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NRG Group Inc. - cl. 104(2)(c)
IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, CHAPTER S.5, AS AMENDED (the "Act")
AND
IN THE MATTER OF
THE NRG GROUP INC.
ORDER
(Clause 104(2)(c))
UPON the application of The NRG Group Inc. ("NRG") to the Ontario Securities Commission (the "Commission") for an order pursuant to clause 104(2)(c) of the Act exempting NRG from the requirements of sections 95, 96, 97, 98 and 100 of the Act (collectively, the "Issuer Bid Requirements") in connection with NRG's proposed acquisition of common shares of NRG (the "Shares") from three former officers of NRG;
AND UPON considering the application and the recommendation of the staff of the Commission;
AND UPON NRG having represented to the Commission as follows:
1. NRG is a corporation existing under the laws of the Province of Ontario.
2. NRG has been a reporting issuer under the Act since April 25, 2000 and is not on the list of defaulting reporting issuers maintained pursuant to subsection 72(9) of the Act.
3. NRG's authorized capital consists of an unlimited number of Shares. As of December 1, 2000, NRG had 31,197,595 Shares outstanding.
4. The Shares are listed and posted for trading on The Toronto Stock Exchange (the "TSE").
5. In March 2000, NRG entered into employment agreements (collectively, the "Agreements") with certain of its senior executives (each, an "Executive"), including John Rae-Grant ("Rae-Grant"), Vicki Saunders, Matthew Saunders and Richard Ford ("Ford"). Each of the Agreements provided that, if the Executive resigned his or her employment with NRG within 24 months of the date of the Agreement, NRG would have the option (the "Option"), exercisable within 60 days following such resignation, to acquire for an aggregate price of $1.00:
(a) one-half of the aggregate number of Shares owned by the Executive at the time the Agreement was executed, plus one-half of the aggregate number of Shares acquired upon the exercise of stock options, if the Executive resigned within 12 months of the date of the Agreement; or
(b) one quarter of the aggregate number of Shares owned by the Executive at the time the Agreement was executed, plus one quarter of the aggregate number of Shares acquired upon the exercise of stock options, if the Executive resigned more than 12 but less than 24 months after the date of the Agreement.
6. As of the date of the Agreements, each of the Executives owned 2,027,564 Shares and had the right to receive an additional 178,987 Shares (the "Milestone Shares") if a certain market price (the "Milestone") for the Shares was reached prior to April 26, 2001. To date, the Milestone has not been reached. None of the Executives has exercised any stock options since the date of the Agreements.
7. Pursuant to an escrow agreement dated April 25, 2000 (the "Escrow Agreement"), each of the Executives deposited certificates representing 1,520,673 Shares with an escrow agent appointed under the Escrow Agreement. On October 26, 2000, 506,891 Shares were released from escrow to each of the Executives.
8. On December 1, 2000, NRG commenced a normal course issuer bid (the "Bid") through the facilities of the TSE to purchase up to 1,000,000 Shares, representing approximately 3.2% of the outstanding Shares, during the twelve month period ending November 30, 2001. From December 19 to 21, 2000, inclusive, NRG purchased for cancellation 79,500 Shares under the Bid at an average price of $0.275 per Share. No additional Shares have been purchased to date under the Bid.
9. On December 7, 2000, Rae-Grant resigned his employment with NRG. Pursuant to the terms of his Agreement, NRG exercised the Option to acquire 1,013,782 Shares (being one-half of the Shares owned by Rae-Grant) for aggregate consideration of $1.00. The acquisition of these Shares, representing approximately 3.25% of the outstanding Shares, constituted an issuer bid within the meaning of the Act. The acquisition was effected in reliance upon the exemption from the Issuer Bid Requirements contained in subsection 93(3)(d) of the Act, the exemption from section 35 of the Act (the "Registration Requirement") in paragraph 35(1)17 of the Act and the exemption from section 53 of the Act (the "Prospectus Requirement") in paragraph 72(1)(k) of the Act.
