EXHIBIT 10.3
THIS CONVERTIBLE NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF 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.
CONVERTIBLE NOTE
Date: __________, 2001 $__________
FOR VALUE RECEIVED, WAVERIDER COMMUNICATIONS INC., a corporation
organized under the laws of the State of Nevada (the "Corporation"), hereby
promises to pay to the order of CAPITAL VENTURES INTERNATIONAL or any assign
registered on the books and records of the Corporation (individually, the
"Holder," and collectively with the holders of all other notes of same like and
tenor, the "Holders") the sum of __________ Dollars ($__________) on the second
anniversary of the date hereof (the "Scheduled Maturity Date"), and to pay
interest on the unpaid principal balance hereof for each year (or portion
thereof) that this Note is outstanding prior to the Effective Date of Mandatory
Conversion (as defined herein) in an amount equal to 6% per annum, compounded
annually. Interest shall accrue on the unpaid principal balance hereof from the
date hereof (the "Issue Date") until the earlier of the Effective Date of
Mandatory Conversion and the date the same becomes due and payable, whether at
maturity or upon prepayment, repayment or otherwise. Any amounts on this Note
which are not paid when due shall bear interest at the rate equal to the lower
of 18% per annum and the highest rate permitted by law from the due date thereof
until the same is paid. Interest shall be calculated based on a 360-day year and
shall commence accruing on the Issue Date and, to the extent not converted in
accordance with the provisions hereof, shall be payable in arrears at such time
as the outstanding principal balance hereof with respect to which such interest
has accrued becomes due and payable hereunder. All payments of principal and
interest (to the extent not converted in accordance with the terms hereof) shall
be made in, and all references herein to monetary denominations shall refer to,
lawful money of the United States of America. All payments shall be made at such
address as the Holder shall have given or shall hereafter give to the
Corporation by written notice in accordance with the provisions of this Note.
This Note is being issued by the Corporation along with similar
convertible term notes, some of which are dated December 8, 2000 and some of
which are dated the date hereof (the "Other Notes" and, together with this Note,
the "Notes"), pursuant to that certain Securities Purchase Agreement, dated as
of December 8, 2000, by and between the Corporation and the other signatory
thereto (the "Securities Purchase Agreement").
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ARTICLE I
PREPAYMENT
Upon the occurrence of an Event of Default (as defined below) and the
election by the Holder to require prepayment, this Note shall be prepaid by the
Corporation in accordance with the provisions of Article VIII hereof. This Note
may not be prepaid at the option of the Corporation without the prior written
consent of the Holder.
ARTICLE II
CERTAIN DEFINITIONS
The following terms shall have the following meanings:
A. "Closing Bid Price" means, for any security as of any date, the
closing bid price of such security on the principal United States securities
exchange or trading market where such security is listed or traded as reported
by Bloomberg Financial Markets (or a comparable reporting service of national
reputation selected by the Corporation and reasonably acceptable to Holders of a
majority of the aggregate principal amount represented by the then outstanding
Notes ("Majority Holders") if Bloomberg Financial Markets is not then reporting
closing bid prices of such security) (collectively, "Bloomberg"), or if the
foregoing does not apply, the last reported sale price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no sale price is reported for such security by
Bloomberg, the average of the bid prices of all market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc., in each
case for such date or, if such date was not a trading date for such security, on
the next preceding date which was a trading date. If the Closing Bid Price
cannot be calculated for such security as of either of such dates on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as reasonably determined by an investment banking firm
selected by the Corporation and reasonably acceptable to the Majority Holders,
with the costs of such appraisal to be borne by the Corporation.
B. "Conversion Amount" means the portion of the principal amount of
this Note being converted plus any accrued and unpaid interest thereon through
the Conversion Date and, at the option of the Holder, any penalties due under
Article V and any Default Amounts due under Article VI hereof, each as specified
in the notice of conversion in the form attached hereto (the "Notice of
Conversion").
C. "Conversion Date" means, for any Optional Conversion (as defined
below), the date specified in the Notice of Conversion so long as the copy of
the Notice of Conversion is faxed (or delivered by other means resulting in
notice) to the Corporation at or before 11:59 p.m., New York City time, on the
Conversion Date indicated in the Notice of Conversion; provided, however, that
if the Notice of Conversion is not so faxed or otherwise delivered before such
time, then the Conversion Date shall be the date the Holder faxes or otherwise
delivers the Notice of Conversion to the Corporation.
D. "Conversion Price" shall initially be $2.64 on the Issue Date and,
upon the Effective Date of Mandatory Conversion, shall be reduced (if lower) to
90% of the Market Price of the Corporation's common stock, par value $.001 per
share ("Common Stock") on the Effective Date of Mandatory Conversion, and shall
be subject to further adjustment as provided herein. For the avoidance of doubt,
no adjustment to the Conversion Price shall be made on the Effective Date of
Mandatory Conversion pursuant to this definition if such adjustment would result
in an increase to the Conversion Price then in effect.
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E. "Market Price" shall mean, as of any date of determination, the
average Closing Bid Price during the twenty (20) trading days immediately prior
to such date, but in no event greater than the Closing Bid Price on the trading
day immediately prior to such date.
F. "Warrants" shall mean all warrants issued by the Corporation to the
initial Holder pursuant to the Securities Purchase Agreement.
