-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G2YA4wJno5OGC0eomiHLZfrJgjBIaDceDeMRxgdXg3/W/gd1mkJ5VSQmAA0vUWTp c/T+gGdaMLODgN6HNineBw== 0000950123-97-007817.txt : 19970918 0000950123-97-007817.hdr.sgml : 19970918 ACCESSION NUMBER: 0000950123-97-007817 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19970912 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WIDECOM GROUP INC CENTRAL INDEX KEY: 0000922023 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 980139939 STATE OF INCORPORATION: A6 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-35547 FILM NUMBER: 97679879 BUSINESS ADDRESS: STREET 1: 55 CITY CENTER DR STREET 2: STE 500 L5B 1M3 MISSISSAUGA CITY: ONTARIO, CANADA STATE: A6 BUSINESS PHONE: 9057120505 MAIL ADDRESS: STREET 1: 55 CITY CENTRE DRIVE STREET 2: STE 500 MISSISSAUGA L5B 1M3 CITY: ONTARIO, CANADA STATE: A6 S-3 1 THE WIDECOM GROUP INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER , 1997 FILE NO. ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ THE WIDECOM GROUP INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ONTARIO, CANADA 98-0139939 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
267 MATHESON BOULEVARD EAST MISSISSAUGUA, ONTARIO CANADA, L4Z 1X8 (905) 712-0505 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF COMPANY'S PRINCIPAL EXECUTIVE OFFICES) SUNEET S. TULI, EXECUTIVE VICE PRESIDENT C/O THE CORPORATION TRUST COMPANY 1633 BROADWAY, NEW YORK, NEW YORK 10019 (905) 712-0505 (NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ WITH COPIES TO: VICTOR J. DIGIOIA, ESQ. GOLDSTEIN & DIGIOIA, LLP 369 LEXINGTON AVENUE NEW YORK, NEW YORK 10017 TELEPHONE (212) 599-3322 FACSIMILE (212) 557-0295 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plan, please check the following box. [ ] 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 of 1933 other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please 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(c) 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 delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [X] 2 CALCULATION OF REGISTRATION FEE
================================================================================================ PROPOSED MAXIMUM PROPOSED MAXIMUM AGGREGATE TITLE OF SHARES TO BE AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF REGISTERED REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE - ------------------------------------------------------------------------------------------------ Common Stock, no par value(2)................... 146,000 $ 3.50 $ 511,000 $ 155.00 - ------------------------------------------------------------------------------------------------ Common Stock, no par value(3)................... 206,000 $ 2.50 $ 515,000 $ 157.00 - ------------------------------------------------------------------------------------------------ Common Stock, no par value(4)................... 124,750 $ 2.00 $ 249,500 $ 76.00 - ------------------------------------------------------------------------------------------------ Common Stock, no par value(5)................... 125,000 $ 2.00 $ 250,000 $ 76.00 - ------------------------------------------------------------------------------------------------ Common Stock, no par value(6)................... 50,000 $ 4.00 $ 200,000 $ 61.00 - ------------------------------------------------------------------------------------------------ Total.............. 651,750 $1,725,500 $ 525.00 ================================================================================================
(1) Total estimated solely for the purpose of determining the registration fee. Based upon the closing bid price of the Company's stock on the Nasdaq Small Cap Market on September 10, 1997 ($2.00). (2) Represents Shares of Common Stock issuable upon exercise of outstanding Common Stock purchase warrants held by a certain security holder. Pursuant to Rule 416 of the Securities Act of 1933, as amended (the "Act"), there are being registered such additional number of shares of Common Stock as may become issuable pursuant to the anti-dilution provisions of the Warrants. (3) Represents Shares of Common Stock issuable upon exercise of outstanding Common Stock purchase warrants held by a certain security holders. Pursuant to Rule 416 of the Act there are also being registered such additional number of shares of Common Stock as may become issuable pursuant to the anti-dilution provisions of the Warrants. (4) Shares of Common Stock held by certain security holders. (5) Shares of Common Stock issuable upon conversion of $250,000 of 8% convertible debentures (the "Debentures") to be sold by certain security holders. The Debentures are convertible at a per share conversion price (the "Conversion Price") equal to 80% of the average closing bid price of the Shares (the "Average Bid Price"), as quoted on the National Association of Securities Dealers Automated Quotation ("Nasdaq") system over the twenty (20) trading days immediately preceding the date of the Company's receipt of notice requesting conversion; therefore, as the Average Bid Price and likewise the Conversion Price, increases or decreases, as the case may be, the number of shares issuable upon conversion decreases or increases, respectively. The maximum offering price however, will always remain at $250,000, the aggregate principal amount of the 8% Debentures. The number of shares of Common Stock registered reflects an offering price of $2.00 per share based upon the Average Bid Price. (6) Represents Shares of Common Stock issuable upon exercise of outstanding Common Stock purchase warrants held by a certain security holder. Pursuant to Rule 416 of the Act there are also being registered such additional number of shares of Common Stock as may become issuable pursuant to the anti-dilution provisions of the Warrants. ------------------------ 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 SECTION 8(a) MAY DETERMINE. ================================================================================ 3 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED SEPTEMBER 12, 1997 PROSPECTUS THIS PROSPECTUS COVERS AN AGGREGATE OF 651,750 SHARES OF COMMON STOCK THE WIDECOM GROUP INC. This Prospectus covers an aggregate of 651,750 shares of common stock, no par value (the "Shares") of The Widecom Group Inc., an Ontario corporation (the "Company"), held by certain securities holders (the "Selling Security Holders") of which: (i) 402,000 Shares are issuable pursuant to common stock purchase warrants ("Warrants"); and (ii) 124,750 shares were issued to certain Selling Security Holders pursuant to certain settlement agreements which settled two lawsuits in which the Company was a named party; and (iii) 125,000 shares of common stock issuable upon conversion of $250,000 of 8% convertible debentures. The Prospectus is intended to be utilized by the Selling Security Holders in connection with the resale of Shares owned by them. The Company will bear all the expenses incident to the registration of the Shares under the Securities Act of 1933, as amended (the "Securities Act"), and state securities laws, if any, on behalf of the Selling Security Holders. The Company will not receive any of the proceeds from the sale of the Shares by the Selling Security Holders; however, any proceeds received from the exercise of Warrants will be used for working capital. See "Use of Proceeds." The Company's common stock is traded in the over-the-counter market and is quoted on the Nasdaq Small Cap Market ("Nasdaq") under the symbol "WIDEF" and on the Boston Stock Exchange under the symbol "WDE". On September 9, 1997, the closing bid and asked prices for the Common Stock as reported on Nasdaq were $2.00 and $2.25, respectively. The Shares may be sold from time to time by the Selling Security Holders, or by the transferees of the Shares or Warrants. No underwriting arrangements have been entered into by the Selling Security Holders. The distribution of the Shares by the Selling Security Holders and/or their transferees may be effected in one or more transactions that may take place on the over-the-counter market, including ordinary brokers transactions, privately negotiated transactions or through sales to one or more dealers for resale of the Shares as principals, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. The Shares may be sold by the Selling Security Holders either (i) to a broker or dealer as principal for resale as such broker or dealer for its account pursuant to this Prospectus (e.g. in a transaction with a "market maker"); (ii) in brokerage transactions, including transaction in which the broker solicits purchasers or (iii) in privately negotiated transactions pursuant to any applicable exemption under the Securities Act of 1933, as amended (the "Act"). Usual and customary or specifically negotiated brokerage fees or commissions may be paid by the Selling Security Holders in connection with such sales. The Selling Security Holders and intermediaries through whom such Shares are sold may be deemed "underwriters" within the meaning of the Act, with respect to the Shares offered. THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" PAGE 8 OF THIS PROSPECTUS. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is September 12, 1997 4 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, files reports and other information with the Securities and Exchange Commission (the "Commission"). Reports, proxy and information statements and other information filed by the Company with the Commission pursuant to the informational requirements of the Exchange Act may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the following Regional Offices of the Commission: New York Regional Office, 7 World Trade Center, 13th Floor, New York, New York 10048; and Chicago Regional Office, Everett McKinley Dirkson Building, 210 South Dearborn Street, Room 1204, Chicago, Illinois 60604. Copies of such material may be obtained from the public reference section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents, filed by the Company with the Commission pursuant to the Exchange Act, are hereby incorporated by reference, except as superseded or modified herein: 1. The Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1997. 2. The Company's Form 10-K/A No. 1 for the fiscal year ended March 31, 1997. 3. The Company's Form 10Q for the fiscal quarter ending June 30, 1997. 4. The Company's Form 8/A, dated, 12/15/95, 12/9/95 and 12/8/95. Each document filed subsequent to the date of this Prospectus pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of this offering shall be deemed to be incorporated by reference in this Prospectus and shall be part hereof from the date of filing of such document. The Company will provide without charge to each person to whom a copy of this Prospectus is delivered, upon the written or oral request of any such person, a copy of any document described above (other than exhibits). Requests for such copies should be directed to The Widecom Group, Inc., 267 Matheson Boulevard, Mississauga, Ontario Canada, L4Z 1X8. The Company's telephone number is (905) 712-0505. No persons have been authorized to give any information or to make any representations other than those contained in this Prospectus in connection with the offering of securities made hereby and, if given or made, such information or representations must not be relied upon as having been authorized by the Company, the Selling Security Holders or any other person. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, by anyone, in any jurisdiction to or from any person to whom it is not lawful to make such offer or solicitation in such jurisdiction. Neither the delivery of this Prospectus nor any distribution of securities made hereunder shall under any circumstances create an implication that there has been no change in the affairs of the Company since the date hereof or that the information herein is correct as of any time subsequent to its date. 2 5 PROSPECTUS SUMMARY The following summary is intended to set forth certain pertinent facts and highlights from material contained in the body of this Prospectus and the Company's Report on Form 10-K and 10K/A Amendment No. 1 for the fiscal year ended March 31, 1997 (collectively, the "Form 10-K"); and the Company's quarterly report on Form 10Q for the fiscal quarter ended June 30, 1997 (the "Form 10Q"), which are incorporated herein by reference. The summary is qualified in its entirety by reference to the more detailed information and consolidated financial statements appearing elsewhere in this Prospectus and Form 10-K and 10Q. Each prospective investor is urged to read this Prospectus, the Form 10-K and Form 10Q in their entirety. THE COMPANY General The Widecom Group Inc., incorporated in Ontario, Canada, June 15, 1990 (the "Company"), designs, assembles and recently commenced limited marketing of high-speed, high-performance document systems which transmit, receive, print, copy and/or archive wide format documents, such as blueprints, schematics, newspaper layouts and other mechanical and engineering drawings. The Company's products consist WIDEfax Scan and SLC436-C color scanner. The WIDEfax Scan and SLC436-C color scanner are wide format scanners capable of scanning a document up to 36" wide. The Company's scanners interface with a personal computer to enable the user to scan images into the personal computer for display, editing and archiving. The WIDEfax Scan provides the capacity of scanning monochromatic images only. As the next generation of the WIDEfax Scan, the SLC436-C color scanner was introduced in May of 1996, as a low-cost wide format color scanner capable of scanning 36" by 48" documents at a resolution of 400 dots per square inch ("dpi") in under thirty seconds for monochrome images, and under eight minutes for full color images. The Company's scanners incorporate the Company's single line contact scanner technology to capture the image of a wide format document. The contact scanner consists of a 36" fiber optic array, 8mm "image sensor chips" aligned to create a 36" length light sensor, a 36" light emitting diode ("LED") array and software designed to enhance the scanned image by removing deteriorations from the document being reproduced and to interface the scanner with a personal computer. The fiber optic array acts as a lens and focuses the image on the image sensor chips which read the image. Because the Company's image sensor chips contain pixels larger than those of chips used in other scanners, the Company's contact scanners require less light exposure and, therefore, operate faster than other scanners. SLC436-C reads an image in increments of 400 dpi, whereas standard format facsimile machines read images in increments of 200 dpi and other wide format scanners read images in increments ranging from 138 dpi to 417 dpi. Higher dpi improves the reliability of the scanned image because the scanner recognizes greater image detail. The software incorporated in the SLC436-C color scanner improves scanned images by removing background discoloration and enhancing faded images. This capability improves the image quality of documents which are stained or which have faded over time. The Company's enabling software permits the SLC436-C color scanner to interface with a personal computer, as well as permit the user to perform a variety of scanning, editing, viewing and transmission functions. The Company has developed and markets two applications software packages, WIDEView, designed to enhance the user's document imaging capabilities, and SLC-OVLY, which enables the Company's WIDEfax products to interface with personal computers operating certain CAD software. The Company sells several accessories for use in connection with its WIDEfax products, including various types of paper and film. Sales of accessories have not been material to date and are not expected to be material in the future. The Company's primary marketing strategy is to sell its products in targeted commercial markets in which wide format document systems are believed to have potential for significant applications, principally 3 6 architectural, engineering and construction firms, for which reproduction, archiving and transmission of wide format documents are essential. The Company also markets its products for use by manufacturers in the garment, and other industries, utilities and government agencies and applications in newspapers and advertising industries. The Company believes that its products are used by consumers in these markets for a variety of applications, including the transmission of construction plans, architectural drawings, newspaper and advertising layouts and clothing patterns. RECENT EVENTS Private Placement Offering Completed On May 19, 1997, the Company completed a private offering (the "May Private Offering") pursuant to Regulation D promulgated under the Securities Act, wherein the Company raised $250,000 in gross proceeds in connection with the sale by the Company to Global Bermuda Partnership, a Bermuda limited Partnership, of five units ("Units"); each Unit comprised of (i) one $50,000 principal amount convertible debentures (collectively the "Debentures") and (ii) 10,000 common stock purchase warrants. Under the Debentures, Global Bermuda will have the right, at any time commencing on the 121st day following the date of issuance of the Debentures and prior to the payment in full of the Debentures, to convert all or part of the unpaid balance of the Debentures (the amount so converted hereinafter being referred to as a "Conversion Amount") into Common Stock of the Company at a conversion price (the "Conversion Price") equal to 80% of the