Exemption Orders (Discretionary)
METRONET COMMUNICATIONS CORP.
COR#98/299
Headnote
National Application System - registration and prospectus relief for issue of shares in exchange for assets to be acquired by subsidiaries of issuer from two companies pursuant to a plan of arrangement under the Companies Creditors Arrangement Act (Canada), and for trades in those shares by the two companies to a secured creditor of the two companies under the plan
Applicable British Columbia Provisions
Securities Act, R.S.B.C. 1996, c. 418, ss. 34(1)(a), 48, 61, 76
IN THE MATTER OF THE CANADIAN SECURITIES LEGISLATION
OF ONTARIO AND BRITISH COLUMBIA
AND
IN THE MATTER OF
THE NATIONAL APPLICATION SYSTEM
AND
IN THE MATTER OF
METRONET COMMUNICATIONS CORP., STARCOM SERVICE CORPORATION,
STARCOM SERVICE CORPORATION AND AT&T CAPITAL CORPORATION
DECISION DOCUMENT
OF ONTARIO AND BRITISH COLUMBIA
AND
IN THE MATTER OF
THE NATIONAL APPLICATION SYSTEM
AND
IN THE MATTER OF
METRONET COMMUNICATIONS CORP., STARCOM SERVICE CORPORATION,
STARCOM SERVICE CORPORATION AND AT&T CAPITAL CORPORATION
DECISION DOCUMENT
WHEREAS an application has been received by the Ontario Securities Commission and British Columbia Securities Commission (the “Commissions”) from MetroNet Communications Corp. (“Metronet”), for a decision pursuant to the Canadian securities legislation of Ontario and British Columbia (the “Legislation”), that the requirements (the “Registration Requirements”) to be registered to trade in a security and the requirements (the "Prospectus Requirements") to file a preliminary prospectus and a prospectus, and to obtain receipts therefor, contained in the Legislation, as applicable, shall not apply to:
(i) the proposed issue by MetroNet of Class B Non-Voting Shares ( “Shares”) to Starcom Service Corporation, a corporation incorporated under the Company Act (British Columbia), (“Starcom BC”) and Starcom Service Corporation (“Starcom US”), a corporation incorporated under the laws of the State of Washington, (Starcom BC and Starcom US, together, the “Starcom Companies”), in connection with the purchase by MetroNet Fibre Canada Inc. and MetroNet Fiber US, Inc. (together, the “MetroNet Subsidiaries”) of substantially all of the operating assets, property and undertaking (the “Purchased Assets”) of the Starcom Companies for consideration consisting of cash and Shares, in order that such Shares may then be subsequently distributed to AT&T Capital Corporation (“AT&T Capital”), pursuant to a Plan of Arrangement and Compromise (the “Plan”) filed in respect of the Starcom Companies pursuant to the Companies’ Creditors Arrangement Act (Canada) (the “CCAA”); and
(ii) the subsequent distribution of Shares to AT&T Capital pursuant to the Plan.
AND WHEREAS pursuant to the National Application System (the “NAS”), the Ontario Securities Commission is the Principal Jurisdiction for this application;
AND WHEREAS MetroNet has represented to the Commissions that:
1. MetroNet, a corporation continued under the laws of Canada, is a reporting issuer under the Legislation of each of the Jurisdictions and is not in default of any requirement of the Legislation. MetroNet is also a reporting issuer, or the equivalent, under the securities legislation of each of the other provinces and territories of Canada. MetroNet is eligible to use the Prompt Offering Qualification System provided for in National Policy Statement No. 47.
2. The authorized and issued capital of MetroNet includes an unlimited number of Shares, of which there were, on December 14, 1998, approximately 45,029,535 that were issued and outstanding.
3. The Shares are listed and posted for trading on The Toronto Stock Exchange and the Montreal Exchange and are quoted on the NASDAQ National Market in the United States of America (the “USA”).
4. Neither of the Starcom Companies is a reporting issuer under the Legislation of either Jurisdiction or is a reporting issuer, or the equivalent, under the securities legislation of any other Province or Territory of Canada.
5. The Starcom Companies are currently the subject of proceedings pursuant to the CCAA and the United States Bankruptcy Code under which the Plan, which was filed on November 17, 1998, and is intended to settle payment of liabilities of the Starcom Companies and compromise the indebtedness of the Starcom Companies owed to their creditors by means, among other things, of the transfer to the MetroNet Subsidiaries, in accordance with the terms of a purchase agreement made between MetroNet, the MetroNet Subsidiaries, the Starcom Companies and AT&T Capital, dated November 9, 1998 (the “Purchase Agreement”), of substantially all of the assets of the Starcom Companies, for a purchase price (the “Purchase Price”) consisting of Shares and cash, and thereafter, the distribution of such Purchase Price to the creditors of the Starcom Companies.
