BCSC

Exemption Orders (Discretionary)

VERTICORE COMMUNICATIONS LTD.

2001 BCSECCOM 143

Headnote:

Mutual Reliance Review System for Exemptive Relief Applications - Registration and prospectus relief granted in respect of trades in shares of non-reporting private U.S. issuer upon exercise of various rights attached to exchangeable securities of non-reporting Ontario issuer. First trade relief granted in respect of trades in shares of U.S. non-reporting issuer provided trades made on market outside of Canada and de minimis 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), 45(2)(9), 48, 61, 74(2)(8) 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

NARROWCAST COMMUNICATIONS CORP.

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 Narrowcast Communications Corp. ("Narrowcast"), for a decision pursuant to the securities legislation, regulations, rules and/or policies of the Jurisdictions (the "Legislation") that certain trades in securities of Narrowcast 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 Narrowcast 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. 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, Verticore became an indirect, wholly-owned subsidiary of Narrowcast.

3. Narrowcast is a company organized under the laws of Delaware and is not a reporting issuer under the Legislation. None of Narrowcast’s securities have been registered under the United States Securities Exchange 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. As part of the Reorganization, articles of amendment were filed on August 21, 2000 under the Business Corporation Act (Ontario) in respect of Verticore (the "Articles of Amendment") pursuant to which (a) three new classes of exchangeable shares were created (each an "Exchangeable Share", collectively, the "Exchangeable Shares"); (b) a class of New Common Shares was created; and (c) each issued and outstanding share of Verticore was changed into one newly created Exchangeable Share of the class set out opposite such existing share class below:

Verticore Share Classes (Pre-Reorganization)	Verticore Share Classes (Post-Reorganization)
Common Shares	Common Exchangeable Shares
Class B Convertible Preferred	Class B Exchangeable Shares
Class C Convertible Preferred	Class C Exchangeable Shares

5. Immediately following the filing of Articles of Amendment, one New Common Share was issued to 3044011 Nova Scotia Company ("Nova Scotia Subco"), a corporation incorporated under the laws of Nova Scotia solely to facilitate the Reorganization.

6. Nova Scotia Subco issued one common share to Narrowcast so that, as a result, following completion of the Reorganization, Narrowcast indirectly owns the issued and outstanding New Common Share of Verticore (representing all of the voting shares of Verticore) and the shareholders of Verticore (prior to the Reorganization) own all of the issued and outstanding Exchangeable Shares.

7. After giving effect to the Reorganization, the authorized capital of Verticore consists of an unlimited number of New Common Shares, Common Exchangeable Shares, Class B Exchangeable Shares and Class C Exchangeable Shares, of which one New Common Share, 2,250,891 Common Exchangeable Shares, 4,730,017 Class B Exchangeable Shares and 1,200,000 Class C Exchangeable Shares are issued and outstanding.

8. As part of the Reorganization, warrants to purchase an aggregate of 685,260 Verticore shares were converted into warrants (the "Warrants") to acquire the relevant class of Exchangeable Securities, and options to purchase an aggregate of 993,500 Verticore common shares were converted into options (the "Narrowcast Options") to purchase equivalent securities of Narrowcast.

9. Narrowcast’s authorized capital consists of 500,000,000 shares of Parent Common Shares, 300,000,000 shares of Serial Preferred Stock and 200,000,003 shares of Preferred Stock of which 70,000,000 shares have been designated Class B Convertible Preferred Stock, 30,000,000 shares have been designated Series 1 Class C Convertible Preferred Stock, 100,000,000 shares have been designated Series 2 Class C Convertible Preferred Stock, one share has been designated Series X Special Voting Stock, one share has been designated Series Y Special Voting Stock and one share has been designated Series Z Special Voting Stock, of which 3,333 Parent Common Shares, 637,500 shares of Class B Preferred Stock, 82,830 shares of Series 1 Class C Preferred Stock, 3,891,000 shares of Series 2 Class C Convertible Preferred Stock and one share of each of the Series X Special Voting Stock, Series Y Special Voting Stock and Series Z Special Voting Stock are currently issued and outstanding.