average closing bid price of the shares, as quoted on Nasdaq system over the twenty (20) trading days immediately preceding the date of the Company's receipt of notice requesting conversion. The number of Shares into which any Conversion Amount may be converted shall equal the quotient obtained by dividing such Conversion Amount by the Conversion Price. Based upon a conversion price of $2.00, the Debentures will be converted into 125,000 shares. The warrants are exercisable over five years and have an exercise price of $4.00 per share, subject to adjustment in certain circumstances. The Registration Statement, of which this Prospectus forms a part, includes the shares of common stock issuable upon exercise. Financial Consulting Agreement On June 2, 1997, the Company entered into an agreement with Alex Moore & Co (the "Consultant"), whereby in consideration of certain consultant services, the consultant received: (i) Shares issuable upon exercise of Warrants at an exercise price of $3.50 per share, exercisable six months from the effective date of this Registration Statement (the "Tranch I Warrants"); and (ii) shares issuable upon exercise of Warrants at an exercise price of $2.50 per share (the "Tranch II Warrants"). The exercise period for the Tranch II Warrants shall commence after the exercise of the Tranch I Warrants rated above and expire one-year from the Effective Date of this Registration Statement. Settlement of Certain Litigation On June 27, 1997, the Company entered into a settlement agreement with certain individuals who had filed suit against the Company (collectively, the "Settling Parties"). The complaint in this action was based upon alleged improper conduct by the Company with respect to the announcement by the Company of the redemption of certain warrants, which announcement was made on February 10, 1997. The complaint included causes of action for alleged fraud, in the nature of alleged misrepresentation and in the nature of alleged negligent misrepresentation, alleged breach of contract, alleged breach of fiduciary duty, and alleged violations of the California Corporations Code. The Settling Parties sought compensatory and general damages, punitive damages, and injunctive relief. The complaint also demanded an award of pre-judgment and post-judgment interest, attorneys' fees, expert witness fees, and costs. In connection therewith, under the terms and conditions of the Settlement Agreement the Settling Parties received 75,000 shares of the Company's Common Stock and may receive an additional 75,000 shares subject to the terms and conditions of the Settlement Agreement. The Settling Parties also received 50,000 Warrants to purchase Common Stock at an exercise price of $2.50 per share, which Warrants expire on 4 7 June 27, 1999. The Registration Statement, of which this Prospectus forms a part, includes the 75,000 shares of the Company's Common Stock and the 50,000 shares underlying the Warrants. On May 1, 1997, the Company, Messrs. Raja and Suneet Tuli, the Company's President and Vice President, respectively, entered into a Settlement Agreement with certain individuals in connection with an action alleging improper conduct with respect to the announcement of the redemption of certain Warrants, which announcement was made on February 10, 1997. The settlement obligated the Company to reduce the Warrant redemption to half of the publicly held Warrants and reduced the exercise price to $3.00 from $4.00. Under certain of the terms and conditions of this second settlement agreement, plaintiffs' counsel received 46,250 shares of the Company's common stock. The Registration Statement, of which this Prospectus forms a part, includes the Shares issued to the plaintiffs' counsel. THE OFFERING Common Stock Outstanding Prior to Offering(1)....................... 5,690,001 Common Stock Outstanding After the Offering(2)...................... 6,217,001 Risk Factors................................. This Offering involves a high degree of risk. See "Risk Factors." Use of Proceeds(3)........................... The Company will not receive any proceeds from the sale of the Selling Security Holders. The Company anticipates that proceeds received from the exercise of any Warrants will be used for working capital, and general corporate purposes. See "Use of Proceeds." Nasdaq Smallcap Market Symbol:............... "WIDEF" Boston Stock Exchange Symbol:................ "WDE"
- --------------- (1) Does not include (i) 500,000, shares of Common Stock reserved for issuance under the Company's 1995 Employee Stock Option Plan, of which 200,000 shares have been reserved for currently outstanding options and 300,000 shares are available for future issuances; and (ii) 1,971,322 outstanding warrants and debentures. (2) Assumes the exercise of all Warrents and conversion of Debentures registered hereby. Does not include (i) 500,000, shares of Common Stock reserved for issuance under the Company's 1995 Employee Stock Option Plan, of which 200,000 shares have been reserved for currently outstanding options and 300,000 shares are available for future issuances; and (ii) 1,971,322 outstanding warrants and debentures. (3) The Company will receive up to approximately $1,226,000 if all the Warrants with respect to Shares covered by this Prospectus are exercised. See "Use of Proceeds." 5 8 RISK FACTORS The securities offered hereby are speculative in nature and involve a high degree of risk, including, but not limited to, the risk factors described below. Each prospective investor should carefully consider the following risk factors before making an investment decision. This Prospectus contains, in addition to historical information, forward looking statements (as defined in the Private Securities Litigation reform Act of 1995) that involve risks and uncertainties. The statements appear in a number of places in this Prospectus and include statements regarding the intent, belief or current expectations of the Company, its directors or officers with respect to: (i) future revenues,(ii) product development, (iii) the future of the wide format document system industry, and (iv) other matters. The Company's actual results could differ materially from those anticipated in the forward looking statements as a result of certain factors, including those discussed below and elsewhere in this Prospectus. Certain statements in this Prospectus, and the Company's Reports to the Commission filed under the Securities Exchange Act of 1934 which are incorporated by reference herein, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "1995 Reform Act"). The Company desires to avail itself of certain "safe harbor" provisions of the 1995 Reform Act and is therefore including this special note to enable the Company to do so. Forward-looking statements included in this Prospectus or hereafter included in other publicly available documents filed with the Securities and Exchange Commission, reports to the Company's stockholders and other publicly available statements issued or released by the Company involve known and unknown risks, uncertainties, and other factors which could cause the Company's actual results, performance (financial or operating) or achievements to differ from the future results, performance (financial or operating) achievements expressed or implied by such forward looking statement. Such future results are based upon management's best estimates based upon current conditions and the most recent results of operations. These risks include, but are not limited to risks associated with recent and accumulated losses, competition, conflicts of interest, limited operating history, dependence upon one product line, and other risks detailed in the Company's Securities and Exchange Commission filings, including its Annual Report on Form 10-K, Form 10-Q as well as recently filed Reports on Form 8-K, if any, each of which could adversely affect the Company's business and the accuracy of the forward looking statements contained herein. 1. Limited Relevant Operating History; Limited Revenue and Profit; Future Operating Results. The Company commenced marketing its first 36( wide format facsimile machine on a limited basis, primarily for demonstration purposes, in 1992, and other wide format document systems in 1994 and has a limited relevant operating history upon which an evaluation of the Company's prospects and performance can be made. The Company is subject to all of the risks, expenses, delays, problems and difficulties typically encountered in the establishment of a new business in an industry characterized by intense competition, as well as those encountered in the shift from development to commercialization of new products based on innovative technologies. For example, although the Company announced in December 1996 that it had achieved its initial target production for its SLC 436 color scanner, the Company has since reduced its production output in an effort to implement changes intended to reduce the incidence of manufacturing defects. Since inception, the Company has generated limited revenues from operations, achieved limited profitability in the fiscal years 1993 through 1995, sustained a loss of approximately $840,000 for the fiscal year ended March 31, 1996 and a further loss of approximately $4,488,000 for the fiscal year ended March 31, 1997 and $1,014,000, for the fiscal quarter ended June 30, 1997 as well. The Company would have incurred losses during each of the fiscal years ended March 31, 1993, 1994, 1995, 1996 and 1997 if it had not received revenues from research and development grants and similar reimbursement programs. Unfavorable general economic conditions, including any possible future downturns in domestic or international economies, would materially and adversely affect the Company's future operating results. There can be no assurance that the Company will be able to achieve increased levels of revenue in the future or that the Company's future operations will be profitable. 2. Uncertainty of Revenue from Government Sponsored Programs. To date, a substantial portion of the Company's revenues have been derived from research and development grants and reimbursement from 6 9 the Canadian government. Government sponsored programs are designed to encourage and support the development and exploitation of new technologies by providing partial reimbursement to Canadian businesses for expenses incurred in connection with research and development activities. Prior to 1993, the Company received reimbursement of a percentage of substantially all of its expenses from the Canadian government, because the Company was classified as a "sole purpose research and development Company." Since 1993, reimbursement of the Company's expenses from the Canadian government has been limited to reimbursement of a specified percentage of its research and development expenses and qualified related support expenses. Companies seeking reimbursement must submit applications verifying the amounts and nature of research and development expenditures incurred for audit by the Canadian government. Although the Canadian government reimbursed the Company for substantially all amounts requested in 1991 and 1992, the Company did not receive $43,800 (approximately 9.6%) of its requested reimbursement for the calendar year 1993. As of March 31, 1997, the Company had research and development grants receivable of $696,347 representing amounts for which reimbursement has been requested for calendar 1994, calendar 1995 and, three months, ended March 31, 1996. Of this amount, $420,000 has subsequently been received. Other government sponsored research grants and subsidies have been provided to the Company to fund specific research programs. The majority of such grants and subsidies have been provided under the Industrial Research Assistance Program which is administered by the Canadian National Research Council (the "NRC"). Grants are made on the condition that research and development activities are performed in Canada and with the prior approval by the NRC of the scope, content and objectives of the research to be performed. For the years ended March 31, 1995 and 1996, the Company received payments under such program of approximately, $18,000 and $66,000, respectively. No grants were received for the year ending March 31, 1997; however, the Company together with a branch of the government of the Province of Quebec became equal shareholders in a research and development Company named 3994340 Canada Inc., doing business as Technologies of NovImage ("NovImage"). The joint venture allows NovImage to receive grants in excess of 40% of qualified research expenditures. Products derived from the research are then licensed back to the Company at a nominal royalty of 0.5% of sales of those products. The formation of NovImage enables the Company to obtain a substantial increase in the amount of research that can be performed. See "Certain Relationships and related Transactions Form 10K." In 1996, a change in Canadian tax legislation substantially reduced the amount of subsidy available on research and development performed by publicly traded companies. 3. Working Capital Position. The Company's heavy investment in property, plant, equipment and inventories, its continuing operating losses and its $1,850,000 investment in NovImage have substantially reduced the Company's cash position. As a result, management believes it will be necessary to raise additional capital in the near future, and is exploring the Company's alternatives at this time. The inability to obtain additional financing, when needed and on acceptable terms, would have a material adverse effect on the Company's operations. To the extent that any future financing involves the sale of the Company's equity securities, the interests of the Company's then existing shareholders, including investors in this offering, could be diluted. See "Recent Events." 4. Highly specialized and Emerging Markets: Uncertainty of Market Acceptance: Possibility of Differing Industry Standards. The wide format document systems industry is a highly specialized segment of the document systems industry and is characterized by emerging and evolving markets and an increasing number of entrants who have introduced or are developing an array of new wide format products based on a variety of technologies. Each of these entrants is seeking to establish its products and technologies as the preferred method for reproducing, transmitting and storing wide format documents. To the extent that a competitor establishes its technologies as the preferred method within the industry, the Company may be required to modify or discontinue its products. As is typical in the case of emerging and evolving markets, demand and market acceptance for newly introduced products is subject to a high level of uncertainty. Since both the sender and recipient of wide format facsimile transmissions must have a WIDEfax machine in order to accommodate a wide format document in its existing form, purchasers may be reluctant to purchase the Company's products until wide scale market acceptance has been achieved. Achieving market acceptance of the Company's products will require substantial marketing efforts and expenditures of significant funds to 7 10 create awareness and demand for the Company's products. In addition, potential customers may elect to utilize other products which they believe to be more efficient or have other advantages over the Company's products or may be reluctant to purchase the Company's products due to significant capital investment in other wide format document systems. There can be no assurance that emerging markets for the Company's products will not be limited, that the Company will have the funds or other resources necessary to achieve its marketing objective or that the Company's efforts will result in successful product commercialization or initial or continued market acceptance for its products. 5. Uncertainty of Introduced Product Lines. In 1992, the Company commenced making its first 36" wide format facsimile machine on a limited basis, primarily for demonstration purposes, and other wide format document systems in 1994. As a result, the Company has a limited relevant operating history upon which an evaluation of the Company's prospects and performance can be made. Since inception, the Company has generated limited revenues from operations and has not yet achieved profitability. The Company's revenues are derived from product sales and research and development grants and reimbursements from the Canadian government. The Company recognizes revenues from product sales when products are, and from research and development grants and reimbursements when related expenses are incurred. The Canadian government audits the Company's requests for reimbursement for research and development expenses incurred during a calendar year and makes reimbursement payments typically some months after the Company has filed the request. The Company's request for reimbursement for approximately $427,000 attributable to calendar year 1994 (which was filed in September 1995) has been audited and has been received from the Canadian government in May 1997. The Company has filed a request for reimbursement for the year ended December 31, 1995, and the three months ended March 31, 1996 for approximately $255,000 and $123,000 respectively. These requests have not been audited or paid by the Canadian Government. There is no assurance that the requests will be approved in their entirety or at all. Denial of all or a portion of such reimbursement by the Canadian government would result in a change to current period income and denial of a significant portion of such reimbursement would have a material adverse effect on the Company's results of operations for such periods. 