6. The share component of the Purchase Price is to be determined by dividing US $7,000,000 by the weighted-average trading price of the Shares on NASDAQ on the 5 business days prior to the closing of the purchase and sale of the Purchased Assets. Assuming a weighted-average trading price of the Shares on NASDAQ equal to the closing price of the Shares on NASDAQ on December 14, 1998, approximately 299,465 Shares (representing approximately .66 per cent of the number of issued and outstanding Shares on December 14, 1998) would comprise the Purchase Price.
7. Each of the MetroNet Subsidiaries is an indirect wholly-owned subsidiary of MetroNet. MetroNet and the MetroNet Subsidiaries deal at arm’s length with each of the Starcom Companies and AT&T Capital.
8. AT&T Capital is the sole secured creditor recognized under the Plan and a security holder of the Starcom Companies. In partial satisfaction of the obligations owed to AT&T Capital by the Starcom Companies, the Plan provides that AT&T Capital shall receive all of the Shares included in the Purchase Price and a portion of the cash comprising the Purchase Price, with the balance of the Purchase Price to be distributed to other claimants under the Plan.
9. Approval of the Plan must be given by three classes of creditors of the Starcom Companies, secured creditors, general creditors and creditors under executory contracts, and by the Supreme Court of British Columbia, as authorized by the United States Bankruptcy Court for the Western District of Washington at Seattle.
10. At meetings (the “Meetings”) of creditors of the Starcom Companies held on December 10, 1998, the creditors voted upon, and approved, the Plan.
11. In connection with the Meetings, all creditors of the Starcom Companies, including AT&T Capital, were sent an information circular, prepared in accordance with the CCAA and the Plan and filed with the Supreme Court of British Columbia, which contained disclosure in respect of the Plan and the Purchase Agreement.
12. The Starcom Companies and AT&T Capital have been provided with the long-form prospectus of MetroNet dated July 22, 1998, being the most recent prospectus of MetroNet filed under the Legislation of any of the Jurisdictions, for which a receipt was issued under the Legislation of each Jurisdiction, together with all continuous disclosure materials filed by the Corporation under such Legislation since the date of the prospectus.
AND WHEREAS the Commissions are of the opinion that it would not be prejudicial to the public interest to grant this decision;
IT IS HEREBY DECIDED by the Commissions pursuant to the Legislation that the Registration and Prospectus Requirements shall not apply to the above-described issue of Shares to the Starcom Companies, and the subsequent distribution of the Shares to AT&T Capital, pursuant to the Plan, provided that:
- A. before the Shares are distributed to AT&T Capital, AT&T is provided with a copy of the Decision Document, together with a statement that:
- (i) the Decision imposes resale restrictions, that are specified in the Decision Document, on the first trade in any of the Shares acquired by AT&T Capital pursuant to the Decision; and
(ii) as a consequence of the Decision, certain protections, rights and remedies provided by the Legislation of each of the Jurisdictions, including statutory rights of rescission and damages, will not be available in respect of the acquisition of the Shares by AT&T Capital pursuant to this Decision; and
- B. the first trade in any Shares acquired by AT&T Capital pursuant to this Decision shall be a distribution, except that:
- (i) if the Corporation is a reporting issuer under the Legislation in the Jurisdiction in which such first trade is made and has been a reporting issuer under such Legislation for not less than 12 months,
(ii) if the seller is in a special relationship with MetroNet, as defined in the Legislation, the seller has reasonable grounds to believe that MetroNet is not in default of any requirements of the Legislation, and
(iii) no unusual effort is made to prepare the market or to create a demand for the Shares and no extraordinary commissions or consideration is paid in respect of the trade,
- then such first trade shall be a distribution by the terms of the Decision only if it is a trade from the holding of any person, company or combination or persons or companies holding a sufficient number of securities of MetroNet to affect materially the control of MetroNet, but any holding of any person, company or combination of persons or companies holding more than 20 percent of the outstanding voting securities of MetroNet shall, in the absence of evidence to the contrary, be deemed for these purposes to affect materially the control of MetroNet.
DATED at Toronto this 18th day of December, 1998.
| “J.A. Geller”__________ | “Stephen N. Adams”__________ |