies where
indicated below and delivering them to the Agent. Upon such execution and
delivery, this letter shall constitute a binding agreement between us.
Yours very truly,
HAYWOOD SECURITIES INC.
By: /s/ Fabio Banducci
-----------------------------
Authorized Signatory
ACCEPTED AND AGREED to as of the 28th day of January, 2000.
MDU COMMUNICATIONS INTERNATIONAL, INC.
By: /s/ Sheldon Nelson
-----------------------------
Authorized Signatory
<PAGE>
EXHIBIT 10.7
OCTOBER 19, 1999
$_______ (US)
MDU COMMUNICATIONS INC.
REPLACEMENT CONVERTIBLE PROMISSORY NOTE AND
LOAN AGREEMENT
This note is in replacement of the convertible promissory notes dated _____,
1999 (for $______USD) and _______, 1999 (for $______USD) to __________, which
original promissory notes have been returned to the Company and cancelled.
For value received (the receipt and sufficiency of which is hereby
acknowledged above), MDU COMMUNICATIONS INC., a corporation with an office at
#108 - 11951 Hammersmith Way, Richmond, British Columbia, V&A 5H9, (the
"Company") hereby promises to and will pay to the order of _____________ (the
"Note Holder") on or before ____________ (the "Due Date") and thereafter on
demand the principal sum of Sixty Five Thousand U.S. Dollars ($____________
US)(the "Principal") and to pay interest on the Principal hereof at the rate
of _____% per annum calculated and compounded monthly (from the above two
inception dates) and until paid from the date that Principal is advanced
hereunder and payable thereafter upon the Principal becoming due.
All or any part of the Principal amount of this Note and any interest thereon
is convertible, at the option of the Note Holder, by written notice (duly
executed by the Note Holder) to the Company and MDU Communications
International Inc. (a Delaware corporation)(the "Issuer") at any time on or
before the close of business on the Due Date, or if the Company has delivered
to the Note Holder a Prepayment Notice (as herein defined), the second
business day immediately preceding the date of prepayment as specified in the
Prepayment Notice, into fully paid and non-assessable common shares (the
"Common Shares") in the capital of the Issuer at a conversion price $_____ US
(the "Conversion Price") per Common Share. As soon as practicable thereafter,
the Company and the Issuer shall deliver to the Note Holder a certificate or
certificates for such Common Shares.
If and whenever prior to the Due Date, the Issuer shall (i) subdivide the
outstanding Common Shares into a greater number of Common Shares, (ii)
consolidate the outstanding Common Shares into lesser number of Common
Shares, or (iii) issue Common Shares or securities convertible or
exchangeable for Common Shares, to the holders of all or substantially all of
the outstanding Common Shares by way of a stock dividend, the Conversion
Price shall, on the effective date of such subdivision or consolidation or
stock dividend, as the case
<PAGE>
may be, be adjusted to the amount which is in the same proportion to the
Conversion Price in effect immediately prior to such subdivision,
consolidation or stock dividend as the number of outstanding Common Shares
before giving effect to such subdivision, consolidation or stock dividend
bears to the number of outstanding Common Shares after giving effect to such
subdivision, consolidation or stock dividend. Such adjustments shall be made
successively whenever any event referred to herein shall occur.
Notwithstanding the foregoing, the Issuer shall not be required to issue
fractional Common Shares upon the conversion of this Note. If any fractional
interest in a Common Share would be delivered upon the conversion of this
Note, the Company and the Issuer shall, in lieu of delivering a certificate
for such fractional interest, satisfy such fractional interest by paying to
the Note Holder an amount equal to the same fraction of the Conversion Price.
The Company may prepay any part of this Note at any time and from time to
time without bonus or penalty provided however, that the Company shall
provide the Note Holder with 15 days written notice (the "Prepayment Notice")
of its intention to prepay this Note and the amount of the prepayment. If the
Prepayment Notice specifies a partial prepayment, the Note Holder may only
convert such amount as is being prepaid into Common Shares. All prepayments
shall include any interest that has been accrued but not paid.
The Company further agrees to pay costs and expenses reasonably incurred by
the Note Holder in preparing this Convertible Promissory Note and Loan
Agreement and any other documents in connection herewith and those incurred
by the Note Holder in enforcing payment of this Convertible Promissory Note
and Loan Agreement including all actual attorney's fees, disbursements, court
costs and costs of public officials.
This Convertible Promissory Note and Loan Agreement will be governed by and
construed in accordance with the laws of the Province of British Columbia and
the Company, the Issuer and the Note Holder hereby attorns and irrevocable
submits to the jurisdiction of the Courts of the Province of British Columbia
with respect to any disputes that may arise hereunder.
DATED at Richmond, British Columbia this _____ day of October, 1999.
MDU COMMUNICATIONS INC. MDU COMMUNICATIONS
INTERNATIONAL INC.
Per:_______________________ Per:______________________
Doug Irving Doug Irving
<PAGE>
EXHIBIT 10.8
MUTUAL RELEASE
This Mutual Release dated for reference January 5, 2000,
BETWEEN:
MDU COMMUNICATIONS INTERNATIONAL, INC.
("MDU")
AND:
CANACCORD CAPITAL CORPORATION
("Canaccord")
WHEREAS:
MDU and Canaccord entered into an Agency Agreement, dated for reference October
13, 1999 (the "Agreement");
FOR AND IN CONSIDERATION of the payment by MDU to Canaccord of
$12,622.16 and 50,000 common shares in the capital of MDU, and the payment by
Canaccord to MDU of $1.00 an the mutual covenants and releases herein contained,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged by the parties, the parties agree with each other as
follows:
1. The Agreement is hereby terminated, including without limitation
Section IX thereof.
2. MDU does hereby remise, release and forever discharge Canaccord, its
past, present and future affiliates, predecessors, successors, assigns,
principals, employees, agents, shareholders, officers and directors and
the respective heirs, executors, administrators, successors and assigns
of such principals, employees, agents, shareholders, officers and
directors, of and from any and all past, present and future actions,
manner of actions, causes of action, claims, suits, proceedings,
obligations, liabilities, debts, dues, profits, expenses, contracts,
covenants, demands and damages of any nature or kind whatsoever,
whether actually pending or potential, at law or in equity, known as
well as unknown, which MDU, its past, present and future servants,
agents, principals, employees, officers, directors, shareholders,
affiliates, heirs, executors, administrators, successors and assigns
and the respective heirs, executors, administrators, successors and
assigns of such
<PAGE>
servants, agents, principals, employees, officers, directors,
shareholders and affiliates had, now have, or hereafter can, shall
or may have arising out of or by reason of any matter, cause or
thing whatever occurring or existing up to and inclusive of the
date of this Mutual Release (a "MDU Claim") and including in
particular, but without limiting the generality of the foregoing,
any matter, cause or thing arising out of or in relation to or in
any way connected with the Agreement.
3. Canaccord does hereby remise, release and forever discharge MDU, its
past, present and future affiliates, predecessors, successors, assigns,
principals, employees, agents, shareholders, officers and directors and
the respective heirs, executors, administrators, successors and assigns
of such principals, employees, agents, shareholders, officers and
directors, of and from any and all past, present and future actions,
manner of actions, causes of action, claims, suits, proceedings,
obligations, liabilities, debts, dues, profits, expenses, contracts,
covenants, demands and damages of any nature or kind whatsoever,
whether actually pending or potential, at law or in equity, known as
well as unknown, which any of Canaccord, its past, present and future
servants, agents, principals, employees, officers, directors,
shareholders, affiliates, heirs, executors, administrators, successors
and assigns and the respective heirs, executors, administrators,
successors and assigns the respective heirs, executors, administrators,
successors and assigns of such servants, agents, principals, employees,
officers, directors, shareholders and affiliates had, now have, or
hereafter can, shall or may have arising out of or by reason of any
matter, cause or thing whatsoever occurring or existing up to and
inclusive of the date of this Mutual Release (a "Canaccord Claim") and
including in particular, but without limiting the generality of the
foregoing, any matter, cause or thing arising out of or in relation to
or in any way connected with the Agreement.
4. IT IS HEREBY UNDERSTOOD AND AGREED by the parties that nothing
contained herein shall be deemed an admission of liability by any of
the parties hereto with respect to any claim of any other party.
5. IT IS HEREBY UNDERSTOOD AND AGREED that the parties providing Releases
herein will not make, claim or take proceedings against any other
person or corporation or other legal entity who might claim
contribution or indemnity from any party hereto in connection with any
of the matters referred to herein.
6. Each party acknowledges that this Mutual Release has been executed
voluntarily by such party after receiving independent legal advice. The
parties further covenant and represent that the have not assigned their
rights of action to anyone.
7. The terms of this Mutual Release are contractual and not recitals. It
is further understood and agreed that this Mutual Release, with the
Settlement Agreement, contains the entire agreement among the
undersigned parties in regard to the matters which are the subject
matters of this Mutual Release. Further, this Mutual
2
<PAGE>
Releases shall be enforceable in all jurisdictions of the world and
governed by the laws of the Province of British Columbia.
MDU COMMUNICATIONS INTERNATIONAL, INC.
Per
/s/ Bob Biagioni
-------------------------------------------
Authorized Signatory
I have authority to bind the Company
CANACCORD CAPITAL CORPORATION
Per
/s/
-------------------------------------------
Authorized Signatory
I have authority to bind the Company
3
<PAGE>
[CANACCORD CAPITAL - LETTERHEAD]
October 13, 1999
MDU Communications International Inc.
108 - 11951 Hammersmith Way
Richmond, B.C.
V7A 5H9
Attention: Sheldon Nelson
President & Director
Via Fax: (204) 783-9962
Dear Sirs:
RE: REORGANIZATION, OFFERING MEMORANDUM, PRIVATE PLACEMENT AND
SUBSEQUENT SPONSORSHIP AND INITIAL PUBLIC OFFERING ON THE
VANCOUVER STOCK EXCHANGE.
I. PREAMBLE
This letter cancels all previous agreements, arrangements (particularly the
Engagement Letter of May 21, 1999) between Canaccord Capital Corporation (the
"Agent") and MDU Communications Inc. (the "Company") and herein delineates any
previous obligations of the Company to the Agent. It sets out a basic
reorganization plan (the "Reorganization", see Schedule "A") that will provide a
basis for the Agent and its investors to undertake. A Private Placement and a
subsequent Initial Public Offering ("IPO") on the Vancouver Stock Exchange
("VSE").
Canaccord as your Agent and Fiscal Advisor is desirous of establishing a long
term investment banking and advisory relationship with the Company which, on a
broad basis will require the following:
A. REORGANIZATION ACTIVITIES: To fall in place prior to closing the
Private Placement.
1) The Company must complete a creditor arrangement plan with
its key creditors, that is satisfactory to the Agent, which
provides for a deferment of payments spread over the year
2000. Letters or documentation confirming these deferments
are to be in place.
2) The Company must complete an Equipment Lease back and
future equipment lease arrangements with MerBanco Tiara
Capital ("MBT") and Star Choice Communications
("Starchoice") that provides for:
(a) an irrevocable lease back commitment from MBT (upon
their receipt of an advance of $150,000 from the
Company) to pay the Company $1,500,000 debt/lease
back financing by December 31, 1999, and
(b) future funding (debt) of up to $40,000,000.
<PAGE>
3) The Company must complete a detailed revised cash flow that
reflects the Company's business and the above reorganization
activities.
B. AGENT'S FINANCING ACTIVITIES: To be undertaken upon completion of A(1)
and A(3) above and during A(2) above.
1) The Company will prepare an Offering Memorandum to allow the
Agent to finance a Private Placement of $1,000,000 or such
amounts as the parties agree. Documentation is to be
completed to market and close the issue prior to
December 10, 1999.
2) The Company will prepare a Prospectus to complete an IPO on
the Vancouver Stock Exchange for some $2.5 million. This is
anticipated to close in the first quarter of the year 2000.
The outline expressed herein is subject to our further due diligence of
your Company including but not limited to: (i) full evaluation of the
details of the Company, Starchoice and MBT debt financing agreement;
(ii) evaluation of the contract/alliance with Starchoice; and (iii)
evaluation of one or two other strategic alliances that are in
negotiation and/or to be completed this year.
II. PRIVATE PLACEMENT - COMMON SHARES
The Company will completed an Offering Memorandum and the Agent will use its
best efforts to assist the Company and its principals in placing the following
issue:
Issue: Common Shares
Issue Price: To be established at time of issue in context of
market, plus one-half share purchase warrant.
Amount of Issue: C$1,000,000
Selling Jurisdiction: B.C. and Offshore.
Selling Commission: Eight Percent (8%)
Full details will be established in the Offering Memorandum and Agent Agreement.
III. INITIAL PUBLIC OFFER - VANCOUVER STOCK EXCHANGE
The Agent will work with the Company to complete an Initial Public Offering on
the Vancouver Stock Exchange for $2.5 million or such amounts as its parties
agree. It is acknowledged that the Company is presently a publicly traded
company on the OTC Bulletin Board under the symbol MDTV and its listing in
Canada will require a full prospectus.
This issue is slated to complete, subject to the Company's performance and
success with its reorganization plan, in Q1, or early Q2 of 2000.
The terms of this issue will be negotiated at the time of the issue. There will
be further due diligence required prior to this offering.
5
<PAGE>
IV. CORPORATE FEES
The Agent, having worked with the Company since May 21, 1999 and having assisted
in developing an October 1999 reorganization plan and a financing plan will be
compensated by a Corporate Finance fee of 200,000 shares of the Company; 100,000
payable upon signing this letter and 100,000 upon completion of the Private
Placement.
A separate fee will be negotiated subsequent to this Private Placement as part
of the on going activities required for the pursuing twelve months including the
IPO.
V. WORK FEE - FISCAL ADVISORY SERVICES
The Company must make arrangements to pay the balance of the previous work fees
(invoice dated October 6, 1999) and the remaining monthly work fees of $5,000
will continue, but may be accrued until the closing of the Private Placement.
