Registration Statement #333-[ ]
As filed with the Securities and Exchange Commission on August 13, 2004.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM F-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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WAVERIDER COMMUNICATIONS (CANADA) INC.
(Exact name of registrant as specified in its charter)
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BRITISH COLUMBIA, CANADA 4813 [NOT APPLICABLE]
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) Number)
255 Consumers Road
Suite 500
Toronto, Ontario M2J 1R4
(416) 502-3200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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T. Scott Worthington
Vice President Finance and Chief Financial Officer
and Corporate Secretary
255 Consumers Road
Suite 500
Toronto, Ontario M2J 1R4
(416) 502-3200
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
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Copies to:
David A. Broadwin, ESQ. Cameron A. Mingay
Foley Hoag LLP Cassels Brock & Blackwell LLP
155 Seaport Boulevard 2100 Scotia Plaza
Boston, Massachusetts 40 King Street West
USA 02210 Toronto, Ontario
Telephone No. (617) 832-1000 Canada M5H 3C2
Facsimile No. (617) 832-7000 Telephone No. (416) 860-6615
Facsimile No. (416) 640-3163
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective and the
satisfaction of all other conditions to the merger of WaveRider Communications
Inc., a Nevada corporation ("WaveRider"), with a Nevada corporation to be
incorporated that will be a wholly-owned subsidiary of a Canadian corporation
named "WaveRider Communications (Canada) Inc." ("WCAN") pursuant to a proposed
Agreement and Plan of Merger in the form attached as Annex A to the joint proxy
statement/prospectus contained herein.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]
CALCULATION OF REGISTRATION FEE
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AMOUNT PROPOSED PROPOSED
TO BE MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF REGISTERED(1) OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED PER SHARE(2) OFFERING PRICE(2) FEE
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Common shares, without par value 15,446,054 shares $0.575 $8,881,481 $1,126
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(1) Based on (i) (a) 15,044,788 shares of WaveRider common stock outstanding as
of August 4, 2004, and (b) 401,266 shares of WaveRider common stock
issuable upon the exercise of warrants outstanding as of August 4, 2004;
and (ii) an exchange ratio of one WCAN common share for each share of
WaveRider common stock pursuant to the merger described herein.
(2) Reflects the market price of the common stock of WaveRider that will
convert into the right to receive common shares of the registrant, which
shares the registrant will issue as part of the merger described in this
Registration Statement, computed in accordance with Rule 457(c) and Rule
457(f)(1) under the Securities Act based upon the average of the high and
low prices of the common stock of WaveRider as reported over-the-counter on
the OTC Bulletin Board by the National Association of Securities Dealers,
Inc. on August 4, 2004, and is estimated solely to determine the
registration fee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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[WAVERIDER LETTERHEAD]
255 Consumers Road
Suite 500
Toronto, Ontario
M2J 1R4
Dear Stockholder:
We are pleased to present for your approval at an annual meeting of
stockholders a proposal for reorganizing WaveRider Communications Inc. (which we
refer to as WaveRider, we, us and our) that will result in the parent
corporation of the WaveRider group changing from a Nevada corporation to a
Canadian corporation and a proposal to elect six members to the board of
directors of WaveRider. Your vote is required for the first step in the
reorganization, a merger of WaveRider with a merger subsidiary, pursuant to
which WaveRider Communications (Canada) Inc., a Canadian corporation (which we
refer to as WCAN), will become the parent holding company of WaveRider.
In the merger, the shares of WaveRider common stock you own will be
converted into the right to receive WCAN common shares, which shares will be
issued by WCAN as part of the merger. The number of WCAN common shares you will
receive will be the same as the number of shares of WaveRider common stock you
own immediately prior to the effective time of the merger. Your WaveRider stock
certificates will automatically become certificates representing WCAN shares, so
you will not be required to exchange your certificates as a result of the
reorganization. Note that WaveRider has effected a share consolidation of its
common stock on July 1, 2004 on a one for ten basis. If you have not yet
exchanged your share certificate(s) pursuant to the letter of transmittal that
was sent to you, the current share certificate(s) you are holding will not show
the number of WCAN shares you are entitled on a consolidated basis.
WaveRider's board of directors believes that this proposal offers the
following benefits and advantages:
o A Canadian corporation may get a better following from the
Canadian markets as a "mid-cap" company.
o A Canadian corporation may be a more attractive investment to a
wider range of Canadian investors, without preventing it from being
able to access the U.S. capital markets.
o The proposed structure may facilitate the merger with or
acquisition of other businesses in Canada, and therefore make it
easier to achieve growth through acquisitions.
You should be aware that the reorganization will result in certain
important changes to your rights as a shareholder and has some risk. For
instance:
o WCAN does not have a limit on the number of shares it is authorized
to issue. WaveRider is limited to 400,000,000 shares of common
stock and 5,000,000 shares of preferred stock.
o As a foreign private issuer, the disclosure requirements for WCAN
may be less stringent than those currently applicable to WaveRider.
o Enforcement of liabilities by U.S. persons against WCAN may be
more difficult than against WaveRider.
If the reorganization is approved, your relative economic ownership in
the WaveRider group as a whole will remain the same as your current ownership.
However, you will then hold ordinary shares in a Canadian company, WCAN. While
we believe the potential benefits outweigh any change in your rights and any
possible risks, we encourage you to read the entire joint proxy
statement/prospectus including the Agreement and Plan of Merger carefully.
Accompanying this letter is a notice of an annual meeting of stockholders
and a joint proxy statement/ prospectus. We urge you to read the joint proxy
statement/prospectus carefully for details about the merger and the related
steps. We refer to the merger and the related steps together as the
reorganization.
Generally, for U.S. federal income tax purposes, stockholders of WaveRider
who are U.S. holders and who hold their WaveRider shares at a gain will
recognize such gain as a result of the reorganization; U.S. holders who hold
their WaveRider shares at a loss will not recognize such loss as a result of the
reorganization. Generally, for Canadian federal income tax purposes,
stockholders of WaveRider who are residents of the United States, and not
residents of Canada, will not be subject to Canadian federal income tax as a
result of the reorganization. Generally, Canadian resident stockholders of
WaveRider will, for Canadian federal income tax purposes, realize a capital gain
(or sustain a capital loss) as a result of the reorganization. We urge you to
consult your own tax advisor regarding the particular tax consequences of the
reorganization for you. You should also consider the risk factors we describe
starting on page 10 of the joint proxy statement/prospectus.
The reorganization cannot be completed unless the holders of a majority of
our shares entitled to vote at the annual stockholders' meeting approve the
reorganization by voting to adopt the Agreement and Plan of Merger (a copy of
which is attached to the accompanying joint proxy statement/prospectus as Annex
A).
The board of directors has unanimously approved the Agreement and Plan of
Merger providing for the merger and related steps, and recommends that you vote
"FOR" adoption of the Agreement and Plan of Merger.
At the annual meeting, six directors will be elected to serve until the
next annual meeting of shareholders and until their successors are duly elected
and qualified.
The board of directors unanimously recommends that you vote "FOR" the six
nominees for directors.
Your vote is very important, regardless of the number of shares you own.
Please vote your proxy by completing, signing and dating the enclosed proxy card
and returning it promptly, whether or not you expect to attend the annual
meeting. You may revoke your proxy and vote in person if you decide to attend
the meeting.
We urge you to join us in supporting this important opportunity.
Sincerely,
/s/ Bruce Sinclair
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Bruce Sinclair
Chief Executive Officer
Toronto, Ontario, Canada July 30, 2004.
WAVERIDER COMMUNICATIONS INC.
255 Consumers Road
Suite 500
Toronto, Ontario
M2J 1R4
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On September 27, 2004
To the Stockholders of WaveRider Communications Inc:
Notice is hereby given that an annual meeting of the stockholders of
WaveRider Communications Inc., a Nevada corporation ("WaveRider"), will be held
at 2:00 p.m., local time, on Monday, September 27, 2004 at the Radisson Hotel
Toronto East, 55 Hallcrown Place, Toronto, Ontario, Canada, M2J 4R1 for the
following purposes:
1. To adopt the proposed Agreement and Plan of Merger, as more fully
described in the accompanying joint proxy statement/prospectus,
which will result in your stock ownership in the WaveRider group
being changed into common shares of a Canadian incorporated
company, WaveRider Communications (Canada) Inc. in exchange for
your shares of common stock of WaveRider Communications Inc., a
Nevada incorporated company;
2. To elect six members to the board of directors of WaveRider, each
to serve until the next annual meeting of shareholders or until
his respective successor has been duly elected and qualified. The
nominees the board proposes to present for election are: Gerry
Chastelet, John E. Curry, Michael J. Milligan, Cameron A. Mingay,
D. Bruce Sinclair and Dennis R. Wing; and
3. To transact such other business as may properly come before the
stockholders' annual meeting and any adjournments thereof.
The board of directors of WaveRider has fixed the close of business on
July 30, 2004 as the record date for the determination of stockholders entitled
to notice of and to vote at the stockholders' annual meeting and all
adjournments thereof. Only holders of record of the common stock of WaveRider at
the close of business on the record date are entitled to notice of and to vote
at the meeting. A complete list of such stockholders will be available for
examination at the offices of WaveRider in Toronto, Ontario, Canada during
normal business hours for a period of 10 days prior to the meeting.
Your vote is very important, regardless of the number of shares you own.
All stockholders are cordially invited to attend the meeting. Please note that
the reorganization cannot proceed unless holders of a majority of our shares of
common stock entitled to vote at the stockholders' annual meeting adopt the
Agreement and Plan of Merger.
Nevada law provides that stockholders of record of WaveRider on the Record
Date have the right to dissent from the Reorganization and, if the
Reorganization is consummated, to receive compensation equal to the fair value
of their shares. Stockholders of WaveRider desiring to exercise their dissent
and appraisal rights must follow the procedures set forth in Sections 92A.300
through 92A.500 of the Nevada Revised Statutes, a copy of which is attached to
the accompanying joint proxy statement/prospectus as Annex B. Stockholders of
WaveRider desiring to exercise their dissent and appraisal rights are urged to
read Annex B in its entirety since failure to comply with the procedures set
forth therein may result in the loss of dissent and appraisal rights.
Stockholders are urged, whether or not they plan to attend the meeting, to
sign, date and mail the enclosed proxy card in accordance with the instructions
appearing thereon . You may revoke your proxy at any time prior to its exercise
by:giving written notice of the revocation to the Corporate Secretary of
WaveRider; appearing and voting in person at the stockholders' annual meeting;
or properly submitting a later-dated proxy.
By Order of the board of directors
/s/ T. Scott Worthington
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T. Scott Worthington
. Vice President and Chief Financial
Officer and Corporate Secretary
Toronto, Ontario, Canada July 30, 2004
PRELIMINARY PROXY STATEMENT OF PROSPECTUS FOR COMMON SHARES OF
WaveRider Communications Inc. WaveRider Communications (Canada) Inc.
(a Nevada corporation) (a British Columbia corporation)
For An Annual Meeting To Be Held on 15,446,054 Common Shares without par value
September 27, 2004
REORGANIZATION PROPOSED - YOUR VOTE IS VERY IMPORTANT
The board of directors of WaveRider Communications Inc. ("WaveRider") has
unanimously approved recommends and is submitting to you for your approval at
the annual meeting of stockholders to be held on Monday, September 27, 2004 at
2:00 p.m., local time, at the Radisson Hotel Toronto East, 55 Hallcrown Place,
Toronto, Ontaro, Canada M2J 4R1, a proposal to reorganize Waverider as a
Canadian corporation and a proposal to elect six members to the board of
directors of WaveRider.
The reorganization would result in your owning common shares of a
Canadian corporation rather than common stock of a Nevada corporation. The
number of shares you will own in WaveRider Communications (Canada) Inc., the
Canadian corporation ("WCAN"), will be the same as the number of shares you
owned in WaveRider immediately prior to the reorganization. Upon completion of
the reorganization, the Canadian corporation will continue to conduct our
business as conducted prior to the reorganization. The reorganization cannot be
completed unless the majority of stockholders of WaveRider entitled to vote at
the annual meeting approve the Agreement and Plan of Merger. Because of the
significance of this transaction, your participation in that meeting, in person
or by proxy, is especially important.
The reorganization contains certain important changes to your rights as
shareholders and is not without some risk. YOU SHOULD CAREFULLY CONSIDER THE
RISK FACTORS WE DESCRIBE STARTING ON PAGE 10.
This joint proxy statement/prospectus provides you with detailed
information regarding WaveRider Communications Inc., WaveRider Communications
(Canada) Inc., the reorganization and other specific matters related to the
annual meeting. We encourage you to read this entire joint proxy
statement/prospectus carefully.
Only holders of record of WaveRider common stock at the close of
business on July 30, 2004 will be entitled to vote at the annual meeting. To
ensure that your shares are represented, please complete, sign and date the
enclosed proxy card, and return it promptly, whether or not you expect to attend
the stockholders' meeting. You may revoke your proxy and vote in person if you
decide to attend the annual meeting of stockholders.
Currently, there is no established public trading market for the shares of
WCAN. We expect the shares of WCAN to be quoted on the OTC Bulletin Board of the
National Association of Securities Dealers, Inc.
The information in this joint proxy statement/ prospectus is not complete
and may be changed. WaveRider Communications (Canada) Inc. and WaveRider
Communications Inc. may not issue these securities until the registration
statement filed with the U.S. Securities and Exchange Commission containing this
joint proxy statement/prospectus is declared effective by the Commission. This
joint proxy statement/prospectus is not an offer to sell these securities and
neither WaveRider Communications Inc. nor WaveRider Communications (Canada) Inc.
is soliciting an offer to buy these securities in any state, province or
territory where the offer or sale is not permitted.
Neither the U.S. Securities and Exchange Commission nor any state or
Canadian provincial or territorial securities regulatory authority has approved
or disapproved of the securities to be issued in the merger or determined if
this joint proxy statement/prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The joint proxy statement/prospectus dated [ ], 2004, will be first mailed
to stockholders on [ ], 2004.
ADDITIONAL INFORMATION
WaveRider files annual, quarterly and other reports and other
information with the Securities and Exchange Commission, or SEC. For a listing
of the documents available from the SEC, please see the section entitled "Where
You Can Find More Information" beginning on page 74.
WaveRider will provide you with copies of the information relating to
WaveRider or its subsidiary WCAN, without charge, upon written request or oral
request to Scott Worthington, Vice President and Chief Financial Officer of
WaveRider at 255 Consumers Road, Suite 500, Toronto, Ontario, M2J 1R4 at (416)
502-3200. In order to receive timely delivery of the documents in advance of the
WaveRider annual meeting, we should receive your request no later than September
1, 2004.
ENFORCEABILITY OF CIVIL LIABILITIES
WCAN is a corporation organized under the laws of British Columbia,
Canada. Some of our directors, controlling persons and officers and certain of
the experts named in this joint proxy statement/prospectus are not residents of
the United States, and all or a substantial portion of their assets and all or a
substantial portion of our assets are located outside the United States. It may
be difficult for you to effect service of process within the United States upon
us or our directors, controlling persons, officers and experts who are not
residents of the United States or to realize in the United States upon judgments
of United States courts based upon the civil liability under the federal
securities laws of the United States. We have been advised by our Canadian
counsel that there is doubt as to the enforceability in Canada against us or
against our directors, controlling persons, officers or experts, who are not
residents of the United States, in original actions or in actions for
enforcement of judgments of U.S. courts, of liabilities based solely upon the
federal securities laws of the United States.
MARKET AND INDUSTRY DATA
Market data used throughout this joint proxy statement/prospectus was
obtained from internal company estimates and various trade associations which
monitor the industries in which we compete. We have not independently verified
this market data. Similarly, internal company estimates, while believed by us to
be reliable, have not been verified by any independent sources, and neither we
nor any other person make any representation as to the accuracy of the
information. While we are not aware of any misstatements regarding any industry
or similar data presented herein, such data involves risks and uncertainties and
is subject to change based on various factors, including those discussed under
"Risk Factors" in this joint proxy statement/prospectus.
-i-
TABLE OF CONTENTS
THE REORGANIZATION.............................1 WAVERIDER MANAGEMENT DISCUSSION
QUESTIONS AND ANSWERS..........................1 AND ANALYSIS OF FINANCIAL CONDITION AND
SUMMARY........................................4 RESULT OF OPERATIONS...........................24
Parties to the Reorganization...............4 Results Of Operations - Three Months
Our Reasons for the Reorganization..........4 Ended June 30, 2004 Compared To The
Our recommendation to WaveRider Stockholders4 Three Months Ended June 30, 2003.......26
Vote Required regarding the Reorganization..5 Results Of Operations - Six Months Ended
The Reorganization (Proposal No. 1).........5 June 30, 2004 Compared To The
Tax Considerations..........................6 Six Months Ended June 30, 2003........ 28
No Requirement to Exchange Certificates.....6 Results of Operations Year ended
Trading Market for WCAN common shares.......6 December 31, 2003 compared to the Year
Regulatory Approvals........................6 ended December 31, 2002................30
Rights of Dissenting Stockholders...........7 Results of Operations Year ended
Accounting Treatment of the Reorganization..7 December 31, 2002 compared to the
Market Prices...............................7 Year ended December 31, 2001...........32
Other WaveRider Annual Meeting Matters......7 Supplementary Financial Information....35
Annual Meeting..............................7 Liquidity and Capital Resources........35
Proxy Cards.................................7 Critical Accounting Estimates..........37
CAUTIONARY STATEMENT REGARDING Recent Accounting Pronouncements.......38
FORWARD-LOOKING STATEMENTS................. 8 Certain Factors that may affect
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA9 Future Results.........................38
SUMMARY PRO FORMA FINANCIAL INFORMATION........10 BUSINESS OF WCAN...............................39
RISK FACTORS...................................10 THE REORGANIZATION (PROPOSAL NO. 1)............39
WAVERIDER VOTING SECURITIES....................15 Introduction...........................39
MARKET FOR WAVERIDER COMMON EQUITY, DIVIDEND Background and Reasons for the
POLICY AND OTHER MATTERS.....................15 Reorganization.........................40
BUSINESS OF WAVERIDER..........................15 Steps in the Reorganization............40
Overview....................................15 The Merger.............................41
Recent Developments.........................16 The Related Steps......................41
Historical Development......................16 Possible Abandonment of the
Our Business................................17 Reorganization.........................41
Our Products................................17 Additional Agreements..................41
Last Mile Solution..........................17 Conditions to Completion of the
NCL Products................................18 Reorganization.........................42
Our Market..................................18 Effective Time.........................42
Our Market Strategy.........................19 Management of WCAN.....................43
Target Customers............................19 Recommendation and Required Vote.......43
International Sales Strategies..............21 Regulatory Approvals...................43
Professional Services.......................21 Rights of Dissenting Stockholders......43
Manufacturing and Logistics.................21 Exchange of Share Certificates.........44
Competition.................................22 Restrictions On Sales Of WCAN Shares
Regulation of Wireless Communications.......22 Received In The Reorganization.........45
Research and Development....................22 Stock Compensation Plans...............45
Employees...................................22 Trading Market for WCAN Shares.........46
DESCRIPTION OF PROPERTY........................23 Dividends..............................46
LEGAL PROCEEDINGS..............................23 Accounting Treatment of the
PRINCIPAL SHAREHOLDERS OF WAVERIDER............23 Reorganization.........................46
Reporting of WCAN after
the Reorganization.....................47
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MATERIAL INCOME TAX CONSEQUENCES THE STOCKHOLDERS' MEETING...........................61
OF THE REORGANIZATION..........................48 Time, Place and Date........................61
MATERIAL UNITED STATES FEDERAL INCOME Proposals...................................61
TAX CONSEQUENCES...............................48 Quorum......................................61
U.S. Backup Withholding Tax and Record Date.................................61
Information Reporting.......................51 Vote Required...............................61
MATERIAL CANADIAN FEDERAL INCOME TAX Proxy Cards.................................62
CONSEQUENCES...................................51 Solicitation of Proxies.....................62
DESCRIPTION OF COMMON SHARES OF WCAN...........53 ELECTION OF DIRECTORS (PROPOSAL NO. 2)..............62
COMPARISON OF RIGHTS OF CORPORATE GOVERNANCE................................64
STOCKHOLDERS/SHAREHOLDERS......................55 INDEPENDENT REGISTERED PUBLIC
Comparative Rights of Shareholders..........55 ACCOUNTING FIRMS....................................68
Amendments to the Articles..................55 EXECUTIVE OFFICERS..................................70
Election and Removal of Directors...........56 PERFORMANCE MEASUREMENT COMPARISON..................73
Inspection of Shareholders List.............56 QUANTITATIVE AND QUALITATIVE DISCLOSURES
Transactions with Officers and Directors....57 ABOUT MARKET RISK...................................73
Limitation on Liability of Directors; LEGAL MATTERS.......................................73
Indemnification of Officers and Directors...57 EXPERTS.............................................73
Voting rights with respect to Extraordinary WHERE YOU CAN FIND MORE INFORMATION.................74
Corporate Transactions......................58 INDEX TO FINANCIAL STATEMENTS.......................75
Shareholders' Consent without a Meeting.....58 Annex A Form of Agreement
Shareholder Voting Requirements.............58 and Plan of Merger.........................A-1
Dividends...................................59 Annex B Nevada Dissenters'
AntiTakeover Provisions.....................59 Rights Statute.............................B-1
Dissent Rights, Appraisal Rights............60
Shareholder Rights of Action................60
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In this joint proxy statement/prospectus , we sometimes refer to WaveRider
as the "Company", "we", "us", "our" or "WaveRider" and to WaveRider
Communications (Canada) Inc., the Canadian corporation, a subsidiary of
WaveRider as "WCAN" (together, the "companies" or "we").
--------------------------------
Unless otherwise noted, all monetary amounts are stated in United States
dollars. The information in this joint proxy statement/prospectus reflects the
share consolidation of our common stock on a one for ten basis, effective July
1, 2004.
--------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this joint proxy statement/prospectus in connection
with the offer contained in this joint proxy statement/prospectus and, if given
or made, such information or representations must not be relied upon as having
been authorized by us.
Neither the delivery of this joint proxy statement/prospectus nor any sale
made hereunder shall under any circumstances create an implication that there
has been no change in our affairs since the date hereof. This joint proxy
statement/prospectus does not constitute an offer to sell or a solicitation of
an offer to buy securities other than those specifically offered hereby or of
any securities offered hereby in any jurisdiction where, or to any person to
whom, it is unlawful to make such offer or solicitation. The information
contained in this joint proxy statement/prospectus speaks only as of the date of
this joint proxy statement/prospectus unless the information specifically
indicates that another date applies.
This joint proxy statement/prospectus has been prepared based on
information provided by us and by other sources that we believe are reliable.
This joint proxy statement/prospectus summarizes certain documents and other
information in a manner we believe to be accurate, but we refer you to the
actual documents, if any, for a more complete understanding of what we discuss
in this joint proxy statement/prospectus. In making an investment, you must rely
on your own examination of our company and the terms of the reorganization and
the common stock, including the merits and risks involved and other matters
discussed in this document.
We are not making any representation to you regarding the legality of an
investment in the common stock by you under any legal investment or similar laws
or regulations. You should not consider any information in this joint proxy
statement/prospectus to be legal, business, tax or other advice. You should
consult your own attorney, business advisor and tax advisor for legal, business
and tax advice regarding an investment in the common stock.
-iii-
THE REORGANIZATION
We are seeking your approval at an annual stockholders' meeting of a
merger transaction (the "merger") that will result in WaveRider's corporate
reorganization as a Canadian corporate entity. We refer to the merger and
related steps as the "reorganization". Following the reorganization, the
Canadian corporation ("WCAN") and its subsidiaries will continue the business
operations currently conducted by WaveRider and its subsidiaries.
The reorganization involves several steps:
o We have a subsidiary governed by the British Columbia Business
Corporations Act named WaveRider
o Communications (Canada) Inc. (i.e. WCAN), which is wholly-owned
by WaveRider.
o WCAN will form a wholly-owned Nevada subsidiary (the "merger
sub").
o Following the stockholders' meeting, provided we have obtained
the requisite approval of stockholders and that our board of
directors elects to proceed, the merger sub will merge with and
into WaveRider, with WaveRider surviving the merger as a
wholly-owned subsidiary of WCAN named "WaveRider Communications
(Nevada) Inc."
o In the merger, each issued or outstanding share of common stock
of WaveRider will be converted into the right to receive one WCAN
common share.
o WCAN will issue, as part of the merger, one WCAN common share for
each such right and, as a result, o you will become a shareholder
in WCAN and will no longer be a stockholder in WaveRider.
o Contemporaneously, WCAN will file articles of amendment in
British Columbia changing its name to "WaveRider Communications
Inc."
o Immediately after the merger, WCAN will have issued and
outstanding the same number of common shares as there were issued
or outstanding shares of WaveRider common stock immediately prior
to the merger (excluding WCAN common shares held by WaveRider).
o As part of the reorganization, WCAN will assume warrants,
convertible debentures and stock options of WaveRider outstanding
at the time of the Merger and such securities will become
exercisable for WCAN common shares.
o WCAN may repurchase, for nominal consideration, the issued and
outstanding WCAN common shares held by WaveRider.
QUESTIONS AND ANSWERS
1. What is the reorganization? The reorganization is a transaction that will
result in your owning common shares in WCAN, a Canadian corporation
incorporated in the Province of British Columbia, rather than common stock
in WaveRider, a Nevada corporation. You will own the same number of shares
in WCAN as the number of shares in WaveRider you owned immediately prior to
the reorganization.
2. Why does WaveRider want to reorganize from a U.S. corporation to a Canadian
corporation? How will I benefit? Our board of directors believes that the
reorganization will offer the following benefits and advantages:
o The new Canadian corporation would be incorporated in the country
where WaveRider's operations and management are located.
o A Canadian corporation may be a more attractive investment to a wider
range of Canadian investors without limiting its access to the U.S.
capital markets.
1
o The proposed structure may facilitate the acquisition of or merger
with other businesses in Canada, and therefore make it easier to
achieve growth through acquisitions or mergers.
3. Will the reorganization affect current or future operations? The
reorganization is not expected to have a material impact on how we conduct
day-to-day operations. The location of future operations will depend on the
needs of the business, independent of WCAN's place of incorporation.
4. When is the annual stockholder meeting? WaveRider's annual stockholder
meeting will take place on September 27, 2004.
5. What should I do now to vote? After carefully reading and considering the
information contained in this joint proxy statement/prospectus, you should
submit your voting instructions by completing, signing and returning the
enclosed proxy card in accordance with the instructions appearing thereon
as soon as possible. Even if you plan to attend the annual meeting, we urge
you to submit your proxy as described above. You can change your vote at
any time before your proxy is voted at the meeting. You can do this in the
manner described under "The Stockholders' Annual Meeting--Proxy Cards"
starting on page 62.
6. What if I don't vote? If you fail to respond, it will have the same effect
as a vote against the reorganization. If you respond and fail to indicate
how you want to vote, your proxy will be counted as a vote in favor of the
reorganization. If you respond and abstain from voting, your proxy will
have the same effect as a vote against the reorganization.
7. What do I do if I want to change my vote? Just send in a later dated signed
proxy card, appear and vote in person at the annual meeting or give written
notice of the revocation to the Corporate Secretary of WaveRider.
8. Should I send in my stock certificate? No. You will not be required to
exchange your stock certificates as a result of the reorganization. After
the reorganization you will own one WCAN common share for each share of
WaveRider common stock you own immediately prior to the reorganization, and
your WaveRider certificates will represent those WCAN common shares. The
reorganization will not dilute your ownership interest in the company. Note
that WaveRider has effected a share consolidation of its common stock on
July 1 , 2004 on a one for ten basis. If you hold a share certificate(s)
and have not yet exchanged your share certificate(s) pursuant to the letter
of transmittal that was sent to you, the current share certificate(s) you
are holding does not show the number of shares you hold on a consolidated
basis.
9. Can I trade WaveRider shares between the date of this joint proxy
statement/prospectus and the effective time of the merger? Yes. We expect
that WaveRider common stock will continue to be quoted on the OTC during
this period.
10. After the reorganization, where can I trade my WCAN common shares? Upon the
WaveRider shareholders approving the reorganization and prior to the
completion of the reorganization, we expect that WCAN common shares will be
quoted on the OTC Bulletin Board of the National Association of Securities
Dealers, Inc.
11. What vote is required to approve the reorganization? The affirmative vote
of the holders of a majority of the 15,044,788 shares of WaveRider common
stock that were outstanding and entitled to vote on the reorganization as
of July 30, 2004, the record date for the stockholders' meeting, is
required to approve the reorganization
12. When do you expect to complete the reorganization? We intend to complete
the reorganization as soon as practicable following the adoption of the
Agreement and Plan of Merger at the stockholders' annual meeting, unless
our board of directors concludes that completion of the reorganization
would not be in the best interests of WaveRider or its stockholders, in
which case our board may defer or abandon the reorganization.
2
13. Is the reorganization taxable to me? Generally, if you are a U.S. holder
who holds your WaveRider shares at a gain, you will recognize taxable
capital gain for U.S. federal income tax purposes on the receipt of WCAN
shares in the reorganization; if you hold your WaveRider shares at a loss,
you will not recognize such loss for U.S. federal income tax purposes. If
you are a Canadian holder, you will recognize gain or loss for Canadian
federal income tax purposes on the receipt of WCAN shares in the
reorganization, and will be subject to tax on your gain for Canadian
federal income tax purposes; if you recognize a loss you will be able to
use such a capital loss to offset capital gains in your tax return for the
year of the reorganization, subject to the applicable tax rules. Generally,
for Canadian federal income tax purposes, stockholders of WaveRider who are
residents of the United States, and not residents of Canada, will not be
subject to Canadian federal income tax as a result of the reorganization.
WE URGE YOU TO CONSULT YOUR OWN TAX ADVISOR REGARDING THE PARTICULAR TAX
CONSEQUENCES OF THE REORGANIZATION FOR YOU.
14. Is the reorganization a taxable transaction for either WaveRider or WCAN?
For Canadian tax purposes, the reorganization transactions should be
considered tax-deferred rollovers for WaveRider and WCAN. For U.S. federal
income tax purposes, in general WCAN will recognize no gain or loss as a
result of the reorganization. If and when WCAN repurchases the shares held
by WaveRider for a nominal amount, there should be no adverse tax
consequence to WCAN or to WaveRider. The U.S. tax authorities may assert,
however, that upon the repurchase of the WCAN shares held by WaveRider,
WCAN or WaveRider must recognize taxable gain for U.S. federal income tax
purposes, in an amount equal to the difference, if any, between the value
of such WCAN shares and WaveRider's adjusted basis in such shares. Even if
the U.S. tax authorities successfully assert that the repurchase causes
WCAN or WaveRider to recognize taxable gain for U.S. federal income tax
purposes, we do not expect that the amount of any such gain will be
material
15. What types of information and reports will WCAN make available to
shareholders following the reorganization? After the reorganization, WCAN
will be a reporting issuer in all the provinces in Canada and will file
through the Canadian System for Electronic Document Analysis and Retrieval
(SEDAR), the Canadian equivalent of the SEC's EDGAR system, at
http://www.sedar.com , periodic reports, including audited annual financial
statements and unaudited quarterly financial statements, material change
reports, as well as proxy statements and related materials for annual and
special meetings of WCAN shareholders. WCAN will be required to send,
annually, a request form to its shareholders for their use if they wish to
request a copy of WCAN's annual and interim financial statements as well as
the related management's discussion and analysis of financial condition and
results of operations. The periodic reports that WCAN will file through
SEDAR will also be filed on the SEC's EDGAR system because WCAN will be a
reporting company for purposes of the Securities Exchange Act of 1934, as
amended. But, as a foreign private issuer, WCAN will not be subject to the
same filing requirements under the Securities Exchange Act of 1934 to which
WaveRider is subject.
16. Whom should I contact with questions?
Scott Worthington - Vice President and Chief Financial Officer
WaveRider Communication Inc.
255 Consumers Road, Suite 500
Toronto, Ontario M2J 1R4
Phone: (416) 502-3200
3
SUMMARY
This summary highlights selected information from this joint proxy
statement/prospectus and may not contain all of the information that is
important to you. To understand more fully the reorganization and the other
matters to be voted on by stockholders at the stockholders' meeting, and for a
more complete legal description of the reorganization, you should read carefully
this entire joint proxy statement/prospectus, including the Annexes. See also
"Where You Can Find More Information" on page 74.
Parties to the Reorganization
WaveRider
WaveRider, a Nevada corporation, is the public holding company of the
WaveRider group of companies that is principally engaged in the designing,
development, marketing and supporting of fixed wireless internet access
products. Its products are designed to deliver efficient, reliable and
cost-effective solutions to bring high-speed internet access to markets around
the world. WaveRider is the owner of the intellectual property for the business
of the WaveRider group and holds the shares of various wholly-owned subsidiary
companies through which it conducts its business, WCAN, WaveRider Communications
(Australia) Pty Ltd., WaveRider Communications (USA) Inc., Avendo Wireless Inc.
and through WCAN, Jetstream Internet Services Inc.
WCAN
WCAN is a wholly-owned subsidiary of WaveRider. It is incorporated in
British Columbia, Canada. WCAN employs the personnel and incurs the overhead in
Canada to research, create, develop, manufacture and sell WaveRider's products
worldwide. WaveRider has licensed its intellectual property to WCAN to perform
the above described functions.
Merger SUB
The merger sub will be a newly formed Nevada corporation for the purpose
of effecting the reorganization. All merger sub shares will be held by WCAN.
The principal executive office of each of WaveRider, WCAN and the merger
sub will be as of the date of the meeting located at 255 Consumers Road, Suite
500, Toronto, Ontario M2J 1R4. The telephone number of each party at that
address is (416) 502-3200.
Our Reasons for the Reorganization
We currently conduct most of our business operations from Canada, and we
believe that reorganizing WaveRider as a Canadian corporation will be more
consistent with our business operations. We also believe that the
reorganization:
o may increase our access to Canadian capital markets and may cause our
securities to become more attractive to a wider range of Canadian
investors, without impacting our ability to access U.S. capital markets;
and
o may make it easier to acquire or merge with other Canadian businesses.
Our Recommendation to WaveRider Stockholders
Our board of directors believes that the reorganization is in the best
interests of WaveRider's stockholders and has unanimously approved the
reorganization, and it recommends that you vote FOR the adoption of the
Agreement and Plan of Merger which provides for the various steps of the
reorganization.
4
Vote Required regarding the Reorganization
The reorganization cannot be completed unless the holders of a majority of
our shares entitled to vote at the stockholders' annual meeting approve the
Agreement and Plan of Merger.
As of July 30, 2004, the record date, there were 15,044,788 shares of
WaveRider common stock outstanding and entitled to vote. As of the record date,
our directors and executive officers and their affiliates directly owned, in the
aggregate, approximately 248,623 of such shares, representing approximately 1.7%
of the outstanding shares of WaveRider common stock. These persons have informed
us that they intend to vote their shares in favor of the adoption of the
Agreement and Plan of Merger.
The Reorganization (Proposal No. 1) (see page 39)
The Agreement and Plan of Merger, a copy of which is attached as Annex
A to this joint proxy statement/ prospectus, is the legal document that contains
the terms and conditions of the reorganization and is incorporated by reference
into this document. The articles of incorporation and articles of WCAN will
serve purposes substantially similar to the certificate of incorporation and
by-laws of WaveRider. Copies of the articles of incorporation and articles of
WCAN have been filed with the SEC as exhibits to this joint proxy
statement/prospectus and are therefore available for review at
http://www.sec.gov and can also be obtained upon request to the Corporate
Secretary of WaveRider.
The reorganization is a transaction that will result in your owning common
shares in WCAN, a Canadian corporation incorporated in the Province of British
Columbia, rather than common stock in WaveRider, a Nevada corporation. You will
own the same number of shares in WCAN as the number of shares in WaveRider you
owned immediately prior to the reorganization. Upon completion of the
reorganization, WCAN and its subsidiaries will continue to conduct the business
that WaveRider and its subsidiaries now conduct.
Board of Directors and Management after the Reorganization
The board of directors and management of WCAN after the reorganization
will be the board of directors and management of WaveRider.
In connection with the employment agreements of certain executive
officers, WaveRider, WCAN and such officers will enter into agreements pursuant
to which the parties will agree that the merger will not constitute a change of
control for the purposes of such employment agreements. As a result, such
executive officers will not derive any benefits from the reorganization.
Conditions to Completion of the Reorganization (see page 42)
The reorganization will not be completed unless, among other things, the
following conditions (and others described in this joint proxy
statement/prospectus) are satisfied or, if allowed by law, waived:
o the Agreement and Plan of Merger is adopted by the requisite vote of
stockholders of WaveRider;
o no stop order is in effect with respect to the SEC registration statement
of which this joint proxy statement/prospectus is a part; and
o all consents required under instruments evidencing a material amount of
indebtedness and all material consents required under material contracts
with WaveRider or its subsidiaries have been obtained.
Rights of Stockholders/Shareholders
The principal attributes of the WaveRider shares of common stock and the
WCAN common shares will be similar. However, there are differences between the
rights of stockholders under Nevada law and the rights of shareholders under
British Columbia law. In addition, there will be differences between WaveRider's
certificate of incorporation and by-laws and WCAN's articles of incorporation
and articles ("Articles"). We discuss these differences in more detail under
"Description of Common Shares of WCAN" and "Comparison of Rights of
Stockholders/Shareholders".
5
Tax Considerations (see page 48)
Taxation of WaveRider Stockholders. Generally, if you are a U.S. holder
who holds your WaveRider shares at a gain, you will recognize taxable capital
gain for U.S. federal income tax purposes on the receipt of WCAN shares in the
reorganization; if you hold your WaveRider shares at a loss, you will not
recognize such loss for U.S. federal income tax purposes. If you are a Canadian
holder, you will recognize gain or loss for Canadian federal income tax purposes
on the receipt of WCAN shares in the reorganization, and will be subject to tax
on your gain for Canadian federal income tax purposes; if you recognize a loss
you will be able to use such a capital loss to offset capital gains in your tax
return for the year of the reorganization, subject to the applicable tax rules.
Generally, for Canadian federal income tax purposes, stockholders of WaveRider
who are residents of the United States, and not residents of Canada, will not be
subject to Canadian federal income tax as a result of the reorganization. WE
URGE YOU TO CONSULT YOUR OWN TAX ADVISOR REGARDING THE PARTICULAR TAX
CONSEQUENCES OF THE REORGANIZATION FOR YOU.
Taxation of WaveRider. For Canadian tax purposes, the reorganization
transactions should not give rise to tax liabilities in either WaveRider or
WCAN. For U.S. federal income tax purposes, in general WCAN will recognize no
gain or loss as a result of the reorganization. If and when WCAN repurchases the
shares held by WaveRider for a nominal amount, there should be no adverse tax
consequence to WCAN or to WaveRider. The U.S. tax authorities may assert,
however, that upon the repurchase of the WCAN shares held by WaveRider, WCAN or
WaveRider must recognize taxable gain for U.S. federal income tax purposes, in
an amount equal to the difference, if any, between the value of such WCAN shares
and WaveRider's adjusted basis in such shares. Even if the U.S. tax authorities
successfully assert that the repurchase causes WCAN or WaveRider to recognize
taxable gain for U.S. federal income tax purposes, we do not expect that the
amount of any such gain will be material.
WE ENCOURAGE YOU TO READ THE SECTION ENTITLED "MATERIAL INCOME TAX
CONSEQUENCES OF THE REORGANIZATION" BEGINNING ON PAGE 48 FOR A MORE DETAILED
DESCRIPTION OF THESE TAX CONSEQUENCES. WE ALSO URGE YOU TO CONSULT YOUR OWN TAX
ADVISOR REGARDING THE PARTICULAR TAX CONSEQUENCES OF THE REORGANIZATION FOR YOU.
No Requirement to Exchange Certificates
In the merger you will receive one WCAN common share for each of your
WaveRider shares. Your WaveRider stock certificates will automatically become
certificates representing WCAN shares, and you will not be required to exchange
your stock certificates in connection with the reorganization. Note that
WaveRider has effected a share consolidation of its common stock on July 1, 2004
on a ten for one basis. If you hold a share certificate(s) and have not yet
exchanged your share certificate(s) pursuant to the letter of transmittal that
was sent to you, the current share certificate(s) you are holding does not show
the number of shares you hold on a consolidated basis.
Trading Market for WCAN common shares (see page 46)
Upon the reorganization receiving approval by the shareholders of
WaveRider, we expect the WCAN common shares to be quoted on the OTC Bulletin
Board of the National Association of Securities Dealers, Inc. Currently there is
no established public trading market for the shares of WCAN.
Regulatory Approvals (see page 43)
The only governmental or regulatory approvals or actions that are required
to complete the reorganization are compliance with U.S. federal and state
securities laws and regulations, Canadian provincial securities laws and Nevada
and British Columbia corporate law.
6
Rights of Dissenting Stockholders (see page 43)
Under Nevada law, except as otherwise provided, dissenting shareholders
have the right to demand and receive payment in cash equal to the fair value of
their shares in the event of a reorganization in lieu of the consideration such
shareholder would otherwise receive pursuant to such transaction. Stockholders
of WaveRider desiring to exercise their dissent and appraisal rights are urged
to read Annex B in its entirety since failure to comply with the procedures set
forth therein may result in the loss of dissent and appraisal rights.
Accounting Treatment of the Reorganization (see page 46)
Because the reorganization will be accounted for as a reorganization of
entities under common control, there will be no comprehensive revaluation of
WaveRider's assets and liabilities.
Market Prices (see page 15)
On June 21, 2004, the last trading day before the public announcement of
the reorganization, the high and low sales prices of WaveRider common stock on
the OTC Bulletin Board (the principal trading market for our shares) were both
reported at $1.30.
Other WaveRider Annual Meeting Matters
Election of Directors (Proposal No. 2). At the annual meeting, we are also
asking our stockholders to elect six directors. Approval of this proposal is not
a condition to the completion of the reorganization.
The board of directors of WaveRider recommends that you vote FOR the six
nominees for directors.
Annual Meeting (see page 61)
At the stockholders' annual meeting, you will be asked to approve the
reorganization by voting to adopt the Agreement and Plan of Merger and the
subsequent steps and to elect six members to the board of directors of
WaveRider.
Record Date. Only holders of record of WaveRider common stock at the close
of business on July 30, 2004, as shown in WaveRider's stock transfer records,
will be entitled to vote, or to grant proxies to vote, at the stockholders'
meeting.
Quorum. The presence, in person or by proxy, of persons holding a majority
of the outstanding shares of WaveRider common stock entitled to vote at the
stockholders' meeting will constitute a quorum.
Proxy Cards (see page 62)
Proxy Cards. A proxy card is being sent to each holder of shares of
WaveRider common stock as of the record date. If you held shares on the record
date you may grant a proxy by marking the proxy card appropriately, executing it
in the space provided and returning it to WaveRider. If you hold your WaveRider
shares in the name of a bank, broker or other nominee, you should follow the
instructions provided by your bank, broker or nominee when voting your shares.
To be effective, a proxy card must be received by WaveRider prior to the
beginning of voting at the stockholders' meeting.
Revocation. A proxy may be revoked at any time prior to the time the proxy
is voted at the stockholders' meeting by any of the following methods:
o giving written notice of the revocation to the Corporate Secretary of
WaveRider;
o appearing and voting in person at the stockholders' meeting; or
o submitting a properly completed, signed and delivered later-dated proxy
card.
7
Absence of Instructions. Shares represented by a proxy that has not been
revoked will be voted at the meeting in accordance with the directions given. If
no direction has been given on the proxy card, the shares will be voted FOR the
adoption of the Agreement and Plan of Merger and FOR the election of the
directors identified in the proxy card and other items of business of the
meeting.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus contains or incorporates by
reference forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 with respect to the reorganization and
our financial condition, results of operations and business. This Act protects
public companies from liability for forward-looking statements in private
securities litigation if the forward-looking statements are identified and are
accompanied by meaningful cautionary statements identifying important factors
that could cause actual results to differ materially from the forward-looking
statements. Forward-looking statements by their nature involve a degree of risk
and uncertainty, including, but not limited to, the risks and uncertainties
referred to under "Risk Factors" and elsewhere herein or in the documents
incorporated by reference. All statements regarding the expected benefits and
costs of the reorganization are forward-looking statements. The forward-looking
statements may include statements regarding the period following completion of
the reorganization. You can find many of these statements by looking for words
such as "believes", "expects", "anticipates", "estimates", "continues", "may",
"intends", "plans" or similar expressions in this joint proxy
statement/prospectus or in the documents incorporated by reference. You should
be aware that any forward-looking statements in this joint proxy
statement/prospectus reflect only current expectations and are not guarantees of
performance. Many possible events or factors could affect our future financial
results and performance. This could cause our results or performance to differ
materially from those we express in our forward-looking statements. You should
consider these risks when deciding how to vote. Also, as you make your decision
on how to vote, please take into account that forward-looking statements speak
only as of the date of this joint proxy statement/prospectus or, in the case of
documents incorporated by reference, the date of any such document, or in
certain cases, as of a specified date.
We have identified factors that could cause actual plans or results to
differ materially from those included in any forward-looking statements
contained in or incorporated by reference into this joint proxy
statement/prospectus. These factors include, but are not limited to, the
following:
o an inability to realize expected benefits of the reorganization
within the anticipated time frame, or at all;
o changes in tax law, tax treaties or tax regulations or the
interpretation or enforcement thereof, including taxing
authorities not agreeing with our assessment of the effects of
such laws, treaties and regulations;
o an inability to execute any of our business strategies;
o costs or difficulties related to the reorganization, which could
be greater than expected;
o changes in the rate of economic growth in Canada or the U.S.;
o political and economic conditions in Canada or the U.S.;
o significant changes in trade, monetary or fiscal policies of
Canada or the U.S., including changes in interest rates and
currency fluctuations between the Canadian and the U.S. dollars
and other currencies;
o costs and effects of unanticipated legal and administrative
proceedings;
o acts of war or terrorism;
o management's estimates of future sales growth and gross margin
percentages;
8
o the impact of new product introductions on future sales and gross
margin percentages;
o future levels of depreciation, interest income and expense and
income taxes;
o management's estimates of future earnings per share;
o the adequacy of our liquidity;
o such other risk factors as may be discussed in our reports filed
with the SEC.
We disclaim any obligation or undertaking to disseminate any updates or
revisions to our statements, forward-looking or otherwise, to reflect changes in
our expectations or any change in events, conditions or circumstances on which
any such statements are based.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following summary sets forth selected historical consolidated
financial data for WaveRider for the three and six months ended June 30, 2004
and 2003 and for each of the years in the five-year period ended December 31,
2003. The following summary should be read in conjunction with the financial
information set forth elsewhere in this joint proxy statement/prospectus. The
results of operations for the three and six months ended June 30, 2004 are not
necessarily indicative of the results expected for 2004 or any other interim
period. WaveRider's consolidated financial statements are prepared in accordance
with generally accepted accounting principles in the United States of America.
Unless otherwise noted, all monetary amounts are stated in United States
dollars. The information below reflects the one-for-ten share consolidation of
WaveRider's common stock effected on July 1, 2004.
Three Months ended Six Months ended
June 30 June 30 June 30 June 30
2004 2003 2004 2003
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------------------------------------------------------------
Revenue 2,412,516 3,136,154 4,718,737 6,314,515
-------------- ------------ -------------- ------------
Cost of revenue 1,766,679 1,771,458 3,249,549 3,774,745
-------------- ------------ -------------- -----------
Gross margin 645,837 1,364,696 1,469,188 2,539,770
-------------- ------------ -------------- ------------
Net loss $ (2,586,187) $ (118,772) $ (4,164,737) $ (377,265)
============== ============ ============= ============
Basic and diluted loss per share $ (0.18) $ (0.01) $ (0.28) $ (0.03)
============== ============ ============== ============
Weighted average number of common shares 14,740,669 12,501,154 14,670,299 12,099,130
============== ============ ============== ============
Year ended December 31
(Audited)
2003 2002 2001 2000 1999
------------------------------------------------------------------------------------
Revenue $ 13,078,555 $ 9,008,915 $ 7,804,017 $ 4,132,992 $ 1,716,045
Cost of revenue 7,899,016 6,778,794 5,956,495 5,239,048 1,294,815
------------------------------------------------------------------------------------
Gross margin 5,179,539 2,230,121 1,847,522 (1,106,056) 421,230
Expenses 10,240,846 13,479,823 23,340,472 30,523,604 8,373,080
------------------------------------------------------------------------------------
Net loss before income taxes (5,061,307) (11,249,702) (21,492,950) (31,629,660) (7,951,850)
Deferred income tax recovery - - - 157,045 504,000
------------------------------------------------------------------------------------
Net loss $ (5,061,307) $ (11,249,702) $ (21,492,950) $ (31,472,615) $ (7,447,850)
====================================================================================
Basic and diluted loss per share $ (0.39) $ (1.07) $ (3.74) $ (5.92) $ (2.53)
====================================================================================
Weighted average number
of common shares 13,068,331 10,526,153 6,026,962 5,320,375 3,425,857
====================================================================================
9
BALANCE SHEET DATA:
Quarter ended June 30,
2004 2003
----------------------------------
(Unaudited) (Unaudited)
Non-restricted cash and cash equivalents $ 1,221,282 $ 880,255
----------------------------------
Working capital 1,874,609 663,900
Property, plant and equipment, net 354,533 603,522
Total assets 4,850,433 4,160,968
Convertible debentures 1,557,979 -
Long term capital leases 2,909 12,490
Shareholders' equity 668,254 1,254,932
As at December 31,
(audited)
2003 2002 2001 2000 1999
------------------------------------------------------------------------------------
Non-restricted cash and cash equivalents $ 1,843,135 $ 1,025,604 $ 2,244,625 $ 7,720,902 $ 5,540,917
------------------------------------------------------------------------------------
Working capital 2,296,380 780,148 1,931,418 7,331,220 5,222,841
Property, plant & equipment 407,489 885,475 1,671,088 2,395,373 978,160
Total assets 5,484,455 4,645,220 10,618,503 20,933,045 10,080,516
Convertible notes 772,920 - - 1,835,299 -
Long term capital leases 4,155 6,004 36,312 224,347 18,625
Shareholders' Equity 1,926,794 1,659,619 7,596,472 12,182,589 8,298,382
Our current operations commenced in 1997 with the acquisition of Major
Wireless Communication Inc. and JetStream Internet Services Inc. In 1999, we
purchased Transformation Techniques, Inc. ("TTI"), in 2000 we purchased ADE
Network Technology Pty Ltd. and in 2003 we purchased Avendo Wireless Inc.
