EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of December
8, 2000, between WaveRider Communications Inc., a corporation organized under
the laws of the State of Nevada (the "Company"), and Capital Ventures
International, a Cayman Islands unlimited liability corporation (the
"Purchaser").
WHEREAS:
A. The Company and the Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act").
B. The Company desires to sell, and the Purchaser desires to purchase,
upon the terms and conditions stated in this Agreement, (i) convertible notes of
the Company (the "Notes"), in the form attached hereto as Exhibit A-1 in the
aggregate principal amount of Five Million Dollars ($5,000,000) (the "First
Notes"), and in the form attached hereto as Exhibit A-2 in the aggregate
principal amount of Seven Million Dollars ($7,000,000) (the "Second Notes")
convertible into shares of the Company's common stock, par value $.001 per share
(the "Common Stock"), and (ii) warrants (the "Warrants"), in the form attached
hereto as Exhibit B-1 to acquire an aggregate of 2,461,538 shares of Common
Stock, in the form attached hereto as Exhibit B-2 to acquire an aggregate of
5,907,692 shares of Common Stock, and in the form attached hereto as Exhibit B-3
to acquire an aggregate of a number of shares of Common Stock to be determined
on the Second Closing Date (as defined below). The shares of Common Stock
issuable upon conversion of or otherwise pursuant to the Notes are referred to
herein as the "Conversion Shares" and the shares of Common Stock issuable upon
exercise of or otherwise pursuant to the Warrants are referred to herein as the
"Warrant Shares." The Notes, the Warrants, the Conversion Shares and the Warrant
Shares are collectively referred to herein as the "Securities" and each of them
may individually be referred to herein as a "Security."
C. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as Exhibit C-1 (the "First Registration Rights
Agreement"), pursuant to which the Company has agreed to provide certain
registration rights under the Securities Act and the rules and regulations
promulgated thereunder, and applicable state securities laws.
D All references herein to monetary denominations shall refer to lawful
money of the United States of America.
NOW, THEREFORE, the Company and the Purchaser hereby agree as follows:
1. PURCHASE AND SALE OF NOTES AND WARRANTS.
(a) Purchase of Notes and Warrants. The issuance, sale and purchase of
the Notes and the Warrants shall take place in two separate closings, the first
of which is referred to herein as the "First Closing" and the second of which is
referred to herein as the "Second Closing".
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(i) On the First Closing Date (as defined below), subject to
the satisfaction (or waiver) of the conditions set forth in Section 6 and
Section 7 below, the Company shall issue and sell to the Purchaser, and the
Purchaser agrees to purchase from the Company, the First Notes and 2,461,538
Warrants in the form attached hereto as Exhibit B-1, and 5,907,692 Warrants in
the form attached hereto as Exhibit B-2 (collectively, the "First Warrants") for
an aggregate purchase price of Five Million Dollars ($5,000,000) (the "First
Purchase Price").
(ii) On the Second Closing Date (as defined below), subject to
the satisfaction (or waiver) of the conditions set forth in Section 6 and
Section 7 below, the Company shall issue and sell to the Purchaser and the
Purchaser agrees to purchase from the Company, the Second Notes and a number of
Warrants to be determined on the Second Closing Date in the form attached hereto
as Exhibit B-3 (the "Second Warrants") for an aggregate purchase price of Seven
Million Dollars ($7,000,000) (the "Second Purchase Price").
(b) Form of Payment. On the First Closing Date, the Purchaser shall pay
the First Purchase Price by wire transfer to the Company, in accordance with the
Company's written wiring instructions, against delivery of the duly executed
First Notes and First Warrants, and the Company shall deliver the First Notes
and First Warrants against delivery of the First Purchase Price; and, if
applicable, on the Second Closing Date, the Purchaser shall pay the Second
Purchase Price, by wire transfer to the Company in accordance with the Company's
written wiring instructions, against delivery of the duly executed Second Notes
and Second Warrants, and the Company shall deliver the Second Notes and Second
Warrants against delivery of the Second Purchase Price.
(c) Closing Date. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the First Notes and First Warrants pursuant to this
Agreement (the "First Closing") shall be 12:00 noon, New York City time, on
December 8, 2000, subject to a two business day grace period at either party's
option, but in any event not later than December 12, 2000, or such other time as
may be mutually agreed upon by the Company and the Purchaser (the "First Closing
Date"), and the date and time of the issuance and sale of the Second Notes and
the Second Warrants pursuant to this Agreement (the "Second Closing") shall be
12:00 noon, New York City time, on the later of (i) the 90th day after the First
Closing Date or (ii) the 30th day after the Registration Statement (as defined
in the First Registration Rights Agreement) is declared effective by the SEC
(the "Second Closing Date"). Notwithstanding anything to the contrary contained
in this Agreement, if any of the conditions to the Second Closing set forth in
Section 7(b) below shall not have been satisfied as of the Second Closing Date,
the Purchaser, in its sole discretion, shall have the option, exercisable at any
time prior to the 60th day after the Second Closing Date, upon three days' prior
written notice to the Company, to waive any such conditions and to purchase the
Second Notes and the Second Warrants, on the terms specified herein. The First
Closing and the Second Closing shall occur at the offices of Heights Capital
Management, Inc., 401 City Avenue, Suite 220, Bala Cynwyd, Pennsylvania 19004.
2. PURCHASER'S REPRESENTATIONS AND WARRANTIES
The Purchaser represents and warrants to the Company as follows:
(a) Purchase for Own Account, Etc.. The Purchaser is purchasing the
Securities for the Purchaser's own account for investment purposes only and not
with a present view towards the public sale or distribution thereof, except
pursuant to sales that are exempt from the registration requirements of the
Securities Act and/or sales registered under the Securities Act. The Purchaser
understands that the Purchaser must bear the economic risk of this investment
indefinitely, unless the Securities are registered pursuant to the Securities
Act and any applicable state securities or blue sky laws or an exemption from
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such registration is available, and that the Company has no present intention of
registering the resale of any such Securities other than as contemplated by the
First Registration Rights Agreement and the Second Registration Rights Agreement
(as defined below) (collectively, the "Registration Rights Agreements").
Notwithstanding anything in this Section 2(a) to the contrary, by making the
representations herein, the Purchaser does not agree to hold the Securities for
any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption from the registration requirements under the
Securities Act.
(b) Accredited Investor Status. The Purchaser is an "Accredited
Investor" as that term is defined in Rule 501(a) of Regulation D.
(c) Reliance on Exemptions. The Purchaser understands that the Notes
and Warrants are being offered and sold to the Purchaser in reliance upon
specific exemptions from the registration requirements of United States federal
and state securities laws and that the Company is relying upon the truth and
accuracy of, and the Purchaser's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Purchaser set
forth herein in order to determine the availability of such exemptions and the
eligibility of the Purchaser to acquire the Securities.
(d) Information. The Purchaser and its counsel, if any, have been
furnished all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Securities which
have been specifically requested by the Purchaser or its counsel. The Purchaser
and its counsel have been afforded the opportunity to ask questions of the
Company and have received what the Purchaser believes to be satisfactory answers
to any such inquiries. Neither such inquiries nor any other investigation
conducted by the Purchaser or its counsel or any of its representatives shall
modify, amend or affect the Purchaser's right to rely on the Company's
representations and warranties contained in Section 3 below. The Purchaser
understands that the Purchaser's investment in the Securities involves a high
degree of risk.
(e) Governmental Review. The Purchaser understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
(f) Transfer or Resale. The Purchaser understands that (i) except as
provided in the Registration Rights Agreements, the sale or resale of the
Securities have not been and are not being registered under the Securities Act
or any state securities laws, and the Securities may not be transferred unless
(a) the resale of the Securities has been registered thereunder; or (b) the
Purchaser shall have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration; or (c) sold under and in compliance with Rule 144 promulgated
under the Securities Act (or a successor rule) ("Rule 144"); or (d) sold or
transferred to an affiliate of the Purchaser who agrees to sell or otherwise
transfer the Securities only in accordance with the provisions of this Section
2(f) and who is an Accredited Investor; and (ii) neither the Company nor any
other person is under any obligation to register such Securities under the
Securities Act or any state securities laws (other than pursuant to the
Registration Rights Agreements). Notwithstanding the foregoing or anything else
contained herein to the contrary, the Securities may be pledged as collateral in
connection with a bona fide margin account or other lending arrangement,
provided such pledge is consistent with applicable laws, rules and regulations.