ARTICLE III
CONVERSION
A. Conversion at the Option of the Holder. Subject to the limitations
on conversions contained in Paragraph D of this Article III, the Holder may, at
any time and from time to time, convert (an "Optional Conversion") all or any
part of the outstanding principal amount of this Note, plus all accrued interest
thereon through the Conversion Date, into a number of fully paid and
nonassessable shares of Common Stock determined in accordance with the following
formula:
Conversion Amount
Conversion Price
B. Mechanics of Conversion. In order to effect an Optional Conversion,
a Holder shall: (x) fax (or otherwise deliver) a copy of the fully executed
Notice of Conversion (in the form of Exhibit 1) to the Corporation and (y)
surrender or cause to be surrendered this Note, duly endorsed, along with a copy
of the Notice of Conversion as soon as practicable thereafter to the
Corporation. Upon receipt by the Corporation of a facsimile copy of a Notice of
Conversion from a Holder, the Corporation shall immediately send, via facsimile,
a confirmation to such Holder stating that the Notice of Conversion has been
received, the date upon which the Corporation expects to deliver the Common
Stock issuable upon such conversion and the name and telephone number of a
contact person at the Corporation regarding the conversion. The Corporation
shall not be obligated to issue shares of Common Stock upon a conversion unless
either this Note is delivered to the Corporation as provided above, or the
Holder notifies the Corporation or the transfer agent that this Note has been
lost, stolen or destroyed and delivers the documentation to the Corporation
required by Article IX.H hereof.
(i) Delivery of Common Stock Upon Conversion. Upon the
surrender of this Note accompanied by a Notice of Conversion, the Corporation
shall, no later than the later of (a) the third business day following the
Conversion Date and (b) the business day following the date of such surrender
(or, in the case of lost, stolen or destroyed certificates, after delivery of
the documentation required by Article IX.H) (the "Delivery Period"), issue and
deliver to the Holder or its nominee (x) that number of shares of Common Stock
issuable upon conversion of the portion of this Note being converted and (y) a
new Note in the form hereof representing the balance of the principal amount
hereof not being converted, if any. If the Corporation's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, and so long as the certificates therefor do not bear a legend
and the Holder thereof is not then required to return such certificate for the
placement of a legend thereon, the Corporation shall cause its transfer agent to
electronically transmit the Common Stock issuable upon conversion to the Holder
by crediting the account of the Holder or its nominee with DTC through its
Deposit Withdrawal Agent Commission system ("DTC Transfer"). If the
aforementioned conditions to a DTC Transfer are not satisfied, the Corporation
shall deliver to the Holder physical certificates representing the Common Stock
issuable upon conversion. Further, a Holder may instruct the Corporation to
deliver to the Holder physical certificates representing the Common Stock
issuable upon conversion in lieu of delivering such shares by way of DTC
Transfer.
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(ii) Taxes. The Corporation shall pay any and all taxes that
may be imposed upon it with respect to the issuance and delivery of the shares
of Common Stock upon the conversion of this Note.
(iii) No Fractional Shares. If any conversion of this Note
would result in the issuance of a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon conversion of the Notes shall be the nearest whole number of
shares.
(iv) Conversion Disputes. In the case of any dispute with respect to a
conversion, the Corporation shall promptly issue such number of shares of Common
Stock as are not disputed in accordance with subparagraph (i) above.
C. Mandatory Conversion
(i) If at any time all of the Required Conditions (as defined
in subparagraph (ii) below) are satisfied, subject to the limitations set forth
in Article III.D, the outstanding principal amount of this Note, plus all
accrued interest thereon, shall be automatically converted (a "Mandatory
Conversion") into a number of fully paid and nonassessable shares of Common
Stock at the Conversion Price. The Holder shall have the right to waive any or
all of the Required Conditions, and upon such waiver the Required Condition(s)
so waived shall be deemed to be satisfied. The date on which all of the Required
Conditions are satisfied is referred to as the "Effective Date of Mandatory
Conversion." The Corporation shall use its best efforts to provide the Holder at
least three business days' advance written notice of the Effective Date of
Mandatory Conversion and shall, in any event, provide the Holder written notice
that the Required Conditions have been satisfied and a Mandatory Conversion has
occurred within two business days after the Effective Date of Mandatory
Conversion. Thereafter, the Corporation and the Holders shall follow the
applicable conversion procedures set forth in Article III.B (including the
requirement that the Holder deliver this Note to the Corporation); provided,
however, that the Holder shall not be required to deliver a Notice of Conversion
to the Corporation.
(ii) The "Required Conditions" shall consist of the following:
(1) the Registration Statement required to be filed by the Corporation
pursuant to Section 2(a) of the Registration Rights Agreement, dated as of the
date hereof, by and between the Corporation and the initial Holder (the
"Registration Rights Agreement") shall have been declared effective by the
Securities and Exchange Commission (the date of such effectiveness hereinafter
referred to as, the "Registration Statement Effective Date") (it being
understood that the Corporation shall comply with its obligations under Article
3 of the Registration Rights Agreement relating to the effectiveness of the
Registration Statement);
(2) all shares of Common Stock issuable upon conversion of the Notes
and exercise of the Warrants are then (a) authorized and reserved for issuance,
(b) registered under the Securities Act for resale by the Holders and (c)
eligible to be listed or traded on any of the New York Stock Exchange ("NYSE"),
the American Stock Exchange ("AMEX") or the NASDAQ (or the successor to any of
them);
(3) no Event of Default (as defined in Article VI below) shall have
occurred without having been cured, and no Event of Default (as defined in
Article VI of the Convertible Notes, dated December 8, 2000, issued by the
Corporation to the initial Holder pursuant to the Securities Purchase Agreement
(the "First Notes"), shall have occurred without having been cured; and
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(4) all amounts, if any, then accrued or payable under this Note or the
First Notes (other than principal and accrued interest that is convertible
pursuant to the terms hereof or thereof) or the Registration Rights Agreement
shall have been paid.