VI. EXPENSES
(a) LEGAL DISBURSEMENTS
Upon signing this letter, the Company hereby agrees to deposit a $5,000 retainer
in trust with Canaccord. The said retainer will be applied towards the Agent's
legal fees and disbursements. Once the retainer is drawn down, the Agent shall,
from time to time, send an invoice to the Company representing any additional
fees and expenses of the Agent's legal counsel incurred in connection with the
matters outlined in this letter.
(b) SPONSORSHIP AND ADMINISTRATIVE FEE
Subsequent to the Private Placement, the Agent herein agrees to act as the
Company's Sponsor (as part of the IPO and listing on the VSE) and to administer
the financing process. The Agent will charge a one time fee of a maximum of
$20,000 plus GST to cover these functions. The Sponsor will prepare an
application to and obtain pre-listing approval from the VSE's with regard to the
Company and its proposed developments. The Agent will liaise with the VSE's
Corporate Finance Department to obtain approval of the Company's application for
a change of business.
Such legal fees and expenses as incurred and set forth above shall be paid by
the Company regardless of whether the transactions contemplated herein are
completed or not.
All administrative fees and reasonable expenses shall be payable by the Company
upon completion of the Offering and, shall be payable by the Company whether ore
not the Offering is completed, terminated or withdrawn.
(c) ASSESSMENT REPORT
If required, pursuant to the British Columbia Securities Commission's interim
Local Policy Statement 3-17, the Agent will retain an independent consultant to
undertake a review of the business and management of the Company. On completion
of the consultant's review, the consultant will provide the Agent with an
Assessment Report. The review and the Assessment Report will be undertaken and
provided in support of the Agent's due diligence responsibilities under the
Policy and the SECURITIES ACT (British Columbia) in connection with the
Company's anticipated financing. If required by the Vancouver Stock Exchange,
the Agent may require the Company to pay an estimated fee in the amount of
approximately $15,000 plus expenses, payable upon execution of a definitive
agreement to retain an independent consultant.
VII. GENERAL UNDERTAKINGS
1. The Company will work diligently with the Agent to develop a
President's List for the Offering and will assist the Agent in placing
a portion of the Private Placement and the IPO.
6
<PAGE>
2. If the Agent is the sole agent on the Offering and subsequent
financings, the Company and the Agent will enter into written
agreements prepared according to the Agent's standard form concerning
the Offering and any subsequent financings.
3. The Company will agree to establish:
(a) a public Relations Program
(b) a Promotional and Incentive Program, and
(c) a Market Maintenance Program
4. The Company will provide the Agent on a timely basis with monthly
unaudited financial statements following the execution of this letter
agreement and continuing for a period of one year following the closing
of the offering.
VIII. SHARE STRUCTURE
The share structure of the company is presented in Schedule "A". The existing
position and pro forma positions are presented to reflect approximately the
number of shares outstanding after the Offerings. This model represents a
reasonable capitalization value and the type of share structure that, with
certain tolerances, would be readily financeable. The share structure may vary
depending upon forecasts, competitive factors, pricing, market factors and the
evaluation of the company.
IX. RIGHT OF FIRST REFUSAL
The Agent shall have the right of first refusal, which will not be unreasonably
exercised, to participate in all future debt or equity financings of the
Company, whether public or private and whether or not an investment dealer is or
proposes to be involved, for a period of 12 months from the date of the IPO. If
the Agent is not willing to match the conditions of a financing available to the
Company, as provided by the "right of first refusal", the Company has the right
to terminate such rights. The Company has the right to arrange or bring other
Registrants as members of a syndicate to participate with the Agent on mutually
agreeable terms.
The Company may request that the Agent work with other Investment Dealers on
future financings.
X. EXPIRATION OF THIS OFFER
The Agent hereby notifies the Company that this Agreement is only offered for a
limited time. The Agreement and all terms and conditions to herein will expired
by 4:00 p.m. on October 18, 1999 unless signed and returned to Canccord Capital
by mail or fax.
X. OTHER
The Company covenants and agrees to indemnify the Agent as provided for in
Schedule B attached hereto.
This letter agreement shall be governed by and construed in accordance with the
laws of the Province of British Columbia and the laws of Canada applicable
therein.
If this letter accurately reflects your understanding of the terms of our
engagement and you agree to be legally bound thereby, please execute this letter
agreement (in counterparts, if necessary) where indicated below and return a
copy thereof (by facsimile and by courier) to Canaccord Capital Corporation
(Attention: David J. Horton).
7
<PAGE>
Yours truly,
CANACCORD CAPITAL CORPORATION
/s/ David J. Horton
David J. Horton
Senior Vice President and Director
The foregoing accurately reflects the terms and the transaction which we hereby
agree to enter into and the undersigned agrees to be legally bound.
Acknowledge and agreed this 13th day of October, 1999.
MDU COMMUNICAITONS INTERNATIONAL INC.
Per: /s/
---------------------------------------------
Authorized Signatory
8
<PAGE>
SCHEDULE A
PRO FORMA SHARE STRUCTURE OF
MDU COMMUNICATIONS INTERNATIONAL INC.
<TABLE>
<CAPTION>
NUMBER OF SHARES $ RAISED
(000) (000)
----- -----
<S> <C> <C>
Shares restricted l-44 5,900
Float 3,991
Private Placement 2,000 $1,000
Corp. Fees 200
I.P.O. (estimated) 2,500 2,500
----- -----
TOTAL 14,591 3,500
====== =====
Estimated
Future warrants options, etc. 2,500 $3,000
----- ------
TOTAL FULLY DILUTED 17,091 $6,500
====== ======
</TABLE>
9
<PAGE>
SCHEDULE "B"
MDU Communications International Inc. (the "Indemnitor") hereby agrees to
indemnify and hold Canaccord Capital Corporation and/or any of its subsidiary
companies and/or divisions (hereinafter referred to as the "Agent") and each and
every one of the directors, officers, employees and shareholders of the Agent
(hereinafter referred to as the "Personnel") harmless from and against any and
all expenses, losses, claims, actions, damages or liabilities, whether joint or
several (including the aggregate amount paid in reasonable settlement of any
actions, suits, proceedings or claims), and the reasonable fees and expenses of
its counsel that may be incurred in advising with respect to and/or defending
any claim that may be made against the Agent to which the Agent and/or its
Personnel may become subject or otherwise involved in any capacity under any
statute or common law or otherwise insofar as such expenses, losses, claims,
damages, liabilities or actions arise out of or are based, directly or
indirectly, upon the performance of professional services rendered to the
Indemnitor by the Agent and its Personnel hereunder or otherwise in connection
with the matters referred to in the attached letter agreement, provided,
however, that this indemnity shall not apply to the extent that a court of
competent jurisdiction in a final judgment that has become non-appealable shall
determine that:
i. the Agent or its Personnel have been negligent or dishonest or have
committed any fraudulent act in the course of such performance; and
ii. the expenses, losses, claims, damages or liabilities, as to which
indemnification is claimed, were directly caused by the negligence, dishonestly
or fraud referred to in (I).
If for any reason (other than the occurrence of any of the events itemized in
(i) and (ii) above, the foregoing indemnification is unavailable to the Agent or
insufficient to hold its harmless, then the Indemnitor shall contribute to the
amount paid or payable by the Agent as a result of such expense, loss, claim,
damage or liability in such proportion as is appropriate to reflect not only the
relative benefits received by the Indemnitor on the one hand and the Agent on
the other but also the relative fault of the Indemnitor and the Agent, as well
as any relevant equitable considerations provided that the Indemnitor shall in
any event contribute to the amount paid or payable by the Agent as a result of
such expense, loss, claim, damage or liability any excess of such amount over
the amount of the fees received by the Agent hereunder.
The Indemnitor agrees that in case any legal proceeding shall be brought against
the Indemnitor and/or the Agent by any governmental commission or regulatory
authority or any stock exchange or other entity having regulatory authority,
either domestic or foreign, shall investigate the Indemnitor and/or the Agent
and Personnel of the Agent shall be required to testify in connection therewith
or shall be required to respond to procedures designed to discover information
regarding, in connection with, or by reason of the performance of professional
services rendered to the Indemnitor by the Agent, the Agent shall have the right
to employ its own counsel in connection therewith , and the reasonable fees and
expenses of such counsel as well as the reasonable costs and out-of-pocket
expenses incurred by the Agent and its Personnel in connection therewith shall
be paid by the Indemnitor as they occur.
Promptly after receipt of notice of the commencement of any legal proceeding
against the Agent or any of its Personnel or after receipt of notice of the
commencement of any investigation, which is based, directly or indirectly, upon
any matter in respect of which indemnification may be sought from the
Indemnitor, the Agent will notify the Indemnitor in writing of the commencement
thereof and, throughout the course thereof will provide copies of all relevant
documentation to the Indemnitor, will keep the Indemnitor advised of the
progress thereof and will discuss with the Indemnitor all significant actions
proposed.
The indemnity and contribution obligations of the Indemnitor shall be in
addition to any liability which the Indemnitor may otherwise have, shall extend
upon the same terms and conditions to the Personnel of the Agent and shall be
binding upon and enure to the benefit of any successors, assigns, heirs and
personal representatives of the Indemnitor, the Agent and any of the Personnel
of the Agent. The foregoing provisions shall survive the completion of
professional services rendered under the attached letter of agreement or any
termination of the authorization given by the attached letter of agreement.
10
<PAGE>
/s/ for Canaccord Capital Corporation
- --------------------------------
/s/ for MDU Communications International Inc.
- --------------------------------
11
<PAGE> EXHIBIT 10.9
[MBT CAPITAL - LETTERHEAD]
MDU Communications Inc.,
#108 - 11951 Hammersmith Way,
RICHMOND, B.C.,
V7A 5H9.
ATTENTION: DOUGLAS J. IRVING, DIRECTOR
Gentlemen:
This writing, when appropriately executed by the parties hereto, shall
constitute the Agreement in Principle amongst the parties pursuant to which it
is contemplated that MDU Communications Inc. (MDU) and MBT Capital (MBT) will
enter into a financing accommodation agreement (the Agreement) generally as
herein recited. Star Choice Communications Inc. (Star Choice) has agreed to
consent to the said contemplated arrangement and has, accordingly, verified that
consent by its execution hereof.
1. The term of the contemplated relationship shall be through to and
inclusive of the 26th day of August 2008;
2. The Agreement will be exclusive in nature and, except for certain
working capital lines of credit with a Canadian Chartered Bank and debt
arrangements previously approved by MBT -- such approval not to be
unreasonably withheld -- MDU will not be permitted to enter into any
debt arrangement except with MBT;
3. Subject to the subsequent direction and advice of legal and tax counsel
for MBT, the transactions contemplated by the Agreement will take the
form of a Leasing transaction as respecting the Set Top Boxes (the
boxes) to be acquired from either a manufacturer or from Star Choice
and as a Secured Debt transaction as respecting the advance made
directly to MDU on account of its costs of installing the Signal
Distribution System;
4. MDU undertakes to be responsible for every cost, of every nature, of
MBT directly, or indirectly, attributable to the effort of MBT
respecting the proposed arrangement and, with respect thereto, has made
a contribution of Ten Thousand Dollars ($10,000) towards the costs of
MBT in conducting its due diligence respecting the herein contemplated
transaction and MDU further undertakes to additionally deposit, from
time to time, such further sums as MBT shall reasonably require to
conclude its said due diligence efforts;
5. Additional to the aforesaid costs contribution, MDU agrees that upon
its acceptance of a commitment from MBT to consummate the Agreement,
MDU will deposit with MBT a drawing account of One Hundred and Fifty
Thousand Dollars ($150,000) as a good faith deposit from which MBT
shall pay for legal and tax opinions and documentation and all costs
relating thereto and MDU undertakes to additionally deposit, from time
to time, such further sums as MBT shall reasonably require to conclude
the said legal and tax opinions and documentation;
6. It is currently thought appropriate that MBT will agree to a one-time
Sale/Leaseback transaction with MDU pursuant to which MBT will acquire
the four thousand (4,000) boxes currently in the possession of active
subscribers and will pay MDU One Million Five Hundred and Twenty
Thousand Dollars ($1,520,000) therefor and will rent those boxes back
to MDU. MDU shall direct MBT to pay to Star Choice directly all sums
then owing to Star Choice from MDU from the proceeds of such sale;
7. Given that Star Choice is currently the provider of all programming
services to S.O. Subscribers and collects all of the charges relating
thereto, including the monthly rental charge relating to the box, and
<PAGE>
given that Star Choice desires to remit monthly that portion if those
charges which are due to MDU to a single recipient, i.e. as opposed to
dividing the MDU share between MDU and its financing partner, it is
understood by MBT and MDU that MBT shall be designated as the recipient
of all moneys due to MDU and, upon its receipt of those moneys, MBT
shall deduct such sums as are properly due to it pursuant to the
Agreement and shall, in a timely fashion, remit the remaining balance,
if any, to MDU. Notwithstanding the provisions of this Paragraph (7) to
the contrary, MBT agrees that it will review annually the payment
procedure herein provided and, should it then be convinced that the
task of collecting and distributing the moneys from Star Choice might
better be a task handled by MDU, then it shall be at liberty to provide
that MDU shall thereupon be so designated and will instruct Star Choice
accordingly;
8. MDU agrees that it shall not permit at any time during the term of its
herein contemplated relationship with MBT the aggregate number of boxes
being defined as "second" boxes and "non-earning" boxes to exceed seven
per cent (7%) of the total number of boxes owned, from time to time, by
MBT. In the event the said aggregate of second and non-earning boxes
exceed the seven per cent (7%) limit, then MDU will pay to the MBT
Security Deposit Account a further instalment of One Hundred Dollars
($100.00) for each box which then exceeds the seven per cent (7%)
limit;
9. The financings hereby contemplated will, in fact, be two (2) separate
transactions. Firstly, MBT will purchase the boxes directly from Star
Choice and will lease those boxes to MDU. With respect to the purchase
of the boxes by MBT from Star Choice, Star Choice agrees to convey to
MBT the warranty which it has received from the manufacturer. Secondly,
MBT will advance directly to MDU a sum equal to the difference between
Three Hundred and Eighty Dollars ($380.00) and the sum paid to Star
Choice for each box;
10. MBT shall be entitled to receive from MDU an equal and consecutive
monthly rental payment of Twelve Dollars and Eighty Cents ($12.80) on
account of each Lease and Advance to MDU for each S.O. Subscriber and
shall additionally receive One Dollar and Ten Cents ($1.10) each month
as an accumulating Security Deposit respecting each S.O. Subscriber;
11. The aforesaid Security Deposit shall accumulate and be held by MBT for
the account of MDU until the Security Deposit has accumulated to
Fifty-two Dollars and Eighty Cents ($52.80) per Subscriber and shall be
paid by MBT to MDU within sixty (60) days of the date when the said
balance of Fifty-two Dollars and Eighty Cents ($52.80) has been
accomplished. Notwithstanding anything in this Paragraph (11), or in
any other provision herein to the contrary, the Security Deposit which
was paid to MBT by MDU pursuant to Paragraph (8) hereof shall not be
paid to MDU until all Leases between MDU and MBT have been fully
completed and there is no longer any obligation of MDU to pay MBT any
sums of any nature;
12. Subject to appropriate notice by MDU to MBT and there being no event of
default then existing, MDU shall have the right to acquire each box
theretofore leased to MDU by MBT after forty-eight (48) months of
rentals of Twelve Dollars and Eighty Cents ($12.80) each have been
received by MBT and the purchase price of each box thereby acquired by
MDU from MBT shall be Twenty-five Dollars ($25.00);
13. In every instance herein and in any documentation and agreement
relating hereto or to the arrangement herein contemplated, it is
understood that all sums are net of any exigible tax or levy and such
taxes or levies are the responsibility and the obligation of MDU or of
the S.O. Subscriber, as the case may be;
14. In the event MDU shall acquire one or more boxes from MBT pursuant to
the purchase option aforesaid, then the entitlement of MBT to revenues
from the S.O. Subscriber then utilizing that box shall be reduced from
the Twelve Dollars and Eighty Cents ($12.80) aforementioned to Three
Dollars ($3.00) and such Three Dollar ($3.00) entitlement shall
continue for so long as that S.O. Subscriber shall remain an S.O.