(g) Legends. The Purchaser understands that the Notes and Warrants and,
until such time as the Conversion Shares and Warrant Shares have been registered
under the Securities Act (including registration pursuant to Rule 416
thereunder) as contemplated by the applicable Registration Rights Agreement or
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otherwise may be sold by the Purchaser under Rule 144, the certificates for the
Conversion Shares and Warrant Shares may bear a restrictive legend in
substantially the following form:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
the securities laws of any state of the United States or in
any other jurisdiction. The securities represented hereby may
not be offered, sold or transferred in the absence of an
effective registration statement for the securities under
applicable securities laws unless offered, sold or transferred
pursuant to an available exemption from the registration
requirements of those laws.
The Company agrees that it shall, immediately prior to the
Registration Statement (as defined in the applicable Registration Rights
Agreement) being declared effective, instruct its transfer agent to accept an
opinion letter of counsel to the Purchaser, opining that at any time the
Registration Statement is effective, the transfer agent shall issue, in
connection with the issuance of the Conversion Shares and Warrant Shares,
certificates representing such Conversion Shares and Warrant Shares without the
restrictive legend above, provided such Conversion Shares and Warrant Shares are
to be sold pursuant to the prospectus contained in the Registration Statement.
Upon receipt of such opinion, the Company shall cause the transfer agent to
confirm, for the benefit of the holders, that no further opinion of counsel is
required at the time of transfer in order to issue such shares without such
restrictive legend.
The legend set forth above shall be removed and the Company
shall issue a certificate without such legend to the holder of any Security upon
which it is stamped, if, unless otherwise required by state securities laws, (i)
the sale of such Security is registered under the Securities Act (including
registration pursuant to Rule 416 thereunder) as contemplated by the
Registration Rights Agreements; (ii) such holder provides the Company with an
opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public sale or transfer
of such Security may be made without registration under the Securities Act; or
(iii) such holder provides the Company with usual and customary representations
of the holder that such Security can be sold under Rule 144. In the event the
above legend is removed from any Security and thereafter the effectiveness of a
registration statement covering such Security is suspended or the Company
determines that a supplement or amendment thereto is required by applicable
securities laws, then upon reasonable advance written notice to the Purchaser
the Company may require that the above legend be placed on any such Security
that cannot then be sold pursuant to an effective registration statement or
under Rule 144 and the Purchaser shall cooperate in the replacement of such
legend. Such legend shall thereafter be removed when such Security may again be
sold pursuant to an effective registration statement or under Rule 144.
(h) Authorization; Enforcement. This Agreement and the First
Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of the Purchaser and are valid and binding agreements of
the Purchaser, enforceable against the Purchaser in accordance with their terms,
and the Second Registration Rights Agreement, when executed and delivered by the
Purchaser, will constitute a valid and binding agreement of the Purchaser,
enforceable against the Purchaser in accordance with its terms.
(i) Residency. The Purchaser is a resident of the jurisdiction set
forth under the Purchaser's name on the execution page hereto.
(j) Short Sales. The Purchaser and affiliates over which the Purchaser
may exercise investment discretion do not presently maintain a "short" position
in the Company's Common Stock.
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The Purchaser's representations and warranties made in this Article 2
are made solely for the purpose of permitting the Company to make a
determination that the offer and sale of the Notes and Warrants pursuant to this
Agreement complies with applicable U.S. federal and state securities laws and
not for any other purpose. Accordingly, the Company should not rely on such
representations and warranties for any other purpose.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to Purchaser as follows:
(a) Organization and Qualification. The Company and each of its
subsidiaries is a corporation duly organized and existing in good standing under
the laws of the jurisdiction in which it is incorporated, and has the requisite
corporate power to own its properties and to carry on its business as now being
conducted. The Company and each of its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary and where the failure so to qualify would have a Material Adverse
Effect. "Material Adverse Effect" means any material adverse effect on (i) the
Securities, (ii) the ability of the Company to perform its obligations hereunder
or under the Notes, the Warrants or the Registration Rights Agreements or (iii)
the business, operations, properties, prospects or financial condition of the
Company and its subsidiaries.
(b) Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Notes, the Warrants and the Registration Rights Agreements,
to issue and sell the Notes and the Warrants in accordance with the terms
hereof, to issue the Conversion Shares upon conversion of the Notes in
accordance with the terms thereof and to issue the Warrant Shares upon exercise
of the Warrants in accordance with the terms thereof; (ii) the execution,
delivery and performance of this Agreement, the Notes, the Warrants and the
Registration Rights Agreements by the Company and the consummation by it of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Notes and the Warrants and the issuance and reservation for
issuance of the Conversion Shares and Warrant Shares) have been duly authorized
by the Company's Board of Directors and no further consent or authorization of
the Company, its Board of Directors, any or committee of the Board of Directors
is required, and (iii) this Agreement constitutes, and, upon execution and
delivery by the Company of the Registration Rights Agreements, the Notes and the
Warrants, such agreements or instruments will constitute, valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms.
(c) Stockholder Authorization. Except as provided in Section 4(p)
hereof, neither the execution, delivery or performance by the Company of its
obligations under this Agreement, the Notes, the Warrants or the Registration
Rights Agreements, nor the consummation by it of the transactions contemplated
hereby or thereby (including, without limitation, the issuance of the Notes or
the Warrants or the issuance or reservation for issuance of the Conversion
Shares or Warrant Shares) requires any consent or authorization of the Company's
stockholders, including but not limited to consent under Rule 4460(i)
promulgated by the National Association of Securities Dealers, Inc. (the "NASD")
or any similar rule.
(d) Capitalization. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance pursuant to
the Company's stock option plans, the number of shares issuable and reserved for
issuance pursuant to securities (other than the Notes and the Warrants)
exercisable or exchangeable for, or convertible into, any shares of capital
stock and the number of shares to be reserved for issuance upon conversion of
the Notes and exercise of the Warrants is set forth on Schedule 3(d). All of
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such outstanding shares of capital stock have been, or upon issuance, will be,
validly issued, fully paid and non-assessable. No shares of capital stock of the
Company (including the Conversion Shares and the Warrant Shares) are subject to
preemptive rights or any other similar rights of the stockholders of the Company
or any liens or encumbrances. Except for the Securities and as set forth on
Schedule 3(d), as of the date of this Agreement, (i) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into or
exercisable or exchangeable for, any shares of capital stock of the Company or
any of its subsidiaries, or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its subsidiaries, nor are any such issuances or
arrangements contemplated, and (ii) there are no agreements or arrangements
under which the Company or any of its subsidiaries is or may become obligated to
register the sale of any of its or their securities under the Securities Act
(except the Registration Rights Agreements). Schedule 3(d) sets forth all of the
Company's issued securities or instruments containing antidilution or similar
provisions that will be triggered by, and all of the resulting adjustments that
will be made to such securities and instruments as a result of, the issuance of
the Securities in accordance with the terms of this Agreement, the Notes or the
Warrants. The Company has furnished to the Purchaser true and correct copies of
the Company's Articles of Incorporation as in effect on the date hereof
("Articles of Incorporation"), the Company's By-laws as in effect on the date
hereof (the "By-laws"), and all other instruments and agreements governing
securities convertible into or exercisable or exchangeable for capital stock of
the Company.
(e) Issuance of Shares. The Conversion Shares and Warrant Shares are
duly authorized and reserved for issuance, and, upon conversion of the Notes and
exercise of the Warrants in accordance with the terms thereof, will be validly
issued, fully paid and non-assessable, and free from all taxes, liens, claims
and encumbrances and will not be subject to preemptive rights, rights of first
refusal or other similar rights of stockholders of the Company and will not
impose personal liability upon the holder thereof.
(f) No Conflicts. The execution, delivery and performance of this
Agreement, the Registration Rights Agreements, the Notes and the Warrants by the
Company, and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance and reservation
for issuance, as applicable, of the Notes, the Warrants, the Conversion Shares
and Warrant Shares) will not (i) result in a violation of the Articles of
Incorporation or By-laws or (ii) conflict with, or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment (including, without
limitation, the triggering of any anti-dilution provisions), acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party, or result in a violation of any law, rule,
regulation, order, judgment or decree (including United States federal and state
securities laws and regulations and rules or regulations of any self-regulatory
organizations to which either the Company or its securities are subject)
applicable to the Company or any of its subsidiaries or by which any property or
asset of the Company or any of its subsidiaries is bound or affected (except,
with respect to clause (ii), for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations that would not,
individually or in the aggregate, have a Material Adverse Effect). Neither the
Company nor any of its subsidiaries is in violation of its Articles of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its subsidiaries is in default (and no event has occurred which, with
notice or lapse of time or both, would put the Company or any of its
subsidiaries in default) under, nor has there occurred any event giving others
(with notice or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, except for actual or possible
violations, defaults or rights that would not, individually or in the aggregate,
have a Material Adverse Effect. The businesses of the Company and its
subsidiaries are not being conducted, and shall not be conducted so long as the
Purchaser owns any of the Securities, in violation of any law, ordinance or
regulation of any governmental entity, except for possible violations the
sanctions for which either singly or in the aggregate would not have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and the
Registration Rights Agreements, the Company is not required to obtain any
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consent, approval, authorization or order of, or make any filing or registration
with, any court or governmental agency or any regulatory or self regulatory
agency or other third party in order for it to execute, deliver or perform any
of its obligations under this Agreement, the Registration Rights Agreements, the
Notes or the Warrants, in each case in accordance with the terms hereof or
thereof. The Company is not in violation of the listing requirements of the
NASDAQ National Market ("NASDAQ") and does not reasonably anticipate that the
Common Stock will be delisted by NASDAQ for the foreseeable future.
