Exemption Orders (Discretionary)
POLYCOM, INC.
2001 BCSECCOM 318
IN THE MATTER OF THE SECURITIES ACT
R.S.B.C. 1996, c. 418
AND
IN THE MATTER OF POLYCOM, INC., 3045857 NOVA SCOTIA ULC, 3048685 NOVA SCOTIA LIMITED AND CIRCA COMMUNICATIONS, LTD.
Exemption Order Under Sections 48 and 76
[para 1]
WHEREAS Polycom, Inc. (“Polycom”), 3045857 Nova Scotia ULC (“Polycom ULC”), 3048685 Nova Scotia Limited (“Exchangeco”) and Circa Communications, Ltd. (“Circa”) (together, the “Applicants”) have applied to the Executive Director for an order under sections 48 and 76 of the Securities Act, R.S.B.C. 1996, c. 418 that certain intended trades in securities to be made in connection with the proposed acquisition of Circa by Polycom (the “Transaction”) be exempt from the requirements of sections 34(1)(a) and 61 of the Act;
[para 2]
AND WHEREAS the Applicants have represented to the Executive Director that:
1. Polycom was incorporated under the laws of the State of Delaware on December 13, 1990 and is not a reporting issuer under the Act, but is subject to the reporting requirements of the United States Securities Exchange Act of 1934 and is current with all its filings with the United States Securities and Exchange Commission;
2. Polycom's authorized capital consists of 50,000,000 common shares, $0.0005 par value (the “Polycom Common Shares”) and 5,000,000 shares of preferred stock, $0.001 par value; as of February 15, 2001, there were 76,011,017 Polycom Common Shares and no preferred shares issued and outstanding;
3. the Polycom Common Shares trade on the Nasdaq National Market and applications will be made as required by Polycom to the Nasdaq National Market to list the additional Polycom Common Shares issuable from time to time in connection with the Transaction;
4. Polycom ULC, a wholly-owned subsidiary of Polycom, was incorporated under the laws of the Province of Nova Scotia as an unlimited liability company; Polycom ULC was incorporated to hold all of the common shares of Exchangeco (the “Exchangeco Common Shares”) which will be outstanding after the effective time of the closing of the Transaction (the “Effective Time”) and to hold the various call rights related to the exchangeable shares of Exchangeco (the “Exchangeable Shares”);
5. Exchangeco, a wholly-owned subsidiary of Polycom ULC, was incorporated under the laws of the Province of Nova Scotia as a limited liability company; Exchangeco was incorporated to acquire all of the issued and outstanding shares of Circa and to issue the Exchangeable Shares; the authorized capital of Exchangeco will consist of 500,000,000 Exchangeco Common Shares and 500,000,000 Exchangeable Shares;
6. Circa was incorporated under the laws of the Province of British Columbia on July 17, 1998; its authorized capital currently consists of 10,120,000 Class A Voting Common Shares without par value (“Class A Shares”), 10,120,000 Class B Non-voting Common Shares without par value (“Class B Shares”), 10,000,000 Class C Convertible Voting Common Shares without par value (“Class C Shares”), 10,000,000 Class D Convertible Non-voting Common Shares without par value (“Class D Shares” and, with the Class A Shares, Class B Shares and Class C Shares, the “Circa Common Shares”) and 10,000,000 Class E Convertible Redeemable Preferred Shares, par value $0.01 (“Circa Class E Shares”); as at February 20, 2001, there were 124,775 Class A Shares, 124,775 Class B Shares, 30,000 Class C Shares, 30,000 Class D shares and 38,693 Circa Class E Shares issued and outstanding; all of the outstanding Circa Class E Shares were held by Polycom; as at February 20, 2001, there were outstanding options to purchase up to 26,685 Class A Shares and up to 26,685 Class B Shares (collectively with any options that may be granted to employees, consultants or directors of Circa between February 20, 2001 and the closing of the Transaction, the “Circa Options”);
7. the Circa Common Shares are not listed on a stock exchange or quotation system and Circa is not a reporting issuer under the Act;
8. pursuant to a share purchase agreement between the Applicants and the shareholders of Circa (the “Acquisition Agreement”), the acquisition of Circa by Polycom will be effected as follows:
(a) Exchangeco will purchase all of the issued and outstanding Circa Common Shares in exchange for the issuance, by Exchangeco, of Exchangeable Shares; the number of Exchangeable Shares issued to holders of Circa Common Shares will be determined on the basis of the exchange ratios set out in the Acquisition Agreement (the “Exchange Ratios”);
(b) at the Effective Time, all Circa Options will be assumed by Polycom and each such Circa Option previously outstanding will then represent an option to acquire Polycom Common Shares (the “Polycom Options”), provided that the number of Polycom Common Shares that may be acquired and the strike price for each Polycom Option will be adjusted on the basis of the Exchange Ratios (and after giving effect to currency conversions);