6. Limited Marketing Capabilities and Experience; Dependence upon Third-Party Marketing Arrangements. The Company has limited marketing experience and limited financial, personnel and other resources to independently undertake extensive marketing activities. In connection therewith, the Company has entered into third-party marketing arrangements and intends to rely primarily on domestic and foreign distributors and dealers to market the Company's products. The Company will be dependent upon the efforts of such distributors and dealers and may be dependent upon a limited number of such distributors and dealers for a significant portion of its revenues. For the years ended March 31, 1995 and 1996, the Company's five largest distributors accounted for approximately 45.3% and 37%, respectively, of the Company's product sales. The Company has only recently entered into marketing arrangements with many of its key distributors and dealers and the Company's prospects will depend to a large extent upon their efforts and the Company's ability to develop and maintain strategic marketing relationships with additional distributors and dealers. Certain of the Company's dealers and distributors represent various product lines generally, and cannot be expected to increase their sales efforts for the Company's products in the absence of increased incentives or product demand. The Company will also be dependent upon such distributors and dealers to provide installation and support services. To the extent that such third parties provide inadequate service and support, over which the Company will not have direct control, the Company's reputation, and its ability to continue to sell additional products would be adversely affected. 7. Technological Factors; Uncertainty of Product Development and Commercialization. Although the Company has completed the development of its WIDEfax machines, which the Company believes perform the principal functions for which they have been designed, the Company's products have only been recently commercialized and are currently being utilized by only a limited number of customers. As a result, there can be no assurance that, upon widespread commercial use, the Company's products will satisfactorily perform all of the functions for which they have been designed or that they will be reliable or durable in extensive applications. The Company may be required to devote considerable efforts and resources to enhance and refine its wide format products and to develop additional products. Such efforts remain subject to all the risks 8 11 inherent in development and commercialization of new products, including unanticipated delays, expenses, technical problems or difficulties, as well as the possible insufficiency of funds to implement efforts, which could result in abandonment or substantial change in product development or commercialization. The Company's success will be largely dependent upon its proposed products meeting targeted cost and performance objectives and the Company's ability to adapt its products to keep pace with evolving technological advances in the industry, and may also be dependent upon their timely introduction into the marketplace. The inability to successfully complete development of a product or a determination by the Company, for financial, technical or other reasons, not to complete development or commercialization of any product, particularly in instances in which the Company has already made significant capital expenditures, could have a material adverse effect on the Company. 8. Competition; Technological Obsolescence. The markets for document systems are characterized by intense competition. Although the Company is not aware of any manufacturer of 36( facsimile machines, the Company is aware of one manufacturer of 24( facsimile machines and various manufacturers of wide format copiers, scanners, plotters and printers. The Company competes with numerous well-established foreign and domestic companies that market or are developing wide format document systems, as well as those which manufacture standard facsimile machines, copiers, scanners, plotters, and printers. The Company also expects that companies that manufacture and sell standard facsimile machines, copiers, plotters, scanners and printers could develop, without substantial delay of time, wide format document systems directly competitive with the Company's products. Many of these companies possess substantially greater financial, technical, marketing, personnel and other resources than the Company and have established reputations for success in the development and marketing of facsimile machines, copiers, plotters, scanners and printers and have sufficient budgets to permit them to implement extensive advertising and promotional campaigns in response to competitors to enter new markets. The markets for the Company's products are also characterized by rapidly changing technology and evolving industry standards, sometimes resulting in product obsolescence or short product life cycles. As a result, the Company's ability to compete may be dependent upon its ability to continually enhance and improve its products, to complete development of and introduce into the marketplace in a timely manner its proposed products and to successfully develop and market new products. There can be no assurance that the Company will be able to compete successfully, that competitors will not develop technologies or products that render the Company's products obsolete or less marketable, or that the Company will be able to enhance successfully its existing products or develop new products. 9. Dependence Upon Principal Product; Limited Customer Base. A substantial portion of the Company's sales has been derived from the sale of the 36" WIDEfax facsimile machines prior to May 1994 and from the WIDEfax Modular Unit since its introduction in May 1994. Upon the introduction of the WIDEfax Modular Unit, which is an enhanced modular version of the 36" WIDEfax facsimile machine, the Company discontinued manufacturing and selling the 36" WIDEfax facsimile machine. A decline in the sale of the WIDEfax Modular Units would have a material adverse effect on the Company. For the year ended March 31, 1996 and March 31, 1997, sales of the WIDEfax Modular Unit accounted for approximately 35.2% and 13.9% respectively, of the Company's product sales. There can be no assurance that the Company will not be dependent upon non-recurring sales of WIDEfax Modular Units to a limited number of customers, which sales could constitute a substantial portion of the Company's revenues. 10. Dependence Upon Third-Party Suppliers. The Company is dependent upon third-party suppliers and subcontractors for all of its supply of custom and component parts incorporated into its products. While the Company believes that alternative sources of supply for most of its components and custom parts are readily available on commercially reasonable terms, the Company is currently dependent upon Alberta Microelectronics, Inc., its principal supplier of print heads. The Company does not maintain supply agreements with any of its suppliers or subcontractors and purchases components and custom parts pursuant to purchase orders in the ordinary course of business. The Company is dependent on the ability of its suppliers and subcontractors to, among other things, satisfy performance and quality specifications and dedicate sufficient production capacity within scheduled delivery times. There can be no assurance that the Company's suppliers and subcontractors will be able to satisfy the Company's scheduled delivery requirements demand. Failure or delay by the Company's suppliers and subcontractors in supplying components or custom parts to 9 12 the Company would adversely affect the Company's operating margins and the Company's ability to manufacture and deliver products on a timely and competitive basis. 11. Foreign Trade Risks. The Company relies on sales to foreign markets for a substantial portion of its revenues. For the fiscal year ended March 31, 1995, 1996 and 1997, sales of the Company's products to customers in the Middle East and Asia accounted for approximately 43.5%, 25% and 36.5%, respectively, of the Company's sales. The Company is seeking to expand product sales in foreign markets, but there can be no assurance that the Company will be successful or that such markets will prove to be viable. To the extent that the Company is able to successfully expand its operations in foreign markets, the Company will become increasingly subject to risks inherent in foreign trade, including shipping delays, increased collection risks, trade restrictions, export duties and tariffs and international political, regulatory and economic developments, all of which could have an adverse effect on the Company's operating margins and results of operations and exacerbate the risks inherent in the Company's business. In addition, the Company conducts a substantial portion of its business in foreign currency, primarily the Canadian dollar and Indian rupee. Fluctuations in the exchange rates between the United States dollar and the Canadian dollar or Indian rupee could have an adverse effect on the Company's operating results. The Indian rupee has experienced significant devaluation against the United States dollar and other currencies in recent years. The Company may seek to limit its exposure to the risk of currency fluctuations by foreign currency hedging transactions which could expose the Company to substantial risk of loss. 12. Impact of Currency Exchange Rates. To date, fluctuation in foreign currency exchange rates have not had a significant impact on the Company's results of operations. Fluctuations in the exchange rates between the United States dollar and the Canadian dollar or Indian rupee; however, could have an adverse effect on the Company's operating results in the future. The Company may seek to limit its exposure to the risk of currency fluctuations by engaging in foreign currency transactions that could expose the Company to substantial risk of loss. The Company has limited experience in managing international transactions and has not yet formulated a strategy to protect the Company against currency fluctuations. There can be no assurance that fluctuations in foreign currency exchange rates will not have a significant impact on the Company's future operating results. 13. Risks Associated with Foreign Manufacturing. Substantially all of the Company's manufacturing activities are conducted in a free trade zone in India and, as a result, supplies shipped to the Company's manufacturing facility and completed products shipped from the facility are not subject to Indian duties or tariffs. In connection therewith, the Company has been and will continue to be subject to various risks associated with conducting business abroad. India may, from time to time impose duties, tariffs or quotas or other restrictions on the Company's imports or exports, or otherwise change regulations relating to the conduct of business in the free trade zone, or the United States or Canada may impose increased duties, tariffs and other restrictions on the import or export of the Company's products or supplies, any of which would adversely affect the Company's operations. 14. Possible Fluctuations in Operating Results. The Company's operating results could vary from period to period as a result of the length of the Company's sales cycle, as well as from purchasing patterns of potential customers, the timing and introduction of new products and product enhancements by the Company and its competitors, variations in sales by distribution channeland non-recurring system sales to a limited number of customers. There can be no assurance that such factors will not cause significant fluctuations in the Company's operating results in the future. 15. Lack of Patent Protection; Reliance Upon Trade Secrets. The Company does not hold any patents, although, it has filed patent applications relating to certain aspects of its technology. There can be no assurance, however, that any patents will be issued to the Company or the breadth or degree of protection future patents, if any, would afford the Company or that any such patents will not be circumvented or invalidated. The Company relies upon proprietary know-how and employs various methods to protect the ideas, concepts and documentation of its proprietary technology, which methods include nondisclosure agreements with its employees and distributors. However, such methods may not afford complete protection and there can be no assurance that competitors or customers will not independently develop such know-how or 10 13 obtain access to the Company's know-how, ideas, concepts and documentation. In addition, certain aspects of the technologies embodied in the Company's products are generally available to other manufacturers. The Company is not aware of any infringement on the proprietary rights of others and has not received any notice of claimed infringement. However, the Company has not conducted any investigation as to possible infringement and there can be no assurance that third parties will not assert infringement claims against the Company in connection with its products, that any such assertion of infringement will not result in litigation, or that the Company would prevail in such litigation or be able to license any infringed patents of third parties on commercially reasonable terms. If the Company's technologies were found to infringe another party's rights, the Company could be required to modify its products or obtain a license. There can be no assurance that the Company would be able to do so in a timely manner, upon acceptable terms and conditions, or at all, or that the Company would have the financial or other resources necessary to defend successfully a claim of violation of proprietary rights. Failure to do any of the foregoing could have a material adverse effect on the Company. Furthermore, if the Company's products or technologies are deemed to infringe patents or proprietary rights of others, the Company could, under certain circumstances, become liable for damages, which would have a material adverse effect on the Company. The Company has developed and markets two applications software packages, WIDEView, designed to enhance the user's document imaging capabilities, and SLC-OVLY, which enables the Company's WIDEfax products to interface with personal computers operating certain CAD software. The Company has neither filed for copyright protection of its proprietary software nor registered the name SLC-OVLY and WideView as a Trademark with the United States Patent and Trademark Office. The Company holds a registered trademark with the United State Patent and Trademark Office for the WIDEfax(R) name only. The Company is not aware of any infringement on the proprietary rights of others and has not received any notice of claimed trademark infringement; however, the Company has not conducted any investigation as to possible trademark infringement and there can be no assurance that third parties will not assert trademark infringement claims against the Company in connection with its use of any of its marks, that any such assertion of infringement will not result in litigation, or that the Company would prevail in such litigation. 16. Dependence on Key Personnel. The success of the Company will be largely dependent on the personal efforts of Raja S. Tuli, its Chief Executive Officer and President and Suneet S. Tuli, its Executive Vice President of Sales and Marketing, and other key personnel. Although the Company has entered into five-year employment agreements with Messrs. Tuli and Tuli, the loss of the services of such persons or other key employees could have a material adverse effect on the Company's business and prospects. The Company has obtained "key-man" life insurance on the life of Raja Tuli in the amount of CDN $1,500,000 and on the life of Suneet Tuli in the amount of CDN $1,000,000. The success of the Company may also be dependent upon its ability to hire and retain additional qualified technical, financial, marketing and other personnel. Competition for qualified personnel in the wide format document system industry is intense and there can be no assurance that the Company will be able to hire or retain additional qualified personnel. 17. Potential Conflicts of Interest. The Company was organized by Raja, Suneet and Lakhbir Tuli and has engaged in transactions with entities that are affiliated with such persons which may involve potential conflicts of interest. For example, the Company has entered into an Agreement with Widecom R&D, Inc. ("WideCom R&D"), a Company wholly owned by Lakhbir S. Tuli, a principal stockholder of the Company and father of Raja and Suneet Tuli, pursuant to which WideCom R&D seeks to recruit licensing and marketing joint ventures and subcontract manufacturers for the Company in India. Certain terms of this Agreement, including a provision which requires WideCom R&D to structure its compensation with licensees, could result in potential conflicts of interest with the Company. In addition, Indo WideCom International Ltd., the Company's wholly owned subsidiary, leases the Company's Indian facility from WideCom Fax and Plotters, Ltd. ("WideCom Fax"), a Company controlled by Lakhbir S. Tuli, and has engaged WideCom Fax as a non-exclusive distributor in India on the same terms and conditions as unaffiliated distributors. Moreover, the Company engages Lakhbir S. Tuli as an independent consultant and, for the years ended March 31, 1996 and 1997, the Company paid Mr. Tuli $54,000 and $115,000 respectively, in consideration for such services. In connection with the establishment of NovImage, two companies owned by Raja S. Tuli each acquired 5% of NovImage solely in exchange for the licensing of their technologies to NovImage. Although management 11 14 believes these transactions have been advantageous to the Company, there can be no assurance that future transactions or arrangements between the Company and its affiliates will be advantageous, that conflicts of interest will not arise with respect thereto or that if conflicts do arise, that they will be resolved entirely in favor of the Company. 