(g) SEC Documents, Financial Statements. Since January 1, 1999, the
Company has timely filed (within applicable extension periods) all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of Sections 13, 14 and 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein, being hereinafter referred to herein as the "SEC Documents").
The Company has delivered to the Purchaser true and complete copies of the SEC
Documents. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act or the Securities
Act, as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to the SEC Documents, and none of the SEC Documents, at
the time they were filed with the SEC, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of the statements
made in any such SEC Documents is, or has been, required to be amended or
updated under applicable law (except for such statements as have been amended or
updated in subsequent filings made prior to the date hereof). As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
applicable with respect thereto. Such financial statements have been prepared in
accordance with U.S. generally accepted accounting principles ("GAAP"),
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to immaterial year-end audit adjustments). Except
as set forth in the financial statements of the Company included in the SEC
Documents filed prior to the date hereof, the Company has no liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to the date of such financial statements and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under GAAP to be reflected in such financial
statements, which liabilities and obligations referred to in clauses (i) and
(ii), individually or in the aggregate, are not material to the financial
condition or operating results of the Company.
(h) Absence of Certain Changes. Since September 30, 2000, there has
been no material adverse change and no material adverse development in the
business, properties, operations, prospects, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole, except as
disclosed in the SEC Documents filed prior to the date hereof.
(i) Absence of Litigation. Except as disclosed in the SEC Documents
filed prior to the date hereof, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body, including, without limitation, the SEC or
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NASDAQ, pending or, to the knowledge of the Company or any of its subsidiaries,
threatened against or affecting the Company, any of its subsidiaries, or any of
their respective directors or officers in their capacities as such which could
reasonably be expected to have a Material Adverse Effect. To the best knowledge
of the Company, after reasonable investigation, there are no facts which, if
known by a potential claimant or governmental authority, could give rise to a
claim or proceeding which, if asserted or conducted with results unfavorable to
the Company or any of its subsidiaries, could reasonably be expected to have a
Material Adverse Effect.
(j) Intellectual Property. Each of the Company and its subsidiaries
owns or is licensed to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, permits, inventions, discoveries, processes, scientific,
technical, engineering and marketing data, object and source codes, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) or other similar rights and/or
proprietary knowledge necessary for the conduct of its business as now being
conducted (collectively, "Intangibles"). To the best knowledge of the Company,
neither the Company nor any subsidiary of the Company infringes or is in
conflict with any right of any other person with respect to any Intangibles
which, if the subject of an unfavorable decision, ruling or finding, would have
a Material Adverse Effect. Neither the Company nor any of its subsidiaries has
received written notice of any pending conflict with or infringement upon such
third party Intangibles. Neither the Company nor any of its subsidiaries has
entered into any consent agreement, indemnification agreement, forbearance to
sue or settlement agreement with respect to the validity of the Company's or its
subsidiaries' ownership or right to use its Intangibles and, to the best
knowledge of the Company, there is no reasonable basis for any such claim to be
successful. The Intangibles are valid and enforceable and no registration
relating thereto has lapsed, expired or been abandoned or canceled or is the
subject of cancellation or other adversarial proceedings, and all applications
therefor are pending and in good standing except for such failures to be in good
standing that would not cause a Material Adverse Effect. The Company and its
subsidiaries have complied, in all material respects, with their respective
contractual obligations relating to the protection of the Intangibles used
pursuant to licenses. To the best knowledge of the Company, no person is
infringing on or violating the Intangibles owned or used by the Company or its
subsidiaries.
(k) Foreign Corrupt Practices. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
(l) Disclosure. All information relating to or concerning the Company
set forth in this Agreement or provided to the Purchaser pursuant to Section
2(d) hereof or otherwise in connection with the transactions contemplated hereby
is true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or exists with respect to the
Company or its subsidiaries or their respective businesses, properties,
prospects, operations or financial conditions, which has not been publicly
disclosed but, under applicable law, rule or regulation, would be required to be
disclosed by the Company in a registration statement filed on the date hereof by
the Company under the Securities Act with respect to a primary issuance of the
Company's securities.
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(m) Acknowledgment Regarding Purchaser's Purchase of the Securities.
The Company acknowledges and agrees that the Purchaser is not acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to this Agreement or the transactions contemplated hereby, the
relationship between the Company and the Purchaser is "arms-length" and any
statement made by the Purchaser or any of its representatives or agents in
connection with this Agreement and the transactions contemplated hereby is
merely incidental to the Purchaser's purchase of the Securities and has not been
relied upon by the Company, its officers or directors in any way. The Company
further acknowledges that the Company's decision to enter into this Agreement
has been based solely on an independent evaluation by the Company and its
representatives.
(n) Listing. The Company has secured the listing of the Conversion
Shares and Warrant Shares upon each national securities exchange or automated
quotation system upon which shares of Common Stock are currently listed (subject
to official notice of issuance).
(o) Form S-3 Eligibility. The Company is eligible to register the
resale of its Common Stock on a registration statement on Form S-3 under the
Securities Act. There exist no facts or circumstances that would prohibit or
delay the preparation and filing of a registration statement on Form S-3 with
respect to the Registrable Securities (as defined in the Registration Rights
Agreements). The Company has no basis to believe that its past or present
independent public auditors will withhold their consent to the inclusion, or
incorporation by reference, of their audit opinion concerning the Company's
financial statements which will be included in the Registration Statements
required to be filed pursuant to the Registration Rights Agreements.
(p) No General Solicitation. Neither the Company nor any distributor
participating on the Company's behalf in the transactions contemplated hereby
(if any) nor any person acting for the Company, or any such distributor, has
conducted any "general solicitation," as such term is defined in Regulation D,
with respect to any of the Securities being offered hereby.
(q) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would require registration of the
Securities being offered hereby under the Securities Act or cause this offering
of Securities to be integrated with any prior offering of securities of the
Company for purposes of the Securities Act, the result of such integration which
would require registration under the Securities Act, or any applicable
stockholder approval provisions, including, without limitation, Rule 4460(i) of
the NASD or any similar rule.
(r) No Brokers. The Company has taken no action that would give rise to
any claim by any person for brokerage commissions, finder's fees or similar
payments by the Purchaser relating to this Agreement or the transactions
contemplated hereby.
(s) Acknowledgment Regarding Securities. The number of Conversion
Shares issuable upon conversion of the Notes may increase in certain
circumstances, including if the bid price of the Common Stock declines. The
Company's executive officers have studied and fully understand the nature of the
Securities being sold hereunder. The Company acknowledges that its obligation to
issue Conversion Shares upon conversion of the Notes in accordance with the
terms of the Notes is absolute and unconditional, regardless of the dilution
that such issuance may have on the ownership interests of other stockholders.
Taking the foregoing into account, the Company's Board of Directors has
determined in its good faith business judgment that the issuance of the Notes
and Warrants hereunder and the consummation of the other transactions
contemplated hereby are in the best interests of the Company and its
stockholders.
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(t) Title. Except as set forth on Schedule 3(t) hereto, the Company and
its subsidiaries have good and marketable title in fee simple to all real
property and good and merchantable title to all personal property owned by them
that is material to the business of the Company and its subsidiaries, in each
case free and clear of all liens, encumbrances and defects except such as do not
materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company and
its subsidiaries. Any real property and facilities held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
materially interfere with the use made and proposed to be made of such property
and buildings by the Company and its subsidiaries.
(u) Tax Status. Except as set forth in the SEC Documents or in Schedule
3(u), the Company and each of its subsidiaries has made or filed all foreign,
U.S. federal, state and local income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provisions reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim. The Company has not executed a
waiver with respect to any statute of limitations relating to the assessment or
collection of any federal, state or local tax. None of the Company's tax returns
is presently being audited by any taxing authority.