Subscriber;
<PAGE>
15. Given the term of the relationship herein contemplated, it will be
necessary that Star Choice and MBT enter into a Purchase/Supply
Agreement pursuant to which Star Choice will agree to the timely supply
of the boxes at a price as provided in the S.O. Agreement of August
27th, 1998 between Star Choice and MDU;
16. Star Choice agrees that its right of set-off or claim against MDU shall
not extend to those sums which are payable to MBT for the account of
MBT pursuant to the financings hereby contemplated. Subject to the
provisions of Paragraph (17) hereof to the contrary, MBT agrees to
return to Star Choice any funds paid to it by Star Choice which are in
excess of the payments provided to be paid by MDU to MBT provided that
such funds have not previously been paid to MDU and provided that Star
Choice has given MBT appropriate prior notice of its action in
exercising its alleged right of set-off or claim;
17. In the event that Star Choice terminates MDU as a Service Operator for
any reason whatsoever:
(a) Star Choice shall continue to pay to MBT all moneys which
would otherwise be due and payable to MDU but for the said
termination and MBT shall temporarily assume the
responsibility of MDU for the service and maintenance of the
"active" buildings then housing S.O. Subscribers from the
revenue stream exceeding the aggregate sums due and owing to
MBT pursuant to the financing contracts herein contemplated.
Star Choice and MBT agree to use their respective best efforts
to immediately appoint a replacement Service Operator or to
have either Star Choice or MBT assume the Service Operator
function directly;
(b) Star Choice shall have the right of first refusal to receive
an assignment of the rights of MDU pursuant to the Purchase
Option provided in Paragraph (12) hereof. Additionally, Star
Choice shall have an option to purchase all boxes then owned
by MBT and the purchase price therefor shall then be
negotiated by Star Choice and MBT;
(c) In the event Star Choice shall not exercise its option to
purchase all of the boxes then owned by MBT as hereinbefore
provided by Paragraph 17(b) above, then Star Choice and MBT
shall use their best efforts to negotiate the sale to the
replacement Service Operator appointed by Star Choice and MBT
of any non-revenue generating boxes then owned by MBT;
18. Notwithstanding anything hereinbefore written to the contrary, MDU
agrees with MBT to cause the following matters to be accomplished prior
to the closing date of the initial transaction herein contemplated:
(a) MDU will grant MBT the right of two (2) nominees to be
appointed to its Board and to its Advisory Committee;
(b) MDU will appoint an MBT nominee as its Assistant Comptroller
to have unfettered access to the books and records of MDU with
the specific understanding that should that nominee believe it
would be in the best interest of MBT to be aware of certain
happenings or circumstances, then that nominee shall be at
liberty to advise MBT accordingly;
(c) MDU will immediately prepare a revised Business Plan
consistent with the format heretofore suggested by MBT and
will deliver same to MBT with the executed copy of this
Agreement in Principle;
(d) MDU agrees to permit MBT representatives to review its
insurance files, its Minute Book, its Financial Records, its
Personnel Files, its MIS programs and all Contract Files
whatsoever nature to permit MBT to conduct such due diligence
as it shall deem necessary or appropriate to make a final
affirmative or negative decision respecting the relationship
herein contemplated and MDU will permit MBT free access to all
corporate matters and co-operate fully and timely in providing
such access and records;
<PAGE>
19. Notwithstanding any other provision of this Agreement in Principle, the
parties agree:
(a) MBT shall have no recourse against Star Choice for the
obligations of MDU hereunder other than as specifically set
out in Paragraph (17) herein;
(b) The obligations of Star Choice hereunder are subject to the
further review and approval of legal counsel, lenders and
financial advisors of Star Choice. Star Choice shall be
afforded the same rights of due diligence afforded MBT in
Paragraph 18(d) herein;
20. MDU shall be responsible for every cost, of every nature, of Star
Choice, directly or indirectly, attributable to the effort of Star
Choice respecting the proposed arrangements.
This Agreement may be executed in any number of counterparts and all
these counterparts shall for all purposes constitute one agreement, binding on
the parties, notwithstanding that all parties are not signatory to the same
counterpart.
If the foregoing accords with your records and recollection of the
agreements heretofore reached, this document requires to be executed and
returned on or before December 2nd, 1999.
Yours very truly,
MBT CAPITAL
/s/ W.H. Molle
W.H. Molle
ACKNOWLEDGED AND AGREED
this ___ day of ____________, 1999.
MDU COMMUNICATIONS INC. STAR CHOICE COMMUNICATIONS, INC.
- ----------------------------------- Per
Gary Monoghan, President -----------------------------------
Its
- ---------------------------------- Per
Douglas J. Irving, Director -----------------------------------
Its
<PAGE>
[MBT CAPITAL - LETTERHEAD]
MDU Communications Inc.
#108 - 11951 Hammersmith Way
RICHMOND, British Columbia
V7A 5H9
ATTENTION: DOUGLAS J. IRVING, DIRECTOR
Gentlemen:
This writing, when appropriately executed by the parties hereto, shall
constitute the Agreement in Principle between the parties pursuant to which it
is contemplated that MDU Communications Inc. (MDU) and MBT Capital, Inc. (MBT)
will enter into a financing accommodation agreement (the Agreement) generally as
herein recited when read in conjunction with the Agreement in Principle made the
18th day of November, 1999 amongst MDU, MBT and Star Choice Communications, Inc.
and such Agreement in Principle is, by this reference, made a part hereof.
1. The Agreement will anticipate that MDU will cause the installation of
boxes with S.O. subscribers which could aggregate One Hundred and Fifty
Thousand (150,000) or more transactions;
2. As an inducement to cause MBT to enter into the Agreement, MDU has
granted the right to MBT to acquire a one-third (1/3) undivided
interest in the rights of MDU to share in the value of the Subscriber
List created by MDU by virtue of the financing arrangement hereby
contemplated;
3. In consideration of the right granted to MBT to acquire an undivided
interest in the Subscriber List (as hereinbefore provided), MDU agrees
that it shall not sell or encumber its rights to that list, in any way
whatsoever, without first obtaining the approval of MBT and MDU agrees
it is acting as trustee for MBT with respect to the interest of MBT in
the said Subscriber List;
4. The right of MBT to acquire the one-third (1/3) undivided interest in
the MDU rights respecting the aforementioned Subscriber List shall be
exercised by MBT giving MDU forty-eight (48) hours prior notice of its
intention to exercise its right and by paying to MDU, on Closing, a
purchase price being the product of ten cents ($0.10) multiplied by the
number of then active S.O. Subscribers on the said list.
If the foregoing accords with your records and recollection of the
agreements heretofore reached, this documents requires to be executed and
returned on or before December 2nd 1999.
Yours very truly,
MBT CAPITAL
W.H. Molle
ACKNOWLEDGED AND AGREED
this ___ day of ____________, 1999.
MDU COMMUNICATIONS INC.
/s/ GARY MONAGHAN
- --------------------------------
Gary Monaghan, President
- --------------------------------
Douglas J. Irving, Director
<PAGE>
ASSIGNMENT AGREEMENT
This assignment agreement made as of the 14th day of January, 2000.
AMONG:
MerBanco Capital Inc.
(hereinafter "MerBanco")
OF THE FIRST PART
- and -
3678652 Canada Inc.
(hereinafter called "3678652")
OF THE SECOND PART
- and -
MBT Capital
(hereinafter called "MBT")
OF THE THIRD PART
- and -
Gibralt Capital Corporation
(hereinafter called "Gibralt")
OF THE FOURTH PART
WHEREAS MBT and MDU Communications Inc. ("MDU") entered into an offer
to finance dated November 18, 1999 and an addendum thereto dated November 22,
1999 (collectively, the "Offer to Finance");
AND WHEREAS MerBanco, 3678652 and MBT desire to assign all of their
respective rights and interests under the Offer of Finance to Gibralt in
accordance with the provisions hereof;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the sum
of Two Dollars ($2.00) paid by each of the parties hereto to each of the other
parties hereto (the receipt and sufficiency whereof is hereby acknowledged by
each of them) and other good and valuable consideration, the parties hereto
covenant and agree as follows:
1. MerBanco, 3678652 and MBT hereby assign, transfer, convey and set over
unto Gibralt the Offer of Finance and all of their respective rights
and interests therein and thereto.
<PAGE>
2. Gibralt hereby assumes all of the obligations and responsibilities of
MBT under the Offer to Finance and agrees to be bound by all of the
provisions thereof as if Gibralt were the original party to the Offer
to Finance in place of MBT.
3. The parties hereto on behalf of themselves, and their respective
successors and assigns, hereby covenant and agree, without further
consideration, to do all lawful acts and things and execute such other
lawful assignments, documents, assurances, applications and other
instruments as may reasonably be required by Gibralt, its successors
and assigns to obtain any and all rights under the Offer of Finance and
to vest the same in Gibralt, its successors and assigns.
4. This agreement may be executed in several counterparts, each of which
shall be deemed an original and all of which shall together constitute
one in the same instrument.
5. This agreement shall be governed and construed in accordance with the
laws of the Province of British Columbia and the laws of Canada
applicable therein.
IN WITNESS WHEREOF the parties hereto have executed this
agreement as of the day and year first above written.
MerBanco Capital Inc.
Per: /s/
-------------------------
3678652 Canada Inc.
Per: /s/
-------------------------
MBT Capital
Per: /s/ W.H. Molle
-------------------------
Gibralt Capital Corporation
Per: /s/ Johnny Ciampi
-------------------------
<PAGE>
EXHIBIT 10.10
[GIBRALT CAPITAL CORPORATION - LETTERHEAD]
February 16, 2000
Rob Biagioni
Chief Financial Officer
MDU Communications Inc.
108 - 11951 Hammersmith Way
Richmond, BC V7A 5H9
SUBJECT: GIBRALT CAPITAL CORPORATION FINANCING
Dear Sheldon:
Gibralt Capital Corporation ("Gibralt") would like to propose a financing
arrangement whereby Gibralt will work with MDU Communications Inc. ("MDU") to
prepare a long term debt facility based on subscriber acquisition costs to MDU.
Gibralt will assist MDU in establishing the necessary introductions and contacts
in the U.S. Gibralt will introduce MDU to property managers, property owners,
multi-family builders and reits on a best efforts basis. In consideration for
extinguishing the MBT Capital Letter of Intent, and introductions to the U.S.
Market, MDU will grant Gibralt 750,000 common stock purchase warrants as
follows:
- - Upon signing a mutual release of the MBT Letter of Intent, 500,000
common share purchase warrants exercisable at $2.50 per share with a
two year expiration period.
- - 250,000 common share purchase warrants for Gibralt's assistance in
developing the U.S. market.
Gibralt will work with MDU on financing of up to U.S. $50 Million. The terms of
the financing will be competitive with market rates. Additional warrants will be
granted to Gibralt upon acceptance of a firm commitment to finance.
All common share purchase warrants will have piggy back registration rights to
the current registration statement relating to the most recent financing
completed by Haywood Securities.
It is agreed that all legal fees will be borne by MDU.
<PAGE>
Gibralt will require approval of any public disclosure including press releases
related to Gibralt and its relationship with MDU. Upon acceptance of this letter
agreement, Gibralt's council will prepare legal documents. We look forward to
doing business with MDU Communications Inc.
Yours truly,
/s/ Bruno Di Spirito
- ----------------------
Bruno Di Spirito
Executive Vice President &CFO
/s/ Robert A. Biagioni (CFO & Director)
- --------------------------------------------------------
Agreed and accepted by MDU Communications Inc.
<PAGE>
MUTUAL RELEASE
This Mutual Release dated for reference March 1, 2000.
AMONG:
- --------------------------------------------------------------------------------
MDU COMMUNICATIONS INTERNATIONAL, INC.
("MDTV")
AND:
MDU COMMUNICATIONS, INC.