Please refer to the consolidated financial statements of WaveRider
commencing at page F-A1 of this joint proxy statement/prospectus.
SUMMARY PRO FORMA FINANCIAL INFORMATION
We have not presented a pro forma consolidated balance sheet for WCAN in
this joint proxy statement/prospectus because they would be similar in all
material respects to the historical consolidated balance sheets of WaveRider as
of December 31, 2003 and June 30, 2004.
We have not presented pro forma consolidated statements of income for
WCAN in this joint proxy statement/prospectus because they would be materially
similar to the historical consolidated statements of income of WaveRider for the
years ended December 31, 2003 and the interim periods ended June 30, 2004 and
2003.
Costs incurred in connection with the reorganization have been and will
continue to be expensed as incurred. We believe such costs will total
approximately $250,000.
RISK FACTORS
In considering whether to vote for adoption of the Agreement and Plan of
Merger, you should consider carefully the following risks or investment
considerations related to the reorganization, in addition to the other
information in this joint proxy statement/prospectus. The risks and
uncertainties described below are not the only ones facing us. Additional risks
and uncertainties not presently known to us or that we currently deem immaterial
may also impair our business. If any of the following risks actually occur, our
business could be adversely affected. In those cases, the trading price of our
common stock could decline, and you may lose all or part of your investment.
10
Risks relating to the Reorganization
WCAN may be required to pay taxes as a result of the reorganization.
Based on the current provisions of the Income Tax Act (Canada) ("the
Canadian Tax Act") and the Canada-United States Income Tax Convention (1980)
(the "Treaty"), and any amendments to either the Canadian Tax Act or the Treaty
announced prior to the date hereof, we expect that the reorganization will not
result in any material Canadian federal income tax liability to any of
WaveRider, WCAN or the merger sub. The Canada Customs and Revenue Agency (the
"CRA"), however, could disagree with this view and could take the position that
material Canadian federal income tax liabilities or amounts on account thereof
are payable by any one or more of these companies as a result of the
reorganization. If the CRA were to claim that Canadian federal income tax
liabilities or amounts on account thereof were due, we expect that we would
contest such assessment. To contest such assessment, we would be required to
remit cash or provide security of the amount in dispute or such lesser amount as
permitted under the Canadian Tax Act and acceptable to the CRA to prevent the
CRA from seeking enforcement actions pending our dispute of such assessment. We
are required to notify the CRA, no later than 10 days after implementation of
the reorganization. This notification could lead the CRA to review the
reorganization earlier than would otherwise be expected.
We may not realize the benefits, if any, described in this joint proxy
statement/prospectus, if our board chooses to defer or abandon the
reorganization.
The reorganization may be deferred or abandoned, at any time, by action
of our board of directors, whether before or after the stockholders' meeting.
While we currently expect the reorganization to take place as soon as
practicable after adoption of the Agreement and Plan of Merger at the annual
stockholders' meeting, the board of directors may defer the reorganization for a
significant time after the stockholders' meeting or may abandon the
reorganization because, among other reasons, of an increase in our estimated
cost of the reorganization, including U.S. or Canadian tax costs, changes in
existing or proposed tax legislation or a determination by our board of
directors that the reorganization would not be in the best interests of
WaveRider or its stockholders or that the reorganization would have material
adverse consequences to WaveRider or its stockholders.
In particular, changes in, or uncertainty surrounding, proposed United
States tax legislation could cause our board of directors to choose to defer or
abandon the reorganization. Transactions in which corporations have
reincorporated outside the United States have been a focus of proposed U.S.
legislation since March 2002. In general, the proposed legislation would deny a
corporation that reincorporates outside the United States certain deductions,
including net operating loss carryforwards, and the use of foreign tax credits,
to offset its gain and the related tax realized in connection with the
reincorporation. The proposed legislation addressing reincorporations has
typically provided for a retroactive effective date. Prior to July 25, 2003,
five of the last six proposed bills included an exception from such legislation
for a corporation that reincorporated in a country in which the corporation had
substantial business operations. On July 25, 2003, however, the Chairman of the
House Ways and Means Committee, William Thomas, introduced a bill that did not
provide a similar exception, although amendments to the bill subsequently did
provide such an exception. In the fall of 2003, the Chairman of the Senate
Committee on Finance, Charles Grassley, introduced a bill addressing corporate
reincorporation transactions that included an exception for a corporation that
reincorporated in a country in which it had substantial business operations. The
bill currently before the Senate Committee on Finance also contains an exception
for a corporation that reincorporates in a country where it has substantial
business operations. Because all of WaveRider's business operations are in
Canada and WCAN will be a Canadian corporation, we do not believe that WaveRider
would be subject to the recently proposed legislation in the House (as amended)
or the Senate under the exceptions for substantial business operations. However,
if legislation were passed without such an exception and were effective on or
before the effective date of WaveRider's reorganization, WaveRider would not be
allowed to use its net operating loss carryforwards and foreign tax credits to
offset income and gain and the related taxes resulting from the reorganization
or its future operations. Such a limitation on WaveRider's ability to utilize
these tax attributes could result in a substantial U.S. tax cost to WaveRider.
As a consequence, the board of directors may choose to defer or abandon the
reorganization until or unless legislation addressing corporate reincorporation
transactions and containing an exception for a corporation that reincorporates
in a country in which it has substantial business operations were to become law.
11
Changes in foreign laws, including tax law changes, could adversely affect
WCAN, its subsidiaries and its shareholders.
Changes in tax laws, treaties or regulations or the interpretation or
enforcement thereof could adversely affect the tax consequences of the
reorganization to WCAN and its shareholders. In addition, the U.S. Internal
Revenue Service, CRA, or other taxing authorities may not agree with our
assessment of the effects of such laws, treaties and regulations, which could
have a material adverse effect on the tax consequences of the reorganization.
In addition, as a corporation incorporated under the British Columbia
Business Corporations Act , WCAN will become subject to changes in the laws of
British Columbia and the laws of Canada applicable therein and your rights as a
shareholder of WCAN could change after the reorganization as a result of such
changes.
We may not benefit from the reorganization.
We have presented in this joint proxy statement/prospectus the anticipated
benefits of the reorganization. Many factors could affect the outcome of the
reorganization, and some or all of the anticipated benefits of the
reorganization may not occur. WCAN may not generate the level of capital markets
interest anticipated in connection with being regarded as a "mid-cap" company in
the context of the Canadian capital markets. The opportunity for acquisitions,
mergers or strategic alliances by WCAN may not materialize or may not result in
substantial benefits for WCAN.
Your rights as a stockholder of WaveRider will change as a result of the
reorganization.
Because of the differences between Nevada law and British Columbia law and
certain differences between the governing documents of WaveRider and WCAN, your
rights as a stockholder will change if the reorganization is completed. For a
detailed discussion of these differences, see "Comparison of Rights of
Stockholders/Shareholders" beginning on page 55.
The enforcement of civil liabilities against WCAN may be more difficult.
Because WCAN is a Canadian corporation, investors could experience more
difficulty enforcing judgments obtained against WCAN in U.S. courts than would
currently be the case for U.S. judgments obtained against WaveRider. In
addition, it may be more difficult to bring some claims against WCAN in Canadian
courts than it would be to bring similar claims against a U.S. company in a U.S.
court.
Risks relating to WaveRider's Business (or WCAN's Business after the
Reorganization) in General
We have a history of losses, and our future profitability is uncertain.
Due to our limited operating history, we are subject to the uncertainties
and risks associated with any new business. We have experienced significant
operating losses every year since incorporation. We incurred a net loss of
$5,061,307 for the year ended December 31, 2003 (2002 - $11,249,702, 2001 -
$21,492,950) and $2,586,187 and $4,164,737 for the three and six months ended
June 30, 2004 respectively and reported an accumulated deficit as of December
31, 2003 of $88,262,299 (2002 - $83,200,992) and $92,427,036 as of June 30,
2004.
There can be no assurance that we will ever generate an overall profit
from our products or that we will ever reach profitability on a sustained basis.
Competition in the data communication industry is intense and there is
uncertainty that given our technology and limited resources that we will be able
to succeed.
Although our products are based on a wireless technology, we compete not
only against companies that base their products on wireless technology, but also
against companies that base their products on hard-wired technology (wire or
fiber optic cable). There can be no assurance that we will be able to compete
successfully in the future against existing or new competitors or that our
operating results will not be adversely affected by increased price competition.
Competition is based on design and quality of the products, product performance,
price and service, with the relative importance of such factors varying among
products and markets. Competition in the various markets we serve comes from
companies of various sizes many of which are larger and have greater financial
and other resources than we do and, thus, can withstand adverse economic or
market conditions better than we can.
12
Our future operating results are subject to a number of risks, including
our ability or inability to implement our strategic plan, to attract qualified
personnel and to raise sufficient financing as required. Inability of our
management to guide growth effectively, including implementing appropriate
systems, procedures and controls, could have a material adverse effect on our
business, financial condition and operating results.
The data communication industry is in a state of rapid technological
change and we may not be able to keep up.
We may be unable to keep up with technological advances in the data
communications industry. As a result, our products may become obsolete or
unattractive. The data communications industry is characterized by rapid
technological change. In addition to frequent improvements of existing
technology, there is frequent introduction of new technologies leading to more
complex and powerful products. Keeping up with these changes requires
significant management, technological and financial resources. As a small
company, we do not have the management, technological and financial resources
that larger companies in our industry may have. There can be no assurance that
we will be able or successful in enhancing our existing products, or in
developing, manufacturing and marketing new products. An inability to do so
would adversely affect our business, financial condition and results of
operations.
We have limited intellectual property protection and there is risk that
our competitors will be able to appropriate our technology.
Our ability to compete depends to a significant extent on our ability to
protect our intellectual property and to operate without infringing the
intellectual property rights of others. We regard our technology as proprietary.
We have pending patent applications but we do not have any registered patents,
nor do we have any registered copyrights with respect to our intellectual
property rights. We have not filed for patent protection in any jurisdiction
outside of Canada and the United States. We rely on employee and third party
non-disclosure agreements and on the legal principles restricting the
unauthorized disclosure and use of trade secrets. Despite our precautions, it
might be possible for a third party to copy or otherwise obtain our technology,
and use it without authorization. Although we intend to defend our intellectual
property, we cannot assure you that the steps we have taken or that we may take
in the future will be sufficient to prevent misappropriation or unauthorized use
of our technology. In addition, there can be no assurance that foreign
intellectual property laws will protect our intellectual property rights. There
is no assurance that patent application or copyright registration that may be
filed will be granted, or that any issued patent or copyrights will not be
challenged, invalidated or circumvented. There is no assurance that the rights
granted under patents that may be issued or copyrights that may be registered
will provide sufficient protection to our intellectual property rights.
Moreover, we cannot assure you that our competitors will not independently
develop technologies similar, or even superior, to our technology.
Use of our products is subordinated to other uses and there is risk that
our customers may have to limit or discontinue the use of our products.
License-free operation of our products in certain radio frequency bands is
subordinated to certain licensed and unlicensed uses of these bands. This
subordination means that our products must not cause harmful interference to
other equipment operating in the band, and must accept potential interference
from any of such other equipment. If our equipment is unable to operate without
any such harmful interference, or is unable to accept interference caused by
others, our customers could be required to cease operations in some or all of
these bands in the locations affected by the harmful interference. As well, in
the event these bands become unacceptably crowded, and no additional frequencies
are allocated to unlicensed use, our business could be adversely affected.
Currently, our products are designed to operate in frequency bands for
which licenses are not required in the United States, Canada and other countries
that we view as our potential market. Extensive regulation of the data
communications industry by U.S. or foreign governments and, in particular,
imposing license requirements in the frequency bands of our products could
materially and adversely affect us through the effect on our customers and
potential customers. Continued license-free operation will depend upon the
continuation of existing U.S., Canadian and such other countries' government
policies and, while no planned policy changes have been announced or are
expected, this cannot be assured.
13
We may be subject to product liability claims and we lack product
liability insurance.
We face an inherent risk of exposure to product liability claims in the
event that the products designed and sold by us contain errors, "bugs" or
defects. There can be no assurance that we will avoid significant product
liability exposure. We do not currently have product liability insurance and
there can be no assurance that insurance coverage will be available in the
future on commercially reasonable terms, or at all. Further, there can be no
assurance that such insurance, if obtained, would be adequate to cover potential
product liability claims, or that a loss of insurance coverage or the assertion
of a product liability claim or claims would not materially adversely affect our
business, financial condition and results of operations.
We depend upon third party manufacturers and there is risk that, if these
suppliers become unavailable for any reason, we may for an unknown period of
time have no product to sell.
We depend upon a limited number of third party manufacturers to make our
products. If our suppliers are not able to manufacture for us for any reason, we
would, for an unknown period of time, have difficulty finding alternate sources
of supply. Inability to obtain manufacturing capacity would have a material
adverse effect on our business, financial condition and results of operations.
Our shareholders may suffer dilution if we issue substantial shares of our
common stock:
o upon conversion of convertible debentures; and,
o upon exercise of the outstanding warrants and options.
We are obligated to issue a substantial number of shares of common stock
upon the conversion of our convertible debentures and exercise of our
outstanding warrants and options. The price, which we may receive for the shares
of common stock, that are issuable upon conversion or exercise of such
securities, may be less than the market price of the common stock at the time of
such conversions or exercise. Should a significant number of these securities be
exercised or converted, the resulting increase in the amount of the common stock
in the public market could have a substantial dilutive effect on our outstanding
common stock.
The conversion and exercise of all of the aforementioned securities or the
issuance of new shares of common stock may also adversely affect the terms under
which we could obtain additional equity capital.
Our common stock is subject to the penny stock rules which means our
market liquidity could be adversely affected.
The SEC's regulations define a "penny stock" to be an equity security that
has a market price less than $5.00 per share, subject to certain exceptions.
These rules impose additional sales practice requirements on broker dealers that
sell low-priced securities to persons other than established customers and
institutional accredited investors; and require the delivery of a disclosure
schedule explaining the nature and risks of the penny stock market. As a result,
the ability or willingness of broker-dealers to sell or make a market in our
common stock might decline.
No dividends anticipated.
We intend to retain any future earnings to fund the operation and
expansion of our business. We do not anticipate paying cash dividends on our
shares in the foreseeable future.
14
WAVERIDER VOTING SECURITIES
Our only outstanding voting security is WaveRider common stock. Only
holders of record of such common stock at the close of business on July 30,
2004, the record date for the stockholders' annual meeting, are entitled to
notice of and to vote at the annual meeting. On the record date for the
stockholders' meeting there were 15,044,788 shares of WaveRider common stock
outstanding. A majority of the shares of common stock entitled to vote at the
annual meeting, present in person or represented by proxy, is necessary to
constitute a quorum. Each share of common stock is entitled to one vote. The
reorganization cannot be completed unless the holders of a majority of such
shares of common stock entitled to vote at the annual meeting vote to adopt the
Agreement and Plan of Merger.
MARKET FOR WAVERIDER COMMON EQUITY, DIVIDEND POLICY AND OTHER MATTERS
Our outstanding shares of common stock, par value $.001 per share, are
quoted under the symbol "WAVR.OB" on the OTC Bulletin Board by the National
Association of Securities Dealers, Inc. Prior to April 10, 2002, our common
stock traded on the Nasdaq National Market System. The following table sets
forth the closing high and low prices of the common stock for the periods
indicated, as reported by the NASD. These quotations are believed to be
representative inter-dealer prices, without retail mark-up, markdown or
commissions and may not represent prices at which actual transactions occurred.
The prices below are adjusted to reflect the ten for one consolidation of the
WaveRider common stock which became effective on July 1, 2004.
2004 2003 2002
High Low High Low High Low
First Quarter 3.35 2.25 $1.60 $0.90 $4.60 $1.60
Second Quarter 2.40 1.00 $6.00 $0.90 $1.80 $0.80
Third Quarter n/a n/a $4.40 $2.00 $1.70 $0.90
Fourth Quarter n/a n/a $3.80 $2.10 $2.00 $0.70
In the month of July, the high and the low prices reported were
respectively $1.15 and $0.56.
Holders: We have approximately 1,264 common shareholders of record as of
July 30, 2004. This number does not include shareholders whose shares are held
in street or nominee names.
Dividends: While there are no restrictions on our ability to pay
dividends, other than those common to all companies incorporated under the laws
of the State of Nevada, we have not paid dividends to holders of our common
stock . We do not expect to pay a cash dividend on our common stock in the
foreseeable future and payment of dividends in the future will depend on our
earnings and cash requirements.
BUSINESS OF WAVERIDER
Overview
WaveRider Communications Inc. is incorporated under the laws of the State
of Nevada and WaveRider shares of common stock are quoted on the OTC Bulletin
Board under the symbol "WAVR-OB". WaveRider is the public company of the
WaveRider group of companies which holds the shares of various wholly-owned
subsidiary companies through which it conducts its business namely, WCAN,
WaveRider Communications (Australia) Pty Ltd., WaveRider Communications (USA)
Inc., Avendo Wireless Inc., and, through WCAN, Jetstream Internet Services Inc.
The WaveRider group of companies is a wireless technology business that
develops, manufactures and markets products to take advantage of the world-wide
growth of the Internet, increasing acceptance of wireless technology, and the
demand for high speed, Internet access.
We believe that providing the "last mile solution" is the key to
capitalize on the opportunities presented by today's rapidly changing
telecommunications market place. The ability to provide a full suite of products
and services that will quickly enable all types of users to conduct business,
access services and enhance communication is key to securing a dominant market
position. The demands of the customer are growing beyond traditional voice
communication, as today's end user wants access to a growing set of services
that require high-speed access. As a result, we have developed a family of fixed
wireless access products capable of providing wireless high-speed Internet
access to businesses, organizations and consumers.
15
With an early-to-market family of products that include the world's first
non-line-of-sight, easy to set up, wireless Internet network available today, we
are well positioned in the fixed wireless access market. Further, cost
advantages are derived from operating in the unlicensed frequencies and result
in the potential for service providers to establish profitable wireless Internet
networks.
WaveRider's executive offices are located at 255 Consumers Road, Suite
500, Toronto, Ontario, Canada, M2J 1R4. WaveRider's telephone number is (416)
502-3200 and our Web Site address is www.WaveRider.com. The information on our
website is not incorporated by reference into this joint proxy
statement/prospectus.
Recent Developments
On April 23, 2004, WaveRider entered into a financing agreement with
Crescent International Ltd. and Palisades Master Fund L.P., through investment
management firm GreenLight (Switzerland) SA, regarding the purchase of
$2,125,000 of convertible debenture for gross cash proceeds of $2,000,000 less
fees and expenses. In addition, in consideration of entering into the agreement,
WaveRider provided the purchasers with 268,715 common stock purchase warrants,
which are exercisable for up to 5 years at $2.076 per share.
The debentures were initially convertible to common shares at $2.175. The
conversion rate is subject to adjustment if the average closing bid price of the
WaveRider's common stock trades below $2.61. Upon notification of conversion,
WaveRider has the option of issuing the requisite number of shares or paying a
cash redemption amount. In addition, under certain terms and conditions,
WaveRider has the ability to redeem all of the debentures through a cash
payment.
In conjunction with the transaction, WaveRider paid GreenLight fees of
$60,000 and legal costs of Crescent in the amount of $10,000. In addition,
WaveRider reset the conversion price of its convertible debentures, issued to
Crescent in July 2003, to $2.175 and the exercise price of its Series R
Warrants, issued to Crescent and Palisades, to $2.076.
On May 1, 2004, an aggregate of 436,450 stock options to acquire shares of
common stock of WaveRider under its stock option plans were returned for
cancellation by officers and directors of WaveRider.
On July 1, 2004, a one for ten consolidation of our common stock became
effective pursuant to shareholder approval given on September 4, 2003. All
common stock information presented herein has been restated to reflect the
consolidation.
Historical Development
We were originally incorporated under the laws of the State of Nevada on
August 6, 1987, as Athena Ventures Inc. By the end of 1996, we were inactive but
our common stock was still quoted on the OTC Bulletin Board.
In February 1997, we entered into negotiations to purchase Major Wireless
Communications Inc. Major Wireless (now WCAN) was organized in British Columbia,
Canada, as a private company in 1996 to address an existing and growing market
need to provide cost-effective, high-speed wireless Internet links. In February
1997, we sold common share and preferred share units to finance the acquisition
of and ongoing development of products by Major Wireless.
In May 1997, we completed the acquisition of Major Wireless through a
share exchange and entered into an escrow arrangement which restricted the
conversion of the preferred shares, received by the former shareholders of Major
Wireless, into common stock until certain performance milestones were achieved.
Subsequently, we changed our name to WaveRider Communications Inc. and Major
Wireless Communications Inc.'s name to WaveRider Communications (Canada) Inc.
16
On June 11, 1999, we acquired Transformation Techniques, Inc. or TTI
through a merger with our newly created subsidiary WaveRider Communications
(USA) Inc. On October 1, 2000, we acquired ADE Network Technology Pty Ltd. or
ADE of Melbourne, Australia, a privately held wireless infrastructure company.
Subsequently, we changed the name of ADE to WaveRider Communications (Australia)
Pty Ltd. On July 2, 2003, we acquired Avendo Wireless Inc, a privately held
wireless development company.
Our Business
We design, develop, market and support fixed wireless Internet access
products. Our products are designed to deliver efficient, reliable, and
cost-effective solutions to bring high-speed Internet access to markets around
the world.
We are focused on providing the solution to the "last mile" problem faced
by traditional wired telecommunications services: how to profitably build out a
network that provides the level of services demanded by end users. In medium to
small markets, and in areas of the world with limited telecommunications
infrastructure, the cost to install or upgrade wired services to provide the
level of access customers expect can be prohibitive.
We believe that our fixed wireless Internet access products are faster and
less expensive to deploy than traditional wired services, with a lower
cost-per-user to install, deploy and manage.
Our wireless network products are designed to operate in the license-free
ISM radio spectrum, which facilitates a more rapid and low-cost market
introduction for service providers than for licensed or hardwire solutions. Our
products utilize direct sequence spectrum or DSS communications, which ensures
high speed, reliable, secure, low-interference communications.
Our Products
Our current product portfolio includes the Last Mile Solution or LMS
product line and the Network Communications Links or NCL product line. These
product families are designed to deliver scalable, high-speed, fixed wireless
Internet access to businesses, home offices and residential users. Both our LMS
and NCL product families include our proprietary patent-pending technologies
developed at our research and development facility. We generate all our revenues
from these products.
Last Mile Solution
The Last Mile Solution systems are designed to enable service providers to
deliver high-speed Internet access to both business and residential customers
utilizing multiple frequency bands. This multi-frequency approach enables us to
support our customers' needs to provide differentiated service offerings to
large, medium and small businesses as well as residential and small office/home
office users.
When operating in the 2.4GHz band the LMS delivers raw data throughput
speeds of up to 11 megabits per second (Mbps) via line-of-sight connectivity.
Such speeds support the Internet access requirements of business, education and
government market segments.
While operating in the license-free 900 MHz spectrum the LMS delivers data
throughput speeds up to 2.0 Mbps and delivers non-line-of-sight communication
between the communications access point and the end-user modem. This eliminates
the need for an external antenna and thereby permits the end-user to self
install the equipment at their office or home. Our non-line of-sight capability
significantly reduces the time and cost of installations.
The LMS supports a variety of services including Internet access for
e-mail, large file transfers, web browsing, streaming audio and streaming video.
The LMS is optimized for Internet Protocol or IP Networks. Connectivity is
provided to network users via an LMS end user modem designed specifically for
business or residential use.
17
The LMS is designed to be highly scalable, allowing network operators to
begin with a small initial network and gradually build out a larger network with
more users over time. There are no limits as to the number of network
subscribers that can be supported by an LMS network due to its cellular like
architecture which allows for the efficient re-use of radio channels.
NCL Products
The NCL product family is a series of wireless bridges and routers
designed specifically for use by Internet service providers, network managers
and information technology managers. Offering point-to-point and
point-to-multipoint line of sight wireless connectivity in the 2.4GHz and 900MHz
license-free frequency bands, our NCL products can be used to establish wide
area networks and building-to-building links. The NCL can connect a single
computer or computer network to other single computers or computer networks.
The operating system built into the NCL products incorporates a complete
Simple Network Management Protocol (or "SNMP") compliant managed routing
solution, which facilitates the installation and use of these products. The
operating system also integrates Internet Protocol or IP, which provides a
variety of network routing capabilities.
We launched the NCL1170 bridge/router in May 2001. The NCL1170 delivers
high-speed wireless connections for local area net work ("LAN")-to-LAN and
LAN-to-Internet connectivity. The NCL1170 delivers throughput speeds up to 8.0
mbps, using our proprietary radio technology that uses an 11 mbps radio. The
product can be used for point-to-point and point-to-multipoint applications and
to extend Ethernet networks without additional telephone lines.
We launched the NCL1900 in May 2003. The NCL1900 delivers high speed
wireless connections for LAN-to-LAN and LAN-to-Internet connectivity, on a
non-line of sight basis. NCL1900 features our proprietary dynamic polling
algorithm, which drastically improves performance in point-to-multipoint
connections, eliminating the frequent packet collisions inherent with CSMA/CA.
Our Dynamic Polling MAC also alleviates "hidden node" and "near-far" problems
associated with 802.11-based systems.
Our Market
The market for our fixed wireless access products is driven by the
worldwide demand for Internet access as well as the increasing demand for high
speed Internet access. Our target market in North America is comprised of cities
with a population of fewer than 150,000, suburban areas of larger cities and
industrial parks. In many of these markets, our products address the demands of
organizations and consumers who require broadband access to the Internet, but do
not have access to cable or digital subscriber line connections from traditional
service providers.
In many international markets, the telecommunications infrastructure is
inadequate or unavailable for basic Internet access. There are large parts of
less developed regions in India, Africa, Southeast Asia and South America that
have only limited and high cost Internet access. In these markets, our wireless
products have a significant cost advantage over wired technologies. Accordingly,
we believe our international target markets are potentially even broader than
our North American target markets. As such, we intend to develop products with
radio frequencies that will be compatible with various international markets.
Internet access prices can be broken down into three components: access
equipment, Internet access provision and telephone service charges. In relative
terms, the costs to get connected are much higher in developing countries. While
prices may not differ drastically in absolute terms, there is a large gap
between high and low income countries when costs relative to per capita income
are considered. In our view, fixed wireless access technology is well positioned
to bridge the gap between those who have access to high-speed services and those
who do not, and to provide the means to overcome the obstacles to gain basic
access to the Internet. We believe there are significant advantages, such as
reduced cost and faster deployment, to our fixed wireless access technology over
traditional wired access.
18
In summary, the key demand drivers for fixed wireless access include:
o Growth in the number of Internet users world wide,
o Growing demand for high speed Internet access,
o Growing demand of access technologies that are capable of
efficiently and economically delivering more than 1 Mbps,
o Lack of wireline infrastructures in developing countries, and
o Lack of suitable broadband access technologies in rural and
suburban areas in North America.
In meeting these market requirements, our fixed wireless access product
line offers several benefits as a communications technology:
o Instant blanket coverage without digging up streets or leasing
capacity from competitors,
o A pay-as-you-grow deployment model, which allows for low-cost
market entry with incremental costs matched to incremental
revenues,
o Bandwidth increments that address the requirements of small and
mid-size businesses,
o Point-to-multipoint technology allowing for burstable, bandwidth
on demand services, which are specially suited towards a
data-centric environment,
o Wireless technology which enables those who do not have access to
copper, coaxial or fiber optic wire to participate in the
high-speed Internet access market,
o Significant cost advantages through the use of license-free radio
frequencies, and
o Easy to set up, non-line-of-sight modems resulting in further
significant cost savings by avoiding expensive truck rolls to
install customer premise equipment.
Currently, our products operate in the unlicensed spectrum, specifically
900 MHz and 2.4 GHz. We believe that our 900 MHz products in particular could
enjoy market acceptance because of their non-line-of-sight and easy to set up
features. Deployments that combine business and consumer subscribers can be
shown to offer a viable and profitable business case for service operators.
Our Market Strategy
We believe that we are in a position to meet the Internet access needs of
organizations and consumers in North America and abroad. In North America, our
products address the demands of users who require broadband access to the
Internet, but do not have access to cable or digital subscriber line connections
from traditional service providers. These customers are typically found in
smaller cities in North America, and in most suburban and semi-rural areas where
there are few Internet access options other than traditional telephone dial-up
connections.
In many international markets, the basic telecommunications infrastructure
is inadequate or unavailable for basic Internet access. In these markets, our
wireless products have a significant cost advantage over wired technologies. In
addition, they can be deployed rapidly and easily maintained.
Our market approach uses a direct and indirect sales model consisting of
strategic industry partnerships and key relationships. We market directly to
larger Internet service providers, telephone companies (including competitive
local exchange carriers, independent local exchange carriers and independents),
cellular providers and emerging carriers (municipal governments and power
utilities). We also market indirectly through channel partners including
distributors, value added resellers and system integrators. In some
international markets, we expect to form alliances with local partners who will
provide sales, support and installation services for LMS systems.
The LMS system provides an attractive and profitable business model for
operators. Our system enables the operator to provide high-speed wireless
Internet access to both the business and consumer/residential markets. Also, the
system's scalability allows an operator to launch a wireless network with a
relatively small investment and grow the network as the number of subscribers
increase.
Target Customers
Wireless Carriers - Internet access provides wireless carriers with the
opportunity to expand their service offerings and revenue base. Wireless
carriers are an attractive target market for us because they have wireless
expertise and an existing infrastructure that can be used to build a wireless
Internet access service using our equipment.
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Rural cellular providers in the United States provide the largest
potential in this segment. There are approximately 428 Rural Service Areas
(i.e., areas of less than 50,000 people or areas not classified as "Metropolitan
Service Areas" by the United States Federal Communications Commission) in the
United States. The cost to develop and build an advanced rural communication
network infrastructure is substantial. Our systems enable the rural cellular
providers to establish a wireless Internet access service to meet the demand for
broadband services at a relatively low cost per subscriber.
Wireline Carriers (Independent Telephone Companies) - Independent regional
telephone companies offer a significant potential market for our wireless
service package. We are attracted to this type of company because they service a
market that has an unmet need for broadband services and is challenged by
expanding the range of services its customers.
In the United States there are nearly 1,000 independent telephone
companies ranging in size from fewer than 50 customers to more than 50,000.
These companies provide telephone service to nearly five million rural
Americans. In Canada there are approximately 50 independent telephone companies
of which nine are municipally owned and the rest are privately owned. In
addition to basic telephone service, many independents offer other
communications services including cellular, paging, cable television, and
Internet access services.
Several characteristics make rural communities different from urban areas.
There are greater distances between centers and smaller more scattered
populations. These characteristics make single lines more expensive given the
longer cable loops required which reduce the advantage of volume concentration.
Because of this and regulatory changes, much less upgrading and modernization
has been done in rural areas.
Internet Service Providers - Internet service providers or ISPs fall into
three categories: national backbone providers, regional networks and independent
service providers. Independent and regional providers act as intermediaries
between the owners of the transmission networks over which Internet traffic is
passed and the owners of the traffic that is available on the World Wide Web.
For this reason, in the Internet service provider market, we are targeting
national and regional operators who understand that the value of incorporating a
wireless strategy to enhance their position in the marketplace reduces their
dependence on independent local exchange carriers.
The demand for high-speed access has provided additional challenges,
opportunities and threats to Internet service providers. As telephone companies
roll out digital subscriber line services and cable companies offer their own
Internet access services, the independent internet service provider has an
opportunity to partner with us to remain a competitive player in the high-speed
access market. In regions that lack a communications infrastructure for
high-speed access, our solution provides independent and regional Internet
service providers with an opportunity to satisfy the demand for high-speed
Internet access. We offer additional benefits to Internet service providers. An
Internet service provider can go beyond just being an access provider to
becoming a communications provider with control over their own infrastructure by
implementing a wireless Internet access system.
Emerging Carriers - Over the past year we have seen the emergence of two
new carrier segments: municipal government and power utilities.
Municipal governments are building and operating or partnering with
carriers to build broadband wireless networks in order to provide broadband
services to their residential and business taxpayers. The driving force behind
this segment is the need to attract new taxpayers to the municipality, a task
that is greatly hampered if broadband access is not available.
Power utilities (distributors, co-ops, etc.) are expanding their
capabilities and deploying wireless broadband networks. These entities are
utilizing existing infrastructure such as towers, right of ways, and network
management systems to build out broadband networks upon which they can offer
Internet access services to their customer bases.
20
International Sales Strategies
Our target markets outside of North America, for our LMS product family,
are predicated on spectrum availability. Most parts of South America, the
Caribbean and Latin America provide the 900MHz spectrum on a license exempt
basis, with rules that are compatible with our LMS product offering.
We believe that our revenue potential in these international markets can
be quite significant because the telecommunications infrastructure required for
Internet access is underdeveloped. However, we recognize that international
business has longer sales cycles and requires a local presence for major LMS
deals.
In 2000, we acquired ADE Network Technology Pty, LTD. in Australia, a
wireless product integrator. This acquisition provided us with a base of
customers and staff to exploit opportunities for the NCL product family and
third party wireless products in Australia and Southeast Asia.
Professional Services
Our professional services group is an important component in our sales and
marketing strategy and in our opinion, provides an important competitive
advantage. Our professional services strategy is to deliver flexible, cost
effective and market driven service offerings. We believe that we are positioned
to deliver this support strategy globally.
We have utilized global partnerships with a number of partners to provide
global engineering design and installation services of our LMS and NCL products.
These global service partners work under our direction. Through our systems
engineers, we contract directly with our customers for these services.
Our professional services group, coupled with our global service partners,
has the international capabilities to provide:
Application engineering;
System and program planning and implementation management;
Path survey, design and engineering;
Network engineering, operations and wireless services;
Permitting;
Civil works (engineering and construction);
Line of sight verification;
Backhaul;
Site inspection and audit;
Structured cable installation;
Installation, testing and acceptance; and
Final documentation.
Manufacturing and Logistics
We have entered into long term manufacturing agreements with Solectron
Corporation, to manufacture, package and distribute our products. We have a long
term logistics agreement with Alliance Corporation for the pick, pack and
shipment of our products. In addition, we have a value added distributor
agreement with Alliance in which they purchase products for their own account
and resell WaveRider products to their customer base.
Our practices relating to inventory are set forth in Note 2 in the
attached consolidated financial statements for the years ended December 31,
2003, 2002 and 2001.
Solectron (www.solectron.com) provides a full range of global
manufacturing and supply-chain management services to the world's premier
high-tech electronics companies. Solectron's offerings include new-product
design and introduction services, materials management, high-tech product
manufacturing, product warranty and end-of-life support. Solectron, the first
two-time winner of the Malcolm Baldrige National Quality Award, has a full range
of industry-leading capabilities on five continents. Its headquarters are in
Milpitas, California.
Through our association with Solectron, we have the capability to meet the
demands of a rapidly growing Internet market, with high quality products which
are efficiently manufactured.
21
We provide our contract manufacturer with ongoing production forecasts to
enable them to forecast and procure required parts. Under the terms of the
agreement with Solectron, we have committed to assume liability for all parts
required to manufacture our forecast products for 13 weeks and all final
assembly costs for the forecast products for four weeks, on a rolling basis.
Alliance Corporation (www.alliancecorporation.ca) - Alliance Corporation
is a value-added distribution and logistics resource that has historically
focused on the wireless communications and broadcast Industries. Since 1999,
Alliance has been making substantial ongoing investments to develop a similar
strength in the broadband communications industry with particular emphasis on
wireless solutions. Adding skilled technical and engineering services to its
offering, Alliance is positioned to support systems integrators as they develop
wireless solutions for their enterprise customers, including ISPs.
Competition
There is intense competition in the data communications industry. We
compete not only with other fixed wireless Internet companies, but also with
companies that deliver hard-wired technologies (wire or fiber optic cable).
Competition is based on design and quality of the products, product performance,
price and service, with the relative importance of each factor varying among
products and markets.
We compete against companies of various sizes in each of the markets we
serve. Many of these companies have much greater financial and other resources
available to help them withstand adverse economic or market conditions. These
factors, in addition to other influences such as increased price competition and
market and economic conditions could potentially impair our ability to compete.
Our major competitors include Alvarion, Motorola, Airspan and Proxim.
Regulation of Wireless Communications
Currently, our technology is deployed in the highly regulated license free
frequency bands. As such, our products are not subject to any wireless or
transmission licensing in the United States, Canada and many other jurisdictions
worldwide. Our products have, however, been approved by the Federal
Communications Commission, for use in the United States, Industry Canada, for
use in Canada, and other regulatory bodies for use in other jurisdictions, to
ensure they meet the rigorous requirements for use of these bands.
Continued license-free operation will be dependent upon the continuation
of existing government policy and, while we are not aware of any policy changes
planned or expected, this cannot be assured. License-free operation of our
products in the 902 to 928 MHz and the 2.4 GHz bands are subordinate to certain
licensed and unlicensed uses of the bands and our products must not cause
harmful interference to other equipment operating in the bands and must accept
interference from any of them. If we should be unable to eliminate any such
harmful interference, or should our products be unable to accept interference
caused by others, we or our customers could be required to cease operations in
the bands in the locations affected by the harmful interference. Additionally,
in the event the 902 to 928 MHz or the 2.4 GHz bands becomes unacceptably
crowded, and no additional frequencies are allocated, our business could be
adversely affected.
Research and Development
In 2003, we concentrated our efforts on sustaining engineering and product
enhancement in three development areas: o increasing the speed, reliability and
user capacity of the networks to allow more users at greater
throughput speeds;
o enhancing the network capabilities of the systems to support new developing
applications, and o reducing the cost of our product offerings to provide
pricing flexibility and higher margins.
Employees
We currently have approximately 50 employees located in our head office in
Toronto, Ontario and our sales offices and subsidiaries in the United States,
Canada and Australia, as well as at our subsidiary, JetStream Internet Services
in Salmon Arm, British Columbia.
22
The majority of these employees are involved in the design, development
and marketing of our line of wireless data communications products.
DESCRIPTION OF PROPERTY
We own no real estate or other properties. Our main offices and test sites
are in Toronto, Ontario, Canada and our Australian Subsidiary's head office is
in Melbourne, Australia. These offices house sales, administration and research
operations and are leased from unrelated parties. We maintain sales offices in
Australia, Canada, and the United States. In addition, our subsidiary JetStream
Internet Services Inc. maintains offices in Salmon Arm, British Columbia,
Canada.
Our Toronto office lease was renewed in March 1, 2003 for a period of six
years and three months ending May 31, 2009, our Melbourne office lease expires
in March 31, 2006 and the lease for our JetStream's office was renewed effective
December 1, 2003, for a five-year period. We believe our existing facilities are
adequate to meet our current requirements.
Cost commitments related to present leases are set forth in Note 12
"Commitments and contingencies" in the attached consolidated financial
statements for the years ended December 31, 2003, 2002 and 2001.
LEGAL PROCEEDINGS
There are currently no litigation matters outstanding against WaveRider or
WCAN.
PRINCIPAL SHAREHOLDERS OF WAVERIDER
The following table sets forth, as of July 30, 2004, information with
respect to our common stock owned beneficially by each director or nominee for
director, by our Chief Executive Officer, by all officers and directors as a
group and by each person known by us to be a beneficial owner of more than 5% of
the outstanding shares of common stock. Except as otherwise indicated below,
each person named has sole voting and investment power with respect to the
shares indicated.
Amount of Common Stock % of Common Stock
Name and Address of Beneficial Owner (1) Beneficially Owned (2) Outstanding
---------------------------------------------- ---------------------- -----------------
D. Bruce Sinclair (3) 495,455 3.24
Gerry Chastelet (4) 7,500 0.05
John Curry (5) 9,500 0.06
Michael J. Milligan (4) 5,000 0.03
Cameron A. Mingay (6) 14,650 0.10
Dennis Wing (4) 7,500 0.05
Charles Brown (7) 93,536 0.62
T. Scott Worthington (8) 93,474 0.62
--------- --------
All Directors and Executive Officers (8 persons) 726,615 4.68
--------- --------
Crescent International Limited (9) 1,669,786 9.999
Clarendon House, 2 Church Street, --------- --------
Hamilton H 11, Bermuda
- ------------------
(1) Each director's and officer's address is c/o WaveRider Communications Inc.,
255 Consumers Road, Suite 500, Toronto, Ontario, Canada M2J 1R4.
(2) Beneficial ownership is determined in accordance with the rules of the SEC
that deem shares to be beneficially owned by any person who has voting or
investment power with respect to such shares. Unless otherwise indicated
below, the persons and entities named in the table have sole voting and
sole investment power with respect to all shares beneficially owned,
subject to community property laws where applicable. Shares of common stock
subject to options that are currently exercisable or exercisable within 60
days of July 30, 2004 are deemed to be outstanding and to be beneficially
owned by the person holding such options for the purpose of computing the
percentage ownership of such person but are not treated as outstanding for
the purpose of computing the percentage ownership of any other person.
23
(3) Consists of 229,061 shares of common stock, 50,561 shares of common stock
issuable upon exercise of warrants and 215,833 shares of common stock
issuable upon exercise of options that are currently exercisable or
exercisable within 60 days of July 30, 2004.
(4) Consists of shares of common stock issuable upon exercise of options that
are currently exercisable or exercisable within 60 days of July 30, 2004.
(5) Consists of 2,000 shares of common stock and 7,500 shares of common stock
issuable upon exercise of options that are currently exercisable or
exercisable within 60 days of July 30, 2004.
(6) Consists of 2,500 shares of common stock, 4,650 shares of common stock
issuable upon exercise of warrants and 7,500 shares of common stock
issuable upon exercise of options that are currently exercisable or
exercisable within 60 days of July 30, 2004.
(7) Consists of 7,563 shares of common stock, 12,640 shares of common stock
issuable upon exercise of warrants and 73,333 shares of common stock
issuable upon exercise of options that are currently exercisable or
exercisable within 60 days of July 30, 2004.
(8) Consists of 7,500 shares of common stock, 12,641 shares of common stock
issuable upon exercise of warrants and 73,333 shares of common stock
issuable upon exercise of options that are currently exercisable or
exercisable within 60 days of July 30, 2004.
(9) Consists of shares of common stock, shares of common stock issuable upon
conversion of convertible debentures, with a face value of $1,562,500, and
292,141 shares of common stock issuable upon exercise of warrants. Except
under limited circumstances, no holder of the convertible debentures or the
warrants is entitled to convert any portion of the notes into, or exercise
any portion of the warrants for, shares of common stock or to dispose of
any portion of the notes or warrants to the extent that the right to effect
such conversion, exercise or disposition would result in the holder or any
of its affiliates beneficially owning more than 9.999% of the outstanding
shares of common stock. Therefore, the number of shares set forth herein
and which Crescent may sell pursuant to any prospectus may exceed the
number of shares of common stock it would otherwise beneficially own as
determined pursuant to Section 13(d) of the Securities Exchange Act.
WAVERIDER MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULT OF OPERATIONS
The following management's discussion and analysis should be read in
conjunction with the other financial information and consolidated financial
statements and notes related to WaveRider appearing elsewhere in this joint
proxy statement/prospectus. This discussion contains forward-looking statements
that involve risks and uncertainties. Our actual results could differ materially
from those anticipated in the forward-looking statements as a result of a
variety of factors, including those discussed in "Risk Factors" and elsewhere in
this joint proxy statement/prospectus and the documents incorporated by
reference.
The following management's discussion and analysis of financial
condition and results of operations is organized as follows:
o Overview - Market Environment and Strategic Direction. These
sections provide a general description of our products, as well as
recent developments and events in the global telecommunications
market that we believe are important in understanding how we
restructure our business and our results of operations and
financial condition and to anticipate future trends.
24
o Results of operations. This section provides an analysis of
WaveRider's results of operations for the three fiscal years ended
December 31, 2003 and the three and six month periods ended June
30, 2004 and June 30, 2003. This analysis is presented on a
consolidated basis.
o Financial condition and liquidity. This section provides an
analysis of WaveRider's cash flows for the three fiscal years
ended December 31, 2003 and the six months ended June 30, 2004,
and June 30, 2003, as well as a discussion of recent financing
arrangements.
o Critical accounting policies. This section discusses certain
critical accounting policies that we consider important to
WaveRider's financial condition and results of operations, and
that required significant judgment and estimates on the part of
management in application. WaveRider's significant accounting
policies, including the critical accounting policies discussed in
this section, are summarized in the notes to the accompanying
consolidated financial statements.
Overview
We design, develop, market and support fixed wireless Internet access
products. Our products are designed to deliver efficient, reliable, and
cost-effective solutions; bringing high-speed Internet access to markets around
the world.
We are focused on providing the solution to the "last mile" problem faced
by traditional wired telecommunications services: how to profitably build out a
network that provides the level of services demanded by end users. In medium to
small markets, and in areas of the world with limited or no existing
telecommunications infrastructure, the cost to install or upgrade wired services
to provide the level of access customers expect can be prohibitive.
We believe that our fixed wireless Internet access products are faster and
less expensive to deploy than traditional wired services, with a lower
cost-per-user to install, deploy and manage.
Our wireless network products are designed to operate in the license-free
ISM radio spectrum, which facilitates a more rapid and low-cost market
introduction for service providers than for licensed or hardwire solutions. Our
products utilize direct sequence spectrum or DSS communications, which ensures
reliable, secure, low-interference communications.
Market Environment and Strategic Direction
Over the past four years, the global telecommunications market
deteriorated, reflecting a significant reduction in capital spending by
established service providers and a lack of venture capital for new entrants.
Reasons for this market deterioration include the economic slowdown in the
technology sector, network overcapacity, customer bankruptcies, network
build-out delays and limited capital availability. As a result, our sales and
results of operations have been significantly adversely affected.
During this prolonged sector downturn, we have concentrated on working
closely with our customers to get our products and services established in a
number of markets, significantly reducing our cost structure, reducing our
breakeven revenue level and improving our balance sheet, through tightening our
accounts receivable and inventory levels. However, if capital investment levels
continue to decline, or if the telecommunications market does not improve or
improves at a slower pace than we anticipate, our revenues and profitability
will continue to be adversely affected. In addition, if our sales volume and
product mix does not improve, or we do not continue to realize cost reductions
or reduce inventory related costs, our gross margin percentage may not improve
as much as we have targeted, resulting in lower than expected results of
operations.
25
Results Of Operations - Three Months Ended June 30, 2004 Compared To The Three
Months Ended June 30, 2003.
Revenue
The following table presents our North American and non-North American
revenues and the approximate percentage of total revenues ($000's):
Three months ended June 30,
2004 2003 % Change
North America $ 1,484 $ 2,430 (38.9%)
Non-North America 929 706 31.7%
----------------------------------
Total revenues $ 2,413 $ 3,136 (23.1%)
==================================
Percentage of total revenue
North America 61.5% 77.5%
Non-North America 38.5% 22.5%
Total revenue declined 23.1% in Q2 2004 compared to Q2 2003. The Company's
focus on the 900 MHz non-line of sight LMS product family had allowed it to make
gains in the North American market but has limited its potential in a large part
of the rest of the world, where the 900 MHz band is not available on a license
exempt basis. As a result, we are exposed to potential significant swings when
the focused market for our main product experiences periods of weakness.
Total revenues in North America have declined due to a 34.3% decline in EUM
sales in Q2 versus Q1 2004 and 32.6% versus Q2 2003, mainly as a result of our
major distributors not placing stocking orders in Q2 and, the significant
reduction in average selling prices of our EUM. In addition, it is our view that
new installations have been hampered by the confusion in the market caused by
the announcements surrounding Wi-MAX, which increase our sales cycles, and by
other competitive offerings.
Non-North American revenues were mainly focused on our operating subsidiary
in Australia. The relative strength of the Australian dollar versus the U.S.
dollar was the main contributor to the increase in Australian dollar denominated
revenues.
The Company has taken initial steps to access the Caribbean, Latin American
and South American markets, which in most parts do provide license exempt
availability of 900 MHz spectrum, but expects that there will be relatively long
sales cycles in these markets.
Gross Margins
The following table presents our gross margin and the percentage of total
revenues ($000's):
Three months ended June 30,
---------------------------
2004 2003
---- ----
Gross margin $646 $ 1,365
Gross margin rate 26.8% 43.5%
Gross margins in Q2 2004 decreased to 26.8% compared to 43.5% of revenue in
Q2 2003 and, in conjunction with the decrease in quarterly revenue, total gross
margin dollars decreased 52.7% compared to Q2 2003.
26
In August 2003, the Company was required to place a final order for the
processors, which are used in the current version of the Company's products, as
a result of an end of life announcement by the manufacturer. These processors
were delivered over the period from September 2003 through June 2004. As a
result of the decline in revenues that the Company has experienced over the past
6 months, management has determined that the Company has an excess number of
processors when compared to current forecasts. As a result, the Company provided
for an additional inventory obsolescence charge of $253,000, included in cost of
goods sold, in June 2004.
The Company is actively involved in continuing to find cost savings,
through economies of scale and product refinement. It expects that future cost
reductions will be offset by volume discounts offered to its customers and
competitive pricing pressures. As such, the Company expects that gross margin
percentages, after taking into account the one-time write-down of processors,
will be at or near current levels over the balance of the fiscal year.
Selling, General and Administrative expenses
Selling, general and administrative expenses increased to $1,477,161 from
$1,149,690 in Q2 2003. The majority of the increase related to the approximately
$250,000 cost incurred in Q2 2004 for the joint registration statement/proxy
filed on form F-4 on July 20, 2004. These costs relate to legal, accounting and
other costs in the development and production of the document. In addition, the
Company pays most of its operating expenses in either Canadian or Australian
dollars. The decline in exchange rate for U.S. dollars versus the Canadian and
Australian dollars, in Q2 2004 compared to Q2 2003, resulted in the increase in
reported expenses.