(v) Key Employees. Each of the Company's directors, officers and any
Key Employee (as defined below) is currently serving the Company in the capacity
disclosed in the SEC Documents. No Key Employee, to the best of the knowledge of
the Company and its subsidiaries, is, or is now expected to be, in violation of
any material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued employment
of each Key Employee does not subject the Company or any of its subsidiaries to
any material liability with respect to any of the foregoing matters. No Key
Employee has, to the best of the knowledge of the Company and its subsidiaries,
any intention to terminate or limit his employment with, or services to, the
Company or any of its subsidiaries, nor is any such Key Employee subject to any
constraints which would cause such employee to be unable to devote his full time
and attention to such employment or services. "Key Employee" means the persons
listed on Schedule 3(v) and any individual who assumes or performs any of the
duties of a Key Employee.
(w) Insurance. Except as set forth in Schedule 3(w), The Company has in
force fire, casualty, product liability and other insurance policies, with
extended coverage, sufficient in amount to allow it to replace any of its
material properties or assets which might be damaged or destroyed or sufficient
to cover liabilities to which the Company may reasonably become subject, and
such types and amounts of other insurance with respect to its business and
properties, on both a per occurrence and an aggregate basis, as are customarily
carried by persons engaged in the same or similar business as the Company. No
default or event has occurred that could give rise to a default under any such
policy.
(x) Environmental Matters. There is no environmental litigation or
other environmental proceeding pending or threatened by any governmental
regulatory authority or others with respect to the current or any former
business of the Company or any partnership or joint venture currently or at any
time affiliated with the Company. No state of facts exists as to environmental
matters or Hazardous Substances (as defined below) that involves the reasonable
likelihood of a material capital expenditure by the Company or that may
otherwise have a Material Adverse Effect. No Hazardous Substances have been
treated, stored or disposed of, or otherwise deposited, in or on the properties
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owned or leased by the Company or by any partnership or joint venture currently
or at any time affiliated with the Company in violation of any applicable
environmental laws. The environmental compliance programs of the Company comply
in all respects with all environmental laws, whether federal, state or local,
currently in effect. As used herein, "Hazardous Substances" means any substance,
waste, contaminant, pollutant or material that has been determined by any
governmental authority to be capable of posing a risk of injury to health,
safety, property or the environment.
(y) VoIP International S.A. de C.V. The Company has terminated any and
all obligations of the Company and all rights of VoIP International S.A. de C.V.
("VoIP") under that certain Strategic Partner Agreement, dated as of March 9,
2000 by and between the Company and VOIP, as well as all obligations of the
Company and all rights of VoIP under the warrants to acquire shares of Common
Stock issued by the Company to VoIP pursuant to said Strategic Partner Agreement
and all obligations of the Company and all rights of any sales agent(s) under
the warrants to acquire shares of Common Stock issued by the Company in
connection with said Strategic Partner Agreement.
4. COVENANTS.
(a) Best Efforts. The parties shall use their best efforts timely to
satisfy each of the conditions described in Section 6 and Section 7 of this
Agreement.
(b) Form D: Blue Sky Laws. The Company shall file with the SEC a Form D
with respect to the Securities as required under Regulation D and provide a copy
thereof to the Purchaser promptly after such filing. The Company shall, on or
before the First Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Purchaser
pursuant to this Agreement under applicable securities or "blue sky" laws of the
states of the United States or obtain exemption therefrom, and shall provide
evidence of any such action so taken to the Purchaser on or prior to the First
Closing Date. Within five (5) trading days after the First Closing Date, the
Company shall file a Current Report on Form 8-K (the "Form 8-K") concerning this
Agreement and the transactions contemplated hereby, which Form 8-K shall attach
this Agreement and its Exhibits as exhibits to such Form 8-K.
(c) Reporting Status. So long as any Purchaser beneficially owns any of
the Securities, the Company shall timely file all reports required to be filed
with the SEC pursuant to the Exchange Act, and the Company shall not terminate
its status as an issuer required to file reports under the Exchange Act even if
the Exchange Act or the rules and regulations thereunder would permit such
termination. In addition, the Company shall take all actions necessary to meet
the "registrant eligibility" requirements set forth in the general instructions
to Form S-3 or any successor form thereto, to continue to be eligible to
register the resale of its Common Stock on a registration statement on Form S-3
under the Securities Act.
(d) Use of Proceeds. The Company shall use the proceeds from the sale
of the Notes and Warrants as set forth in Schedule 4(d).
(e) Additional Equity Capital. During the period beginning on the date
hereof and ending 180 days following the effective date of the Registration
Statement required to be filed by the Company pursuant to Section 2(a) of the
First Registration Rights Agreement (the "First Lock-Up Period"), as well as
during the period beginning on the Second Closing Date and ending 120 days
following the effective date of the Registration Statement required to be filed
by the Company pursuant to Section 2(a) of the Second Registration Rights
Agreement (the "Second Lock-Up Period"), the Company will not, without the prior
written consent of the Purchaser, contract with any party to obtain additional
financing in which any equity or equity-linked securities, having common stock
registration rights and/or public resale rights effective within one year after
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<PAGE>
the closing date of such additional financing, are issued (including any debt
financing with an equity component) (a "Future Offering"). In addition, the
Company will not conduct any Future Offering during the period beginning on the
date hereof and ending 180 days following the expiration of the First Lock-Up
Period, as well as during the period beginning on the Second Closing Date and
ending 120 days following the expiration of the Second Lock-Up Period, unless it
shall have first delivered to the Purchaser, at least ten (10) business days
prior to the closing of such Future Offering, written notice describing the
proposed Future Offering, including the terms and conditions thereof, and
providing the Purchaser and its affiliates an option during the ten (10)
business day period following delivery of such notice to purchase the securities
being offered in the Future Offering on the same terms as contemplated by such
Future Offering (the limitations referred to in this and the immediately
preceding sentence are collectively referred to as the "Capital Raising
Limitations"). The Capital Raising Limitations shall not apply to any
transaction involving issuances of securities as consideration in a merger,
consolidation or acquisition of assets, or in connection with any strategic
partnership or joint venture (the primary purpose of which is not to raise
equity capital), or as consideration for the acquisition of a business, product
or license by the Company. The Capital Raising Limitations also shall not apply
to (i) the issuance of securities pursuant to an underwritten public offering,
(ii) the issuance of securities upon exercise or conversion of the Company's
options, warrants or other convertible securities outstanding as of the date
hereof or (iii) the grant of additional options or warrants, or the issuance of
additional securities, under any Company stock option, bonus plan or restricted
stock plan for the benefit of the Company's employees or directors.
(f) Expenses. The Company shall pay to Heights Capital Management, Inc.
("Heights") at the First Closing, reimbursement for the out-of-pocket expenses
reasonably incurred by Heights and its affiliates and advisors in connection
with the negotiation, preparation, execution and delivery of this Agreement and
the other agreements to be executed in connection herewith, including, without
limitation, Heights' and its affiliates and advisors' reasonable due diligence
and attorneys' fees and expenses (the "Expenses"); provided, however, that
Heights shall be permitted to deduct all Expenses (subject to such maximum
amount) from the Purchase Price payable by Heights hereunder. In addition, from
time to time thereafter (including, without limitation, at the Second Closing,
if any), upon Heights' written request, the Company shall pay to Heights such
additional Expenses, if any, not covered by such payment, in each case to the
extent reasonably incurred by Heights or its affiliates or agents in connection
with the negotiation, preparation, execution and delivery of this Agreement and
the other agreements executed in connection herewith. Notwithstanding the
foregoing, the Company shall not be obligated to reimburse Heights for more than
$50,000 pursuant to this Section 4(f).
(g) Financial Information. So long as the Purchaser holds any of the
Notes, the Company shall send (via electronic transmission or otherwise) the
following reports to the Purchaser until the Purchaser transfers, assigns or
sells all of its Securities: (i) within five (5) days after the filing with the
SEC, a copy of its Annual Report on Form 10-K, its Quarterly Reports on Form
10-Q, its proxy statements and any Current Reports on Form 8-K; and (ii) within
one (1) day after release, copies of all press releases issued by the Company or
any of its subsidiaries.
(h) Reservation of Shares. The Company shall at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the full conversion of the Notes and
issuance of the Conversion Shares in connection therewith, the full exercise of
the Warrants and the issuance of the Warrant Shares in connection therewith and
as otherwise required by the Notes and the Warrants.