18. Control by the Tuli Family. At present, Raja, Suneet and Lakhbir Tuli, in the aggregate, beneficially own approximately 40.3% of the Company's outstanding Common Stock. Accordingly, such persons, acting together, will most likely be in a position to control the Company, elect all of the Company's directors, increase the authorized capital, dissolve, merge, or sell the assets of the Company and generally direct the affairs of the Company. In addition, the Ontario Business Corporation Act (the "OBCA") under which the Company is incorporated, requires that a majority of the members of the Company's Board of Directors and of any committee of the Board of Directors be resident Canadians. The OBCA also provides that directors shall not transact business at a meeting of directors unless a majority of directors present are resident Canadians. The Company currently has a majority of directors who are residents Canadians. 19. No Dividends. The Company has not paid any cash dividends to date and does not expect to pay cash dividends in the foreseeable future. 20. Possible Delisting of Securities from Nasdaq System; Risks Related to Low-Priced Stocks. Under Nasdaq rules, in order to maintain listing on the Nasdaq SmallCap Market, a Company must have, among other things, $1,000,000 in net tangible assets (depending upon whether or not such Company has sustained operating losses) and, alternatively, either (i) $1,000,000 in market value of public float and $2,000,000 in net tangible assets; or (ii) a minimum bid price of $1.00 per share. The Securities and Exchange Commission (the "Commission") is considering a proposal by Nasdaq to change the maintenance requirements to $2,000,000 of net tangible assets or market capitalization of $35,000,000 or $500,000 of net revenue in each of the two previous fiscal years. In addition, Nasdaq reserves the right to withdraw or terminate the Company's listing on the Nasdaq SmallCap Market at any time and for any reason in its discretion. In the event that the Company is unable to maintain continued quotation on the Nasdaq SmallCap Market, quotation, if any, of the Common Stock would be in the over-the-counter market in what are commonly referred to as the "pink sheets" of the National Quotation Bureau, Inc. or on the National Association of Securities Dealers OTC Electronic Bulletin Board. As a result, an investor may find it more difficult to dispose of or to obtain accurate quotations as to the price of such securities. The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock. Commission regulations generally define a penny stock to be an equity security that has a market price of less than $5.00 per share, subject to certain exceptions. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith. In addition, if the Company's securities do not meet an exception to the penny stock regulations cited above, trading in the Company's securities would be covered by Rule 15g-9 promulgated under the Exchange Act for non-Nasdaq and non-national securities exchange listed securities. Under such rule, broker/dealers who recommend such securities to persons other than established customers and accredited investors (generally, individuals with net worth in excess of $1,000,000 or annual incomes exceeding $200,000 or $300,000 together with their spouses) must make a special written suitability determination for the purchaser and receive the purchaser's written agreement to a transaction prior to sale. Securities are exempt from this rule if the market price is at least $5.00 per share. If the Company's securities become subject to the regulations applicable to penny stocks, the market liquidity for the Shares could be adversely affected because the regulations on penny stocks could limit the ability of broker/dealers to sell the Company's securities and thus the ability of purchasers of the Company's securities to sell their securities in the secondary market. 21. Significant Outstanding Options and Warrants; Potential Adverse Effect on Market Price of Common Stock. Upon the consummation of this offering, there will be 2,373,322 Warrants and 125,000 Debentures outstanding to purchase freely-tradeable shares of Common Stock. Of those warrants, 206,000 are exercisable at a price of $2.50 per share, 146,000 are exercisable at a price of $3.50 per share, 1,756,322 are 12 15 exercisable at a price of $4.00 per share, 165,000 are exercisable at $8.25 per share, and 100,000 are exercisable at $8.50 per share. Additionally, the Company has reserved 300,000 shares of Common Stock for issuance upon the exercise of options which may be granted under the Company's Stock Option Plan, under which plan options to purchase 200,000 shares of Common Stock at a price of $5.00 per share, have been granted. Although the Company has the right to redeem, for $.10 per warrant, 936,322 warrants exercisable at $4.00 per share, and may choose to do so in light of its current working capital position, heavy downward pressure on the Company's stock price would likely result as warrant holders exercised such warrants, and sold the underlying stock, to avoid redemption of their warrants. To the extent that outstanding options and warrants are exercised, dilution to the percentage ownership of the Company's stockholders will occur and any sales in the public market of the Shares underlying such options and warrants may adversely affect prevailing market prices for the Shares. Moreover, the terms upon which the Company will be able to obtain additional equity capital may be adversely effected since the holders of outstanding options and warrants can be expected to exercise them at a time when the Company would, in all likelihood, be able to obtain any needed capital on terms more favorable to the Company than those provided in the outstanding options and warrants. 22. Shares Eligible for Future Sale. Upon the consummation of this offering, the Company will have 5,690,001 shares of Common Stock outstanding and 2,398,322 shares issuable upon exercise of outstanding warrants and conversion of debentures, all of which will be freely tradeable without restriction or further registration under the Securities Act. An additional 1,923,923 shares (and 929,762 shares of Common Stock issuable upon exercise of certain warrants, are deemed to be "restricted securities" as that term is defined under Rule 144 promulgated under the Securities Act, and may only be sold pursuant to an effective registration under the Securities Act, in compliance with the exemption provisions of Rule 144 or pursuant to another exemption under the Securities Act. All such "restricted" shares may be sold pursuant to Rule 144 at various times in the future. No prediction can be made as to the effect, if any, that sales of such shares or even the availability of such shares for sale will have on the market prices prevailing from time to time. The possibility that substantial amounts of Common Stock may be sold in the public market may adversely affect the prevailing market price for the Common Stock and could impair the Company's ability to raise capital through the sale of additional equity securities described above. USE OF PROCEEDS The Company will not receive any proceeds from the sale of the Shares by the Selling Security Holders. The Company is not paying any underwriting, brokerage or other commissions in any form whatsoever in connection with the offer and sale of the Shares. However, because certain the Shares being sold pursuant to this Prospectus will be acquired from the Company upon exercise of currently outstanding Warrants, the Company would receive $1,226,000 in proceeds if all such Warrants are exercised, which the Company plans to use for working capital and general corporate purposes. SELLING SECURITY HOLDERS The Company has agreed to register the resale of the Selling Security Holders' Shares under the Securities Act and to pay all expenses in connection therewith. An aggregate of 651,750 Selling Security Holders' Shares (consisting of 124,750 shares of Common Stock and an aggregate of 527,000 shares of Common Stock issuable upon exercise of warrants, and debentures may be offered and sold pursuant to this Prospectus by the Selling Security Holders. Except as set forth below, none of the Selling Security Holders has ever held any position or office with the Company or had any other material relationship with the Company. 13 16 SELLING SECURITY HOLDERS AND TRANSACTIONS WITH SELLING SECURITY HOLDERS
SHARES/ WARRANTS SHARES/ SHARES/ DEBENTURES SHARES/ WARRANT SHARES/ PERCENTAGE OF BENEFICIALLY WARRANT SHARES/ DEBENTURES SHARES NAME AND ADDRESS OF SECURITY OWNED PRIOR TO DEBENTURES OWNED AFTER OWNED AFTER HOLDER OFFERING OFFERED OFFERING OFFERING(1) - ---------------------------------- ---------------- ---------------- ---------------- ------------- Alex Moore & Co.(2)............... 0/146,000/0 0/146,000/0 0 * Alex Moore & Co.(3)............... 0/146,000/0 0/146,000/0 0 * Goldstein & DiGioia, LLP(4)....... 0/10,000/0 0/10,000/0 0 * Robert L. Blessey(4).............. 3,500/0/0 3,500/0/0 0 * Don Johnson, Walter J. Lack, Thomas V. Girardi, Glenn McCusker, and Gino Aiello(5).... 75,000/50,000/0 75,000/50,000/0 0 * Chimicles, Jacobsen & Tikellis.... 46,250/0/0 46,250/0/0 0 * Global Bermuda Limited Partnership(7).................. 0/0/125,000 0/0/125,000 0 * Global Bermuda Limited Partnership(8).................. 50,000/0/0 50,000/0/0 0 *
- --------------- * Percentage is less than 1%. (1) Computed for purposes herein to give effect to the exercise of all Warrants held by such Selling Security Holder and not any other Selling Security Holder. Figures are computed based upon 5,690,001 shares of Common Stock outstanding on September 5, 1997. (2) Shares issuable upon exercise of Warrants at an exercise price of $3.50 per share exercisable for a period ending six months from the effective date of this Registration Statement (the Tranch I Warrants"). (3) Shares issuable upon exercise of Warrants at an exercise price of $2.50 per share (the "Tranch II Warrants"). The exercise period for Tranch II Warrants shall commence after the exercise of the Tranch I Warrants noted above and expire one year from the Effective Date of the Registration Statement of which this prospectus forms a part. (4) Shares issuable upon exercise of Warrants at an exercise price of $2.50 per share exercisable for a period of five years expiring June 2, 2002. (5) Includes Shares issuable upon exercise of Warrants at an exercise price of $2.50 per share exercisable for a period of two years expiring June 27, 1999. (6) Shares of Common Stock issuable upon conversion of $250,000 of Debentures at an exercise price of $2.00 per share. (7) Shares issuable upon exercise of Warrants at an exercise price of $4.00 per share exercisable for a period of three years expiring May 19, 2000. PLAN OF DISTRIBUTION The Shares of Common Stock held by certain Selling Security Holders and the Shares underlying the Warrants issuable to Selling Security Holders upon exercise thereof, may be offered and sold from time to time by the Selling Security Holders as market conditions permit in the over-the-counter market, or otherwise, at prices and terms then prevailing or at prices related to the then-current market price, or in negotiated transactions. The Shares offered hereby may be sold by one or more of the following methods, without limitation: (a) a block trade in which a broker or dealer so engaged will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; (b) purchases 14 17 by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this Prospectus; (c) ordinary brokerage transactions and transactions in which the broker solicits purchasers; and (d) face-to-face transactions between sellers and purchasers without a broker-dealer. In effecting sales, brokers or dealers engaged by the Selling Stockholder may arrange for other brokers or dealers to participate. Such brokers or dealers may receive commissions or discounts from the Selling Security Holders in amounts to be negotiated immediately prior to the sale. Such brokers and dealers and any other participating brokers or dealers may be deemed to be "underwriters" within the meaning of the Securities Act of 1933, in connection with such sales. DESCRIPTION OF SECURITIES The Company is authorized to issue 20,000,000 shares of Common Stock, no par value per share. The holders of Common Stock are entitled to one vote for each share held of record on each matter submitted to a vote of shareholders and do not have cumulative voting rights. The Common Stock has no conversion rights and includes no preemptive rights or other rights to subscribe for additional securities. The holders of the Common Stock will be entitled to receive dividends, if any, as may be declared by the Board of Directors out of legally available funds and to share pro rata in any distribution to the shareholders, including any distribution upon liquidation of the Company. All outstanding Shares of Common Stock are fully paid and nonassessable. LEGAL MATTERS Certain legal matters relating to the Common Stock will be passed upon for the Company by the law firm of Goldstein & DiGioia, LLP ("G&D"), New York, New York. G&D holds warrants to purchase 10,000 shares at $2.50 per share and exercisable for a five year period expiring on June 2, 2002, which shares have been included in the Registration Statement of which this Prospectus forms a part. EXPERTS The financial statements and schedules of the Company included and incorporated by reference in the Company's Annual Report on Form 10-K for the year ended March 31, 1997, have been audited by BDO Dunwoody, independent certified public accountants, to the extent and for the periods indicated in their reports with respect thereto, and are incorporated herein by reference in reliance upon their reports given on the authority of said firms as experts in accounting and auditing. DISCLOSURE OF COMMISSION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES Indemnification may be permitted to directors, officers, employees and agents of a corporation under certain circumstances and subject to certain limitations pursuant to Part IX of the Ontario Business Corporation Act and the Company's By-laws. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Company, pursuant to the foregoing provisions, the Company has been informed that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company 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 Company 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 Securities Act and will be governed by final adjudication of such issue. 15 18 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The Company will bear all expenses in connection with the issuance and distribution of the Shares, including those set forth below. None of such expenses will be borne by the Selling Security Holders.
ITEMS AMOUNTS - ----------------------------------------------------------------------------------- ------- Securities and Exchange Commission Registration Fee................................................................... $ 525 Printing and Engraving Expenses.................................................... $ 500 Accounting Fees and Expenses....................................................... $ 3,000* Legal Fees and Expenses............................................................ $15,000 Blue Sky Fees and Expenses......................................................... $ 5,000* Transfer Agent and Registrar Fees.................................................. $ 2,000* Miscellaneous Fees and Expenses.................................................... $ 1,500* ------- Total.................................................................... $27,525* =======
- --------------- * Estimated ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Article 6 of the Company's By-Laws limits the personal liability of directors and officers to the Company or its shareholders for monetary damages arising from a breach of their fiduciary duty in certain circumstances. Article 6 of the Company's By-Laws also provides that the Company may indemnify its officers and directors to the fullest extent permitted by the Ontario Business Corporations Act from any liability and all costs, charges and expenses that such officer or director sustains in respect to any action, suit or proceeding that is proposed or commenced against him or her for or in respect the execution of the duties of his or her office. Part IX of the Ontario Business Corporations Act authorizes a corporation to indemnify directors and officers unless such party has been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his action was in the best interests of the corporation. The effect of these provisions is to permit such indemnification by the Company for liabilities arising under the Securities Act. ITEM 16. EXHIBITS. The following exhibits are filed herewith. Those exhibits with an * will be filed by amendments.