(c) following the Effective Time, Exchangeco will hold all of the outstanding Circa Common Shares, Polycom will hold all of the outstanding Circa Class E Shares, and Circa will have no other securities outstanding;
9. each Exchangeable Share, together with the Exchange Agreement and Support Agreement described below, will provide holders thereof with a security of a Canadian issuer having economic attributes which are substantially equivalent, in all material respects, to those of a Polycom Common Share; Exchangeable Shares will be received by holders of Circa Common Shares on a Canadian tax-deferred, roll-over basis; the Exchangeable Shares will be exchangeable by a holder thereof for Polycom Common Shares on a one-for-one basis (subject to certain adjustments) at any time at the option of such holder and will be required to be exchanged upon the occurrence of certain events, as more fully described below; dividends will be payable on the Exchangeable Shares contemporaneously and in the equivalent amount per share as dividends on the Polycom Common Shares;
10. in connection with the Transaction, an escrow agreement (the “Escrow Agreement”) will be entered into pursuant to which (i) 10% of the Exchangeable Shares held by each of the former shareholders of Circa (the “Indemnity Escrow Shares”) and (ii) 50% of the Exchangeable Shares held by certain former shareholders of Circa (the “Performance Escrow Shares”) will be placed into escrow to be released upon the following events: in the case of the Indemnity Escrow Shares, to Polycom to cover certain liabilities or, if no such liabilities occur on or before the Expiration Date (as defined in the Acquisition Agreement), to the former shareholders of Circa, and in the case of the Performance Escrow Shares, upon Circa meeting certain performance targets after the Effective Time; in the event that such performance targets are not met by December 31, 2010 the Performance Escrow Shares will be cancelled;
11. the Exchangeable Shares will rank senior to the Exchangeco Common Shares in respect of the payment of dividends and the distribution of assets in the event of the liquidation, dissolution or winding-up of Exchangeco; the share provisions attaching to the Exchangeable Shares (the “Exchangeable Share Provisions”) will provide that each Exchangeable Share will entitle the holder to dividends from Exchangeco payable at the same time as, and economically equivalent to, each dividend paid by Polycom on Polycom Common Shares; subject to the overriding call right of Polycom ULC referred to below, on the liquidation, dissolution or winding-up of Exchangeco, a holder of Exchangeable Shares will be entitled to receive from Exchangeco for each Exchangeable Share held, an amount equal to the then current market price of a Polycom Common Share, to be satisfied by delivery of one Polycom Common Share (subject to adjustment), together with, on the designated payment date therefor and to the extent not already paid by Exchangeco, all declared and unpaid dividends on each such Exchangeable Share (such aggregate amount, the “Liquidation Amount”); upon a proposed liquidation, dissolution or winding-up of Exchangeco, Polycom ULC will have an overriding call right to purchase all of the outstanding Exchangeable Shares from the holders thereof (other than from Polycom or its affiliates) for a price per share equal to the Liquidation Amount;
12. the Exchangeable Shares will be non-voting (except as required by the Exchangeable Share Provisions or by applicable law) and will be retractable at the option of the holder at any time; subject to the overriding call right of Polycom ULC referred to below, upon retraction the holder will be entitled to receive from Exchangeco for each Exchangeable Share retracted an amount equal to the then current market price of a Polycom Common Share, to be satisfied by delivery of one Polycom Common Share (subject to adjustment), together with, on the designated payment date therefor and to the extent not already paid by Exchangeco, all declared and unpaid dividends on each such retracted Exchangeable Share (such aggregate amount, the “Retraction Price”); upon being notified by Exchangeco of a proposed retraction of Exchangeable Shares (a “Retraction Request”), Polycom ULC will have an overriding call right to purchase from the holder all of the Exchangeable Shares that are the subject of the retraction notice for a price per share equal to the Retraction Price;