(i) Listing. The Company shall maintain, so long as the Purchaser (or
any of its affiliates) owns any Securities, the listing of all Conversion Shares
and Warrant Shares from time to time issuable upon conversion of the Notes and
exercise of the Warrants on each national securities exchange or automated
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quotation system on which shares of Common Stock are currently listed. The
Company will use its best efforts to continue the listing and trading of its
Common Stock on NASDAQ, the New York Stock Exchange ("NYSE") or the American
Stock Exchange ("AMEX") and will comply in all respects with the reporting,
filing and other obligations under the bylaws or rules of the NASD and such
exchanges, as applicable. The Company shall promptly provide to the Purchaser
copies of any notices it receives regarding the continued eligibility of the
Common Stock for trading on the NASDAQ or, if applicable, any securities
exchange or automated quotation system on which securities of the same class or
series issued by the Company are then listed or quoted, if any.
(j) Corporate Existence. So long as the Purchaser beneficially owns any
Securities, the Company shall maintain its corporate existence, and in the event
of a merger, consolidation or sale of all or substantially all of the Company's
assets, the Company shall ensure that the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
Registration Rights Agreements, the Notes and the Warrants and the agreements
and instruments entered into in connection herewith and therewith regardless of
whether or not the Company would have had a sufficient number of shares of
Common Stock authorized and available for issuance in order to effect the
conversion of all the Notes and exercise in full of all Warrants outstanding as
of the date of such transaction and (ii) is a publicly traded corporation whose
common stock is listed for trading on the NASDAQ, NYSE or AMEX. Notwithstanding
the foregoing, the Company covenants and agrees that it will not engage in any
merger, consolidation or sale of all or substantially all of its assets at any
time prior to the effectiveness of the Registration Statement required to be
filed pursuant to the Second Registration Rights Agreement without (A) providing
the Purchaser with written notice of such transaction at least 60 days prior to
the consummation of such transaction and (B) obtaining the written consent of
the Purchaser on or before the 10th day after the delivery of such notice by the
Company.
(k) No Integrated Offerings. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
Securities Act or cause this offering of the Securities to be integrated with
any other offering of securities by the Company for purposes of any stockholder
approval provision applicable to the Company or its securities.
(l) Legal Compliance. The Company shall conduct its business and the
business of its subsidiaries in compliance with all laws, ordinances or
regulations of governmental entities applicable to such businesses, except where
the failure to do so would not have a Material Adverse Effect.
(m) Redemptions and Dividends. So long as the Purchaser beneficially
owns any Notes, the Company shall not, without first obtaining the written
approval of the Purchaser, repurchase, redeem, or declare or pay any cash
dividend or distribution on, any shares of capital stock of the Company.
(n) Trading Restrictions. The Purchaser shall be not permitted to sell,
transfer or otherwise dispose of, during any 45 trading day period, more than
4.99% of the least number of shares of Common Stock issued and outstanding
during such 45 trading day period (other than dispositions to the Company).
(o) Inspection of Properties and Books. So long as the Purchaser shall
hold Notes in the aggregate principal amount of $1,000,000, the Purchaser and
its representatives and agents (collectively, the "Inspectors") shall have the
right, at the Purchaser's expense, to visit and inspect any of the properties of
the Company and of its subsidiaries, to examine the books of account and records
of the Company and of its subsidiaries, to make or be provided with copies and
extracts therefrom, to discuss the affairs, finances and accounts of the Company
and of its subsidiaries with, and to be advised as to the same by, its and their
officers, employees and independent public accountants (and by this provision
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the Company authorizes such accountants to discuss such affairs, finances and
accounts, whether or not a representative of the Company is present) all at such
reasonable times and intervals and to such reasonable extent as the Purchaser
may desire; provided, however, that each Inspector shall hold in confidence and
shall not make any disclosure (except to the Purchaser) of any such information
which the Company determines in good faith to be confidential, and of which
determination the Inspectors are so notified, unless (a) the disclosure of such
information is necessary to avoid or correct a misstatement or omission in any
Registration Statement filed pursuant to the Registration Rights Agreements, (b)
the release of such information is ordered pursuant to a subpoena or other order
from a court or government body of competent jurisdiction, or (c) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company shall not be
required to disclose any confidential information to any Inspector until and
unless such Inspector shall have entered into confidentiality agreements (in
form and substance satisfactory to the Company) with the Company with respect
thereto, substantially in the form of this Section 4(o). The Purchaser agrees
that it shall, upon learning that disclosure of such information is sought in or
by a court or governmental body of competent jurisdiction or through other
means, give prompt notice to the Company and allow the Company, at its expense,
to undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, the information deemed confidential.
(p) Stockholder Approval. If, on the effective date of the Registration
Statement filed pursuant to the First Registration Rights Agreement or the
Second Registration Rights Agreement, the Company is prohibited by Rule 4460(i)
of the NASD or any successor or similar rule, or the rules of any other
securities exchange on which the Common Stock is then listed or traded from
issuing all of the shares of Common Stock issuable upon complete conversion of
the Notes and complete exercise of the Warrants (without giving effect to the
limitations on conversion and exercise contained in Article III.D. of the Notes
and Section 7(g) of the Warrants), the Company shall call a meeting of its
stockholders to be held as promptly as practicable and in any event no later
than 90 days after the effective date of the applicable Registration Statement
for the purpose of voting upon and approving this Agreement, the Notes, the
Warrants and the Registration Rights Agreements, the authorization and issuance
of the Notes and the Warrants, and the issuance of the Conversion Shares upon
conversion of or otherwise pursuant to the Notes and the Warrant Shares upon
exercise of or otherwise pursuant to the Warrants. The Company shall, through
its Board of Directors, recommend to its stockholders approval of such matters.
The Company shall use its best efforts to solicit from its stockholders proxies
in favor of such matters sufficient to comply with all relevant legal
requirements, including, without limitation, Rule 4460(i) promulgated by the
NASD, and shall vote such proxies in favor of such matters.
5. TRANSFER AGENT INSTRUCTIONS.
(a) The Company shall instruct its transfer agent to issue
certificates, registered in the name of the Purchaser or its nominee, for the
Conversion Shares and the Warrant Shares in such amounts as specified from time
to time by the Purchaser to the Company upon conversion of the Notes or exercise
of the Warrants, as applicable. To the extent and during the periods provided in
Sections 2(f) and 2(g) of this Agreement, all such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement.
(b) The Company warrants that no instruction other than such
instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof in the case of the transfer of the Conversion
Shares or Warrant Shares prior to registration of the Conversion Shares and
Warrant Shares under the Securities Act or without an exemption therefrom, will
be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration Rights Agreements.
Nothing in this Section shall affect in any way the Purchaser's obligations and
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agreement set forth in Section 2(g) hereof to resell the Securities pursuant to
an effective registration statement or under an exemption from the registration
requirements of applicable securities law.
(c) If the Purchaser provides the Company and the transfer agent with
an opinion of counsel, which opinion of counsel shall be in form, substance and
scope customary for opinions of counsel in comparable transactions, to the
effect that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from registration, or the Purchaser provides the
Company with reasonable assurances that such Securities may be sold under Rule
144, the Company shall permit the transfer and, in the case of the Conversion
Shares and Warrant Shares, promptly instruct its transfer agent to issue one or
more certificates in such name and in such denominations as specified by the
Purchaser.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Notes and
Warrants to the Purchaser hereunder is subject to the satisfaction, at or before
the First Closing and the Second Closing, as applicable, of each of the
following conditions, provided that these conditions are for the Company's sole
benefit and may be waived by the Company at any time in its sole discretion.
(a) With respect to the First Closing and the Second Closing:
(i) The Purchaser shall have delivered the First Purchase
Price or the Second Purchase Price, as applicable, in accordance with Section
1(b) above.
(ii) The representations and warranties of the Purchaser shall
be true and correct as of the date when made and as of the First Closing Date
and the Second Closing Date, as applicable, as though made at that time (except
for representations and warranties that speak as of a specific date, which
representations and warranties shall be true and correct as of such date), and
the Purchaser shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Purchaser at or
prior to the First Closing Date and the Second Closing Date, as applicable.
(iii) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
7. CONDITIONS TO THE PURCHASER'S OBLIGATION TO PURCHASE.
The obligation of the Purchaser hereunder to purchase the Notes and
Warrants from the Company hereunder is subject to the satisfaction, at or before
the First Closing and the Second Closing, as applicable, of each of the
following conditions, provided that such conditions are for the Purchaser's sole
benefit and may be waived by the Purchaser at any time in the Purchaser's sole
discretion:
(a) With respect to the First Closing:
(i) The Company shall have executed this Agreement, the First
Notes, the First Warrants and the First Registration Rights Agreement, and
delivered executed original copies of the same to the Purchaser.