Research and Development expenses
Research and development expenses increased to $365,750 in Q2 2004 from
$275,992 in Q2 2003. The increase was mainly due to the acquisition of Avendo
Wireless by the Company in July 2003, initiation of new development programs
surrounding next generation modems based on 802.16 and Wi-MAX standards and
foreign exchange fluctuations.
It is the company's view that products based on the Wi-MAX standard will
not be generally available until late in 2005 or early 2006. It is our belief
that our current product technology will continue to provide technology
solutions until the next generation modems are developed.
Depreciation and Amortization expense
Depreciation and amortization expense declined to $93,493 compared to
$117,646 in Q2 2003. During the last three years, the Company has withheld
spending on new capital assets and does not plan any major capital acquisitions
through the balance of fiscal 2004.
Interest expense
Interest expense amounted to $1,159,341 for the three months ended June 30,
2004 compared to $22,374 for the three months ended June 30, 2003. Included in
interest expense for the three months ended June 30, 2004 is $1,149,488 of
non-cash charges related to the accretion and conversion of convertible
debentures issued in July 2003 and April 2004. With the issuance of the
convertible debentures in July 2003 and April 2004, which are due July 2006 and
April 2007 respectively, if not converted to common stock prior to maturity, the
Company will continue to incur non-cash financial expenses through the accretion
of the beneficial conversion feature included in the debentures.
Foreign Exchange
The Company incurred a foreign exchange loss for the three months ended
June 30, 2004 in the amount of $121,801 compared to a gain of $80,374 for the
three months ended June 30, 2003. The loss in the second quarter of 2004 is due
to a recent strengthening of the U.S. dollar versus the Canadian and Australian
dollars after a number of quarters of significant declines.
27
Results Of Operations - Six Months Ended June 30, 2004 Compared To The Six
Months Ended June 30, 2003.
Revenue
The following table presents our North American and non-North American
revenues and the approximate percentage of total revenues ($000's):
Six months ended June 30,
----------------------------------
2004 2003 % Change
---- ---- --------
North America $ 2,851 $ 4,896 (41.8%)
Non-North America 1,868 1,419 31.6%
----------------------------------
Total revenues $ 4,719 $ 6,315 (25.3%)
==================================
Percentage of total revenue
North America 60.4% 77.5%
Non-North America 39.6% 22.5%
Total revenue declined 25.3% in the six months ended June 30, 2004 compared
to 2003. The Company's focus on the 900 MHz non-line of sight LMS product family
had allowed it to make gains in the North American market but has limited its
potential in a large part of the rest of the world, where the 900 MHz band is
not available on a license exempt basis. As a result, we are exposed to
potential significant swings when the focused market for our main product
experiences periods of weakness.
Total revenues in North America have declined due to a 15.4% decline in EUM
sales in 2004 and 2003, mainly as a result of our major distributors not placing
stocking orders in Q2 2004 and, the significant reduction in average selling
prices of our EUM. In addition, it is our view that new installations have been
hampered by confusion in the market caused by the announcements surrounding
Wi-MAX, which increase our sales cycles, and by other competitive offerings.
Non-North American revenues were mainly focused on our operating subsidiary
in Australia. The relative strength of the Australian dollar versus the U.S.
dollar was the main contributor to the increase in Australian dollar denominated
revenues.
The Company has taken initial steps to access the Caribbean, Latin American
and South American markets, which in most parts do provide license exempt
availability of 900 MHz spectrum, but expects that there will be relatively long
sales cycles in these markets.
Gross Margins
The following table presents our gross margin and the percentage of total
revenues ($000's):
Six months ended June 30,
-------------------------
2004 2003
---- ----
Gross margin $1,469 $ 2,540
Gross margin rate 31.1% 40.2%
Gross margins in the six months ended June 30, 2004 decreased to 31.1%
compared to 40.2% of revenue during the same period in 2003 and, in conjunction
with the decrease in revenue, total gross margin dollars decreased 42.2%
compared to 2003.
28
In August 2003, the Company was required to place a final order for the
processors, which are used in the current version of the Company's products, as
a result of an end of life announcement by the manufacturer. These processors
were delivered over the period from September 2003 through June 2004. As a
result of the decline in revenues that the Company has experienced over the past
6 months, management has determined that the Company has an excess number of
processors when compared to current forecasts. As a result, the Company provided
for an additional inventory obsolescence charge of $253,000, included in cost of
goods sold, in June 2004.
The Company is actively involved in continuing to find cost savings,
through economies of scale and product refinement. It expects that future cost
reductions will be offset by volume discounts offered to its customers and
competitive pricing pressures. As such, the Company expects that gross margin
percentages, after taking into account the one-time write-down of processors,
will be at or near current levels over the balance of the fiscal year.
Selling, General and Administrative expenses
Selling, general and administrative expenses for the six months ended June
30, 2004 increased to $2,749,791 from $2,336,259 during the same period in 2003.
During Q2 2004, the Company incurred cost of approximately $250,000 for the
joint registration statement/proxy filed on form F-4 on July 20, 2004. These
costs relate to legal, accounting and other costs in the development and
production of the document. In addition, the Company pays most of its operating
expenses in either Canadian or Australian dollars. The decline in exchange rate
for U.S. dollars versus the Canadian and Australian dollars, in 2004 compared to
2003, resulted in the increase in reported expenses.
Research and Development expenses
Research and development expenses increased to $854,794 in 2004 from
$432,595 in 2003. The increase was mainly due to the acquisition of Avendo
Wireless by the Company in July 2003, initiation of new development programs
surrounding next generation modems based on 802.16 and Wi-MAX standards and
foreign exchange fluctuations.
It is the company's view that products based on the Wi-MAX standard will
not be generally available until late in 2005 or early 2006. It is our belief
that our current product technology will continue to provide technology
solutions until the next generation modems are developed.
Depreciation and Amortization expense
Depreciation and amortization expense declined to $188,723 compared to
$265,400 in 2003. During the last three years, the Company has withheld spending
on new capital assets and does not plan any major capital acquisitions through
the balance of fiscal 2004.
Interest expense
Interest expense amounted to $1,676,399 for the six months ended June 30,
2004 compared to $37,653 for the six months ended June 30, 2003. Included in
interest expense for the six months ended June 30, 2004 is $1,656,593 of
non-cash charges related to the accretion and conversion of convertible
debentures issued in July 2003 and April 2004. With the issuance of the
convertible debentures in July 2003 and April 2004, which are due July 2006 and
April 2007 respectively, if not converted to common stock prior to maturity, the
Company will continue to incur non-cash financial expenses through the accretion
of the beneficial conversion feature included in the debentures.
Foreign Exchange
The Company incurred a foreign exchange loss for the six months ended
June 30, 2004 in the amount of $150,097 compared to a gain of $151,197 for the
six months ended June 30, 2003. The loss in 2004 is due to a recent
strengthening of the U.S. dollar versus the Canadian and Australian dollars
after a number of quarters of significant declines.
29
Results of Operations - Year ended December 31, 2003 compared to the Year ended
December 31, 2002.
Revenue
Total revenue increased 45.2% in the year ended December 31, 2003 compared
to the year ended December 31, 2002. Our focus on the 900 MHz non-line of sight
LMS product family has allowed us to make strong gains in the North American
market but has limited its potential in a large part of the rest of the world,
where the 900 MHz band is not available on a license exempt basis.
The following table presents our North American and non-North American
revenues and the approximate percentage of total revenues ($000's) for the years
ended December 31, 2003 and 2002 respectively:
Year ended December 31,
-----------------------------------
2003 2002 % Change
-----------------------------------
North America $ 10,376 $ 5,887 76.3%
Non-North America 2,703 3,122 (13.4%)
-----------------------------------
Total revenues $ 13,079 $ 9,009 45.2%
===================================
Percentage of total revenue
North America 79.3% 65.3%
Non- North America 20.7% 34.7%
We have taken initial steps to access the Caribbean, Latin American and
South American markets, which in most parts do provide license exempt
availability of 900 MHz spectrum, but expect that there will be relatively long
sales cycles in these markets.
Gross Margin
The following table presents our gross margin and the percentage of total
revenues ($000's):
Year ended
December 31,
2003 2002
------ ------
Gross margin $5,180 $2,230
Gross margin rate 39.6% 24.8%
Gross margins in 2003 increased to 39.6% of revenue compared to 24.8% of
revenue in 2002. In conjunction with the increase in quarterly revenue, total
gross margin dollars increased 132.3% compared to 2002.
The increase in gross margin percentage and dollars from 2002 levels was
primarily due to continued cost reductions in the LMS products and the
introduction of the new cost reduced customer premise unit, the EUM 3003. We are
actively involved in continuing to find cost savings, through economies of scale
and product refinement. We expect that cost reductions and improved sales mix
will more than offset ongoing volume discounts and competitive pricing pressures
to result in gross margin percentages at or above current levels over the next
fiscal year.
Selling, General and Administrative expenses
Selling, general and administrative expenses, including stock-based
compensation, declined by 16.9% to $5,366,858 for the year ended December 31,
2003 from $6,456,033 for the year ended December 31, 2002. The decline in 2003
versus 2002 was mainly due to the restructuring that we undertook in Q4 2002 and
ongoing tight cost controls. As a result, we have reduced our compensation costs
and related staff expenses and reduced our costs of professional services.
30
While we intend to maintain tight cost controls, we believe that tactical
spending in advertising and marketing communications could provide access to
additional markets and potential customers. As such, we intend to increase our
spending on sales and marketing, both within North America and internationally.
Research and Development expenses
Research and Development expenses for the year ended December 31, 2003
amounted to $996,487 compared to $1,494,880 for the year ended December 31,
2002, a decline of 33.3%. As discussed in our 10-K for 2002, we have moved to a
level of sustaining engineering for our NCL and LMS product families. These
efforts have allowed us to continue to provide product enhancements to the
current LMS product family, while reducing significantly the cost of the
products.
For 2004, we intend to continue our efforts on enhancements and cost
reduction of the current LMS product family, while entering into development of
next generation versions of the LMS. With the acquisition of Avendo Wireless, in
July 2003, we acquired certain research and development in Multiple Input
Multiple Output (MIMO) technology. While the market for this product is still in
the early stage of development as we do not currently intend to proceed to
commercialization, we intend to continue working on these products.
Depreciation and Amortization expense
Depreciation and amortization expense declined by 33.2% to $510,536 for
the year ended December 31, 2003 compared to $763,845 for the year ended
December 31, 2002. During the last two years, we have withheld spending on new
capital assets and do not plan any major capital acquisitions through fiscal
2004.
Foreign Exchange
Foreign exchange gain for the year ended December 31, 2003 increased by
285.4% to $273,909 from $71,075 for the year ended December 31, 2002. The
increase is due to the significant decline of the U.S. dollar versus the
Canadian and Australian dollars throughout 2003. Most of our operating expenses
are denominated in Canadian or Australian dollars.
Write down of goodwill
During the three months ended December 31, 2003, we undertook a complete
review of our development plans and resources required to bring the Avendo
technology, acquired in 2003, to commercial viability and compared these costs
to the expected net present value of the discounted future cash flows. As a
result of management's analysis, we determined that an impairment charge of
$2,755,446 was required on the basis that the carrying value of goodwill
exceeded its fair value.
During the three months ended September 30, 2002, due to the continued
decline in telecom spending and its impact on projected future revenues to us,
management determined that there had been an impairment of the goodwill arising
from the release of escrow shares and the purchase of ADE Network Technology Pty
Ltd. As a result, we wrote off $4,069,696 of goodwill in Q3 2002.
Interest expense
Interest expense amounted to $699,821 for the year ended December 31, 2003
compared to $1,041,854 for the year ended December 31, 2002, a decline of 32.8%.
Included in interest expense for the year ended December 31, 2003 is $616,031 of
non-cash charges related to the accretion and conversion of convertible
debentures issued in July 2003. With the issuance of the convertible debentures
in July 2003, we will incur non-cash financial expenses during 2004 through the
accretion of the beneficial conversion feature included in the debentures and
through additional beneficial conversion feature amounts that could arise if the
debentures are converted at a price below the price of our common shares at the
time of issue.
31
Results of Operations - Year ended December 31, 2002 compared to the Year ended
December 31, 2001.
General
We incurred a net loss for the year ended December 31, 2002 of $11.2
million on revenues of $9.0 million compared to a net loss for the year ended
December 31, 2001 of $21.5 million on revenues of $7.8 million and a net loss
for the year ended December 31, 2000 of $31.5 million on revenues of $4.1
million. Our reported results for 2002 included non-cash expenses in the amount
of $6.2 million (2001 - $10.8 million, 2000 - $17.9 million).
On October 15, 2002, the Company announced a restructuring plan that
included headcount reductions and salary deferrals. On November 6, 2002,
principally as compensation for accepting salary deferrals or reductions, the
board of directors of the Company authorized the award of 252,500 stock options,
exercisable at $0.10 per share, to the Company's staff and certain management.
Over 2002, we integrated our Calgary based Research and Development
facilities with our sales, marketing and support organization in Toronto. Our
Research and Development spending declined significantly in 2002 and we expect
it to stay at these reduced levels through fiscal 2003.
Our cash balance decreased to $1.0 million compared to $2.2 million at
December 31, 2001.
Escrow Share Agreement
When the current operations of WaveRider were established in May 1997, the
initial founders chose to put their shares into an escrow agreement, which would
only release the shares to them upon achievement of certain milestones. This
display of commitment to the Company was viewed as necessary to allow us to
raise the funds needed to develop our products and markets. In September 2001,
in recognition of the ongoing commitment of the founders, the board of directors
authorized a two year extension of the escrow agreement, as was contemplated in
the original agreement. With the extension of the escrow agreement, the charges
resulting from the final release of escrow shares were to be charged directly to
selling, general and administrative expenses and not recorded as goodwill.
As the Company reached each of the milestones under the escrow agreement,
we released a specific percentage of the shares and the value of those shares,
at the time of release, was included in goodwill or compensation expense.
Depending on the price of the common shares at the time of release, the value
assigned varied dramatically. During 2002, we released the remaining 538,125
common shares from the escrow agreement (2001 - 225,000). This resulted in a
charge of $172,500 to compensation expense (2001 - $629,000) and a charge of
$710,813 to selling, general and administrative expenses. In 2001, the
non-compensation charges resulted in an increase of goodwill in the amount of
$2,201,500.
Revenue
Total revenue increased 15.4% in 2002, compared to 2001, primarily due to
the strong growth of sales of our LMS 4000 network system in North America.
North American revenues grew 145% in 2002 to $5.9 million, while International
revenues declined 42% on a year on year basis, down to $3.1 million. Revenue in
the fourth quarter of 2002 increased 37.8% compared to the third quarter of 2002
and 61.6% compared to the fourth quarter of 2001.
32
The following table presents our North American and non-North American
revenues and the approximate percentage of total revenues ($000's) for the years
ended December 31, 2002 and 2001 respectively:
Year ended December 31,
--------------------------------------
2002 2001 % Change
--------------------------------------
North America $ 5,887 2,401 145.2%
Non-North America 3,122 5,403 (42.2%)
--------------------------------------
Total revenues $ 9,009 $ 7,804 15.4%
======================================
Percentage of total revenue
North America 65.3% 30.8%
Non- North America 34.7% 69.2%
For 2003, we expected to see continued strong growth in the North American
markets as we continued to increase our customer base and our customers
increased the size of their networks. Internationally, we expected revenue to
stabilize at the then current levels and then slowly grow in the second half of
2003, as our initiatives into South and Central America started to achieve
results.
Gross Margin
The following table presents our gross margin and the percentage of total
revenues ($000's):
Year ended
December 31,
2002 2001
------ ------
Gross margin $2,230 $1,848
Gross margin rate 24.8% 23.7%
We recorded a gross margin of $2,230,121 in 2002 compared to $1,847,522 in
2001. As a percentage of revenue, gross margins grew to 24.75% in 2002 compared
to 23.7% in 2001. Gross margins in the fourth quarter of 2002 were 27.6%
compared to 14.3% in the third quarter of 2002 and 7.4% in the fourth quarter of
2001.
With the growth of the LMS 4000 as a percentage of our total revenues, we
expected that gross margins, as a percent of revenue, would continue to
strengthen. We anticipated reducing the cost of the LMS 4000 end user modem,
which is the most significant component of a LMS 4000 network, through economies
of scale and design simplification. These cost reductions were expected to be
used to enhance margins and to provide selective volume discounts to drive
higher unit sales.
Selling, General and Administrative expenses
Selling, general and administrative expenses, excluding non-cash stock
related charges, declined to $6,212,458 in 2002 from $8,239,747 in 2001.
Included in the 2002 expenses was a charge of $710,813 related to the release of
escrow shares as more fully discussed under "Escrow Share Agreement" above.
On October 15, 2002, we announced a restructuring plan that included
headcount reductions and salary deferrals. Included in the plan was a commitment
to pay terminated employees deferred severance payments of approximately
$167,000. These amounts were accrued in the fourth quarter of 2002 and paid the
second half of 2003. Additionally, we deferred and expensed $34,400 in the
fourth quarter of 2002 and an additional $48,600 during the first quarter of
2003, in compensation to senior staff, which was not paid until the second half
of 2003. We also structured our sales compensation to reduce fixed salary costs
and increase the variable achievement-based component.
33
In September 2001, we reduced our staff by 56%, our executive staff waived
all salaries, bonuses and other cash compensation for a period from October 1 to
December 14 and other senior managers accepted a 25% pay decrease for the same
period.
Employee stock-based compensation
As discussed above, we entered into an escrow arrangement with our
founding shareholders and employees. In addition, we awarded certain employees
options that vested based on the same milestones from the escrow arrangement.
Each time a milestone was achieved, shares were released and options vested; and
the portion that related to employees of the company was charged to the
statement of loss as "Employee stock-based compensation". During 2002, we
completed all of the remaining milestones and, as a result, charged $172,500 to
the statement of loss. In 2001, we achieved one of the milestones - resulting in
a $629,000 charge to the statement of loss.
Research and development
We moved to a level of sustaining engineering in the second half of 2001,
with Research and Development costs, excluding stock related expenses,
depreciation and amortization, in 2002 amounting to $1,494,880 (2001 -
$4,471,567). During 2002, we closed our Calgary facility and transitioned the
operations to our Toronto location.
Write-off of goodwill
During the third quarter of 2002, as a result of the continued and, more
recently, sharp decline in the telecommunication sector, we determined that we
could not continue our operations at current level without further funding and
that, given the state of the telecommunications sector and the financial
markets, it was unlikely that additional funding would be available. As such, we
took a number of actions to reduce costs and restructure our operations.
Included in these actions was a complete revision to the operating plans of
WaveRider Communications (Australia) Pty Ltd. (formerly ADE Network Technology
Pty Ltd.), our wholly owned subsidiary in Australia, which is viewed as an
independent reporting unit, and for WaveRider Communications Inc. In each case,
we compared the expected net present value of the discounted future cash flows
of the restructured operations to the current net assets of the respective
operations after revising all key assumptions underlying management's valuation
judgments, including those relating to short and longer-term growth rates and
discount factors reflecting increased risks in a declining market. As a result
of management's analysis, it was determined that an impairment charge of
$4,069,696 was required on the basis that the carrying value of goodwill
exceeded its fair value, which was estimated to be nil.
Restructuring charges
In conjunction with our decision to relocate our Research and Development
facility to Toronto and to shut down our Calgary operations and our decision, in
the third quarter of 2002, to further restructure our operations, we incurred
restructuring costs of $362,588. In addition to the approximately $167,000 in
deferred severance for employees terminated in the third quarter of 2002, we
incurred costs of $76,940 to terminate the Calgary lease, $50,900 in other
severance costs, $28,454 for moving of fixed assets and corporate records and
$39,294 in other termination related costs.
Depreciation and amortization
In 2002, we adopted the provisions of SFAS No. 142 and, as such, ceased to
amortize goodwill. In 2001, the release of the escrow shares and the resulting
goodwill had resulted in amortization expenses of $2,385,495.
With our restructuring, in 2002, we disposed of certain excess fixed
assets and reduced our depreciation expense to $763,845 (2001 - $1,147,943).
Interest expense
During 2002, we redeemed the balance of our promissory notes and accreted
the $263,607 fair value of the notes to financing expense. In addition, we paid
$56,076 in repayment premiums and various ongoing operating interest charges.
This, along with other miscellaneous financing expense, resulted in financing
expenses in 2002 amounting to $331,041 (2001 - $5,493,373).
34
Included in interest expense for 2001was $5,410,846 in non-cash charges
related to our financing activities.
Supplementary Financial Information
(unaudited)
Three Months Ended
March June September December(1)
--------------------------------------------------------------------
Fiscal 2003
Net revenues $ 3,178,362 $ 3,136,154 $ 3,534,064 $ 3,229,975
Gross profit 1,175,075 1,364,696 1,322,218 1,317,550
Net loss (258,493) (118,772) (961,589) (3,722,453)
Net loss per common share (0.02) (0.01) (0.07) (0.26)
Weighted average shares outstanding 11,669,430 12,501,154 13,881,367 14,169,592
Fiscal 2002
Net revenues $ 1,612,988 $ 2,344,867 $ 2,124,410 $ 2,926,651
Gross profit 461,255 659,615 302,856 806,395
Net loss (2,933,323) (1,414,129) (6,037,909) (864,341)
Net loss per common share (0.37) (0.13) (0.53) (0.07)
Weighted average shares outstanding 7,932,268 11,018,283 11,479,046 11,626,253
(1) In the fourth quarter of 2002, WaveRider determined that it had recorded
excess depreciation expense in each of the preceding three quarters. As a
result, it recorded an adjustment in the fourth quarter to reduce depreciation
expense by $216,747. The impact on each of the preceding three quarters was
immaterial and had no impact on the reported net losses per share in those
quarters
Liquidity and Capital Resources
We have funded our operations for the most part through equity and
convertible debenture financing and has had no line of credit or similar credit
facility available to it. Our outstanding shares of common stock, par value
$.001 per share, are quoted under the symbol "WAVR.OB" on the OTC Bulletin Board
of the National Association of Securities Dealers, Inc. We must rely on our
ability to raise money through equity and convertible debenture financing to
pursue our business endeavors. The majority of funds raised have been allocated
to the development of the WaveRider(R) line of wireless data communications
products and our operations.
For the six months ended June 30, 2004 we used $2,412,869 of cash in
operating activities. For the year ended December 31, 2003, we used $1,613,803
of cash in operating activities (2002 - $4,970,703, 2001 - $10,348,489).
In April 2004, we issued convertible debentures, in the aggregate
principal amount of $2,125,000, for gross cash proceeds of $2,000,000, less cash
fees of $100,000.
During July 2003, we issued convertible debentures, in the aggregate
principal amount of $1,600,000, for cash proceeds of $1,504,000, less cash fees
of $87,120. We also entered into an agreement to purchase Avendo Wireless Inc.,
through the issue of 875,000 shares of common stock and 300,000 common stock
purchase warrants. Upon acquisition, we received $1,177,420 in cash and $196,925
in other net assets. In addition, we raised $35,245 through the sale of 34,117
shares of common stock under our employee stock purchase plan.
35
In March 2002, we raised $4,497,000, less cash expenses of $165,734,
through the sale of 3,009,666 shares of common stock registered by us on our S-3
shelf registration statement. In addition, we raised $40,266 through the sale of
40,172 shares of common stock under our employee stock purchase plan.
During 2002, we repaid our outstanding promissory notes, in the amount of
$432,500, and made capital lease payments of $126,101. With these payments we
reduced our capital lease liability to $18,098 and repaid all other debt.
On December 14, 2001, we completed a shareholders' rights offering selling
1,067,592 units, consisting of one common share and one warrant per unit, for
cash proceeds of $3,132,976 and the extinguishment of debts and warrants, in the
principal amount of $1,017,000, less cash expenses of $935,102 and $50,459 of
expenses paid in warrants.
On October 19, 2001, we sold promissory notes in an aggregate principal
amount of $834,500 and on November 5, 2001, we sold an additional amount of
$165,000. The notes have a one year term and bear interest at an annual rate of
8% plus a repayment premium of 15%. The notes are secured by a security interest
in all our assets. Also, in connection with the sale of the notes we issued
214,893 common stock purchase warrants which are exercisable for a term of five
years at a per share exercise price of $5.00 per share.
On December 14, 2001, promissory notes in the principal amount of $567,000
were returned for cancellation in exchange for the holders' participation in the
Shareholders' Rights offering. The holders of the remaining notes demanded
repayment of the notes, including the principal, all accrued interest and the
repayment premium in 2002.
On June 4, 2001, we raised $2,576,715 through the sale to Crescent
International Ltd. of 30,000 shares of Series D convertible preferred stock and
87,719 Series N warrants. In connections with this transaction, we issued 6,140
Series M-2 warrants as a finders' fee.
During 2001, we also raised $132,000 through the sale of common stock
registered by us on our S-3 shelf registration statement and $194,350 through
exercises of employee stock options and purchases under the Company's employee
stock purchase plan.
Contractual Obligations - At December 31, 2003, our contractual obligations were
as follows:
Payments Due by Period
Less than 1 - 3 4 -5 After 5
Contractual obligation Total 1 year years years years
- -------------------------------------------------------------------------------------------------------------------------
Long-term debt obligations $1,600,000 $ - $1,600,000 $ - $ -
Capital lease obligations 16,981 11,483 5,498 - -
Operating leases 2,021,490 433,773 744,046 702,398 141,273
Purchase obligations 2,441,084 2,441,084 - - -
We provide our contract manufacturer with ongoing production forecasts to
enable them to forecast and procure required parts. Under the terms of the
agreement with the contract manufacturer, we are committed to assume liability
for all parts required to manufacture our forecast products for 13 weeks and all
final assembly costs for the forecast products for four weeks, on a rolling
basis.
We plan to pay our contract manufacturer for the unconditional purchase
obligation through net cash generated from operations.
We have, also, ordered certain components from one of our product
suppliers on a non-cancelable non-refundable basis for delivery throughout 2004.
We have issued a letter of credit to this supplier in the amount of $232,125 at
December 31, 2003. This letter of credit secures our payment obligations under
the purchase agreement and expires in August 2004. The letter of credit secures
our payment obligations under the purchase agreement. We have pledged cash to
our bank as collateral for the letter of credit in the same amount as the letter
of credit. This pledge has been classified as restricted cash.
36
Critical Accounting Estimates
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period.
On an ongoing basis, management evaluates its estimates and judgments,
including those related to bad debts, inventories, investments, intangible and
other long-lived assets, income taxes, warranty obligations, product returns,
restructuring costs, litigation and contingencies. Management bases its
estimates and judgments on historical experience, current economic and industry
conditions and on various other factors that are believed to be reasonable under
the circumstances. This forms the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions. Management believes the following critical accounting
policies affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements.
Allowance for Losses on Receivables
We have historically provided financial terms to certain customers in
connection with purchases of our products. Financial terms, for credit-approved
customers, are generally on a net 30-day basis.
Total receivables at December 31, 2003 and 2002 were $2,165,041 and
$1,608,194, respectively, with an allowance for losses on these receivables of
$243,066 and $212,224, respectively.
Management periodically reviews customer account activity in order to
assess the adequacy of the allowances provided for potential losses. Factors
considered include economic conditions, collateral values and each customer's
payment history and credit worthiness. Adjustments, if any, are made to reserve
balances following the completion of these reviews to reflect management's best
estimate of potential losses.
Inventory Valuation Reserves
We record valuation reserves on our inventory for estimated obsolescence
or unmarketability. The amount of the write-down is equal to the difference
between the cost of inventory and the estimated market value based upon
assumptions about future demand and market conditions.
Net Inventories consisted of the following:
December 31 2003 2002
- --------------------------------------------------------------------------
Finished goods $ 1,306,580 $ 1,258,620
Raw materials 36,330 22,043
------------- ------------
1,342,910 1,280,663
Less inventory reserves (376,477) (50,615)
------------- ------------
$ 966,433 $ 1,230,048
============= ============
We provide our contract manufacturer with ongoing production forecasts to
enable them to forecast and procure required parts. Under the terms of the
agreement with the contract manufacturer, we have committed to assume liability
for all parts required to manufacture our forecast products for the next 13
weeks and all final assembly costs for the forecast products for the next four
weeks, on a rolling basis.
37
We balance the need to maintain strategic inventory levels to ensure
competitive lead times with the risk of inventory obsolescence due to rapidly
changing technology and customer requirements. If actual future demand or market
conditions are less favorable than those projected by management, additional
inventory write-downs may be required.
Valuation of Long-Lived and Intangible Assets
We assess the impairment of long-lived and intangible assets, which
includes identifiable intangible assets, goodwill and plant and equipment
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. We believe that the following important factors could
trigger an impairment review:
o underperformance relative to expected historical or projected future
operating results;
o changes in the manner of use of the assets or the strategy for our
overall business;
o negative industry or economic trends;
o declines in stock price of an investment for a sustained period; and
o our market capitalization relative to net book value.
When we determine that the carrying value of intangible assets, goodwill
and long-lived assets may not be recoverable, an impairment charge is recorded.
Impairment is measured based on a projected discounted cash flow method using a
discount rate determined by our management to be commensurate with the risk
inherent in our current business model or prevailing market rates of investment
securities, if available.
In the fourth quarter of 2003, we undertook a complete review of our
development plans and resources required to bring the technology acquired
through the acquisition of Avendo Wireless Inc. to commercial viability and
compared these costs to the expected net present value of the discounted future
cash flows. As a result of management's analysis, we determined that an
impairment charge of the entire balance of $2,755,446 was required on the basis
that the carrying value of goodwill exceeded its fair value.
In the third quarter of 2002, we determined that we could not continue our
operations at our current level without further funding and that, given the
state of the telecommunications sector and the financial markets, it was
unlikely that additional funding would be available to us. As such, we took a
number of actions to reduce costs and restructure our operations. We revised our
operating plan and the operating plan of WaveRider Communications (Australia)
Pty Ltd. (formerly ADE Network Technology Pty Ltd.), our wholly owned subsidiary
in Australia, which we view as an independent reporting unit. As a result of
these changes, the fair market values for our two reporting units were estimated
using the expected present value of future cash flows. Based on this analysis,
we wrote off all of our existing goodwill, in the amount of $4,069,696.
In September 2001, the Company announced a restructuring plan, which
included the reduction of approximately half of the staff in WaveRider
Communications (Australia) Pty Ltd. As a result, the Company wrote down the
acquired labor force, resulting from the acquisition of WaveRider Communications
(Australia) Pty Ltd. in the amount of $155,050.
Recent Accounting Pronouncements
Disclosure regarding recent accounting pronouncements is set forth in Note
2 in the attached consolidated financial statements for the years ended December
31, 2003, 2002 and 2001.
Certain Factors that may affect Future Results.
See Risk Factors - Risks relating to WaveRider's Business (or WCAN's
Business after the Reorganization) in General."
38
BUSINESS OF WCAN
As indicated above, under "Business of WaveRider - Historical
Development", WCAN is a wholly-owned subsidiary of Waverider incorporated in
British Columbia. It was incorporated on October 9, 1996 as Major Wireless
Communications Inc. and was acquired by WaveRider in May 1997. Pursuant to an
arrangement between WaveRider and WCAN, WCAN employs the personnel and incurs
the overhead in Canada to research, create, develop, manufacture and sell
WaveRider's products worldwide in exchange for funding from WaveRider. WaveRider
has licensed its intellectual property to WCAN to perform the above described
functions.
As the operating company, WCAN is a party to various contracts for the
conduct of its business. WCAN rents office space with remaining terms of up to
six years. Rental payments for 2003 were $381,247.
Under the terms of agreements with contract manufacturers, WCAN has
committed to assume liability for all parts required to manufacture WCAN's
forecasted products for the next 13 weeks and all final assembly costs for the
forecasted products for the next 4 weeks, on a rolling basis. Total purchases
from contract manufacturers were $5,454,789 in 2003. WCAN's management believes
that, should it be necessary, they could find alternative contract manufacturers
without significant disruption to the business.
WCAN has ordered certain components from a product supplier on a
non-cancelable non-refundable basis for delivery throughout 2004. A letter of
credit has been issued to this supplier in the amount of $228,780 at March 31,
2004. The letter of credit secures the WCAN's payment obligation under the
purchase agreement and expires in August 2004. WCAN has pledged cash to the bank
as collateral for the letter of credit in the same amount as the letter of
credit. This pledge has been classified as restricted cash.
WCAN employs outside contractors to assist in the design and development
of its products. At March 31, 2004, WCAN had entered into a development contract
with one of its contractors, in the amount of $467,000, of which $115,000 was
expensed in the quarter ended March 31, 2004. The contract calls for the payment
of progress payments against specific milestones over the course of the
contract.
WCAN will continue to carry the operations as currently conducted after
the completion of the reorganization and its directors, board committees and
officers will be the same as WaveRider's directors, board committees and
officers prior to the reorganization. However, WCAN will be both the operating
company and the public company in which you will own shares.
THE REORGANIZATION (PROPOSAL NO. 1)
Introduction
The reorganization of WaveRider described in this joint proxy
statement/prospectus consists of the merger and the related steps described
below. If the Agreement and Plan of Merger, which provides for the merger and
the related steps, is adopted by our stockholders, it is anticipated that the
merger and the related steps will be completed if the board elects to proceed.
As a result of this reorganization, WCAN and its subsidiaries will continue to
conduct the business operations currently conducted by WaveRider and its
subsidiaries. WaveRider's board of directors has unanimously approved and
recommends that you approve the proposed reorganization by adopting the
Agreement and Plan of Merger.
The merger itself involves several steps. Our British Columbia
wholly-owned subsidiary, WCAN will form the merger sub under the laws of Nevada.
Following the stockholders' annual meeting, assuming we have obtained the
requisite stockholder approval and that our board of directors elects to
proceed, the merger sub will merge with and into WaveRider, with WaveRider
surviving the merger as a wholly-owned subsidiary of WCAN named "WaveRider
Communications (Nevada) Inc.", and the holders of common stock of WaveRider
immediately prior to the merger will receive WCAN common shares.
Contemporaneously, WCAN will file articles of amendment in British
Columbia changing its name to "WaveRider Communications Inc.".
39
The issued and outstanding WCAN common shares held by WaveRider may be
repurchased and cancelled by WCAN for nominal consideration.
After the reorganization you will own an interest in WCAN, which will be
managed by the same board of directors and officers that currently manage
WaveRider. WCAN and its subsidiaries will continue to engage in the same
business conducted by WaveRider and its subsidiaries prior to the
reorganization, and will have the same assets and employees as WaveRider and its
subsidiaries. The number of shares you own will not change as a result of the
reorganization. The merger will be effected pursuant to the proposed Agreement
and Plan of Merger, which is the legal document providing all of the terms and
conditions of the merger and the related steps. A copy is attached hereto as
Annex A and forms part of this joint proxy statement/prospectus. WE ENCOURAGE
YOU TO READ THE ENTIRE AGREEMENT AND PLAN OF MERGER CAREFULLY.
Background and Reasons for the Reorganization
WaveRider was initially incorporated under the laws of Nevada. However,
its core operations and its management are located in Canada. Therefore, it is
not necessary for WaveRider to be incorporated in Nevada.
WaveRider believes there are several reasons the reorganization will be
advantageous, including:
o The board of directors and management of WaveRider believe the
Canadian capital markets would be more receptive to a Canadian
corporation without limiting its access to the U.S. capital
markets. This is primarily because as a Canadian corporation,
WCAN's shares should not be foreign property for purposes of
Canadian federal income tax laws. This status may make WCAN a
more attractive investment for certain Canadian resident
institutional and retail investors, including individuals who
invest through Canadian registered retirement savings plans (or
"RRSP"), which are subject to restrictions on investment in
foreign property. A Canadian RRSP is similar to a U.S. 401(k)
plan. Also, WCAN will be regarded in Canada as a "mid-cap"
company.
o The reorganization may facilitate for the WaveRider group,
acquisitions of or mergers or strategic alliances with, other
businesses in Canada as opportunities arise.
You should be aware that the reorganization will result in certain
important changes to your rights as a shareholder and has some risk for
instance:
o WCAN may issue an unlimited number of shares compared to a limit
of 400,000,000 common shares and 5,000,000 preferred shares of
WaveRider.
o The disclosure requirements for WCAN may be less stringent than
those currently applicable to WaveRider.
o Enforcement of liabilities by U.S. persons against WCAN may be
more difficult than against WaveRider.
We cannot assure you, however, that any of the anticipated benefits of the
reorganization will be realized. Please review and carefully consider the risk
factors we describe starting on page 10.
Steps in the Reorganization
Several steps are required to complete the reorganization pursuant to the
Agreement and Plan of Merger, including the merger and the related steps
described below. Our current expectation is that if the merger is effected, the
related steps will be completed.
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The Merger
The steps in the merger are:
o WCAN will form the merger sub.
o Following the stockholders' annual meeting, provided we have
obtained the requisite stockholder approval and our board of
directors elects to proceed, the merger sub will merge with and
into WaveRider, with WaveRider surviving as a wholly-owned
subsidiary of WCAN named "WaveRider Communications (Nevada) Inc."
o In the merger, each issued and outstanding share of WaveRider
common stock will be converted into the right to receive one WCAN
common share, which shares WCAN will issue as part of the merger.
This will result in each holder of WaveRider common stock receiving
one WCAN common share for each share of WaveRider common stock held
immediately prior to the merger.
o WCAN will assume warrants, convertible debentures and stock options
of WaveRider and such securities will become exercisable for WCAN
common shares.
The terms of the proposed Agreement and Plan of Merger may be modified or
supplemented at any time before or after it is adopted by the stockholders of
WaveRider. However, after adoption, no amendment, modification or supplement
will be allowed to be made or effected that would require further approval by
WaveRider stockholders without obtaining that approval.
The Related Steps
Contemporaneously with the merger, WCAN will file articles of amendment in
British Columbia changing its name to WaveRider Communications Inc.
The issued and outstanding WCAN common shares held by WaveRider may be
repurchased and cancelled by WCAN for nominal consideration.
Possible Abandonment of the Reorganization
The board of directors of WaveRider may decide not to enter into the
Agreement and Plan of Merger and abandon the merger and related steps at any
time prior to the effectiveness of the merger, including after adoption of the
Agreement and Plan of Merger and related steps by WaveRider's stockholders.
Additional Agreements
In connection with the reorganization, WaveRider and WCAN have agreed,
among other things, that:
o WCAN will assume warrants, convertible debentures and options
pursuant to WaveRider's Stock Option Plans outstanding at the time
the Merger becomes effective and such securities will automatically
become exercisable for common shares of WCAN. WaveRider's Employee
Stock Purchase Plan will be terminated. See below "Stock
Compensation Plans".
o Upon completion of the Reorganization, any new option grants or
grants of right to purchase common o shares shall be made pursuant
to WCAN's Share Incentive Plan (a copy of which is attached as
Schedule A to the Agreement and Plan of Merger).
o WaveRider, WCAN and certain of its executive officers will enter
into agreements under the o executives' employment agreements
pursuant to which the parties will agree that the merger will not
constitute a change of control for the purposes of such agreements.
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Amendments to Existing Registration Statements of WaveRider
Upon completion of the reorganization, WCAN will file post-effective
amendments to WaveRider's effective registration statements reflecting the
reorganization. The registration statements that provide for the issuance of
WaveRider shares upon the exercise or conversion, as applicable of warrants,
convertible debentures and stock options (Files No. 333-115481, 333-107885,
333-70114, 333-67634, 333-107883, 333-49454, 333-52587, 333-49464, 333-34647,
333-30140) will be amended to provide for the issuance of WCAN shares upon
exercise or conversion, as applicable, of warrants, convertible debentures and
stock options.
Upon completion of the reorganization, the Series P warrants will be
exercisable for WCAN shares until they expire on December 13, 2004.
Conditions to Completion of the Reorganization
The reorganization will not be completed unless, among other things, the
following conditions are satisfied or, if allowed by law, waived:
o the Agreement and Plan of Merger and related steps have been
approved by the requisite vote of stockholders of WaveRider;
o none of the parties to the Agreement and Plan of Merger is
subject to any decree, order or injunction that prohibits the
consummation of the merger;
o the registration statement of which this joint proxy
statement/prospectus is a part has been declared effective by the
SEC and no stop order is in effect;
o all material consents and authorizations of, filings or
registrations with, and notices to, any governmental or
regulatory authority required of WaveRider, WCAN or their
subsidiaries to consummate the reorganization have been obtained
or made;
o all material consents required under other material contracts
with WaveRider or its subsidiaries have been obtained;
o WaveRider and WCAN have received an opinion from Foley, Hoag LLP,
their U.S. counsel, confirming, as of the effective time of the
merger, the matters discussed under "Material Income Tax
Consequences of the reorganization--Material United States
Federal Income Tax Consequences";
o WaveRider and WCAN have received an opinion from Cassels Brock &
Blackwell LLP, their Canadian counsel, confirming, as of the
effective time of the merger, the matters discussed under
"Material Income Tax Consequences of the reorganization--Material
Canadian Federal Income Tax Consequences"; and
o WaveRider and WCAN have received opinions from counsel
satisfactory to WaveRider and WCAN covering, o respectively,
certain other Canadian legal matters.
Effective Time
We anticipate that the merger will become effective and the reorganization
will be completed as soon as practicable following approval of the proposed
Agreement and Plan of Merger and related steps by our stockholders at the
stockholders' annual meeting. Our board of directors will have the right,
however, to defer or abandon the reorganization at any time if it concludes that
completion of the reorganization would not be in the best interests of WaveRider
or our stockholders.
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Management of WCAN
The directors and officers of WCAN will, upon completion of the
reorganization, be the same as the current directors and officers of WaveRider.
If the merger is effected, the members of the WCAN board of directors will serve
until the earlier of the next annual meeting of shareholders at which an
election of directors is required or until their successors are elected, and the
officers will serve until their successors are appointed.
Recommendation and Required Vote
The affirmative vote of the holders of a majority of the outstanding
shares of WaveRider common stock entitled to vote at the stockholders' meeting
is required for adoption of the proposed Agreement and Plan of Merger and
related steps. Our board of directors has unanimously declared that the
reorganization and the Agreement and Plan of Merger are advisable and in the
best interests of WaveRider and our stockholders. Accordingly, the board of
directors unanimously recommends that stockholders vote FOR the adoption of the
Agreement and Plan of Merger.
Regulatory Approvals
The governmental or regulatory approvals or actions that are required to
complete the reorganization are compliance with U.S. federal and state
securities laws, rules and regulations, Canadian provincial securities laws and
Nevada and British Columbia corporate law (including the filing with the
Secretary of State of the State of Nevada of the articles of merger, and the
filing in British Columbia of articles of amendments and the approval of the
provincial Canadian securities regulators).
Rights of Dissenting Stockholders
Shareholders of WaveRider are entitled to dissent rights in respect of the
shares of WaveRider held by them. If a shareholder of WaveRider duly exercises
his or her rights of dissent in accordance with applicable Nevada law, such
shares will not be converted into common shares of WCAN, unless such shareholder
withdraws or otherwise loses his or her rights of dissent. In the event that a
shareholder of WaveRider fails to perfect, withdraws or loses his or her right
to exercise dissenters' rights, each affected share of WaveRider will be treated
as if it had been converted as of the effective time of the merger into the
appropriate number of common shares of WCAN.
In the event that the holders of more than 5% of the issued and
outstanding WaveRider common shares dissent from the consummation of the merger,
WCAN will not be required to consummate the merger. Any amounts paid to
WaveRider shareholders in connection with the exercise of dissenters' rights
will be paid by WaveRider out of its own funds.
The following discussion summarizes the material applicable provisions of
the Nevada dissenters' rights statute. Reference should be made to the complete
text of the applicable provisions of Nevada legislation relating to dissent
rights, a copy of which is attached as Annex B to this document. WaveRider
shareholders should review carefully their statutory dissent rights because
failure to strictly comply with any of the procedural requirements of the Nevada
dissenters' rights statute may result in the termination or waiver of available
dissent rights under the Nevada dissenters' rights statute. Shareholders having
a beneficial interest in common shares of WaveRider that are held of record in
the name of another person, such as a bank, broker or other nominee, must act
promptly to cause the record holder to follow properly the steps summarized
below if such person wishes to perfect any dissent rights.
Under the Nevada dissenters' rights statute, shareholders of WaveRider
have the right to dissent from the merger and demand payment of the fair value
of the common shares of WaveRider held by them. Shareholders who elect to
dissent must deliver to WaveRider a written notice of their intention to demand
payment for their WaveRider common shares if the merger is consummated and such
shareholders must not vote their common shares in favour of the proposed merger.
Such written notice of dissent must be filed with WaveRider before the vote is
taken in respect of the merger. Shareholders that fail to comply with this
notice requirement or vote in favour of the proposed merger at the special
meeting will not be entitled to payment for their shares. Voting against the
merger does not constitute a waiver of one's right to dissent from the merger.
In accordance with the Nevada dissenters' right statute, "fair value" means the
value of the shares immediately before the consummation of the proposed merger,
excluding any appreciation or depreciation in anticipation of the merger unless
exclusion would be inequitable.
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Within ten days after the effective date of the merger, WaveRider will
provide written notice of the effective date of the merger by certified mail to
each shareholder who filed a written notice of dissent, except for any
shareholder who voted for approval of the merger agreement. The notice must also
state where demand for payment must be sent and where and when share
certificates will be deposited, among other information. Within the time period
set forth in the notice, which may not be less than 30 days nor more than 60
days following the date notice is delivered, the dissenting shareholder must
make a written demand on WaveRider for payment of the fair value of his or her
shares make certain certifications and deposit his or her share certificates in
accordance with the notice.
Within 30 days after the receipt of demand for the fair value of the
dissenters' shares, WaveRider will pay each dissenting shareholder who complied
with the required procedures the amount WaveRider estimates to be the fair value
of the dissenting shareholders' shares, plus accrued interest. In addition,
WaveRider will mail to each dissenting shareholder a copy of its financial
statements as of the end of the last fiscal year ending not more than 16 months
before the date of payment, a statement of income for that year, a statement of
changes in the stockholders' equity for that year, and the latest available
interim financial statements, a statement as to how fair value was calculated, a
statement as to how interest was calculated, a statement of the dissenters'
right to demand payment of fair value under Nevada law, and a copy of the
relevant provisions of Nevada law.
Within 30 days following receipt of payment for the shares, a dissenting
shareholder may send WaveRider a notice containing such shareholder's own
estimate of fair value and accrued interest, and demand payment for that amount
less the amount received pursuant to WaveRider's payment of fair value to such
shareholder.
If a demand for payment remains unsettled, WaveRider will petition the
court to determine fair value and accrued interest. If WaveRider fails to
commence an action within 60 days following the receipt of a dissenting
shareholder's demand, WaveRider will pay to the shareholder the amount demanded
in the dissenting shareholder's demand notice.
All dissenting shareholders whose demands remain unsettled, whether
residents of Nevada or not, must be made parties to the action and the court
will render judgment for the fair value of their shares. Each party must be
served with the petition. The judgment will include payment for the amount, if
any, by which the court finds the fair value of such shares, plus interest,
exceeds the amount already paid. If the court finds that the demand of any
dissenting shareholder for payment was arbitrary, vexatious or otherwise not in
good faith, the court may assess costs, including reasonable fees of counsel and
experts, against such shareholder. Otherwise the costs and expenses of bringing
the action will be determined by the court under Nevada law. In addition,
reasonable fees and expenses of counsel and experts may be assessed against
WaveRider if the court finds that WaveRider did not substantially comply with
the requirements of the Nevada dissenters' rights statute or that WaveRider
acted arbitrarily, vexatiously, or not in good faith with respect to the rights
granted to dissenters under Nevada law.
If you wish to seek dissent rights, you are urged to review the applicable
Nevada statutes attached to this document as Annex B.
Exchange of Share Certificates
Stock certificates representing shares of WaveRider common stock will, at
the effective time of the merger, automatically represent the right to receive
the same number of WCAN common shares, which shares will be issued by WCAN in
the merger. You will not be required to exchange your stock certificates as a
result of the reorganization. Should you desire to sell some or all of your WCAN
common shares after the effective time of the merger, delivery of the stock
certificate or certificates that previously represented WaveRider shares will be
sufficient.
Following the reorganization, certificates bearing the name of WCAN will
be issued in the normal course upon surrender for transfer or exchange of
outstanding certificates bearing the name of WaveRider. If you surrender a
certificate that previously represented WaveRider shares for transfer or
exchange and new certificates are to be issued in a name other than that
appearing on the surrendered certificate, it will be a condition to the transfer
or exchange that the surrendered certificate be accompanied by (i) all documents
required to evidence and effect the transfer, and (ii) evidence that any
applicable stock transfer taxes have been paid.
44
Note that WaveRider has effected a share consolidation of its common stock
on July 1, 2004 on a ten for one basis. If you hold a share certificate(s) and
have not yet exchanged your share certificate(s) pursuant to the letter of
transmittal that was sent to you, the current share certificate(s) you are
holding does not show the number of shares you hold on a post-consolidated
basis. We recommend that you send in your WaveRider share certificate(s) and
your executed letter of transmittal to receive a share certificate that will
accurately reflect your holding in WCAN (or WaveRider in the event the
reorganization is not completed).
Restrictions on sales of WCAN Shares received in the Reorganization
WCAN shares to be issued in the reorganization generally will be freely
transferable, except for WCAN shares issued to any person who is deemed to be an
"affiliate" of WCAN, WaveRider and merger sub under the Securities Act of 1933
as of the date of the annual meeting. Persons who may be deemed to be
"affiliates" of WaveRider, WCAN and merger sub prior to the reorganization
include individuals or entities that control, are controlled by, or are under
common control with WaveRider, WCAN and merger sub prior to the reorganization
and may include officers and directors, as well as significant shareholders of
WaveRider, WCAN and merger sub prior to the reorganization.
WCAN, WaveRider, merger sub and affiliates of WaveRider, WCAN and
merger sub prior to the reorganization merger may not sell any of the WCAN
shares received by them in connection with the reorganization for a period of
one year except pursuant to:
o an effective registration statement under the Securities Act covering
resale of those shares;
o an exemption under paragraph (d) of Rule 145 under the Securities Act; or
o any other applicable exemption under the Securities Act.