13. subject to the overriding call right of Polycom ULC referred to below, Exchangeco shall redeem all the Exchangeable Shares then outstanding on the date which is ten years from the Effective Time (the “Automatic Redemption Date”); the board of directors of Exchangeco may accelerate the Automatic Redemption Date in certain circumstances, as described in the Exchangeable Share Provisions, including if there are fewer than 7% of the number of Exchangeable Shares issued as a result of the Transaction outstanding (other than Exchangeable Shares held by Polycom and its affiliates, and as such number of shares may be adjusted in accordance with the Exchangeable Share Provisions); upon such redemption, a holder will be entitled to receive from Exchangeco for each Exchangeable Share redeemed, an amount equal to the then current market price of a Polycom Common Share on the last business day prior to the Automatic Redemption Date, to be satisfied by the delivery of one Polycom Common Share (subject to adjustment), together with, to the extent not already paid by Exchangeco, all declared and unpaid dividends on each such redeemed Exchangeable Share (such aggregate amount, the “Redemption Price”); upon being notified by Exchangeco of a proposed redemption of Exchangeable Shares, Polycom ULC will have an overriding call right to purchase from the holders all of the outstanding Exchangeable Shares (other than from Polycom or its affiliates) for a price per share equal to the Redemption Price;
14. upon the liquidation, dissolution or winding-up of Polycom, the Exchangeable Shares will be automatically exchanged for Polycom Common Shares pursuant to the Exchange Agreement (described below), in order that the holders of Exchangeable Shares may participate in the dissolution of Polycom on the same basis as holders of Polycom Common Shares; upon the insolvency of Exchangeco or Polycom, holders of Exchangeable Shares may put their shares to Polycom in exchange for Polycom Common Shares, pursuant to the Exchange Right described in greater detail below;
15. the Exchangeable Shares are non-transferrable other than to a Permitted Transferee (as such term is defined in the Exchangeable Share Provisions); in the event that, on or prior to the Automatic Redemption Date, any holder of Exchangeable Shares notifies Exchangeco that such holder desires to (i) transfer or otherwise attempts to transfer any such shares to any other person or entity other than a Permitted Transferee or (ii) vote against or dissent from any resolution other than a matter which would have an adverse affect on the attributes of the Exchangeable Shares, then such holder will, by such action, be deemed to have made a Retraction Request and the sole right of the transferee in respect of such shares will be to receive the Polycom Common Shares and dividends to which such person is entitled as a result of the Retraction Request;
16. upon the issuance of a Polycom Common Share to a holder of Exchangeable Shares pursuant to the Exchangeable Share Provisions, one right issuable pursuant to Polycom’s existing Preferred Shares Rights Agreement dated as of June 15, 1998 between Polycom and BankBoston N.A. as rights agent, or any other right issued in substitution therefor, (a “Polycom Right”) will also be issued together with, and will attach to, each Polycom Common Share so issued unless the Polycom Rights have expired or been redeemed prior to the Effective Time;
17. in connection with the Transaction, Polycom, Polycom ULC, Exchangeco and all of the holders of Exchangeable Shares will enter into a voting and exchange agreement (the “Exchange Agreement”); under the Exchange Agreement, Polycom will grant to the holders of the Exchangeable Shares a put right (the “Exchange Right”), exercisable upon the insolvency or bankruptcy of Exchangeco or Polycom, to require Polycom to purchase from a holder of Exchangeable Shares all or any part of its Exchangeable Shares; the purchase price for each Exchangeable Share purchased by Polycom will be an amount equal to the then current market price of a Polycom Common Share, to be satisfied by the delivery to the holder of one Polycom Common Share (subject to adjustment), together with an additional amount equivalent to the full amount of all declared and unpaid dividends on such Exchangeable Share;
18. under the Exchange Agreement, upon the liquidation, dissolution or winding-up of Polycom, Polycom will be required to purchase each outstanding Exchangeable Share and each holder will be required to sell all of its Exchangeable Shares for a purchase price per share equal to the then current market price of a Polycom Common Share, to be satisfied by the delivery to the holder of one Polycom Common Share (subject to adjustment), together with an additional amount equivalent to the full amount of all declared and unpaid dividends on each such Exchangeable Share;