(iii) On the first anniversary of the Effective Date of Mandatory
Conversion, if all of the Required Conditions are then satisfied, the
outstanding principal amount of this Note, if any, plus all interest accrued
thereon through the Effective Date of Mandatory Conversion, shall be
automatically converted (without giving effect to the limitations set forth in
Article III.D(ii)) into a number of fully paid and nonassessable shares of
Common Stock at the Conversion Price.
D. Limitations on Conversions. The conversion of this Note shall be
subject to the following limitations (each of which limitations shall be applied
independently):
(i) Cap Amount. If the Corporation is prohibited by Rule 4460(i) of the
National Association of Securities Dealers, Inc. ("NASD"), or any successor or
similar rule, or the rules or regulations of any other securities exchange on
which the Common Stock is then listed or traded, from issuing a number of shares
of Common Stock upon conversion of this Note and exercise of the Warrants in
excess of a prescribed amount (the "Cap Amount"), then the Corporation shall not
issue shares upon conversion of this Note or exercise of the Warrants in excess
of the Cap Amount; provided, however, that this limitation in this Article III.D
(i) shall not apply and shall be of no further force and effect after the date
of the effectiveness of the shareholder approval (the "Shareholder Approval
Date") referred to in Section 4(q) of the Securities Purchase Agreement. In the
event the Corporation is prohibited from issuing shares of Common Stock as a
result of the operation of this subparagraph (i), the Corporation shall comply
with Article V.
(ii) No Five Percent Holders. In no event shall a Holder of
the Notes or the Corporation have the right to convert any portion of this Note
(whether in an Optional Conversion or a Mandatory Conversion or otherwise) into
shares of Common Stock or to dispose of any portion of this Note to the extent
that such right to effect such conversion or disposition would result in the
Holder or any of its affiliates beneficially owning more than 4.99% of the
outstanding shares of Common Stock. For purposes of this subparagraph,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13 D-G thereunder.
To the extent that the limitation contained in this paragraph applies, the
Corporation may request a certification from the Holder setting forth the
Holder's determination that the Conversion specified will not violate this
limitation. The restriction contained in this subparagraph D shall not be
altered, amended, deleted or changed in any manner whatsoever unless the holders
of a majority of the outstanding shares of Common Stock, the Holder and the
Holders of a majority of the outstanding principal amount of the Notes shall
approve, in writing, such alteration, amendment, deletion or change.
ARTICLE IV
RESERVATION OF SHARES OF COMMON STOCK
Reserved Amount. On the Issue Date, the Corporation shall reserve
_______________ [200% of Second Closing Conversion Shares plus 100% of Second
Closing Warrant Shares] shares of its authorized but unissued shares of Common
Stock for issuance upon conversion of the Notes and exercise of the Warrants,
and thereafter the number of authorized but unissued shares of Common Stock so
reserved (the "Reserved Amount") shall at all times be sufficient to provide for
the conversion of the Notes in their entirety (including an amount equal to the
interest that would accrue over a two-year period on the original principal
balance of this Note) at the Conversion Price, taking into account any
adjustments pursuant to Article VII hereof, and to provide for any shares of
Common Stock issued or then issuable as a result of a Conversion Default
hereunder, the occurrence of an Event of Default hereunder, the exercise of the
Warrants or any other payment convertible into shares of Common Stock pursuant
to the terms hereof or the Registration Rights Agreement.
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ARTICLE V
FAILURE TO SATISFY CONVERSIONS
A. Conversion Defaults; Adjustments to Conversion Price. The following
shall constitute a "Conversion Default": (i) following the submission by a
Holder of a Notice of Conversion, the Corporation fails for any reason (except
for the reasons contemplated in Article III.D.) to deliver, in accordance with
the delivery instructions contained in the Notice of Conversion, on or prior to
the fifth trading day following the expiration of the Delivery Period for such
conversion, such number of shares of Common Stock to which such Holder is
entitled upon such conversion or (ii) the Corporation provides notice (or
otherwise indicates) to any Holder at any time of its intention not to issue
shares of Common Stock upon exercise by any Holder of its conversion rights in
accordance with the terms of the Notes, or (iii) the Corporation is prohibited,
at any time, from issuing shares of Common Stock upon conversion of the Notes to
any Holder because (a) the Corporation does not have available a sufficient
number of authorized and unissued shares of Common Stock or (b) if after the
Shareholder Approval Date, such issuance would exceed the Cap Amount, if
applicable. In the case of a Conversion Default described in clauses (i) or (ii)
above, the Corporation shall pay to such Holder an amount equal to (A) the
outstanding principal amount of the Notes to be converted by such Holder
multiplied by (B) .18 multiplied by (C) a fraction, the numerator of which is
the number of days after such Conversion Default until the Default Cure Date and
the denominator of which is 365. In the event the Holder elects to take such
payment in cash, cash payment shall be made to the Holder within five days
following any demand for payment by the Holder. In addition, upon the occurrence
of a Conversion Default and until the Default Cure Date, the Holder shall be
entitled to the remedies set forth in Article VI; provided, however, that the
Holder shall not be entitled to exercise the remedies set forth in Article VI
hereof for a Conversion Default of the type enumerated in Article V(A)(i) hereof
until the tenth trading day after the date that such Conversion Default remains
uncured.
