IN THE MATTER OF THE SECURITIES ACT
R.S.O. 1990, c. S.5, AS AMENDED
IN THE MATTER OF
OTIS-WINSTON LTD., XILLIX TECHNOLOGIES CORP., and DIGITAL CYBERNET CORPORATION
STATEMENT OF ALLEGATIONS OF STAFF OF THE ONTARIO SECURITIES COMMISSION
1. Otis-Winston Ltd. ("Otis-Winston") is an Ontario corporation. Ivan Cavric is theChief Financial Officer of Otis-Winston.
2. Xillix Technologies Corp. ("Xillix") is a British Columbia corporation and a reportingissuer. There are approximately 31,790,000 outstanding common shares of Xillix.
3. Digital Cybernet Corporation ("Digital Cybernet") purports to be a reporting issuerin Ontario. Digital Cybernet purported to become a reporting issuer by filing asecurities exchange take-over bid circular (dated September 27, 1999, the samedate as Digital Cybernet's incorporation) for Central America Marketing Inc. onOctober 6, 1999.
4. Digital Cybernet shares are subject to a hold period until October 6, 2000.
The Subject Offer to Purchase
5. On May 3, 2000, Otis-Winston filed with SEDAR a Form 42 and an offer topurchase shares (the "Offering Document") announcing its intention to acquire upto 590,000 Xillix shares. This represents only 1.85% of the outstanding Xillixshares and is therefore not a take-over bid pursuant to the Act. This bid will expireon June 1, 2000.
6. The Offering Document states that Otis-Winston will deliver two Digital Cybernetshares for one Xillix Share.
7. The Offering Document was not mailed to all Xillix shareholders. The OfferingDocument was delivered to the offices of the Canadian Depository for Securities("CDS"), which prepared a Depository Bulletin describing the Offer and deliveredthe Bulletin to all Xillix shareholders.
8. As set out below, the Offering Document does not contain meaningful disclosureconcerning Digital Cybernet shares. Accordingly, offering the Digital Cybernetcommon shares as consideration for tendering the Xillix common shares is contraryto the public interest.
9. The offer is internally inconsistent as to the consideration being offered. In portionsof the Offering Document, reference is made to two common shares of DigitalCybernet being offered in exchange for one common share of Xillix. In the Form 42,filed, the consideration is listed as two dollars per common share of Xillix.
10. The valuation in respect of the Xillix shares, as described in the Offering Document,was prepared by De Rosa Accounting Services in Niagra Falls. Americo and AnitaDe Rosa are principal shareholders or former principal shareholders of DigitalCybernet or a related company. The valuation is not included in any material filed.
11. The value of Digital Cybernet shares is not properly disclosed in the OfferingDocument.
12. Digital Cybernet purported to become a reporting issuer on October 6, 1999.According to section 72(5) of the Act, the first trade in previously issued securitiesof a company that has ceased to be a private company, other than a further tradeexempted under 72(1) of the Act, is a distribution except where, among other things,the issuer has been a reporting issuer for at least twelve months. As stated below,there have been no trades in the common shares of Digital Cybernet since October6, 1999, which satisfy the provisions of section 72.
13. Otis-Winston is not registered to trade in securities in Ontario, and therefore anytransfer of Digital Cybernet common shares to Xillix shareholders, without theappropriate registration or exemption, has been or will be in breach of s. 25 of theAct.
The History of Digital Cybernet
14. Digital Cybernet purported to become a reporting issuer on October 6, 1999 byfiling a securities exchange take-over bid circular (the "CAM Circular") for CentralAmerica Marketing Inc. ("CAM"). According to the CAM Circular, Digital Cybernetwas incorporated on September 27, 1999, the same day that this take-over bid wasmade.
15. According to the CAM Circular, Americo De Rosa was the President and a Directorof Digital Cybernet and also its largest shareholder. At the same time, Americoand Anita De Rosa are also disclosed as majority shareholders of CAM, at the timethe CAM Circular was released.
16. Northcap Holdings Inc. ("Northcap") acquired 1,180,000 Digital Cybernet shares onFebruary 29, 2000, pursuant to a Quebec only take-over bid. On February 28,2000, Northcap filed with the Quebec Securities Commission an offer to purchasebetween 20% and 30% of the outstanding common shares of Digital Cybernet, onthe basis of ten common shares of Digital Cybernet for one common share ofNorthcap. This offer was not filed in Ontario.
17. The circular that accompanied the February 28, 2000 Northcap offer disclosed thatthe principal shareholder of Northcap is Ivan Cavric, who was also President,Secretary, Treasurer and a Director. Ivan Cavric is also a shareholder of DigitalCybernet.
18. On March 3, 2000, Digital Cybernet filed a Directors Circular with the QuebecSecurities Commission, disclosing that Americo De Rosa and Anita De Rosa hadaccepted the Northcap offer. This offer was not a take-over bid pursuant to Part XXof the Act, nor did it comply with the take-over bid provisions. Therefore the transferby the De Rosas to Northcap of Digital Cybernet common shares was not pursuantto a take-over as contemplated by section 72.
19. Accordingly, the acquisition of the Digital Cybernet common shares by Northcapwas in violation of the hold period required by section 72(5) of the Act.
20. Thereafter, on May 3, 2000,Northcap directed its transfer agent to register1,180,000 shares of Digital Cybernet in the name of Otis-Winston. As state above,the original acquisition by Northcap of the Digital Cybernet shares was in breachof the Act.
DATED at Toronto this first day of June, 2000.