10. The Reorganization was unanimously approved by the directors and shareholders of Verticore.

11. The Exchangeable Shares are exchangeable (as described herein) on a one-for-one basis for shares of Narrowcast or any successor corporation thereto (the "Parent Stock") at any time at the option of the holder or upon the occurrence of certain events including the liquidation, dissolution or winding-up of Narrowcast. Each Exchangeable Share is exchangeable into the corresponding class of Parent Stock set out opposite it in the chart below:

Class of Exchangeable Shares of Verticore	Class of Parent Stock of Narrowcast
Common Exchangeable Shares	Common Stock
Class B Exchangeable Shares	Class B Preferred Stock
Class C Exchangeable Shares	Class C Preferred Stock

Each class of Exchangeable Shares (other than Common Exchangeable Shares) is also convertible into Common Exchangeable Shares, initially on a one for one basis (as adjusted for certain dilutive events). Each share of Parent Stock (other than Parent Common Shares) is convertible into a Parent Common Share, initially on a one for one basis (as adjusted for certain dilutive events).

12. The Exchangeable Shares 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 Parent Stock.

13. The share provisions attaching to the Exchangeable Shares provide that:

(a) except as required by applicable law, the holders of Exchangeable Shares are not permitted to vote at meetings of the shareholders of Verticore;

(b) each Exchangeable Share is entitled to a dividend from Verticore payable at the same time as, and in U.S. dollars or the Canadian dollar equivalent thereof (at the discretion of the Verticore board of directors), each dividend paid by Narrowcast on a share of the corresponding class of Parent Stock;

(c) subject to the exercise by Nova Scotia Subco or Narrowcast of their call right described in subsection 13(g), holders of Exchangeable Shares are entitled, at any time, to exchange their Exchangeable Shares for shares of the corresponding class of Parent Stock, through a retraction provision attached to the Exchangeable Shares. Upon retraction, a holder is entitled to receive from Verticore, for each Exchangeable Share retracted, an amount equal to the market price of one share of the corresponding class of Parent Stock, to be satisfied by Verticore delivering to such holder one share of the corresponding class of Parent Stock for each such Exchangeable Share and paying to the holder an additional amount equivalent to all declared and unpaid dividends on each such Exchangeable Share retracted;

(d) subject to the exercise by Nova Scotia Subco or Narrowcast of their call right described in subsection 13(h), on the liquidation, dissolution or winding-up of Verticore, holders of Exchangeable Shares are entitled to receive for each Exchangeable Share an amount equal to the market price of one share of the corresponding class of Parent Stock, which will be satisfied by delivery of one share of the corresponding class of Parent Stock, together with an additional amount equivalent to the full amount of all declared and unpaid dividends on such Exchangeable Share;

(e) subject to the exercise by Nova Scotia Subco or Narrowcast of their call right described in subsection 13(i), Verticore will be required to redeem all of the Exchangeable Shares then outstanding on June 30, 2007, which is seven years from the effective date of the Reorganization (the "Automatic Redemption Date"). The board of directors of Verticore will have discretion to postpone such date. Upon any such redemption by Verticore, each shareholder will be entitled to receive from Verticore, for each Exchangeable Share redeemed, an amount equal to the market price of a share of the corresponding class of Parent Stock, which amount will be satisfied by the delivery on behalf of Verticore of one share of the corresponding class of Parent Stock, plus an additional amount equivalent to the full amount of all declared and unpaid dividends on each such redeemed share;

(f) Verticore may accelerate the Automatic Redemption Date when:

(i) there remain less than 816,719 Exchangeable Shares outstanding;

(ii) an initial public offering of Narrowcast occurs; or

(iii) a change of control of Narrowcast occurs;

(g) Notwithstanding the foregoing, Nova Scotia Subco and Narrowcast shall have an overriding call right to purchase the Exchangeable Shares that are the subject of a retraction notice, for a price per share equal to the market price of one share of the corresponding class of Parent Stock, upon being notified by Verticore of a proposed retraction of any such Exchangeable Shares, which call right shall be satisfied by the delivery by or on behalf of Nova Scotia Subco or Narrowcast of one share of the corresponding class of Parent Stock, plus an additional amount equivalent to the full amount of all declared and unpaid dividends on each such retracted Exchangeable Share;