19. a special voting share (the “Special Voting Share”) will be authorized for issuance by Polycom pursuant to the Acquisition Agreement and will be issued under the Exchange Agreement; except as otherwise required by applicable law or the Polycom certificate of incorporation, holders of the Special Voting Share will be entitled, in the aggregate, to the number of votes, exercisable at any meeting of the holder of Polycom Common Shares, equal to the number of Exchangeable Shares outstanding from time to time not owned by Polycom and its affiliates; the holders of the Polycom Common Shares and the holders of the Special Voting Share will vote together as a single class on all matters, except as may be required by applicable law or the Polycom certificate of incorporation; holders of Exchangeable Shares will exercise the voting rights attached to the Special Voting Share through the mechanism of the Exchange Agreement; the holders of the Special Voting Share will not be entitled to receive dividends from Polycom and, in the event of any liquidation, dissolution or winding-up of Polycom, will receive an amount equal to the par value thereof; when the Special Voting Share has no votes attached to it because there are no Exchangeable Shares outstanding not owned by Polycom and its affiliates, the Special Voting Share will be cancelled;
20. fractional interests in the Special Voting Share will be issued to the holders of the Exchangeable Shares outstanding from time to time (other than Polycom and its affiliates) pursuant to the Exchange Agreement; upon the exchange of all of a holder's Exchangeable Shares for Polycom Common Shares, all rights of the holder of Exchangeable Shares to exercise votes attached to the Special Voting Share will cease;
21. contemporaneously with the closing of the Transaction, Polycom, Polycom ULC and Exchangeco will enter into a support agreement (the “Support Agreement”) which will provide that:
(a) Polycom will not declare or pay any dividend on the Polycom Common Shares unless Exchangeco simultaneously declares and pays an economically equivalent dividend on the Exchangeable Shares;
(b) Polycom will ensure that Exchangeco and Polycom ULC will be able to honour the redemption and retraction rights and dissolution entitlements that are attributes of the Exchangeable Shares under the Exchangeable Share Provisions and the related redemption, retraction and liquidation call rights described above; and
(c) the Support Agreement will also provide that Polycom will not make any changes to the Polycom Common Shares (e.g., subdivision, consolidation or reclassification) without the prior approval of Exchangeco and the holders of the Exchangeable Shares unless the same or an economically equivalent change is simultaneously made to the Exchangeable Shares such that the holders of such Exchangeable Shares will receive, upon exercise of their Exchangeable Shares, the same number of Polycom Common Shares and other consideration that they would have received had they exchanged their Exchangeable Shares immediately prior to the effective date or record date of such event;
22. under the terms of the various documents and share provisions, Polycom ULC shall be entitled to assign its rights and obligations to an affiliate of Polycom (for all purposes or for the purposes of specified circumstances as contemplated therein);
23. the steps under the Transaction and the creation and exercise of the rights provided for in the Exchangeable Share Provisions, the Support Agreement, the Exchange Agreement and the Escrow Agreement involve a number of trades or possible trades of securities, not all of which have registration and prospectus exemptions available under the Act (the “Non-Exempt Trades”);
24. the fundamental investment decision to be made by a Circa shareholder is made at the time of the Transaction, when such holder consents to the Transaction by executing the Acquisition Agreement, as a result of which, a holder receives Exchangeable Shares in exchange for its Circa Common Shares;
25. all disclosure material furnished to the holders of Polycom Common Shares in the United States will concurrently be provided to the holders of Exchangeable Shares resident in British Columbia;
26. upon completion of the Transaction and after giving effect to the issuance of Polycom Common Shares in exchange for the Exchangeable Shares, shareholders whose last address as shown on the books of Polycom was in Canada will hold less than 10% of the issued and outstanding Polycom Common Shares;
27. the majority of the directors and the majority of the senior officers of Polycom reside outside British Columbia; and
28. there is currently no market in Canada for the Polycom Common Shares and none is expected to develop;
[para 3]
AND WHEREAS the Executive Director considers that to do so would not be prejudicial to the public interest;
[para 4]
IT IS ORDERED:
1. under sections 48 and 76 of the Act that the Non-Exempt Trades are exempt from the requirements of sections 34(1)(a) and 61 of the Act; and
2. under section 76 of the Act that any trade in Polycom Common Shares acquired in connection with the Transaction is a distribution unless such trade is executed through an exchange or market outside of Canada.
[para 5]
DATED March 13, 2001.
Derek E. Patterson
Manager