("MDU")
AND:
GIBRALT CAPITAL CORPORATION
("GIBRALT")
WHEREAS:
A. MDU is a wholly owned subsidiary of MDTV.
B. MDU and MBT Capital entered into a Letter Agreement, dated for
reference November 18, 1999 and an addendum thereto dated November 22,
1999, attached as Exhibits "A" and "B", which were subsequently
assigned by MBT Capital to Gibralt pursuant to an assignment agreement
between MBT Capital, MerBanco Capital Inc., 3678652 Canada Inc. and
Gibralt dated January 14, 2000, attached as Exhibit "C" (collectively,
the "Agreement");
FOR AND IN CONSIDERATION of $1.00 paid by each party hereto to each other party
hereto, the payment by MDTV to Gibralt of 750,000 Warrants to purchase 750,000
common shares of MDTV at an exercise price of US$2.50 for a period of two years
and the mutual covenants and releases herein contained, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties, the parties agree with each other as follows:
1. Gibralt does hereby remise, release and forever discharge MDTV and MDU,
its past, present and future affiliates, predecessors, successors,
assigns, principals, employees, agents, shareholders, officers and
directors and the respective heirs, executors, administrators,
successors and assigns of such principals, employees, agents,
shareholders, officers and directors, of and from any and all past,
present and future actions, manner of actions, causes of action,
claims, suits, proceedings, obligations, liabilities, debts, dues,
profits, expenses, contracts, covenants, demands and damages of any
nature of kind whatsoever, whether actually pending or potential, at
law or in equity, known as well as unknown, which any of Gibralt, their
past, present and future servants, agents, principals, employees,
officers, directors, shareholders, affiliates, heirs, executors,
administrators, successors and assigns and the respective heirs,
executors, administrators, successors and assigns of such servants,
agents, principals, employees, officers, directors, shareholders and
affiliates had, now have, or hereafter can, shall or may have arising
out of or in relation to or in any way connected with the Agreement.
2. MDTV and MDU do hereby remise, release and forever discharge Gibralt,
their past, present and future affiliates, predecessors, successors,
assigns, principals, employees, agents, shareholders, officers and
directors and the respective heirs, executors, administrators,
successors and assigns of such principals, employees, agents,
shareholders, officers and directors, of and from any and all past,
present and future actions, manner of actions, causes of action,
claims, suits, proceedings, obligations, liabilities, debts, dues,
profits, expenses, contracts, covenants, demands and damages of any
nature or kind whatsoever, whether actually pending or potential, at
law or in equity, known as well as unknown, which any of MDTV and MDU,
their past, present and future servants, agents, principals, employees,
officers, directors,
<PAGE>
shareholders, affiliates, heirs, executors, administrators,
successors and assigns of such servants, agents, principals,
employees, officers, directors, shareholders and affiliates had,
now have, or hereafter can, shall or may have arising out of or in
relation to or in any way connected with the Agreement.
3. IT IS HEREBY UNDERSTOOD AND AGREED that any and all obligations arising
pursuant to the Agreement have now been satisfied and that such
Agreement has been terminated.
4. IT IS HEREBY UNDERSTOOD AND AGREED by the parties that anything
contained herein, shall not be deemed an admission of liability by any
of the parties hereto with respect to any claim of any other party.
5. Each party acknowledges that this Mutual Release has been executed
voluntarily by such party after receiving independent legal advice. The
parties further covenant and represent that they have not assigned
their rights of action to anyone.
6. The terms of this Mutual Release are contractual and not recitals. It
is further understood and agreed that this Mutual Release contains the
entire agreement among the undersigned parties in regard to the
matters, which are the subject matters of this Mutual Release. Further,
this Mutual Release shall be enforceable in all jurisdictions of the
world and governed by the laws of the Province of British Columbia.
MDU COMMUNICATIONS INTERNATIONAL, INC.
Per:
/s/ Bob Biagioni
--------------------------------------
Authorized Signatory
MDU COMMUNICATIONS, INC.
Per:
/s/ Bob Biagioni
--------------------------------------
Authorized Signatory
GIBRALT CAPITAL CORPORATION
Per
/s/ Johnny Ciampi
--------------------------------------
Authorized Signatory
<PAGE>
[MDU COMMUNICATIONS - LETTERHEAD]
March 16, 2000
Mr. Bruno Di Spirito
Executive Vice President & CFO
Gibralt Capital Corporation
Suite 2000
1177 West Hastings Street
Vancouver, BC
V6E 2K3
Dear Bruno:
RE: REGISTRATION RIGHTS
Further to my conversations with Johnny Ciampi of your office I am writing to
confirm our understanding with respect to the registration rights of the
securities underlying the 750,000 warrants as contemplated in our letter
agreement dated February 16, 2000.
MDU Communications International, Inc. (the "Company") is filing a preliminary
registration statement in the United States on or about March 31, 2000. The
securities underlying the 750,000 warrants, which the Company is providing as a
consideration for the mutual release and future services, will be included for
registration in the registration statement filed. The Company will use its best
efforts to have the registration statement receipted and the securities
underlying the 750,000 warrants registered for trading the in United States by
June 26, 2000.
Please acknowledge below the registration rights as outlined herein is
acceptable to Gibralt Capital Corporation. Please provide the undersigned with
an executed acknowledgment so we can arrange to execute the mutual release and
warrant shortly.
I confirm that the mutual release referred to above does not apply to the
registration rights contemplated herein.
I will provide you with a copy of the preliminary registration statement when
filed and keep you informed as to the status of our progress to June 26th.
Yours truly,
MDU COMMUNICATIONS INTERNATIONAL, INC.
/s/ Robert A. Biagioni
- -----------------------------------------------
Robert A. Biagioni, C.A.
CFO
AGREED AND ACKNOWLEDGED this 23RD day of March, 2000.
/s/ Johnny Ciampi
- -----------------------------------------------
Johnny Ciampi
Treasurer
<PAGE>
EXHIBIT 10.11
MANAGEMENT EMPLOYMENT AGREEMENT
THIS AGREEMENT dated the 1st day of February, 2000.
BETWEEN:
MDU COMMUNICATIONS INTERNATIONAL, INC., a body corporate duly incorporated under
the laws of State of Delaware and having its offices at Suite 108, 11951
Hammersmith Way, Richmond, British Columbia V7A 5H9;
(the "Company")
AND:
SHELDON NELSON, an individual having his residence at Suite 1504, 170 Hargrave
Street, Winnipeg, Manitoba, R3C 3H4;
(the "Executive")
RECITALS
WHEREAS, the Company wishes to obtain the services of the Executive and the
Executive is willing to provide his service to the Company upon the terms and
conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the premises and mutual covenants and
agreements herein set forth, the parties hereto mutually covenant and agree as
follows:
CONTRACT FOR SERVICES
1.1 The Company hereby engages the Executive to be the Chief Executive
Officer of the Company and the Executive hereby agrees to act as Chief
Executive Officer of the Company. The Executive shall perform all duties
incident to such position of Chief Executive Officer and other duties as may
reasonably be required from time to time by the Board of Directors of the
Company.
1.2 The Executive consents to acting as a Director of the Company or one or
more affiliated or associated companies.
1.3 In addition, during the term of this Agreement the Company may also
request that the Executive assume senior executive management roles with its
associated companies pursuant to the terms of agreements executed between its
associated companies.
LOCATION
<PAGE>
2. The Executive agrees to provide the services at the time and in the
manner set forth herein. The Executive shall perform his duties out of the
Richmond, British Columbia office of the Company, but the Company may, in its
discretion, direct that the duties be provided on occasion in other locations
maintained by the Company.
EXTENT OF SERVICE
3. The Executive shall, during the term of this contract, devote at least 35
hours per work week to the business of the Company, but may continue as a
director or consultant to any other company, firm, or individual that is not in
competition with the Company, so long as his association with such company,
firm or individual does not interfere with his attention to the Company's
business.
SALARY AND EXPENSES
4.1 In consideration of Executive providing the employment duties, the
Company shall pay to the Executive a base salary before customary payroll
deductions, in equal semi-monthly installments, at $15,000.00 per month. The
Company may pay to the Executive bonuses as and when declared by the Company's
Board of Directors. The Company shall reimburse the Executive directly for all
reasonable, necessary and approved travel and other expenses incurred by the
Executive in connection with the provision of services hereunder, however, for
all such expenses the Executive shall furnish statements and receipts.
4.2 At the end of each employment year or sooner if determined by the
Company's Board of Directors (the "Board"), the Executive's base salary shall
be reviewed by the Board and increased as determined by the Board in its sole
discretion.
OPTIONS
5. In addition to the fees provided for in Section 4 and all other amounts
payable to the Executive hereunder, the Executive shall be entitled to
participate in other company incentive plans or employee incentive stock
options in respect of unissued Common shares in the capital stock of the
Company and its associated companies, such options to be exercisable for a
minimum period of five years from the date of grant, a maximum vesting period
of three (3) years and with such other conditions as are determined by the
Board of Directors of each company and as are prescribed by the policies of the
stock exchanges on which the Common shares of the each company are listed.
VACATION
6. The Executive shall be entitled to vacation from time to time without any
abatement or reduction of the compensation payable herein, provided that such
vacation does not exceed:
(a) 5 weeks per year during the first year of the term of this
Agreement; and
(b) 6 weeks per year thereafter.
While the Company shall endeavor to accommodate the Executive's wishes with
respect to the timing of such vacation, they shall be taken at such time as the
Company shall determine having regard to the requirements of the Company's
business.
CONFIDENTIAL INFORMATION
7. The Executive shall well and faithfully provide the service to the
Company, and use his best efforts to promote the interest thereof and shall not
disclose (either during the term of this Agreement or at any time thereafter)
the private affairs of the Company or any trade secret of the Company, to any
persons other than the Directors of the Company and shall not use (either
during the continuance of this Agreement or at any time thereafter) for his own
purposes, or for any purposes other than those of the Company, any information
their may acquire with respect to the Company's
2
<PAGE>
affairs. The Executive further agrees to execute such further and other
agreements concerning the secrecy of the affairs of the Company, as the
Directors of the Company shall reasonably request. Furthermore, without
restricting the generality of the foregoing, the Executive shall not either
during the term of this Agreement or any time thereafter, directly or
indirectly divulge to any person, firm or corporation:
(a) any intellectual property, proprietary information, know-how,
trade secrets, processes, product specifications, new product
information or methods of doing business acquired in the course of
providing the services hereunder;
(b) any information with respect of Company personnel or
organization, or any of the financial affairs or business plans of the
Company; or
(c) any information in respect of Company pricing policies, sales
statistics, sales and marketing plans and strategies, profits, costs,
or sourcing of clients.
DISABILITY
8. If the Executive shall, at any time, by reason of illness or mental or
physical disability, be incapacitated from providing all or a material part of
the services required by of this Agreement, the Executive shall furnish the
Directors of the Company with medical evidence to prove such incapacity and
cause thereof, and thereupon the Executive shall be entitled to receive the
compensation payable pursuant to Section 4 without abatement or reduction for a
maximum period of 180 days from the commencement of the disability. If the
Executive is unable to return to the performance of the services at the
standard they were performed prior to the incapacity, the Company may terminate
the Agreement at any time after the 180 days, by written notice.
TERM OF AGREEMENT
9. This Agreement shall become effective on the 1st day of February 2000,
and shall continue thereafter unless terminated upon mutual consent of the
Executive and the Company, or until termination by the Executive or the Company
in accordance with Sections 10 or 11, whichever is earlier.
TERMINATION FOR CAUSE
10. Without prejudice to any remedy the Company may have against the
Executive for any breach or non-performance of this Agreement, the Company may
terminate this Agreement, subject to Section 16, for breach by the Executive at
any time effective immediately and without notice and without any payment for
any compensation either by way of anticipated earnings or damage of any kind to
him whatsoever, save and except in respect of compensation payable to the date
of such termination. For the purposes of this paragraph, any one of the
following events shall constitute breach of this Agreement sufficient for
termination, provided however, that the following events shall not constitute
the only reasons for termination:
(a) guilty of any material dishonesty or gross neglect in the
provision of the services hereunder; or
(b) conviction of the Executive of any criminal offense, other
than an offense which in the reasonable opinion of the Company does
not affect the Executive's position as a representative of the
Company; or
(c) bankruptcy of the Executive or making any arrangement or
composition with its creditors; or
(d) alcoholism or drug addiction of the Executive which impairs
his ability to provide the services required hereunder; or
(e) excessive and unreasonable absence of the Executive from the
performance of the services for any reason other than for absence or
incapacity specifically allowed hereunder.
3
<PAGE>
TERMINATION WITHOUT CAUSE
11.1 The Executive shall be entitled to terminate this Agreement, at any time
by giving four (4) weeks notice in writing to the Board of Directors of the
Company.
11.2 The Company shall be entitled to terminate this Agreement at any time by
the Company upon giving the Executive notice in writing of such termination and
upon payment to the Executive of all compensation and other amounts owing up to
the date of termination and a termination payment in an amount equal to the
compensation due under Section 4.1 for a period of 24 months in full
satisfaction of all claims that the Executive may have against the Company.
11.3 In the event of a change in control of the Company and for a period of 12
months after the closing of a change in control transaction, the Company shall
be entitled to terminate this Agreement upon giving the Executive notice in
writing of such termination and upon payment to the Executive of all
compensation and other amounts owing up to the date of termination and a
termination payment in an amount equal to the compensation due under Section
4.1 for a period of 36 months in full satisfaction of all claims that the
Executive may have against the Company. For a period of 12 months following the
change in control of the Company, at the option of the Executive, the Executive
may terminate the Agreement upon giving notice to the Company and the Company
will pay to the Executive all compensation and other amounts owing up to the
date of termination and a termination payment in an amount equal to the
compensation due under Section 4.1 for a period of 36 months in full
satisfaction of all claims that the Executive may have against the Company.
INDEMNITY AND RESIGNATION
12.1 As a Delaware corporation, the Company hereby indemnifies the Executive,
his heirs, executors, administrators and personal representatives
(collectively, the "Indemnitees") to the maximum extent of the law of the State
of Delaware and the Company's certificate of incorporation.