EXHIBIT NO. DESCRIPTION - ------- ------------------------------------------------------------------------------------- 4.1 Form of 8% Convertible Debentures purchased by Global Bermuda Limited Partnership, a Bermuda limited Partnership. 4.2 Form of Warrant issued to Global Bermuda Limited Partnership, a Bermuda limited Partnership. 5. * Opinion of Goldstein & DiGioia, LLP., re: legality of shares. 10.1 Financial Consulting Agreement, dated June 2, 1997, by and between The Widecom Group Inc. and Alex Moore & Co. 10.2 Settlement Agreement, dated May 1, 1997, among Brett Whiton, Richard Benjamin, Anthony Hand, and the Company, Messrs. Raja and Suneet Tuli. 23 Consent of BDO Dunwoody, independent accountants.
ITEM 17. UNDERTAKINGS (a) The undersigned Company hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement; II-1 19 (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. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of a prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a twenty percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective 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; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) above do not apply if the Registration Statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the Company pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in the Registration Statement; (2) That, for the purpose of determining any liability under the Securities Act, 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. (3) 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. (4) If the Company is a foreign private issuer, to file a post-effective amendment to the Registration Statement to include any financial statements required by Rule 3-19 of Regulation S-K 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 Securities Act need not be furnished, provided, that the Company 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. Notwithstanding the foregoing, with respect to registration statements on Form F-3, a post-effective amendment need not be filed to include financial statements and information required by Section 10 (a)(3) of the Securities Act or Rule 3-19 of Regulation S-K if such financial statements and information are contained in periodic reports filed with or furnished to the Commission by the Company pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Form F-3. (b) The undersigned Company hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Company's annual report pursuant to Section 13(a) or 15(b) of the Exchange Act (and where applicable, each filing of all employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the Registration Statement 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) The undersigned Company 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 are incorporated by reference in the Prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where interim financial information required to be presented by Article 3 of Regulation S-X is 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. II-2 20 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Company certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Mississauga, Ontario, Canada, on September 11, 1997. THE WIDECOM GROUP INC. By: /s/ RAJA S. TULI ------------------------------------ Raja S. Tuli Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1933, this registration statement has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
NAME TITLE DATE - ------------------------------------- ----------------------------------- ------------------- /s/ RAJA S. TULI President, Chief Executive Officer September 11, 1997 - ------------------------------------- and Director (Principal Executive Raja S. Tuli Officer) /s/ WILLEM J. BOTHA Treasurer and Chief Financial September 11, 1997 - ------------------------------------- Officer (Principal Financial and Willem J. Botha Accounting Officer) /s/ SUNEET S. TULI Executive Vice President of Sales September 11, 1997 - ------------------------------------- and Marketing, Secretary and Suneet S. Tuli Director /s/ BRUCE D. VALLILLEE Director September 11, 1997 - ------------------------------------- Bruce D. Vallillee /s/ AJIT SINGH Director September 11, 1997 - ------------------------------------- Ajit Singh
II-3 EX-4.1 2 FORM OF CONVERTIBLE DEBENTURES 1 EXHIBIT 4.1 THE 8% CONVERTIBLE DEBENTURE REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT: (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (II) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (III) UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE. THE WIDECOM GROUP INC. 8% CONVERTIBLE DEBENTURE DUE ON THE 365TH DAY FOLLOWING THE ISSUANCE DATE HEREOF Debenture No. GB-1 US$50,000 Issued as of May 19, 1997 For value received, GLOBAL BERMUDA LIMITED PARTNERSHIP, a Bermuda limited partnership with an office at 601 Carlson Parkway, Suite 200, Minnetonka, Minnesota, USA 55305 (the "Lender"), or registered assigns, is entitled to receive payment subject to the terms and conditions of this Debenture from The WIDECOM GROUP INC., an Ontario corporation with executive offices located at 55 City Centre Drive, Suite 500, Mississauga, Ontario, Canada L5B 1M3 (hereinafter called the "Company"), in lawful currency of the United States of America, the principal sum of FIFTY THOUSAND DOLLARS S$50,000.00), with interest at 8% per annum. The following is a statement of the rights of the Lender of this Debenture and the terms and conditions to which the Lender under this Debenture, by his or her acceptance of this Debenture, agrees: 1. Payment. All unpaid principal and interest accruing under this Debenture (the "Unpaid Balance") will be paid to the Lender under this Debenture as of 5:00 p.m. EST on the 365th day following the issuance date hereof, except to the extent that such Unpaid Balance has been prepaid by the exercise of one or more of the following rights: (a) the Lender under this Debenture has elected under Section 2.1 hereof to convert the Unpaid Balance into shares of the Common Stock, or (13) the Company has prepaid, in cash, the Unpaid Balance together with a premium equal to 8% of such Unpaid Balance as a condition to such right to prepay. All payments of principal and interest under this Debenture will be made by check mailed to the address of record of the Lender under this Debenture set forth in the records of the Company or to such other address as the Lender under this Debenture shall have notified the Company in the manner set forth below. 2. Conversion. This Debenture shall be convertible to shares of the Common Stock of the Company (the "Shares"), as follows: 2 2.1 Conversion Right. The Lender under this Debenture will have the right, at any time commencing on the 121st day following the date of issuance of this Debenture and prior to the payment in full of this Debenture, to convert all of the Unpaid Balance of this Debenture into Shares of the Company at a conversion price (the "Conversion Price") equal to the lower of US$5.00 or 80% of the average closing bid price of the Shares, as quoted on the National Association of Securities Dealers Automated Quotation ("Nasdaq") system over the twenty (20) trading days immediately preceding the date of the Company's receipt of the Lender's notice to the Company of its intention to convert, provided, however, that this Debenture may not be converted until at least 30 days have elapsed since the most recent prior conversion of any other of the debentures issued by the Company to the Lender. The number of Shares into which any Unpaid Balance may be converted shall equal the quotient obtained by dividing such Unpaid Balance by the Conversion Price. This right of conversion shall terminate, and Lender shall not thereafter submit this Debenture for conversion, at such time as the Lender or any affiliate of the Lender shall have a short position in the Common Stock of the Company. In the event the Company does not make delivery of the Common Stock, as instructed by Purchaser, within 5 business days after delivery of the original Debenture, then in such event the Company shall pay to Purchaser an amount, in cash in accordance with the following schedule, wherein "No. Business Days Late" is defined as the number of business days beyond the 5 business days delivery period.
Late Payment for Each $10,000 of Debenture No. Business Days Late Amount Being Converted ---------------------- ---------------------- 1 $100 2 $200 3 $300 4 $400 5 $500 6 $600 7 $700 8 $800 9 $900 10 $1,000 greater than 10 $1,000 +$200 for each Business Day Beyond 10
The Company shall make any payments incurred under this Section in immediately available funds within three (3) business days from the Conversion Date if late. Nothing herein shall limit a Purchaser's right to pursue actual damages or cancel the conversion for the Company's failure to issue and deliver Common Stock to the Holder within 5 business days after the Conversion Date. 2 3 2.2 Mechanics and Effect of Conversion. To convert this Debenture pursuant to Section 2.1, the Lender under this Debenture shall surrender this Debenture, duly endorsed, at the principal office of the Company together with a written notice (the "Conversion Notice") to the Company of the Lender's election to convert and Lender's confirmation that neither the Lender nor any affiliate of the Lender has, at any time during the term of this Debenture, had a short position in the Common Stock of the Company. At its expense, the Company, as soon as practicable thereafter, shall either (i) issue and deliver to the Lender at the Lender's address a certificate evidencing the issuance of that number of Shares to which the Lender is entitled upon such conversion bearing only such legend, if any, as may be required under applicable state or federal securities laws), or (ii) at the Company's sole discretion, pay to Lender 100% of the average closing bid price of the Shares, as quoted on the Nasdaq over the twenty (20) trading days immediately preceding the date of the Company's receipt of the Lender's notice to the Company of its intention to convert. In the event of a conversion of this Debenture, such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender and delivery of both this Debenture and the corresponding Conversion Notice, and the Lender shall be entitled to receive the Shares issuable upon such conversion shall be treated for all purposes as the record holder of such Shares on such date. 3. Anti-Dilution; Reservation of Shares. In the event that, at any time that there is any Unpaid Balance on this Debenture, the Company makes a distribution to its members in Shares of the Company, or subdivides or combines the outstanding Shares of the Company (the foregoing collectively being referred to as an "Adjustment Event"), the number of Shares issuable to the Lender upon conversion or partial conversion of this Debenture shall be automatically changed to equal the new number of Shares, or Shares and property, that the Lender would have received if this Debenture was converted immediately prior to the Adjustment Event. The Company covenants that it will, upon the occurrence of an Adjustment Event, act to reserve and keep available solely for issuance upon conversion of this Debenture, that number of Shares (and other securities) into which this Debenture is then convertible. 4. Miscellaneous. 4.1 Notices. Except as otherwise specified herein, all notices and communications provided for herein shall be in writing and shall be deemed effective upon receipt when sent by certified mail, return receipt requested, postage prepaid, addressed: (a) if to the Company at the address specified, above, and (13) if to the Lender at the address reflected therefor in the records of the Company. Any party may change its address by not less than five (5) days' advance notice thereof given to the other party as aforesaid. 4.2 Severability. Whenever possible, each provision of this Debenture shall be interpreted in such manner as to be effective and valid under applicable law. If any portion of this Debenture is declared invalid for any reason, then such declaration shall have no effect upon the remaining portions of this Debenture. In addition, tile entirety of this Debenture shall continue in full force and effect in other jurisdictions and said remaining portions of this 3 4 Debenture shall continue in full force and effect in the subject jurisdiction as if this Debenture had been executed with the invalid portions thereof deleted. 4.3 Governing Law. This Debenture shall be deemed to have been executed and delivered in the Commonwealth of Massachusetts and shall be in all respects governed, construed, applied and enforced in accordance with the laws of said Commonwealth without resort to its conflict of laws rules. In the event that either the Lender or the Company brings an action or proceeding in connection herewith or in connection with this Debenture, each of the Lender and the Company agree that any such action or proceeding shall be brought exclusively in a court seated in the Commonwealth of Massachusetts. Each of the Lender and the Company hereby irrevocably consents to and confers personal jurisdiction of any such court over such party by such court. In any such action or proceeding, each of the Lender and the Company hereby waives personal service of any summons, complaint or other process and agrees that service thereof may be made upon such party by mailing a copy of such summons, complaint or other process by certified& mail, return receipt requested, postage prepaid, to such party at the address set forth herein. 4.4 Waiver and Amendment. Any provision of this Debenture may be amended, waived or modified only upon a writing executed by the Lender and the Company. 4.5 Collection. The Company agrees to pay the reasonable costs of the Lender under this Debenture in collecting and enforcing this Debenture (including reasonable attorneys' fees). The Company hereby waives notice, presentment, protest and notice of dishonor in connection with the collection of this Debenture. IN WITNESS WHEREOF, the Company has executed this Debenture, by its duly authorized officer, as of the day and date first above written. THE WIDECOM GROUP INC. By:___________________________ Raja S. Tuli, President 4 EX-4.2 3 FORM OF WARRANT 1 EXHIBIT 4.2 THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT: (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (II) THE EXTENT APPLICABLE PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (III) UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE THE WIDECOM GROUP INC. COMMON STOCK PURCHASE WARRANT Expiration Date: May 19, 2000 Warrant to Purchase 50,000 Issued as of May 19, 1997 Shares of Common Stock For value received, GLOBAL BERMUDA LIMITED PARTNERSHIP, a Bermuda limited partnership with an office at 601 Carlson Parkway, Suite 200, Minnetonka, Minnesota, USA 55305, or registered assigns, is entitled to subscribe for and purchase from THE WIDECOM GROUP Inc., an Ontario corporation (hereinafter called the "Company"), at the price of US$4.00 per share (the "Warrant Purchase Price"), at any time from the date hereof until 5:00 p.m. Toronto time on May 19, 2000 (the "Expiration Date,"), up to that number of fully paid and non-assessable shares of the Company's common stock, no par value (the "Common Stock") as is specified, above subject, however, to the provisions and upon the terms and conditions hereinafter set forth. 1. Exercise of Warrant. The rights represented by this Warrant may be exercised by the holder hereof, in whole or in part but not as to a fractional share of Common Stock), by the surrender of this Warrant properly endorsed if required) at the office of any duly appointed transfer agent for the Common Stock or at the office of the Company at 55 City Centre Drive, Suite 500, Mississauga, Ontario, Canada, L5B 1M3, and upon payment to the Company, or for the account of the Company, by cash or by certified check or bank draft, of the Warrant Purchase Price for such shares. The Company agrees that the shares so purchased shall be and be deemed to be issued to the holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares as aforesaid Certificates for the shares so purchased shall be delivered to the holder hereof within a reasonable time, not exceeding 10 days, after the rights represented by this Warrant shall have been so exercised, and, unless this Warrant has expired, a new Warrant representing the number of shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof within such time. 2 2. Shares to be Issued; Reservation of Shares. The Company covenants and agrees that all shares may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly authorized, duly issued and outstanding, fully paid and non-assessable and free from all taxes, liens and charges with respect to the issue thereof. The Company further covenants and warrants that it will from time to time take all action required to assure that the par value per share of the Common Stock Is at all times equal to or less than the effective Warrant Purchase Price. The Company further covenants and agrees that, during the period within which the rights represented by this Warrant may be exercised, the Company will at times have authorized and reserved a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. 