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(ii) The Company shall have delivered to the Purchaser duly
executed First Notes and First Warrants (each in such denominations as the
Purchaser shall request) in accordance with Section 1(b) above.
(iii) The Common Stock shall be listed on NASDAQ and trading
in the Common Stock (or NASDAQ generally) shall not have been suspended by the
SEC or NASDAQ.
(iv) The representations and warranties of the Company shall
be true and correct as of the date when made and as of the First Closing Date as
though made at that time (except for representations and warranties that speak
as of a specific date, which representations and warranties shall be true and
correct as of such date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the First Closing Date. The Purchaser shall have received
a certificate, executed by the Chief Executive Officer of the Company after
reasonable investigation, dated as of the First Closing Date, to the foregoing
effect and as to such other matters as may reasonably be requested by the
Purchaser.
(v) No statute, rule, regulation, executive order, decree,
ruling, injunction, action or proceeding shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over the
matters contemplated hereby which questions the validity of, challenges or
prohibits the consummation of, any of the transactions contemplated by this
Agreement.
(vi) The Purchaser shall have received an opinion of the
Company's counsel, dated as of the First Closing Date, in form, scope and
substance reasonably satisfactory to the Purchaser and in substantially the form
of Exhibit D attached hereto.
(vii) There shall have been no material adverse changes and no
material adverse developments in the business, properties, operations,
prospects, financial condition or results of operations of the Company and its
subsidiaries, since the date hereof, and no information, of which the Purchaser
is not currently aware, shall come to the attention of the Purchaser that is
materially adverse to the Company.
(viii) The Purchaser shall have received a certificate, dated
as of the First Closing Date, executed by the Secretary of the Company,
certifying as to: (A) the Company's articles of incorporation, (B) by-laws or
other governing documents, (C) resolutions, duly adopted by the Board of
Directors of the Company, which shall be in full force and effect at the time of
the First Closing, authorizing the execution, delivery and performance by the
Company of this Agreement, the Registration Rights Agreements, the Notes and the
Warrants and the consummation by the Company of the transactions contemplated
hereby and thereby, and (D) incumbency and signatures of the persons who have
executed this Agreement, the First Registration Rights Agreement, the First
Notes and the First Warrants and any other documents, certificates and
agreements to be executed and delivered at the First Closing by the Company
pursuant to this Agreement.
(b) With respect to the Second Closing:
(i) The Company shall have executed a Registration Rights
Agreement, in the form attached hereto a Exhibit C-2 (the "Second Registration
Rights Agreement") and delivered an executed original copy of the same to the
Purchaser.
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(ii) The Company shall have delivered to the Purchaser duly
executed Second Notes and Second Warrants (each in such denominations as the
Purchaser shall request) in accordance with Section 1(b) above.
(iii) The Common Stock shall be listed on NASDAQ and trading
in the Common Stock (or NASDAQ generally) shall not have been suspended by the
SEC or NASDAQ.
(iv) The representations and warranties of the Company shall
be true and correct as of the date when made and as of the Second Closing Date
as though made at that time (except for representations and warranties that
speak as of a specific date, which representations and warranties shall be true
and correct as of such date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Second Closing Date. The Purchaser shall have
received a certificate, executed by the Chief Executive Officer of the Company
after reasonable investigation, dated as of the Second Closing Date, to the
foregoing effect and as to such other matters as may reasonably be requested by
the Purchaser.
(v) No statute, rule, regulation, executive order, decree,
ruling, injunction, action or proceeding shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over the
matters contemplated hereby which questions the validity of, challenges or
prohibits the consummation of, any of the transactions contemplated by this
Agreement.
(vi) The Purchaser shall have received an opinion of the
Company's counsel, dated as of the Second Closing Date, in form, scope and
substance reasonably satisfactory to the Purchaser and in substantially the form
of Exhibit D attached hereto.
(vii) There shall have been no material adverse changes and no
material adverse developments in the business, properties, operations,
prospects, financial condition or results of operations of the Company and its
subsidiaries, since the date hereof, and no information, of which the Purchaser
is not currently aware, shall come to the attention of the Purchaser that is
materially adverse to the Company.
(viii) The Purchaser shall have received a certificate, dated
as of the Second Closing Date, executed by the Secretary of the Company,
certifying as to: (A) the Company's articles of incorporation, (B) by-laws or
other governing documents, (C) resolutions, duly adopted by the Board of
Directors of the Company, which shall be in full force and effect at the time of
the Second Closing, authorizing the execution, delivery and performance by the
Company of this Agreement, the Registration Rights Agreements, the Notes and the
Warrants and the consummation by the Company of the transactions contemplated
hereby and thereby, and (D) incumbency and signatures of the persons who have
executed the Second Registration Rights Agreement, the Second Notes and the
Second Warrants and any other documents, certificates and agreements to be
executed and delivered at the Second Closing by the Company pursuant to this
Agreement.
(ix) The Registration Statement required to be filed by the
Company pursuant to Section 2(a) of the First Registration Rights Agreement
shall have been declared effective by the SEC no later than the 120th day after
the First Closing Date and shall be effective and available for use by such
Purchaser as of the Second Closing Date.
17
<PAGE>
(x) The average of the Closing Bid Prices (as defined in the
Notes) of the Common Stock for the 20 trading days ending on the trading day
immediately prior to the Second Closing Date shall be greater than or equal to
$1.75.
(xi) The Company shall not be in default of any of its
obligations under this Agreement, the First Registration Rights Agreement, the
First Notes, the First Warrants or any other agreement with the Purchaser.
8. GOVERNING LAW; MISCELLANEOUS.
(a) Governing Law; Jurisdiction. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed in the State of New York. The Company and the
Purchaser irrevocably consent to the jurisdiction of the United States federal
courts and the state courts located in the State of New York in any suit or
proceeding based on or arising under this Agreement and irrevocably agree that
all claims in respect of such suit or proceeding may be determined in such
courts. The Company irrevocably waives the defense of an inconvenient forum to
the maintenance of such suit or proceeding. The Company further agrees that
service of process upon the Company mailed by first class mail shall be deemed
in every respect effective service of process upon the Company in any such suit
or proceeding. Nothing herein shall affect the right of the Purchaser to serve
process in any other manner permitted by law. The Company agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
(b) Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
In the event any signature is delivered by facsimile transmission, the party
using such means of delivery shall cause the manually executed Execution Page(s)
hereof to be physically delivered to the other party within five (5) days of the
execution hereof, provided that the failure to so deliver any manually executed
Execution Page shall not affect the validity or enforceability of this
Agreement.
(c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement or
the validity or enforceability of this Agreement in any other jurisdiction.
(e) Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the Purchaser, the
Company, their affiliates and persons acting on their behalf with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor the Purchaser makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived other than by an instrument in writing signed by
the party to be charged with enforcement and no provision of this Agreement may
be amended other than by an instrument in writing signed by the Company and the
Purchaser.
(f) Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally, by responsible overnight carrier or
18
<PAGE>
by confirmed facsimile, and shall be effective five (5) days after being placed
in the mail, if mailed, or upon receipt or refusal of receipt, if delivered
personally or by responsible overnight carrier or confirmed facsimile, in each
case addressed to a party. The addresses for such communications shall be:
If to the Company:
WaveRider Communications Inc.
255 Consumers Road, Suite 500
Toronto, Ontario, Canada M2J1R4
Facsimile: (416) 502-2968
Attn: Scott Worthington
with a copy simultaneously transmitted by like means to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109-2170
Facsimile: (617) 832-7000
Attn.: David Broadwin, Esquire
If to the Purchaser, to the address set forth under the
Purchaser's name on the execution page hereto.
Each party shall provide notice to the other party of any
change in address.
(g) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Except as
provided herein or therein, neither the Company nor the Purchaser shall assign
this Agreement or any rights or obligations hereunder. Notwithstanding the
foregoing, the Purchaser may assign its rights hereunder to any of its
"affiliates," as that term is defined under the Exchange Act, without the
consent of the Company or to any other person or entity with the consent of the
Company, which consent shall not be unreasonably withheld. This provision shall
not limit the Purchaser's right to transfer the Securities pursuant to the terms
of the Notes, the Warrants and this Agreement or to assign the Purchaser's
rights hereunder or thereunder to any such transferee. In addition, and
notwithstanding anything to the contrary contained in this Agreement, the
Registration Rights Agreements, the Notes or the Warrants, the Securities may be
pledged and all rights of the Purchaser under this Agreement or any other
agreement or document related to the transactions contemplated hereby may be
assigned, without further consent of the Company, to a bona fide pledgee in
connection with the Purchaser's margin or brokerage account.