WCAN's registration statement on Form F-4, of which this joint proxy
statement/prospectus forms a part, does not cover the resale of WCAN shares to
be received by affiliates of WaveRider, WCAN and merger sub in the
reorganization.
Stock Compensation Plans
Options issued under WaveRider's Employee Stock Option (1997) Plan, 1999
Incentive Non-qualified Stock Option Plan, Employee Stock Option (2000) Plan and
Employee Stock Option (2002) Plan outstanding prior to the effective time of the
merger will be assumed by WCAN upon the merger being effective and will
therefore become exercisable into WCAN common shares. After the reorganization
is completed no new options will be granted under WaveRider's current option
plans, and WaveRider's Employee Stock Purchase Plan will be terminated. WCAN
will instead issue options and common shares pursuant to its Share Incentive
Plan.
The Share Incentive Plan of WCAN (a copy of which is attached in Annex A),
which will become effective only upon completion of the reorganization and
ratification by the board of WCAN is designed to advance the interests of WCAN
by encouraging employees to acquire equity participation in WCAN through the
acquisition of WCAN common shares.
The Share Incentive Plan consists of the Stock Option Plan and the Share
Purchase Plan.
WCAN Stock Option Plan
The Stock Option Plan of WCAN is to be administered by the board or a
committee. The Stock Option Plan is designed to give each holder of an option an
interest in preserving and maximizing shareholder value in the longer term, to
enable WCAN to attract and retain individuals with experience and ability and to
reward individuals for current and future performance. The board or committee
will consider option grants when reviewing key employee compensation packages.
Any option grant requires approval by the board of directors of WCAN. In
determining the number of options to be granted, the board or committee will
give consideration to an individual's present and potential contribution to the
success of WCAN.
45
The number of options, which may be issued under the Stock Option Plan in
the aggregate and in respect of any fiscal year, is limited under the terms of
the Stock Option Plan and cannot be increased without shareholder and regulatory
approval (if any required). The exercise price per share shall be determined by
the board or a committee provided that such price shall not be less than the
minimum price required pursuant to the rules of the primary stock exchange or
market on which the WCAN common shares are listed or posted for trading from
time to time. Each option is for a term of ten years and have various vesting
periods.
The maximum number of common shares issuable under the Stock Option Plan
is currently set at 600,000 in the aggregate, representing 4% of the outstanding
number of WCAN common shares upon the reorganization being completed based on
the number of WaveRider shares of common stock outstanding as of July 14, 2004.
The maximum number of WCAN common shares issuable to insiders pursuant to the
Stock Option Plan within a one-year period, is limited to 10% of the total
number of WCAN common shares then outstanding. The maximum number of WCAN common
shares issuable to any one insider and such insider's associates pursuant to the
Stock Option Plan, within a one year period, is limited to 5% of the total of
WCAN common shares then outstanding. The maximum number of WCAN common shares
reserved for issue to any one person under the Stock Option Plan is limited to
5% of the outstanding number of WCAN common shares from time to time.
WCAN Share Purchase Plan
Employees of WCAN or its affiliates, will upon the reorganization being
effective and upon ratification by the board of WCAN, be entitled to contribute
up to 15% of their salary to the Share Purchase Plan. The purchase price per
share is not less than the lesser of 85% of the market value of the common
shares on the date of the grant, or 85% of the market value of the common shares
on the date the right to acquire a common share is exercised, or such minimum
price as required by the rules of the primary stock exchange or market on which
the WCAN common shares are listed or posted for trading from time to time. In
the event of termination of employment of an employee, such employee's rights to
acquire WCAN common shares under the Share Purchase Plan shall terminate
immediately and WCAN will return such employee's payroll deductions. The maximum
number of WCAN common shares issuable under the Share Purchase Plan is currently
set at 300,000 WCAN common shares in the aggregate.
Trading Market for WCAN Shares
WaveRider common stock is currently quoted and traded over-the-counter on
the OTC Bulletin Board of the National Association of Securities Dealers, Inc.
under the symbol "WAVR.OB". There is currently no established public trading
market for the WCAN common shares. Upon the WaveRider shareholders approving the
reorganization WCAN will, prior to the completion of the reorganization apply
for the WCAN common shares to be quoted and traded over-the-counter on the OTC
Bulletin Board of the National Association of Securities Dealers, Inc.
Dividends
WaveRider has never declared or paid any cash dividends on its common
stock, and we do not intend to pay any cash dividends on our common stock in the
near term. If the reorganization is completed, WCAN anticipates that it will not
pay any dividends on its common shares in the near term.
Accounting Treatment of the Reorganization
Because the reorganization will be accounted for as a reorganization of
entities under common control, there will be no comprehensive revaluation of
WaveRider's assets and liabilities.
46
Reporting of WCAN after the Reorganization
After the reorganization, WCAN will be a reporting issuer in all the
provinces of Canada and will file through the Canadian System for Electronic
Document Analysis and Retrieval (SEDAR), the Canadian equivalent of the SEC's
EDGAR system, at http://www.sedar.com , periodic reports, including audited
annual financial statements and unaudited quarterly financial statements,
material change reports, as well as proxy statements and related materials for
annual and special meetings of WCAN shareholders. WCAN will be required to send,
annually, a request form to its shareholders for their use if they wish to
request a copy of WCAN's annual and interim financial statements as well as the
related management's discussion and analysis of financial condition and results
of operations.
After the reorganization, WCAN will also be a reporting company for
purposes of the Securities Exchange Act of 1934 and will file SEC reports
through EDGAR. Because WCAN is a foreign private issuer for the purposes of the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended, the content and timing of these SEC reports and notices will differ in
several respects from the reports and notices that WaveRider currently files
with the SEC.
As a U.S. reporting company, WaveRider currently must file with the SEC,
among other reports and notices:
o an annual report on Form 10-K SB within 90 days after the end of each
fiscal year;
o a quarterly report on Form 10-Q SB within 45 days after the end of
each fiscal quarter; and
o current reports on Form 8-K upon the occurrence of various corporate
events.
As a foreign private issuer, pursuant to the requirements of the
Securities Exchange Act of 1934, as amended, WCAN will be required to:
o file with the SEC an annual report on Form 20-F within 140 days after
the end of each fiscal year;
o furnish reports on Form 6-K that would include information, a foreign
private issuer makes or is required to make public pursuant to the law
of the jurisdiction of its domicile or in which it is incorporated or
organized, or files or is required to file with a stock exchange on
which its securities are traded and which was made public by that
exchange, or distributes or is required to distribute to its security
holders; and
o furnish reports on Form 6-K upon the occurrence of significant
corporate events.
As a foreign private issuer, WCAN is not required under the Securities
Exchange Act of 1934, as amended, to file quarterly reports on Form 10-Q SB
after the end of each financial quarter. However, quarterly reports under
Canadian securities regulation will be filed with the SEC on Form 6-K's.
In addition, the content and timing of reports and notices that WCAN will
file will differ from the reports and notices that are currently filed by
WaveRider stockholders.
WCAN expects to retain its status as a foreign private issuer after the
completion of the merger. Under SEC rules, WCAN will qualify for foreign private
issuer status so long as:
1. 50% or more of WCAN's ordinary shares are held of record either
directly or indirectly by shareholders who are not residents of the
U.S.; or
2. all three of the following conditions continue to be satisfied: at
least 50% of WCAN's directors and its executive officers, are neither
citizens nor residents of the U.S.; at least 50% of WCAN's assets are
located outside the U.S.; and WCAN's business is administered
principally outside the U.S.
47
After completion of the reorganization, U.S. stockholder may continue to
hold more than 50% of WCAN's ordinary shares. However, WCAN expects that after
the reorganization at least 50% of its directors and executive officers will be
persons who are not U.S. citizens or residents and, on a consolidated basis, at
least 50% of its assets will be located outside of the U.S. Furthermore, WCAN
will administer its business from outside the U.S. Accordingly, WCAN expects to
qualify and continue to qualify as a foreign private issuer after completion of
the reorganization.
If WCAN at any time loses its status as a foreign private issuer, it will
be required to file Annual Reports on Form 10-K or Form 10-KSB, Quarterly
Reports on Form 10-Q or Form 10-QSB and Current Reports on Form 8-K, as
applicable. In addition, WCAN will become subject to the rules under the
Securities Exchange Act of 1934, as amended, regarding the furnishing and
content of annual reports and proxy statements to its share owners.
Reporting of WaveRider after the Reorganization
Upon completion of the reorganization, WaveRider will continue to be
subject to the reporting requirements of the Securities Exchange Act of 1934, as
amended, and will file the required periodic reports with the SEC until such
time as it may file a notice on Form 15 making appropriate claims under the
Securities Exchange Act of 1934, as amended, in order to suspend its reporting
obligations.
MATERIAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Foley Hoag LLP, counsel to WaveRider and WCAN, the
following discussion sets forth a summary of the material United States federal
income tax considerations relating to the reorganization and subsequent
ownership and disposition of common shares of WCAN to persons who are United
States Holders (as defined below). The summary does not contain a complete
analysis of all the potential tax considerations relating to the reorganization
and subsequent ownership and disposition of common shares of WCAN. This summary
applies only to holders who hold the common shares as "capital assets" (in
general, assets held for investment) and does not deal with special situations.
For example, this summary does not address any of the following:
o tax consequences to holders who may be subject to special tax
treatment, such as tax-exempt entities, dealers in securities or
currencies, banks, other financial institutions, insurance
companies, regulated investment companies, or traders in
securities that elect to use a mark-to-market method of
accounting for their securities holdings;
o tax consequences to persons holding shares as part of a hedging,
integrated, constructive sale or conversion transaction or a
straddle or other risk reduction transaction;
o tax consequences to holders whose "functional currency" is not
the US dollar;
o tax consequences to partnerships or similar pass-through entities
(if a partnership (including any entity treated as a partnership
for United States federal income tax purposes) is a beneficial
owner of the common shares, the United States federal income tax
treatment of a partner in the partnership will generally depend
on the status of the partner and the activities of the
partnership);
o tax consequences to holders who have ceased to be United States
citizens or to be taxed as resident aliens;
o tax consequences to holders who acquired their common shares
through the exercise of employee stock options or otherwise as
compensation for services;
o US federal gift tax, estate tax or alternative minimum tax
consequences, if any; or
o any state, local or non-United States tax consequences.
48
This discussion is based upon the provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), existing and proposed Treasury
regulations promulgated thereunder, and rulings, judicial decisions and
administrative interpretations thereunder, as of the date hereof. Those
authorities may be changed, perhaps retroactively, to cause US federal income
tax consequences different from those discussed below.
This discussion is for general information only and it is not intended
to be, nor should it be construed to be, legal or tax advice to any holder or
prospective holder of common shares of WAVERIDER. HOLDERS OR PROSPECTIVE HOLDERS
OF COMMON SHARES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE
CONSEQUENCES, IN THEIR PARTICULAR CIRCUMSTANCES, UNDER THE CODE AND THE LAWS OF
ANY OTHER TAXING JURISDICTION, OF THE REORGANIZATION AND THEIR SUBSEQUENT
OWNERSHIP AND DISPOSITION OF COMMON SHARES OF WCAN.
You are a United States Holder if you are a beneficial owner of common shares
and you are
o a citizen of the United States;
o a resident of the United States for U.S. federal income tax
purposes;
o a corporation or other entity (other than a partnership, estate
or trust) created or organized in or under the laws of the United
States or any political subdivision of the United States;
o an estate the income of which is subject to US federal income
taxation regardless of its source; or
o a trust if a court within the Unites States is able to exercise
primary jurisdiction over its administration and one or more US
persons have authority to control all substantial decisions of
the trust.
Taxation of Parties to the Reorganization
The reorganization will be treated as a transaction described in
section 368 of the Code. The tax consequences of the reorganization, however,
will be unlike those of most section 368 transactions, because the
reorganization will be subject to the additional requirements of section 367 of
the Code, which deals with transactions involving non-U.S. corporations. In
particular, if you hold your WaveRider common shares at a gain you will be
required to recognize such gain as a result of the merger. If you hold your
WaveRider common shares at a loss, however, you will not be entitled to
recognize such loss.
If you hold your WaveRider common shares at a gain, the aggregate tax
basis of the WCAN common shares that you receive in the merger will equal the
fair market value of such WCAN common shares, measured on the date of the
merger. Your holding period (for capital gain purposes) for each share of WCAN
common stock you receive in the merger will begin the day after the date the
merger closes.
If you hold your WaveRider common shares at a loss, the aggregate tax
basis of the WCAN common shares that you receive in the merger will equal the
aggregate tax basis of the WaveRider common shares that you exchange in the
merger. Your holding period (for capital gain purposes) for the shares of WCAN
common stock you receive in the merger will include the holding period for the
shares of WaveRider common stock that you exchange in the merger.
If you exercise dissenter's rights with respect to your shares of
Waverider common stock and receive a cash payment for such shares, you generally
should recognize capital gain or loss measured by the difference between the
amount of cash received and your adjusted tax basis in such shares. Capital
losses are subject to limitations. To determine the deductibility of capital
losses, all capital gains and losses (without distinction between long-term and
short-term) incurred during the year must be added together. Any capital losses
are deductible only to the extent of any capital gains plus, in the case of
non-corporate taxpayers, ordinary income up to US$3,000. Any excess net capital
loss may be carried forward into future tax years.
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Neither WaveRider nor WCAN will recognize gain or loss in the merger
for U.S. federal income tax purposes, except that it is possible that the
Internal Revenue Service could take the position that, upon cancellation of the
WCAN shares held by WaveRider before the reorganization (if and when such shares
are repurchased and cancelled), WaveRider must recognize taxable gain for U.S.
federal income tax purposes, in an amount equal to the difference, if any,
between the value of such WCAN shares and WaveRider's adjusted basis in such
shares. Even if the Internal Revenue Service were to take such position, we do
not expect the amount of any such gain to be material.
THE FOREGOING DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY AND IS BASED
ON THE LAW AS CURRENTLY IN EFFECT. BECAUSE OF THE INDIVIDUAL NATURE OF TAX
CONSEQUENCES, HOLDERS OF WAVERIDER COMMON STOCK ARE URGED TO CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING
THE EFFECTS OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND OF CHANGES
IN SUCH TAX LAWS.
Dividend Distributions on Common Shares of the Company
To the extent that WCAN has current or accumulated earnings and profits
the amount of any gross distribution made to a U.S. Holder in respect of common
shares of WCAN will be treated as a dividend includible in gross income in an
amount equal to the U.S. dollar value of such dividend on the date of receipt
(based on the exchange rate on such date) without reduction for any Canadian
income tax withheld from such distributions. Distributions in excess of our
current and accumulated earnings and profits will reduce a U.S. Holder's basis
for the common stock until the basis is zero; any additional distributions in
excess of our current and accumulated earnings and profits will be short-term or
long-term capital gain, depending upon whether the U.S. Holder's holding period
for the common stock exceeds one year. Because WCAN is not a United States
corporation, dividends paid on the common shares of WCAN will generally not be
eligible for the dividends-received deduction provided to corporations.
Canadian tax withheld from any distribution may be credited, subject to
certain limitations, against the U.S. Holder's federal income tax liability or,
alternatively, may be deducted in computing the U.S. Holder's federal taxable
income by those who itemize deductions. (See more detailed discussion at
"Foreign Tax Credit" below).
If we pay a dividend in Canadian currency that is not converted by the
recipient into U.S. dollars on the date of receipt, the recipient U.S. Holder
will have a tax basis in the foreign currency equal to its U.S. dollar value on
the date of receipt. Generally any gain or loss recognized upon a subsequent
sale or other disposition of the foreign currency, including the exchange for
U.S. dollars, will be ordinary income or loss. However, an individual whose
realized gain does not exceed $200 will not recognize that gain, to the extent
that there are no expenses associated with the transaction that meet the
requirement for deductibility as a trade or business expense or as an expense
for the production of income.
Under current temporary Treasury Regulations, dividends paid, and the
proceeds of a sale of WCAN common shares, in the U.S. through a U.S. or U.S.
related paying agent (including a broker) will be subject to U.S. information
reporting requirements and may also be subject to a 29-percent U.S. backup
withholding tax for payments made in 2004 and 2005, unless the paying agent is
furnished with a duly completed and signed IRS Form W-9. Any amounts withheld
under the U.S. backup withholding tax rules will be allowed as a refund or a
credit against the U.S. Holder's U.S. federal income tax liability, provided the
required information is furnished to the IRS.
Foreign Tax Credit
A U.S. Holder who pays (or has withheld from distributions) Canadian
income tax with respect to the ownership of common shares of WCAN may be
entitled, at the option of the U.S. Holder, to either receive a deduction or a
tax credit for such foreign tax paid or withheld. Generally, it will be more
advantageous to claim a credit because a credit reduces United States federal
income taxes on a dollar-for-dollar basis, while a deduction merely reduces the
taxpayer's income subject to tax. This election is made on a year-by year basis
and applies to all foreign taxes paid by (or withheld from) the U.S. Holder
during that year. Significant and complex limitations apply to the availability
of the foreign tax credit. Accordingly, U.S. Holders of common shares of WCAN
should consult their own tax advisors regarding their individual circumstances.
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Disposition of Common Shares of WCAN
A U.S. Holder will recognize gain or loss upon the sale of common
shares of WCAN equal to the difference, if any, between (i) the amount of cash
plus the fair market value of any property received, and (ii) the shareholders
tax basis in the common shares of WCAN. Preferential tax rates apply to
long-term capital gains and loss if the common shares are a capital asset in the
hands of a U.S. Holder who is an individual. The long-term capital holding
period is in excess of one year. U.S. Holders who are individuals may carry over
net capital loss to be deducted in later tax years until such net capital loss
is thereby exhausted. For U.S. Holders that are corporations (other than
corporations subject to Subchapter S of the Code), an unused net capital loss
may be carried back three years and carried forward five years from the loss
year to be offset against capital gains until such net capital loss is thereby
exhausted.
Eligibility of U.S. Holders Who Are Individuals for the Reduced Federal
15-Percent Rate on Dividends
As a result of the Jobs and Growth Tax Relief Reconciliation Act of
2003 U.S. Holders who are individuals will pay tax at a 15-percent rate on
eligible common stock dividends received from January 1, 2003, through December
31, 2008. Eligible dividends are dividends received during the tax year from (i)
a domestic U.S. corporation, or (ii) a qualified foreign corporation
(incorporated in a U.S. possession; stock traded on a U.S. exchange; or eligible
for benefits under a comprehensive income tax treaty). Dividends paid by foreign
corporations that are (i) a foreign investment company (FIC), (ii) a passive
foreign investment company (PFIC), or (iii) a foreign personal holding company
(FPHC) (as defined below) do not qualify for the reduced 15-percent rate. Also,
beginning in 2009 the reduced 15-percent rate on dividends for individuals
expires and those dividends will be taxed again at a marginal tax rate (now 35
percent). Because we believe WCAN is eligible for benefits under the U.S. -
Canadian income tax treaty, which the IRS has determined qualifies as a
comprehensive income tax treaty for this purpose, and because WCAN does not
expect to be either a FIC, PFIC or FPHC, WCAN believes that any dividends it
pays will be treated as eligible common stock dividends.
U.S. Backup Withholding Tax and Information Reporting
Generally, 29% backup withholding tax and information reporting
requirements will apply to dividends paid on WCAN common shares to a
non-corporate U.S. holder, if such holder fails to provide a correct taxpayer
identification number and other information or fails to comply with certain
other requirements. The proceeds from the sale of WCAN common shares by a U.S.
holder will be subject to U.S. backup withholding tax and information reporting,
unless the holder has provided the required certification or has otherwise
established an exemption.
A U.S. holder can establish an exemption from the imposition of backup
withholding tax by providing a duly completed IRS Form W-9 to the holder's
broker or paying agent, reporting the holder's taxpayer identification number
(which for an individual will be his or her social security number), or by
otherwise establishing its corporate or exempt status.
Any amounts withheld under the backup withholding tax rules from a payment
to a holder will be allowed as a refund or a credit against such holder's U.S.
federal income tax, provided that the required information is furnished to the
U.S. Internal Revenue Service.
MATERIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Cassels Brock & Blackwell LLP, counsel to WaveRider and
WCAN, the following is a general summary of the principal Canadian federal
income tax considerations generally applicable to a person who acquires WCAN
common shares in exchange for WaveRider common stock as part of the
reorganization and who, at all relevant times, for purposes of the Income Tax
Act (Canada) (the "Canadian Tax Act"), holds such WaveRider common stock and
WCAN common shares as capital property, deals at arm's length with WaveRider and
WCAN, and is not a financial institution as defined in the Canadian Tax Act for
purposes of the mark-to-market rules (a "Holder"). This summary does not apply
to a Holder with respect to whom WaveRider is or will be a foreign affiliate
within the meaning of the Canadian Tax Act.
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This summary is of a general nature only and is not intended to be, nor
should it be construed to be, legal or tax advice to any particular Holder.
Accordingly, Holders are urged to consult their own tax advisors with respect to
their particular circumstances.
This summary, and all other statements relating to, or in respect of,
Canadian federal income tax in this document, are based upon the current
provisions of the Canadian Tax Act, the regulations thereunder, all specific
proposals to amend the Canadian Tax Act and the regulations publicly announced
by the Minister of Finance (Canada) prior to the date hereof, and counsel's
understanding of the current administrative practices published by the Canada
Revenue Agency. This summary and all other such statements, are also based on
the current provisions of the Canada-United States Income Tax Convention (1980)
(the "Treaty"). This summary, and all other such statements, do not otherwise
take into account or anticipate any changes in law or practice, whether by
legislative, governmental or judicial decision or action, nor does it take into
account or consider any provincial, territorial or foreign income tax
considerations.
For purposes of the Canadian Tax Act, all amounts relating to the
acquisition, holding or disposition of WaveRider common stock or WCAN common
shares, including dividends, adjusted cost base and proceeds of disposition,
must be expressed in Canadian dollars and therefore must generally be converted
into Canadian dollars at the time such amounts arise.
Residents of the United States
The following portion of the summary is generally applicable to a Holder
who, for purposes of the Canadian Tax Act and the Treaty, at all relevant times,
is a resident of the United States, is not (and is not deemed to be) a resident
of Canada, does not have a "permanent establishment" or "fixed base" in Canada,
does not use or hold, and is not deemed to use or hold, WaveRider common stock
or WCAN common shares in, or in the course of, carrying on a business in Canada,
and does not carry on an insurance business in Canada and elsewhere (a "U.S.
Resident Holder").
The reorganization. A U.S. Resident Holder will not be subject to tax
under the Canadian Tax Act when such holder's WaveRider common stock converts
into the right to receive WCAN common shares on the merger, which shares WCAN
will issue as part of the merger.
After the reorganization. Dividends paid or credited or deemed under the
Canadian Tax Act to be paid or credited to a U.S. Resident Holder on WCAN common
shares generally will be subject to Canadian withholding tax, at the rate of 15%
of the gross amount of the dividends, under the terms of the Treaty.
Gains realized on the disposition of WCAN common shares received by a U.S.
Resident Holder in the merger generally will not be subject to Canadian tax as
long as the value of the WCAN common shares is not derived principally from real
property situated in Canada, as contemplated in the Treaty.
Residents of Canada
The following portion of the summary is generally applicable to a Holder
who, for purposes of the Canadian Tax Act and any relevant treaty or convention,
is resident or deemed to be resident in Canada at all relevant times (a
"Canadian Resident Holder").
The reorganization. A Canadian Resident Holder will realize a capital gain
(or sustain a capital loss) when such holder's WaveRider common stock converts
into WCAN common shares to the extent that the fair market value of the WCAN
common shares received, net of any reasonable costs of disposition, exceeds (or
is less than) the adjusted cost base of the WaveRider common stock to the
Canadian Resident Holder immediately before the reorganization.
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The cost to a Canadian Resident Holder of each WCAN common share received
in the merger will be equal to the fair market value of a share of WaveRider
common stock at the time it is converted in the reorganization.
One-half of a capital gain is included in computing income as a taxable
capital gain and one-half of a capital loss may be deducted against taxable
capital gains to the extent and under the circumstances prescribed in the
Canadian Tax Act. A stockholder that is a Canadian-controlled private
corporation will be subject to an additional refundable tax of 6-2/3% of
aggregate investment income, which includes an amount in respect of taxable
capital gains.
Individuals (other than certain trusts) realizing net capital gains may be
subject to an alternative minimum tax under the Canadian Tax Act.
After the reorganization. Dividends received on the WCAN common shares by
a Canadian Resident Holder will be subject to the tax treatment generally
applicable to dividends paid by Canadian public corporations on ordinary common
shares.
A Canadian Resident Holder will realize a capital gain (or sustain a
capital loss) on the disposition of WCAN common shares to the extent that the
proceeds of disposition, net of any reasonable costs of disposition, exceed (or
are less than) the adjusted cost base of the WCAN common shares to the Canadian
Resident Holder immediately before the disposition. The treatment of capital
gains and losses is discussed above under "Material Canadian Federal Income Tax
Considerations--Residents of Canada--The Reorganization".
DESCRIPTION OF COMMON SHARES OF WCAN
Authorized Share Capital
WCAN is authorized to issue an unlimited number of common shares without
par value and an unlimited number of preferred shares issuable in series. The
preferred shares are similar to WaveRider's preferred stock and are what are
commonly referred to as "blank check" preferred shares, and therefore, WCAN's
board of directors may designate and create the preferred shares as shares of
any series and determine the respective rights and restrictions of any such
series.
As of the close of business on July 14, 2004, WCAN had 1,600 common shares
outstanding and no other class of shares outstanding. All such shares were held
by WaveRider. If the merger is completed, WCAN will issue approximately
15,044,788 common shares in the merger as contemplated in the resolution adopted
by the board of directors of WCAN on July 15, 2004, the common shares held by
WaveRider may be repurchased and cancelled for nominal consideration.
WCAN Common Shares
Dividend Rights
Subject to the preferences, limitations and relative rights of holders of
WCAN's preference shares described below, the holders of WCAN common shares are
entitled, among other things, to receive any dividend declared by WCAN. WCAN may
pay a dividend by issuing fully paid shares of WCAN, money and/or property. WCAN
anticipates that it will not pay any dividends on its common shares in the near
term.
Rights Upon Liquidation
Upon any liquidation of WCAN, after creditors of the corporation have been
paid in full and the full amounts that holders of any issued shares ranking
senior to the common shares as to distribution on liquidation or winding up are
entitled to receive have been paid or set aside for payment, the holders of
WCAN's common shares are entitled to receive, pro rata, any remaining assets of
WCAN available for distribution.
No Sinking Fund
The WCAN common shares have no sinking fund provisions.
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No Liability for Further Calls or Assessments
The WCAN common shares to be issued in the merger will be duly and validly
issued, fully paid and non-assessable.
No Preemptive Rights
WCAN shareholders have no preemptive rights to subscribe for or purchase
any additional shares of capital stock issued by WCAN.
Redemption and Conversion
There are no provisions in the Articles for conversion rights with respect
to the WCAN common shares and no provisions in the Articles discriminate against
existing or prospective shareholders as a result of a security holder owning a
substantial amount of securities.
Repurchase
WCAN's board of directors may implement a share repurchase program that
would permit management, subject to market conditions and applicable law, to
repurchase up to a predetermined maximum number of WCAN common shares at
prevailing market prices.
No Restrictions on Transfer
WCAN's Articles do not impose any restrictions on the alienability of
WCAN's common shares.
Voting
Holders of WCAN common shares are entitled to receive notice of any
meeting of shareholders and to one vote for each share held of record on all
matters at all meetings of shareholders, except at a meeting where holders of a
particular class or series of shares are entitled to vote separately. WCAN's
common shareholders have no cumulative voting rights. WCAN's shareholders take
action by a majority of votes cast, unless otherwise provided by the Business
Corporations Act (British Columbia) ("BCBCA") or WCAN's Articles. A resolution
of shareholders may also be passed by being consented to in writing by all
shareholders holding shares that carry a right to vote at general meetings.
Under the BCBCA, some matters require the approval of shareholders by a
special resolution. A special resolution is a resolution that is either passed
at a meeting duly called and held for that purpose by a majority of not less
than two-thirds of the votes cast by the shareholders who voted in respect of
that resolution or that is signed by all the shareholders entitled to vote on
that resolution. WCAN's Articles provide for special resolutions by a two-thirds
majority of the votes cast.
There are no limitations imposed by the BCBCA or WCAN's Articles on the
right of non-resident shareholders to hold or vote their WCAN common shares.
Requisition of Meetings
The BCBCA provides that one or more shareholders of WCAN holding at least
1/20 of the issued voting shares of a company may give notice to the directors
requiring them to call and hold a general meeting.
Place of Meetings
Under the Articles, general meetings of WCAN shareholders may be held in
Toronto, Ontario (or surrounding area), or in a location in British Columbia. A
general meeting may be held in another location outside of British Columbia if
the location is approved by a directors' resolution or an ordinary resolution of
shareholders before the meeting is held or if the location is approved in
writing by the Registrar of Companies before the meeting is held.
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Preferred Shares
WCAN is authorized to issue an unlimited number of preferred shares, which
shares may be issued in one or more series by WCAN's board of directors without
further action by the shareholders. In any resolution authorizing the issuance
of preferred shares, the board of directors of WCAN is authorized to fix for
each such series the number of shares which shall constitute such series, and
the designations, rights, privileges, restrictions and conditions attaching to
the shares of such series, including any right to receive dividends, rights of
redemption (if any) and conversion or exchange rights. In addition, the
preferred shares shall have no voting rights other than as provided by law or by
resolutions of the board of directors, and in no event shall the preferred
shares be entitled to more than one vote per share.
COMPARISON OF RIGHTS OF STOCKHOLDERS/SHAREHOLDERS
Comparative Rights of Shareholders
WaveRider is currently subject to the Nevada Revised Statutes. After the
merger of WaveRider and merger sub, the shareholders of WaveRider will become
shareholders of WCAN, a company organized under the BCBCA. Differences between
the Nevada Revised Statutes and the BCBCA will result in various changes in the
rights of shareholders of WaveRider. The following is a summary description of
the more significant differences between the Nevada Revised Statutes and the
BCBCA, which are relevant to the shareholders of WaveRider. Reference should be
made to the full text of both statutes and regulations thereunder for
particulars of any difference between them, and shareholders should consult
their legal or other professional advisors with respect to the implications of
the reorganization that may be of importance to them.
Amendments to the Articles
Under Nevada law, in order to amend the articles of incorporation of a
company, the board of directors must adopt a resolution setting forth the
proposed amendment and either call a special meeting of the shareholders to vote
on the amendment or direct that the proposed amendment be considered at the next
annual meeting of shareholders entitled to vote on the amendment. If it appears
upon the canvassing of the votes that shareholders holding shares entitling them
to exercise at least a majority of the voting power, or such greater proportion
of the voting power as may be required in the case of a vote by classes, or as
may be required by the provisions of the articles of incorporation, have voted
in favor of the amendment, then an officer of the corporation shall sign a
certificate setting forth the amendment. In addition to such an affirmative vote
of the shareholders, if any proposed amendment would adversely alter or change
any preference or any other right given to any class of outstanding shares, then
the amendment must be approved by shareholders representing a majority of the
voting power of each class adversely affected by the amendment.
Under the BCBCA, a corporation may amend its articles upon the
shareholders of the corporation adopting a resolution approving of such
amendment. Unless otherwise specified in the BCBCA or in the articles of the
corporation, a resolution approving of an amendment to the articles of a
corporation must be approved by at least two-thirds of all votes cast at a
meeting of shareholders called in respect thereof.
Fundamental changes, such as an alteration of the special rights and
restrictions attached to issued shares or a proposed amalgamation or
continuation out of the jurisdiction, require a special resolution passed by a
two-thirds majority of the holders of shares of each class entitled to vote and
in attendance in person or by proxy at a general meeting of WCAN and the holders
of all classes of shares adversely affected by an alteration of special rights
and restrictions.
WCAN's Articles allow some capital alterations and alterations to the
charter documents to be approved by the directors in the limited circumstances
as described below or by an ordinary resolution (simple majority) of
shareholders:
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1. by directors' resolution or ordinary resolution, in each case as
determined by the directors, to
(a) create one or more classes or series of shares and, if none of
the shares of a class or series of shares are allotted or issued,
eliminate that class or series of shares and alter the
identifying name of any of its shares;
(b) establish, increase, reduce or eliminate the maximum number of
shares that WCAN is authorized to issue out of any class or
series of shares;
(c) if WCAN is authorized to issue shares of a class of shares with
par value, decrease the par value of those shares or if none of
the shares of that class of shares are allotted or issued,
increase the par value of those shares;
(d) change unissued shares with par value into shares without par
value or and vice versa or change all or any of its fully paid
issued shares with par value into shares without par value;
(e) create, attach, vary or delete special rights or restrictions for
the shares of any class or series of shares, if none of those
shares have been issued;
(f) subdivide all or any of its unissued, or fully paid issued,
shares;
(g) authorize alterations to the Articles that are procedural or
administrative in nature or are matters that pursuant to the
Articles are solely within the directors' powers, control or
authority; and
(h) change the name of WCAN;
2. by directors' resolution or by ordinary resolution, in each case as
determined by the directors, create special rights or restrictions for,
and attach those special rights or restrictions to, the shares of any
class or series of shares, if no shares of that class or series have
been issued; or vary or delete any special rights or restrictions
attached to the shares of any class or series of shares, if no shares of
that class or series have been issued;
3. by special resolution of the shareholders of the class or series
affected, do any of the acts in (2) above if any of the shares of the
class or series of shares have been issued; and
4. except as provided above, otherwise alter its shares or authorized share
structure by ordinary resolution.
Election and Removal of Directors
Under Nevada law, unless otherwise provided for the in the articles of the
company, any or all of the directors may be removed with or without cause by the
vote of not less than two thirds of the voting power of the issued and
outstanding shares entitled to vote. The directors may fill any vacancies on the
board.
Pursuant to the provisions of the BCBCA and WCAN's Articles, a corporation
may remove a director before the expiration of the director's term of office
upon the shareholders passing a special resolution (i.e., a resolution passed by
three-quarters of the votes cast at the meeting) to such effect.
Inspection of Shareholders List
Under Nevada law, any shareholder of record of a corporation who has held
his shares for more than six months and shareholders holding at least 5% of all
of the outstanding shares of the company (or thereunto authorized in writing by
the holders of at least 5%), are entitled to inspect upon at least 5 days'
written demand, during normal business hours, the company's share ledger and
make copies therefrom.
Each shareholder of a corporation may inspect the register of securities
of the corporation by following the procedures and meeting certain conditions
set forth in the BCBCA.
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Transactions with Officers and Directors
Under Nevada law, a contract or transaction in which a director or officer
is financially interested is not void or voidable if (i) the interest is known
to the board of directors or committee, and the board or committee authorizes,
approves or ratifies the contract or transaction in good faith by a vote
sufficient for the purpose, without counting the vote or votes of the interested
directors, or (ii) the contract or transaction, in good faith, is ratified or
approved by the holders of a majority of the voting power of the Corporation, or
(iii) interest is not known to the director or officer at the time the
transaction is brought before the board of directors for actions, or (iv) the
contract or transaction is fair to the corporation at the time it is authorized
or approved. Common or interested directors may be counted to determine a quorum
and if the votes of the common or interested directors are not counted at the
meeting, then a majority of disinterested directors may authorize, approve or
ratify a contract or transaction.
Under the BCBCA, subject to certain exceptions, a director or senior
officer of a corporation holds a "disclosable interest" in a contract or
transaction if (i) the contract is material to the corporation; (ii) the
corporation has entered, or proposes to enter, into the contract or transaction;
and (iii) the director or senior officer has a direct or indirect material
interest in the contract or transaction. Subject to certain exemptions under the
BCBCA and unless the court orders otherwise, a director or senior officer of a
corporation is liable to account to the corporation for any profit that accrues
to the director or senior officer under or as a result of a contract or
transaction in which the director or senior officer holds a disclosable
interest. The exemptions from the requirement to account to the corporation for
any profit includes where the disclosable interest is disclosed to the directors
of the corporation and the directors approve of the contract or transaction with
any directors that hold a disclosable interest abstaining or the contract or
transaction is approved by a special resolution of the shareholders. If all
directors have a disclosable interest in a contract or transaction, any or all
of those directors may vote on a directors' resolution to approve the contract
or transaction. Directors with a disclosable interest may be counted in the
quorum at the directors' meeting to approve the contract or transaction whether
or not such directors vote at the directors' meeting.
Limitation on Liability of Directors; Indemnification of Officers and Directors
Under Nevada law, a corporation may, in its discretion, indemnify persons
in respect of certain claims brought against such person as a result of such
person serving as a director, officer, employee or agent of the Corporation only
as authorized in the specific case upon a determination that indemnification of
such person is proper in the circumstances. The determination must be made
either: (i) by the shareholders; (ii) by the board of directors by majority vote
of a quorum consisting of directors who were not parties to the action, suit or
proceeding; (iii) if a majority vote of a quorum consisting of directors who
were not parties to the action, suit or proceeding so orders, by independent
legal counsel in a written opinion; or (iv) if a quorum consisting of directors
who were not parties to the action, suit or proceeding cannot be obtained, by
independent legal counsel in a written opinion. The articles of incorporation,
the bylaws or an agreement made by the corporation may provide that the expenses
of officers and directors incurred in defending a civil or criminal action, suit
or proceeding must be paid by the corporation as they are incurred and in
advance of the final disposition of the action, suit or proceeding, upon receipt
of an undertaking by or on behalf of the director or officer to repay the amount
if it is ultimately determined by a court of competent jurisdiction that he is
not entitled to be indemnified by the corporation. The provisions do not affect
any right to advancement of expenses to which corporate personnel other than
directors or officers may be entitled under any contract or otherwise by law.
The indemnification and advancement of expenses authorized in or ordered by a
court pursuant to Nevada law does not exclude any other rights to which a person
seeking indemnification or advancement of expenses may be entitled under the
articles of incorporation or any bylaw, agreement, vote of shareholders or
disinterested directors or otherwise, for either an action in his official
capacity or an action in another capacity while holding office, except that
indemnification, unless ordered by a court or for the advancement of expenses,
may not be made to or on behalf of any director or officer if his acts or
omissions involved intentional misconduct, fraud or a knowing violation of the
law and was material to the cause of action. Indemnification duly authorized
continues for a person who has ceased to be a director, officer, employee or
agent and inures to the benefit of the heirs, executors and administrators of
such a person.
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Under the BCBCA, a company may indemnify a current or former officer or
director against any judgment, penalty or fine imposed in connection with, or
amount paid in settlement of, any legal proceeding or investigative action in
which such officer or director is a party by reason of such individual having
been an officer or director. A corporation may pay all expenses incurred by an
officer or director actually and reasonably incurred in connection with such a
proceeding and must pay all expenses reasonably incurred if the officer or
director is, at least, substantially successful on the merits in the outcome of
the proceeding. Among other circumstances, a corporation shall not indemnify a
current or former officer or director if such individual did not act honestly
and in good faith with a view to the best interests of the corporation or if the
individual did not have reasonable grounds for believing that his or her conduct
in respect of which the proceeding was brought was lawful. Further, a
corporation can not indemnify or cover the expenses of any officer or director
in respect of any proceeding brought by or on behalf of the corporation. The
Supreme Court of British Columbia may on the application of a corporation or
individual seeking indemnification, order indemnification of any liability or
expense incurred by such individual. WCAN's Articles require WCAN to indemnify
the directors and officers to the fullest extent permitted by the BCBCA.
Voting rights with respect to Extraordinary Corporate Transactions
Under Nevada law, approval of mergers and consolidations and sales, leases
or exchanges of all or substantially all of the property or assets of a
corporation, whether or not in the ordinary course of business, requires the
affirmative vote or consent of the holders of a majority of the outstanding
shares entitled to vote. However, unless required by the articles of
incorporation, no vote of shareholders of the corporation surviving a merger is
necessary if: (i) the merger does not amend the articles of incorporation of the
corporation; (ii) each outstanding share immediately prior to the merger is to
be an identical share after the merger, and (iii) either no common shares of the
corporation and no securities or obligations convertible into common shares are
to be issued in the merger, or the common shares to be issued in connection with
the merger, plus the common shares initially issuable on conversion of other
securities issued in the merger does not exceed 20% of the common shares of the
corporation outstanding immediately before the merger.
Pursuant to the BCBCA, an amalgamation (excluding an amalgamation with a
subsidiary or an amalgamation of two subsidiaries of a holding corporation), an
arrangement involving the shareholders of the corporation and the disposition of
all or substantially all of the undertaking of the corporation not in the
ordinary course of business must be approved by a special resolution of the
shareholders of the corporation. A special resolution is (i) a resolution passed
at a general meeting of shareholders by the majority of votes cast by
shareholders voting shares that carry the right to vote at general meetings;
(ii) and a resolution approved by the required majority of all votes cast in
respect thereof which in the case of WCAN is a two-thirds majority. A special
resolution may also be passed by being consented to in writing by all of the
shareholders holding shares that carry the right to vote at general meetings.
Shareholders' Consent without a Meeting
Under Nevada law, unless otherwise provided in the articles of
incorporation or the bylaws under Nevada law, any action required or permitted
to be taken at a meeting of the shareholders may be taken without a meeting if a
written consent is signed by shareholders holding at least a majority of the
voting power. However, if a different proportion of voting power is required for
such an action at a meeting, then that proportion of written consent is
required. In no instance where an action is authorized by written consent need a
meeting of the shareholders be called or notice given.
Under British Columbia law, a consent resolution of shareholders is deemed
to be valid and effective as if it had been passed at a meeting of shareholders
that satisfies all the requirements of the BCBCA and the articles of the
corporation. With respect to a resolution that may be passed upon approval of a
majority of the votes of shareholders, a consent resolution means a resolution,
after being submitted to all shareholders holding shares carrying the right to
vote at general meetings, consented to in writing by shareholders entitled to
vote at general meetings, who hold shares representing at least two-thirds of
all shares entitled to vote on the resolution. With respect to any other
resolution of the corporation, a consent resolution means a unanimous
resolution.
Shareholder Voting Requirements
Under the Nevada law unless the articles of incorporation or bylaws
provide for different proportions, a majority of the voting power, which
includes the voting power that is present in person or by proxy constitutes a
quorum for the transaction of business. In all matters other than the election
of directors, the affirmative vote of the majority of shares present in person
or represented by proxy at the meeting and entitled to vote on the subject
matter shall be the act of the shareholders. Directors must be elected by a
plurality of the votes of the shares cast at the election.
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Where a separate vote by a class or series or classes or series is
required, a majority of the voting power of such class or series, present or
represented by proxy constitutes a quorum for the transaction of business. An
act by the shareholders of each class or series is approved if a majority of the
voting power of a quorum of the class or series votes for the action.
Except where the BCBCA or the articles of the corporation require a
special resolution, resolutions shall be passed by a majority of the shares
present in person or by proxy and entitled to vote on the resolution. Under the
BCBCA, unless the articles of the corporation establish otherwise, a quorum for
a meeting of shareholders shall be two shareholders entitled to vote at the
meeting whether present in person or by proxy. The WCAN Articles provide the
quorum is two persons present in person or by proxy representing at least 10% of
the shares entitled to be voted at the meeting. A quorum need not be present
throughout the meeting provided a quorum is present at the opening of the
meeting. Directors are elected by a majority of the votes cast at the election.
Where a resolution is to be passed at a class meeting or series meeting,
the votes cast in favour of the resolution by the shareholders holding voting
shares of the class or series of shares must be a majority of that class or
series unless a special majority is required under the BCBCA or the Articles. A
two-thirds majority is required by WCAN's Articles.
Dividends
Under Nevada law a corporation is prohibited from making a distribution to
its shareholders if, after giving effect to the distribution, the corporation,
would not be able to pay its debts as they become due in the usual course of
business except as permitted in the articles of the corporation, or the
corporation's total assets would be less than its total liabilities plus any
amounts necessary to satisfy any preferential rights of shareholders arising
upon dissolution that are superior to the rights of the shareholders receiving
the distribution. Similarly, under the BCBCA, a corporation may declare or pay a
dividend unless there are reasonable grounds for believing that the corporation
is insolvent or the payment of the dividend would render the corporation
insolvent.
Anti-Takeover Provisions
Certain provisions of Nevada corporate law relating to the acquisition of
a controlling interest in a corporation apply to Nevada corporations that have
at least 200 shareholders, at least 100 being Nevada residents, and that do
business directly or indirectly in Nevada. Where applicable, Nevada law
prohibits an acquiror from voting shares of a target company after exceeding
certain threshold ownership percentages, until the acquiror provides certain
information to the company and a majority of the disinterested shareholders vote
to restore the voting rights of the acquiror's shares at a meeting called at the
request and expense of the acquiror. If the voting rights of such shares are
fully restored and the acquiring person obtained shares representing a majority
of the outstanding shares of the corporation shareholders voting against such
restoration may demand payment for the "fair value" of their shares.
The Nevada statute also restricts a "business combination" with
"interested shareholders", unless certain conditions are met, with respect to
corporations that have at least 200 shareholders of record. A "combination"
includes (a) any merger with an "interested shareholder," or any other
corporation that is or after the merger would be, an affiliate or associate of
the interested shareholder, (b) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of assets, to an "interested shareholder," having
(i) an aggregate market value equal to 5% or more of the aggregate market value
of the corporation's assets; (ii) an aggregate market value equal to 5% or more
of the aggregate market value of all outstanding shares of the corporation; or
(iii) representing 10% or more of the earning power or net income of the
corporation, (c) any issuance or transfer of shares of the corporation or its
subsidiaries, to the "interested shareholder," having an aggregate market value
equal to 5% or more of the aggregate market value of all the outstanding shares
of the corporation, (d) the adoption of any plan or proposal for the liquidation
or dissolution of the corporation proposed by the "interested shareholder," (e)
certain transactions which would result in increasing the proportionate
percentage of shares of the corporation owned by the "interested shareholder,"
or (f) the receipt of benefits, except proportionately as a shareholder, of any
loans, advances or other financial benefits by an "interested shareholder." An
"interested shareholder" is a person who, together with affiliates and
associates, beneficially owns (or within the prior three years, did beneficially
own) 10% or more of the corporation's voting stock. A corporation to which this
statute applies may not engage in a "combination" within three years after the
interested shareholder acquired its shares, unless the combination or the
interested shareholder's acquisition of shares was approved by the board of
directors before the interested shareholder acquired the shares. If this
approval was not obtained, then after the three year period expires, the
combination may be consummated if all applicable statutory requirements are met
and either (a) (i) the board of directors of the corporation approves, prior to
such person becoming an "interested shareholder", the combination or the
purchase of shares by the "interested shareholder" or (ii) the combination is
approved by the affirmative vote of holders of a majority of voting power not
beneficially owned by the "interested shareholder" at a meeting called no
earlier than three years after the date the "interested shareholder" became such
or (b) (i) the aggregate amount of cash and the market value of consideration
other than cash to be received by holders of common shares and holders of any
other class or series of shares meets certain minimum requirements set forth in
the statutes and (ii) prior to the consummation of the "combination", except in
limited circumstances, the "interested shareholder" will not have become the
beneficial owner of additional voting shares of the corporation.
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The BCBCA does not contain any similar provisions.
Dissent Rights, Appraisal Rights
Under Nevada law, there is no right of dissent with respect to a plan of
merger or exchange if the shares of the corporation are listed on a national
securities exchange, included in the national market system established by the
National Association of Securities Dealers, Inc. or are held by at least 2,000
shareholders of record, unless; (i) the articles of the corporation provide
otherwise, the shareholders are required to accept in exchange for their shares
other than cash; shares in the surviving corporation, shares in another entity
that is publicly listed or held by more than 2,000 shareholders, or any
combination of cash or shares in the surviving entity or a publicly listed
company.
Nevada law does not provide for any rights of dissent in the case of a
sale of assets.
The BCBCA entitles shareholders, whether or not the shares held by them
carry the right to vote, dissent rights in respect of: (i) certain resolutions
to alter the articles of the corporation to alter the restrictions on the powers
of the company or on the business it is permitted to carry on; (ii) in respect
of a resolution to adopt certain amalgamation agreements; (iii) in respect of a
resolution to approve an arrangement, the terms of which arrangement permit
dissent; (iv) in respect of a resolution to authorize or ratify certain sales,
leases or other dispositions of all or substantially all of the company's
undertaking; (v) in respect of a resolution to authorize the continuation of the
company into a jurisdiction other than British Columbia; (vi) in respect of any
other resolution, if dissent is authorized by the resolution; and (vii) in
respect of any court order that permits dissent.
If the dissent procedures are properly followed, the corporation and the
dissenter may agree on the value of the shares in respect of which the dissent
rights are exercised or either party may apply to the Supreme Court of British
Columbia to determine the payment value. The said court may determine the value
or may order the value be determined by arbitration or by reference to the
registrar or a referee of the court.
Shareholder Rights of Action
Under Nevada law, a shareholder may bring a derivative action on behalf of
the corporation to enforce the rights of the corporation. Nevada law expressly
authorizes shareholder derivative suits on the condition that the shareholder
either held the stock at the time of the transaction of which the shareholder
complains, or acquired the stock thereafter by operation of law and continues to
hold it throughout the duration of the suit.
Under the BCBCA, shareholders, and any other person who the court
considers to be an appropriate person to do so, can bring an oppression action
(the right of a shareholder to apply to a court for relief on the grounds that
the company is acting in a way that is unfairly prejudicial or oppressive to the
shareholder) or a derivative action (the right of a person to commence legal
action in the name of or on behalf of the company, with the permission of the
court, to enforce a right, duty, or an obligation owed to the company that could
be enforced by the company itself or to obtain damages for a breach of such a
right, duty or obligation).
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THE STOCKHOLDERS' MEETING
Time, Place and Date
The annual meeting of stockholders of WaveRider will be held at 2:00 p.m.,
local time, on Monday, September 27, 2004, at the Radisson Hotel Toronto East,
55 Hallcrown Place, Toronto, Ontario, Canada, M2J 4R1. This joint proxy
statement/prospectus constitutes notice of the stockholders' meeting as is
required by Nevada law and our bylaws.