(h) Notwithstanding the foregoing, Nova Scotia Subco and Narrowcast shall have an overriding call right to purchase each outstanding Exchangeable Share for a price per share equal to the market price of one share of the corresponding class of Parent Stock, upon being notified of the liquidation, dissolution or winding-up of Verticore, which call right shall be satisfied by the delivery by or on behalf of Nova Scotia Subco or Narrowcast of one share of the corresponding class of Parent Stock, plus an additional amount equivalent to the full amount of all declared and unpaid dividends on each such Exchangeable Share; and

(i) Notwithstanding the foregoing, Nova Scotia Subco and Narrowcast shall have an overriding call right to purchase all, but not less than all, Exchangeable Shares for a price per share equal to the market price of one share of the corresponding class of Parent Stock, upon being notified by Verticore of a proposed redemption of any such Exchangeable Shares, which call right shall be satisfied by the delivery by or on behalf of Nova Scotia Subco or Narrowcast of one share of the corresponding class of Parent Stock, plus an additional amount equivalent to the full amount of all declared and unpaid dividends on each such redeemed Exchangeable Share.

14. In order to provide holders of the Exchangeable Shares with voting rights in Narrowcast, Verticore has entered into a voting trust agreement (the "Voting Trust Agreement") with Narrowcast and an individual trustee (the "Trustee").

15. Contemporaneous with the Reorganization, Narrowcast issued one share of each of Class 1 Special Voting Stock, Class 2 Special Voting Stock and Class 3 Special Voting Stock (collectively, the "Parent Special Voting Shares") to the Trustee to be held pursuant to the Voting Trust Agreement, each of which Parent Special Voting Share corresponds to a class of Exchangeable Shares. For each such Parent Special Voting Share held, the Trustee is entitled at Narrowcast stockholder meetings to cast the number of votes which is equal to the number of votes which would attach to the Parent Stock for which the Exchangeable Shares of the class corresponding to such Parent Special Voting Share outstanding at such time (excluding those owned by Narrowcast, Nova Scotia Subco and affiliates thereof) are then exchangeable.

16. The Voting Trust Agreement provides that the Parent Special Voting Shares are held by the Trustee for the benefit of holders of Exchangeable Shares from time to time (other than Narrowcast, Nova Scotia Subco and affiliates thereof) and each vote attached thereto will be voted by the Trustee as instructed by holders of the related Exchangeable Shares pursuant to proxies delivered to such holder by the Trustee or pursuant to the instructions of such holder.

17. Pursuant to an exchange rights agreement entered into by Narrowcast, Verticore, Nova Scotia Subco and the holders of Exchangeable Shares (the "Exchange Rights Agreement"), Nova Scotia Subco granted to the holders of Exchangeable Shares a put right (the "Exchange Right") exercisable upon the insolvency of Verticore.

18. The Exchange Right, when exercised, will require Nova Scotia Subco to purchase from a holder of Exchangeable Shares all or any part of the Exchangeable Shares held by such holder and the purchase price for each Exchangeable Share purchased by Nova Scotia Subco will be an amount equal to the market price of one share of the corresponding class of Parent Stock, to be satisfied by the issuance and delivery by or on behalf of Nova Scotia Subco to the holder of one share of the corresponding class of Parent Stock, plus an additional amount equivalent to the full amount of all declared and unpaid dividends on the purchased Exchangeable Share.

19. At the effective time of the Reorganization, Verticore, Narrowcast and Nova Scotia Subco entered into a support agreement (the "Support Agreement") providing that Narrowcast, among other things, will (i) not declare or pay dividends on any Parent Stock unless Verticore is able to and simultaneously declares and pays an equivalent dividend on the corresponding Exchangeable Shares; (ii) take all action and do all necessary things to ensure that Verticore is able to pay to the holders of Exchangeable Shares the equivalent number of shares of corresponding Parent Stock, as the case may be, in the event of a liquidation, dissolution or winding-up of Verticore, a retraction request by a holder of Exchangeable Shares, or a redemption of Exchangeable Shares by Verticore; and (iii) take all action and do all things necessary to ensure that Nova Scotia Subco has sufficient Parent Stock to meet its obligations under the call rights granted to it and under the Exchange Right.