12.2 As the Company's head office, subsidiaries and majority of operations are
located in Canada and subject to the CANADA BUSINESS CORPORATIONS ACT, as
amended from time to time (the "Act"), the Company hereby indemnifies the
Indemnities and save the Indemnitees harmless against all cost, charges and
expenses actually and reasonably incurred by the Indemnitees in law, in equity
or under any statute or regulation in connection with any civil, criminal or
administrative claim, action, proceeding or investigation to which the
Indemnitees are made a party or in which they are otherwise involved as a
witness or other participant by reason of the Executive being or having been an
officer or Director of the Company or its affiliated or associated companies,
including any action brought by the Company or affiliated companies, if:
(a) the Executive acted honestly and in good faith with a view to
the best interests of the Company or affiliated companies; and
(b) in the case of a criminal or administrative claim, action,
proceeding or investigation, the Executive had reasonable grounds for
believing that his conduct was lawful.
12.3 The Executive hereby jointly and severally indemnifies the Company and
its affiliated or associated companies (the "Group"), its officers, Directors
and agents and save the Group harmless against all cost, charges and expenses
actually and reasonably incurred by the Group in law, in equity or under any
statute or regulation in connection with any civil, criminal or administrative
claim, action, proceeding or investigation to which the Group are made a party
or in which they are otherwise involved as a witness or other participant by
reason of the Executive:
(a) having breached a non-competition agreement;
(b) having used or having caused, permitted, or acquiesce in the
use by the Group of proprietary or confidential business information
or intellectual property of a third party or third parties in
contravention of any law or agreement to which the Executive or the
Group is subject or to which any is a party or by which any is bound;
(c) having an undisclosed conflict of interest; or
4
<PAGE>
(d) having breached any term of this Agreement, or in the case of
the Executive, having breached his fiduciary duty to the Company.
12.4 Without limiting. the generality of Section 12.2 and 12.3, the costs,
charges and expenses against which the Group and the Executive will indemnify
each other include:
(a) any and all fees, costs and expenses actually and reasonably
incurred by the defending party in investigating, preparing for,
defending against, providing evidence in, producing documents or
taking any other action in connection with any commenced or threaten
action, proceeding or investigation, including reasonable legal fees
and disbursements, travel and lodging costs;
(b) any amounts reasonably paid in settlement of any action,
proceeding or investigation;
(c) any amounts paid to satisfy a judgment or penalty, including
interest and costs; and
(d) all costs, charges and expenses reasonably incurred by the
defending party in establishing their right to be indemnified pursuant
to this Agreement.
12.5 If the Indemnitees, the Group or any of them are required to include in
their income, or in the income of the estate of the Executive, any payment made
under this Section 12 for the purpose of determining income tax payable by the
Indemnitees or the Group or any of them or the estate, the Company shall pay an
amount by way of indemnity that will fully indemnify the Indemnitees or estate
for the amount of all liabilities described in Section 12.2 and all income
taxes payable as a result of the receipt of the indemnity payment and the
Executive shall pay an amount by way of indemnity that will fully indemnify the
Group for the amount of all liabilities described in Section 12.3 and all
income taxes payable as a result of the receipt of the indemnity payment.
12.6 Any failure by the Executive in his capacity as a Director or officer of
the Company to comply with the provisions of the Act or of the Articles of
Incorporation or Bylaws of the Company will not invalidate any indemnity to
which he is entitled under this Agreement.
12.7 When practical, the Company will apply for an appropriate level of
directors and officers liability insurance in support of the indemnity given
herein.
12.8 Upon the termination of this Agreement, the Executive will tender to the
Company his resignation as an officer and or Director of the Company or any
affiliate of the Company.
NON-COMPETITION
13.1 For a period of 12 months following the termination of this Agreement,
for any reason whatsoever, the Executive shall not become employed by, or enter
into a contract of service or for service or be involved with or assist in any
way, whether directly or indirectly, with any company, person or other entity
which competes directly with the Company.
13.2 The Executive acknowledges and agrees that there can be no geographical
limit to his covenant not to compete directly due to the nature of the business
of the Company, the market for the Company's products, services and the
technologies with which the Company is involved.
13.3 The parties to this Agreement recognize that a breach by the Executive of
any of the covenants herein contained would result in damages to the Company
and that the Company cannot be adequately compensated for such damages by
monetary award. Accordingly, the Executive agrees that in the event of any such
breach, in addition to all other remedies available to the Company at law or in
equity, the Company shall be entitled as a matter of right to apply to a court
of competent equitable jurisdiction for such relief by way of restraining
order, injunction, decree or otherwise, as may be appropriate to ensure
compliance with the provisions of this Agreement.
13.4 The Executive will execute the Company's standard non-competition
agreement as required by all senior executive staff.
5
<PAGE>
OWNERSHIP AND USE OF WORK PRODUCTS
14.1 The Executive agrees that any work product produced by the Executive in
furtherance of the business of the Company either developed solely by the
Executive or jointly with any other party will be the sole and exclusive
property of the Company.
14.2 The Company acknowledges that general knowledge and experience including
general techniques, concepts, methods and formulae not developed for the
Company's specific application or work gained by the Executive prior to or in
the course of his association with the Company, may be used by the Executive at
any time prior to, during or subsequent to his association with the Company,
unless a specific agreement to the contrary is entered into by the Executive
and the Company, as long as the Executive is not in breach of his covenants of
non-competition contained herein.
14.3 This Agreement does not apply to general techniques, formulae, concepts
or method for which no equipment, supplies, facility or other resources or
trade secret information of the Company was used and which was developed
entirely on the Executive's own time unless such general techniques, formulae,
concepts or method relates directly to the actual or specifically targeted
business of the Company.
14.4 At any and all times, either during the term of this Agreement or after
termination hereof, the Executive will promptly, on the request of the Company,
perform all such reasonable acts and execute and deliver all such documents
that may be necessary to vest in the Company the entire right, title and
interest in and to any such work products determined, by the Company, to be the
exclusive property of the Company. Should any such services be rendered after
termination of this Agreement, a reasonable fee, mutually agreed upon by the
Executive and the Company will be paid to the Executive on a per diem basis in
addition to reasonable traveling and accommodation expenses incurred as a
result of rendering such services.
14.5 The Executive will execute the Company's standard invention assignment
agreement as required by all senior executive staff.
RETURN OF PROPERTY
15.1 In the event of termination of this Agreement, the Executive agree to
return to the Company any property, which may be in the possession or control
of the Executive.
15.2 The Executive will execute the Company's standard non-solicitation
agreement as required by all senior executive staff.
SURVIVAL
16. Notwithstanding the termination of this Agreement for any reason
whatsoever the provisions of Section 7, 12, 13, 14 and 15 hereof and any other
provision of this Agreement necessary to give efficacy thereto shall continue
in full force and effect following such termination.
NOTICE
17. Any notice or other communication (each a "Communication") to be given in
connection with this Agreement shall be given in writing and will be given by
personal delivery addressed as follows:
TO: MDU Communications International, Inc.
Suite 108, 11951 Hammersmith Way
Richmond, British Columbia
V7A 5H9
ATTENTION: CORPORATE SECRETARY
6
<PAGE>
TO: Sheldon Nelson
Suite 1504, 170 Hargrave Street
Winnipeg, Manitoba
R3C 3H4
or at such other address as shall have been designated by Communication by
either party to the other. Any Communication shall be conclusively deemed to
have been received on the date of delivery. If the party giving any
Communication knows or ought reasonably to know of any actual or threatened
interruptions of the mails, any such Communication shall not be sent by mail
but shall be given by personal delivery.
ENTIRE AGREEMENT
18. This Agreement constitutes and expresses the whole agreement of the
parties hereto with reference to the services of the Executive by the Company,
and with reference to any of the matters or things herein provided for, or
hereinbefore discussed or mentioned with reference to such services; all
promises, representations, and understandings relative thereto being merged
herein.
AMENDMENTS AND WAIVERS
19. No amendment of this Agreement shall be valid or binding unless set forth
in writing and duly executed by all parties hereto. No waiver or any breach of
any provision of this Agreement shall be effective or binding unless made in
writing and signed by the party purporting to give the same and, unless
otherwise provided in the written waiver, shall be limited to the specific
breach waived.
BENEFIT OF AGREEMENT
20. The provisions of this Agreement shall enure to the benefit of and be
binding upon the legal personal representatives of the Executive and the
successors and assigns of the Company.
SEVERABILITY
21. If any provision of this Agreement is deemed to be void or unenforceable,
in whole or in part, it shall not be deemed to affect or impair the validity of
any other provision of this Agreement, and each and every section, subsection
and provision of this Agreement is hereby declared and agreed to be severable
from each other and every other section, subsection or provision hereof and to
constitute separate and distinct covenants. The Executive hereby agrees that
all restrictions herein are reasonable and valid.
JURISDICTION
22. This Agreement shall be governed by and construed in accordance with the
laws of the Province of British Columbia. The Company and the Executive hereby
irrevocably consent to the jurisdiction of the courts of the Province of
British Columbia.
COPY OF AGREEMENT
23. The Executive hereby acknowledges receipt of a copy of this Agreement
duly signed by the Company.
NUMBER AND GENDER
7
<PAGE>
24. Wherever the singular is used in this Agreement it is deemed to include
the plural and wherever the masculine is used it is deemed to include the
feminine or body politic or corporate where the context or the parties so
require.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written:
MDU COMMUNICATIONS INTERNATIONAL, INC.
- ---------------------------------
Authorized Signatory
In the presence of: EXECUTIVE
/s/ Sheldon Nelson
- --------------------------------- --------------------------------
Witness Sheldon Nelson
- ---------------------------------
Name
- ---------------------------------
Address
8
<PAGE>
EXHIBIT 10.12
MANAGEMENT SERVICES AGREEMENT
THIS AGREEMENT dated the 31st day of January, 2000.
BETWEEN:
MDU COMMUNICATIONS INTERNATIONAL, INC., a body corporate duly incorporated under
the laws of State of Delaware and having its offices at Suite 108, 11951
Hammersmith Way, Richmond, British Columbia V7A 5H9;
(the "Company")
AND:
CORUS FINANCIAL CORP., a body corporate duly incorporated under the laws of the
Province of British Columbia and having its business office at Suite 305, 250
West 4th Street, North Vancouver, British Columbia V7M 1H7;
(the "CFC")
AND:
ROBERT ADRIAN BIAGIONI, an individual having his residence at Suite 305, 250
West 4th Street, North Vancouver, British Columbia, V7M 1H7;
(the "Executive")
RECITALS
WHEREAS, the Executive is under an exclusive services agreement to CFC.
WHEREAS, the Company wishes to obtain the services of the Executive, CFC is
willing to provide the service of the Executive and the Executive is willing to
provide his service to the Company upon the terms and conditions set forth in
this Agreement.
NOW THEREFORE, in consideration of the premises and mutual covenants and
agreements herein set forth, the parties hereto mutually covenant and agree as
follows:
CONTRACT FOR SERVICES
1.1 The Company hereby engages CFC to provide the services of the
Executive to be the Chief Financial Officer of the Company and CFC hereby
agrees to supply the services of the Executive as Chief Financial Officer of
the Company. The Executive shall perform all duties incident to such position
of Chief Financial Officer and other duties as may reasonably be required
from time to time by the Chief Executive Officer of the Company.
1.2 CFC consents to the Executive acting as a Director of the Company or
one or more affiliated or associated companies.
1.3 In addition, during the term of this Agreement the Company may also
request that the Executive assume senior executive management roles with its
associated companies pursuant to the terms of agreements executed between its
associated companies.
LOCATION
<PAGE>
2. CFC shall cause the Executive to provide the services at the time and
in the manner set forth herein. The Executive shall perform his duties out of
the Richmond, British Columbia office of the Company, but the Company may, in
its discretion, direct that the duties be provided on occasion in other
locations maintained by the Company, provided that any permanent relocation
of the Executive the parties agree to renegotiate the terms of this Agreement.
EXTENT OF SERVICE
3. The Executive shall, during the term of this contract, devote at least
35 hours per work week to the business of the Company, but may continue as a
director or consultant to any other company, firm, or individual that is not
in competition with the Company, so long as his association with such
company, firm or individual does not interfere with his attention to the
Company's business.
FEES AND EXPENSES
4.1 In consideration of CFC providing the services of the Executive, the
Company shall pay to CFC, a fee, plus applicable taxes, in equal semi-monthly
installments, at $13,500.00 per month. The Company may pay to CFC, bonuses as
and when declared by the Company's Board of Directors. The Company shall
reimburse the Executive directly for all reasonable, necessary and approved
travel and other expenses incurred by the Executive in connection with the
provision of services hereunder, however, for all such expenses the Executive
shall furnish statements and receipts.
4.2 CFC will be responsible for the payment of all withholdings for
Federal and Provincial income tax, Employment Insurance and Canada Pension
Plan that may be required in respect of the Executive and shall make and
remit same as and when required. CFC shall indemnify and hold harmless the
Company and each of its officers and Directors from any liability in respect
thereof.
OPTIONS
5. In addition to the fees provided for in Section 4 and all other
amounts payable to CFC hereunder, CFC shall be entitled to participate in
other company incentive plans or employee incentive stock options in respect
of unissued Common shares in the capital stock of the Company and its
associated companies, such options to be exercisable for a minimum period of
five years from the date of grant, a maximum vesting period of three (3)
years and with such other conditions as are determined by the Board of
Directors of each company and as are prescribed by the policies of the stock
exchanges on which the Common shares of the each company are listed.
ABSENCE
6. CFC shall be entitled to temporarily cease providing the services from
time to time without any abatement or reduction of the fees payable herein,
provided that such decrease does not exceed:
(a) 5 weeks per year during the first year of the term of this
Agreement; and
(b) 6 weeks per year thereafter.
While the Company shall endeavor to accommodate CFC's wishes with respect to the
timing of such absences, they shall be taken at such time as the Company shall
determine having regard to the requirements of the Company's business.
