Uniserve enters deals to acquire Megawire

Executive Summary

• Uniserve Communications Corp. has entered into definitive agreements to acquire the business, assets, and undertaking of Megawire Inc. (including subsidiaries Brimax Financial Services Inc. and Waterloo Wireless Inc.) for a total consideration of $6.5 million.
• The transaction is funded through a mix of equity issuance ($2 million), cash payments ($2.4 million), and a convertible note ($2.1 million), alongside a separate $2.5 million insider loan secured by warrants.
• The acquisition aims to expand Uniserve’s managed IT services and data centre portfolio in Eastern Canada and Ontario, with expected contributions to top-line sales and EBITDA.

Key Details

• Transaction Structure & Consideration:
  • Total Purchase Price: $6.5 million.
  • Asset Purchase Agreement (APA): Uniserve issues $2 million in common shares to acquire Megawire’s assets. Share value is the lower of 60 cents or the 10-day VWAP prior to closing (with a floor of 47 cents).
  • Share Purchase Agreement (Brimax SPA): Uniserve pays $2.4 million in cash to acquire all issued and outstanding shares of Brimax Financial Services Inc. from shareholders Brian Patrick Maxwell and Gail Maureen Maxwell.
  • Share Purchase Agreement (Waterloo SPA): Uniserve pays $2.1 million via a convertible note to acquire all issued and outstanding shares of Waterloo Wireless Inc. from shareholder Steven Maxwell.
• Convertible Note Terms (Waterloo SPA):
  • Principal: $2.1 million.
  • Term: 3 years.
  • Interest: 7% per annum, payable monthly.
  • Security: Secured against all Waterloo assets.
  • Conversion Options:
    • Noteholder may elect to convert up to 50% of outstanding note value into Uniserve shares at any time.
    • Uniserve may elect to prepay up to one-third of the original note value annually; noteholder may choose to receive cash or shares.
    • On the 1st and 2nd anniversaries, 10% of the outstanding principal (less prepayments) is payable in cash, unless the noteholder elects shares.
  • Conversion Prices:
    • Year 1: 75 cents per share.
    • Year 2: $1.00 per share.
    • Year 3: $1.25 per share.
• Additional Financing (Insider Loan):
  • Uniserve borrows $2.5 million from 369 Terminal Holdings Ltd. (an insider holding >10% of shares).
  • Instrument: Promissory note, repayable on demand.
  • Interest: 8% per annum, commencing on advance date, payable monthly.
  • Warrants: 3.5 million share purchase warrants granted to the lender.
  • Warrant Terms: Exercisable for one Uniserve share at $0.57 per share for a one-year period.
  • Use of Proceeds: To fund the purchase price of the transaction.
  • Hold Period: 4 months from issuance for warrants and shares issued on exercise.
• Operational & Legal Terms:
  • Consulting Agreement: Emerald Flow Inc. (Steve Maxwell’s services company) enters a 12-month consulting agreement for management services.
  • Non-Compete: Megawire and Steve Maxwell enter non-competition agreements valid across Canada for 24 months from closing.
  • Related Party Status: Transaction is considered a related party transaction under Multilateral Instrument 61-101 due to the insider lender. Exempt from formal valuation and minority shareholder approval as the loan value does not exceed 25% of market capitalization.
  • Regulatory: Subject to TSX Venture Exchange approval.
  • Control: Transaction will not result in a change of control.
  • Finders’ Fees: None.

Notable Quotes

• "The acquisition of this MSP will further enhance the depth of services that Uniserve will deliver and strengthen our data centre portfolio by allowing us to provide service in Eastern Canada. This acquisition will further support the growth of Uniserve's recurring revenue-based service offerings and consolidate our ability to provide these services in Ontario. As Canadian businesses continue their digital transformations, we are working to build on our ability to provide quality bandwidth and infrastructure to meet growing customer needs in these areas. We expect this acquisition to bring in strong top-line sales and an expected EBITDA to the organization which will provide a solid platform for us to scale up operations in Ontario," said Kwin Grauer, Uniserve's chairman of the board and acting interim chief executive officer.