"Default Cure Date" means (i) with respect to a Conversion Default
described in clause (i) of its definition, the date the Corporation effects the
conversion of all of the outstanding Notes subject to the applicable Notice of
Conversion, (ii) with respect to a Conversion Default described in clause (ii)
of its definition, the date the Corporation issues freely tradeable shares of
Common Stock in satisfaction of all conversions of the Notes in accordance with
Article III.A, and (iii) with respect to a Conversion Default described in
clause (iii) of its definition, the date the prohibition ceases.
ARTICLE VI
EVENTS OF DEFAULT
A. Events of Default. In the event (each of the events
described in clauses (i)-(x) below after expiration of the applicable cure
period (if any) being an "Event of Default"):
(i) the Corporation fails to pay the principal hereof or any
accrued and unpaid interest hereon when due, whether at maturity, upon
acceleration or otherwise and such failure continues for a period of five
trading days after the due date thereof;
(ii) the Corporation, prior to the Effective Date of Mandatory
Conversion, either (a) fails to pay, when due, or within any applicable grace
period, any payment with respect to any indebtedness of the Corporation in
excess of $100,000 due to any third party (including, without limitation, any of
the Other Notes), other than payments contested by the Corporation in good
faith, or otherwise is in breach or violation of any agreement for monies owed
or owing in an amount in excess of $100,000 which breach or violation permits
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the other party thereto to declare a default or otherwise accelerate amounts due
thereunder, or (b) suffers to exist any other default or event of default under
any agreement binding the Corporation which default or event of default would or
is likely to have a material adverse effect on the business, operations,
properties, prospects or financial condition of the Corporation, other than as
set forth in Article VI.A(vii);
(iii) the Common Stock (including any of the shares of Common
Stock issuable upon conversion of the Notes or exercise of the Warrants) is
suspended from trading on any of, or is not listed (and authorized) for trading
on at least one of, the NYSE, the AMEX or NASDAQ for an aggregate of ten trading
days in any nine month period;
(iv) the Registration Statement referred to in Section 2(a) of
the Registration Rights Agreement has not been declared effective by the first
anniversary of the Issue Date or such Registration Statement, after being
declared effective, cannot be utilized by the Holders of the Notes for the
resale of all of their Registrable Securities (as defined in the Registration
Rights Agreement), provided, however, that if the Registration Statement is
declared effective by the first anniversary of the Issue Date then within any 12
month period thereafter there may be two distinct periods, such periods
aggregating a total of 30 days or less, during which the Registration Statement
cannot be utilized by the Holders of the Notes for the resale of their
Registrable Securities;
(v) the Corporation fails to remove any restrictive legend on
any certificate or any shares of Common Stock issued to the Holders of the Notes
upon conversion of any of the Notes as and when required by this Note, the
Securities Purchase Agreement or the Registration Rights Agreement (a "Legend
Removal Failure"), and any such failure continues uncured for ten trading days
after the Corporation has been notified thereof in writing by the Holder;
(vi) the Corporation provides notice (or otherwise indicates)
to any Holder of the Notes, including by way of public announcement, at any
time, of its intention not to issue, or otherwise refuses to issue, shares of
Common Stock to any Holder of the Notes upon conversion in accordance with the
terms of the Notes;
(vii) the Corporation otherwise shall breach any material term
hereunder (other than as set forth in Article VI.A(i) and including, without
limitation, Article IV hereof) or under the Securities Purchase Agreement, the
Registration Rights Agreement or the Warrants, including, without limitation,
the representations and warranties contained therein and if such breach if
curable, remains uncured for more than 20 days after the Corporation has been
notified thereof in writing by the Holder or the Corporation fails to diligently
pursue the cure of such breach during such 20-day period;
(viii) the Corporation or any subsidiary of the Corporation
shall make an assignment for the benefit of creditors, or apply for or consent
to the appointment of a receiver or trustee for it or for a substantial part of
its property or business, or such a receiver or trustee shall otherwise be
appointed;
(ix) bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Corporation or
any subsidiary of the Corporation and if instituted against the Corporation by a
third party, shall not be dismissed within 60 days of their initiation; or
(x) if applicable, the minimum vote specified in Rule 4460(i)
of the NASD with respect to the approval and ratification of the terms of the
Securities Purchase Agreement and the consummation of the transactions
contemplated thereby by the Corporation shall not have been obtained on or
before the 90th day after the Registration Statement Effective Date;
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then, upon the occurrence of any such Event of Default, at the option of each
Holder, exercisable in whole or in part at any time and from time to time by
delivery of a Default Notice (as defined below) to the Corporation while such
Event of Default continues, the Corporation shall pay such Holder (and upon the
occurrence of an Event of Default specified in subparagraphs (viii) and (ix) of
this Paragraph A, the Corporation shall be required to pay the Holders), in
satisfaction of its obligation to pay the outstanding principal amount of the
Notes and accrued and unpaid interest thereon, an amount equal to the Default
Amount and such Default Amount shall become due and payable immediately after
the three day period following the Corporation's delivery of a Default
Announcement (as defined below) to all of the Holders in response to the
Corporation's initial receipt of a Default Notice from a Holder of the Notes,
all without demand, presentment or notice, all of which are hereby expressly
waived, together with all costs, including, without limitation, legal fees and
expenses of collection, and the Holder shall be entitled to exercise all other
rights and remedies available at law or in equity. For the avoidance of doubt,
the occurrence of any event described in clauses (vi), (viii) or (ix) above
shall immediately constitute an Event of Default and there shall be no cure
period.
Following the submission of a Default Notice, the Holder of
this Note shall have the right to continue to submit Notices of Conversion and
to convert this Note until such time (if any) as the Corporation pays to the
Holder the Default Amount.