CONFIDENTIAL INFORMATION
7. CFC and the Executive shall well and faithfully provide the service to
the Company, and use their best efforts to promote the interest thereof and
shall not disclose (either during the term of this Agreement or at any time
thereafter) the private affairs of the Company or any trade secret of the
Company, to any persons other than the Directors of the Company and shall not
use (either during the continuance of this Agreement or at any time
thereafter) for their own purposes, or for any purposes other than those of
the Company, any information their may acquire with respect to the Company's
affairs. CFC and the Executive further agree to execute such further and
other agreements concerning the secrecy of the affairs of the Company, as the
Directors of the Company shall reasonably request. Furthermore, without
restricting the generality of the foregoing, CFC and the Executive shall not
either during the term of this Agreement or any time thereafter, directly or
indirectly divulge to any person, firm or corporation:
(a) any intellectual property, proprietary information, know-how, trade
secrets, processes, product specifications, new product information or
methods of doing business acquired in the course of providing the
services hereunder;
2
<PAGE>
(b) any information with respect of Company personnel or organization,
or any of the financial affairs or business plans of the Company; or
(c) any information in respect of Company pricing policies, sales
statistics, sales and marketing plans and strategies, profits, costs,
or sourcing of clients.
DISABILITY
8. If the Executive shall, at any time, by reason of illness or mental or
physical disability, be incapacitated from providing all or a material part
of the services required by of this Agreement, CFC shall furnish the
Directors of the Company with medical evidence to prove such incapacity and
cause thereof, and thereupon CFC shall be entitled to receive the fees
payable pursuant to Section 4 without abatement or reduction for a maximum
period of 180 days from the commencement of the disability. If the Executive
is unable to return to the performance of the services at the standard they
were performed prior to the incapacity, the Company may terminate the
Agreement at any time after the 180 days, by written notice.
TERM OF AGREEMENT
9. This Agreement shall become effective on the 16th day of January 2000,
and shall continue thereafter unless terminated upon mutual consent of CFC,
the Executive and the Company, or until termination by CFC, the Executive or
the Company in accordance with Sections 10 or 11, whichever is earlier.
TERMINATION FOR CAUSE
10. Without prejudice to any remedy the Company may have against CFC or
the Executive for any breach or non-performance of this Agreement, the
Company may terminate this Agreement, subject to Section 16, for breach by
CFC or the Executive at any time effective immediately and without notice and
without any payment for any compensation either by way of anticipated
earnings or damage of any kind to him whatsoever, save and except in respect
of fees payable to the date of such termination. For the purposes of this
paragraph, any one of the following events shall constitute breach of this
Agreement sufficient for termination, provided however, that the following
events shall not constitute the only reasons for termination:
(a) guilty of any material dishonesty or gross neglect in the
provision of the services hereunder; or
(b) conviction of CFC or the Executive of any criminal offense,
other than an offense which in the reasonable opinion of the
Company does not affect the Executive's position as a
representative of the Company; or
(c) bankruptcy of CFC or making any arrangement or composition
with its creditors; or
(d) alcoholism or drug addiction of the Executive which impairs
his ability to provide the services required hereunder; or
(e) excessive and unreasonable absence of the Executive from the
performance of the services for any reason other than for
absence or incapacity specifically allowed hereunder.
TERMINATION WITHOUT CAUSE
11.1 CFC and the Executive shall be entitled to terminate this Agreement,
at any time by giving four (4) weeks notice in writing to the Board of
Directors of the Company.
11.2 The Company shall be entitled to terminate this Agreement at any time
by the Company upon giving CFC and the Executive notice in writing of such
termination and upon payment to CFC of all fees and other amounts owing up to
the date of termination and a termination payment in an amount equal to the
fees due under Section 4.1 for a period of 24 months in full satisfaction of
all claims that CFC or the Executive may have against the Company.
11.3 In the event of a change in control of the Company and for a period of
12 months after the closing of a change in control transaction, the Company
shall be entitled to terminate this Agreement upon giving CFC and the
Executive notice in writing of such termination and upon payment to CFC of
all fees and other amounts owing up to the date of termination and a
termination payment in an amount equal to the fees due under Section 4.1 for
a period of 36 months in full satisfaction of all claims that CFC or the
Executive may have against the Company. For a period of 12 months following
the change in control of the Company, at the option of CFC and the Executive,
CFC and the Executive may terminate the Agreement upon giving notice to the
Company and the
3
<PAGE>
Company will pay to CFC all fees and other amounts owing up to the date of
termination and a termination payment in an amount equal to the fees due
under Section 4.1 for a period of 36 months in full satisfaction of all
claims that CFC or the Executive may have against the Company.
INDEMNITY AND RESIGNATION
12.1 As a Delaware corporation, the Company hereby indemnifies CFC, the
Executive, his heirs, executors, administrators and personal representatives
(collectively, the "Indemnitees") to the maximum extent of the law of the
State of Delaware and the Company's certificate of incorporation.
12.2 As the Company's head office, subsidiaries and majority of operations
are located in Canada and subject to the CANADA BUSINESS CORPORATIONS ACT, as
amended from time to time (the "Act"), the Company hereby indemnifies the
Indemnities and save the Indemnitees harmless against all cost, charges and
expenses actually and reasonably incurred by the Indemnitees in law, in
equity or under any statute or regulation in connection with any civil,
criminal or administrative claim, action, proceeding or investigation to
which the Indemnitees are made a party or in which they are otherwise
involved as a witness or other participant by reason of the Executive being
or having been an officer or Director of the Company or its affiliated or
associated companies, including any action brought by the Company or
affiliated companies, if:
(a) the Executive acted honestly and in good faith with a view to
the best interests of the Company or affiliated companies; and
(b) in the case of a criminal or administrative claim, action,
proceeding or investigation, the Executive had reasonable
grounds for believing that his conduct was lawful.
12.3 CFC and the Executive hereby jointly and severally indemnifies the
Company and its affiliated or associated companies (the "Group"), its
officers, Directors and agents and save the Group harmless against all cost,
charges and expenses actually and reasonably incurred by the Group in law, in
equity or under any statute or regulation in connection with any civil,
criminal or administrative claim, action, proceeding or investigation to
which the Group are made a party or in which they are otherwise involved as a
witness or other participant by reason of CFC or the Executive:
(a) having breached a non-competition agreement;
(b) having used or having caused, permitted, or acquiesce in the
use by the Group of proprietary or confidential business
information or intellectual property of a third party or third
parties in contravention of any law or agreement to which the
Executive, CFC or the Group is subject or to which any is a
party or by which any is bound;
(c) having an undisclosed conflict of interest; or
(d) having breached any term of this Agreement, or in the case of
the Executive, having breached his fiduciary duty to the
Company.
12.4 Without limiting. the generality of Section 12.2 and 12.3, the costs,
charges and expenses against which the Group and CFC and the Executive will
indemnify each other include:
(a) any and all fees, costs and expenses actually and
reasonably incurred by the defending party in
investigating, preparing for, defending against, providing
evidence in, producing documents or taking any other action
in connection with any commenced or threaten action,
proceeding or investigation, including reasonable legal
fees and disbursements, travel and lodging costs;
(b) any amounts reasonably paid in settlement of any action,
proceeding or investigation;
(c) any amounts paid to satisfy a judgment or penalty, including
interest and costs; and
(d) all costs, charges and expenses reasonably incurred by the
defending party in establishing their right to be indemnified
pursuant to this Agreement.
12.5 If the Indemnitees, the Group or any of them are required to include
in their income, or in the income of the estate of the Executive, any payment
made under this Section 12 for the purpose of determining income tax payable
by the Indemnitees or the Group or any of them or the estate, the Company
shall pay an amount by way of indemnity that will fully indemnify the
Indemnitees or estate for the amount of all liabilities described in Section
12.2 and all income taxes payable as a result of the receipt of the indemnity
payment and CFC and the Executive shall pay an amount by way of indemnity
that will fully indemnify the Group for the amount of all liabilities
described in Section 12.3 and all income taxes payable as a result of the
receipt of the indemnity payment.
4
<PAGE>
12.6 Any failure by the Executive in his capacity as a Director or officer
of the Company to comply with the provisions of the Act or of the Articles of
Incorporation or Bylaws of the Company will not invalidate any indemnity to
which he is entitled under this Agreement.
12.7 When practical, the Company will apply for an appropriate level of
directors and officers liability insurance in support of the indemnity given
herein.
12.8 Upon the termination of this Agreement, the Executive will tender to
the Company his resignation as an officer and or Director of the Company or
any affiliate of the Company.
NON-COMPETITION
13.1 For a period of 12 months following the termination of this Agreement,
for any reason whatsoever, the CFC and the Executive shall not become
employed by, or enter into a contract of service or for service or be
involved with or assist in any way, whether directly or indirectly, with any
company, person or other entity which competes directly with the Company.
13.2 CFC and the Executive acknowledges and agrees that there can be no
geographical limit to his covenant not to compete directly due to the nature
of the business of the Company, the market for the Company's products,
services and the technologies with which the Company is involved.
13.3 The parties to this Agreement recognize that a breach by CFC or the
Executive of any of the covenants herein contained would result in damages to
the Company and that the Company cannot be adequately compensated for such
damages by monetary award. Accordingly, the Executive agrees that in the
event of any such breach, in addition to all other remedies available to the
Company at law or in equity, the Company shall be entitled as a matter of
right to apply to a court of competent equitable jurisdiction for such relief
by way of restraining order, injunction, decree or otherwise, as may be
appropriate to ensure compliance with the provisions of this Agreement.
13.4 CFC and the Executive will execute the Company's standard
non-competition agreement as required by all senior executive staff.
OWNERSHIP AND USE OF WORK PRODUCTS
14.1 CFC and the Executive agree that any work product produced by the
Executive in furtherance of the business of the Company either developed
solely by the Executive or jointly with any other party will be the sole and
exclusive property of the Company.
14.2 The Company acknowledges that general knowledge and experience
including general techniques, concepts, methods and formulae not developed
for the Company's specific application or work gained by the Executive prior
to or in the course of his association with the Company, may be used by the
Executive at any time prior to, during or subsequent to his association with
the Company, unless a specific agreement to the contrary is entered into by
CFC, the Executive and the Company, as long as the Executive is not in breach
of his covenants of non-competition contained herein.
14.3 This Agreement does not apply to general techniques, formulae,
concepts or method for which no equipment, supplies, facility or other
resources or trade secret information of the Company was used and which was
developed entirely on the Executive's own time unless such general
techniques, formulae, concepts or method relates directly to the actual or
specifically targeted business of the Company.
14.4 At any and all times, either during the term of this Agreement or
after termination hereof, CFC and the Executive will promptly, on the request
of the Company, perform all such reasonable acts and execute and deliver all
such documents that may be necessary to vest in the Company the entire right,
title and interest in and to any such work products determined, by the
Company, to be the exclusive property of the Company. Should any such
services be rendered after termination of this Agreement, a reasonable fee,
mutually agreed upon by CFC, the Executive and the Company will be paid to
the CFC on a per diem basis in addition to reasonable traveling and
accommodation expenses incurred as a result of rendering such services.
14.5 The Executive will execute the Company's standard invention assignment
agreement as required by all senior executive staff.
RETURN OF PROPERTY
15.1 In the event of termination of this Agreement, CFC and the Executive
agree to return to the Company any property, which may be in the possession
or control of the Executive.
5
<PAGE>
15.2 CFC and the Executive will execute the Company's standard
non-solicitation agreement as required by all senior executive staff.
SURVIVAL
16. Notwithstanding the termination of this Agreement for any reason
whatsoever the provisions of Section 7, 12, 13, 14 and 15 hereof and any
other provision of this Agreement necessary to give efficacy thereto shall
continue in full force and effect following such termination.
NOTICE
17. Any notice or other communication (each a "Communication") to be given
in connection with this Agreement shall be given in writing and will be given
by personal delivery addressed as follows:
TO: MDU Communications International, Inc.
Suite 108, 11951 Hammersmith Way
Richmond, British Columbia
V7A 5H9
ATTENTION: CEO
TO: Corus Financial Corp.
Suite 305, 250 West 4th Street
North Vancouver, British Columbia
V7M 1H7
ATTENTION: PRESIDENT
AND TO: Robert A. Biagioni, C.A.
Suite 305, 250 West 4th Street
North Vancouver, British Columbia
V7M 1H7
or at such other address as shall have been designated by Communication by
either party to the other. Any Communication shall be conclusively deemed to
have been received on the date of delivery. If the party giving any
Communication knows or ought reasonably to know of any actual or threatened
interruptions of the mails, any such Communication shall not be sent by mail but
shall be given by personal delivery.
ENTIRE AGREEMENT
18. This Agreement constitutes and expresses the whole agreement of the
parties hereto with reference to the services of the Executive by the
Company, and with reference to any of the matters or things herein provided
for, or hereinbefore discussed or mentioned with reference to such services;
all promises, representations, and understandings relative thereto being
merged herein.
AMENDMENTS AND WAIVERS
19. No amendment of this Agreement shall be valid or binding unless set
forth in writing and duly executed by all parties hereto. No waiver or any
breach of any provision of this Agreement shall be effective or binding
unless made in writing and signed by the party purporting to give the same
and, unless otherwise provided in the written waiver, shall be limited to the
specific breach waived.
BENEFIT OF AGREEMENT
20. The provisions of this Agreement shall enure to the benefit of and be
binding upon the legal personal representatives of the Executive and the
successors and assigns of the CFC and the Company.
SEVERABILITY
6
<PAGE>
21. If any provision of this Agreement is deemed to be void or
unenforceable, in whole or in part, it shall not be deemed to affect or
impair the validity of any other provision of this Agreement, and each and
every section, subsection and provision of this Agreement is hereby declared
and agreed to be severable from each other and every other section,
subsection or provision hereof and to constitute separate and distinct
covenants. CFC and the Executive hereby agree that all restrictions herein
are reasonable and valid.
JURISDICTION
22. This Agreement shall be governed by and construed in accordance with
the laws of the Province of British Columbia. The Company, CFC and the
Executive hereby irrevocably consent to the jurisdiction of the courts of the
Province of British Columbia.
COPY OF AGREEMENT
23. The Executive hereby acknowledges receipt of a copy of this Agreement
duly signed by the Company.
NUMBER AND GENDER
24. Wherever the singular is used in this Agreement it is deemed to
include the plural and wherever the masculine is used it is deemed to include
the feminine or body politic or corporate where the context or the parties so
require.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written:
MDU COMMUNICATIONS INTERNATIONAL, INC.
- ---------------------------------
Authorized Signatory
CORUS FINANCIAL CORP.