Proposals
At the stockholders' annual meeting, stockholders will be asked to vote
upon the proposal to adopt the Agreement and Plan of Merger and to elect six
directors.
Quorum
The presence, in person or by proxy, of stockholders holding a majority of
the outstanding shares of WaveRider common stock entitled to vote at the
stockholders' annual meeting will constitute a quorum. Abstentions and broker
"non-votes" will be counted as present for purposes of determining whether there
is a quorum at the stockholders' meeting.
Record Date
Only stockholders of record at the close of business on July 30, 2004, as
shown in WaveRider's stock transfer records, will be entitled to vote, or to
grant proxies to vote, at the stockholders' meeting. Through the date of the
merger (if approved at the stockholders' meeting), Corporate Stock Transfer Inc.
will be the transfer agent for WaveRider that maintains WaveRider's stock
transfer records.
Vote Required
Adoption of the Agreement and Plan of Merger requires the affirmative vote
of the holders of a majority of the shares of WaveRider common stock outstanding
and entitled to vote. However, the election of directors requires a plurality of
the votes cast at the election. The six nominees receiving the highest number of
votes will be elected. Shareholders are not allowed to cumulate votes.
Brokers who hold shares in street name for customers have the authority to
vote on many routine proposals (such as the election of directors) when they
have not received instructions from beneficial owners. Brokers are not permitted
to exercise their voting discretion with respect to proposals for non-routine
matters such as the adoption of the Agreement and Plan of Merger. Thus, absent
specific instructions from you, your broker will not be empowered to vote your
shares with respect to the merger ( i.e ., "broker non-votes").
If you are a WaveRider stockholder resident in Canada, under applicable
securities rules, any shares of WaveRider common stock you hold that are
registered under the name of your broker or intermediary or an agent of that
broker or intermediary can only be voted (for or against any resolution or
withheld from voting) upon your instructions. Without specific instructions,
brokers, intermediaries and nominees are prohibited from voting shares for their
clients whether or not the proposals are for routine matters.
Since the affirmative vote of the holders of a majority of the outstanding
shares of WaveRider common stock entitled to vote is required for the adoption
of the Agreement and Plan of Merger, a broker non-vote or abstention will have
the same effect as a vote against such proposal. The failure of a stockholder of
record to submit a proxy card or voting instruction card or vote in person at
the stockholders' meeting will also have the effect of a vote against the
proposal to adopt the Agreement and Plan of Merger.
As of the record date for the stockholders' meeting, there were 15,044,788
shares of WaveRider common stock outstanding and entitled to vote on the merger.
As of the record date, our directors and executive officers and their affiliates
directly owned, in the aggregate, approximately 248,623 shares of WaveRider
common stock, which represents approximately 1.7% of the then outstanding
WaveRider common stock entitled to vote on the merger. These persons have
informed us that they intend to vote their shares FOR the proposal to adopt the
Agreement and Plan of Merger.
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Proxy Cards
Proxy Cards. You can vote by completing, signing, dating and returning the
enclosed proxy card or in accordance with the instructions set forth in the
proxy card. Shares represented by a proxy given to us and not revoked will be
voted at the stockholders' meeting in accordance with the directions given. If
no direction is given, the proxy will be voted FOR the proposal to adopt the
Agreement and Plan of Merger and related steps and the proxy will be voted FOR
the proposal to elect six directors.
If any other matters are properly presented at the stockholders' annual
meeting for consideration, the persons named in the proxy will have the
discretion to vote on these matters in accordance with their best judgment.
Proxies entitled to vote on the reorganization voted against any of our
proposals will not be voted in favor of any adjournments of the stockholders'
meeting for the purpose of soliciting additional proxies.
Revocation. You may revoke your proxy at any time prior to its exercise
by:
o giving written notice of the revocation to the Corporate Secretary of
WaveRider;
o appearing and voting in person at the stockholders' annual meeting; or
o properly submitting a later-dated proxy.
Your presence without voting at the stockholders' annual meeting will not
automatically revoke your proxy, and any revocation during the meeting will not
affect votes previously taken. If you hold your WaveRider shares in the name of
a bank, broker or other nominee, you should follow the instructions provided by
your bank, broker or nominee in revoking your previously granted proxy.
Validity. The inspectors of election will determine all questions as to
the validity, form, eligibility (including time of receipt), and acceptance of
proxies. Their determination will be final and binding. The board of directors
of WaveRider has the right to waive any irregularities or conditions as to the
manner of voting. WaveRider may accept your proxy by any form of communication
permitted by Nevada law so long as WaveRider is reasonably assured that the
communication is authorized by you.
Solicitation of Proxies
Proxies are being solicited on behalf of the board of directors of
WaveRider. The expenses of preparing, printing and mailing the proxy and the
materials used in the solicitation will be borne by WaveRider.
Proxies may be solicited by personal interview, telephone, email, and
telegram by directors, officers and employees of WaveRider, who will not receive
additional compensation for those services. Arrangements also may be made with
brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation materials to the beneficial owners of WaveRider
shares held by those persons, and WaveRider will reimburse them for reasonable
expenses incurred by them in connection with the forwarding of solicitation
materials.
Election of Directors (PROPOSAL NO. 2)
Our by-laws provide for the annual election of the board of directors. At
the annual meeting, six directors will be elected to serve until the next annual
meeting of shareholders and until their successors are duly elected and
qualified. Each of the nominees for director identified below is currently a
director.
Shareholders do not have cumulative voting rights in the election of
directors (each shareholder is entitled to vote one vote for each share held for
each director). Unless authority is withheld, it is the intention of the persons
named in the enclosed form of proxy to vote FOR the election of each of the
persons identified as nominees for directors below. If the candidacy of any one
or more of such nominees should, for any reason, be withdrawn, the proxies will
be voted FOR such other person or persons, if any, as may be designated by the
board of directors. Our board has no reason to believe that any nominee herein
named will be unable or unwilling to serve.
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The election of directors requires a plurality of votes cast at the
election. The six nominees receiving the highest number of votes will be
elected.
The following sets forth information about each nominee for election as a
director:
Name Age Position Directors Since
- ------------------------------------------ ----------------- ----------------------------------- ---------------------
Gerry Chastelet (1) (2) 57 Director 1999
- ------------------------------------------ ----------------- ----------------------------------- ---------------------
John E. Curry (1) (3) 57 Director 1999
- ------------------------------------------ ----------------- ----------------------------------- ---------------------
Michael J. Milligan (1) (2) 46 Director 2003
- ------------------------------------------ ----------------- ----------------------------------- ---------------------
Cameron A. Mingay (3) 52 Director 1999
- ------------------------------------------ ----------------- ----------------------------------- ---------------------
D. Bruce Sinclair 53 Chief Executive Officer, Director 1997
- ------------------------------------------ ----------------- ----------------------------------- ---------------------
Dennis R. Wing (2) (3) 55 Director 1999
- ------------------------------------------ ----------------- ----------------------------------- ---------------------
(1) Member of the audit committee. (2) Member of the compensation committee.
(3) Member of the corporate governance committee.
Gerry Chastelet has been one of our directors since April 1999. A former
technology industry executive, Mr. Chastelet retired in 2002. From December 1998
to January 2002, Mr. Chastelet was the President, Chairman and Chief Executive
Officer of Digital Lightwave, Inc., a leading provider of fiber optic network
analysis equipment. From December 1995 to October 1998, he served as President
and Chief Executive Officer of Wandel and Goltermann Technologies, Inc., a
global supplier of communication test and measurement equipment. He is currently
also on the board of directors of Technology Research Corporation. Mr. Chastelet
holds a degree in electronics engineering from Devry Institute of Technology and
is a graduate of the University of Toronto Executive Masters in Business
Administration program.
John E. Curry has been a director since October 1999. His company,
Hydrovane Self Steering Inc. (formerly Karina Ventures Inc.), manufactures and
markets worldwide certain self steering equipment for offshore sailboats. From
1985 to 1999, Mr. Curry was a partner with Bedford Curry & Co., Chartered
Accountants, a Vancouver based firm specializing in public companies and
business financings which he co-founded. Mr. Curry is a member of the British
Columbia Institute of Chartered Accountants and has a Bachelor of Arts degree
from the University of Western Ontario.
Michael J. Milligan, has been one of our directors since July 2, 2003. Mr.
Milligan is President and Chief Executive Officer of Kasten Chase. Mr. Milligan
joined Kasten Chase in 1995, and was Executive Vice President, Chief Financial
Officer, General Counsel and Secretary, prior to his current appointment at the
beginning of 2004. Prior to joining Kasten Chase, Mr. Milligan was a partner in
the law firm of Cunningham, Swan, Carty, Little & Bonham in Kingston Ontario. He
earned a Bachelor of Commerce degree at Carleton University and a Bachelor of
Laws degree at Queen's University.
Cameron A. Mingay has been one of our directors since April 1999. He also
served as our Secretary from May 1999 until March 2003. Since July 1999, Mr.
Mingay has been a partner at Cassels Brock & Blackwell LLP, Toronto, Ontario,
Canada, specializing in securities and corporate commercial law, with an
emphasis on public offerings, mergers and acquisitions, and corporate
reorganizations. Prior to July 1999, Mr. Mingay was a partner at Smith Lyons
LLP, Toronto, Ontario, Canada. He is currently on the board of directors of
Kinross Gold Corporation and Alliance Surface Finishing Inc. He completed his
undergraduate degree at the University of Wisconsin and York University and
earned his law degree from Queen's University.
D. Bruce Sinclair has been a director since December 1997 and our Chief
Executive Officer since November 1997. Mr. Sinclair is an experienced management
professional who has worked in sales and management with companies including IBM
Canada, Nortel and Harris Systems Limited. From 1995 until November 1997, he
operated his own independent consulting business. From 1988 to 1995, Mr.
Sinclair was with Dell Computer Corporation where he held numerous positions
including President of the Canadian subsidiary, Vice-President of Europe and
head of Dell in Europe. He earned his Masters of Business Administration from
the University of Toronto.
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Dennis R. Wing has been one of our directors since November 1999. Mr. Wing
is President and Chief Executive Officer of Fort House Inc., an investment bank.
Previously, he was a founding partner and board member of First Marathon
Securities Inc. and was its Director of International Operations for 18 years.
He is also on the board of directors of the Ontario Paraplegic Foundation and
the University of Waterloo. He holds a Bachelor of Arts degree in economics from
the University of Waterloo.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
THE SIX NOMINEES FOR DIRECTORS
CORPORATE GOVERNANCE
The board of directors of WaveRider has developed, through its corporate
governance committee and with input from management and legal counsel, a
corporate governance regime modeled on some of the best corporate governance
practices common to North American issuers in compliance with Canadian corporate
governance rules and the applicable requirements of the Sarbanes-Oxley Act and
SEC rules adopted thereunder.
Board of Directors
Board Charter
Our board of directors' mandate has been formalized in a written
charter. Our board of directors is responsible for the stewardship of WaveRider
and discharges its responsibilities directly and through committees of the board
of directors, currently consisting of, the audit committee, the compensation
committee and the corporate governance committee. Our board of directors meets
regularly to review the business operations, corporate governance and financial
results of WaveRider. Meetings of the board include regular meetings with
management to discuss specific aspects of the operations of WaveRider and
meetings of the board of directors are held on a regular basis without
management present. The charter of the board of directors sets out specific
responsibilities, which include, among many other responsabilities:
o The adoption of a strategic planning process, approval of strategic
plans and monitoring the performance against such plans.
o The review and approval of corporate objectives and goals applicable
to senior management of WaveRider.
o Defining major corporate decisions requiring board approval and
approving such decisions as they arise from time to time.
o Obtaining periodic reports from management on WaveRider's operations
including reports on security issues surrounding WaveRider's assets
(property and employees) and the relevant mechanisms that management
has in place.
Additional functions of the board are included in its charter or have
been delegated to its committees. A complete copy of the charter of the board of
directors of WaveRider is available upon request to the Secretary of WaveRider
and on WaveRider's website at www.WaveRider.com. The information on our website
is not incorporated by reference into this joint proxy statement/prospectus.
Report on Board Activities
Currently, the board of directors of WaveRider consists of six persons
of which four are independent: Messrs. Chastelet, Curry, Milligan and Wing. An
"independent" director, under WaveRider's corporate governance regime, is a
director who is (a) not a member of management and is free from any interest and
any business, family or other relationship which could reasonably be perceived
to materially interfere with the director's ability to act with a view to the
best interests of WaveRider, other than interests and relationships arising
solely from holdings in WaveRider, (b) not currently, or has not been (and who
does not have an immediate family member who is currently or has been) within
the last five years, an officer, employee of or material service provider (which
includes, without limitation, the auditors of WaveRider) to WaveRider or any of
its subsidiaries or affiliates; and (c) not a director (or similarly situated
individual) officer, employee or significant shareholder of an entity that has a
material business relationship with WaveRider.
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During the fiscal year ended December 31, 2003, the board of directors
held seven meetings. Each director, with the exception of Mr. Milligan who
joined the board in 2003 and Mr. Wing, who was absent from two meetings,
attended at least 75% of all board meetings during the fiscal year ended
December 31, 2003. The board of directors reviewed and approved or ratified
various corporate decisions and the issuances of securities of WaveRider,
appointed or reappointed the officers of WaveRider and the members of each of
the committees of the board of directors; reviewed and approved the annual
consolidated financial statements for the year ended December 31, 2002, as well
as the consolidated financial statements for the first, second and third quarter
of the year ended December 31, 2003 and reviewed with management on a quarterly
basis, the operations and activities of WaveRider.
In the first part of 2004, the board of directors approved the
implementation of the one for ten consolidation and the proposed reorganization.
The board also adopted various charters and corporate governance practices. As a
result, the board adopted the board charter and a charter for each of its
committees, the board set up independence criteria for its members, it adopted a
Chief Executive Officer role description and a formal evaluation process for the
board as a whole, the committees, the board and committee members and the Chief
Executive Officer and it adopted a Whistle Blower Policy and a Code of Business
Ethics. The board also worked on various corporate governance initiatives that
are on going projects. The board considered the adoption of a strategic plan,
the appropriateness of the size of the board and the skills set of which it is
comprised, the process for selecting and appointing new directors, the adoption
of an education and orientation program for new directors management, succession
planning strategies and minimum shareholding requirements. The board adopted and
appointed a separate nominating committee consisting of Messrs. Milligan, Curry
and Chastelet, which committee will be working on drafting its charter in the
course of this year. The board also adopted a reporting process of the board and
each committee to be reflected in its management information circular pursuant
to which disclosure of the activities of the board and its committees is to be
made against their responsibilities set out in their respective charters.
Board Committees
Audit Committee
Audit Committee Charter
The mandate of the audit committee has been formalized in a written
charter. Generally the mandate of the audit committee is to provide assistance
to the board of directors of WaveRider in fulfilling its financial reporting
and control responsibilities to the shareholders of WaveRider and the
investment community. Its primary duties and responsibilities are the oversight
of the integrity of WaveRider' financial statements, WaveRider's compliance
with legal and regulatory requirements and the auditors' qualification and
independence, as well as to serve as an independent and objective party to
monitor WaveRider's financial reporting process and control systems; review and
appraise the audit activities of WaveRider's independent auditors and the
internal audit function; and provide open lines of communication among the
independent auditors, financial and senior management, and the board of
directors for financial reporting and control matters. The audit committee is
also responsible for, among other things, the identification of significant
business, political, financial and control risks and exposure and assessing the
steps management has taken to minimize such risks to WaveRider.
The audit committee is to be comprised of at least three directors.
Each of the committee members must be an independent director. In addition, a
director will not be qualified to be a member of the audit committee if such
director is an "affiliated person" (as stipulated in the Sarbanes-Oxley Act) to
WaveRider, receives any consulting, advisory, or other compensation from
WaveRider other than fees for serving in his or her capacity as member of the
board and as a member of board committees. All members shall, to the
satisfaction of the board of directors, be financially literate and at least
one member shall be a financial expert. Our board of directors has determined
that each of them is independent and is a an "audit committee financial expert"
as defined in Item 401(e) of Regulation S-B, and has designated Mr. Curry as
the "audit committee financial expert." A copy of the charter of the audit
committee is available upon request to the Corporate Secretary of WaveRider and
on WaveRider's website at www.WaveRider.com. The information on our website is
not incorporated by reference into this joint proxy statement/prospectus.
65
Report on Activities of Audit Committee
The audit committee meets with our independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements, recommends to the board the independent auditors to be retained, and
receives and considers the accountants' comments as to controls, adequacy of
staff and management performance and procedures in connection with audit and
financial controls. The audit committee met four times during the fiscal year
ended December 31, 2003.
WaveRider's management is responsible for the financial reporting process,
including the system of internal controls, and for the preparation of
consolidated financial statements in accordance with generally accepted
accounting principles. WaveRider's independent auditors are responsible for
auditing those financial statements. The audit committee is responsible for
monitoring and reviewing these processes. The committee has relied, without
independent verification, on the information provided to it and on the
representations made by WaveRider's management and independent auditors.
In fulfilling its oversight responsibilities, the committee discussed with
representatives of Wolf & Company, P.C., WaveRider's independent auditors, the
overall scope and plans for their audit of WaveRider's consolidated financial
statements. The committee met with them, with and without WaveRider's management
present, to discuss the results of their examinations and their evaluations of
WaveRider's internal controls and the overall quality of WaveRider's financial
reporting.
The committee reviewed and discussed the audited consolidated financial
statements with management and the independent auditors.
The committee discussed with the independent auditors the matters required
to be discussed by Statement of Auditing Standards No. 61, Communication with
Audit Committees, as amended, including a discussion of their judgments as to
the quality, not just the acceptability, of WaveRider's accounting principles
and the other matters required to be discussed with audit committees under
generally accepted auditing standards.
In addition, the committee received from the independent auditors a letter
containing the written disclosures required by Independence Standards Board
Standard No. 1, Independence Discussions with Audit Committees, and discussed
the disclosures with them, as well as other matters relevant to their
independence from management and WaveRider. In evaluating the independence of
WaveRider's auditors, the committee considered whether the services they
provided to WaveRider beyond their audit and review of WaveRider's consolidated
financial statements was compatible with maintaining their independence. The
committee also considered the amount of fees they received for audit and
non-audit services.
Based on our review and these meetings, discussions and reports, and
subject to the limitations on our role and responsibilities referred to above
and in the audit committee charter, we recommended to the board of directors
that WaveRider's audited consolidated financial statements be included in
WaveRider's annual report on Form 10-KSB.
Submitted by the Audit Committee
(Signed) Michael J. Milligan (Chairman)
Compensation Committee
Compensation Committee Charter
The mandate of the compensation committee has been formalized in a written
charter. Generally, it is responsible for making recommendations to the board of
directors on all matters relating to the compensation of directors, the members
of the various committees of the board and the senior officers of WaveRider. For
the purpose of its mandate, the compensation committee reviews all aspects of
compensation paid to directors, committee members, management and employees of
other similar companies to ensure WaveRider's compensation programs are
competitive so that WaveRider will be in a position to attract, motivate and
retain high calibre individuals.
66
The compensation committee is to be comprised of at least three directors,
each of whom must be an independent director. In addition, a director will not
be qualified to be a member of the compensation committee if such director is an
"affiliated person" (as stipulated in the Sarbanes-Oxley Act) to WaveRider,
receives any consulting, advisory, or other compensation from WaveRider other
than fees for serving in his or her capacity as member of the board and as a
member of board committees All members should have skills that are relevant to
the mandate of the committee. A copy of the compensation committee charter is
available upon request to the Corporate Secretary and on WaveRider's website at
www.WaveRider.com. The information on our website is not incorporated by
reference into this joint proxy statement/prospectus.
Report on Activities of Compensation Committee
See "Report of the Compensation Committee" at page 69;
Corporate Governance Committee
Corporate Governance Committee Charter
The mandate of the corporate governance committee has been formalized in
its written charter. Generally, its mandate is to assume the responsibility for
developing WaveRider's approach to matters of corporate governance and assisting
the board in the nomination of directors.
The Corporate Governance Committee is to be comprised of at least three
directors, a majority of whom are independent directors. All members should have
skills that are relevant to the mandate of the Committee. A copy of the
Corporate Governance Committee Charter is available upon request to the
Secretary and on WaveRider's website at www.WaveRider.com. The information on
our website is not incorporated by reference into this joint proxy
statement/prospectus.
Report on Activities of Corporate Governance Committee
During the fiscal year ended December 31, 2003 and the first part of 2004
the corporate governance committee submitted to the board and the board adopted
various charters and corporate governance practices. As a result the board
adopted the board charter and a charter for each of its committees, the board
set up independence criteria for its members, it adopted a Chief Executive
Officer role description and a formal evaluation process for the board as a
whole, the committees, the board and committee members and the Chief Executive
Officer, it adopted a Whistle Blower Policy and a Code of Business Ethics. The
committee also considered the adoption of a strategic plan, the appropriateness
of the size of the board and the skills set of which it is comprised, the
appointment of a separate nomination committee, the process for selecting and
appointing new directors, the adoption of an education and orientation program
for new directors, management succession planning strategies, minimum
shareholding requirements for directors and other various corporate governance
matters. Messrs. Curry, Mingay and Wing were members of the corporate governance
committee in 2003, two of whom who are independent directors.
Submitted by the Corporate Governance Committee
(Signed) Cameron A. Mingay (Chairman)
Director Compensation
For the year ended December 31, 2003, the director's compensation plan
consisted of: 1) a $2,500 annual retainer for each non-employee director,
payable quarterly; 2) a $1,000 annual retainer for each committee chairman; 3) a
$1,000 meeting fee for each director who attended a board of directors or
committee meeting in person; 4) a $250 meeting fee for each director who
attended a board of directors or committee meeting via telephone; and 5) an
award of options to purchase 50,000 shares of common stock for each non-employee
director elected at the annual meeting to serve the following year.
67
Certain Relationships and Related Transactions
There were no other transactions or series of transactions, for the year
ended December 31, 2003, to which we are a party, in which the amount exceeds
$60,000 and in which, to our knowledge, any director, executive officer,
nominee, 5% or greater shareholder, or any member of the immediate family of any
of the foregoing persons, have or will have any direct or indirect material
interest other than employment arrangements.
We have adopted a code of ethics that applies to all of our employees,
executive officers and directors, including our principal executive officer,
principal financial officer and principal accounting officer. The code of ethics
includes provisions covering compliance with laws and regulations, insider
trading practices, conflicts of interest, confidentiality, protection and proper
use of our assets, accounting and record keeping, fair competition and fair
dealing, business gifts and entertainment, payments to government personnel and
the reporting of illegal or unethical behavior. The code of ethics is posted on
our website. Any waiver of any provision of the code of ethics granted to an
executive officer or director may only be made by the board of directors and
will be promptly disclosed on our website at www.WaveRider.com. The information
on our website is not incorporated by reference into this joint proxy
statement/prospectus.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
The following is a summary of the fees billed to us by Wolf & Company,
P.C. independent registered public accounting firm for professional services
rendered for the fiscal years ended December 31, 2003 and December 31, 2002 and
by PricewaterhouseCoopers LLP, our former independent registered public
accounting firm, for professional services rendered during fiscal 2002:
Wolf & Company, P.C. PricewaterhouseCoopers
Fee Category Fiscal 2003 Fees Fiscal 2002 Fees Fiscal 2002 Fees
Audit Fees (1) $ 140,400 $ 104,000 $ 146,515
Audit-Related Fees (2) 12,510 - 32,352
Tax Fees (3) 7,700 - 15,000
All Other Fees (4) 9,800 - --
----------------- ---------------- -----------------
Total Fees $ 170,410 $ 104,000 $ 193,867
================= ================ =================
(1) Audit Fees consist of aggregate fees billed for professional services
rendered for the audit of our annual financial statements and review of
the interim financial statements included in quarterly reports or
services that are normally provided by the independent registered
public accounting firm in connection with statutory and regulatory
filings or engagements for the fiscal years ended December 31, 2003 and
December 31, 2002, respectively.
(2) Audit-Related fees consist of aggregate fees billed for assurance and
related services that are reasonably related to the performance of the
audit or review of our financial statements and are not reported under
"Audit Fees." These fees include review of registration statements and
participation at meetings of the board of directors and audit
committee.
(3) Tax Fees consist of aggregate fees billed for professional services for tax
compliance, tax advice and tax planning.
(4) All Other Fees consist of aggregate fees billed for products and services
provided by the independent registered public accounting firm, other than
those disclosed above. These fees include services related to certain
accounting research and assistance with a regulatory matter.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Registered Public Accounting Firm
At present, our audit committee approves each engagement for audit or
non-audit services before we engage Wolf & Company to provide those services.
Our audit committee has not established any pre-approval policies or procedures
that would allow our management to engage Wolf & Company to provide any
specified services with only an obligation to notify the audit committee of the
engagement for those services. None of the services provided by Wolf & Company
for fiscal 2003 was obtained in reliance on the waiver of the pre-approval
requirement afforded in SEC regulations.
68
The audit committee has determined that Wolf & Company's provision of
services to us not related to its audit of our financial statements was at all
relevant times compatible with that firm's independence.
Report of the Compensation Committee
The compensation committee makes recommendations concerning executive
salaries and incentive compensation, awards stock options to employees and
consultants under our stock option plans and otherwise reviews and determines
competitive compensation levels and performs such other function regarding
compensation as the board may delegate. The compensation committee was composed
of Messrs. Chastelet, Mingay and Wing for the first three quarters of the fiscal
year ended December 31, 2003. Mr. Milligan replaced Mr. Mingay on the committee
in the fourth quarter. The committee met three times during the fiscal year
ended December 31, 2003. The following report was made by Messrs. Chastelet,
Milligan and Wing, as the members of the compensation committee during fiscal
2003, and summarizes WaveRider's executive officer compensation policies for
fiscal 2003.
Compensation objectives. WaveRider's executive compensation programs
are generally designed to relate a substantial part of executive compensation to
improvements in WaveRider's financial performance and corresponding increases in
shareholder value. Decisions concerning executive compensation are intended to:
o establish incentives that will link executive officer
compensation to WaveRider's financial performance and that will
motivate executives to attain WaveRider's annual financial
targets;
o establish incentives to encourage long term strategic planning;
and
o provide a total compensation package that is competitive among
comparable companies and that will assist WaveRider in attracting
and retaining executives who will contribute to WaveRider's
long-term financial success.
Executive compensation programs. WaveRider's compensation package
consists of three principal components:
o salary;
o incentive compensation bonuses; and
o stock options.
WaveRider's executive officers are also eligible to participate in
other employee benefit plans, including health and life insurance plans and a
stock purchase plan, on substantially the same terms as other employees who meet
applicable eligibility criteria, subject to any legal limitations on the amounts
that may be contributed or the benefits that may be payable under these plans.
In establishing base salaries for executives, the compensation
committee considers general economic conditions, WaveRider's financial
performance and each individual's performance. In addition, the compensation
committee monitors salaries at other companies, particularly companies in the
same industry and companies located in the same geographic area as WaveRider. To
some extent, for each executive, the compensation committee considers historic
salary levels, work responsibilities and base salary relative to other
executives at WaveRider.
WaveRider's executive officer compensation policy emphasizes incentive
bonuses and stock options which align the interests of management with the
shareholders' interest in the financial performance of WaveRider for the fiscal
year and the longer term. Consistent with this approach, in fiscal 2003, a
substantial part of the cash compensation that the executive officers were
eligible to earn was directly tied to WaveRider's performance through individual
incentive compensation plans. The compensation committee believes that stock
options provide a significant incentive to executive officers to continue their
employment with WaveRider and create long-term value for its shareholders.
In fiscal 2003, the compensation committee determined not to recommend
that WaveRider grant stock options to Messrs. Sinclair, Brown and Worthington.
In determining not to recommend an option grant in 2003, we took into account
the recent stock price and the general performance of WaveRider, as well as the
number and exercise price of outstanding stock options previously granted to the
executive officers.
69
In fiscal year 2003, the compensation committee drafted the initial
charter for the committee, see page 66 for a discussion of our charter.
Submitted by the Compensation Committee
(Signed) Gerry Chastelet (Chairman)
Compensation Committee Interlocks and Insider Participation
Our compensation committee is currently composed of Messrs. Chastelet,
Milligan and Wing. Messrs. Chastelet, Milligan and Wing are all non-employee
directors. In 2003, none of our officers or employees participated in the
deliberations of the compensation committee concerning the compensation of our
executive officers. No interlocking relationship existed between our board or
compensation committee and the board of directors or compensation committee of
any other company in 2003.
EXECUTIVE OFFICERS
In addition to the information contained at pages 63 and 64 regarding
Mr. D. Bruce Sinclair, certain information is furnished with respect to our
executive officers:
Name Age Position Officer Since
- ---------------------------------------------------------------------------------------------------------------
D. Bruce Sinclair 53 Chief Executive Officer, Director 1997
Charles W. Brown 48 Executive Vice President 1998
T. Scott Worthington 49 Vice President, Chief Financial Officer, Corporate Secretary 1998
Executive officers are appointed by the board of directors and serve at
the discretion of the board or until their respective successors have been duly
elected and qualified. There are no family relationships among the executive
officers and directors.
Charles W. Brown has been our Executive Vice President since October
2002. From February 1998 until October 2002, he was our Vice President, Sales
and Marketing. From 1994 until February 1998, Mr. Brown was the first Vice
President and Chief Information Officer of Clearnet Communications. Prior to
this, Mr. Brown held numerous senior Sales and Marketing positions including
Vice President of Sales and Marketing for Trillium Communications from 1993
until 1994 and Director of Strategic Planning and Marketing for BCE Mobile from
1990 until 1993. Mr. Brown has a Masters in Business Administration from the
University of Western Ontario.
T. Scott Worthington has been our Vice President and Chief Financial
Officer since January 1998 and our Corporate Secretary since March 2003. From
1988 to 1996, he worked at Dell Computer Corporation in Canada where he held
numerous positions including Chief Financial Officer of Dell's Canadian
subsidiary. After leaving Dell, he was a financial and business consultant. Mr.
Worthington is a Chartered Accountant.
Executive Officer Compensation
The following table sets forth certain information concerning the
compensation for services rendered in all capacities to us for the fiscal years
ended December 31, 2003, 2002, and 2001, of each of the named executive
officers.
70
Summary Compensation Table
Annual Compensation Long Term All Other
(amounts in U.S. dollars) (1) Compensation Compensation
Name and Principal Position Year Salary ($) Bonus ($) Stock Options (#) ($) (1)
D. Bruce Sinclair 2003 $105,966 $17,844 - -
CEO/Director 2002 $185,401 $31,468 10,000 -
2001 $174,387 $0 37,500 -
Charles W. Brown 2003 $157,442 $12,848 - -
Executive Vice President 2002 $122,274 $15,974 60,000 -
2001 $117,943 $0 22,500 -
T. Scott Worthington 2003 $128,016 $3,569 - -
Vice President & CFO 2002 $102,077 $6,294 60,000 -
2001 $89,800 $0 22,500 -
(1) In accordance with regulations promulgated by the SEC, perquisites are not
included if the aggregate amount is less than the lesser of $50,000 or 10% of
salary and bonus.
Option Grants in Fiscal 2003
No options were granted to officers in fiscal 2003.
Option Exercises and Fiscal Year-End Values
The following table sets forth certain information regarding
exercisable and unexercisable stock options held as of December 31, 2003, by
each of the named executive officers. The value of unexercised in-the-money
options has been calculated by determining the difference between the exercise
price per share payable upon exercise of such options and the last sale price of
the common stock on December 31, 2003, as reported in the over-the-counter
market on the OTC Bulletin Board ($2.50 per share). No stock options were
exercised by named executive officers during 2003.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
Number of Securities Value of Unexercised
underlying unexercised in-the-money
options/SARs at options/SARs at
Shares fy-end (#) fy-end ($)
acquired on value exercisable/ exercisable/
Name exercise (#) realized ($) unexercisable unexercisable
- ------------------------------------------------------------------------------------------------------------------
D. Bruce Sinclair (1) 0 $0 262,500 / 22,500 $3,000 / $6,000
Charles W. Brown 0 $0 162,460 / 27,500 $123,000 / $6,000
T. Scott Worthington 0 $0 180,240 / 17,500 $123,000 / $6,000
(1) Included in Mr. Sinclair's options are 77,500 options received from
the previous promoters of WaveRider in 1997.
Employment Arrangements
D. Bruce Sinclair. On November 18, 1997, we entered into an employment
agreement with Mr. Sinclair whereby he agreed to serve as our president and
chief executive officer for an initial term of one year subject to annual
extensions thereafter. Under the terms of his original employment agreement, Mr.
Sinclair had a base salary of Can. $300,000 and a bonus plan of $200,000. The
agreement provided that in the event that Mr. Sinclair was terminated without
cause, he would be paid severance in an amount equal to one year's salary plus
one month's salary for each year of employment in excess of twelve years
service. Mr. Sinclair's agreement provides that he is entitled to participate in
our employee fringe benefit plans or programs generally available to our
employees.
71
From time to time, the board of directors has reviewed and amended the
base salary and bonus components of Mr. Sinclair's employment agreement.
Additionally, Mr. Sinclair's agreement was amended to state that in the event
that his employment is terminated, other than for cause, we will pay him
severance in an amount equal to three years' salary.
Charles W. Brown. On February 16, 1998, we entered into an employment
agreement with Mr. Brown in substantially the same form as that described for
Mr. Sinclair, with the exception of certain change in control provisions. On
October 16, 2002, Mr. Brown was named executive vice president of the Company.
T. Scott Worthington. On January 5, 1998, we entered into an employment
agreement with Mr. Worthington in substantially the same form as that described
for Mr. Sinclair, with the exception of certain change in control provisions.
Mr. Worthington serves as our vice president and chief financial officer.
Mr. Worthington's agreement was amended to state that in the event that
Mr. Worthington's roles and responsibilities with us are reduced after a change
of control, we will pay him severance in an amount equal to two years' salary.
Equity Compensation Plan Disclosure
The following table sets forth certain information as of December 31,
2003, regarding securities authorized for issuance under our equity compensation
plans, including individual compensation arrangements. Our equity compensation
plans include the Employee Stock Option (1997) Plan, the 1999 Incentive and
Nonqualified Stock Option Plan, the Employee Stock Option (2000) Plan, the
Employee Stock Option (2002) Plan and the Employee Stock Purchase (2000) Plan.
All of these equity compensation plans have been approved by our stockholders.
Number of securities
to be issued upon Weighted-average Number of securities
exercise of exercise price of remaining available for
outstanding options outstanding options, future issuance under
warrants and rights warrants and rights equity compensation plans
Plan Category ---------------------- ------------------------- ------------------------
- -------------------------------------
Equity Compensation Plans Approved by 1,115,011 $19.40 821,094 (1)
Security Holders
Equity Compensation Plans Not Approved
by Security Holders - - -
---------------------- ------------------------- ------------------------
Total 1,115,011 $19.40 821,094 (1)
====================== ========================= ========================
- -------------------
(1) Our Stock Option Plans authorize the issuance of incentive stock options
and nonqualified stock options. The above number includes 77,292 shares of
common stock available for future grants under the Stock Option (1997)
Plan, 85,365 shares of common stock available for future grants under the
1999 Incentive and Nonqualified Stock Option Plan, 84,566 shares of common
stock available for future grants under the Stock Option (2000) Plan,
365,000 shares of common stock available for future grants under the Stock
Option (2002) Plan, and 208,871 shares of common stock reserved for future
issuances under the 2000 Employee Stock Purchase Plan.
72
PERFORMANCE MEASUREMENT COMPARISON
The following table shows the total shareholder return of an investment of
$100 in cash on December 31, 1998 for: (a) our common stock, (b) the Nasdaq
Stock Market (U.S.) Index, and (c) the Nasdaq Telecommunications Index. All
values assume reinvestment of the full amount of all dividends and are
calculated as of December 31 of each year:
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN*
AMONG WAVERIDER COMMUNICATIONS INC., THE NASDAQ STOCK
MARKET (U.S.) INDEX AND THE NASDAQ TELECOMMUNICATIONS INDEX
WaveRider Nasdaq Stock Market (US$) Nasdaq Telecommunications
- --------------------------------------------------------------------------------------
Dec - 98 $100.00 $100.00 $100.00
- --------------------------------------------------------------------------------------
Dec - 99 $85.71 $185.59 $202.71
- --------------------------------------------------------------------------------------
Dec - 00 $55.95 $112.67 $92.52
- --------------------------------------------------------------------------------------
Dec - 01 $9.52 $88.95 $47.24
- --------------------------------------------------------------------------------------
Dec - 02 $4.19 $60.91 $21.72
- --------------------------------------------------------------------------------------
Dec - 03 $9.52 $91.37 $36.65
- --------------------------------------------------------------------------------------
* $100 Invested on 12/31/98 in stock or index, including reinvestment of
dividends. Fiscal year ending December 31.
(1) The material in this section is not "soliciting material", is not
deemed "filed" with the SEC, and is not to be incorporated by reference into any
of our filings the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, whether made before or after the date hereof
and irrespective of any general incorporation language contained in such filing.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not use any derivative financial instruments or other market risk
sensitive instruments.
LEGAL MATTERS
Foley Hoag LLP has rendered an opinion regarding the U.S. federal income
tax consequences of the reorganization referred to in "Material Income Tax
Consequences of the Reorganization--Material United States Federal Income Tax
Consequences". Legal matters in connection with the WCAN shares have been passed
upon for WaveRider and WCAN by their British Columbia counsel, Dumoulin Black.
Cassels Brock & Blackwell LLP, Canadian counsel to WaveRider and WCAN has also
rendered an opinion regarding the Canadian tax consequences of the
reorganization referred to in "Material Income Tax Consequences of the
Reorganization--Material Canadian Federal Income Tax Consequences".
We know of no members of Foley Hoag LLP, Dumoulin Black nor of Cassels
Brock & Blackwell LLP (except for Mr. Cameron A. Mingay as disclosed herein) who
are beneficial owners of our common stock or preferred stock.
EXPERTS
The financial statements included this joint proxy statement/prospectus
for the years ended December 31, 2003 and 2002 have been so included in reliance
on the report of Wolf & Company, P.C., independent registered public accounting
firm, given on the authority of said firm as experts in auditing and accounting.
The financial statements included in this joint proxy statement/prospectus for
the year ended December 31, 2001 have been so included in reliance on the report
of PricewaterhouseCoopers LLP, independent registered public accounting firm,
given on the authority of said firm as experts in auditing and accounting.
73
WHERE YOU CAN FIND MORE INFORMATION
WaveRider is subject to the informational requirements of the U.S.
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith
files annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or other
information we file at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. WaveRider's SEC filings also are
available to the public from commercial document retrieval services and at the
World Wide Web site maintained by the SEC at http://www.sec.gov .
The following documents are filed by WaveRider with the SEC and are
available upon request from WaveRider:
o Annual Report on Form 10-KSB for the fiscal year ended December 31,
2003 dated March 4, 2004
o Report on Form 8-K dated March 8, 2004
o Report on Form 8-K dated April 6, 2004
o Report on Form 8-K dated April 23, 2004
o Report on Form 8-K dated April 29, 2004
o Report on Form 8-K dated July 29, 2004
o Quarterly Report on Form 10-QSB for the period ended March 31, 2004
dated May 4, 2004
o Quarterly Report on Form 10-QSB for the period ended June 30, 2004
dated July 29, 2004
WCAN has filed a Registration Statement on Form F-4 with the SEC to
register the issuance of its common shares in connection with the merger. This
joint proxy statement/prospectus is a part of that registration statement and
constitutes a prospectus of WCAN in addition to being a proxy statement of
WaveRider for the stockholders' meeting. Upon completion of the reorganization,
WCAN will also file reports, statements and other information with the Canadian
securities regulatory authorities, which are available at various of the
Canadian regulatory authorities' public reference rooms. WCAN will also begin
making filings on the Canadian System for Electronic Document Analysis and
Retrieval ("SEDAR"), the Canadian equivalent of the SEC's EDGAR system, at
http://www.sedar.com , which filings will be electronically available to the
public.
After the reorganization, WCAN will file through SEDAR periodic reports,
including audited annual financial statements and unaudited quarterly financial
statements, material change reports, as well as proxy statements and related
materials for annual and special meetings of WCAN shareholders. WCAN will be
required to send, annually, a request form to its shareholders for their use if
they wish to request a copy of WCAN's annual and interim financial statements as
well as the related management's discussion and analysis of financial condition
and results of operations. As a foreign private issuer, WCAN will not be subject
to the same Exchange Act filing requirements to which WaveRider is subject.
However, the periodic reports WCAN files through SEDAR will also be made
available on the SEC's EDGAR system.
WCAN will be subject to certain corporate governance requirements under
Canadian law and the United States Sarbanes-Oxley Act including, for example,
independence requirements for audit committee composition, annual certification
requirements and auditor independence rules. These requirements will apply
despite WCAN qualifying as a foreign private issuer for purposes of the Exchange
Act which status it expects to achieve following the reorganization. As a
foreign private issuer, however, WCAN will not be subject to the short-swing
profit rules, U.S. proxy rules or certain U.S. insider reporting requirements,
that WaveRider was subject to as a Nevada corporation.
74
INDEX TO FINANCIAL STATEMENTS
Consolidated Balance Sheets as at June 30, 2004 (unaudited) and December 31, 2003 .................. F-A1
Consolidated Statements of Loss, Deficit and Comprehensive Loss for the three and six months ended
June 30, 2004 and 2003 (unaudited) ............................................................... F-A2
Consolidated Statements of Cash Flows for the six ended June 30, 2004
and 2003 (unaudited) .............................................................................. F-A3
Notes to Consolidated Financial Statements as of June 30, 2004 and December 31, 2003 and
for the three and six months ended June 30, 2004 and 2003 (unaudited)............................... F-A4
Report of Independent Registered Public Accounting Firm of Wolf & Company, P.C. ..................... F-B1
Report of Independent Registered Public Accounting Firm of
PriceWaterhouseCoopers LLP ........................................................................ F-B2
Consolidated Balance Sheets as at December 31, 2003 and 2002 (audited) .............................. F-B3
Consolidated Statements of Loss for the years ended December 31, 2003, 2002 and
2001 (audited) .................................................................................... F-B4
Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Loss for the
Years ended December 31, 2003, 2002 and 2001 ...................................................... F-B5
Consolidated Statement of Cash Flows for the years ended
December 31, 2003, 2002 and 2001 .................................................................. F-B6
Notes to Consolidated Financial Statements for the years ended December 31,
2003, 2002 and 2001 ............................................................................... F-B7
75
WaveRider Communications Inc.
CONSOLIDATED BALANCE SHEETS
(in U.S. dollars)
June 30, December 31,
2004 2003
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,221,282 $ 1,843,135
Restricted cash 223,814 232,125
Accounts receivable, less allowance for doubtful accounts 1,167,629 1,921,975
Inventories 1,685,218 966,433
Note receivable - 20,698
Prepaid expenses and other assets 197,957 92,600
-------------------------------
Current assets 4,495,900 5,076,966
Property, plant and equipment, net 354,533 407,489
-------------------------------
$ 4,850,433 $ 5,484,455
===============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 2,237,601 $ 2,329,938
Deferred revenue 381,196 440,190
Current portion of obligation under capital lease 2,494 10,458
-------------------------------
Current liabilities 2,621,291 2,780,586
Convertible debentures 1,557,979 772,920
Obligation under capital lease 2,909 4,155
-------------------------------
Total liabilities 4,182,179 3,557,661
-------------------------------
Commitments and Contingencies (Note 10)
Shareholders' equity:
Preferred Stock, $0.01 par value per share:
issued and outstanding Nil shares at June 30, 2004 and Nil shares
at December 31, 2003 - -
Common Stock, $0.001 par value per share:
issued and outstanding - 15,044,788 shares at June 30, 2004
14,429,409 shares at December 31, 2003 15,045 14,429
Additional paid-in capital 87,653,972 77,725,383
Other equity 5,668,060 12,754,517
Accumulated other comprehensive loss (241,787) (305,236)
Accumulated deficit (92,427,036) (88,262,299)
-------------------------------
Total shareholders' equity 668,254 1,926,794
-------------------------------
$ 4,850,433 $ 5,484,455
===============================
See accompanying notes to financial statements.
F-A1
WaveRider Communications Inc.
CONSOLIDATED STATEMENTS OF LOSS, DEFICIT AND COMPREHENSIVE LOSS
(in U.S. dollars)
Three Months ended Six Months ended
June 30 June 30 June 30 June 30
2004 2003 2004 2003
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------------------------------------------------------------
PCONSOLIDATED STATEMENT OF LOSS
REVENUE
Product revenue $ 1,757,040 $ 2,686,066 $ 3,653,567 $ 5,559,612
Service revenue 655,476 450,088 1,065,170 754,903
-------------- ------------ -------------- ------------
2,412,516 3,136,154 4,718,737 6,314,515
-------------- ------------ -------------- ------------
COST OF REVENUE
Product revenue 1,408,155 1,671,957 2,647,793 3,556,441
Service revenue 358,524 99,501 601,756 218,304
-------------- ------------ -------------- ------------
1,766,679 1,771,458 3,249,549 3,774,745
-------------- ------------ -------------- -----------
GROSS MARGIN 645,837 1,364,696 1,469,188 2,539,770
-------------- ------------ -------------- ------------
EXPENSES
Selling, general and administration 1,477,161 1,149,690 2,749,791 2,336,259
Research and development 365,750 275,992 854,794 432,595
Depreciation and amortization 93,493 117,646 188,723 265,400
Bad debt expense 15,000 - 16,740 -
-------------- ------------ -------------- ------------
1,951,404 1,543,328 3,810,048 3,034,254
-------------- ------------ -------------- ------------
LOSS FROM OPERATIONS (1,305,567) (178,632) (2,340,860) (494,484)
-------------- ------------ -------------- ------------
NON-OPERATING EXPENSES (INCOME)
Interest expense 1,159,341 22,374 1,676,399 37,653
Foreign exchange loss (gain) 121,801 (80,374) 150,097 (151,197)
Interest income (522) (1,860) (2,619) (3,675)
-------------- ------------ -------------- ------------
1,280,620 (59,860) 1,823,877 (117,219)
-------------- ------------ --------------- ------------
NET LOSS $ (2,586,187) $ (118,772) $ (4,164,737) $ (377,265)
============== ============ ============= ============
BASIC AND FULLY DILUTED LOSS PER SHARE $ (0.18) $ (0.01) $ (0.28) $ (0.03)
============== ============ ============== ============
Weighted Average Number of Common Shares 14,740,669 12,501,154 14,670,299 12,099,130
============== ============ ============== ============
- ------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF DEFICIT
OPENING DEFICIT (89,840,849) (83,459,485) (88,262,299) (83,200,992)
NET LOSS FOR THE PERIOD (2,586,187) (118,772) (4,164,737) (377,265)
-------------- ------------ -------------- ------------
CLOSING DEFICIT $ (92,427,036) $(83,578,257) $ (92,427,036) $(83,578,257)
============== ============ ============== ============
- ------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
NET LOSS FOR THE PERIOD (2,586,187) (118,772) (4,164,737) (377,265)
OTHER COMPREHENSIVE INCOME/(LOSS)
Cumulative translation adjustment 69,628 (91,919) 63,449 (141,154)
-------------- ------------ -------------- ------------
COMPREHENSIVE LOSS $ (2,516,559) $ (210,691) $ (4,101,288) $ (518,419)
============= ============ ============== ============
See accompanying notes to financial statements.
F-A2
WaveRider Communications Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in U.S. dollars)
Six months ended June 30
2004 2003
------------------------------------
(Unaudited) (Unaudited)
OPERATIONS
Net loss $ (4,164,737) $ (377,265)
Items not involving cash
Depreciation and amortization 188,723 265,401
Compensatory stock options - 97,184
Unrealized foreign exchange loss (gain) 146,362 (164,346)
Non-cash financing charges 1,656,593 -
Gain on disposal of fixed assets (5,653) -
Bad debt expense 16,740 -
Net changes in non-cash working capital items (250,897) (86,937)
-----------------------------------
Net cash used in operating activities (2,412,869) (265,963)
-----------------------------------
INVESTING
Acquisition of property, plant and equipment (137,758) (19,252)
-----------------------------------
Net cash provided by (used in) investing activities (137,758) (19,252)
-----------------------------------
FINANCING
Proceeds from sale of shares net of issuance fees 28,796 16,548
Proceeds from sale of convertible debentures net of issuance fees 1,900,000 -
Proceeds from note receivable 20,698 -
Payments on capital lease obligations (8,881) (796)
-----------------------------------
Net cash provided by financing activities 1,940,613 15,752
-----------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (11,839) 124,114
-----------------------------------
Decrease in cash and cash equivalents (621,853) (145,349)
Cash and cash equivalents, beginning of period 1,843,135 1,025,604
-----------------------------------
Cash and cash equivalents, end of period $ 1,221,282 $ 880,255
===================================
Supplementary disclosures of cash flow information:
Cash paid during the period for:
Interest 1,798 1,136
See accompanying notes to financial statements.
F-A3
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004 (unaudited) and December 31, 2003 (audited)
1. GOING CONCERN
These consolidated financial statements are prepared on a going-concern
basis, which assumes that WaveRider Communications Inc. (the "Company")
will realize its assets and discharge its liabilities in the normal
course of business. The Company incurred a net loss of $4,164,737 for
the six months ended June 30, 2004 (2003 - $377,265) and reported an
accumulated deficit at that date of $92,427,036 (2003 - $83,578,257).
In addition, the requirements to continue investing in research and
development activities to meet the Company's growth objectives, without
assurance of broad commercial acceptance of the Company's products,
lend significant doubt as to the ability of the Company to continue
normal business operations.
The Company has a plan that it believes will allow it to achieve
profitability and cash flow positive operations without the need for
additional financing. However, if the Company fails to achieve positive
cash flow in the near term, the Company does not presently have
adequate cash to fund ongoing operations. In that case, in order to
meet its needs for cash to fund its operations, the Company would need
to obtain additional financing. In the past, the Company has obtained
financing primarily through the sale of convertible securities. If the
Company is unable to either achieve its planned cash flow positive
operations and profitability or obtain significant additional
financing, it will, in all likelihood, be obliged to seek protection
under the bankruptcy laws in which event, the Company believes it is
unlikely that its common stock will have any value.