Upon the occurrence of an Event of Default or the
Corporation's receipt of any Default Notice hereunder (other than during the
three trading day period following the Corporation's delivery of a Default
Announcement (as defined below) to all of the Holders in response to the
Corporation's initial receipt of a Default Notice from a Holder of the Notes),
the Corporation shall immediately (and in any event within one trading day
following such receipt) deliver a written notice (a "Default Announcement") to
all Holders of the Notes stating the date upon which the Corporation received
such Default Notice and the amount of the Notes covered thereby. The Corporation
shall not redeem any Notes during the three trading day period following the
delivery of a required Default Announcement hereunder. At any time and from time
to time during such three trading day period, each Holder of the Notes may
request (either orally or in writing) information from the Corporation with
respect to the instant default (including, but not limited to, the aggregate
principal amount outstanding of Notes covered by Default Notices received by the
Corporation) and the Corporation shall furnish (either orally or in writing) as
soon as practicable such requested information to such requesting Holder. In the
event the Corporation is not able to repay all of the outstanding Notes within
five trading days after its receipt of a notice requiring such payment (a
"Default Notice") the Corporation shall repay the outstanding Notes to each
Holder pro rata, based on the total amounts due under the Notes at the time of
repayment included by such Holder in all Default Notices delivered prior to the
date upon which such repayment is to be effected relative to the total amounts
due under all Notes at the time of repayment included in all of the Default
Notices delivered prior to the date upon which such repayment is to be effected;
provided, however, the foregoing shall not constitute a waiver by any Holder of
its rights to payment in full of the total Default Amount due under each such
Holder's Notes.
B. Definition of Default Amount. The "Default Amount" with respect to a
Note means an amount equal to the greater of:
(i) V X M (if determinable)
--------------------
C P
and (ii) V x 115%
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where:
"V" means the aggregate principal amount of the Notes being paid plus
all accrued and unpaid interest thereon through the payment date;
"CP" means the Conversion Price; and
"M" means with respect to all repayments other than redemptions, the
highest Closing Bid Price of the Corporation's Common Stock during the period
beginning on the date on which the Corporation receives the Default Notice and
ending on the date immediately preceding the date of payment of the Default
Amount.
ARTICLE VII
ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price shall be subject to adjustment from time to time
as follows:
A. Stock Splits, Stock Dividends, Etc. If, at any time on or after the
Issue Date, the number of outstanding shares of Common Stock is increased by a
stock split, stock dividend, combination, or other similar event, the Conversion
Price shall be proportionately reduced, or if the number of outstanding shares
of Common Stock is decreased by a reverse stock split, combination or
reclassification of shares, or other similar event, the Conversion Price shall
be proportionately increased. In such event, the Corporation shall notify the
Corporation's transfer agent of such change on or before the effective date
thereof.
B. Adjustment Due to Merger, Consolidation, Etc. If there shall be (i)
any reclassification or change of the outstanding shares of Common Stock (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination), (ii) any
consolidation or merger of the Corporation with any other entity (other than a
merger in which the Corporation is the surviving or continuing entity and its
capital stock is unchanged), (iii) any sale or transfer of all or substantially
all of the assets of the Corporation or (iv) any share exchange pursuant to
which all of the outstanding shares of Common Stock are converted into other
securities or property (each of (i) - (iv) above being a "Corporate Change"),
then the Holders of the Notes shall thereafter have the right to receive upon
conversion, in lieu of the shares of Common Stock otherwise issuable, such
shares of stock, securities and/or other property as would have been issued or
payable in such Corporate Change with respect to or in exchange for the number
of shares of Common Stock which would have been issuable upon conversion had
such Corporate Change not taken place, and in any such case, appropriate
provisions (in form and substance reasonably satisfactory to the Holders of a
majority of the principal amount of the Notes then outstanding) shall be made
with respect to the rights and interests of the Holders of the Notes to the end
that the economic value of the Notes are in no way diminished by such Corporate
Change and that the provisions hereof (including, without limitation, in the
case of any such consolidation, merger or sale in which the successor entity or
purchasing entity is not the Corporation, an immediate adjustment to the
Conversion Price so that the Conversion Price immediately after the Corporate
Change reflects the same relative value as compared to the value of the
surviving entity's common stock that existed between the Conversion Price and
the value of the Corporation's Common Stock immediately prior to such Corporate
Change) shall thereafter be applicable, as nearly as may be practicable in
relation to any shares of stock or securities thereafter deliverable upon the
conversion thereof. The Corporation shall not effect any Corporate Change unless
(i) each Holder of the Notes has received written notice of such transaction at
least 30 days prior thereto, but in no event later than 20 days prior to the
record date for the determination of shareholders entitled to vote with respect
thereto and (ii) the resulting successor or acquiring entity (if not the
Corporation) assumes by written instrument (in form and substance reasonably
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satisfactory to the Majority Holders) the obligations of the Notes. The above
provisions shall apply regardless of whether or not there would have been a
sufficient number of shares of Common Stock authorized and available for
issuance upon conversion of the Notes outstanding as of the date of such
transaction, and shall similarly apply to successive reclassifications,
consolidations, mergers, sales, transfers or share exchanges.