- ---------------------------------
Authorized Signatory
In the presence of: EXECUTIVE
/s/ Robert Adrian Biagioni
- --------------------------------- -------------------------
Witness Robert Adrian Biagioni
- ---------------------------------
Name
- ---------------------------------
Address
7
<PAGE>
EXHIBIT 10.13
MANAGEMENT EMPLOYMENT AGREEMENT
THIS AGREEMENT made to have effect the 1st day of February, 2000.
BETWEEN:
MDU COMMUNICATIONS INC., a body corporate duly incorporated under the laws of
Canada and having its offices at Suite 108, 11951 Hammersmith Way, Richmond,
British Columbia V7A 5H9;
(the "Company")
AND:
GARY MONAGHAN, an individual having his residence at 415 Eastbourne Road,
Kelowna, British Columbia, V1X 5K7;
(the "Executive")
RECITALS
WHEREAS, the Company wishes to obtain the services of the Executive and the
Executive is willing to provide his service to the Company upon the terms and
conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the premises and mutual covenants and
agreements herein set forth, the parties hereto mutually covenant and agree as
follows:
CONTRACT FOR SERVICES
1. The Company hereby engages the Executive to be the President of the Company
and the Executive hereby agrees to accept employment as President of the
Company. The Executive shall perform all duties incident to such position of
President and other duties as may reasonably be required from time to time by
the Board of Directors of the Company.
2. The Executive will perform the employment duties at the time and in the
manner set forth herein. The Executive shall perform his duties out of the
Richmond, British Columbia office of the Company, but the Company may, in its
discretion, direct that the duties be provided on occasion in other locations
maintained by the Company.
EXTENT OF SERVICE
3. The Executive shall, during the term of this contract, devote at least 35
hours per work week to the business of the Company, but may continue as a
director to any other company that is not in competition with the Company so
long as his association with such company does not interfere with his attention
to the Company's business.
SALARY AND EXPENSES
<PAGE>
4.1 In consideration of the Executive providing the employment duties, the
Company shall pay to the Executive a base salary before customary payroll
deductions, in equal semi-monthly installments, at $13,250.00 per month (the
"Base Salary"). The Company may pay to the Executive, bonuses as and when
declared by the Company's Board of Directors. The Company shall provide directly
to the Executive, at no cost, vehicle parking at the office site, the Company's
standard health benefits plan and professional association membership fees. The
Company shall reimburse the Executive directly for all reasonable, necessary and
approved travel and other expenses incurred by the Executive in connection with
the provision of services hereunder, however, for all such expenses the
Executive shall furnish statements and receipts.
4.2 At the end of each employment year or sooner if determined by the Company's
Board of Directors (the "Board"), the Executive's Base Salary shall be reviewed
by the Board and increased as determined by the Board in its sole discretion.
OPTIONS AND ADDITIONAL OFFICES
5.1 In addition to the compensation provided for in Section 4 and all other
amounts payable to Executive hereunder, the Executive shall be entitled to
participate in other company incentive plans or employee incentive stock options
in respect of unissued Common shares in the capital stock of the Company and its
associated companies, such options to be exercisable for a period of five years
from the date of grant and with such other conditions as are determined by the
Board of Directors of each company and as are prescribed by the policies of the
stock exchanges on which the Common shares of the each company are listed.
5.2 In addition, during the term of this Agreement the Company may also request
that the Executive assume senior executive management roles with its associated
companies pursuant to the terms of agreements executed between the Company and
its associated companies.
VACATION
6. The Executive shall be entitled to vacation from time to time without any
abatement or reduction of the compensation payable herein, provided that such
vacation does not exceed:
(a) 5 weeks per year during the first year of the term of this
Agreement; and
(b) 6 weeks per year thereafter.
While the Company shall endeavor to accommodate the Executive's wishes with
respect to the timing of such vacation, they shall be taken at such time as the
Company shall determine having regard to the requirements of the Company's
business.
CONFIDENTIAL INFORMATION
7. The Executive shall well and faithfully provide the service to the Company,
and use his best efforts to promote the interest thereof and shall not disclose
(either during the term of this Agreement or at any time thereafter) the private
affairs of the Company or any trade secret of the Company, to any persons other
than the Directors of the Company, or as required in the normal course of
business and shall not use (either during the continuance of this Agreement or
at any time thereafter) for his own purposes, or for any purposes other than
those of the Company, any information he may acquire with respect to the
Company's affairs. The Executive further agrees to execute such further and
other agreements concerning the secrecy of the affairs of the Company or of any
companies with which the Company is affiliated or associated, as the Directors
of the Company shall reasonably request. Furthermore, without restricting the
generality of the foregoing, the Executive shall not either during the term of
this Agreement or any time thereafter, directly or indirectly divulge to any
person, firm or corporation:
(a) any intellectual property, proprietary information, know-how,
trade secrets, processes, product specifications, new product
information or methods of doing business acquired in the course of
providing the services hereunder;
2
<PAGE>
(b) any information with respect of Company personnel or
organization, or any of the financial affairs or business plans of the
Company; or
(c) any information in respect of Company pricing policies, sales
statistics, sales and marketing plans and strategies, profits, costs,
or sourcing of clients.
DISABILITY
8. If the Executive shall, at any time, by reason of illness or mental or
physical disability, be incapacitated from providing all or a material part of
the services required by of this Agreement, he shall furnish the Directors of
the Company with medical evidence to prove such incapacity and cause thereof,
and thereupon the Executive shall be entitled to receive the compensation
payable pursuant to Section 4 without abatement or reduction for a maximum
period of 180 days from the commencement of the disability. If the Executive is
unable to return to the performance of the services at the standard they were
performed prior to the incapacity, the Company may terminate the Agreement at
any time after the 180 days, by written notice.
TERM OF AGREEMENT
9. This Agreement shall become effective on the 1st day of February 2000, and
shall continue thereafter unless terminated upon mutual consent of the Executive
and the Company, or until termination by the Executive or the Company in
accordance with Sections 10 or 11, whichever is earlier.
TERMINATION BY COMPANY
10. Without prejudice to any remedy the Company may have against the Executive
for any breach or non-performance of this Agreement, the Company may terminate
this Agreement, subject to Section 16, for breach by the Executive at any time
effective immediately and without notice and without any payment for any
compensation either by way of anticipated earnings or damage of any kind to him
whatsoever, save and except in respect of fees payable to the date of such
termination. For the purposes of this paragraph, any one of the following events
shall constitute breach of this Agreement sufficient for termination, provided
however, that the following events shall not constitute the only reasons for
termination:
(a) being guilty of any dishonesty or gross neglect in the
provision of the services hereunder; or
(b) being convicted of any criminal offense, other than an offense
which in the reasonable opinion of the Company does not affect his
position as a representative of the Company; or
(c) becoming bankrupt or making any arrangement or composition
with his creditors; or
(d) alcoholism or drug addiction of the Executive which impairs
his ability to provide the services required hereunder; or
(e) excessive and unreasonable absence of the Executive from the
performance of the services for any reason other than for absence or
incapacity specifically allowed hereunder.
TERMINATION
11.1 The Executive shall be entitled to terminate this Agreement, at any time
by giving four (4) weeks notice in writing to the Board of Directors of the
Company.
11.2 The Company shall be entitled to terminate this Agreement at any time by
the Company upon giving the Executive notice in writing of such termination and
upon payment to the Executive of all compensation and other
3
<PAGE>
amounts owing up to the date of termination and a termination payment in an
amount equal to 24 months Base Salary due under Section 4 above in full
satisfaction of all claims that the Executive may have against the Company.
11.3 In the event of a change in control of the Company or its controlling
shareholder and for a period of 12 months after the closing of a change in
control transaction, the Company shall be entitled to terminate this Agreement
upon giving the Executive notice in writing of such termination and upon payment
to the Executive of all compensation and other amounts owing up to the date of
termination and a termination payment in an amount equal to the compensation due
under Section 4.1 for a period of 36 months in full satisfaction of all claims
that the Executive may have against the Company or its controlling shareholder.
For a period of 12 months following the change in control of the Company or its
controlling shareholder, at the option of the Executive, the Executive may
terminate the Agreement upon giving notice to the Company and the Company will
pay to the Executive all compensation and other amounts owing up to the date of
termination and a termination payment in an amount equal to the compensation due
under Section 4.1 for a period of 36 months in full satisfaction of all claims
that the Executive may have against the Company or its controlling shareholder.
RESIGNATION AND INDEMNITY
12.1 Upon the termination of this Agreement, the Executive will tender to the
Company, and its associated companies, his resignation as an officer and or
director.
12.2 Subject to the CANADA BUSINESS CORPORATIONS ACT, as amended from time to
time (the "Act"), the Company hereby indemnifies the Executive, his heirs,
executors administrators and personal representatives (collectively, the
"Indemnitees") and save the Indemnitees harmless against all cost, charges and
expenses actually and reasonably incurred by the Indemnitees in law, in equity
or under any statute or regulation in connection with any civil, criminal or
administrative claim, action, proceeding or investigation to which the
Indemnitees are made a party or in which they are otherwise involved as a
witness or other participant by reason of the Executive being or having been a
director or officer of the Company or its affiliated or associated companies,
including any action brought by the Company or companies, if:
(a) the Executive acted honestly and in good faith with a view to
the best interests of the Company or companies; and
(b) in the case of a criminal or administrative claim, action,
proceeding or investigation, the Executive had reasonable grounds for
believing that his conduct was lawful.
12.3 The Executive hereby jointly and severally indemnifies the Company, its
officers, directors and agents (individually and collectively, the "Group") and
save the Group harmless against all cost, charges and expenses actually and
reasonably incurred by the Group in law, in equity or under any statute or
regulation in connection with any civil, criminal or administrative claim,
action, proceeding or investigation to which the Group are made a party or in
which they are otherwise involved as a witness or other participant by reason of
the Executive:
(a) having breached a non-competition agreement;
(b) having used or having caused, permitted, or acquiesce in the
use by the Company or Group of proprietary or confidential business
information or intellectual property of a third party or third parties
in contravention of any law or agreement to which the Executive, the
Company or the Group is subject or to which any is a party or by which
any is bound;
(c) having an undisclosed conflict of interest; or
(d) having breached any term of this Agreement, or in the case of
the Executive, having breached his fiduciary duty to the Company.
12.4 Without limiting. the generality of Section 12.2 and 12.3, the costs,
charges and expenses against which the Company and the Executive will indemnify
each other include:
4
<PAGE>
(a) any and all fees, costs and expenses actually and reasonably
incurred by the defending party in investigating, preparing for,
defending against, providing evidence in, producing documents or taking
any other action in connection with any commenced or threaten action,
proceeding or investigation, including reasonable legal fees and
disbursements, travel and lodging costs;
(b) any amounts reasonably paid in settlement of any action,
proceeding or investigation;
(c) any amounts paid to satisfy a judgment or penalty, including
interest and costs; and
(d) all costs, charges and expenses reasonably incurred by the
defending party in establishing their right to be indemnified pursuant
to this Agreement.
12.5 If the Indemnitees, the Group or any of them are required to include in
their income, or in the income of the estate of the Executive, any payment made
under this Section 12 for the purpose of determining income tax payable by the
Indemnitees or the Group or any of them or the estate, the Company shall pay an
amount by way of indemnity that will fully indemnify the Indemnitees or estate
for the amount of all liabilities described in Section 12.2 and all income taxes
payable as a result of the receipt of the indemnity payment and the Executive
shall pay an amount by way of indemnity that will fully indemnify the Group for
the amount of all liabilities described in Section 12.3 and all income taxes
payable as a result of the receipt of the indemnity payment.
12.6 Any failure by the Executive in his capacity as a director or officer of
the Company to comply with the provisions of the Act or of the Articles of
Incorporation or Bylaws of the Company will not invalidate any indemnity to
which he is entitled under this Agreement.
NON-COMPETITION
13.1 For a period of 12 months following the termination of this Agreement, for
any reason whatsoever, the Executive shall not become employed by, or enter into
a contract of service or for service or be involved with or assist in any way,
whether directly or indirectly, with any company, person or other entity which
competes directly with the Company.
13.2 The Executive acknowledges and agrees that there can be no geographical
limit to his covenant not to compete directly due to the nature of the business
of the Company, the market for the Company products, services and the
technologies with which the Company is involved.
13.3 The parties to this Agreement recognize that a breach by the Executive of
any of the covenants herein contained would result in damages to the Company and
that the Company cannot be adequately compensated for such damages by monetary
award. Accordingly, the Executive agrees that in the event of any such breach,
in addition to all other remedies available to the Company at law or in equity,
the Company shall be entitled as a matter of right to apply to a court of
competent equitable jurisdiction for such relief by way of restraining order,
injunction, decree or otherwise, as may be appropriate to ensure compliance with
the provisions of this Agreement.
13.4 The Executive will execute the Company's standard non-competition
agreement as required by all senior executive staff.
OWNERSHIP AND USE OF WORK PRODUCTS
14.1 The Executive agrees that any work product produced by the Executive in
furtherance of the business of the Company either developed solely by the
Executive or jointly with any other party will be the sole and exclusive
property of the Company.
14.2 The Company acknowledges that general knowledge and experience including
general techniques, concepts, methods and formulae not developed for the
Company's specific application or work gained by the Executive prior to or in
the course of his association with the Company, may be used by the Executive at
any time prior to, during or subsequent to his association with the Company,
unless a specific agreement to the contrary is entered into by the
5
<PAGE>
Executive and the Company, as long as the Executive is not in breach of his
covenants of non-competition contained herein.
14.3 This Agreement does not apply to general techniques, formulae, concepts or
method for which no equipment, supplies, facility or other resources or trade
secret information of the Company was used and which was developed entirely on
the Executive's own time unless such general techniques, formulae, concepts or
method relates directly to the actual or specifically targeted business of the
Company.
14.4 At any and all times, either during the term of this Agreement or after
termination hereof, the Executive will promptly, on the request of the Company,
perform all such reasonable acts and execute and deliver all such documents that
may be necessary to vest in the Company the entire right, title and interest in
and to any such work products determined, by the Company, to be the exclusive
property of the Company. Should any such services be rendered after termination
of this Agreement, a reasonable fee, mutually agreed upon by the Executive and
the Company, will be paid to the Executive on a per diem basis in addition to
reasonable traveling and accommodation expenses incurred as a result of
rendering such services.