3. Adjustments (a) Adjustments for Consolidations, Split-Ups. If the Company shall at any time prior to the expiration of this Warrant subdivide its outstanding securities for which this Warrant is exercisable, by or otherwise, or combine or consolidate by reclassification, reverse split or otherwise such outstanding securities or issue additional shares of such securities, the amount of securities issuable on the exercise of the unexercised portion of this warrant shall forthwith be proportionately increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of a combination or consolidation, and the Warrant Purchase Price then applicable to securities covered by the unexercised portion of this Warrant shall forthwith be proportionately decreased in the case of a subdivision or stock dividend, or proportionately increased in the case of a combination or consolidation. (b) Reorganizations. If any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, 1awful and adequate provision shall be made whereby the holder hereof shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions specified herein and in lieu of the shares of the Common Stock of the Company immediately theretofore issuable upon exercise of the rights represented hereby, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such Common stock immediately theretofore issuable upon exercise of the rights represented hereby had such reorganization, reclassification, consolidation, merger or sale not taken place; and in any such case appropriate provisions shall be made with respect to the rights and interests of each holder hereof to the end that the provisions hereof (including without limitation provisions for adjustment of the Warrant Purchase Price and of the number of shares issuable upon the exercise of this warrant) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company shall not effect any such consolidation, merger or sale unless prior to or simultaneously with the consummation thereof the corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing such assets shall assume (by a written instrument executed and mailed by registered 2 3 mail or delivered to each registered holder hereof at the last address of such holder appearing on the books of the Company) the obligation of the Company to deliver to such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to purchase. (c) Notice of Adjustment. Upon each adjustment of the aforementioned adjustments, the Company shall give prompt written notice thereof addressed to the registered holder hereof at the address of such holder as shown on the records of the Company, which notice shall state the change, if any, in the Warrant Purchase Price resulting from such adjustment and the increase or decrease, if any, in the number of shares of Common Stock (or, other securities or assets) issuable upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 4. Notice of Capital Changes. In case at any time: (a) the Company shall pay any dividend payable in stock upon its Common Stock or make any distribution to the holders of its Common Stock; (1) the Company shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights; (c) there shall be any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with, or sale of all or substantially all of its assets to, another corporation; or (d) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; then, in any one or more of such cases, the Company shall give to the holder of this Warrant: (i) at least 10 days' prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, at least 20 days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause (i) shall also specify, in the case of any such dividend, distribution or subscription rights the date on which the holders of Common Stock shall be entitled thereto, and such notice in accordance with the foregoing clause (ii) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. Each such written notice shall be given by first class mail, postage prepaid, addressed to the holder of this Warrant at the address of such holder as shown on the books of the Company. 5. Common Stock. As used herein in the term "Common Stock" shall mean and include the Company's Common Stock authorized on the date of the original issue of the Warrants and shall also include any capital stock of any class of the Company thereafter authorized which shall not be limited to a fixed sum or percentage in respect of the rights of the holders thereof to participate in dividends and in the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding up of the Company; provided that the shares which may be purchased pursuant to this Warrant shall include only shares of the class of Common Stock, no 3 4 par value referred to at the beginning of this agreement or, in the case of any reorganization, reclassification, consolidation, merger or sale of assets of the character referred to in subparagraph 3(b) hereof, the stock, securities or assets provided for in such subparagraph. 6. Transfer. Subject to the provisions of the Agreement, this Warrant and all rights hereunder are transferable, in whole or in part, at the offices referred to in paragraph 1 hereof by the holder hereof in person or by duly authorized attorney, upon surrender of this Warrant properly endorsed. Each taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant when endorsed for transfer by the attachment of stock powers or otherwise, shall be deemed negotiable and that when this Warrant is so endorsed, the holder hereof may be treated by the Company and all other persons dealing with this Warrant as the absolute owner hereof for any purposes and as the person entitled to exercise the rights represented by this Warrant or to the transfer hereof on the books of the Company any notice to the contrary notwithstanding; but until each transfer on such books the Company in may treat the registered holder hereof as the owner hereof for all purposes. 7. Exchange. This Warrant is exchangeable, upon its surrender at the offices referred to in paragraph I for new Warrants of like tenor representing in the aggregate the right to subscribe for arid purchase the number of shares which may be subscribed for and purchased hereunder, each of such new Warrants to represent the right to subscribe for and purchase such number of shares as shall be designated by the holder hereof at the dine of such surrender. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon delivery of a bond of indemnity satisfactory to the Company, or, in the case of any such mutilation, upon surrender or cancellation of this Warrant, the Company will issue to the holder hereof a new warrant of like tenor, in lieu of this Warrant, representing the right to subscribe for and purchase the number of shares which may be subscribed for and purchased hereunder. IN WITNESS WHEREOF, The WideCom Group Inc. has caused this Warrant to be signed by its duly authorized officer as of the date first written above. THE WIDECOM GROUP INC. By: __________________________ Raja S. Tuji, President 4 EX-10.1 4 FINANCIAL CONSULTING AGREEMENT 1 EXHIBIT 10.1 FINANCIAL CONSULTING AGREEMENT AGREEMENT made as of this 2nd day of June 1997 by and between THE WIDECOM GROUP INC. (the "Company") with an address at 55 City Centre Drive, Mississauga, Ontario Canada L5B 1M3 and ALEX MOORE & CO. (the "Consultant"), with address at 3333 New Hyde York Road, New Hyde Park, New York 11040. WITNESSETH WHEREAS, the Company desires to retain the Consultant to provide on-going financial services; and WHEREAS, the Consultant desires to be retained to render such services. NOW THEREFORE, in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the parties hereto hereby agree as follows: 1. The Company hereby retains the Consultant and the Consultant hereby accepts such retention to perform consulting services related to; (a) assisting in finding acquisitions, joint ventures and/or developing business opportunities; (b) upon request, assisting in the preparation of capital and operating expense budgets and business plans for the Company; (c) analyzing forecasts of cash flow and income for the company and advising with respect to significant variances from forecasts and budgets; (d) analyzing the company's short and long term debt position and its capital requirements; (e) analyzing potential merger and acquisition candidates for the Company; (f) assisting the Company in the structuring of any required financings, including but not limited to, the determination of whether any such financing should be for equity or debt securities of the Company or a combination thereof; (g) assisting the Company in screening, evaluating, and recommending commercial and investment bankers, underwriters and 2 professional, consultants in order to carry out the Company's goals, including but not limited to, when necessary, finding an appropriate direct source or broker-dealer to raise sufficient capital for working capital purposes and/or proposed mergers or acquisitions through the public or private placement of securities of the Company or a combination thereof, or directly placing such securities with a private group; (h) advising the Company on the preparation of appropriate presentations and documents to consummate any desired financing, acquisition or merger; and (i) establishing and fostering relationships between the Company and the financial community, including brokers, investment bankers, financial analysts, institutional investors and stockholders. In regard to the foregoing, subject to the terms set forth below, the Consultant shall furnish to the Company advice and recommendations with respect to such aspects of the business and affairs of the Company as the Company shall, from time to time, reasonably request upon no less than three business days notice, unless the Consultant agrees to a lesser amount of notice for specific requested services hereunder. 2. In addition, the consultant shall hold itself ready to assist the Company in negotiating particular contracts or transactions, if requested to do so by the Company upon reasonable notice. Nothing herein shall require the company to utilize the Consultant's services in any particular transaction nor shall it limit the Company's obligations arising under any other agreement or understanding. 3. For the services described in paragraph 1 above, the Company shall: (a) pay to the Consultant a monthly fee of $1,000 for the full term of twelve months from the date hereof (the "Initial Term"), payable monthly in advance. (b) grant two Tranches of Warrants to the consultant to purchase shares of Common Stock. The Warrants shall be non- assignable (except that 15% of the number of Warrants can be assigned to a designee of the Consultant) and exercisable as follows: (i) Tranch 1 - 146,000 Warrants to purchase a like number of shares of the Company's Common Stock at a price of $3.50 per share. The exercise period for these Warrants shall expire six months from the Effective Date of the Registration Statement referable thereto; and (ii) Tranch II - 146,000 Warrants to purchase a like number of shares of the Company's common Stock at a price of $2.50 per share. The exercise period for Tranch II Warrants shall commence after the exercise of the Tranch I Warrants 2 3 and expire one year from the Effective Date of the Registration Statement referable thereto. The Company agrees, at its sole expense, to use its best efforts to cause the Common Stock underlying the 146,000 Tranch I Warrants referred to in this subsection to become registered as soon as may be practicable under the Securities Act of 1933, as amended (the "Act"). The Company agrees, at its sole expense, to use its best efforts to cause the Common Stock underlying the 146,000 Tranch II Warrants to become registered under the Securities Act of 1933, as amended (the "Act"). Nevertheless, the Company may defer the filing of the Registration Statement referable to the Tranch II Warrants for up to sixty days following the Effective Date of the Registration Statement referable to the Tranch I Warrants. The Company further agrees that it will keep the Registration Statement current during such time as the Warrants may be exercised. (c) In additional to its monthly compensation hereunder, the Company will reimburse the consultant for any and all reasonable expenses incurred by the Consultant in the performance of its duties hereunder, and the Consultant shall account for such expenses to the Company; provided, however, that any expenses in excess of $250 shall require the prior written approval of the Company. Such reimbursement shall accumulate and be paid monthly. 4. All obligations of the Consultant contained herein shall be subject to the Consultant's reasonable availability for such performance, in view of the nature of the requested service and the amount of notice received. The Consultant shall devote such time and effort to the performance of its duties hereunder as it shall deem appropriate. The Company shall furnish to the Consultant all information relevant to the performance by the Consultant of its obligations under this Agreement, or particular project as to which the Consultant is acting as advisor, which will permit the Consultant to know all facts material to the advice to be rendered, and all material or information reasonably requested by the Consultant. In the event that the company fails or refuses to furnish any such material or information reasonably requested by the Consultant, and thus prevents or impedes the Consultant's performance hereunder, any inability of the Consultant to perform shall not be a beach of its obligations hereunder. 5. Nothing contained in this Agreement shall limit or restrict the right of the no less than three business days' notice, unless the Consultant or of any partner, employee, agent or representative of the consultant, to be a partner, director, officer, employee, agent or representative of, or to engage in, any other business, whether of a similar nature or not, nor to limit or restrict the right of the consultant to render services of any kind to any other corporation, firm, individual or association, provided such entity is not a direct competitor of the Company. 3 4 6. The Consultant will hold in confidence any confidential information which the company provides to the Consultant pursuant to this Agreement unless the company gives the Consultant permission in writing to disclose such confidential information to a specific third party. In addition, all confidential information which the Company previously provided Consultant shall be considered confidential information for purposes of this Agreement. The Consultant shall not transfer or otherwise disseminate any such confidential information to third persons without such persons signing confidentiality agreements similar to this Paragraph 6. Notwithstanding the foregoing, the consultant shall not be required to maintain confidentiality with respect to information which (i) is or becomes part of the public domain; (ii) it had independent knowledge prior to disclosure; (iii) comes into the possession of the Consultant in the normal and routine course of his own business from and through independent non-confidential sources; or (iv) is required to be disclosed by the Consultant by governmental requirements. If the Consultant is requested or required (by oral questions, interrogatories, requests for information or document subpoenas, civil investigative demands, or similar process) to disclose any confidential information supplied to it by the Company, or the existence of other negotiations in the course of his dealings with the Company or its representatives, the Consultant shall, unless prohibited by law, promptly notify the Company of such request(s) so that the Company may seek an appropriate protective order. 