(h) Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person; provided that Section 4(f) may be enforced by Heights.
(i) Survival. The representations and warranties of the Company and the
agreements and covenants set forth in Sections 3, 4, 5 and 8 hereof shall
survive the Closing notwithstanding any due diligence investigation conducted by
or on behalf of the Purchaser. Moreover, none of the representations and
warranties made by the Company herein shall act as a waiver of any rights or
remedies the Purchaser may have under applicable U.S. federal or state
securities laws. The Company shall indemnify and hold harmless the Purchaser and
each of the Purchaser's officers, directors, employees, partners, members,
agents and affiliates for all losses or damages arising as a result of or
19
<PAGE>
related to any breach or alleged breach by the Company of any of its
representations or covenants set forth herein, including advancement of expenses
as they are incurred.
(j) Publicity. The Company and the Purchaser shall have the right to
approve before issuance any press releases, SEC or NASD filings, or any other
public statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of the Purchaser, to make any press release or SEC or NASD filings with
respect to such transactions as is required by applicable law and regulations
(although the Purchaser shall be consulted by the Company in connection with any
such press release and filing prior to its release and shall be provided with a
copy thereof).
(k) Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(l) Termination. In the event that the Closing shall not have occurred
on or before December 12, 2000, unless the parties agree otherwise, this
Agreement shall terminate at the close of business on such date. Notwithstanding
any termination of this Agreement, any party not in breach of this Agreement
shall preserve all rights and remedies it may have against another party hereto
for a breach of this Agreement prior to or relating to the termination hereof.
(m) Joint Participation in Drafting. Each party to this Agreement has
participated in the negotiation and drafting of this Agreement, the Notes, the
Warrants and the Registration Rights Agreements. As such, the language used
herein and therein shall be deemed to be the language chosen by the parties
hereto to express their mutual intent, and no rule of strict construction will
be applied against any party to this Agreement.
(n) Equitable Relief. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Purchaser by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations hereunder (including, but not limited to, its obligations pursuant
to Section 5 hereof) will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement (including,
but not limited to, its obligations pursuant to Section 5 hereof), that the
Purchaser shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate issuance and transfer
of the Securities, without the necessity of showing economic loss and without
any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
20
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
WAVERIDER COMMUNICATIONS INC.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
PURCHASER:
CAPITAL VENTURES INTERNATIONAL
By: Heights Capital Management, Inc.
its authorized agent
By:
-------------------------------------
Name:
Title:
RESIDENCE: Cayman Islands
ADDRESS: c/o Heights Capital Management, Inc.
425 California Street, Suite 1100
San Francisco, California 94104
Telecopy: (415) 403-6525
Attention: Andrew Frost
With a copy to:
Heights Capital Management, Inc.
401 City Avenue, Suite 220
Bala Cynwyd, Pennsylvania 19004
Telecopy: (610) 617-3020
Attention: Todd L. Silverberg
21
<PAGE>
WaveRider Communications Inc.
SCHEDULE 3(d)
Capitalization Table
See attached Capital Stock Dilution table as at November 30, 2000
List of Options and Warrants
See attached schedules to the Capital Stock Dilution table.
The Company has three stock option plans and one stock purchase plan available
for awards. Included in the documentation are the Company's proxy circulars for
the annual meetings held May 28, 1999 and July 7, 2000. In these documents are
the full descriptions of the 1999 Incentive and Nonqualified Stock Option Plan,
the Employee Stock Option (1997) Plan, the Employee Stock Option (2000) Plan and
the Employee Stock Purchase (2000) Plan.
The following is a summary of the number of shares authorized under each plan
and the number awarded:
<TABLE>
<CAPTION>
Plan Authorized Awarded
-------------------------------- ---------- ---------
<S> <C> <C>
Employee Stock Option (1997) Plan ........................... 6,250,000 6,142,992
1999 Incentive and Nonqualified Stock Option Plan ........... 3,000,000 2,984,860
Employee Stock Option (2000) Plan ........................... 6,000,000 2,242,562
Employee Stock Purchase (2000) Plan ......................... 3,000,000 First Plan Open
</TABLE>
Registration statements have been filed with the SEC for all of these plans.
Agreements or Arrangements to Register Shares
Avondale Capital Partners, Inc.
As part of the transaction with Heights Capital Management, the Company has
committed to pay a finder's fee in a maximum amount of $400,000. In addition,
the Company will issue up to 50,000 warrants to the finder as part of the fee.
25,000 of the warrants will be issued upon the first closing and 25,000 will be
issued upon the second closing.
The warrants will be for a 5 year period and will be priced at 150% of the
market price at the closing date. In connection with the offering, the Company
has committed to register the warrants as part of the Heights registration
statement.
ADE Network Technology Pty. Ltd. ("ADE")
In conjunction with the acquisition of ADE on October 1, 2000, the Company
committed to paying the former shareholders a minimum of $4,000,000 Australian
(approximately $2.13 Million US) in four equal installments. The first of these
installments was paid in cash at closing but the remaining three installments,
payable quarterly, may be paid, at the Company's discretion, in cash, stock or a
combination of each.
In addition, the Company has committed to pay the former shareholders up to
$900,000 Australian (approximately $480,000 US) in additional compensation,
calculated at 40% of revenues, for the 12 months ended September 31, 2001, in
excess of $7.5 Million Australian. This compensation, payable prior to December
2001, can be paid in cash, stock or a combination of each, at the Company's
discretion.
22
<PAGE>
Finally, as part of the acquisition, the Company has committed to paying the
Managing Director of ADE, who remained with the Company after the acquisition, a
special bonus of up to $1,100,000 Australian (approximately $600,000 US)
calculated at 40% of revenues, for the 12 months ended September 31, 2001, in
excess of $9,750,000 Australian. This compensation, payable prior to December
2001, can be paid in cash, stock or a combination of each, at the Company's
discretion.
In order to provide flexibility in how the payment may be made, the Company has
filed a S-3 registration statement, registering 1,000,000 shares of common stock
for this purpose. The registration statement has been reviewed by the SEC and
will be declared effective upon the completion of certain amendments.
Warrants
Included with the capitalization table is a schedule of all outstanding
warrants. Each of these warrants has been registered under a registration
statement, in the form of S-3. Copies of the warrants or form of warrants for
each type have been attached to the schedule.
The Warrants from private placement #5, 500,000 @ $1.50, have anti-dilution
provisions which only takes effect if the Company were to reduce the shares
outstanding through a reverse split (consolidation) of the common stock. It does
not provide for any adjustment due to new issues of common stock in a market
transaction or due to an increase in shares through a share split, stock
dividend or any other means.
The Warrants from private placement #6, 33,751 @ $4.00, have an anti-dilution
provision related to any change in the capital stock through a stock dividend,
subdivision or combination of stock or issue of shares in a reclassification.
There is no provision for adjustment due to new issues of common stock in a
market transaction.
The Groome Warrants, 600,268 @ $2.00, have an anti-dilution provision related to
any change in the capital stock through a stock dividend, subdivision or
combination of stock or issue of shares in a reclassification. There is no
provision for adjustment due to new issues of common stock in a market
transaction.
The VoIP Warrants, 4,500,000 @ $3.15 and 55,000 @ $6.81, have an anti-dilution
provision related to any change in the capital stock through a stock dividend,
subdivision or combination of stock or issue of shares in a reclassification.
There is no provision for adjustment due to new issues of common stock in a
market transaction.
23
<PAGE>
WaveRider Communications Inc.
Capital Stock Dilution
As at November 30, 2000
Authorized
Common stock, $0.001 par value 200,000,000
Preferred stock, $0.001 par value 5,000,000
Issued and Outstanding
Common Shares Outstanding for Accounting Purposes 55,121,898
Common Shares held in Escrow
(See Performance Milestones) 7,650,000
===========
Total Common Shares Outstanding 62,771,898
Warrants Outstanding (See attached)
Vested 1,134,019
Unvested (Note - Cancelled in December 2000) 4,555,000 5,689,019
---------
4,555,000
===========
Options Outstanding
Vested 3,038,137
Unvested 4,811,430 7,849,567
----------------------
4,811,430
===========
Fully Diluted as of November 30, 2000 76,310,484
===========
Performance Milestones for Release of Escrow Shares
"Prototype" refers to the LMS system enabling wireless transmission. "Gross
Revenue" includes all cumulative revenue generated by WaveRider whether from the
lease or sale of equipment or otherwise, but does not include any taxes required
to be collected by WaveRider with respect to same.