20. The Support Agreement also provides that, without the prior approval of the holders of the Exchangeable Shares, actions such as distributions of stock dividends, options, rights and warrants for the purchase of securities or other assets, reclassifications, reorganizations and other changes cannot be taken in respect of a class of Parent Stock without the same or an economically equivalent action being taken in respect of the corresponding class of Exchangeable Shares.

21. Exemptions from the Registration Requirement and the Prospectus Requirement are not generally available with respect to the following trades or potential trades in connection with the Reorganization (collectively, the "Trades"):

(a) the issuance of Parent Stock to holders of Exchangeable Shares upon the exercise by such holders of the Exchange Right against Nova Scotia Subco;

(b) the issuance of Parent Stock to holders of Exchangeable Shares in connection with the retraction of Exchangeable Shares;

(c) the issuance of Parent Stock to holders of Exchangeable Shares upon the exercise by Nova Scotia Subco or Narrowcast of their call right upon the retraction of Exchangeable Shares;

(d) the issuance of Parent Stock to holders of Exchangeable Shares upon the redemption of such shares;

(e) the issuance of Parent Stock to holders of Exchangeable Shares in connection with the exercise by Nova Scotia Subco or Narrowcast of their call right upon the redemption of the Exchangeable Shares; and

(f) the issuance of Parent Stock to holders of Exchangeable Shares in connection with the exercise by Nova Scotia Subco or Narrowcast of their call right in connection with the liquidation, winding-up or dissolution of Verticore.

22. It is expected that all future financings of Verticore and Narrowcast 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 Narrowcast is expected to develop in the Jurisdictions. It is contemplated that Narrowcast will pursue its initial public offering in the United States and seek listing on the Nasdaq Stock Market.

23. If, as of the date of the Application, holders of Exchangeable Securities resident in the Jurisdictions exchanged such securities for securities of Narrowcast they would hold approximately 58% of the common shares of Narrowcast and would represent in number approximately 15% of the holders of common shares of Narrowcast.

24. All disclosure material including, without limitation, copies of annual financial statements and all proxy materials which is furnished to holders of securities of Narrowcast resident in the United States will be provided to the holders of the Exchangeable Securities and Warrants, and will be provided to all security holders of Narrowcast resident in the Jurisdictions.

AND WHEREAS pursuant to 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:

1. the Trades will not be subject to the Registration Requirement or the Prospectus Requirement; and

2. the first trade in any Narrowcast securities acquired pursuant to a Trade or pursuant to the exercise of the Narrowcast Options shall be a distribution under the Legislation of the Jurisdiction in which the trade takes place (the "Applicable Legislation"), unless:

(i) A. Narrowcast is a reporting issuer and has been a reporting issuer for at least 12 months in the relevant Jurisdiction;

B. if the seller is in a "special relationship" with Narrowcast, the seller has reasonable grounds to believe that Narrowcast 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

C. no unusual effort is made to prepare the market or to create a demand for securities of Narrowcast 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 Narrowcast to affect materially the control of Narrowcast, but any holding of any person, company or combination of persons or companies, holding more than 20 percent of the outstanding voting securities of Narrowcast shall, in the absence of evidence to the contrary, be deemed to affect materially the control of Narrowcast (and, for such purposes, securities of Narrowcast and the Exchangeable Shares are considered to be of the same class); or

(ii) if Narrowcast is not a reporting issuer or the equivalent thereof under the Applicable Legislation, such first trade is made through the facilities of a stock exchange outside of Canada or on the Nasdaq Stock Market and at the time of such first trade, holders of common shares of Narrowcast (with holders of Exchangeable Securities considered to be holders of common shares of Narrowcast) whose last address as shown on the books of Narrowcast or Verticore, as the case may be, is in the Jurisdiction in which the holder resides, do not hold more than 10% of the common shares of Narrowcast and represent in number, not more than 10% of the holders of common shares of Narrowcast;

provided, however, that in either case, Verticore or Narrowcast shall provide each holder of Exchangeable Shares and each holder of Narrowcast Options resident in the Jurisdictions with a copy of this MRRS Decision Document which outlines the limitations imposed upon the first trade of Narrowcast securities acquired upon a Trade or pursuant to the exercise of Narrowcast Options.

DATED this 12th day of December, 2000.

J.A. Geller Robert W. Davis