14.5 The Executive will execute the Company's standard invention assignment
agreement as required by all senior executive staff.
RETURN OF PROPERTY
15.1 In the event of termination of this Agreement, the Executive agrees to
return to the Company any property, which may be in the possession or control of
the Executive.
15.2 The Executive will execute the Company's standard non-solicitation
agreement as required by all senior executive staff.
SURVIVAL
16. Notwithstanding the termination of this Agreement for any reason whatsoever
the provisions of Section 7, 12, 13, 14 and 15 hereof and any other provision of
this Agreement necessary to give efficacy thereto shall continue in full force
and effect following such termination.
NOTICE
17. Any notice or other communication (each a "Communication") to be given in
connection with this Agreement shall be given in writing and will be given by
personal delivery addressed as follows:
TO: MDU Communications Inc.
Suite 108, 11951 Hammersmith Way
Richmond, British Columbia
V7A 5H9
ATTENTION: CEO
TO: Gary Monaghan
415 Eastbourne Road
Kelowna, British Columbia
V1X 5K7
or at such other address as shall have been designated by Communication by
either party to the other. Any Communication shall be conclusively deemed to
have been received on the date of delivery. If the party giving any
Communication knows or ought reasonably to know of any actual or threatened
interruptions of the mails, any such Communication shall not be sent by mail but
shall be given by personal delivery.
6
<PAGE>
ENTIRE AGREEMENT
18. This Agreement constitutes and expresses the whole agreement of the parties
hereto with reference to the services of the Executive by the Company, and with
reference to any of the matters or things herein provided for, or hereinbefore
discussed or mentioned with reference to such services; all promises,
representations, and understandings relative thereto being merged herein.
AMENDMENTS AND WAIVERS
19. No amendment of this Agreement shall be valid or binding unless set forth
in writing and duly executed by both parties hereto. No waiver or any breach of
any provision of this Agreement shall be effective or binding unless made in
writing and signed by the party purporting to give the same and, unless
otherwise provided in the written waiver, shall be limited to the specific
breach waived.
BENEFIT OF AGREEMENT
20. The provisions of this Agreement shall enure to the benefit of and be
binding upon the legal personal representatives of the Executive and the
successors and assigns of the Company.
SEVERABILITY
21. If any provision of this Agreement is deemed to be void or unenforceable,
in whole or in part, it shall not be deemed to affect or impair the validity of
any other provision of this Agreement, and each and every section, subsection
and provision of this Agreement is hereby declared and agreed to be severable
from each other and every other section, subsection or provision hereof and to
constitute separate and distinct covenants. The Executive hereby agrees that all
restrictions herein are reasonable and valid.
22. This Agreement shall be governed by and construed in accordance with the
laws of the Province of British Columbia. The Company and the Executive hereby
irrevocably consent to the jurisdiction of the courts of the Province of British
Columbia.
COPY OF AGREEMENT
23. The Executive hereby acknowledges receipt of a copy of this Agreement duly
signed by the Company.
NUMBER AND GENDER
24. Wherever the singular is used in this Agreement it is deemed to include the
plural and wherever the masculine is used it is deemed to include the feminine
or body politic or corporate where the context or the parties so require.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written:
MDU COMMUNICATIONS INC.
- ---------------------------------
Authorized Signatory
In the presence of: EXECUTIVE
/s/ Gary Monaghan
- --------------------------------- ---------------------------------
Witness Gary Monaghan
- ---------------------------------
Name
- ---------------------------------
Address
8
<PAGE>
DORSET REALTY GROUP
CANADA LIMITED
- --------------------------------------------------------------------------------
Suite 200 - 8211 Ackroyd Road
Richmond, B.C. V6X 319
Telephone (604) 270-1711
Fax (604) 270-8446
EXHIBIT 10.14
[DORSET REALTY GROUP CANADA LIMITED - LETTERHEAD]
December 8, 1998
MDU Communications Ltd.
133-11951 Hammersmith Way
Richmond BC V7A 5E5
Dear Sirs:
RE: 133-11951 HAMMERSMITH WAY
LEASE PAYMENTS
We are writing as property managers for the Hammersmith Corporate Centre. We
hereby confirm your base rent is $1,000.00 per month effective January 1, 1999.
Your ESTIMATED ADDITIONAL RENT (operating cost), based on an annual basis is as
follows:
<TABLE>
<S> <C>
Maintenance Fees* $1,088.88
Property Taxes $2,400.00
Management Fee $ 600.00
---------
Total $4,088.88
</TABLE>
The total divided by twelve months equals $340.74. Therefore your monthly rent
is:
<TABLE>
<CAPTION>
January 1, 1999 February 1, 1999 On:
- --------------- --------------------
<S> <C> <C> <C>
Base Rent Deposit Base Rent $ 1,000.00
Additional Rent $ 340.74 Additional Rent $ 340.74
GST $ 23.85 GST $ 93.85
--------- -----------
Total $ 364.59 Total $ 1,434.59
</TABLE>
Please make cheques payable to "Dorset Realty In Trust". If you have any
questions, please contact the writer. Thank you.
Yours truly,
/s/ Dale Schuss
Dale Schuss
Property Manager
* Includes building insurance, water/sewer, landscaping, general exterior
repair and maintenance outside electricity, garbage removal.
cc: G. Brandt, Progressive Properties Ltd., Richmond, BC
<PAGE>
OFFER TO LEASE
RE/MAX REAL ESTATE SERVICES LTD.
215 - 3989 Manning Drive
Burnaby, B.C.
V5C 6N6
Progressive Properties Ltd.
- ---------------------------------------------
- --------------------------------------------- Telephone:
Facsimile:
(as "Landlord")
MDU Communications Ltd.
108 - 11951 Hammersmith Way
Richmond, B.C. Telephone:
Facsimile:
(as "Tenant")
1. The Tenant hereby offers to lease from the Landlord certain space (the
"Premises") described as follows:
Address of Premises: 133 - 11951 Hammersmith Way, Richmond, B.C.
----------------------------------------------------------
- ------------------------------------------------------------------------------
Further Description (Sketch if necessary): 1538 sq. ft.
------------------------------------
- ------------------------------------------------------------------------------
Parking Spaces: 3
-----------------------------
2. The Lease for the Premises will be on the following terms and conditions:
a) Term of Lease: Jan. 1, 1999 to Dec. 31, 2001 Being 3 Years.
-------------- ----------------------------
b) Date of Occupancy: Upon Lease Execution for Storage
------------------------------------
c) Rental Rate: $1000 Year 1, $1025 Years 2 and 3 (-) DOLLARS per
--------------------------------------
month payable monthly in advance on the First day of each
month and every month during the Term.
d) Rental Deposit: A deposit by way of Certified Cheque or Bank
Draft payable to "RE/MAX REAL ESTATE SERVICES LTD "in trust"
in the sum of $2300 (-) which sum includes applicable G.S.T.
shall be payable within TWENTY-FOUR (24) hours of acceptance
of this Offer and shall be retained and applied as the basic
rent and applicable G.S.T. for the FIRST (1st) month of this
Lease and the balance as a security deposit (not to bear
interest) or shall be returned to the Tenant if the
conditions precedent contained in Clause 3. are not
fulfilled.
<PAGE>
e) Taxes and Operating Expenses:
This Offer to Lease shall be completely NET to the Landlord
except for structural repairs and the Tenant hereby agrees to
pay, in addition to the basic monthly rent their proportionate
share namely 100% of all costs, charges, expenses and outlays
of any nature whatsoever arising from or relating to the
Leased Premises, including without limitation, the following
terms (which are more fully detailed in the Lease)
<TABLE>
<S> <C>
*Real Property Taxes *Building Insurance
Good and Services Taxes *Building Maintenance
Hydro Utilities *Property Management
Water Rates Directory Signs
</TABLE>
* Budgeted at 305 + G.S.T./mo. For 1998
f) Lease Form:
Upon acceptance of this Offer, a Formal Lease shall be
executed by the Landlord and Tenant by ________________ such
lease shall include all the terms and conditions outlined in
this Offer. The cost of preparing such Lease shall be for the
Landlord's account. If the Tenant wishes to register the Lease
the expense for survey and registration are to be for the
Tenant's account.
g) Renewal Option:
Tenant will have an option to renew this Lease for an
additional term of THREE (3) years under the same terms and
conditions except as rent and this option to renew. The rent
for the option period is to be the then prevailing fair market
rent for similar properties in the immediate area but in no
event shall the rent be less than that paid in the last month
of the initial Lease Term. Failing agreement, the rent is to
be fixed by arbitration under the commercial Arbitration Act
of British Columbia. Tenant must give written notice of
intention to exercise its option to renew on or before Four
(4) months prior to Lease expiry.
3. [THIS ITEM #3 HAS BEEN CROSSED OUT OF THIS AGREEMENT.] This Offer to
Lease is subject to the following Conditions Precedent which shall be
for the sole benefit of the _______. The Conditions Precedent are to be
removed in writing on or before ____________. Failing removal, this
Offer shall be null and void and all deposit monies are to be returned
to the _________.
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
<PAGE>
4. Further Conditions:
The Tenant shall have the right during first year of the rent to
purchase the premises for the price of $145,000.
5. Landlord to complete the following improvements, at its expense, by the
occupancy date or as soon thereafter as possible:
(1) To ______ front office included in allowance.
(2) To provide allowance of $6,000 to constitute Tenants' office.
The Tenant will provide Landlord a plan from Dave Sanford
which it will cost and approve. Tenant to pay costs above
$6,000 allowance.
6. Acceptance of this Offer by the Landlord is conditional upon the Tenant
providing the Landlord with information regarding the financial status of the
Tenant as the Landlord may reasonably require for the purposes of determining
the financial strength of the Tenant. Within five (5) business days of the date
of execution of this Offer by the Landlord the Tenant shall supply the Landlord
with the requested information. The Landlord shall have five (5) business days
from the date of receipt of the aforesaid information to determine whether or
not the Tenant is of sufficient financial strength. If the Landlord gives
written notice within the time limit specified that the Tenant is not of
sufficient financial strength then this offer shall become null and void and the
deposit returned to the Tenant immediately. If no written notice is given, the
financial strength will have been deemed satisfied.
7. Tenant's use of the premises shall be office, assembly, storage,
8. Tenant is solely responsible for obtaining any permits and licenses
associated with its occupancy of the Premises.
9. There are no warranties, representations or guarantees other than those
contained herein.
10. Any additional covenants set forth in writing and attached hereto as
Schedule "A" shall apply in addition to the above clauses.
11. Facsimile: The Tenant and the Landlord agree that this Offer/Counter
Offer when executed acceptance thereof may be communicated by facsimile
and that such agreements shall be legal and binding upon the parties
hereto.
THIS OFFER TO LEASE shall be open for acceptance up to 5 p.m. on the 24 day of
Nov. 1998.
DATED at Richmond this 24 day of Nov., 1998.
Upon acceptance by Landlord signing a copy of this Offer, same shall constitute
a binding agreement to lease on the terms and conditions herein set forth. If
the Tenant fails to execute and
<PAGE>
deliver the lease to Re/Max Real Estate Services Ltd. by the date prescribed in
Clause 2 f), the Tenant shall forfeit the deposit as liquidated damages.
TENANT: MDU Communications, LTD
Per: /s/ Per: /s/
- ------------------------------ --------------------------------
Witness (Authorized Signatory)
Receipt of the above mentioned Deposit is hereby acknowledge by RE/MAX REAL
ESTATE SERVICES LTD.
RE/MAX REAL ESTATE SERVICES LTD. Per:
Leasing Broker -----------------------------------
RE/MAX REAL ESTATE SERVICES LTD. Per:
Listing Broker -----------------------------------
We hereby agree to lease the above described premises upon the terms and
conditions set forth. We also agree to pay our agent, the Listing Broker, a
commission equal to TWO (2) months' base rent along with any applicable Goods
and Services Tax (G.S.T.). Upon the date set for occupancy or upon execution of
the Lease, whichever occurs first, the commission and G.S.T. is then due and
payable and may be deducted from the deposit, with any remaining balance to be
paid forthwith to the Landlord. If the Lease agreement contains an Option to
Purchase and the Tenant purchases the building, the Landlord shall pay a
commission to the Listing Broker at closing in the amount of 7% on the first
$100,000.00 plus 2.5% on the balance less the lease commission paid with respect
to the Lease.
DATED at Richmond this 24th day of November, 1998.
LANDLORD:
Per: /s/ Per: /s/
- ---------------------------------- ------------------------------------
Witness (Authorized Signatory)
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
JURISDICTION OF
NAME INCORPORATION
- ---- ----------------
<S> <C>
MDU Communications Inc. British Columbia
MDU Communications (USA) Inc. Washington
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (a) THE
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF MDU COMMUNICATIONS INTERNATIONAL,
INC. (MDU) FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999, AND (b) UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF MDU FOR THE THREE MONTHS ENDED DECEMBER
31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1999
<PERIOD-END> OCT-01-1998 DEC-31-1999
<CASH> 43,621 68,324
<SECURITIES> 0 0
<RECEIVABLES> 178,607 321,424
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 317,482 453,807
<PP&E> 3,729,286 3,799,208
<DEPRECIATION> (172,900) (295,738)
<TOTAL-ASSETS> 4,000,578 4,076,534
<CURRENT-LIABILITIES> 2,621,892 2,552,144
<BONDS> 0 0
0 0
0 0
<COMMON> 1,559,720 3,906,565
<OTHER-SE> (181,034) (2,966,675)
<TOTAL-LIABILITY-AND-EQUITY> 4,000,578 4,076,534
<SALES> 566,698 311,888
<TOTAL-REVENUES> 566,698 311,888
<CGS> 339,570 182,951
<TOTAL-COSTS> 3,092,358 977,641
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 32,321 25,353
<INCOME-PRETAX> (2,525,660) (665,753)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,525,660) (665,753)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,525,660) (665,753)
<EPS-BASIC> (0.28) (0.06)
<EPS-DILUTED> (0.28) (0.06)
</TABLE>