The ability of the Company to continue as a going concern is dependent
upon it achieving and maintaining profitable and cash flow positive
operations or securing additional external funding to meet its
obligations as they come due. Should the Company be unable to continue
as a going concern, assets and liabilities would require restatement on
a liquidation basis which would differ materially from the going
concern basis.
2. BASIS OF PRESENTATION
The financial statements for the three and six months ended June 30,
2004 and 2003 include, in the opinion of Management, all adjustments
(which consist only of normal recurring adjustments) necessary to
present fairly the results of operations for such periods. Results of
operations for the three and six months ended June 30, 2004, are not
necessarily indicative of results of operations which will be realized
for the year ending December 31, 2004. The financial statements should
be read in conjunction with the Company's Form 10-KSB for the year
ended December 31, 2003.
On June 17, 2004, our directors approved a 1-for-10 reverse stock split
of our common stock, based on shareholder approval on September 4,
2003. The reverse stock split became effective on July 1, 2004. All
common stock information presented herein has been retroactively
restated to reflect the reverse stock split.
3. NET LOSS PER SHARE
Basic loss per share represents loss applicable to common stock divided
by the weighted average number of common shares outstanding during the
period. Potential common shares that may be issued by the Company
relate to outstanding stock options and warrants (determined using the
treasury stock method) and convertible debentures. For all periods
presented, options, warrants and convertible debentures were
anti-dilutive and excluded from the net loss per share computation. As
a result, diluted loss per share is the same as basic loss per share.
4. ACQUISITION OF SUBSIDIARY
Effective July 2, 2003, the Company acquired Avendo Wireless Inc.
("Avendo"), a privately-held technology developer located in
Mississauga, Ontario, Canada.
F-A4
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004 (unaudited) and December 31, 2003 (audited)
The pro forma effect of this transaction to reflect the acquisition as
having occurred on January 1, 2003, for the six month period ended June
30, 2003, is summarized as follows:
Pro forma consolidated revenue $ 6,314,515
===========
Pro forma consolidated net loss $ (719,841)
===========
Pro forma consolidated basic and diluted loss per share $ (0.06)
===========
5. STOCK OPTIONS
The Company applies SFAS No. 123, together with APB No. 25 as permitted
under SFAS No. 123, in accounting for its stock option plans.
Accordingly, the Company uses the intrinsic value method to measure the
costs associated with the granting of stock options to employees and
this cost is accounted for as compensation expense in the consolidated
statements of loss over the option vesting period or upon meeting
certain performance criteria. In accordance with SFAS No. 123, the
Company discloses the fair values of stock options issued to employees.
Stock options issued to outside consultants are valued at their fair
value and charged to the consolidated statements of loss in the period
in which the services are rendered. Fair values of stock options are
determined using the Black-Scholes option-pricing model.
The following table illustrates the effect on net loss and net loss per
share if the Company had applied the fair value recognition provisions
of SFAS No. 123, "Accounting for Stock-Based Compensation", to the
stock-based employee compensation:
Three Months ended Six Months ended
June 30 June 30 June 30 June 30
2004 2003 2004 2003
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
---------------------------------------------------------------
Net loss, as reported $ (2,586,187) $ (118,772) $ (4,164,737) $ (377,265)
Add: Stock-based employee compensation
expense included in reported net loss - 48,185 - 97,184
Deduct: Total stock based employee
compensation expense determined under
fair value based method for all awards (35,287) (253,397) (141,624) (630,978)
---------------------------------------------------------------
Pro forma net loss $ (2,621,474) $ (323,984) $ (4,306,361) $ (911,059)
===============================================================
Basic and diluted loss per share,
as reported $ (0.18) $ (0.095) $ (0.28) $ (0.031)
===============================================================
Basic and diluted loss per share,
pro forma $ (0.18) $ (0.026) $ (0.29) $ (0.075)
===============================================================
F-A5
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004 (unaudited) and December 31, 2003 (audited)
6. ACCOUNTS RECEIVABLE
June December
30, 2004 31, 2003
----------------------------
(Unaudited) (Audited)
Accounts receivable - trade $ 1,331,100 $ 1,925,336
Scientific research tax credit receivable - 215,966
Other receivables 37,666 23,739
Allowance for doubtful accounts (201,137) (243,066)
----------------------------
$ 1,167,629 $ 1,921,975
============================
7. INVENTORIES
June December
30, 2004 31, 2003
----------------------------
(Unaudited) (Audited)
Finished products $ 1,886,503 $ 1,306,580
Raw materials 372,138 36,330
Valuation allowance (573,423) (376,477)
-----------------------------
$ 1,685,218 $ 966,433,
============================
8. CONVERTIBLE DEBENTURES
On April 23, 2004, the Company issued convertible debentures, at a 6%
discount, in the aggregate principal amount of $2,125,000 to Crescent
International Ltd. and Palisades Master Fund and received cash proceeds
of $2,000,000, before cash fees of $100,000. The debt is unsecured, has
no stated interest rate and matures in three years. In conjunction with
the convertible debentures, the Company issued Series S warrants to
purchase 268,715 shares of common stock at a price of $2.076 per share
with a term of five years. Based upon the relative fair value of the
underlying instruments, $1,710,988 of the total proceeds, net of costs,
was allocated to convertible debentures and $179,012 was allocated to
the Series S warrants.
The convertible debentures are initially convertible into shares of
common stock at $2.175. If, after September 23, 2004, the price of the
Company's common stock is less than $2.61, upon a request for
conversion, the Company, at its option, may either a) pay cash equal to
120% of the face value of the note or b) issue conversion shares based
on a conversion price equal to 93% of the average of the lowest three
Closing Bid Prices during the 20 Trading Day period immediately
preceding the Conversion Date, as defined in the agreement. The Series
S warrants also have a net share settlement feature. Based on the most
beneficial conversion terms given no changes other than the passage of
time, the Company has determined that there is a beneficial conversion
feature equal to $474,377. This amount has been recorded as additional
paid in capital and a reduction in the carrying amount of the
convertible debt and will be amortized to interest expense over the
debt term.
In conjunction with this financing, certain anti-dilution provisions in
the Company's convertible debentures, issued July 14, 2003, and Series
R warrants were triggered. As a result, the set conversion price of the
convertible debentures was reset from $4.318 to $2.175 and the exercise
price of the Series R warrants was reset from $4.121 to $2.076. The
reset of the July 14, 2003 convertible debenture resulted in an
increase in the beneficial conversion feature in the amount of
$444,283. This amount has been recorded as additional paid in capital
and a reduction in the carrying amount of the convertible debt and will
be amortized to interest expense over the remaining debt term. The
reset of the exercise price of the warrant resulted in an increase in
the fair value of the warrant, in the amount of $20,454.
F-A6
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004 (unaudited) and December 31, 2003 (audited)
During the quarter ended June 30, 2004, convertible debentures in an
aggregate nominal value of $412,500 were converted to 360,663 shares of
common stock. As a result of a decline in the conversion price from the
date of issue, the Company determined that there was an additional
beneficial conversion feature in the amount of $464,148. This amount
was recorded as other equity and as a reduction in the carrying amount
of the convertible debt. Upon conversion, an amount of $554,093, being
the prorated portion of the original beneficial conversion feature
amount and the additional beneficial conversion feature amount, was
transferred from other equity to paid in capital and common shares.
During the quarter ended March 31, 2004, convertible debentures in an
aggregate nominal value of $500,000 were converted to 216,550 shares of
common stock. As a result of a decline in the conversion price from the
date of issue, the Company determined that there was an additional
beneficial conversion feature in the amount of $318,229. This amount
was recorded as other equity and as a reduction in the carrying amount
of the convertible debt. Upon conversion, an amount of $419,147, being
the prorated portion of the original beneficial conversion feature
amount and the additional beneficial conversion feature amount, was
transferred from other equity to paid in capital and common shares.
During the three and six months ended June 30, 2004, $1,149,488 and
$1,656,593, respectively, in non-cash financing expenses were charged
to the statement of loss. These expenses included those relating to
accretion of the convertible debentures, the write-off of the original
and additional beneficial feature related to the converted debentures
and the amortization of deferred financing expenses.
9. SHAREHOLDERS' EQUITY
a) Return of options for cancellation - On May 1, 2004, the
Executive officers and Directors voluntarily returned options
to purchase 436,450 shares of common stock for cancellation.
As a result, $7,269,718 was transferred from other equity to
paid in capital
b) Employee Stock Purchase Plan - During the second quarter of
2004, employees purchased 17,875 shares of common stock for
$24,310.
c) Exercise of Options - During the second quarter of 2004,
employees exercised options to purchase 5,000 shares of common
stock for cash considerations of $500. During the first
quarter of 2004, employees exercised options to purchase
15,382 shares of common stock for cash considerations of
$3,987.
10. COMMITMENTS AND CONTINGENCIES
Employee Stock Option Agreements
The Company has four existing employee stock option plans -- the
Employee Stock Option (1997) Plan, the 1999 Incentive and Nonqualified
Stock Option Plan, the Employee Stock Option (2000) Plan and the
Employee Stock Option (2002) Plan which have authorized shares of
625,000, 300,000, 600,000 and 600,000 shares, respectively. Through
June 30, 2004, the Company had awarded 448,508 options under the
Employee Stock Option (1997) Plan, 37,985 options under the 1999
Incentive and Nonqualified Stock Option Plan, 317,683 options under the
Employee Stock Option (2000) Plan and 235,000 options under the
Employee Stock Option (2002) Plan.
Employee Stock Purchase Agreement
On July 7, 2000, the shareholders approved the establishment of the
Company's Employee Stock Purchase (2000) Plan, which has 300,000
authorized shares. Under the terms of the plan, employees are eligible
to purchase shares of the Company's common stock at 85% of the lower of
the closing price at the beginning or ending date of each period.
Through the end of the second quarter of 2004, 109,004 shares of common
stock have been purchased under the Plan. The offerings under the plan
run for six-month periods commencing May 1 and November 1. The Company
has suspended the plan for the current period pending the annual
meeting and the decision of the shareholders as to the proposed
corporate restructuring.
F-A7
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004 (unaudited) and December 31, 2003 (audited)
Contract Manufacturers
The Company provides its contract manufacturers with ongoing production
forecasts to enable them to forecast and procure required parts. Under
the terms of the Agreements with the contract manufacturers, the
Company has committed to assume liability for all parts required to
manufacture the Company's forecast products for the next 13 weeks and
all final assembly costs for the forecast products for the next 4
weeks, on a rolling basis. Management believes that, should it be
necessary, they could find alternative contract manufacturers without
significant disruption to the business.
Development Contractors
The Company employs outside contractors to assist in the design and
development of its products. At June 30, 2004, the Company had entered
into development contracts with one of its contractors, in the amount
of $623,000, of which $189,000 was expensed in the six months ended
June 30, 2004. The contract calls for the payment of progress payments
against specific milestones over the course of the contracts.
Non-cancelable, Non-returnable Purchase Commitments
The Company ordered and took delivery of certain components from a
product supplier on a non-cancelable non-returnable basis. A letter of
credit has been issued to this supplier in the amount of $223,814 at
June 30, 2004. The letter of credit secures the Company's payment
obligation and expires in August 2004. The Company has pledged cash to
the bank as collateral for the letter of credit in the same amount as
the letter of credit. This pledge has been classified as restricted
cash.
Litigation
As at June 30, 2004, there are no litigation matters outstanding
against the Company.
11. SEGMENTED INFORMATION
Industry Segments
The Company operates in one industry segment: wireless data
communications products.
Geographic Segments
The Company operated in the following geographic segments;
Three Months ended Six Months ended
June 30 June 30
2004 2003 2004 2003
----------------------------------------------------------------------------
Revenue by Region (Unaudited) (Unaudited) (Unaudited) (Unaudited)
United States $ 1,263,456 $ 2,117,240 $ 2,420,571 $ 4,454,243
Australia 812,123 572,145 1,539,578 1,120,370
Canada 220,529 312,473 429,928 441,614
Rest of World 116,408 134,296 328,660 298,288
----------------------------------------------------------------------------
$ 2,412,516 $ 3,136,154 $ 4,718,737 $ 6,314,515
============================================================================
F-A8
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004 (unaudited) and December 31, 2003 (audited)
Three months ended June 30, 2004 (Unaudited)
Canada Australia Total
----------------------------------------------------
Property, plant and equipment $ 260,493 $ 94,040 $ 354,533
====================================================
Year ended December 31, 2003 (Audited)
Canada Australia Total
Property, plant and equipment $ 308,163 $ 99,326 $ 407,489
====================================================
F-A9
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the board of directors and Shareholders
WaveRider Communications Inc.
Toronto, Ontario, Canada
We have audited the accompanying consolidated balance sheets of WaveRider
Communications Inc. as of December 31, 2003 and 2002, and the related
consolidated statements of loss, changes in shareholders' equity and
comprehensive loss and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of WaveRider
Communications Inc. as of December 31, 2003 and 2002, and the results of its
consolidated operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Wolf & Company, P.C.
Boston, Massachusetts, U.S.A.
February 7, 2004, except for the second paragraph of Note 1 as to which the date
is July 1, 2004
F-B1
[PriceWaterhouseCoopers letterhead]
- -------------------------------------------------------------------------------
February 15, 2002
(except for Note 11 (vii) which is as of March 26, 2002
and the second paragraph of Note 1 which is as of July 1, 2004)
Report of Independent Registered Public Accounting Firm
To the Shareholders of
WaveRider Communications Inc.:
In our opinion, the accompanying consolidated statements of loss and
comprehensive loss, shareholders' equity and cash flows present fairly, in all
material respects, the results of WaveRider Communications Inc.`s (the
"Company") operations and its cash flows for the year ended December 31, 2001,
in conformity with accounting principles generally accepted in the United States
of America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States) which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants
PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP
and other members of the worldwide PricewaterhouseCoopers organization.
F-B2
WaveRider Communications Inc.
CONSOLIDATED BALANCE SHEETS
December 31
2003 2002
ASSETS
Current assets:
Cash and cash equivalents $ 1,843,135 $ 1,025,604
Restricted cash 232,125 -
Accounts receivable, less allowance for doubtful accounts 1,921,975 1,395,970
Inventories 966,433 1,230,048
Note receivable 20,698 32,761
Prepaid expenses and other assets 92,600 75,362
------------- -------------
Current assets 5,076,966 3,759,745
Property, plant and equipment, net 407,489 885,475
------------- -------------
$ 5,484,455 $ 4,645,220
============= =============
LIABILITIES
Current liabilities:
Accounts payable and accrued liabilities $ 2,329,938 $ 2,708,268
Deferred revenue 440,190 259,235
Current portion of obligations under capital lease 10,458 12,094
------------- -------------
Current liabilities 2,780,586 2,979,597
Convertible debentures 772,920 -
Obligations under capital lease 4,155 6,004
------------- -------------
Total liabilities 3,557,661 2,985,601
------------- -------------
Commitments and Contingencies (Note 12)
SHAREHOLDERS' EQUITY:
Preferred Stock, $0.01 par value per share:
issued and outstanding Nil shares in 2003 and 16,700 shares in 2002 - 167
Common Stock, $0.001 par value per share:
issued and outstanding - 14,429,409 shares in 2003 and
11,675,512 shares in 2002 14,429 11,675
Additional paid-in capital 77,725,383 72,502,569
Other equity 12,754,517 12,621,831
Deferred compensation - (173,260)
Accumulated other comprehensive loss (305,236) (102,371)
Accumulated deficit (88,262,299) (83,200,992)
------------- -------------
Total shareholders' equity 1,926,794 1,659,619
------------- -------------
$ 5,484,455 $ 4,645,220
============= =============
REFER TO ACCOMPANYING NOTES
F-B3
WaveRider Communications Inc.
CONSOLIDATED STATEMENTS OF LOSS
Years ended December 31
2003 2002 2001
REVENUE
Product revenue $ 11,552,992 $ 7,382,123 $ 6,005,653
Service revenue 1,525,563 1,626,792 1,798,364
------------- ------------- ---------------
13,078,555 9,008,915 7,804,017
------------- ------------- ---------------
COST OF REVENUE
Product revenue 7,406,166 6,383,955 5,519,604
Service revenue 492,850 394,839 436,891
------------- ------------- ---------------
7,899,016 6,778,794 5,956,495
------------- ------------- ---------------
GROSS MARGIN 5,179,539 2,230,121 1,847,522
------------- ------------- ---------------
OPERATING EXPENSES
Selling, general and administration 5,366,858 6,283,533 8,256,768
Employee stock-based compensation - 172,500 812,200
Research and development 996,487 1,494,880 4,471,567
Depreciation and amortization 510,536 763,845 3,533,438
Bad debt expense 200,137 99,413 532,842
------------- ------------- ---------------
7,074,018 8,814,171 17,606,815
------------- ------------- ---------------
LOSS FROM OPERATIONS 1,894,479 6,584,050 15,759,293
------------- ------------- ---------------
NON-OPERATING EXPENSES (INCOME)
Write-off of goodwill 2,755,446 4,069,696 155,050
Loss on extinguishment of debt - - 198,300
Interest expense 699,821 331,041 5,493,373
Restructuring charges - 362,588 -
Foreign exchange gain (273,909) (71,075) (17,021)
Interest income (14,530) (26,598) (96,045)
------------- ------------- ---------------
3,166,828 4,665,652 5,733,657
------------- ------------- ---------------
NET LOSS $ (5,061,307) $ (11,249,702) $ (21,492,950)
============= ============= ===============
BASIC AND DILUTED LOSS PER SHARE $ (0.39) $ (1.07) $ (3.74)
============= ============= ===============
Weighted Average Number of Common Shares 13,068,331 10,526,153 6,026,962
============= ============= ===============
REFER TO ACCOMPANYING NOTES
F-B4
WaveRider Communications Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AND COMPREHENSIVE LOSS
Years ended December 31
Additional
Common Shares Preferred Shares Paid-in Other
Number Par Value Number Par Value Capital equity
---------------------------------------------------------------------
December 31, 2000 5,512,190 $ 5,512 - $ - $46,064,008 $15,482,719
Issuances 830,084 830 30,000 300 5,295,011 1,170,383
Conversions & exercises 630,094 630 (1,000) (10) 8,373,507 (2,661,939)
Release of shares from escrow 225,000 225 2,830,275 -
Issue for purchase of subsidiary 100,000 100 973,061
Expiration of warrants 772,818 (772,818)
Compensatory options to employees 183,200
Options to non-employees 85,612
Amendment to conversion price 1,144,654 113,781
Beneficial conversion 442,695 147,794
Cumulative translation adjustments
Net loss
Comprehensive net loss
---------------------------------------------------------------------
December 31, 2001 7,297,368 $ 7,297 29,000 $ 290 $65,896,029 $13,748,732
Issuances 3,049,839 3,050 - 4,371,962 204,000
Conversions & exercises 790,180 790 (12,300) (123) (667) -
Release of shares from escrow 538,125 538 882,775 -
Options to non-employees 21,569
Expiry of extended 1997 options 1,352,470 (1,352,470)
Cumulative translation adjustments
Net loss
Comprehensive net loss
---------------------------------------------------------------------
December 31, 2002 11,675,512 $11,675 16,700 $ 167 $72,502,569 $12,621,831
Issuances 34,117 34 35,211
Conversions & exercises 1,844,780 1,845 (16,700) (167) 988,265 323,973
Issuance for purchase of Avendo 875,000 875 3,411,624 610,427
Expiry of options and warrants 787,714 (801,714)
Amortization of deferred compensation
Cumulative translation adjustments
Net loss
Comprehensive net loss
---------------------------------------------------------------------
December 31, 2003 14,429,409 $14,429 - $ - $77,725,383 $12,754,517
=====================================================================
Accumulated
Other
Deferred Comprehensive
Nu Compensation Deficit Income (Loss) Total
-----------------------------------------------------------
December 31, 2000 $ - $(49,414,508) $ 44,858 $ 12,182,589
Issuances 6,466,524
Conversions & exercises 5,712,188
Release of shares from escrow 2,830,500
Issue for purchase of subsidiary 973,161
Expiration of warrants -
Compensatory options to employees 183,200
Options to non-employees 85,612
Amendment to conversion price 1,258,435
Beneficial conversion (1,043,832) (453,343)
------------
Cumulative translation adjustments (149,444) (149,444)
Net loss (21,492,950) (21,492,950)
------------
Comprehensive net loss (21,642,394)
-----------------------------------------------------------
December 31, 2001 $ - $(71,951,290) $ (104,586) $ 7,596,472
Issuances (173,260) 4,405,752
Conversions & exercises -
Release of shares from escrow 883,313
Options to non-employees 21,569
Expiry of extended 1997 options -
------------
Cumulative translation adjustments 2,215 2,215
Net loss (11,249,702) (11,249,702)
------------
Comprehensive net loss (11,247,487)
-----------------------------------------------------------
December 31, 2002 $(173,260) $(83,200,992) $ (102,371) $ 1,659,619
Issuances 35,245
Conversions & exercises 1,313,916
Issuance for purchase of Avendo 4,022,926
Expiry of options and warrants 14,000 -
Amortization of deferred compensation 159,260 159,260
------------
Cumulative translation adjustments (202,865) (202,865)
Net loss (5,061,307) (5,061,307)
------------
Comprehensive net loss (5,264,172)
-----------------------------------------------------------
December 31, 2003 $ - $(88,262,299) $ (305,236) $ 1,926,794
===========================================================
F-B5
WaveRider Communications Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31
2003 2002 2001
OPERATING
Net loss $ (5,061,307) $ (11,249,702) $ (21,492,950)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 510,536 763,845 1,147,943
Write-off of goodwill 2,755,446 4,069,696 155,050
Amortization of goodwill - - 2,385,495
Charges for issuance of options and warrants 159,260 763,121 385,940
Non-cash financing expenses 616,031 263,607 5,410,846
Compensatory shares released from escrow to employee -- 172,500 629,000
Bad debt expense 200,137 99,413 532,842
Unrealized foreign exchange gain (216,067) (91,982) (46,781)
Loss on disposal of property, plant and equipment 13,064 51,858 -
Loss on extinguishment of debt - - 198,300
Net changes in working capital items (590,903) 186,941 345,826
------------- ------------- -------------
Net cash used in operating activities (1,613,803) (4,970,703) (10,348,489)
------------- ------------- -------------
INVESTING
Acquisition of property, plant and equipment (59,618) (83,206) (301,843)
Cash received on acquisition of Avendo Wireless Inc. 1,177,420 - -
Proceeds on disposal of property, plant and equipment - 35,120 -
Purchase of notes - - (65,601)
Purchase of ADE Network Technology Pty. Ltd. - - (567,372)
------------- ------------- -------------
Net cash provided by (used in) investing activities 1,117,802 (48,086) (934,816)
------------- ------------- -------------
FINANCING
Proceeds from sale of shares and warrants (net of issue fees) and
exercise of options and warrants 41,174 4,371,532 5,100,939
Proceeds from sale of convertible debentures net of issue fees 1,416,880 - -
Movement in restricted cash (232,125) - -
Repayment of promissory notes - (432,500) -
Proceeds from sales of promissory notes - - 999,500
Payments on capital lease obligations (9,542) (126,101) (295,056)
------------- ------------- -------------
Net cash provided by financing activities 1,216,387 3,812,931 5,805,383
------------- ------------- -------------
Effect of exchange rate changes on cash 97,145 (13,163) 1,645
------------- ------------- -------------
(Decease) increase in cash and cash equivalents 817,531 (1,219,021) (5,476,277)
Cash and cash equivalents, beginning of year 1,025,604 2,244,625 7,720,902
------------- ------------- -------------
Cash and cash equivalents, end of year $ 1,843,135 $ 1,025,604 $ 2,244,625
============= ============= =============
F-B6
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2003, 2002 and 2001
1. NATURE OF OPERATIONS/SHARE CONSOLIDATION
WaveRider Communications Inc. was incorporated in 1987 under the laws of the
state of Nevada. The Company develops and markets wireless data communications
products throughout the world, focusing on Internet connectivity. The Company's
primary markets are telecommunications companies and Internet Service Providers
(ISPs) supplying high-speed wireless Internet connectivity to their customers. A
significant secondary market is that of Value Added Resellers, to allow them to
supply their customers with wireless connectivity for local area networks.
On July 1, 2004 a 1-for-10 reverse stock split of our common stock became
effective pursuant to shareholder approval given on September 4, 2003. All
common stock information presented herein has been restated to reflect the
reverse stock split.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation and basis of accounting - The consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries; WaveRider Communications (Australia) Pty Ltd (formerly known as
ADE Network Technology Pty Ltd.) ("ADE"), an Australian corporation, WaveRider
Communications (USA) Inc., a Nevada corporation, WaveRider Communications
(Canada) Inc., a British Columbia company, Avendo Wireless Inc., an Ontario
corporation and JetStream Internet Services Inc., a British Columbia company.
The Company's consolidated financial statements are prepared in accordance with
generally accepted accounting principles in the United States of America.
Use of estimates in the preparation of financial statements - The preparation of
financial statements in conformity with generally accepted accounting principles
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reporting period. Actual results could differ from those
estimates. Material estimates that are susceptible to significant changes in the
near term relate to the allowance for losses on receivables, inventory valuation
reserves, warranty liabilities and the valuation of long-lived and intangible
assets.
Revenue recognition and deferred revenue - The Company complies with Staff
Accounting Bulletin (SAB) Nos. 101 and 104, "Revenue Recognition in Financial
Statements" and "Revenue Recognition" and related communiques; SAB Nos. 101 and
104 provide guidance regarding the recognition, presentation and disclosure of
revenue in financial statements filed with the Securities and Exchange
Commission (SEC).
Revenue from product sales to end-user and Value-Added Reseller customers is
recognized when all of the following criteria have been met: (a) evidence of an
agreement exists, (b) delivery to the customer has occurred, (c) the price to
the customer is fixed and determinable, and (d) collectibility is reasonably
assured. Delivery occurs when the product is shipped, except when the terms of a
specific contract include substantive customer acceptance.
Revenue from hardware maintenance contracts is recognized ratably over the term
of the contract, which is generally one year. Revenue from installation and
other services is recognized as earned and the associated costs and expenses are
recognized as incurred. In cases in which extended warranty, maintenance or
installation services are bundled with the sale of the product, the Company
unbundles these components and defers the recognition of revenue for the
services at the time the product sales revenue is recognized, based upon the
vendor specific evidence of the value of the service element. Revenue from
rentals and operating leases is recognized monthly as the fees accrue.
Revenue from Internet service contracts is recognized over the term of the
contracts, which do not exceed one year.
F-B7
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2003, 2002 and 2001
Financial instruments - Financial instruments are initially recorded at
historical cost. If subsequent circumstances indicate that a decline in the fair
value of a financial asset is other than temporary, the financial asset is
written down to its fair value.
Unless otherwise indicated, the fair values of financial instruments approximate
their carrying amounts. By their nature, all financial instruments involve risk,
including credit risk for non-performance by counterparties. The maximum
potential loss may exceed any amounts recognized in the consolidated balance
sheets. Exposure to credit risk is controlled through credit approvals, credit
limits and monitoring procedures. The Company seeks to limit its exposure to
credit risks in any single country or region.
By virtue of its international operations, the Company is exposed to
fluctuations in currency. The Company manages its exposure to these market risks
through its regular operating and financing activities. The Company is subject
to foreign currency risk on its Canadian and Australian business activities.
The fair values of cash and cash equivalents, accounts receivable, due from
contract manufacturers, current notes receivable, accounts payable and current
liabilities approximate their recorded amounts because of their short term to
realization or settlement.
Cash and cash equivalents - All liquid investments having an original maturity
not exceeding three months are treated as cash equivalents.
Restricted cash -- Restricted cash consists of amounts collateralizing the
letter of credit described in Note 12.
Accounts receivable - The Company has historically provided financial terms to
certain customers in connection with purchases of the Company's products.
Financial terms, for credit-approved customers, are generally on a net 30-day
basis.
Management periodically reviews customer account activity in order to assess the
adequacy of the allowances provided for potential losses. Factors considered
include economic conditions, collateral values and each customer's payment
history and credit worthiness. Adjustments, if any, are made to reserve balances
following the completion of these reviews to reflect management's best estimate
of potential losses.
Inventory - Raw materials are recorded at the lower of cost or replacement cost.
Finished goods are recorded at the lower of cost and net realizable value. Cost
is determined on the average cost basis and includes material, labor and
overhead, where applicable.
The Company records valuation reserves on its inventory for estimated
obsolescence or unmarketability. The amount of the write-down is equal to the
difference between the cost of inventory and the estimated market value based
upon assumptions about future demand and market conditions.
The Company balances the need to maintain strategic inventory levels to ensure
competitive lead times with the risk of inventory obsolescence due to rapidly
changing technology and customer requirements. If actual future demand or market
conditions are less favorable than those projected by management, additional
inventory write-downs may be required.
Product Warranty - The Company offers warranties of various lengths to its
customers depending on the specific product and terms of the customer purchase
agreement. The average length of the warranty period is 12 months. The Company's
warranties require it to repair or replace defective products during the
warranty period at no cost to the customer. At the time product revenue is
recognized, the Company records a liability for estimated costs that may be
incurred under its warranties. The costs are estimated based on historical
experience and any specific warranty issues that have been identified. (Although
historical warranty costs have been within expectations, there can be no
assurance that future warranty costs will not exceed historical amounts.) The
Company periodically assesses the adequacy of its recorded warranty liability
and adjusts the balance as necessary.
F-B8
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2003, 2002 and 2001
Changes in the Company's product warranty liability for the year ended December
31, are as follows:
2003 2002
----------------------------------
Balance, beginning $ 40,345 $ 98,155
Warranties issued 168,933 78,249
Settlements made in cash or in-kind (71,424) (58,402)
Changes in estimated pre-existing warranties,
including expirations (27,794) (77,657)
----------------------------------
Balance, ending $ 110,060 $ 40,345
========== ============
Property, plant and equipment - Property, plant and equipment are recorded at
historic cost The Company uses a straight line basis for depreciation, with
useful lives as follows:
Computer software 3 years
Computer equipment 4 years
Lab equipment and tools 4 years
Equipment and fixtures 5 years
Assets held for lease 5 years
Leasehold improvements over the shorter of the term of the lease
or estimated useful lives
Foreign currency translation - The Company's functional currency is the US
dollar, except as noted below. Foreign denominated non-monetary assets,
liabilities and operating items of the Company are measured in US dollars at the
exchange rate prevailing at the respective transaction dates. Monetary assets
and liabilities denominated in foreign currencies are measured at exchange rates
prevailing on the consolidated balance sheet dates.
The functional currency of ADE, the Company's subsidiary in Australia, is
Australian dollars. Accordingly, ADE's assets and liabilities are translated
into US dollars using the rate of exchange in effect on the balance sheet dates,
whereas ADE's revenues, expenses, gains and losses are translated at the average
rate of exchange in effect throughout the reporting period. Resulting
translation adjustments are included as a separate component of comprehensive
loss within shareholders' equity in the accompanying consolidated financial
statements.
Realized and unrealized foreign exchange gains included in the statement of
operations is $273,909 in 2003 (2002 - $71,075; 2001 - $17,021).
Income taxes - Income taxes are accounted for in accordance with the Statement
of Financial Accounting Standards ("SFAS") No. 109 "Accounting for Income
Taxes". Under this method, deferred income tax assets and liabilities are
determined based on differences between the financial reporting and income tax
bases of assets and liabilities and are measured using the income tax rates and
laws currently enacted. Valuation allowances are established, when necessary, to
reduce deferred income tax assets to an amount that is more likely than not
expected to be realized.
Stock options - The Company applies SFAS No. 123 "Accounting for Stock-Based
Compensation", together with APB No. 25, "Accounting for Stock Issued to
Employees" as permitted under SFAS No. 123, in accounting for its stock option
plans. Accordingly, the Company uses the intrinsic value method to measure the
costs associated with the granting of stock options to employees and this cost
is accounted for as compensation expense in the consolidated statements of loss
over the option vesting period or upon meeting certain performance criteria. In
accordance with SFAS No. 123, the Company discloses the fair values of stock
options issued to employees. Stock options issued to outside consultants are
valued at their fair value and charged to the consolidated statements of loss in
the period in which the services are rendered. Fair values of stock options are
determined using the Black-Scholes option-pricing model.
F-B9
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2003, 2002 and 2001
The following table illustrates the effect on net loss and net loss per share if
the Company had applied the fair value recognition provisions of SFAS No. 123 to
the stock-based employee compensation:
2003 2002 2001
--------------- --------------- ---------------
Net loss, as reported $ (5,061,307) $ (11,249,702) $ (21,492,950)
Add: Stock-based employee compensation
expense included in reported net loss 159,260 30,740 183,200
Deduct: Stock-based employee compensation
expense determined under fair value based
method for all awards (941,486) (1,680,005) (1,537,485)
--------------- --------------- ---------------
Pro forma net loss $ (5,843,533) $ (12,898,967) $ (22,847,235)
=============== =============== ===============
Basic and diluted loss per share, as reported $ (0.39) $ (1.07) $ (3.74)
=============== =============== ===============
Basic and diluted loss per share, pro forma $ (0.45) $ (1.23) $ (3.96)
=============== =============== ===============
Research and development costs - Research and development costs are charged to
expense as incurred.
Valuation of long-lived assets - The Company considers the carrying value of
long-lived assets when events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. If the Company expects an
asset to generate cash flows less than the asset's carrying value, at the lowest
level of identifiable cash flows, the Company recognizes a loss for the
difference between the asset's carrying value and its fair value.
Comprehensive income (loss) - Under SFAS No. 130, the Company presents
comprehensive income (loss), in addition to net income (loss) in the accounts.
Comprehensive loss differs from net loss as a result of foreign currency
translation adjustments. Accumulated other comprehensive income (loss) is
included in the consolidated statements of changes in shareholders' equity and
reflects the cumulative effect of other comprehensive income (loss) excluded
from net income (loss) as reported in the consolidated statements of income
(loss).
Recent Accounting Pronouncements- FASB Interpretation No. 46 ("FIN 46"),
Consolidation of Variable Interest Entities - FIN 46 expands upon existing
accounting guidance that addresses when a company should include in its
financial statements the assets, liabilities and activities of another entity. A
variable interest entity is a corporation, partnership, trust or any other legal
structure used for business purposes that either (a) does not have equity
investors with voting rights or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its activities. FIN 46
requires a variable interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable interest
entity's activities or is entitled to receive a majority of the entity's
residual returns or both. The consolidation requirements of FIN 46 apply
immediately to variable interest entities created after January 31, 2003. The
consolidation requirements apply to older entities in the first fiscal year or
interim period ending after December 15, 2003. Disclosure requirements apply to
any financial statements issued after January 31, 2003. We do not expect the
adoption of FIN 46 to have a material impact on our consolidated financial
position, results of operations or cash flows.
SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities - SFAS 149 amends and clarifies the accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 149 is generally effective for
contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The adoption of SFAS 149 did not
have a material impact on our consolidated financial position, results of
operations or cash flows.
F-B10
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2003, 2002 and 2001
SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics
of Both Liabilities and Equity - SFAS 150 requires that certain financial
instruments, which under previous guidance were accounted for as equity, must
now be accounted for as liabilities. The financial instruments affected include
mandatory redeemable stock, certain financial instruments that require or may
require the issuer to buy back some of its shares in exchange for cash or other
assets and certain obligations that can be settled with shares of stock. SFAS
150 is effective for all financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption of SFAS 150 did not have a
material impact on our consolidated financial position, results of operations or
cash flows.
3. ACQUISITION OF SUBSIDIARY
Avendo Wireless Inc. - Effective July 2, 2003, the Company acquired Avendo
Wireless Inc. ("Avendo"), a privately-held technology developer located in
Mississauga, Ontario, Canada. The Company undertook this acquisition to gain
control of Avendo's assets, which include cash, net receivables, in-process
wireless technologies and an experienced research and development team to aid in
expanding and enhancing WaveRider's non-line-of-sight wireless broadband
products.
Avendo designs and develops advanced fixed broadband wireless technology.
Avendo's technology, if completed, is targeted to significantly improve spectral
efficiency resulting in the ability to operate in non line of sight environments
thereby providing the reliability needed to meet the needs of leading equipment
vendors and their customers. As of December 31, 2003, the Company has decided
not to develop the Avendo technology to the point of commercial viability (see
Note 4).
Under the terms of the acquisition, the Company issued 875,000 shares of common
stock and 300,000 common stock purchase warrants in exchange for all of the
issued and outstanding shares of Avendo and all outstanding long term debt. The
warrants are exercisable at $4.10 per share for a five year period and include a
net share settlement feature. In addition, the Company issued to the employees
and advisors to Avendo 86,300 employee stock options, with an exercise price of
$3.90, the fair value of the common stock on that date.
The transaction was accounted for as a purchase and is summarized as
follows:
Cash on hand $ 1,177,420
Other current assets 245,379
Fixed assets 16,235
Current liabilities (64,689)
----------------
Net assets received 1,374,345
Expenses incurred on acquisition (106,865)
Goodwill 2,755,446
----------------
Total consideration received $ 4,022,926
================
Common stock issued on closing $ 3,412,500
Warrants issued on closing at fair value 416,647
Employee stock options issued on closing at fair value 193,779
----------------
Total consideration given $ 4,022,926
================
F-B11
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2003, 2002 and 2001
The cash effect of this transaction is summarized as follows:
Cash acquired on closing $ 1,177,420
===========
The pro forma effect of this transaction is summarized as follows:
Year ended December 31,
2003 2002 2001
----------------------------------------------------
Pro forma consolidated revenue $13,078,555 $ 9,008,915 $ 7,804,017
====================================================
Pro forma consolidated net loss $(5,218,686) $ (12,383,471) $ (21,492,950)
====================================================
Pro forma consolidated basic and diluted loss per share $ (0.37) $ (1.09) $ (3.74)
====================================================
Financial statements of Avendo and pro forma financial information were filed
with the Security and Exchange Commission, on August 11, 2003, on form 8-K1A.
WaveRider Communications (Australia) Pty Ltd. - Effective October 1, 2000, the
Company acquired ADE Network Technology Pty Ltd. of Melbourne, Australia,
("ADE") a privately-held wireless infrastructure company. The Company undertook
this acquisition to provide a sales presence in Australia and South East Asia.
Subsequently, ADE changed its name to WaveRider Communications (Australia) Pty
Ltd.
Under the terms of agreement, the Company committed to pay a minimum of
$2,227,000 ($4,000,000 Australian) in 4 equal quarterly installments commencing
on the closing date. Payment of the first two installments of $1,000,000
Australian each was made in cash. On April 1, 2001, the Company issued 29,871
shares of common stock in consideration of the third installment and, on July 1,
2001, the Company issued 52,016 shares of common stock in consideration of the
fourth installment. On December 18, 2001, the Company issued 18,113 shares of
common stock in consideration of deficiencies in the fourth installment. On
January 7, 2002, the Company paid $105,256 in cash for the final consideration
owing. The shares issued and cash paid to fund deficiencies were recorded
against additional paid in capital.
As a result of the reduction of approximately half the staff of ADE, on
September 24, 2001, the Company wrote down the acquired labor force resulting
from the acquisition of ADE, in the amount of $155,050. With the ongoing decline
in the telecom sector, in September 2002, the Company wrote off the balance of
the goodwill arising from the acquisition of ADE (see Note 5).
4. RESTRUCTURING AND IMPAIRMENT OF ASSETS
Write off of goodwill in 2003 - In conjunction with our year end audit, the
Company undertook a complete review of its development plans and resources
required to bring the acquired Avendo technology to commercial viability and
compared these costs to the expected net present value of the discounted future
cash flows. As a result of management's analysis, it was determined that we
would not undertake to fully commercialize the product, under current
circumstances. As a result, an impairment charge of $2,755,446 was required on
the basis that the carrying value of goodwill exceeded its fair value.
Restructuring - In October 2002, in response to the continued decline in the
telecommunications sector, the Company completed a restructuring of its
operations in an effort to reduce costs. Our restructuring plan resulted in,
among other things, the reduction of 10 employees across our operations, the
majority of which were terminated by December 31, 2002. As a result of our
restructuring plan, in the fourth quarter of 2002, we recorded a restructuring
expense of approximately $167,000 related primarily to severance and related
costs. We also incurred and paid during 2002 costs of $76,940 to terminate the
Calgary lease, $50,900 in other severance costs, $28,454 for moving of fixed
assets and corporate records and $39,294 in other termination related costs.
F-B12
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2003, 2002 and 2001
In addition, certain employees agreed to defer a certain portion of their
salaries until the second half of 2003. We deferred and expensed $34,400 in
2002, and deferred and expensed an additional $48,600 during the first quarter
of 2003, in compensation to senior staff, which we did not pay until the third
quarter of 2003.
Write off of goodwill in 2002 -In conjunction with the planned restructuring, in
September 2002, the Company undertook a complete revision to the operating plans
of WaveRider Communications (Australia) Pty Ltd. (formerly ADE Network
Technology Pty Ltd.), our wholly owned subsidiary in Australia, which we view as
an independent reporting unit and for WaveRider Communications Inc. In each
case, we compared the expected net present value of the discounted future cash
flows of the restructured operations to the current net assets of the respective
operations after a revision of all key assumptions underlying management's
goodwill valuation judgments, including those relating to short and longer-term
growth rates and discount factors reflecting increased risks in a declining
market. As a result of management's analysis, it was determined that an
impairment charge of $4,069,696 was required on the basis that the carrying
value of goodwill exceeded its fair value.
5. ACCOUNTS RECEIVABLE
2003 2002
----------------------------------
Accounts receivable - trade $ 1,925,336 $ 1,494,622
Scientific research tax credit receivable 215,966 -
Other receivables 23,739 113,572
Allowance for doubtful accounts (243,066) (212,224)
----------------------------------
$ 1,921,975 $ 1,395,970
==================================
6. INVENTORIES
2003 2002
----------------------------------
Finished products $ 1,306,580 $ 1,258,620
Raw materials 36,330 22,043
Valuation allowance (376,477) (50,615)
----------------------------------
$ 966,433 $ 1,230,048
==================================
7. NOTE RECEIVABLE
On February 28, 2001, the Company purchased a promissory note from Platinum
Communications Corporation ("Platinum") in the amount of approximately $65,601
(Can $100,000). The note is secured by certain assets of Platinum, bears
interest at Canadian prime rate plus 2% and is repayable in 20 equal monthly
installments commencing March 1, 2002. At December 31, 2003, Platinum was not
current on its monthly installment payments but has made all payments required
to retire the loan subsequent to year end.
8. PROPERTY, PLANT AND EQUIPMENT
Net Book Net Book
Accumulated Value Accumulated Value
Cost Depreciation 2003 Cost Depreciation 2002
----------------------------------------------------------------------------------------
Computer software $ 916,902 $ 911,576 $ 5,326 $ 916,902 $ 818,555 $ 98,347
Computer equipment 1,112,321 977,431 134,890 1,098,653 838,088 260,565
Lab equipment and tools 1,047,150 923,920 123,230 1,010,215 763,674 246,541
Equipment and fixtures 339,071 274,464 64,607 339,994 238,988 101,006
Assets held for lease 84,824 38,171 46,653 171,532 42,185 129,347
Leasehold improvements 83,177 50,394 32,783 70,263 20,594 49,669
----------------------------------------------------------------------------------------
$ 3,583,445 $ 3,175,956 $ 407,489 $ 3,607,559 $ 2,722,084 $ 885,475
========================================================================================
F-B13
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2003, 2002 and 2001
Capital leases - computer equipment includes $24,123 (2002 - $73,149) net of
accumulated depreciation of $187,407 (2002 - $138,380), Lab Equipment and tools
includes $23,622 (2002 - $65,243) net of accumulated depreciation of $326,963
(2002 - $285,342) and Equipment and fixtures includes $725 (2002 - $10,904) net
of accumulated depreciation of $15,723 (2002 - $18,347).
The assets held for lease consist of a communication tower and wireless
communications equipment which have been leased to a customer on a fixed
three-year term. The minimum lease payments receivable under the contracts are
$22,900 in 2004.
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
2003 2002
-------------- -------------
Accounts payable $ 1,415,770 $ 1,656,236
Accrued salaries and benefits 372,072 241,928
Accrued warranty 110,060 40,345
Accrued audit and tax 100,000 156,787
Accrued severance 64,498 166,667
Accrued liability for obsolete inventory at third party manufacturers - 161,853
Other accrued liabilities 267,538 284,452
---------------------------------
$ 2,329,938 $ 2,708,268
=================================
10. DEBENTURES AND PROMISSORY NOTES
A Promissory Notes
During the third quarter of 2001, the Company issued promissory notes,
with a nominal value of $999,500, and Series O warrants, with a value
of $239,880, to the Company's senior management, certain directors and
significant accredited shareholders and received cash proceeds of
$999,500. The promissory notes bore an interest rate of 8%, compounded
annually and were repayable on October 19, 2002. The promissory notes,
which had a general security interest over WaveRider's assets, were
redeemable in whole or in part at any time by WaveRider subject to
payment of accrued interest and a repayment premium of 15% of the
outstanding principal.
With the completion of WaveRider's shareholders' rights offering, on
December 14, 2001, the beneficial conversion feature, in the amount of
$442,695, embedded in the promissory notes was calculated and measured
using the intrinsic value of the feature based on the most beneficial
conversion available to the investors, was recorded as a reduction of
the promissory notes and an increase in accumulated paid in capital.
On December 14, 2001, the senior management and directors of the
Company and certain other holders, returned their notes in exchange for
participation in the Company's shareholders' rights offering. Included
in the exchange was the nominal value of the notes, in the amount of
$567,000, and accrued interest and repayment premium, in the amount of
$87,259. As a result of the exchange, the promissory notes returned,
which had a book value of $200,665, were accreted to the nominal value,
which resulted in a financing expense of $366,335, and with the
interest and repayment premium were transferred to share capital.
During the year ended December 31, 2001, $37,120 and $23,896 were
charged to the consolidated statement of loss for accretion of the
promissory notes and accrual of interest and repayment premium,
respectively, for the notes that were not returned.
F-B14
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2003, 2002 and 2001
B Convertible Promissory Notes
On December 8, 2000, the Company issued convertible promissory notes in
the aggregate principal amount of $5,000,000 to Capital Ventures
International ("CVI") and received cash proceeds of $5,000,000, less
cash fees of $182,000 and warrants valued at $23,680.
On March 14, 2001, CVI exercised their right to convert promissory
notes in the principal amount of $4,550,000, with a book value of
$3,481,699, plus interest of $72,800, for 3,101,249 shares of common
stock of the Company. As result, $1,739,560 of the beneficial
conversion feature was transferred from other equity to additional paid
in capital.
The sale of the convertible preferred stock, in June 2001, triggered
the repricing provisions of the CVI convertible promissory notes and
warrant agreements. The adjustment to the conversion price of the
convertible promissory notes resulted in a decrease in the fair value
of the convertible promissory notes and an increase in other equity in
the amount of $147,794. In addition, the fair value of $113,781 for the
changes in the exercise prices of the warrants has been expensed in the
cost of financing.
The balance of the promissory notes was converted on December 14, 2001
in conjunction with the Company's shareholders' rights offering. In
consideration of the Company allowing CVI to convert into the
shareholders' rights offering, CVI returned 150,000 Series J warrants
for cancellation. As a result, the Company recorded a loss on
extinguishment of debt in the amount of $198,300.
During the year ended December 31, 2001, $3,024,445, $1,144,654 and
$85,520 were charged to the statement of loss relating to the accretion
of interest expense, the adjustment of the conversion price and accrual
of interest, respectively. The convertible promissory note was being
accreted over the period to its redemption date of December 7, 2002.
The Call Option was amortized over the period of the option and for the
year ended December 31, 2001 $408,796 (2000 -$107,433) was charged to
the consolidated statements of loss. The Put Option, of $117,736, was
credited to the consolidated statement of loss upon its expiration in
2001.
C Convertible Debentures
On July 14, 2003, the Company issued convertible debentures, at a 6%
discount, in the aggregate principal amount of $1,600,000 to two
investment companies and received cash proceeds of $1,504,000, before
cash fees of $87,120. The debt is unsecured, has no stated interest
rate and matures in three years. In conjunction with the convertible
debentures, the Company issued Series R warrants to purchase 101,911
shares of common stock at a price of $4.121 per share with a term of
five years. The Series R warrants also have a net share settlement
feature.
The convertible debentures are initially convertible into shares of
common stock at $4.318. However, upon a request for conversion, if the
price of the Company's common stock at the time of the request is less
than $5.182, the Company, at its option, may either a) pay cash equal
to 120% of the face value of the note or b) issue conversion shares
based on a conversion price equal to 95% of the average of the lowest
three Closing Bid Prices during the 20 Trading Day period immediately
preceding the Conversion Date, as defined in the agreement.
The net proceeds of the transaction have been allocated to the primary
financial instruments as follows:
Convertible debentures $ 1,038,366
Beneficial conversion feature 322,937
Series R warrants 134,459
Deferred financing costs (78,882)
----------------
Net cash proceeds $ 1,416,880
================
F-B15
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2003, 2002 and 2001
The proceeds received were first allocated to the convertible
promissory note and the warrants based on the relative fair values of
the respective instruments. Then the beneficial conversion feature
embedded in the convertible debentures was calculated and measured
using the intrinsic value of the feature based on the most beneficial
conversion available to the investors on the commitment date.
During 2003, convertible debentures in an aggregate nominal value of
$500,000 were converted to 224,849 shares of common stock. As a result
of a decline in the conversion price from the date of issue, the
Company determined that there was an additional beneficial conversion
feature in the amount of $350,596. This amount was recorded as other
equity and as a reduction in the carrying amount of the convertible
debt. Upon conversion, an amount of $451,515, being the prorated
portion of the original beneficial conversion feature amount and the
additional beneficial conversion feature amount, was transferred from
other equity to paid in capital and common shares.
During 2003, $616,031 in non-cash financing expenses were charged to
the statement of loss. These expenses included the accretion of the
convertible debentures, the write-off of the original and additional
beneficial conversion feature related to the converted debentures and
the amortization of deferred financing expenses.
Subsequent to December 31, 2003, convertible debentures with an
aggregate nominal value of $500,000 were converted to 216,550 shares of
common stock. In conjunction with these conversions, the Company
recorded non-cash financing expenses of $514,798.