<TABLE>
<CAPTION>
Milestone Percent Released Status
------------------------------------------------------------ ---------------- ---------
<S> <C> <C>
1 Prototype development for the LMS system completed .................... 5% completed
2 Prototype for the LMS system operational in one community ............. 10% completed
3 At least 25 purchase orders for LMS systems have been received from ... 15%
qualified purchasers having a minimum total value of CDN$5 Million
4 At least 25 LMS systems representing a minimum total revenue of CDN$5.. 15%
Million have been installed and are operational
5 Gross revenue exceeds CDN$10 Million .................................. 25%
6 Gross revenue exceeds CDN$25 Million .................................. 30%
</TABLE>
24
<PAGE>
WaveRider Communications
Outstanding Warrants
As at November 30, 2000
<TABLE>
<CAPTION>
Total Exercise Potential 10-K
Placement Number Exercised Balance Price Cash Reference
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PP5 250,000 250,000 $ 1.50 $ 375,000
PP5 250,000 250,000 $ 1.50 $ 375,000
---------------------------------------------------------------------------------
PP5 Total 500,000 - 500,000 $ 750,000 Note 12(B)(vii)
---------------------------------------------------------------------------------
PP6 25,313 25,313 $ 4.00 $ 101,252
PP6 8,438 8,438 $ 4.00 $ 33,752
---------------------------------------------------------------------------------
PP6 Total 1,050,000 1,016,249 33,751 $ 135,004 Note 12(B)(v)
---------------------------------------------------------------------------------
Groome 37,778 32,278 5,500 $ 2.00 $ 11,000
Groome 75,556 5,000 70,556 $ 2.00 $ 141,112
Groome 37,778 37,778 $ 2.00 $ 75,556
Groome 130,277 75,277 55,000 $ 2.00 $ 110,000
Groome 37,778 31,900 5,878 $ 2.00 $ 11,756
Groome 250,000 250,000 $ 2.00 $ 500,000
Groome 37,778 10,000 27,778 $ 2.00 $ 55,556
Groome 75,000 25,000 50,000 $ 2.00 $ 100,000
Groome 37,778 27,778 10,000 $ 2.00 $ 20,000
Groome 37,778 37,778 $ 2.00 $ 75,556
Groome 50,000 50,000 $ 2.00 $ 100,000
---------------------------------------------------------------------------
Groome Total 2,222,222 1,621,954 600,268 $ 1,200,536 Note 12(B)(xii)
---------------------------------------------------------------------------
See Note 1 4,500,000 4,500,000 $ 3.15 $ 14,175,000
Below 55,000 55,000 $ 6.81 $ 374,688
------------------------------------------ --------------------
VoIP Total 4,555,000 4,555,000 $ 14,549,688 Note 20
-
------------------------------------------ --------------------
12,155,369 6,466,350 5,689,019 $ 16,635,228
========================================== ====================
</TABLE>
Note 1 These warrants were issued in connection with the VoIP Distribution
Agreement and were to be exerciseable in stages upon achievement of
certain revenue milestones. None of the milestones were achieved and
the agreement has subsequently been cancelled.
25
<PAGE>
WaveRider Communications Inc.
Extracts of Notes from the Company's
10-K for the Year ended December 31, 1999
(Copy of Annual Report Attached)
12. SHARE CAPITAL
B Issued share capital
v) Common share purchase agreement - Under a Common Share Purchase
Agreement dated December 29, 1998, the Company entered into an
arrangement to sell up to an aggregate amount of $10,000,000 of common
stock in three tranches and to issue four groups of warrants.
On December 29th, 1998 the Company issued 1,167,860 common shares in
the First Tranche at $2.57 per share for cash proceeds of $3,000,000.
On June 4, 1999, the Company issued 1,660,945 common share in the
Second Tranche at $1.81 per share for cash proceeds of $3,000,000.
During the third quarter of 1999, the Company informed the investors
that it would not be taking up its option to sell the Third and Final
Tranche of shares to the investors.
In 1998, as part of the agreement, the Company issued to the investors
four groups of warrants as follows: 225,000 with an exercise price of
$2.00, 225,000 with an exercise price of $2.61, 225,000 with an
exercise price of $3.00 and 225,000 with and exercise price of $4.00.
Each warrant entitles the holder to acquire one common share at the
specified exercise price. The warrants expire on December 29, 2003.
vii) Series G Warrants - As a commitment fee for the right to issue up to
$2,000,000 in convertible debentures to certain investors, the Company
issued the investors warrants to purchase 500,000 common shares at an
exercise price of $1.50 per share. The warrants expire on December 15,
2003. The warrants have been recorded at their fair value of $313,325
with the costs charged to the consolidated statement of loss in 1998.
The Company terminated the debenture agreement on January 8, 1999
without drawing any funds.
xii) Public Underwriting - On December 20, 1999, the Company entered into an
Underwriting Agreement with Groome Capital.com Inc. ("Groome"). Under
the terms of the agreement, the Company sold 4,444,444 common stock
units, consisting of one common share and one-half common share
purchase warrant, for $1.35 per unit. The sale of units was completed
on December 23, 1999 and the Company received cash proceeds of
$6,000,000 less fees of $607,500. In addition, the Company issued to
Groome with 444,444 Underwriter warrants which provide Groome with the
right to purchase 444,444 common share units at $1.35 per unit for up
to 2 years after the offering. Based on the fair value of the
underlying instruments within the common share unit, $4,069,664 of the
total proceeds was allocated to common shares, $898,792 was allocated
to the share purchase warrants and the balance of $424,044 was
allocated to the Underwriter warrants
20. SUBSEQUENT EVENTS
Memorandum of Understanding
On February 2, 2000, the Company entered into a memorandum of
understanding (MOU) with VoIP International S.A. de C.V. ("VoIP"), a
company incorporated in Mexico, pending a formal agreement. When the
terms of the MOU are ratified by formal agreement, WaveRider would
grant VoIP exclusive rights to market WaveRider products in Mexico in
exchange for commitments to procure a minimum of $28,000,000 of
WaveRider products. As an incentive, WaveRider would issue to VoIP
4,500,000 Common Stock Purchase Warrants which VoIP will earn based on
achievement of the minimum commitments.
26
<PAGE>
SCHEDULE 3(t)
Title to Assets
The Company has clear title to all assets owned by it and its subsidiaries, with
the exception of a registered mortgage debenture over the whole of the assets of
ADE Network Technology Pty. Ltd. The Debenture is security for an overdraft
facility and a Business Combination Loan provided by the National Australia Bank
Limited.
In addition, the Company and its subsidiaries have entered into a number of
lease agreements for the acquisition of capital assets. All of these leases are
current and there are no outstanding nor anticipated default conditions.
SCHEDULE 3(u)
Tax Returns
The Company has been working with its legal and accounting advisors to determine
the best method of handling the ownership of intellectual property within the
Corporate group. As a result, a number of the Company's tax returns have been
delayed. In all cases the returns will be filed with a loss for the respective
periods and we do not anticipate any tax liabilities or penalties to accrue due
to the delays. The following is the status of filing by Company:
WaveRider Communications Inc. - 1998 & 1999 outstanding
WaveRider Communications (Canada) Inc. - 1998 & 1999 outstanding
WaveRider Communications (USA) Inc. - 1999 outstanding
JetStream Internet Services Inc. - current on all filings
ADE Network Technology Pty. Ltd. - current on all filings
SCHEDULE 3(v)
NONE
SCHEDULE 3(w)
See SEC filings regarding sufficiency of insurance coverage.
SCHEDULE 4(d)
Use of Proceeds
Proceeds from the sale of the convertible notes and the exercise of warrants
will be used for working capital and the general operations of the Company and
its subsidiaries.
27
<PAGE>
WAVERIDER COMMUNICATIONS INC.
Exhibits to Securities Purchase Agreement
Dated December 8, 2000
The following Exhibits referenced in the Securities Purchase Agreement ("SPA"),
dated December 8, 2000, between WaveRider Communications Inc. and Capital
Ventures International have been included in this document as 8-K exhibits:
Document Description SPA Exhibit No. 8K Exhibit No.
Convertible Note (First) A-1 10.2
Convertible Note (Second) A-2 10.3
Class J Warrant B-1 10.4
Class K Warrant B-2 10.5
Class L Warrant B-3 10.6
Registration Rights Agreement (First) C-1 10.7
Registration Rights Agreement (Second) C-2 10.8
28