7. The Company and the Consultant agree to indemnify and hold each other harmless for their respective acts and omissions, alleged or actual, including their respective partners, employees, agents, representatives and controlling persons (and the officers, directors, employees, agents, representatives and controlling persons of the Company) from and against any and all losses, claims in respect thereof) and any legal or other expenses in giving testimony or furnishing documents in respect to a subpoena or otherwise (including, without limitation, the cost of investigating, preparing or defending any such action, suit, proceeding or claim, whether or not in connection with any action, suit, proceeding or claim in which the Consultant or the Company is a party), as and when incurred, directly or indirectly, caused by, relating to, based upon or arising out of the consultant's service pursuant to this Agreement. This paragraph shall survive the termination of this Agreement. 8. This Agreement may not be transferred, assigned or delegated by any of the parties hereto without the prior written consent of the other party hereto. 9. The failure or neglect of the parties hereto to insist, in any one or more instances, upon the strict performance of any of the terms or conditions of this Agreement, or their waiver of strict performance of any of the terms or conditions of 4 5 this Agreement, shall not be construed as a waiver or relinquishment in the future of such term or condition, but the same shall continue in full force and effect. IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of the date first above written. THE WIDECOM GROUP, INC. By: _______________________ Authorized Officer ALEX MOORE & CO. By: _______________________ Authorized Officer 5 EX-10.2 5 SETTLEMENT AGREEMENT 1 EXHIBIT 10.2 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK - ---------------------------------- x BRETT WHITON, on behalf of himself : and all others similarly situated, : 97 Civ. 1457 (SS) : Plaintiff, : : NY Co. Clerk's - v - : Index No. 601029/97 : WIDECOM, INC., RAJA S. TULI, and : SUNEET S. TULI, : : Defendants. : : - -----------------------------------x RICHARD BENJAMIN, on behalf of : himself and all others similarly : situated, . : 97 Civ. 2606 (RWS) : NY Co. Clerk's Plaintiff, : Index No. 601/06/97 : - v. - : : WIDECOM, INC., RAJA S. TULI, and : SUNEET S. TULI, : : Defendants. : : - -----------------------------------x ANTHONY HAND, on behalf of himself : and all others similarly situated, : 97 Civ. 1498 (SS) : Plaintiff, : : - v. - : : WIDECOM, INC., RAJA S. TULI, and : SUNEET S. TULI, : : Defendants. : : - -----------------------------------x SETTLEMENT AGREEMENT WHEREAS, plaintiffs Brett Whiton, Richard Benjamin 2 and Anthony Hand (the "Plaintiffs"), filed Complaints (collectively, the "Complaint") in these actions (collectively, the "Action") asserting claims on behalf of a class consisting of all persons or entities who owned the 1,897,500 publicly-traded warrants ("Warrants") issued in connection with the public offering of Widecom Group Inc. ("Widecom") in December 1995, at $.l0 per Warrant (the "Warrants Offering"), at the close of business on February 10, 1997, excluding defendants and any of their parents, subsidiaries or affiliates (as those terms are used in the federal securities laws), as well as the directors and officers of defendants and members of the immediate families, affiliates, successors and assigns of those directors and officers; WHEREAS, on February 27, 1997, Plaintiff Whiton filed his complaint in New York State Supreme Court, New York County, asserting the claims alleging breach of contract, breach of fiduciary duty, unjust enrichment and violation of New York General Business Law o 349, in connection with Widecom's press release issued on February 10, 1997 calling for the redemption of the Warrants on March 13, 1997 at a price of $.10 per Warrant (the "Redemption"), and including a request for injunctive relief; 2 3 WHEREAS, on March 4, 1997, defendants removed Plaintiff Whiton's Complaint to the United States District Court for the Southern District of New York (the "Court"); WHEREAS, on March S, 1997, Plaintiff Whiton applied to the Court for a temporary restraining order with respect to the Redemption and a hearing on Plaintiff's request that the Court preliminarily enjoin the Redemption; WHEREAS, on March 5, 1997, at the hearing on Plaintiff's application, the Court denied the request for a temporary restraining order but set a briefing schedule and a hearing date on Plaintiff's request for preliminary injunctive relief; WHEREAS, on March 3, 1997, Plaintiff Richard Benjamin filed a complaint in New York State Supreme Court, County of New York, alleging the same claims against the same defendants and seeking the same relief; WHEREAS, on March 5, 1997, Plaintiff Anthony Hand filed a complaint in this Court alleging the same claims against the same defendants and seeking the same relief as Plaintiff Whiton; WHEREAS, prior to seeking equitable relief, Plaintiffs' counsel had submitted to Whale Securities L.P., Co. ("Whale") the underwriter on Warrants Offering, certain detailed proposals for settling the Action; WHEREAS, on March 6, 1997, after vigorous negotiations between Widecom and Whale, during which Whale 3 4 consulted with Plaintiffs' counsel, an agreement was reached substantially modifying the Redemption upon terms substantially similar to those proposed by Plaintiffs' counsel and pursuant to that agreement Whale pledged to provide its contractually required consent to the Redemption; WHEREAS, by letter dated March 7, 1997, Plaintiffs' counsel (also referred to herein as "Class Counsel") advised the Court of the agreement between Widecom and Whale, that Class Counsel were studying the agreement to determine how they should proceed, and that, by reason of one of the terms of the agreement; requested an adjournment of the preliminary injunction hearing to March 27, 1997; WHEREAS, by memo endorsement dated March 10, 1997, the Court granted Plaintiffs' request for an adjournment to March 27, 1997 and set a new briefing schedule; WHEREAS, counsel for Plaintiffs and Defendants continued to negotiate refinements and additional terms to the agreement reached between Widecom and Whale; WHEREAS, on March 18, 1997, Widecom and Plaintiffs reached a settlement of the Action embodied in a signed Memorandum of Understanding; WHEREAS, on March 18, 1997, counsel for the parties advised the Court of the settlement and counsel for Plaintiffs withdrew the application for a preliminary injunction hearing; 4 5 WHEREAS, on April 8, 1997, for purposes of facilitating consolidation and resolution of the Action, Plaintiff Benjamin's action was removed to this Court as a related case; WHEREAS, Defendants Widecom, Raja S. Tuli and Suneet S. Tuli (collectively "Defendants") have denied any liability or wrongdoing in connection with the matters asserted in the Complaint, and maintained that their conduct was in all respects proper and lawful; WHEREAS, Plaintiffs, through counsel, have investigated and analyzed the factual circumstances underlying the issues raised by the complaint, analyzed the applicable law, and consulted with certain experts and consultants; WHEREAS, on the basis of such investigation, analysis and consultation, Plaintiffs have determined that, after taking into account the substantial benefits conferred on the Class by this Settlement Agreement (the "Settlement Agreement"), the risks involved in establishing a right to recovery on behalf of the Class and the likelihood that continued litigation would be protracted and expensive, the settlement of the Action provided for by this Settlement Agreement is fair, reasonable and adequate to the Class; WHEREAS, although satisfied that the claims asserted in the Complaint are without merit, Defendants 5 6 consider it desirable and in the best interest of all concerned, including the Class, to settle the Action in the manner and upon the terms and conditions provided for by the Settlement Agreement in order to avoid further expense, inconvenience and distraction of litigation and in order to put to rest the claims that have been asserted, or that could have been asserted, in the Action; WHEREAS, the terms and conditions of this Settlement Agreement are the result of arm's-length negotiations between and among the Plaintiffs and Defendants; NOW THEREFORE, IT IS HEREBY AGREED by an among the Parties hereto, acting through their respective duly authorized attorneys, that this Action shall be dismissed on the merits, with prejudice, and shall be settled and compromised, subject to the approval of the United States District Court for the Southern District of New York (the "Court"), upon the following terms and conditions (all of which terms and conditions are referred to as the "Settlement"). ARTICLE 1 DEFINITIONS The following definitions shall apply throughout this Settlement Agreement: 6 7 1.1 "Class" means all persons or entities who owned Warrants at the close of business February 10, 1997. Excluded from the Class are Defendants and any of their parents, subscribers, or affiliates (as defined in the federal securities laws) as well as the directors and officers of Defendants and members of the immediate families, affiliates, successors, and assigns of those directors and officers. 1.2 "Class Member" means any person (including any natural and any legal person or entity) who falls within the definition of the Class. 1.3 "Effective Date" means the date upon which (a) final judgment substantially in the form attached as Exhibit A hereto (the "Final Order and Judgment") has been entered by the Court pursuant to the Settlement Agreement; and (b) the time has expired in which any person with standing may appeal that order without any appeal having been taken, or, if an appeal has been taken, the appeal shall have been finally determined (subject to no right to further review or appeal) or resolved without the terms of the Settlement Agreement being revised, vacated, or modified in any respect not agreed to in writing by the parties. 1.4 "The Parties" means the Plaintiffs, the Class Members and Defendants. 7 8 ARTICLE 2 CONSIDERATION TO THE SETTLING CLASS MEMBERS 2.1 Reduction in Exercise Price. The exercise price of Widecom's publicly-traded Warrants will be reduced from $4.00 per share to $3.00 per share. In addition, Widecom will extend the Redemption until at least April 4, 1997, and will exclude one-half of the Warrants from Redemption. After the Warrant Redemption date, the exercise price of unredeemed and unexercised Warrants subject to this Agreement will revert to $4.00 per share. 2.2 Replacement Warrants. For class members who held Warrants as of February 10, 1997 and sold such Warrants prior to the close of business on March 5, 1997, upon evidence of such transactions to the Company, the Company will issue one replacement Warrant for each Warrant sold. The Replacement Warrants will be marketable (upon effective date of registration) and will have an exercise price of $4.00 per share. Such Replacement Warrants shall be non-redeemable by the Company for one year commencing on the Warrant Redemption date. The Company shall use its best efforts to effect registration of the Replacement Warrants as soon as practicable. 2.3 Board of Directors. The Company will expand the Board of Directors to include a new member who will be 8 9 an outside director with no current ties to the Company or its current Board members. The Company will propose a nominee to serve as the new outside director. Prior to any formal nomination the Company will provide plaintiffs' counsel with material information regarding such nominee's independence and will solicit input regarding possible nominees and their independence from plaintiffs' counsel. 2.4 Chief Operating Officer. The Company shall hire an independent Chief Operating Officer with no present ties to the Company or members of its Board. ARTICLE 3 DISCHARGE OF CLAIMS 3.1 Release to Defendants. Upon the Effective Date, Plaintiffs, on their own behalf and on behalf of Class Members, their heirs, joint-tenants, tenants-in-common, spouses, beneficiaries, executors and administrators, successors, assigns and any persons they represent, will provide a release running from every class member releasing each defendant and all officers and directors of WideCom, whether or not specifically named as a defendant in the Complaint, from any and all claims, demands, matters, issues, rights, actions, suits, liabilities and causes of action, whether known or unknown, suspected or unsuspected, fixed or contingent of every nature and description whatever 9 10 that are, have been, could have been or in the future might be asserted by Plaintiffs or any member of the Class either in this Action or any other action based on the acts alleged in the Complaint. In addition, each of the class members will release each of the defendants from any claim related to the proposed Redemption announced February 10, 1997 arising out of or relating to any action by defendants as it relates to any class members' ownership, purchase or sale of Warrants issued by Widecom (or "the Company") from December 18, 1995 to the date of the release. Moreover, the class members will expressly release in the Final Order and Judgment, the form of which is annexed hereto as Exhibit A, any such claim whether it is based on state, federal, or common law (the "Released Claims") 3.2 Release to Plaintiffs and Class Counsel. Defendants and members of the Class shall conclusively release Plaintiffs and their counsel from any and all claims which they could assert arising out of the Released Claims or the prosecution or settlement of the Action. 3.3 Effect of Releases. Upon the Effective Date, this Settlement Agreement and the Court's approval thereof may be pleaded as a full and complete defense to any action, suit or other proceeding that may be instituted, prosecuted or attempted with respect to any of the Released Claims or any of the claims released by Articles 3.1 and 3.2 above. No Class Member may pursue or litigate any of the Released 10 11 Claims or any of the claims released by Article 3.1 above during the pendency of any appeal from the entry of the Final Order and Judgment. ARTICLE 4 NO OPPORTUNITY TO OPT-OUT Since inconsistent or varying adjudications with respect to the rights of individual members of the Class with respect to the Redemption would establish incompatible standards of conduct for Defendants, as a practical matter the settlement for which Plaintiffs seek approval will be dispositive of the interests of all members of the Class, and the conduct of Defendants that Plaintiffs complained was wrongful was generally applicable to the Class such that Plaintiffs had sought injunctive relief, Class Members shall not be given an opportunity to exclude themselves from the Class and the Settlement. ARTICLE 5 EFFECTIVENESS. IMPLEMENTATION AND SCHEDULING 5.1 Order for Preliminary Approval of Settlement. Counsel for the Parties shall jointly apply to the Court for entry of an order substantially in the form attached as Exhibit B hereto (the "Preliminary Approval Order"): (i) preliminarily approving the proposed Settlement; 11 12 (ii) certifying a class for settlement purposes that includes all persons or entities Who owned the Warrants at the close of business on February 10, 1997, excluding Defendants and any of their parents, subsidiaries or affiliates (as those terms are used in the federal securities laws), as well as the directors and officers of defendants and members of the immediate families, affiliates, successors and assigns of those directors and officers; (iii) consolidating the actions filed by Plaintiffs Whiton, Benjamin and Hand and appoint the firms of Chimicles, Jacobsen & Tikellis and Goodkind, Labaton, Rudoff & Sucharow as co-lead counsel for the Class; (iv) prescribing a period of time by which claimants for Replacement Warrants must submit Proofs of Claim; (v) directing that, if the Court grants preliminary approval: (a) a hearing shall be held for the purpose of determining whether the Settlement is fair, reasonable and adequate to the Class and to grant such fees to Plaintiffs' counsel as the Court deems appropriate (the "Settlement Hearing"); (b) Widecom shall give, at its expense, notice of the proposed Settlement and of the Settlement Hearing, together with a Proof of Claim Form and 12 13 accompanying instructions for completing that document, in the form collectively attached as Exhibit B-l hereto, by mailing a copy to each Class Member within 45 days of the settlement Hearing; (c) any Class Member who objects to the Settlement may file a written objection with the Court no later than 10 days before the Settlement Hearing and, if the objection is timely filed, be heard at the Settlement Hearing. 