Exemption Orders (Discretionary)
VERTICORE COMMUNICATIONS LTD.
2001 BCSECCOM 801
Headnote
Mutual Reliance Review System for Exemptive Relief Applications - Registration and prospectus relief granted in respect of trades in shares of a U.S. non-reporting issuer upon exercise of various rights attached to exchangeable securities of Canadian non-reporting issuer - first trade relief granted in respect of trades in shares of U.S. non-reporting issuer provided trades made over market outside of Canada and de minimus market in Canada at time trades are executed.
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, ss. 34(1)(a), 48, 61 and 76
IN THE MATTER OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN AND ONTARIO
AND
IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF VERTICORE COMMUNICATIONS LTD. AND
CAPTIVATE NETWORK, INC.
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the “Decision Maker”) in each of British Columbia, Alberta, Saskatchewan and Ontario (collectively, the “Jurisdictions”) has received an application (the “Application”) from Verticore Communications Ltd. (“Verticore”) and Captivate Network Inc. (“Captivate”) for a decision under the securities legislation of the Jurisdictions (the “Legislation”) that certain trades in securities of Captivate shall not be subject to the requirements contained in the Legislation to be registered to trade in a security (the “Registration Requirement”) and to file a preliminary prospectus and a prospectus and receive receipts therefor (the “Prospectus Requirement”);
AND WHEREAS pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the “System”), the Ontario Securities Commission is the principal regulator for this Application;
AND WHEREAS Verticore and Captivate have represented to the Decision Makers that:
1. Verticore, a corporation incorporated under the laws of the Province of Ontario, is not a reporting issuer under the Legislation and has no intention of becoming a reporting issuer under the Legislation. Verticore is engaged in the electronic distribution and display of information and advertising in specific locations including elevator cabs and elevator waiting areas.
2. In order to provide better access to the United States capital markets, Verticore completed a reorganization (the “Reorganization”) on August 22, 2000. As a result of the Reorganization, all of the common shares of Verticore are owned by 3044011 Nova Scotia Company (“Nova Scotia Subco”), which is a wholly owned subsidiary of Narrowcast Communications Corp. (“Narrowcast”).
3. Narrowcast, a company organized under the laws of Delaware, is not a reporting issuer under the Legislation and has no intention of becoming a reporting issuer under the Legislation. None of Narrowcast’s securities have been registered under the United States Securities Act of 1933, as amended, and none of its securities are publicly traded on any stock exchange or market. Narrowcast is engaged in the electronic distribution and display of information and advertising in specific locations including elevator cabs and elevator waiting areas.
4. Narrowcast has entered into an agreement and Plan of Merger (the “Merger Agreement”) pursuant to which it has merged with BigFoot Merger Corp. (the “Merger”), a wholly owned subsidiary of Captivate effective as of March 30, 2001.
5. Captivate, a corporation organized under the laws of Delaware, is not a reporting issuer under the Legislation and has no intention of becoming a reporting issuer under the Legislation. None of Captivate’s securities have been registered under the United StatesSecurities Act of 1933, as amended, and none of its securities are publicly traded on any stock exchange or market. Captivate is engaged in the electronic distribution and display of information and advertising in specific locations including elevator cabs and elevator waiting areas.
6. Shareholders of Verticore previously held securities of Verticore which were exchangeable for securities of Narrowcast (the “Exchangeable Securities”). As a result of the Merger, the provisions of the Exchangeable Securities have been amended to provide for the right to exchange such securities for securities of Captivate as opposed to securities of Narrowcast. The Exchangeable Securities provide a holder with a security of a Canadian issuer having economic and voting rights which are, as nearly as practicable, equivalent to those of the corresponding class of securities of Captivate.
7. As part of the Merger, options to purchase an aggregate of approximately 1,348,500 Narrowcast shares were converted into options (the “Captivate Options”) to purchase shares of Captivate Stock. Also as part of the Merger, warrants to purchase an aggregate of 3,763,400 Narrowcast shares became, by their terms, warrants to purchase shares of Captivate Stock (“Captivate Warrants”).
8. The Merger was approved by the directors and shareholders of Verticore.
9. The share provisions attaching to the Exchangeable Securities, together with provisions contained in an amended exchange rights agreement, an amended and restated support agreement and an amended and restated voting trust agreement, each entered into concurrently with the Merger, provide mechanisms by which the Exchangeable Securities will be ultimately exchanged for securities of Captivate.