C. Adjustment Due to Distribution. If, at any time after the Issue
Date, the Corporation shall declare or make any distribution of its assets (or
rights to acquire its assets) to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise (including any
dividend or distribution to the Corporation's shareholders in cash or shares (or
rights to acquire shares) of capital stock of a subsidiary (i.e. a spin-off) (a
"Distribution"), then the Holders of the Notes shall be entitled, upon any
conversion of the Notes after the date of record for determining shareholders
entitled to such Distribution, to receive the amount of such assets which would
have been payable to the Holder with respect to the shares of Common Stock
issuable upon such conversion had such Holder been the holder of such shares of
Common Stock on the record date for the determination of shareholders entitled
to such Distribution. If the Distribution involves rights, warrants, options or
any other form of convertible securities and the right to exercise or convert
such securities would expire in accordance with its terms prior to the
conversion of this Note, then the terms of such securities shall provide that
such exercise or convertibility right shall remain in effect until 30 days after
the date the Holder of the Notes receive such securities pursuant to the
conversion hereof.
D. Issuance of Other Securities. If, at any time prior to the Effective
Date of Mandatory Conversion, the Corporation shall issue (other than issuances
to employees, consultants, officers and directors pursuant to the Company's
stock option plans, to the extent consistent with past practices), any
securities which are convertible into or exchangeable for Common Stock
("Convertible Securities") at a conversion price or exchange rate which is more
favorable to the holders of such Convertible Securities than the Conversion
Price mechanism provided for herein, then, at the option of the Holder, such
conversion price or exchange rate shall be applicable hereto.
E. Purchase Rights. If, at any time after the Issue Date, the
Corporation issues any Convertible Securities or rights to purchase stock,
warrants, securities or other property ("Purchase Rights") pro rata to the
record holders of any class of Common Stock, then the Holders of the Notes will
be entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such Holder could have acquired if such Holder
had held the number of shares of Common Stock acquirable upon complete
conversion of the Notes (without giving effect to the limitations contained in
Article III.D) immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.
F. Adjustment For Below Market Issuances. Except as otherwise provided
in Paragraphs A and B of this Article VII, if, at any time after the Issue Date,
the Corporation issues or sells any shares of Common Stock for no consideration
or for a consideration per share less than the Market Price (as defined in the
Warrant) on the date of issuance (a "Dilutive Issuance"), then, effective
immediately upon the Dilutive Issuance the Conversion Price shall be adjusted in
the same manner as the Exercise Price of the Warrants is adjusted pursuant to
Sections 4(a) and 4(b) of the Warrants, which Sections are incorporated herein
by reference. All determinations of the number of shares of Common Stock sold by
the Corporation and the consideration per share received by the Corporation
therefore shall be made in the manner set forth in Sections 4(a) and 4(b) of the
Warrants.
10
G. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article VII, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment and prepare and furnish to each Holder of the Notes a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Corporation shall, upon
the written request at any time of any Holder of the Notes, furnish to such
Holder a like certificate setting forth (i) such adjustment or readjustment,
(ii) the Conversion Price at the time in effect and (iii) the number of shares
of Common Stock and the amount, if any, of other securities or property which at
the time would be received upon conversion of any Note.
H. Other Action Affecting Conversion Price. If the Corporation takes
any action affecting the Common Stock after the date hereof that would be
covered by Article VII.A through G, but for the manner in which such action is
taken or structured, which would in any way diminish the value of this Note,
then the Conversion Price shall be adjusted in such manner as the Board of
Directors of the Company shall in good faith determine to be equitable under the
circumstances.
ARTICLE VIII
OPTIONAL REDEMPTION
A. Redemption Events. In the event (each of the events
described in clauses (i) - (iii) below being a "Redemption Event"), the
Corporation shall:
(i) sell, convey or dispose of all or substantially all of its
assets (the presentation of any such transaction for shareholder approval being
conclusive evidence that such transaction involves the sale of all or
substantially all of the assets of the Corporation);
(ii) merge, consolidate or engage in any other business
combination with any other entity (other than pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of
the Corporation and other than pursuant to a merger in which the Corporation is
the surviving or continuing entity and its capital stock is unchanged); or
(iii) have 50% or more of the voting power of its capital
stock owned beneficially by one person, entity or "group" (as such term is used
under Section 13(d) of the Securities Exchange Act of 1934, as amended);
then, upon the occurrence of any such Redemption Event, at the option of each
Holder, exercisable in whole or in part at any time and from time to time by
delivery of a Redemption Notice (as defined below) to the Corporation, the
Corporation shall redeem the Notes for a redemption price, payable in cash, in
an amount equal to the Redemption Amount (as defined below), plus all other
ancillary amounts payable hereunder, together with all costs, including, without
limitation, legal fees and expenses.
Upon the Corporation's receipt of any Redemption Notice
hereunder (other than during the three trading day period following the
Corporation's delivery of a Redemption Announcement (as defined below) to all of
the Holders in response to the Corporation's initial receipt of a Redemption
Notice from a Holder of the Notes), the Corporation shall immediately (and in
any event within one trading day following such receipt) deliver a written
notice (a "Redemption Announcement") to all Holders of the Notes stating the
date upon which the Corporation received such Redemption Notice and the amount
of the Notes covered thereby. At any time and from time to time during such
three trading day period, each Holder of the Notes may request (either orally or
in writing) information from the Corporation with respect to the applicable
Redemption Event (including, but not limited to, the aggregate principal amount
outstanding of Notes covered by Redemption Notices received by the Corporation)
and the Corporation shall furnish (either orally or in writing) as soon as
practicable such requested information to such requesting Holder. In the event
the Corporation is not able to redeem all of the outstanding Notes within five
trading days after its receipt of a notice of redemption (a "Redemption
11
Notice"), the Corporation shall redeem the outstanding Notes from each Holder
pro rata, based on the total amounts due under the Notes at the time of
redemption included by such Holder in all Redemption Notices delivered prior to
the date upon which such redemption is to be effected relative to the aggregate
amount due under all Notes at the time of redemption included in all of the
Redemption Notices delivered prior to the date upon which such redemption is to
be effected; provided, however, the foregoing shall not constitute a waiver by
any Holder of its rights to payment in full of the total Redemption Amount due
under each such Holder's Notes pursuant to this Article VIII.