5.2 Final Order and Judgment. In accordance with the procedures provided in the Preliminary Approval Order, the Parties shall jointly apply to the Court for entry of the Final Order and Judgment substantially in the form annexed hereto as Exhibit A. Such application shall be made no later than seven days before the Settlement Hearing. The Final Order and Judgment shall: (i) approve the Settlement as fair, reasonable and adequate to the Class; (ii) direct the parties to consummate the Settlement in accordance with the terms of the Settlement Agreement; (iii) dismiss the Action on the merits with prejudice and discharge Defendants and all their affiliates, directors, trustees, officers, employees and agents (including attorneys and accountants) from the Released Claims; 13 14 (iv) bar and enjoin all Class Members from prosecuting in all jurisdictions, individually or on behalf of themselves, their heirs, joint-tenants, tenants in-common, spouses, beneficiaries, executors and administrators, successors and assigns and any persons they represent, any of the Released Claims; (v) grant such fees to Plaintiffs' counsel as the Court deems appropriate; (vi) provide that the Court shall retain jurisdiction over the Action for the purposes of effectuating the Settlement and enforcing the Final Order and Judgment. 5.3 Effectiveness of Settlement Agreement. The Settlement Agreement and its terms, other than the term of Article 6.2 requiring Widecom to deposit funds/stock into the Escrow Account, shall become fully effective on the Effective Date. The obligations of the Parties to proceed with procedures relating to obtaining Court approval of the Settlement Agreement shall be effective upon execution of the Settlement Agreement. 5.4 Termination of Settlement Agreement. This Settlement Agreement shall be null and void for all purposes if: (i) the Court does not grant preliminary or final approval of this Settlement Agreement; (ii) the Court does not enter the Final 14 15 Order and Judgment or modifies it in any material respect and that modification is not agreed to in writing by the Parties, or (iii) on appellate review, the Final Order and Judgment or any other Order of the Court implementing the Settlement in accordance with the terms of the Settlement Agreement is reversed, vacated or modified in any material respect and that modification is not agreed to in writing by the Parties. If this Agreement becomes null and void, all negotiations, transactions and proceedings connected with it: (i) shall be without prejudice to the rights of any person; (ii) shall not be deemed or construed to be evidence or admission of wrongdoing of any kind, or of any liability therefor, on the part of Defendants, or any of their affiliates, directors, trustees, officers, employees or agents; and (iii) shall not be used directly or indirectly in any way, either in this Action or in any other action or proceeding before any court, agency or arbitrator. ARTICLE 6 COSTS OF NOTICE. ADMINISTRATION AND ATTORNEYS' FEES 15 16 6.1 Costs of Notice to the Class and Administration of Settlement. At its own expense, WideCom shall provide the notice described in Article 5.1(u) (b) above and shall provide all accounting, record-keeping or administrative service a necessary for Defendants to implement the Settlement. Class Members and Class Counsel shall not bear any costs incurred in administering the Settlement or providing notices to the Class. 6.2 Functions of the Claims Administrator. The administration of the Settlement (including, without limitation, preparing and mailing the Notice and Proof of Claim, verifying and processing the Proof of Claim, and calculating distributions of Replacement Warrants to Class members) shall be performed by a claims administrator of WideCom's selection (the "Claims Administrator"), and will be subject to the oversight of defendants' counsel, Class Counsel and the Court. 6.3 Distribution of Replacement Warrants. Subject to the review of defendants' counsel and Class Counsel, the Claims Administrator shall be responsible for determining which Class Members are entitled to a distribution of Replacement Warrants, and for determining the amount of each such person's distribution, as set forth in Section 2.2 above, and for distributing such amounts to the Class members. The Claims Administrator shall provide counsel for defendants and the Class with the results of such 16 17 determinations and access, upon reasonable request, to sufficient information, including without limitation, the Proofs of Claim and supporting documentation in the possession of the Claims Administrator, to audit the calculation of the distributions. 6.4 Proofs of Claim. Each Class Member claiming to be entitled to Replacement Warrants shall be required to submit a separate Proof of Claim, signed under penalty of perjury, and supported by such documents as are specified in the Proof of Claim. The Proof of Claim which shall be sent together with the Notice to the members of the Class shall, inter alia, (a) advise each member of the Class that he, she or it must complete, sign before a Notary Public or subscribe to under penalty of perjury, and submit a timely Proof of Claim in order to be eligible to receive a distribution of Replacement Warrants pursuant to the terms of the Settlement and (b) describe the information and documentation that each member of the Class must provide in order to be able to receive any distribution of Replacement Warrants. Proof reasonably identifying and establishing the beneficial ownership of WideCom Warrants as of February 10, 1997, and the number of such shares, as well as sales of any or all of such warrants by the end of business on March 5, 1997, shall be sufficient to establish entitlement to Replacement Warrants. 17 18 6.5 Timeliness of Class Claims. All Proofs of Claim must be postmarked or received no later than the date or dates set forth in the Preliminary Approval Order, unless such date or dates shall be extended by the Court. Any member of the Class from whom a valid Proof of Claim is not timely received shall forever be barred from receiving any payments pursuant to this Settlement Agreement, but will in all other respects be subject to the provisions of this Stipulation and the Final Order and Judgment. Class Counsel may, with the agreement of Defendants' counsel, which agreement shall not be unreasonably withheld, extend the deadline for filing Proofs of Claim for a period of no more than sixty (60) days from the deadline set forth in the Preliminary Order without further Court order or notice to the members of the Class. Any extension of the deadline for filing Proofs of Claim beyond sixty (60) days shall require the permission of the Court. 6.6 Jurisdiction Over Claimants. Each claimant for Replacement Warrants shall be deemed to have submitted to the jurisdiction of the District Court with respect to that person's claim, and the claim will be subject to investigation and discovery under the Federal Rules of Civil Procedure, provided that such investigation and discovery shall be limited to claimant's status as a member of the Class and the amount of the claimant's claim. 18 19 6.7 Successor Claimants. If a member of the Class who is a claimant for Replacement Warrants is dissolved or merged (if a corporation), or deceased (if an individual), the Claims Administrator may cause distribution of Replacement Warrants to such member of the Class to be delivered to the representative, successor, probate court, executor, heir or beneficiary of such member of the Class upon submission of appropriate documentation providing authority of such person or entity to receive a distribution on behalf of such member of the Class. 6.8 Rejection of Claims. Each Proof of Claim shall be submitted to and reviewed by the Claims Administrator, under the supervision of counsel for defendants and the Class, who shall determine in accordance with this Settlement Agreement the extent, if any, to which each claim shall be allowed subject to review by the Court. The Claims Administrator will notify all claimants whose Proofs of Claim they have rejected in whole or in part, and will set forth the reasons for the rejection. If any claimant whose claim has been rejected in whole or in part desires to contest such rejection, the claimant must, within twenty (20) days after the date of mailing of the notice of rejection, request a review thereof by the Court, setting forth a statement of reasons indicating the claimant's grounds for contesting the rejection along with any supporting documentation, and serve a copy of such request 19 20 simultaneously upon the Claims Administrator, and Counsel for defendants and the Class. All members of the Class whose claims are not approved by the Court shall be barred from participating in distribution of the Replacement Warrants, but otherwise shall be bound by all of the terms of the Stipulation and any order(s) and/or judgment(s) entered in the Action. 6.9 Allocation for Attorneys' Fees and Costs. At the time the parties file papers in support of final approval of the Settlement pursuant to paragraph 8 of the Preliminary Approval Order, Plaintiffs may file with the Court and serve upon Defendants an application for payment in an amount not to exceed $185,000 (plus accrued interest and/or appreciation) as Class Counsel's attorneys' fees and costs, including expert or consultant fees incurred and an incentive award for Plaintiff Whiton not to exceed $5,000. Defendants shall not oppose any application by Plaintiff that does not exceed $185,000 and agree that such fee is fair and reasonable. Subject to court approval, the fee shall be paid as follows: (a) Of the $185,000, at least $70,000 shall be paid in cash, with the remainder to be paid in Widecom common stock or cash in the Company's sole discretion. (b) Within three days of preliminary approval of the proposed settlement by a Court of competent jurisdiction, the Company shall deposit in escrow the full 20 21 $185,000. The Company may, in its discretion, deposit the full $185,000 to be placed in escrow by using Widecom common stock. (c) The settlement shall be "Final" when either (i) it is approved by a Court of competent jurisdiction and the date for an appeal therefrom passes with no appeal being filed; or (ii) it is approved by a Court of competent jurisdiction and a timely appeal is filed, a decision is rendered therein upholding the Court's approval, and the time to file a petition for writ of certiorari passes with no writ being filed; or (iii) it is approved by a Court of competent jurisdiction, a timely appeal is filed and decided and a writ of certiorari is filed and a final decision of the Supreme Court upholding the Court's approval is issued. (d) Within two days of the settlement becoming Final, Defendants shall cause the Fee to be paid to Plaintiffs' counsel. To the extent that any portion of the $70,000 cash component of the Fee is secured by common stock in the escrow fund, Plaintiffs' counsel, in its discretion, shall have the right to accept the stock (regardless of its then-current trading price) in lieu of the $70,000 cash or, alternatively, require the company to replace that portion of the stock with $70,000 cash. The Defendants will also guarantee that, based on the trading value of the Widecom stock on the date the Settlement becomes Final, the combination of cash and common stock to be paid to 21 22 Plaintiffs' counsel will not be less than $150,000 in the aggregate. If the value of the cash and stock paid to Plaintiffs' counsel is less than $150,000, Defendants shall pay additional cash and/or stock as they so choose, to make the value equal to $150,000. Plaintiffs' counsel shall retain as fees any interest earned on the escrow fund. (e) In calculating the value of the Widecom common stock under this Agreement, the Widecom common stock shall be valued at $4.00 per share, which was the closing price of the stock on Friday, March 7, 1997, the date the parties informally agreed to this settlement. 6.10 All Funds in the escrow account shall be deemed to be in custodia legis of the Court and shall remain subject to the jurisdiction of the Court until such time as the funds in the Account are distributed, pursuant to the terms of this Settlement Agreement, to Class Counsel or returned to Defendants. 6.11 Except as otherwise provided herein, Plaintiff and Defendants shall bear their own costs, expenses and attorneys' fees in connection with this Action and the entry or enforcement of this Settlement Agreement. No attorneys' fees, costs or expenses shall be borne by Class Members, other than Plaintiffs. ARTICLE 7 MISCELLANEOUS 22 23 7.1 Importance of Exhibits. The exhibits to this Settlement Agreement are a substantive and necessary part of this Settlement Agreement. 7.2 Counterparts. This Settlement Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. 7.3 Sole and Entire Agreement. This Settlement Agreement and its exhibits contain all the terms agreed upon between the Parties with respect to the subject matter hereof, and it may be amended or modified only by agreement in writing, signed by all the Parties hereto, and may not be modified following approval by the Court without the court's express approval. 7.4 Benefit. This Settlement Agreement shall be binding upon and inure to the benefit of any successor or assign of any Party hereto. Nothing in this Settlement Agreement is intended to confer any rights or remedies on any persons other than (i) the Parties; (ii) the Class Members; (iii) any persons against whom claims are released pursuant to paragraph 3.1 above; and (iv) their successors and assigns. 7.5 Governing Law. Jurisdiction and Venue. The validity, construction, effect and administration of this Settlement Agreement shall be governed by and construed in accordance with the laws of the State of New York, without 23 24 regard to its conflict of laws principles. This Settlement Agreement shall be enforced only by the Court, and the Court shall maintain jurisdiction over the Action so long as necessary to implement its terms. 7.6 No Admission of Liability. This Settlement Agreement and all papers relating to it are not, and shall not be construed to be, an admission by Defendants of either the merits of any of the claims asserted in the Action, of liability with respect to any such claims, or of any wrongdoing whatsoever. This Settlement Agreement and the papers, negotiations, transactions and proceedings relating to it may not be offered or received in evidence in any civil, criminal, arbitration or administrative action or proceeding as an admission on the part of Defendants of any wrongdoing or liability or of the merit of any claim asserted in the Action. 7.7 Reasonable Efforts. Counsel for the Parties shall use their best efforts to obtain the entry of the Final Order and Judgment. The Parties and their respective counsel shall take all reasonable steps necessary to effectuate the settlement provided for by this Settlement Agreement. 24 25 IN WITNESS WHEREOF, the Parties hereto have caused this agreement to be executed by their respective counsel as of 1997. AGREED TO: Ira A. Schochet James J. Coster Peter E. Zinman SATERLEE STEPHENS BURKE GOODKIND, LABATON, RUDOFF & BURKE & SUCHAROW, LLP 230 Park Avenue 100 Park Avenue New York, NY 10169 New York, NY 10017 (212) 818-9200 (212) 907-0700 and Attorneys for Defendants Nicholas E. Chimicles Steven A. Schwartz CHIMICLES, JACOBSEN & TIKELLIS 361 W. Lancaster Avenue Haverford, PA 19041 (610) 642-8500 PLAINTIFF'S CO-LEAD COUNSEL Daniel Krasner WOLF HALDENSTEIN ADLER FREEMAN & HERZ 270 Madison Avenue New York, NY 10016 (212) 545-4600 Steven P. Gregory RITCHIE & REDIKER, LLC 312 North 23rd Street Birmingham, AL 35203 (205) 251-1288 ATTORNEYS FOR PLAINTIFF AND THE CLASS 25 EX-23 6 CONSENST OF BDO DUNWOODY 1 EXHIBIT 23 CONSENT OF CHARTERED ACCOUNTANTS The Board of Directors The WideCom Group Inc. We hereby consent to the incorporation by reference in the Prospectus constituting a part of this Registration Statement of our report dated July 4, 1997, relating to the consolidated financial statements of The WideCom Group Inc., appearing in the Company's Annual Report on Form 10-K for the year ended March 31, 1997. We also consent to the reference to us under the caption "Experts" in the Prospectus. /s/ BDO DUNWOODY -------------------------------------- BDO Dunwoody Chartered Accountants (Internationally BDO Binder) Toronto, Canada September 11, 1997 -----END PRIVACY-ENHANCED MESSAGE-----