11. SHAREHOLDERS' EQUITY
A Authorized share capital
Preferred shares issuable in series, par value of $0.01 - 5,000,000
shares Common shares, par value of $0.001 - 400,000,000 shares
B Issued share capital
i) Escrowed shares - As part of an acquisition made in 1997, the Company
issued certain shares that were ultimately placed in escrow pending the
achievement of certain milestones. During 2002, the final milestones
were achieved and all remaining shares were released from escrow. As a
result, the Company charged $172,500 and $710,813, being the fair value
of the shares, to the 2002 consolidated statement of loss as
compensation and selling, general and administration expenses,
respectively. In addition, an amount of $21,569, being the fair value
of certain performance based non-employee options, was charged to
consulting expense, in 2002. During 2001, the third milestone was met
resulting in the release of 225,000 shares of common stock. The shares
were recorded at a fair value of $2,830,500 based on an average stock
price of $12.58 at the time the milestone was achieved. The Company
charged $629,000 to compensation expense and $2,201,500 to goodwill.
ii) Warrants issued in connection with Convertible promissory notes - On
December 8, 2000, the Company issued 246,154 Series J and 2,500 Series
M common stock purchase warrants in connection with its sale of
convertible promissory notes. The Series J warrants are exercisable at
$28.00 per share, expire December 7, 2005 and have a cashless exercise
feature. The Series M warrants are exercisable at $30.50 per share and
expire on December 7, 2005
On December 14, 2001, 150,000 of the Series J warrants were returned
for cancellation and the balance of the promissory notes was converted
in conjunction with the Company's shareholders' rights offering. As a
result, the Company recorded a loss on extinguishment of debt in the
amount of $198,300 and the remaining $319,839 of the beneficial
conversion feature was transferred from other equity to additional paid
in capital.
F-B16
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2003, 2002 and 2001
iii) Warrants issued in connection with investment banking services - On
April 25, 2001, the Company issued 35,000 Series M-1 warrants to the
Company's investment bankers for services rendered. The Series M-1
warrants have a term of three years and have an exercise price of
$16.30 per share. The fair value of $117, 128 was charged to the
statement of loss as a consulting fee.
iv) Issue of Convertible Preferred Stock - On June 4, 2001, the Company
issued 30,000 shares of Series D 5% convertible preferred stock, with a
par value of $0.01 per share and Series N warrants to purchase 87,719
shares of common stock, to Crescent International Ltd. ("Crescent") for
cash consideration of $3,000,000, less cash expenses of $423,285 and
the $22,007 fair value of 6,140 Series M-2 warrants issued to the
Company's investment bankers. Based upon the fair value of the
underlying instruments, $2,215,798 of the total proceeds, net of costs,
was allocated to preferred shares and $338,910 was allocated to the
Series N warrants. The Series D 5% convertible preferred stock has a
liquidation preference of $100 per share.
The beneficial conversion feature (BCF) embedded in the convertible
preferred stock was calculated to be $1,043,832 using the intrinsic
value of the feature based on the most beneficial conversion available
to the investor on the commitment date. The shares of preferred stock
were accreted by $1,043,832, to their redemption value, with a
corresponding charge to accumulated deficit.
The Series D convertible preferred stock is convertible to shares of
common stock at the liquidation preference value divided by the lesser
of; a) $13.772 or b) 95% of the average of the lowest three consecutive
closing bid prices during the twenty-two trading day period immediately
preceding the Conversion Date. The Series N warrants have a term of
five years and an exercise price of $17.10 per share and contain a
cashless exercise feature. The Series M-2 warrants have a term of three
years and an exercise price of $17.10.
During 2003, 16,700 shares of the Series D 5% convertible preferred
stock were converted to 1,578,139 shares of common stock. During 2002,
12,300 shares of the Series D 5% convertible preferred stock were
converted to 790,180 shares of common stock. During the fourth quarter
of 2001, 1,000 shares of Series D 5% convertible preferred stock were
converted into 31,732 shares of common stock.
v) Warrants issued in connection with Promissory Notes - On October 19,
2001 and November 5, 2001, the Company issued 179,418 and 35,475 Class
O common stock purchase warrants, respectively, related to the sale of
promissory notes to the Company's senior management team, certain
directors and significant accredited shareholders. The Warrants are
exercisable at a price of $5.00 for a period of five years, have a
cashless exercise feature and, in addition to regular terms and
conditions, have a special adjustment clause in the event of a
consolidation or reverse split of the Company's common stock.
vi) Shareholders' Rights Offering - On December 14, 2001, the Company
issued 1,067,592 common shares and Series P warrants to purchase
1,067,592 common shares, under a Shareholders' rights offering. Of the
total, 783,244 common shares and warrants each were issued for cash
consideration of $3,132,976, less cash expenses of $935,102. In
connection with the rights offering, the company issued 20,872
underwriter warrants to the Company's investment bankers with a fair
value of $50,459. The remaining 284,348 shares and warrants each were
issued as a result of; 1) the return for cancellation of promissory
notes, including interest and repayment premium, 2) conversion of
convertible promissory notes, including interest, and 3) cancellation
of 150,000 Series J warrants. This resulting in increased accumulated
paid in capital and other equity of $1,647,707 and $188,254
respectively. During 2002, the Company determined that it had over
accrued $3,480 of costs and increased additional paid in capital by
this amount.
The Underwriters' warrants provide for the purchase of common stock
units consisting of one share of common stock and one Series P warrant.
They have a term of three years, an exercise price of $4.00 per unit
and contain a cashless exercise feature. The Series P warrants have a
term of three years, an exercise price of $5.00 per share and are
callable if the Company's common stock closes at over $15.00 for a
period of 30 consecutive trading days.
F-B17
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2003, 2002 and 2001
vii) Sale of Common Stock - During March 2002, the Company issued 3,009,666
shares of common stock for cash consideration of $4,497,000, less costs
of $165,734.
C Warrants
The Company has several series of warrants outstanding at December 31,
2003 as follows:
Exercise Prices Number Outstanding Weighted Average
Remaining Life
$4.00 20,872 11 months
$4.10 401,911 54 months
$5.00 1,067,592 11 months
$5.00 214,892 33 months
$16.30 35,000 4 months
$17.10 93,860 27 months
$28.00 96,154 23 months
$30.50 2,500 23 months
---------
$4.00 - $30.50 1,932,781
=========
D Other Equity
2003 2002 2001
----------------------------------------------
Stock option extension from 1997 plan $ 9,021,377 $ 9,309,048 $ 10,661,518
Stock options to employees that vested on performance 768,782 768,782 768,782
Compensatory stock options issued upon acquisition of
Avendo 150,443 - -
Stock options issued below market to employees 157,500 204,000 -
Stock options to non-employees - 127,662 106,092
Beneficial conversion feature on convertible debentures 222,014 - -
Warrants 2,434,401 2,212,339 2,212,339
----------------------------------------------
$ 12,754,517 $ 12,621,831 $ 13,748,732
==============================================
E Employee Stock Option Plans
Employee Stock Option (1997) Plan -
During 1997, the Company authorized an Employee Stock Option Plan for a total of
500,000 common shares that may be awarded to employees and certain consultants.
During 1998, the Company amended the plan to authorize an additional 125,000
common shares. Each option under the incentive plan allows for the purchase of
one common share and expires not later than three years from the date granted.
The options are subject to various vesting and performance requirements as
outlined in the plan and any unvested options may be cancelled if employment is
terminated. Generally, for employees the options vest at 5% per complete month
from date of award and for non-employees are earned out over their contract
period.
On July 7, 2000, at the Company's annual general meeting of shareholders, a
resolution was passed extending the life of all the outstanding options awarded
to the then current employees and non-employee consultants under the Company's
Employee Stock Option (1997) Plan.
A modification that either renews a fixed award or extends the award's period
(life) results in a new measurement of compensation cost as if the award were
newly granted. Accordingly, for the fixed awards to employees, the difference
between the fair market value of the shares of Common Stock at the time of the
extension and the time of the original award was recorded as a compensation
expense to the Company.
F-B18
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2003, 2002 and 2001
During 2003, employees exercised none of the extended options (2002- none, 2001
- - none). During 2003 options to purchase 4,300 (2002 - 19,438) shares of Common
Stock expired unexercised. As a result, the $287,670 (2002 - $1,352,470, 2001 -
none) fair market value of these options was transferred from other equity to
additional paid-in capital.
1999 Incentive and Nonqualified Stock Option Plan -
During 1999, the Company authorized a new option plan for a total of 300,000
common shares that may be awarded to the employees and certain consultants. Each
option under the incentive plan allows for the purchase of one common share,
which expires not later than ten years from the date of grant. The options are
subject to various vesting and performance requirements as outlined in the plan
and any unvested options may be cancelled if employment is terminated.
Generally, for employees the options vest equally over a three year period
following the date of award.
Employee Stock Option (2000) Plan -
During 2000, the Company authorized a new option plan for a total of 600,000
common shares that may be awarded to the employees and certain consultants. Each
option under the incentive plan allows for the purchase of one common share,
which expires not later than ten years from the date of grant. The options are
subject to various vesting and performance requirements as outlined in the plan
and any unvested options may be cancelled if employment is terminated.
Generally, for employees, the options vest equally over a three year period
following the date of award.
Employee Stock Option (2002) Plan -
During 2002, the Company authorized a new option plan for a total of 600,000
common shares that may be awarded to the employees and certain consultants. Each
option under the incentive plan allows for the purchase of one common share,
which expires not later than ten years from the date of grant. The options are
subject to various vesting and performance requirements as outlined in the plan
and any unvested options may be cancelled if employment is terminated.
Generally, for employees, the options vest equally over a three year period
following the date of award.
On November 6, 2002, principally as compensation for accepting salary deferrals
or reductions, the board of directors of the Company awarded 252,500 stock
options, exercisable at $0.10 per share, to the Company's staff and certain
management. These options vest equally over four quarters and were recorded as
compensation options. As such, the intrinsic value on the date of grant of
$204,000 was recorded as other equity in shareholders' equity with a
corresponding charge to deferred compensation. The deferred compensation charge
was amortized in the consolidated statement of loss over the vesting period.
During 2003, options to purchase 17,500 shares of Common Stock expired
unexercised. As a result, the $14,000 fair market value of these options was
transferred from other equity to additional paid-in capital. In 2003, the
Company recorded selling, general and administration expense related to these
options of $159,260 (2002 - $30,740).
F-B19
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2003, 2002 and 2001
Stock options to employees, directors and consultants are summarized as follows:
Weighted
Average
Granted to Employees and Directors Number Exercisable Exercise Price
- --------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 773,920 330,236 $ 39.30
Granted to employees and directors @ $4.30 - $23.80 233,883 8.00
Cancelled on termination (106,987) 36.90
Exercised (2,890) 10.50
- ------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 897,926 412,350 31.50
Granted to employees and directors @ $0.10 - $1.60 409,070 0.70
Cancelled on termination (172,739) 30.70
Exercised - -
- ------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2002 1,134,257 666,617 $ 20.50
Granted to employees and directors @ $1.00 - $4.00 99,135 3.50
Cancelled on termination (76,589) 25.60
Exercised (41,792) 0.10
- ------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2003 1,115,011 911,758 $ 19.40
==================================================================================================================
Weighted
Average
Granted to Consultants Number Exercisable Exercise Price
- --------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 32,933 1,523 $ 6.70
Granted to consultants - -
Cancelled - -
Exercised (1,000) 5.00
- ------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 31,933 9,761 $ 6.70
Granted to consultants - -
Cancelled - -
Exercised - -
- ------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2002 31,933 31,933 $ 6.70
Granted to consultants - -
Cancelled (31,933) 6.70
Exercised - -
- ------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2003 - - -
==================================================================================================================
F-B20
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2003, 2002 and 2001
Number Weighted Average Number Weighted Average
Range of Outstanding at Exercise Price of Weighted Average Exercisable at Exercise Price
Exercise December 31, Outstanding Remaining Life December 31, of Exercisable
Prices 2003 Options (months) 2003 Options
- ---------------------------------------------------------------------------------------------------------------------
$0.10 194,375 $ 0.10 106 194,375 $0.10
$1.00 - $1.60 101,567 1.60 97 41,167 1.60
$2.10 - $3.20 26,180 2.60 117 25,000 2.60
$3.90 - $5.60 287,405 4.70 92 219,650 4.90
$9.10 - $13.40 95,106 10.90 75 91,338 10.80
$13.70 - $20.30 221,156 19.50 68 216,006 19.50
$20.90 - $94.40 189,222 77.70 73 124,222 71.10
- --------------------------------------------------------------------------------------------------------------
$0.10 - $94.40 1,115,011 19.40 86 911,758 16.70
==============================================================================================================
The weighted average exercise price for the exercisable options for 2002 was
$22.60.
Non-employee and Performance Based Options -
Options granted to consultants, and performance based options awarded to
employees, are valued when earned and probable that the options will vest and
will continue to be adjusted until actual vesting is achieved. Included in
options granted but not exercisable at December 31, 2001 are 22,172 non-employee
options and 155,900 performance based employee options which vested on the same
basis as the release of shares from the escrow agreement.
The fair value of each stock option granted to consultants was estimated on the
date the consultant earned the option using the Black-Scholes option-pricing
model. The resulting value, of $85,612, has been charged to the consolidated
statements of loss in 2001.
The amount recorded in the accounts with respect to performance-based options
awarded to employees was calculated using the intrinsic value at the valuation
date. The amount charged to compensation expense in 2001 was $183,200.
Fixed Option Awards -
For disclosure purposes, the fair value of each stock option granted to
employees was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions used for
stock options granted in 2003: nil annual dividends (2002 - nil, 2001 - nil ),
expected volatility of 90% (2002 - 90%, 2001 - 90%), risk-free interest of 4.50%
(2002 - 4.50%, 2001 - 4.50%) and expected life of five years (2002 - five years,
2001 - five years). The Company estimates that approximately 20% of options will
expire prior to exercise. The weighted average fair value of the stock options
granted in 2003 was $2.00 (2002 - $0.70, 2001 -- $8.00).
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock option plans have characteristics significantly different
from those of traded options, and because change in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
F Employee Stock Purchase (2000) Plan
During 2000, the Company authorized a new employee stock purchase plan for a
total of 300,000 common shares that may be purchased by employees at 85% of the
lower of the closing price of the Company's common stock at the beginning or
ending date of each plan period. In 2003, the Company sold 34,117 shares of
common stock for cash proceeds of $35,245. In 2002, the Company sold 40,173
shares of common stock for cash proceeds of $40,266. In 2001, the Company sold
16,840 shares of common stock for cash proceeds of $159,095.
F-B21
12. COMMITMENTS AND CONTINGENCIES
Obligation under Capital Lease
2003
Gross lease commitments: ---------------
2004 $ 11,482
2005 3,299
2006 2,199
---------------
16,980
Less: Imputed interest 2,367
---------------
14,613
Less: Current portion 10,458
---------------
Long-term obligation under capital leases $ 4,155
===============
Operating Leases
2004 $ 433,773
2005 386,136
2006 357,910
2007 351,727
2008 350,671
Thereafter 141,273
---------------
$ 2,021,490
===============
The Company rents office space with remaining terms of up to six years. The
Company incurred rental expenses in 2003 of $381,247 (2002 - $529,141, 2001 -
$708,038).
Contract Manufacturers
The Company provides its contract manufacturers with ongoing production
forecasts to enable them to forecast and procure required parts. Under the terms
of the Agreements with the contract manufacturers, the Company has committed to
assume liability for all parts required to manufacture the Company's forecast
products for the next 13 weeks and all final assembly costs for the forecast
products for the next 4 weeks, on a rolling basis. These obligations amount to
approximately $2,037,490. Total purchases from contract manufacturers were
$5,454,789 in 2003 (2002 - $4,607,941, 2001 -- $4,256,858). Management believes
that, should it be necessary, they could find alternative contract manufacturers
without significant disruption to the business.
Non-cancelable, Non-returnable Purchase Commitments
The Company has ordered certain components from a product supplier on a
non-cancelable non-refundable basis for delivery throughout 2004. A letter of
credit has been issued to this supplier in the amount of $232,125 at December
31, 2003. The letter of credit secures the Company's payment obligation under
the purchase agreement and expires in August 2004. The Company has pledged cash
to the bank as collateral for the letter of credit in the same amount as the
letter of credit. This pledge has been classified as restricted cash.
F-B22
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2003, 2002 and 2001
Employment Agreements
The Company has entered into employment agreements with certain key employees.
These agreements include provisions relating to salaries and bonuses, severance
payments and non-competition among others.
Litigation
As of December 31, 2003, there are no litigation matters outstanding against the
Company.
13. SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
2003 2002 2001
Net changes in working capital items relating to operation
Accounts receivable $ (431,645) $ (505,794) $ 1,503,693
Note receivable 12,063
Prepaid expenses and other assets 45,102 263,436 118,300
Inventories 501,591 232,674 786,928
Accounts payable and accrued liabilities (891,984) 308,768 (1,907,686)
Consideration payable on business combination - (105,256) 23,872
Notes payable - - (24,659)
Deferred revenue 173,970 (6,887) (154,622)
----------- ------------- ------------
$ (590,903) $ 186,941 $ 345,826
=========== ============= ============
Cash paid during the year for:
Interest $ 3,824 $ 29,253 $ 34,231
Non-cash investing and financing activities
Stock released from escrow $ - $ 883,313 $ 2,201,500
Capital lease additions 7,764 - 37,155
Conversion of promissory notes
to common shares - - 654,258
Disposal of capital lease 5,779 30,987 40,769
Conversion of convertible promissory 5,105,934
notes to common shares - -
Accounts receivable exchanged fro assets for lease - - 84,824
Consideration payable for acquisition - - 973,161
14. RELATED PARTY TRANSACTIONS
During 2003, a total of $40,125 (2002 -$30,044, 2001 -- $18,745) was paid or
payable to directors and officers or to companies related to them for their
management and administrative services.
F-B23
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2003, 2002 and 2001
15. NON-CASH INTEREST EXPENSES
2003 2002 2001
------------------------------------------------
Accretion of promissory notes $ - $ 263,607 $ 424,461
Accretion of interest on convertible debentures 616,031 - -
Accrued interest expense on consideration payable on
business combination - - 65,872
Accrued interest and repayment premium on
promissory notes - - 111,155
Accretion of interest on convertible promissory notes - - 3,024,445
Adjustment of conversion price of notes - - 1,144,654
Accrued interest on convertible promissory notes - - 85,520
Amortization of call option - - 408,796
Financing expense due to change in exercise price - - 113,781
Expiry of put options - - (117,736)
Amortization of deferred financing expense - - 149,898
------------------------------------------------
Non-cash interest expenses $ 616,031 $ 263,607 $ 5,410,846
================================================
16. INCOME TAXES
Net loss (gain) before income tax expense for each year is summarized as
follows:
2003 2002 2001
------------------------------------------------
United States $ 5,281,850 $ 6,738,920 $ 15,264,526
Canada (46,392) 3,218,266 4,907,697
Australia (174,151) 1,292,516 1,320,727
------------------------------------------------
Net loss before income taxes $ 5,061,307 $ 11,249,702 $ 21,492,950
================================================
US statutory rate at 35% $ 1,771,000 $ 3,937,000 $ 7,522,000
Amounts permanently not deductible for income tax purposes (1,025,000) (1,656,000) (2,584,000)
Foreign income tax rate differential (5,000) 271,000 406,000
Net operating loss and temporary differences for which
no benefit was recognized (741,000) (2,552,000) (5,344,000)
------------------------------------------------
Deferred income tax recovery $ - $ - $ -
================================================
Deferred income tax assets/(liabilities) consist of the following:
2003 2002 2001
------------------------------------------------
Net operating loss carry forwards $ 17,779,000 $ 17,103,000 $ 14,559,000
Property, plant and equipment 165,000 133,000 92,000
Other 15,000 13,000 120,000
------------------------------------------------
Net deferred income tax assets 17,959,000 17,249,000 14,771,000
Valuation allowance (17,959,000) (17,249,000) (14,771,000)
------------------------------------------------
$ - $ - $ -
================================================
F-B24
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2003, 2002 and 2001
The Company provides a valuation allowance for deferred income tax assets when
it is more likely than not that some portion or all of the net deferred income
tax assets will not be realized. Based on a number of factors, including the
lack of a history of profits and that the market in which the Company competes
is intensely competitive and characterized by rapidly changing technology,
management believes that there is sufficient uncertainty regarding the
realization of deferred income tax assets that a full valuation allowance has
been provided. The deferred income tax valuation allowance increased in 2003 by
$710,000 (2002 - $2,478,000, 2001 - $2,273,000).
As of December 31, 2003, the Company had available net operating loss carry
forwards for United States, Canadian and Australian purposes of approximately
$32,961,000, $20,623,000 and $968,000, respectively. The United States net
operating loss carry forwards begin to expire in 2008, the Canadian net
operating loss carry forwards begin to expire in 2004 and the Australian net
operating losses begin to expire in 2020. The net operating losses are subject
to certain Canadian and United States restrictions that may apply on any change
in the control of the Company and which could adversely affect the amounts and
benefits to be derived therefrom.
17. LOSS PER SHARE
The warrants, which could result in the issue of 1,932,781 additional shares of
common stock (Note 11C) and the options, which could result in the issue of
1,115,011 additional shares of common stock (Note 11E) have not been included in
the loss per share calculation as they are anti-dilutive. The shares held in
escrow pertaining to the Major Wireless Communication Inc. transaction have not
been included in the loss per share calculation for 2001 as they were
contingently issuable shares.
Year ended December 31, 2003
Loss Shares Per Share
(Numerator) (Denominator) Amount
Basic and diluted loss per share
Loss attributable to common shareholders $ 5,061,307 13,068,331 $0.39
============ ========== =====
Year ended December 31, 2002
Loss Shares Per Share
(Numerator) (Denominator) Amount
Basic and diluted loss per share
Loss attributable to common shareholders $11,249,702 10,526,153 $1.07
=========== ========== =====
Year ended December 31, 2001
Loss Shares Per Share
(Numerator) (Denominator) Amount
Basic and diluted loss per share
Net Loss $21,492,950
Add: Deemed dividend on beneficial conversion 1,043,832
-----------
Loss attributable to common shareholders $22,536,782 6,026,962 $3.74
=========== ========== =====
F-B25
WaveRider Communications Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2003, 2002 and 2001
18. SEGMENTED INFORMATION
INDUSTRY SEGMENTS
The Company operates in one industry segment: wireless data communications
products.
GEOGRAPHIC SEGMENTS
The Company operated in the following geographic segments;
Year Ended December 31,
Revenue by region 2003 2002 2001
------------------------------------------------
United States $ 8,868,019 $ 5,196,196 $ 1,909,912
Australia 2,114,437 2,067,790 3,078,879
Canada 1,508,029 690,325 490,661
United Arab Emirates (1) (1) 1,030,125
Rest of world 588,070 1,054,604 1,294,440
------------------------------------------------
$ 13,078,555 $ 9,008,915 $ 7,804,017
================================================
Year ended December 31, 2003
Canada Australia Total
------------------------------------------------
Property, plant and equipment $ 308,163 $ 99,326 $ 407,489
================================================
Year ended December 31, 2002
Canada Australia Total
------------------------------------------------
Property, plant and equipment $ 790,009 $ 95,466 $ 885,475
============= ============= =============
19. COMPARATIVE FIGURES
Certain comparative amounts have been reclassified to correspond with the
current year's presentation.
F-B26
ANNEX A
FORM OF AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of , 2004,
is among WaveRider Communications Inc., a Nevada corporation governed by the
laws of the State of Nevada ("WaveRider"), WaveRider Communications (Canada)
Inc., ("WCAN") a British Columbia corporation governed by the laws of British
Columbia and a direct, wholly-owned subsidiary of WaveRider and WaveRider
Acquisition Company, a corporation governed by the laws of the State of Nevada
and a direct, wholly-owned subsidiary of WCAN ("Merger Sub"). The principal
executive office of each of WaveRider, WCAN and the Merger Sub is located at 255
Consumers Road, Suite 500 Toronto, Ontario M2J 1R4.
RECITALS:
1. The Boards of Directors of each of WaveRider, WCAN and Merger Sub have
determined that it is in the best interests of their respective shareholders to
reorganize so that WCAN will become the parent of WaveRider as a result of the
merger of Merger Sub with and into WaveRider (the "Merger").
2. The respective Boards of Directors of WaveRider, WCAN and Merger Sub
have each approved the Merger, pursuant to which WaveRider will be the surviving
corporation and will become a wholly-owned subsidiary of WCAN, all upon the
terms and subject to the conditions set forth in this Agreement, and whereby
each issued share of common stock, par value US $0.01 per share, of WaveRider
("WaveRider Common Stock") shall be converted into the right to receive one
common share (with no par value) in the capital of WCAN ("WCAN Common Shares").
3. This Agreement has been adopted by the affirmative vote of the holders
of a majority of the issued and outstanding shares of WaveRider Common Stock.
NOW THEREFORE, in consideration of the foregoing and of the covenants and
agreements contained herein, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
AGREEMENT:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Subject to the terms and conditions of this
Agreement, and in accordance with the Nevada Revised Statutes (the "NEV"), at
the Effective Time (as defined in Section 1.2), Merger Sub shall be merged with
and into WaveRider in accordance with this Agreement, and the separate corporate
existence of Merger Sub shall thereupon cease. Pursuant to the Merger, in
accordance with the NEV, (i) WaveRider shall continue as the surviving
corporation in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation"), becoming a direct, wholly-owned subsidiary of WCAN, (ii) all the
properties, rights, privileges, powers and franchises of Merger Sub shall vest
in the Surviving Corporation without any transfer or assignment having occurred,
and (iii) all debts, liabilities and duties of Merger Sub shall attach to the
Surviving Corporation.
SECTION 1.2 Filing Articles of Merger; Effective Time. As soon as
practicable following the satisfaction or, to the extent permitted by applicable
law, waiver of the conditions set forth in Article V, if this Agreement shall
not have been terminated prior thereto as provided in Section 6.1, Merger Sub
and WaveRider shall cause the articles of merger (the "Articles of Merger")
meeting the requirements of Section 92A.200 of the NEV to be properly executed
and filed in accordance with such section. The Merger shall become effective at
the later of (i) the time of filing of the Articles of Merger with the Secretary
of State of the State of Nevada in accordance with the NEV, and (ii) such later
time that the parties hereto shall have agreed upon and designated in the
Articles of Merger as the effective time of the Merger (the "Effective Time").
A-1
ARTICLE II
CHARTER DOCUMENTS,
DIRECTORS AND OFFICERS OF
SURVIVING CORPORATION AND WCAN
AND CERTAIN REPRESENTATIONS
SECTION 2.1 Name of Surviving Corporation. The name of the Surviving
Corporation shall be "WaveRider Communications (Nevada), Inc."
SECTION 2.2 Articles of Incorporation of Surviving Corporation. The
Articles of Incorporation of the Surviving Corporation shall be amended as of
the Effective Time so as to contain only the provisions contained in the
Articles of Incorporation of Merger Sub in effect immediately prior to the
Effective Time, except that the Articles of Incorporation of Merger Sub shall
provide that the name of the Surviving Corporation shall be "WaveRider
Communications (Nevada) Inc." Such Articles of Incorporation, as so amended,
shall continue to be the Articles of Incorporation of the Surviving Corporation
until amended as provided therein and under the NEV.
SECTION 2.3 Bylaws of Surviving Corporation. The Bylaws of Merger Sub in
effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation, until duly amended in accordance with applicable law.
SECTION 2.4 Directors of Surviving Corporation. The directors of Merger
Sub immediately prior to the Effective Time shall be the directors of the
Surviving Corporation, each such director to serve in such capacity until his
earlier death, resignation or removal or until his successor is duly elected and
qualified.
SECTION 2.5 Officers of Surviving Corporation. The officers of Merger Sub
immediately prior to the Effective Time shall be the officers of the Surviving
Corporation, each such officer to serve in such capacity until his earlier
death, resignation or removal or until his successor is duly elected and
qualified.
SECTION 2.6 Directors and Officers of WCAN. Prior to the Effective Time,
WaveRider, in its capacity as the sole shareholder of WCAN, agrees to take or
cause to be taken all such actions as are necessary to cause those persons
serving as the directors and officers of WaveRider immediately prior to the
Effective Time to be elected or appointed as the directors and officers of WCAN
(to the extent the officers and directors of WCAN and WaveRider are not already
identical), each such person to have the same office(s) with WCAN (and the same
committee memberships in the case of directors) as he held with WaveRider, with
the directors to serve until the earlier of the next meeting of the WCAN
shareholders at which an election of directors is required or until their
successors are elected.
SECTION 2.7 Representation of WCAN. WCAN hereby represents and warrants
that it is the owner of all of the outstanding capital stock of Merger Sub, free
and clear of any adverse claims.
ARTICLE III
CONVERSION, EXCHANGE OF STOCK AND OTHER MATTERS
SECTION 3.1 Conversion and Exchange of Stock in the Merger. At the
Effective Time, by virtue of the Merger and without any action on the part of
the holder of any shares:
(a) Conversion of Remaining WaveRider Shares. Each issued and outstanding
share of WaveRider Common Stock shall be converted into the right to receive one
validly issued, fully paid and nonassessable WCAN Common Share.
(b) Effect on WCAN Shares and other effect. Concurrent with the Merger
WCAN file articles of amendments in British Columbia changing its name to
WaveRider Communications Inc. Concurrently with the Merger or at any time
thereafter, WCAN may repurchase and cancel the WCAN common shares held by
WaveRider in WCAN for nominal consideration.
A-2
SECTION 3.2 Stock Options and Convertible Securities. Upon the Merger
being effective, WCAN shall assume all warrants, convertible debentures and
stock options issued under WaveRider's Stock Option Plans (as described in the
registration on Form F-4 previously filed by WCAN in connection with this
transaction) outstanding at the time the Merger becomes effective and such
securities will be automatically exercisable for common shares of WCAN on the
same basis as if such securities had been exercised or converted for WaveRider
common stock prior to the Merger.
SECTION 3.3 Certificates Representing WaveRider Shares.
(a) At the Effective Time, each certificate representing issued and
outstanding shares of WaveRider Common Stock shall automatically represent the
same number of WCAN Common Shares (unless such certificates are certificates
representing WaveRider Common Stock prior to the 10 for 1 consolidation which
occurred on July 1, 2004, in which case such certificates will represent a right
to receive one WCAN Common Share for each ten WaveRider Shares of Common Stock
evidenced by such certificates) and, therefore, certificates representing
WaveRider Common Stock do not need, and are not required, to be exchanged for
certificates representing WCAN Common Shares. Following the Merger, stock
certificates bearing the name of WCAN will be issued in the normal course upon
surrender of stock certificates bearing the name of WaveRider for exchange or
transfer.
(b) At the Effective Time, holders of WaveRider Common Stock will cease to
be, and will have no rights as, stockholders of WaveRider, other than the right
to receive: (i) any dividend or other distribution with a record date prior to
the Effective Time that may have been declared or made by WaveRider on such
shares of WaveRider Common Stock in accordance with the terms of this Agreement
or prior to the date of this Agreement and that remain unpaid at the Effective
Time; and (ii) WCAN Common Shares. After the Effective Time, there shall be no
further registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of WaveRider Common Stock that were outstanding
immediately prior to the Effective Time. If, after the Effective Time, stock
certificates bearing the name WaveRider are presented to the Surviving
Corporation, they shall be cancelled and exchanged as provided in this Article
III, except as otherwise provided by law.
SECTION 3.4 Dissenters' Rights.
(a) Notwithstanding anything in this Agreement to the contrary, shares of
WaveRider Common Stock issued and outstanding immediately prior to the Effective
Time that are held by any holder thereof who is entitled to demand and properly
demands appraisal of such shares pursuant to, and who complies in all respects
with, the provisions of Sections 92A.300 through 92A.500, inclusive, of NEV (the
"Appraisal Rights Sections" and, such shares, the "Dissenting Shares") shall not
be converted into the right to receive the merger consideration, but instead
such holder shall be entitled solely to payment of the fair value of such
Dissenting Shares in accordance with the provisions of the Appraisal Rights
Sections.
(b) At the Effective Time, the Dissenting Shares shall no longer be
outstanding and shall automatically be cancelled and shall cease to exist, and
each holder of Dissenting Shares shall cease to have any rights as a stockholder
with respect thereto, except the right to receive the fair value of such shares
as determined in accordance with the provisions of the Appraisal Rights
Sections.
(c) Notwithstanding the foregoing, if any such holder fails to perfect or
otherwise waives, withdraws or loses the right to appraisal under the Appraisal
Rights Sections, or a court of competent jurisdiction determines that such
holder is not entitled to the relief provided by the Appraisal Rights Sections,
then the right of such holder to be paid the fair value of such Dissenting
Shares under the Appraisal Rights Sections shall cease and such Dissenting
Shares shall be deemed to have been converted at the Effective Time into, and
shall have become, the right to receive the merger consideration.
(d) WaveRider shall deliver prompt notice to WCAN of any demands for
appraisal of any shares of WaveRider Common Stock received by it prior to the
Effective Time, withdrawals of such demands and any related instruments served
pursuant to Nevada Law and received by WaveRider prior to the Effective Time,
and WCAN shall have the right to participate in and direct all negotiations and
proceedings with respect to such demands. WaveRider shall not, without the prior
written consent of WCAN, make any payment with respect to, or settle or offer to
settle, any such demands, or agree to do or commit to do any of the foregoing.
A-3
ARTICLE IV
EMPLOYEE BENEFIT AND COMPENSATION PLANS AND AGREEMENTS
SECTION 4.1 Plans
(a) At the Effective Time, subject to section 3.2, WCAN shall assume the
rights and obligations of WaveRider under each of WaveRider's stock option plans
in existence prior to the Merger (the "Assumed Plans").
(b) To the extent any Stock Plan provides for the issuance or purchase of,
or otherwise relates to, WaveRider Common Stock, after the Effective Time such
Stock Plan shall be deemed to provide for the issuance or purchase of, or
otherwise relate to, WCAN Common Shares, and all options or awards outstanding,
or benefits available or based upon the value of WaveRider Common Stock, under
such Stock Plan after the Effective Time shall entitle the holder thereof to
purchase, receive, acquire, hold or realize the benefits measured by the value
of, as appropriate, WCAN Common Shares in accordance with the terms of such
Stock Plan. The outstanding options or other awards or benefits available under
the terms of the Stock Plans shall be exercisable, issuable or available upon
the same terms and conditions as under such Stock Plans and the agreements
relating thereto immediately prior to the Effective Time, except that upon the
exercise, issuance or availability of such options, awards or benefits, WCAN
Common Shares shall be issuable, held or available in lieu of shares of
WaveRider Common Stock. The number of WCAN Common Shares issuable or available
upon the exercise, issuance or availability of such option, award or benefit
immediately after the Effective Time, and the option, exercise or measurement
price of each such option, award or benefit, shall be the number of shares and
the option, exercise or measurement price in effect immediately prior to the
Effective Time.
(c) Any new option grants or grants of right to purchase common shares
shall after the merger becomes effective, be made pursuant to WCAN's Share
Incentive Plan (a copy of which is attached as Schedule A to this Agreement).
WaveRider's 2000 Stock Purchase Plan shall be terminated at the Effective Time.
(d) Such amendments deemed necessary or appropriate by WaveRider and WCAN
to effect the Merger and related reorganization transactions, including to
facilitate the assumption by WCAN of the Assumed Plans, shall be adopted and
entered into with respect to the Stock Plans. The approval and adoption of this
Agreement by the stockholders of WaveRider shall be deemed, as of the Effective
Time, to constitute shareholder approval, with respect to WCAN, of: (i) such
amendments; (ii) the assumption by WCAN of the Assumed Plans and (iii) the
adoption of WCAN's Share Incentive Plan.
SECTION 4.2 Change of Control Agreements. WaveRider shall cause the
"change of control" agreements that are currently in place between WaveRider and
certain of its executive officers (the "Change of Control Agreements") to be
amended so that such Change of Control Agreements shall become effective after a
"change of control" of WCAN, rather than after a "change of control" of
WaveRider.
ARTICLE V
CONDITIONS PRECEDENT
The respective obligations of each party to effect the Merger are subject
to the satisfaction or waiver of the following conditions:
(a) None of the parties hereto shall be subject to any decree, order or
injunction of any court of competent jurisdiction, whether in the U.S., Canada
or any other country, that prohibits the consummation of the Merger.
(b) The registration statement on Form F-4 (the "Registration Statement")
filed with the Securities and Exchange Commission (the "SEC") by WCAN in
connection with the offer and issuance of the WCAN Common Shares to be issued
pursuant to the Merger shall have become effective under the Securities Act of
1933, as amended (the "Securities Act"), and no stop order with respect thereto
shall be in effect.
A-4
(c) Other than the filing of the Certificate of Merger provided for under
Article I, all material consents and authorizations of, filings or registrations
with, and notices to, any governmental or regulatory authority required of
WaveRider, WCAN or any of their respective subsidiaries to consummate the Merger
and the other transactions contemplated hereby, including without limitation any
filings required under (i) applicable U.S. state securities and "Blue Sky" laws
and (ii) applicable Canadian provincial securities laws, shall have been
obtained or made.
(d) All consents required under instruments evidencing a material amount
of indebtedness and all material consents required under any other material
contracts to which WaveRider or any subsidiary of WaveRider is a party (in
either case as required to consummate the Merger and the other transactions
contemplated hereby), shall have been obtained.
(e) WaveRider and WCAN shall have received an opinion from Foley Hoag LLP,
in form and substance reasonably satisfactory to them, dated as of the date of
the Effective Time, confirming the matters discussed under the caption "Material
Income Tax Consequences of the Reorganization--Material United States Federal
Income Tax Consequences" in the joint proxy statement/prospectus included in the
Registration Statement.
(f) WaveRider and WCAN shall have received an opinion from Cassels Brock &
Blackwell LLP, in form and substance reasonably satisfactory to them, dated as
of the date of the Effective Time, confirming the matters discussed under
"Material Income Tax Consequences of the Reorganization--Material Canadian
Federal Income Tax Consequences" in the joint proxy statement/prospectus
included in the Registration Statement.
(g) WaveRider and WCAN shall have received an opinion from a legal counsel
satisfactory to WaveRider and WCAN in form and substance reasonably satisfactory
to them, dated as of the date of the Effective Time, substantially to the effect
that:
(i) Each of WaveRider and Merger Sub is a corporation duly
incorporated and validly existing under the laws of the State of Nevada;
(ii) Each of WaveRider and Merger Sub has the corporate power and
corporate authority to execute and deliver this Agreement and to perform
its obligations hereunder; and
(iii) The execution and delivery by each of WaveRider and Merger
Sub, and the performance by each of them of its obligations under, this
Agreement have been duly authorized by all necessary corporate action on
the part of each of WaveRider and Merger Sub under their respective
Articles of Incorporation and Bylaws and under the NEV.
(h) WaveRider and WCAN shall have received an opinion from a legal counsel
satisfactory to WaveRider and WCAN, in form and substance reasonably
satisfactory to them, dated as of the date of the Effective Time, substantially
to the effect that:
(i) WCAN is a company duly incorporated and validly existing under
the Business Corporations Act) (British Columbia) (the "BCBCA");
(ii) WCAN has the corporate power and corporate authority to execute
and deliver this Agreement and to perform its obligations hereunder; and
(iii) The execution and delivery by WCAN of, and the performance by
WCAN of its obligations under, this Agreement have been duly authorized by
all necessary corporate action on the part of WCAN under its Notice of
Articles and Articles and under the BCBCA.
(i) The representations and warranties of the parties set forth herein
shall be true and correct in all material respects and the covenants of the
parties set forth herein (other than those to be performed after the Effective
Time) shall have been performed in all material respects.
A-5
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
SECTION 6.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval by the
stockholders of WaveRider, by action of the board of directors of WaveRider.
SECTION 6.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 6.1, this Agreement shall forthwith become void
and have no effect, without any liability or obligation on the part of
WaveRider, WCAN or Merger Sub.
SECTION 6.3 Amendment. This Agreement may be amended by the parties hereto
at any time before or after any required approval or adoption by the
stockholders of WaveRider of this Agreement or matters presented in connection
with this Agreement; provided, however, that after any such approval or
adoption, there shall be made no amendment requiring further approval or
adoption by such stockholders under applicable law until such further approval
is obtained. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
SECTION 6.4 Waiver. At any time prior to the Effective Time, the parties
may waive compliance with any of the agreements or covenants contained in this
Agreement, or may waive any of the conditions to consummation of the Merger
contained in this Agreement. Any agreement on the part of a party to any such
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of any party to this Agreement to assert any
of its rights under this Agreement or otherwise shall not constitute a waiver of
such rights.
ARTICLE VII
COVENANTS
SECTION 7.1 Agreements of Rule 145 Affiliates. Prior to the Effective
Time, WaveRider shall cause to be prepared and delivered to WCAN a list
identifying all persons who, immediately prior to the Effective Time, WaveRider
believes may be deemed to be "affiliates" of WaveRider, as that term is used in
paragraphs (c) and (d) of Rule 145 under the Securities Act (the "Rule 145
Affiliates"). WCAN shall be entitled to place a restrictive legend on any
certificate(s) representing WCAN Common Shares received by Rule 145 Affiliates.
WaveRider shall use its commercially reasonable efforts to cause each person who
is identified as a Rule 145 Affiliate in such list to deliver to WCAN, at or
prior to the Effective Time, a written agreement, in a form approved by the
parties hereto, that such Rule 145 Affiliate will not sell, pledge, transfer or
otherwise dispose of any WCAN Common Shares issued to such Rule 145 Affiliate
pursuant to the Merger, except pursuant to an effective registration statement
or in compliance with Rule 145 or an exemption from the registration
requirements of the Securities Act.
SECTION 7.2 Rule 16b-3 Approval. WaveRider, WCAN and Merger Sub shall take
all such steps as may reasonably be required to cause the transactions
contemplated by Section 3.1 and any other dispositions of WaveRider equity
securities (including derivative securities) or acquisitions of WCAN equity
securities (including derivative securities) in connection with this Agreement
by each individual who (i) is a director or officer of WaveRider, or (ii) at the
Effective Time, is or will become a director or officer of WCAN, to be exempt
under Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as
amended.
SECTION 7.3 WCAN Vote. Prior to the Effective Time, WCAN, in its capacity
as sole stockholder of Merger Sub, shall have adopted this Agreement and
approved the Merger.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Assignment; Binding Effect; Benefit. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns. Notwithstanding
anything contained in this Agreement to the contrary, except for the provisions
of Article IV and Article VII (collectively, the "Third Party Provisions"),
nothing in this Agreement, expressed or implied, is intended to confer on any
person other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations or liabilities under or by reason of this
Agreement. The Third Party Provisions may be enforced only by the specifically
intended beneficiaries thereof.
A-6
SECTION 8.2 Entire Agreement. This Agreement and any documents delivered
by the parties in connection herewith constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings among the parties with respect thereto.
SECTION 8.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada without regard to
its rules of conflict of laws.
SECTION 8.4 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof, each signed by less than all, but together signed by all of the parties
hereto.
SECTION 8.5 Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only and shall be given no
substantive or interpretative effect whatsoever.
IN WITNESS WHEREOF, WaveRider, WCAN and Merger Sub have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
WAVERIDER COMMUNICATIONS INC.
By:
------------------------------------
Name:
Title:
WAVERIDER COMMUNICATIONS (CANADA) INC.
By:
------------------------------------
Name:
Title:
WAVERIDER ACQUISITION COMPANY
By:
------------------------------------
Name:
Title:
A-7
SCHEDULE "A"
WAVERIDER COMMUNICATIONS (CANADA) INC.
SHARE INCENTIVE PLAN
July 15, 2004
ARTICLE ONE
DEFINITIONS AND INTERPRETATION
Section 1.01 Definitions: For purposes of the Plan, unless such word or term is
otherwise defined herein or the context in which such word or term is used
herein otherwise requires, the following words and terms with the initial letter
or letters thereof capitalized shall have the following meanings:
(a) "Act" means the Business Corporations Act (British Columbia)
or its successor, as amended from time to time;
(b) "Associate" where used to indicate a relationship with any
person or company means: (i) any company of which such person
or company beneficially owns, directly or indirectly, voting
securities carrying more than 10% of the voting rights
attached to all voting securities of the company for the time
being outstanding; (ii) any partner of that person or company;
(iii) any trust or estate in which such person or company has
a substantial beneficial interest or as to which such person
or company serves as trustee or in a similar capacity; (iv)
any relative of that person who resides in the same home as
that person; (v) any person who resides in the same home as
that person and to whom that person is married, or any person
of the opposite sex or the same sex who resides in the same
home as that person and with whom that person is living in a
conjugal relationship outside marriage; or (vi) any relative
of a person mentioned in clause (v) who has the same home as
that person;
(c) "Change of Control" means the occurrence of any one or more of
the following events:
(i) a consolidation, merger, amalgamation, arrangement or
other reorganization or acquisition involving the
Corporation or any of its affiliates (as such term is
defined in the Act) and another corporation or other
entity, as a result of which the holders of common
shares of the Corporation prior to the completion of
the transaction hold less than 50% of the outstanding
common shares of the successor corporation after
completion of the transaction;
(ii) the sale, lease, exchange or other disposition, in a
single transaction or a series of related
transactions, of assets, rights or properties of the
Corporation and/or any of its subsidiaries that have
an aggregate book value greater than 30% of the book
value of the assets, rights and properties of the
Corporation and its subsidiaries on a consolidated
basis to any other person or entity, other than a
disposition to a wholly-owned subsidiary of the
Corporation in the course of a reorganization of the
assets of the Corporation and its subsidiaries;
(iii) a resolution is adopted to wind-up, dissolve or
liquidate the Corporation;
(iv) any person, entity or group of persons or entities
acting jointly or in concert (an "Acquiror") acquires
or acquires control (including, without limitation,
the right to vote or direct the voting) of Voting
Securities of the Corporation which, when added to
the Voting Securities owned of record or beneficially
by the Acquiror or which the Acquiror has the right
to vote or in respect of which the Acquiror has the
right to direct the voting, would entitle the
Acquiror and/or associates and/or affiliates of the
Acquiror (as such terms are defined in the Act) to
cast or to direct the casting of 20% or more of the
votes attached to all of the Corporation's
outstanding Voting Securities which may be cast to
elect directors of the Corporation or the successor
corporation (regardless of whether a meeting has been
called to elect directors);
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(v) as a result of or in connection with: (A) a contested
election of directors, or; (B) a consolidation,
merger, amalgamation, arrangement or other
reorganization or acquisitions involving the
Corporation or any of its affiliates and another
corporation or other entity, the nominees named in
the most recent management information circular of
the Corporation for election to the board of
directors shall not constitute a majority of the
board of directors; or
(vi) the Directors adopt a resolution to the effect that a
Change of Control as defined herein has occurred or
is imminent.
For the purposes of the foregoing "Voting Securities" means
common shares of the Corporation and any other shares entitled
to vote for the election of directors and shall include any
security, whether or not issued by the Corporation, which are
not shares entitled to vote for the election of directors but
are convertible into or exchangeable for shares that are
entitled to vote for the election of directors including any
options or rights to purchase such shares or securities.
For greater certainty, the reorganization (as defined below)
is not included in the concept of a Change of Control.
(d) "Committee" means the Directors or if the Directors so
determine in accordance with Section 2.03 of the Plan, the
committee of the Directors authorized to administer the Plan,
which committee will include any compensation committee of the
board;
(e) "Common Shares" means the common shares of the Corporation, as
adjusted in accordance with the provisions of Article Six of
the Plan;
(f) "Corporation" means Waverider Communications (Canada) Inc., a
corporation incorporated under the Act;
(g) "Current Market Value" means: (a) the closing price per share
as reported by a nationally recognized stock exchange on the
day prior to the date on which the Current Market Value
determined, (b) if the Common Shares are not listed on such an
exchange, as reported by the National Market System or another
automated quotation system of the National Association of
Securities Dealers, Inc., or (c) the high bid and low asked
price, or if available, the closing price, if quoted on the
OTC Electronic Bulletin Board, or (d) if the Common Stock is
not quoted on any such system, the fair market value as
determined by the Committee.
(h) "Designated Affiliate" means the affiliates of the Corporation
designated by the Committee for purposes of the Plan from time
to time;
(i) "Directors" means the board of directors of the Corporation
from time to time;
(j) "Eligible Contractors" means individuals, other than Eligible
Directors or Eligible Employees that (i) are engaged to
provide on a bona fide basis consulting, technical, management
or other services to the Corporation or any Designated
Affiliates under a written contract between the Corporation or
the Designated Affiliate and the individual or a company that
the individual consultant is an employee and (ii) in the
reasonable opinion of the Corporation, spend or will spend a
significant amount of time and attention on the affairs and
business of the Corporation or a Designated Affiliate;
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(k) "Eligible Directors" means the Directors and the directors of
any Designated Affiliate of the Corporation from time to time;
(l) "Eligible Employees" means employees, including officers,
whether Directors or not, and including both full-time and
part-time employees, of the Corporation or any Designated
Affiliate of the Corporation;
(m) "Employment Contract" means any contract between the
Corporation or any Designated Affiliate of the Corporation and
any Eligible Employee relating to, or entered into in
connection with, the employment of the Eligible Employee;
(n) "Holding Period" means a period of twelve months or such
longer period as may be required by law or any stock exchange,
over-the-counter market or any regulatory authority having
jurisdiction over the securities of the Corporation;
(o) "Insider" shall have the meaning ascribed thereto in the
Securities Act (British Columbia) other than a person who is
an Insider solely by virtue of being a director or senior
officer of a subsidiary of the Corporation and any associate
of an Insider;
(p) "ISO" means an incentive stock option described in Section
422A(b) of the United States Internal Revenue Code;
(q) "NSO" means an employee stock option not described in Sections
422 through 424 of the United States Internal Revenue Code;
(r) "Option" means an option to purchase Common Shares granted
pursuant to, or governed by, the Share Option Plan;
(s) "Optionee" means a Participant to whom an Option has been
granted pursuant to the Share Option Plan;
(t) "Option Period" means the period of time during which a
particular Option may be exercised;
(u) "Participant" for the Share Purchase Plan means each Eligible
Employee who has elected to participate in an Offering (as
defined herein) and for the Share Option Plan means each
Eligible Director, Eligible Contractor, and Eligible Employee
to whom Options are granted;
(v) "Plan" means this share incentive plan that, collectively,
includes the Share Purchase Plan and the Share Option Plan;
(w) "Retirement" in respect of a Participant means the Participant
ceasing to be an Eligible Employee, Eligible Director or
Eligible Contractor after attaining a stipulated age in
accordance with the Corporation's normal retirement policy or
earlier with the Corporation's consent;
(x) "Retirement Date" means the date that a Participant ceases to
be an Eligible Employee, Eligible Director or Eligible
Contractor;
(y) "Share Option Plan" means the share option plan described in
Article Four hereof;
(z) "Share Purchase Plan" means the share purchase plan described
in Article Three hereof;
(aa) "Termination" means: (i) in the case of an Eligible Employee,
the termination of the employment of the Eligible Employee
with or without cause by the Corporation or a Designated
Affiliate or cessation of employment of the Eligible Employee
with the Corporation or a Designated Affiliate as a result of
resignation or otherwise other than the Retirement of the
Eligible Employee; (ii) in the case of an Eligible Director,
the removal of or failure to re-elect the Eligible Director as
a director of the Corporation or a Designated Affiliate; (iii)
in the case of an Eligible Contractor, the termination of the
services of the Eligible Contractor by the Corporation or a
Designated Affiliate.