B. Definition of Redemption Amount. The "Redemption Amount" with
respect to a Note means an amount equal to the greater of:
(i) V X M
--------------------
C P
and (ii) V x 115%
where:
"V" means the aggregate principal amount of the Notes being redeemed
plus all accrued and unpaid interest thereon through the redemption date;
"CP" means the Conversion Price; and
"M" means the greater of (i) the highest Closing Bid Price of the
Corporation's Common Stock during the period beginning on the date on which the
Corporation receives the Redemption Notice and ending on the date immediately
preceding the date of payment of the Redemption Amount and (ii) the fair market
value, as of the date on which the Corporation receives the Redemption Notice,
of the consideration payable to the holder of a share of Common Stock pursuant
to the transaction which triggers the redemption obligation. For purposes of
this definition, "fair market value" shall be determined by the mutual agreement
of the Corporation and Holders of a majority-in-interest of the then outstanding
principal amount of the Notes to be redeemed, or if such agreement cannot be
reached within five trading days prior to the date of redemption, by an
investment banking firm selected by the Corporation and reasonably acceptable to
Holders of a majority-in-interest of the then outstanding principal amount of
the Notes to be redeemed, with the costs of such appraisal to be borne by the
Corporation.
ARTICLE IX
MISCELLANEOUS
A. Failure or Indulgency Not Waiver. No failure or delay on the part of
any Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.
B. Notices. Any notices required or permitted to be given under the
terms of this Note shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier or by confirmed telecopy, and
shall be effective five days after being placed in the mail, if mailed, or upon
receipt or refusal of receipt, if delivered personally or by courier or
confirmed telecopy, in each case addressed to a party. The addresses for such
communications shall be:
12
If to the Corporation:
WaveRider Communications Inc.
000 Xxxxxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx, Xxxxxx MJ21R4
Facsimile: (000) 000-0000
Attention: Xxxxx Xxxxxxxxxxx
with a copy simultaneously transmitted by like means to:
Xxxxx, Xxxx & Xxxxx LLP
Xxx Xxxx Xxxxxx Xxxxxx
Xxxxxx, XX 00000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx Xxxxxxxx, Esquire
If to the Holder, to the address set forth under such Xxxxxx's name on
the signature page to the Securities Purchase Agreement executed by such Holder.
Each party shall provide notice to the other parties of any change in address.
C. Amendment Provision. Except as set forth in Article III.D, this Note
and any provision hereof may only be amended by an instrument in writing signed
by the Corporation and all of the Holders. The term "Note" and all references
thereto, as used throughout this instrument, shall mean this instrument as
originally executed, or if later amended or supplemented, then as so amended or
supplemented.
D. Assignability; Selling Restrictions. This Note shall be binding upon
the Corporation and its successors and assigns and shall inure to the benefit of
the Holder and its successors and assigns. Until the Holder provides written
notice to the Corporation of a transfer of this Note, the Corporation may treat
the registered Holder as the owner and holder of this Note for all purposes, and
the Corporation shall not be affected by any notice to the contrary. Each
transferee of this Note or any portion hereof shall be bound by the selling
restrictions set forth in Section 4(n) of the Securities Purchase Agreement,
which Section is incorporated herein by reference.
E. Cost of Collection. If default is made in the payment of this Note,
the Corporation shall pay the Holder hereof costs of collection, including
reasonable attorneys' fees.
F. Governing Law; Jurisdiction. This Note shall be governed by and
construed in accordance with the laws of the State of New York. The Corporation
irrevocably consents 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 Note and irrevocably agrees that all claims in
respect of such suit or proceeding may be determined in such courts. The
Corporation irrevocably waives the defense of an inconvenient forum to the
maintenance of such suit or proceeding. The Corporation further agrees that
service of process upon the Corporation mailed by first class mail shall be
deemed in every respect effective service of process upon the Corporation in any
such suit or proceeding. Nothing herein shall affect the right of any Holder to
serve process in any other manner permitted by law. The Corporation 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.
13
G. Denominations. At the request of Xxxxxx, upon surrender of this
Note, the Corporation shall promptly issue new Notes in the aggregate
outstanding principal amount hereof, in the form hereof, in such denominations
of at least $100,000 as Holder shall request.
H. Lost or Stolen Notes. Upon receipt by the Corporation from a Holder
of (i) evidence of the loss, theft, destruction or mutilation of any Note and
(ii) (y) in the case of loss, theft or destruction, of indemnity (without any
bond or other security) reasonably satisfactory to the Corporation, or (z) in
the case of mutilation, upon surrender and cancellation of any Note, the
Corporation shall execute and deliver a new Note of like tenor and date.
However, the Corporation shall not be obligated to reissue such lost or stolen
Note if the Holder contemporaneously requests the Corporation to convert such
Note.
I. Restrictions on Shares. The shares of Common Stock issuable upon
conversion of this Note may not be sold or transferred unless (i) they first
shall have been registered under the Securities Act and applicable state
securities laws, (ii) the Corporation shall have been furnished with an opinion
of legal counsel (in form, substance and scope customary for opinions in such
circumstances) to the effect that such sale or transfer is exempt from the
registration requirements of the Securities Act or (iii) they are sold under
Rule 144 under the Act. Except as otherwise provided in the Securities Purchase
Agreement, each certificate for shares of Common Stock issuable upon conversion
of this Note that have not been so registered and that have not been sold under
an exemption that permits removal of the legend, shall bear a legend
substantially in the following form, as appropriate:
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.