10. The holders of Exchangeable Securities have the right to exchange their Exchangeable Securities at any time through a retraction right attached to such securities, and will receive, on retraction, corresponding securities of Captivate. Upon the exercise of a retraction right by a holder, Captivate and Nova Scotia Subco have an overriding call right to purchase the Exchangeable Securities being retracted instead of Verticore. Holders of Exchangeable Securities also have a right to acquire corresponding Captivate securities upon a liquidation, dissolution or winding up of Verticore, again subject to a call right exercisable by Captivate or Nova Scotia Subco to purchase the Exchangeable Securities instead of Verticore. In the event that Verticore cannot or does not meet such obligations, a holder has a right to require Nova Scotia Subco to purchase its Exchangeable Securities in exchange for securities of Captivate. Verticore also has the right to redeem Exchangeable Securities from holders thereof in certain circumstances, subject to a call right by Captivate or Nova Scotia Subco. The retraction call right, liquidation call right and redemption call right described in this paragraph are referred to collectively as the “Call Rights”. The various rights of holders of Exchangeable Securities to obtain Captivate securities described in this paragraph are referred to collectively as the “Exchange Rights”.
11. As a result of the steps under the Merger and the attributes of the Captivate securities and Exchangeable Securities, the issuance of Captivate Stock upon the exercise of any Exchange Right and upon the exercise of the Captivate Options and Captivate Warrants involve or may involve trades and/or distributions under the Legislation for which no statutory exemptions from the Prospectus Requirement and Registration Requirement will be available.
12. It is expected that all future financings of Verticore and Captivate will be undertaken in the United States and that new investors will primarily be residents of the United States. No market for the securities of Captivate is expected to develop in the Jurisdictions. It is contemplated that Captivate will make its initial public offering, if any, in the United States and seek listing on the Nasdaq Stock Market.
13. If, as of the date of the Application, holders of Exchangeable Securities resident in the Jurisdictions exchanged such securities for securities of Captivate, they would hold approximately 12% of the shares of Captivate common stock, as converted, and would represent, in number, approximately 45% of the holders of shares of Captivate common stock, as converted.
14. All disclosure material furnished to holders of securities of Captivate resident in the United States will be provided to holders of the Exchangeable Securities and will be provided to all security holders of Captivate resident in the Jurisdictions.
AND WHEREAS under the System, this MRRS Decision Document evidences the decision of each Decision Maker (collectively, the “Decision”);
AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the Decision has been met;
THE DECISION of the Decision Makers pursuant to the Legislation is that the Registration Requirement and the Prospectus Requirement will not apply to any trade in Exchangeable Securities or Captivate securities that is made pursuant to the exercise of any of the Call Rights or Exchange Rights provided, however, that the first trade in Exchangeable Securities or Captivate securities that are acquired upon the exercise of any of the Call Rights or Exchange Rights and the first trade of Captivate securities that are acquired upon the exercise of the Captivate Options or Captivate Warrants shall be a distribution under the Legislation of the Jurisdiction in which the trade takes place (the “Applicable Legislation”), unless:
A. (i) Captivate is a reporting issuer and has been a reporting issuer for at least 12 months in the relevant Jurisdiction;
(ii) if the seller is in a "special relationship" with Captivate, the seller has reasonable grounds to believe that Captivate is not in default under the Legislation, where, for these purposes, "special relationship" shall have the meaning ascribed to it in the Applicable Legislation; and
(iii) no unusual effort is made to prepare the market or to create a demand for securities of Captivate and no extraordinary commission or consideration is paid in respect of such first trade,
then such first trade is a distribution only if it is a trade made from the holdings of any person, company or combination of persons or companies holding a sufficient number of any securities of Captivate to affect materially the control of Captivate, but any holding of any person, company or combination of persons or companies, holding more than 20 percent of the outstanding voting securities of Captivate shall, in the absence of evidence to the contrary, be deemed to affect materially the control of Captivate (and, for such purposes, securities of Captivate and the Exchangeable Securities are considered to be of the same class); or
B. if Captivate is not a reporting issuer under the Applicable Legislation, such first trade is made through the facilities of a stock exchange outside Canada or on the Nasdaq Stock Market and at the time of such first trade, holders of common shares of Captivate (with holders of Captivate Exchangeable Securities considered to be holders of common shares of Captivate) whose last address as shown on the books of Captivate or Verticore, as the case may be, is in the Jurisdictions, do not hold more than 10% of the common shares of Captivate and represent in number, not more than 10% of the holders of common shares of Captivate; and
C. in either case, Verticore or Captivate shall provide each holder of Exchangeable Securities and each holder of Captivate Options or Captivate Warrants resident in the Jurisdictions with a copy of this MRRS Decision Document which outlines the limitations imposed upon the first trade of Captivate securities acquired pursuant to the exercise of any of the Call Rights or Exchange Rights or upon the exercise of the Captivate Options or Captivate Warrants.
DATED this 3rd day of August, 2001.
Paul Moore Robert W. Davies