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Section 1.02 Securities Definitions: In the Plan, the terms "affiliate",
"subsidiary" and "insider" shall have the meanings given to such terms in the
Securities Act (Ontario).
Section 1.03 Headings: The headings of all articles, Sections, and paragraphs in
the Plan are inserted for convenience of reference only and shall not affect the
construction or interpretation of the Plan.
Section 1.04 Context, Construction: Whenever the singular or masculine are used
in the Plan, the same shall be construed as being the plural or feminine or
neuter or vice versa where the context so requires.
Section 1.05 References to this Plan: The words "hereto", "herein", "hereby",
"hereunder", "hereof" and similar expressions mean or refer to the Plan as a
whole and not to any particular article, Section, paragraph or other part
hereof.
Section 1.06 Canadian Funds: Unless otherwise specifically provided, all
references to dollar amounts in the Plan are references to lawful money of
Canada.
ARTICLE TWO
PURPOSE AND ADMINISTRATION OF THE PLAN
Section 2.01 Purpose of the Plan: The Plan provides for the acquisition of
Common Shares by Participants for the purpose of advancing the interests of the
Corporation through the motivation, attraction and retention of employees,
directors and consultants of the Corporation and the Designated Affiliates of
the Corporation and to secure for the Corporation and the shareholders of the
Corporation the benefits inherent in the ownership of Common Shares by key
employees, consultants and directors of the Corporation and Designated
Affiliates of the Corporation, it being generally recognized that share
incentive plans aid in attracting, retaining and encouraging employees,
consultants and directors due to the opportunity offered to them to acquire a
proprietary interest in the Corporation.
Section 2.02 Administration of the Plan: The Plan shall be administered by the
Committee and the Committee shall have full authority to administer the Plan
including the authority to interpret and construe any provision of the Plan and
to adopt, amend and rescind such rules and regulations for administering the
Plan as the Committee may deem necessary in order to comply with the
requirements of the Plan. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and conclusive
and shall be binding on the Participants and the Corporation. No member of the
Committee shall be personally liable for any action taken or determination or
interpretation made in good faith in connection with the Plan and all members of
the Committee shall, in addition to their rights as Directors, be fully
protected, indemnified and held harmless by the Corporation with respect to any
such action taken or determination or interpretation made. The appropriate
officers of the Corporation are hereby authorized and empowered to do all things
and execute and deliver all instruments, undertakings and applications and
writings as they, in their absolute discretion, consider necessary for the
implementation of the Plan and of the rules and regulations established for
administering the Plan. All costs incurred in connection with the Plan shall be
for the account of the Corporation.
Section 2.03 Delegation to Committee: All of the powers exercisable hereunder by
the Directors may, to the extent permitted by applicable law and as determined
by resolution of the Directors, be exercised by a committee of the Directors
comprised of not less than three Directors, including any compensation committee
of the board of directors of the Corporation.
Section 2.04 Record Keeping: The Corporation shall maintain a register in
which shall be recorded:
(a) the name and address of each Optionee;
(b) the number of Common Shares subject to Options granted to each
Optionee;
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(c) the aggregate number of Common Shares subject to Options;
(d) the name and address of each Participant in the Share Purchase
Plan;
(e) any Participant's contributions to the Share Purchase Plan; and
(f) the number of Common Shares held in safekeeping for the account of
a Participant.
Section 2.05 Determination of Participants and Participation: The Committee
shall from time to time determine the Participants who may participate in the
Share Purchase Plan and the Share Option Plan. The Committee shall from time to
time determine the Participants to whom Options and/or rights to purchase Common
Shares shall be granted, the number of Common Shares to be made subject to and
the expiry date of each Option granted to each Participant and the other terms
of each Option or right granted to each Participant and the provisions and
restrictions with respect to such grant(s), all such determinations to be made
in accordance with the terms and conditions of the Plan, and the Committee may
take into consideration the present and potential contributions of and the
services rendered by the particular Participant to the success of the
Corporation and any other factors which the Committee deems appropriate and
relevant.
Section 2.06 Maximum Number of Shares: The maximum number of Common Shares made
available for the Plan is 900,000 which shall be allocated as follows:
(a) Share Purchase Plan: The maximum number of Common Shares made
available for the Share Purchase Plan shall be determined from
time to time by the Committee but, in any case, shall not
exceed 300,000 Common Shares in the aggregate.
(b) Share Option Plan: The maximum number of Common Shares made
available for the Share Option Plan shall be determined from
time to time by the Committee but, in any case, shall not
exceed 600,000 Common Shares in the aggregate.
(c) The aggregate number of Common Shares reserved for issuance
pursuant to Options and rights granted under the Plan granted
to Insiders, at any one time upon the exercise of Options and
rights shall not exceed 10% of the total number of Common
Shares then outstanding. The aggregate number of Common Shares
issuable to Insiders pursuant to Options and rights, within a
one-year period, shall not exceed 10% of the total number of
Common Shares then outstanding. The aggregate number of Common
Shares issuable to any one Insider and such Insider's
Associates pursuant to Options and rights, within a one-year
period, shall not exceed 5% of the total number of Common
Shares then outstanding. The aggregate number of Common Shares
reserved for issuance to any one person upon the exercise of
Options and rights shall not exceed 5% of the total number of
Common Shares then outstanding. For purposes of this Section
2.06, the number of Common Shares then outstanding shall mean
the number of Common Shares outstanding on a non-diluted basis
immediately prior to the proposed grant of the applicable
Option or issue of rights to acquire Common Shares pursuant to
the Share Purchase Plan, as the case may be
ARTICLE THREE
SHARE PURCHASE PLAN
Section 3.01 The Share Purchase Plan: A Share Purchase Plan is hereby
established for Eligible Employees.
Section 3.02 Grant of Rights, Offering: The Committee may from time to time
grant or provide for the grant of rights to purchase Common Shares of the
Corporation under the Share Purchase Plan to Eligible Employees (an "Offering")
on a date or dates (the "Offering Date(s)") selected by the Committee. Each
Offering shall be in such form and shall contain such terms and conditions as
the Committee shall deem appropriate. If an Eligible Employee has more than one
right outstanding under the Share Purchase Plan, unless he or she otherwise
indicates in agreements or notices delivered hereunder: (1) each agreement or
notice delivered by that Eligible Employee will be deemed to apply to all of his
or her rights under the Share Purchase Plan, and (2) a right with a lower
exercise price (or an earlier-granted right, if two rights have identical
exercise prices), will be exercised to the fullest possible extent before a
right with a higher exercise price (or a later-granted right, if two rights have
identical exercise prices) will be exercised. The provisions of separate
Offerings need not be identical, but each Offering shall include (through
incorporation of the provisions of this Share Purchase Plan by reference in the
Offering or otherwise) the substance of the provisions contained in sections
3.03 through 3.06 of this Plan, inclusive.
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Section 3.03 Eligibility:
(a) Rights may be granted only to Eligible Employees, or as the
Committee may designate. Except as provided in paragraph (b) of
this section, an Eligible Employee shall not be allowed to be
granted rights under the Share Purchase Plan, unless, on the
Offering Date, such employee has been in the employ of the
Corporation or any Designated Affiliate for such continuous period
preceding such grant as the Committee may require, but in no event
shall the required period of continuous employment be equal to or
greater than two (2) years. In addition, unless otherwise
determined by the Committee, no employee of the Corporation or any
Designated Affiliate shall be eligible to be granted rights under
the Share Purchase Plan, unless, on the Offering Date, such
employee's customary employment with the Corporation or such
Designated Affiliate is at least twenty (20) hours per week and at
least five (5) months per calendar year.
(b) The Committee may provide that, each person who, during the course
of an Offering, first becomes an Eligible Employee may, on a date
or dates specified in the Offering which coincides with the day on
which such person becomes an Eligible Employee or occurs
thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right
shall have the same characteristics as any rights originally
granted under that Offering, as described herein, except that:
(i) the date on which such right is granted shall be the "Offering
Date" of such right for all purposes, including determination of
the exercise price of such right;
(ii) the Offering Period for such right shall begin on its Offering
Date and end coincident with the end of such Offering; and,
(iii) the Committee may provide that if such person first becomes an
Eligible Employee within a specified period of time before the end
of the Offering, he or she will not receive any right under that
Offering.
(c) No Eligible Employees shall be allowed to be granted any rights
under the Share Purchase Plan if, immediately after any such
rights are granted, such employee owns stock possessing five
percent (5%) or more of the total combined voting power or value
of all classes of shares of the Corporation or of any Affiliate.
For purposes of this paragraph (d), the rules of Section 424(d) of
the United States Internal Revenue Code of 1986, as amended (the
"Code") shall apply in determining the stock ownership of any
employee, and stock which such employee may purchase under all
outstanding rights and options shall be treated as stock owned by
such employee.
(d) An Eligible Employee may be granted rights under the Share
Purchase Plan only if such rights, together with any other rights
granted under "employee stock purchase plans" of the Corporation
and any Designated Affiliates, as specified by Section 423(b)(8)
of the Code, do not permit such employee's rights to purchase
stock of the Corporation or any Designated Affiliate to accrue at
a rate which exceeds twenty-five thousand dollars ($25,000) of
fair market value of such stock (determined at the time such
rights are granted) for each calendar year in which such rights
are outstanding at any time.
Section 3.04. Rights; Purchase Price:
(a) On each Offering Date, each Eligible Employee, pursuant to an
Offering made under the Share Purchase Plan, shall be granted the right to
purchase the number of common shares of the Corporation purchasable with up to
fifteen percent (15%) of such employee's Earnings (as defined in Section
3.05(a)) during the period which begins on the Offering Date (or such later date
as the Committee determines for a particular Offering) and ends on the date
stated in the Offering, which date shall be no more than twenty-seven (27)
months after the Offering Date (the "Offering Period"). In connection with each
Offering made under this Share Purchase Plan, the Committee shall specify a
maximum number of shares which may be purchased by any employee as well as a
maximum aggregate number of shares which may be purchased by all Eligible
Employees pursuant to such Offering. In addition, in connection with each such
Offering, the Committee may specify a maximum aggregate number of shares which
may be purchased by all Eligible Employees on any given Exercise Date (as
defined in the Offering) under the Offering. If the aggregate purchase of shares
upon exercise of rights granted under the Offering would exceed any such maximum
aggregate number, the Committee shall make a pro rata allocation of the shares
available in as nearly a uniform manner as shall be practicable and as it shall
deem to be equitable.
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(b) The purchase price of shares acquired pursuant to rights
granted under the Share Purchase Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the Current Market
Value of the common shares on the Offering Date;
(ii) an amount equal to eight-five percent (85%) of the Current Market
Value of the common shares on the Exercise Date; or
(iii) such other minimum price requirements as required by the rules of
the primary stock exchange or market on the Offering Date or other
date as required under such rules.
Section 3.05 Participation; Withdrawal; Termination:
(a) An Eligible Employee may become a Participant in an Offering by
delivering an agreement to the Corporation within the time specified in the
Offering, in such form as the Corporation provides. Each such agreement shall
authorize payroll deductions of up to fifteen percent (15%) of such employee's
Earnings during the Offering Period. "Earnings" is defined as base salary or
wages and including amounts elected to be deferred by the employee (that would
otherwise have been paid) under the Corporation's 401(k) Plan, and may include
or exclude bonuses, commissions, overtime pay, incentive pay, profit sharing,
other remuneration paid directly to the employee, the cost of employee benefits
paid for by the Corporation or a Designated Affiliate, education or tuition
reimbursements, imputed income arising under any group insurance or benefit
program, traveling expenses, business and moving expense reimbursements, income
received in connection with stock options, contributions made by the Corporation
or a Designed Affiliate under any employee benefit plan, and similar items of
compensation as determined by the Committee and as set forth in the Offering.
The payroll deductions made for each Participant shall be credited to an account
for such Participant under the Share Purchase Plan and shall be deposited with
the general funds of the Corporation. At any time during the Offering a
Participant may terminate his or her payroll deductions. A Participant may
reduce, increase or begin such payroll deductions after the beginning of any
Offering Period only as provided for in the Offering. A Participant may not make
any additional payments into his or her account unless expressly provided for in
the Offering.
(b) If a Participant terminates his or her payroll deductions, such
Participant may withdraw from the Offering by delivering to the Corporation a
notice of withdrawal in such form as the Corporation provides. Such withdrawal
may be elected at any time prior to the end of the Offering Period. Upon such
withdrawal from the Offering by a Participant, the Corporation shall distribute
to such Participant all of his or her accumulated payroll deductions (reduced to
the extent, if any, such deductions have been used to acquire stock for the
Participant) under the Offering without interest, and such Participant's
interest in that Offering shall be automatically terminated. A Participant's
withdrawal from an Offering will have no effect upon such Participant's
eligibility to participate in any other Offerings under the Share Purchase Plan
but such Participant will be required to deliver a new participation agreement
in order to participate in other Offerings under the Share Purchase Plan.
(c) Rights granted pursuant to any Offering under the Share Purchase
Plan shall terminate immediately upon cessation of any participating employee's
employment with the Corporation or a Designated Affiliate, for any reason, and
the Corporation shall distribute to such terminated employee all of his or her
accumulated payroll deductions (reduced to the extent, if any, such deductions
have been used to acquire stock for the terminated employee), without interest.
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(d) Rights granted under the Share Purchase Plan shall not be
transferable, and shall be exercisable only by the person to whom such rights
are granted.
Section 3.06 Exercise: On each exercise date, as defined in the relevant
Offering (an "Exercise Date"), each Participant's accumulated payroll deductions
(without any increase for interest) will be applied to the purchase of whole
Common Shares, up to the maximum number of shares permitted pursuant to the
terms of the Share Purchase Plan and the applicable Offering, at the purchase
price specified in the Offering. No fractional shares shall be issued upon the
exercise of rights granted under the Share Purchase Plan. The amount, if any, of
accumulated payroll deductions remaining in each Participant's account after the
purchase of shares which is less than the amount required to purchase one share
on the final Exercise Date of an Offering shall be held in each such
Participant's account for the purchase of shares under the next Offering under
the Share Purchase Plan, unless such Participant withdraws from such next
Offering, as provided in paragraph 3.05(b), or is no longer eligible to be
granted rights under the Share Purchase Plan, as provided in paragraph 3.03, in
which case such amount shall be distributed to such Participant after such
Exercise Date, without interest. The amount, if any, of accumulated payroll
deductions remaining in any Participant's account after the purchase of shares
which is equal to the amount required to purchase whole shares of stock on the
final Exercise Date of an Offering shall be distributed in full to such
Participant after such Exercise Date, without interest.
Section 3.07 Necessary Approvals: The obligation of the Corporation to issue and
deliver any Common Shares in accordance with the Share Purchase Plan shall be
subject to any necessary approval of any stock exchange, over-the-counter market
or regulatory authority having jurisdiction over the securities of the
Corporation. If any Common Shares cannot be issued to any Participant for
whatever reason, the obligation of the Corporation to issue such Common Shares
shall terminate and any Participant's accumulated payroll deductions shall be
returned to the Participant without interest.
ARTICLE FOUR
SHARE OPTION PLAN
Section 4.01 Share Option Plan and Participants: A Share Option Plan is hereby
established for Eligible Employees, Eligible Contractors and Eligible Directors.
An Option issued under the Share Option Plan may be an ISO or a NSO except that
Eligible Directors who are not employees of the Corporation may not receive an
ISO.
Section 4.02 Ten-Percent Shareholders: An Eligible Employee, Eligible Contractor
or an Eligible Director who owns shares representing more than 10% of the total
combined voting power of all classes of outstanding shares of the Corporation or
any of its subsidiaries shall not be eligible for the grant of an ISO unless (a)
the Exercise Price under such ISO is at least 110% of the Current Market Value
of a Common Share on the date of grant and (b) such ISO by its terms is not
exercisable after the expiration of five years from the date of grant.
Section 4.03 Stock Option Agreement: Each grant of an Option under the Share
Option Plan shall be evidenced by a Share Option Agreement between the
Participant and the Corporation. Such Option shall be subject to all applicable
terms and conditions of the Share Option Plan and may be subject to any other
terms and conditions which are not inconsistent with the Share Option Plan and
which the Committee deems appropriate for inclusion in a Share Option Agreement.
The provisions of the various Share Option Agreements entered into under the
Share Option Plan need not be identical. The Committee may designate all or any
part of an Option as an ISO.
Section 4.04 Exercise Price: The price per share at which any Common Share that
is the subject of an Option may be purchased shall be determined by the
Committee at the time the Option is granted, provided that such price shall be
not less than the minimum price required pursuant to the rules of the primary
stock exchange or market on which the common shares may be listed or posted for
trading from time to time.
Section 4.05 Term of Option: The Option Period for each Option shall be such
period of time as shall be determined by the Committee, subject to any
Employment Contract, provided that no Option Period shall exceed ten years.
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Section 4.06 Lapsed Options: If Options granted under the Share Option Plan are
surrendered, terminate or expire without being exercised in whole or in part,
new Options may be granted covering the Common Shares not purchased under such
lapsed Options.
Section 4.07 Exercise of Options: The Committee shall determine when any Option
will become exercisable and may determine that the Option will be exercisable
immediately or in installments during an Option Period or otherwise.
Section 4.08 Eligible Participants on Exercise: An Option may be exercised by
the Optionee in whole at any time, or in part from time to time, in accordance
with Section 4.07, provided however that, except as otherwise specifically
provided in Section 4.11 or Section 4.12 hereof or in any Employment Contract,
no Option may be exercised unless the Optionee at the time of exercise thereof
is:
(a) in the case of an Eligible Employee, an officer of the
Corporation or a Designated Affiliate or in the employment of
the Corporation or a Designated Affiliate and has been
continuously an officer or so employed since the date of grant
of such Option, or in the case of an Eligible Contractor
provided services, provided however that a leave of absence
with the approval of the Corporation or such Designated
Affiliate shall not be considered an interruption of
employment for purposes of the Plan; and
(b) in the case of an Eligible Director who is not also an
Eligible Employee, a director of the Corporation or a
Designated Affiliate and has been such a director continuously
since the date of grant of such Option.
Section 4.09 Payment of Exercise Price: The issue of Common Shares on exercise
of any Option shall be contingent upon receipt by the Corporation of payment of
the aggregate purchase price for the Common Shares in respect of which the
Option has been exercised by cash or certified cheque delivered to the
registered office of the Corporation together with a validly completed notice of
exercise or by any other means as approved by the Committee. No Optionee or
legal representative, legatee or distributee of any Optionee will be, or will be
deemed to be, a holder of any Common Shares with respect to which such Optionee
was granted an Option, unless and until certificates for such Common Shares are
issued to such Optionee, or them, under the terms of the Plan. Subject to
Sections 4.12 and 6.01 hereof, upon an Optionee exercising an Option and paying
the Corporation the aggregate purchase price for the Common Shares in respect of
which the Option has been exercised, the Corporation shall as soon as
practicable issue and deliver a certificate representing the Common Shares so
purchased. The exercise of any Option will be contingent upon receipt by the
Corporation of cash payment of the full purchase price of the Common Shares that
are the subject of the exercised Option.
Section 4.10 Acceleration on Change of Control: In the event of a Change of
Control, all Options outstanding shall be immediately exercisable,
notwithstanding any determination of the Committee pursuant to Section 4.07
hereof, if applicable.
Section 4.11 Death of Participant: If a Participant dies while an Optionee, any
Option held by such Optionee at the date of death shall become immediately
exercisable notwithstanding any determination of the Committee pursuant to
Section 4.07 hereof, if applicable, and shall be exercisable in whole or in part
only by the person or persons to whom the rights of the Optionee under the
Option shall pass by the will of the Optionee or the laws of descent and
distribution for a period of twelve months after the date of death of the
Optionee or prior to the expiration of the Option Period in respect of the
Option, whichever is sooner, and then only to the extent that such Optionee was
entitled to exercise the Option at the date of death of such Optionee.
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Section 4.12 Effect of Retirement or Termination: In the event of the Retirement
or Termination of a Participant, such Participant may, but only within 60 days
immediately following such Retirement or Termination, exercise his or her
Options to the extent that such Participant was entitled to exercise such
Options at the date of such Retirement or Termination. Notwithstanding the
foregoing, in the event of the Retirement or Termination of a Participant, the
Committee may determine when any Option shall become exercisable or otherwise,
notwithstanding Section 4.07 of the Plan. This Section 4.12 is subject to any
Employment Agreement or any other agreement to which the Corporation or its
Designated Affiliates is a party with respect to the rights of such Participant
upon Retirement or Termination or Change in Control.
Section 4.13 Necessary Approvals: The obligation of the Corporation to issue and
deliver any Common Shares in accordance with the Share Option Plan shall be
subject to any necessary approval of any stock exchange, over-the-counter market
or regulatory authority having jurisdiction over the securities of the
Corporation. If any Common Shares cannot be issued to any Participant for
whatever reason, the obligation of the Corporation to issue such Common Shares
shall terminate and any Option exercise price paid to the Corporation shall be
returned to the Participant.
ARTICLE FIVE
WITHHOLDING TAXES
Section 5.01 Withholding Taxes: The Corporation or any Designated Affiliate of
the Corporation may take such steps as are considered necessary or appropriate
for the withholding of any taxes that the Corporation or any Designated
Affiliate of the Corporation is required by any law or regulation of any
governmental authority whatsoever to withhold in connection with any Option or
Common Share including, without limiting the generality of the foregoing, the
withholding of all or any portion of any payment or the withholding of the issue
of Common Shares to be issued upon the exercise of any Option, until such time
as the Participant has paid the Corporation or any Designated Affiliate of the
Corporation for any amount that the Corporation or Designated Affiliate of the
Corporation is required to withhold with respect to such taxes.
ARTICLE SIX
GENERAL
Section 6.01 Effective Time of Plan: The Plan, as set forth herein, shall become
effective upon the Corporation becoming a reporting issuer in a province of
Canada as contemplated by the reorganization of WaveRider Communications Inc.
and announced by press release on June 22, 2004 (the "Reorganization") and
ratification by the board of the effectiveness of the Plan. In the event that
the Reorganization does not occur, this Plan shall be of no effect. Subject to
the foregoing the Plan shall remain in effect until it is terminated by the
board of directors.
Section 6.02 Amendment of Plan: The Committee may from time to time in the
absolute discretion of the Committee amend, modify and change the provisions of
the Plan or any Options granted pursuant to the Plan, provided that any
amendment, modification or change to the provisions of the Plan or any Options
granted pursuant to the Plan that would:
(a) materially increase the benefits under the Plan or any Options
granted pursuant to the Plan;
(b) increase the number of Common Shares that may be issued
pursuant to the Plan or reduce the exercise price of an Option
or price of a Share that may be issued under the Plan other
than by virtue of Sections 6.06, 6.07 and 6.08 of the Plan;
(c) materially modify the requirements as to eligibility for
participation in the Plan; or
(d) materially modify the terms of any Option held by or Share to
be purchased by an Insider under the Plan; or
(e) amend, modify or change Section 4.07 of the Plan.
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shall only be effective upon such amendment, modification or change being
approved by the shareholders of the Corporation if required by any stock
exchange, over the-counter market or other regulatory authority having
jurisdiction over the securities of the Corporation. Any amendment, modification
or change of any provision of the Plan or any Options granted pursuant to the
Plan shall be subject to approval, if required, by any regulatory authority
having jurisdiction over the securities of the Corporation.
Section 6.03 Non-Assignable: Except as otherwise may be expressly provided for
under this Plan or pursuant to a will or by the laws of descent and
distribution, no right or interest of a Participant is assignable or
transferable.
Section 6.04 Rights as a Shareholder: No Optionee or holder of rights under the
Share Purchase Plan shall have any rights as a shareholder of the Corporation
with respect to any Common Shares that are the subject of an Option. No Optionee
or holder of rights under the Share Purchase Plan shall be entitled to receive,
and no adjustment shall be made for, any dividends, distributions or other
rights declared for shareholders of the Corporation for which the record date is
prior to the date of exercise of any Option or right.
Section 6.05 No Contract of Employment: Nothing contained in the Plan shall
confer or be deemed to confer upon any Participant the right to continue in the
employment of, or to provide services to, the Corporation or any Designated
Affiliate nor interfere or be deemed to interfere in any way with any right of
the Corporation or any Designated Affiliate to discharge any Participant at any
time for any reason whatsoever, with or without cause. Participation in any of
the Plans by a Participant shall be voluntary.
Section 6.06 Change of Control: In the event of a Change of Control:
(a) each Participant for whom Common Shares are held by the
Corporation for the Participant under the Share Purchase Plan
shall receive on the date that Common Shares would otherwise
be delivered to the Participant the securities, property or
cash to which the Participant would have received upon such
Change of Control if the Participant had held the Common
Shares immediately prior to such Change of Control; and
(b) upon the exercise of an Option under the Share Option Plan,
the holder thereof shall be entitled to receive the
securities, property or cash that the holder would have
received upon such Change of Control if the holder had
exercised the Option immediately prior to such Change of
Control, unless the Directors otherwise determine the basis
upon which such Option shall be exercisable.
Section 6.07 Adjustment in Number of Shares Subject to the Plan: In the event
there is any change in the terms of exercise of the Common Shares or in the
Common Shares themselves, whether by reason of a stock dividend, consolidation,
subdivision, reclassification or otherwise, an appropriate adjustment shall be
made by the Committee in:
(a) the number of Common Shares available under the Plan;
(b) the number of Common Shares subject to any Option; and
(c) the exercise price of the Common Shares subject to Options.
If the foregoing adjustment shall result in a fractional Common Share, the
fraction shall be disregarded. All such adjustments shall be conclusive, final
and binding for all purposes of the Plan.
Section 6.08 Securities Exchange Take-over Bid: In the event that the
Corporation becomes the subject of a take-over bid (within the meaning of the
Securities Act (Ontario)) pursuant to which 100% of the issued and outstanding
Common Shares are acquired by the offeror either directly or as a result of the
compulsory acquisition provisions of the incorporating statute, and where
consideration is paid in whole or in part in equity securities of the offeror,
the Committee may send notice to all Optionees requiring them to surrender their
Options within ten days of the mailing of such notice, and the Optionees shall
be deemed to have surrendered such Options, as the case may be, on the tenth day
after the mailing of such notice without further formality, provided that:
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(a) the offeror delivers with such notice an irrevocable and
unconditional offer to grant replacement options on the equity
securities offered as consideration;
(b) the Committee has determined, in good faith, that such
replacement options have substantially the same economic value
as the Options or Restricted Share Rights being surrendered;
and
(c) the surrender of Options and the granting of replacement
options can be effected on a tax deferred basis under the
Income Tax Act (Canada).
Section 6.09 No Representation or Warranty: The Corporation makes no
representation or warranty as to the future market value of any Common Shares
issued in accordance with the provisions of the Plan.
Section 6.10 Compliance with Applicable Law: If any provision of the Plan or any
Option contravenes any law or any order, policy, by-law or regulation of any
regulatory body having jurisdiction, then such provision shall be deemed to be
amended to the extent necessary to bring such provision into compliance
therewith.
Section 6.11 Interpretation: This Plan shall be governed by and construed in
accordance with the laws of the Province of Ontario.
A-19
ANNEX B
NEVADA REVISED STATUTES, 92a.300 through 92a.500 (extracts)
RIGHTS OF DISSENTING OWNERS
NRS 92A.300 Definitions. As used in NRS 92A.300 to 92A.500, inclusive,
unless the context otherwise requires, the words and terms defined in NRS
92A.305 to 92A.335, inclusive, have the meanings ascribed to them in those
sections.
(Added to NRS by 1995, 2086)
NRS 92A.305 "Beneficial stockholder" defined. "Beneficial stockholder"
means a person who is a beneficial owner of shares held in a voting trust or by
a nominee as the stockholder of record.
(Added to NRS by 1995, 2087)
NRS 92A.310 "Corporate action" defined. "Corporate action" means the
action of a domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.315 "Dissenter" defined. "Dissenter" means a stockholder who is
entitled to dissent from a domestic corporation's action under NRS 92A.380 and
who exercises that right when and in the manner required by NRS 92A.400 to
92A.480, inclusive.
(Added to NRS by 1995, 2087; A 1999, 1631)
NRS 92A.320 "Fair value" defined. "Fair value," with respect to a
dissenter's shares, means the value of the shares immediately before the
effectuation of the corporate action to which he objects, excluding any
appreciation or depreciation in anticipation of the corporate action unless
exclusion would be inequitable.
(Added to NRS by 1995, 2087)
NRS 92A.325 "Stockholder" defined. "Stockholder" means a stockholder of
record or a beneficial stockholder of a domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.330 "Stockholder of record" defined. "Stockholder of record" means
the person in whose name shares are registered in the records of a domestic
corporation or the beneficial owner of shares to the extent of the rights
granted by a nominee's certificate on file with the domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.335 "Subject corporation" defined. "Subject corporation" means the
domestic corporation which is the issuer of the shares held by a dissenter
before the corporate action creating the dissenter's rights becomes effective or
the surviving or acquiring entity of that issuer after the corporate action
becomes effective.
(Added to NRS by 1995, 2087)
NRS 92A.340 Computation of interest. Interest payable pursuant to to
92A.500, inclusive, must be computed from the effective date of the action until
the date of payment, at the average rate currently paid by the entity on its
principal bank loans or, if it has no bank loans, at a rate that is fair and
equitable under all of the circumstances.
(Added to NRS by 1995, 2087)
NRS 92A.360 Rights of dissenting member of domestic limited-liability
company. The articles of organization or operating agreement of a domestic
limited-liability company or, unless otherwise provided in the articles of
organization or operating agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the interest of a dissenting
member are available in connection with any merger or exchange in which the
domestic limited-liability company is a constituent entity.
(Added to NRS by 1995, 2088)
B-1
NRS 92A.380 Right of stockholder to dissent from certain corporate actions
and to obtain payment for shares.
1. Except as otherwise provided in NRS 92A.370 and 92A.390, any
stockholder is entitled to dissent from, and obtain payment of the fair value of
his shares in the event of any of the following corporate actions:
(a) Consummation of a conversion or plan of merger to which the domestic
corporation is a constituent entity:
(1) If approval by the stockholders is required for the conversion
or merger by NRS 92A.120 to 92A.160, inclusive, or the articles of
incorporation, regardless of whether the stockholder is entitled to vote on the
conversion or plan of merger; or
(2) If the domestic corporation is a subsidiary and is merged with its
parent pursuant to NRS 92A.180.
(b) Consummation of a plan of exchange to which the domestic corporation
is a constituent entity as the corporation whose subject owner's interests will
be acquired, if his shares are to be acquired in the plan of exchange.
(c) Any corporate action taken pursuant to a vote of the stockholders to
the extent that the articles of incorporation, bylaws or a resolution of the
board of directors provides that voting or nonvoting stockholders are entitled
to dissent and obtain payment for their shares.
2. A stockholder who is entitled to dissent and obtain payment pursuant to
NRS 92A.300 to 92A.500, inclusive, may not challenge the corporate action
creating his entitlement unless the action is unlawful or fraudulent with
respect to him or the domestic corporation.
(Added to NRS by 1995, 2087; A 2001, 1414, 3199; 2003, 3189)
NRS 92A.390 Limitations on right of dissent: Stockholders of certain
classes or series; action of stockholders not required for plan of merger.
1. There is no right of dissent with respect to a plan of merger or
exchange in favor of stockholders of any class or series which, at the record
date fixed to determine the stockholders entitled to receive notice of and to
vote at the meeting at which the plan of merger or exchange is to be acted on,
were either listed on a national securities exchange, included in the national
market system by the National Association of Securities Dealers, Inc., or held
by at least 2,000 stockholders of record, unless:
(a) The articles of incorporation of the corporation issuing the shares
provide otherwise; or
(b) The holders of the class or series are required under the plan of
merger or exchange to accept for the shares anything except:
(1) Cash, owner's interests or owner's interests and cash in lieu of
fractional owner's interests of:
(I) The surviving or acquiring entity; or
(II) Any other entity which, at the effective date of the plan
of merger or exchange, were either listed on a national securities exchange,
included in the national market system by the National Association of Securities
Dealers, Inc., or held of record by a least 2,000 holders of owner's interests
of record; or
(2) A combination of cash and owner's interests of the kind
described in sub-subparagraphs (I) and (II) of subparagraph (1) of paragraph
(b).
2. There is no right of dissent for any holders of stock of the surviving
domestic corporation if the plan of merger does not require action of the
stockholders of the surviving domestic corporation under.
(Added to NRS by 1995, 2088)
NRS 92A.400 Limitations on right of dissent: Assertion as to portions
only to shares registered to stockholder; assertion by beneficial stockholder.
1. A stockholder of record may assert dissenter's rights as to fewer than
all of the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the subject corporation
in writing of the name and address of each person on whose behalf he asserts
dissenter's rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different stockholders
2. A beneficial stockholder may assert dissenter's rights as to shares
held on his behalf only if:
(a) He submits to the subject corporation the written consent of the
stockholder of record to the dissent not later than the time the beneficial
stockholder asserts dissenter's rights; and
(b) He does so with respect to all shares of which he is the beneficial
stockholder or over which he has power to direct the vote.
(Added to NRS by 1995, 2089)
B-2
NRS 92A.410 Notification of stockholders regarding right of dissent.
1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, the notice of the meeting must state that
stockholders are or may be entitled to assert dissenters' rights under NRS
92A.300 to 92A.500, inclusive, and be accompanied by a copy of those sections.
2. If the corporate action creating dissenters' rights is taken by written
consent of the stockholders or without a vote of the stockholders, the domestic
corporation shall notify in writing all stockholders entitled to assert
dissenters' rights that the action was taken and send them the dissenter's
notice described in NRS 92A.430.
(Added to NRS by 1995, 2089; A 1997, 730)
NRS 92A.420 Prerequisites to demand for payment for shares.
1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, a stockholder who wishes to assert
dissenter's rights:
(a) Must deliver to the subject corporation, before the vote is taken,
written notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(b) Must not vote his shares in favor of the proposed action.
2. A stockholder who does not satisfy the requirements of subsection 1 and
NRS 92A.400 is not entitled to payment for his shares under this chapter.
(Added to NRS by 1995, 2089; 1999, 1631)
NRS 92A.430 Dissenter's notice: Delivery to stockholders entitled to
assert rights; contents.
1. If a proposed corporate action creating dissenters' rights is
authorized at a stockholders' meeting, the subject corporation shall deliver a
written dissenter's notice to all stockholders who satisfied the requirements to
assert those rights.
2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates to what
extent the transfer of the shares will be restricted after the demand for
payment is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to the news media or to the stockholders of the terms of the
proposed action and requires that the person asserting dissenter's rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(d) Set a date by which the subject corporation must receive the demand
for payment, which may not be less than 30 nor more than 60 days after the date
the notice is delivered; and
(e) Be accompanied by a copy of NRS 92A.300 to , inclusive. (Added to NRS
by 1995, 2089)
NRS 92A.440 Demand for payment and deposit of certificates; retention of
rights of stockholder.
1. A stockholder to whom a dissenter's notice is sent must:
(a) Demand payment;
(b) Certify whether he or the beneficial owner on whose behalf he is
dissenting, as the case may be, acquired beneficial ownership of the shares
before the date required to be set forth in the dissenter's notice for this
certification; and
(c) Deposit his certificates, if any, in accordance with the terms of the
notice.
2. The stockholder who demands payment and deposits his certificates, if
any, before the proposed corporate action is taken retains all other rights of a
stockholder until those rights are cancelled or modified by the taking of the
proposed corporate action.
3. The stockholder who does not demand payment or deposit his certificates
where required, each by the date set forth in the dissenter's notice, is not
entitled to payment for his shares under this chapter.
(Added to NRS by 1995, 2090; A 1997, 730; 2003, 3189)
B-3
NRS 92A.450 Uncertificated shares: Authority to restrict transfer after
demand for payment; retention of rights of stockholder.
1. The subject corporation may restrict the transfer of shares not
represented by a certificate from the date the demand for their payment is
received.
2. The person for whom dissenter's rights are asserted as to shares not
represented by a certificate retains all other rights of a stockholder until
those rights are cancelled or modified by the taking of the proposed corporate
action.
(Added to NRS by 1995, 2090)
NRS 92A.460 Payment for shares: General requirements.
1. Except as otherwise provided in NRS 92A.470, within 30 days after
receipt of a demand for payment, the subject corporation shall pay each
dissenter who complied with NRS 92A.440 the amount the subject corporation
estimates to be the fair value of his shares, plus accrued interest. The
obligation of the subject corporation under this subsection may be enforced by
the district court:
(a) Of the county where the corporation's registered office is located; or
(b) At the election of any dissenter residing or having its registered
office in this state, of the county where the dissenter resides or has its
registered office. The court shall dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, a statement of income
for that year, a statement of changes in the stockholders' equity for that year
and the latest available interim financial statements, if any;
(b) A statement of the subject corporation's estimate of the fair value of
the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's rights to demand payment under NRS
92A.480; and
(e) A copy of NRS 92A.300 to , inclusive.
(Added to NRS by 1995, 2090)
NRS 92A.470 Payment for shares: Shares acquired on or after date of
dissenter's notice.
1. A subject corporation may elect to withhold payment from a dissenter
unless he was the beneficial owner of the shares before the date set forth in
the dissenter's notice as the date of the first announcement to the news media
or to the stockholders of the terms of the proposed action.
2. To the extent the subject corporation elects to withhold payment, after
taking the proposed action, it shall estimate the fair value of the shares, plus
accrued interest, and shall offer to pay this amount to each dissenter who
agrees to accept it in full satisfaction of his demand. The subject corporation
shall send with its offer a statement of its estimate of the fair value of the
shares, an explanation of how the interest was calculated, and a statement of
the dissenters' right to demand payment pursuant to NRS 92A.480.
(Added to NRS by 1995, 2091)
NRS 92A.480 Dissenter's estimate of fair value: Notification of subject
corporation; demand for payment of estimate.
1. A dissenter may notify the subject corporation in writing of his own
estimate of the fair value of his shares and the amount of interest due, and
demand payment of his estimate, less any payment pursuant to NRS 92A.460, or
reject the offer pursuant to NRS 92A.470 and demand payment of the fair value of
his shares and interest due, if he believes that the amount paid pursuant to NRS
92A.460 or offered pursuant to NRS 92A.470 is less than the fair value of his
shares or that the interest due is incorrectly calculated.
2. A dissenter waives his right to demand payment pursuant to this section
unless he notifies the subject corporation of his demand in writing within 30
days after the subject corporation made or offered payment for his shares.
(Added to NRS by 1995, 2091)
NRS 92A.490 Legal proceeding to determine fair value: Duties of subject
corporation; powers of court; rights of dissenter.
1. If a demand for payment remains unsettled, the subject corporation
shall commence a proceeding within 60 days after receiving the demand and
petition the court to determine the fair value of the shares and accrued
interest. If the subject corporation does not commence the proceeding within the
60-day period, it shall pay each dissenter whose demand remains unsettled the
amount demanded.
2. A subject corporation shall commence the proceeding in the district
court of the county where its registered office is located. If the subject
corporation is a foreign entity without a resident agent in the state, it shall
commence the proceeding in the county where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
entity was located.
B-4
3. The subject corporation shall make all dissenters, whether or not
residents of Nevada, whose demands remain unsettled, parties to the proceeding
as in an action against their shares. All parties must be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced
under subsection 2 is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend a decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or any amendment thereto. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is entitled to a
judgment:
(a) For the amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the subject corporation; or
(b) For the fair value, plus accrued interest, of his after-acquired
shares for which the subject corporation elected to withhold payment pursuant to
NRS 92A.470.
(Added to NRS by 1995, 2091)
NRS 92A.500 Legal proceeding to determine fair value: Assessment of costs
and fees.
1. The court in a proceeding to determine fair value shall determine all
of the costs of the proceeding, including the reasonable compensation and
expenses of any appraisers appointed by the court. The court shall assess the
costs against the subject corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously or not
in good faith in demanding payment.
2. The court may also assess the fees and expenses of the counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) Against the subject corporation and in favor of all dissenters if the
court finds the subject corporation did not substantially comply with the
requirements of NRS 92A.300 to 92A.500, inclusive; or
(b) Against either the subject corporation or a dissenter in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith with
respect to the rights provided by NRS 92A.300 to 92A.500, inclusive.
3. If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the subject corporation, the
court may award to those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefited.
4. In a proceeding commenced pursuant to NRS 92A.460, the court may assess
the costs against the subject corporation, except that the court may assess
costs against all or some of the dissenters who are parties to the proceeding,
in amounts the court finds equitable, to the extent the court finds that such
parties did not act in good faith in instituting the proceeding.
5. This section does not preclude any party in a proceeding commenced
pursuant to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P. 68
or NRS 17.115.
(Added to NRS by 1995, 2092)
B-5
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(A) The registrant's Articles provide that the registrant will indemnify
directors, officers, former directors or officers of the registrant, and the
registrant may also indemnify other individuals who have acted at the
registrant's request as a director or officer or in a similar capacity (any of
the foregoing being referred to as an "eligible party"), of another company,
against all costs, charges and expenses, including an amount paid to settle or
satisfy a judgment, penalty or fine, reasonably incurred by such individual in
respect of any legal proceeding or investigative action in which the individual
is involved because of that association with the registrant or such other
company, to the greatest extent permitted by the Business Corporations Act
(British Columbia) (the "BCBCA").
As provided in the BCBCA, the registrant may not indemnify an individual
identified above if any of the following circumstances apply:
a) if the indemnity or payment is made under an earlier agreement to
indemnify or pay expenses and, at the (time that the agreement to
indemnify or pay expenses was made, the registrant was prohibited
from giving the indemnity or paying the expenses by its memorandum
or articles;
b) if the indemnity or payment is made otherwise than under an earlier
agreement to indemnify or pay (expenses and, at the time that the
indemnity or payment is made, the registrant is prohibited from
giving the indemnify or paying the expenses by its constating
document;
c) if, in relation to the subject matter of the proceeding eligible for
indemnification, the eligible party ( did not act honestly and in
good faith with a view to the best interests of the registrant or
the associated corporation, as the case may be;
d) in the case of a proceeding eligible for indemnification, other than
a civil proceeding, if the eligible ( party did not have reasonable
grounds for believing that the eligible party's conduct in respect
of which the proceeding was brought was lawful.
On the application of the registrant or an eligible party, the court may
do one or more of the following:
a) order the registrant to indemnify an eligible party against any
liability incurred by the eligible party ( in respect of an eligible
proceeding;
b) order the registrant to pay some or all of the expenses incurred by
an eligible party in respect of an ( eligible proceeding;
c) order the enforcement of, or any payment under, an agreement of
indemnification entered into by the ( registrant;
d) order the registrant to pay some or all of the expenses actually and
reasonably incurred by any person ( in obtaining an order under this
section;
(e) make any other order the court considers appropriate.
The foregoing summary is necessarily subject to the complete text of the
registrant's Articles and it is qualified in its entirety by reference thereto.
(B) The registrant may enter from time to time into indemnity agreements
with each of its directors and officers or other persons to supplement the
indemnification protection available under the registrant's articles referred to
above.
Part II-1
(C) A British Columbia corporation also has the power to purchase and
maintain insurance for its directors and officers. The directors and officers of
the registrant are covered by an insurance policy indemnifying them against
certain liabilities, including certain liabilities arising under the Securities
Act of 1933, which might be incurred by them in such capacities and against
which they might not be indemnified by the registrant. The registrant is also
covered by an insurance policy indemnifying it against certain liabilities it
may incur on its own behalf and in respect of its obligations to indemnify its
directors and officers, as noted above.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the issuer pursuant to the foregoing provisions, or otherwise, the
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. (See "ITEM 22. UNDERTAKINGS).
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------
2.1 Form of Agreement and Plan of Merger among WaveRider, Inc.,
WaveRider Communications (Canada) Inc. and WaveRider Acquisition
Company (included as Annex A to the joint proxy
statement/prospectus that constitutes part of this registration
statement)
3.1 Notice of Articles of WaveRider Communications (Canada) Inc.
3.2 Articles of WaveRider Communications (Canada) Inc.
*4.1 Specimen certificate representing common shares of WaveRider
Communications (Canada) Inc.
5.1 Opinion of Dumoulin Black, regarding the legality of securities
to be issued by WaveRider Communications (Canada) Inc.
8.1 Opinion of Cassels Brock & Blackwell LLP, regarding certain
Canadian tax matters
8.2 Opinion of Foley Hoag LLP, regarding certain U.S. tax matters
10.1 Share Incentive Plan of WaveRider Communications (Canada) Inc.
(included in Annex A to the joint proxy statement/prospectus
that constitutes part of this registration statement)
23.1 Consent of Wolf & Company, P.C. to inclusion of their opinion
in F-4 registration statement
23.2 Consent of Wolf & Company, P.C. to inclusion of their opinion
in preliminary proxy on schedule 14-A
23.3 Consent of PriceWaterhouseCoopers LLP to inclusion of their
opinion in F-4 registration statement
23.4 Consent of PriceWaterhouseCoopers LLP to inclusion of their
opinion in preliminary proxy on schedule 14-A
23.5 Consent of Cassels Brock & Blackwell LLP (included in
Exhibit 8.1)
23.6 Consent of Dumoulin Black (included in Exhibit 5.1)
23.7 Consent of Dumoulin Black (included in Exhibit 5.1)
99.1 Proxy card for use in connection with the Stockholders' Meeting
of WaveRider Communications Inc.
- ---------
* To be filed by amendment.
(b) Financial Statement Schedules.
Not applicable.
Part II-2
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
A. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
i. To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
ii. To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
iii. To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
B. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
C. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
D. To file a post-effective amendment to the registration statement to
include any financial statements required by Item 8.A. of Form 20-F
at the start of any delayed offering or throughout a continuous
offering. Financial statements and information otherwise required by
Section 10(a)(3) of the Act need not be furnished, provided that the
registrant includes in the prospectus, by means of a post-effective
amendment, financial statements required pursuant to this paragraph
(a)(4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of
those financial statements.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Part II-3
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Toronto, Province of
Ontario, Canada, on August 11, 2004.
WaveRider Communications (Canada) Inc.
By: /s/ Bruce Sinclair
-----------------------
Chief Executive Officer
By: /s/ Gerry Chastelet
--------------------
Authorized Representative in the United States
Each person whose signature appears below appoints Bruce Sinclair, Gerry
Chastelet and Scott Worthington, and each of them, each of whom may act without
the joinder of the other, as his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto and all other documents in connection
therewith, with the Securities and Exchange Commission, granting unto such
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully and for all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them or their
substitutes, may lawfully do or cause to be done by virtue hereof.
Part II-4
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons as of August 11,
2004 in the capacities indicated.
SIGNATURE TITLE
- --------- -----
/s/ Bruce Sinclair
- -------------------------- Director, Chief Executive Officer
Bruce Sinclair (principal executive officer)
/s/ Scott Worthington Director, Vice President and
- ------------------------ Chief Financial Officer and Corporate Secretary
Scott Worthington (principal financial and accounting officer)
Part II-5
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
2.1 Form of Agreement and Plan of Merger among WaveRider, Inc.,
WaveRider Communications (Canada) Inc. and WaveRider
Acquisition Company (included as Annex A to the joint proxy
statement/prospectus that constitutes part of this registration
statement)
3.1 Notice of Articles of WaveRider Communications (Canada) Inc.
3.2 Articles of WaveRider Communications (Canada) Inc.
*4.1 Specimen certificate representing common shares of WaveRider
Communications (Canada) Inc.
5.1 Opinion of Dumoulin Black, regarding the legality of securities
to be issued by WaveRider Communications (Canada) Inc.
8.1 Opinion of Cassels Brock & Blackwell LLP, regarding certain
Canadian tax matters
8.2 Opinion of Foley Hoag LLP, regarding certain U.S. tax matters
10.1 Share Incentive Plan of WaveRider Communications (Canada) Inc.
(included in Annex A to the joint proxy statement/prospectus
that constitutes part of this registration statement) p
23.1 Consent of Wolf & Company, P.C. to inclusion of their opinion
in F-4 registration statement
23.2 Consent of Wolf & Company, P.C. to inclusion of their opinion
in preliminary proxy on schedule 14-A
23.3 Consent of PriceWaterhouseCoopers LLP to inclusion of their
opinion in F-4 registration statement
23.4 Consent of PriceWaterhouseCoopers LLP to inclusion of their
opinion in preliminary proxy on schedule 14-A
23.5 Consent of Cassels Brock & Blackwell LLP (included in
Exhibit 8.1)
23.6 Consent of Dumoulin Black (included in Exhibit 5.1)
23.7 Consent of Dumoulin Black (included in Exhibit 5.1)
99.1 Proxy card for use in connection with the Stockholders' Meeting
of WaveRider Communications Inc.
* To be filed by amendment.
Part II-6