Upon the request of a holder of a certificate representing any shares of Common
Stock issuable upon conversion of this Note, the Corporation shall remove the
foregoing legend from the certificate and issue to such holder a new certificate
therefor free of any transfer legend, if (i) with such request, the Corporation
shall have received either (A) an opinion of counsel, in form, substance and
scope customary for opinions in such circumstances, to the effect that any such
legend may be removed from such certificate, or (B) satisfactory representations
from the Holder and from brokers that the Holder is eligible to sell such
security under Rule 144 or (ii) a registration statement under the Securities
Act covering the resale of such securities is in effect. Nothing in this Note
shall (i) limit the Corporation's obligation under the Registration Rights
Agreement, or (ii) affect in any way the Holder's obligations to comply with
applicable securities laws upon the resale of the securities referred to herein.
J. Status as Note Holder. On the Effective Date of Mandatory Conversion
and upon the Conversion Date immediately following the submission of a Notice of
Conversion by a Holder of the Notes, as applicable, (i) the principal amount of
the Notes and the interest thereon covered thereby (other than any portion of
the Notes, if any, which cannot be converted due to the limitations set forth in
Article III.D.) shall be deemed converted into shares of Common Stock and (ii)
the Holder's rights as a holder of such Notes shall cease and terminate (but
only with respect to that portion of the Notes covered by such conversion),
excepting only the right to receive certificates for such shares of Common Stock
and to any remedies provided herein or otherwise available at law or in equity
to such Holder because of a failure by the Corporation to comply with the terms
14
of the Notes. Notwithstanding the foregoing, if a Holder has not received
certificates for all shares of Common Stock prior to the tenth trading day after
the expiration of the Delivery Period with respect to a conversion of Notes for
any reason, then (unless the Holder otherwise elects to retain its status as a
holder of Common Stock by so notifying the Corporation within five trading days
after the expiration of such ten trading day period) the portion of the
principal amount and interest thereon subject to such conversion shall be deemed
outstanding under the Notes and the Corporation shall, as soon as practicable,
return the Notes to the Holder. In all cases, the Holder shall retain all of its
rights and remedies for the Corporation's failure to convert the Notes.
K. Obligation to Cure. If the Corporation is prohibited from issuing
shares of Common Stock to a Holder for any reason, the Corporation shall
immediately notify the Holders of Notes of such occurrence and shall take
immediate action (including, if necessary, seeking the approval of its
shareholders) to eliminate any prohibitions under applicable law or the rules or
regulations of any stock exchange, interdealer quotation system or other
self-regulatory organization with jurisdiction over the Corporation or any of
its securities on the Corporation's ability to issue shares of Common Stock.
L. Remedies Cumulative. The remedies provided in this Note shall be
cumulative and in addition to all other remedies available under this Note, at
law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit a Holder's right to pursue
actual damages for any failure by the Corporation to comply with the terms of
this Note. The Corporation acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holders of the Notes and that the
remedy at law for any such breach may be inadequate. The Corporation therefore
agrees, in the event of any such breach or threatened breach, that the Holders
of the Notes shall be entitled, in addition to all other available remedies, to
an injunction restraining any breach, without the necessity of showing economic
loss and without any bond or other security being required.
M. Trading Days. For purposes of this Note, the term "trading day"
means any day on which NASDAQ or, if the Common Stock is not then traded on
NASDAQ, the principal United States securities exchange or trading market where
the Common Stock is then listed or traded, is open for trading.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
15
IN WITNESS WHEREOF, the Corporation has caused this Convertible Note to
be executed by its duly authorized officer.
WAVERIDER COMMUNICATIONS INC.
By:
----------------------------------
Name:
Title:
16
Exhibit 1
NOTICE OF CONVERSION
To: WaveRider Communications Inc.
000 Xxxxxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx
Xxxxxx
Attention:
Telecopy:
The undersigned hereby elects to convert $____________ principal amount of the
Note (the "Conversion"), into shares of common stock ("Common Stock") of
WaveRider Communications, Inc. (the "Corporation") according to the conditions
of the Convertible Note dated __________, 2001 (the "Note"), as of the date
written below. If securities are to be issued in the name of a person other than
the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto. No fee will be charged to the Holder for any conversion, except
for transfer taxes, if any.
The Corporation shall electronically transmit the Common Stock issuable pursuant
to this Notice of Conversion to the account of the undersigned or its nominee
(which is ________________) with DTC through its Deposit Withdrawal Agent
Commission System ("DTC Transfer") to the extent the Corporation participates in
the Deposit Withdrawal Agent Commission System.
In the event of partial exercise, please reissue an appropriate Note(s) for the
principal balance which shall not have been converted.
Check Box if Applicable:
|_| In lieu of receiving the shares of Common Stock issuable
pursuant to this Notice of Conversion by way of DTC Transfer,
the undersigned hereby requests that the Corporation issue and
deliver to the undersigned or its nominee (if applicable)
physical certificates representing such shares of Common
Stock.
Date of Conversion:__________________________________
Applicable Conversion Price:_________________________
Amount of Accrued and Unpaid Interest on the
Principal Amount to be converted, if any:____________
Default Amount and penalties to be converted, if any:
_____________________________________________________
Number of Shares of
Common Stock to be Issued:___________________________
Signature:___________________________________________
Name:________________________________________________
Address:_____________________________________________
17