10. NRG issued a news release on January 22, 2001 and filed a material change report pursuant to section 75 of the Act on January 23, 2001 disclosing, among other things, a new management structure, a corporate restructuring and its intention to reposition the company to concentrate on strategic venture capital investments in mid-stage infrastructure and wireless technology companies.
11. On January 22, 2001, Matthew Saunders, Vicki Saunders and Ford (collectively, the "Three Executives") resigned as officers of NRG and Ford resigned as a director of NRG. On the same date, NRG and the Three Executives entered into an arrangement (the "Arrangement") providing for NRG's retainer of the Three Executives for a 12 month period to provide consulting services to NRG with respect to the corporate restructuring and market re-positioning and providing for Matthew Saunders and Vicki Saunders to continue as directors of NRG. The aggregate annual consulting fees to be paid to the Three Executives will be approximately 15% less than the aggregate base salaries payable to the Three Executives for the first year of their employment.
12. Pursuant to the Agreements with the Three Executives, NRG had the option to acquire, in the aggregate, 3,041,346 Shares from the Three Executives if they resigned prior to March 10, 2001 but only 1,520,673 Shares (assuming in each instance that the Milestone Shares were not issued to the Three Executives and no stock options were exercised) if they resigned after March 10, 2001 but prior to March 10, 2002. As part of the Arrangement, NRG and each of the Three Executives agreed to amend the terms of their Agreements such that NRG has the right to purchase from each of the Three Executives 333,334 Shares for total consideration of $1.00, being 1,000,002 Shares for a total payment by NRG of $3.00, in the aggregate. NRG and the Three Executives have agreed to complete this transaction, subject to obtaining all requisite regulatory approvals, and the Shares when purchased, will be cancelled.
13. In addition, NRG agreed to use reasonable commercial efforts to find a buyer for 166,667 Shares from each of the Three Executives. A director of NRG introduced the Three Executives to a purchaser (the "Purchaser"), a company at arm's-length to NRG, and the Three Executives subsequently entered into an agreement with the Purchaser to sell 1,500,000 Shares at $0.30 per Share. The average closing price of the Shares on the TSE for the ten trading days preceding January 22, 2001 was $0.30 per Share. The average closing price of the Shares on the TSE since January 22, 2001 has been $0.41 per Share.
14. The Shares that NRG and the Purchaser propose to acquire from the Three Executives are Shares that either were never deposited into escrow under the Escrow Agreement or were released from escrow in October 2000.
15. The proposed sale by the Three Executives of the Shares to NRG will be effected in reliance upon the exemption from the Registration Requirement in paragraph 35(1)17 of the Act and the exemption from the Prospectus Requirement in paragraph 72(1)(k) of the Act.
16. NRG's proposed purchase of Shares from the Three Executives constitutes an issuer bid within the meaning of the Act. NRG cannot rely upon the exemption from the Issuer Bid Requirements in clause 93(3)(d) of the Act because the proposed purchase from the Three Executives of 1,000,002 Shares, when aggregated with the prior purchase of Shares from Rae-Grant, would exceed 5% of the outstanding Shares. No other exemption from the Issuer Bid Requirements is available in the circumstances.
17. The receipt by the Three Executives of consulting fees and other benefits under the Arrangement, including, without limitation, NRG's agreement to exercise the Option in respect of fewer Shares than the Agreements originally provided for and NRG's agreement to use reasonable commercial efforts to find a third party buyer for some of the Three Executives' Shares, in no way represents, directly or directly, consideration for the 1,000,002 Shares to be acquired from the Three Executives. NRG has determined that, based on the Three Executives' extensive knowledge, background and industry contacts, the Three Executives' continued involvement and assistance is important to NRG in managing and ultimately maximizing the return on its existing investments, assisting in an orderly transition to new senior management and providing continuing advice in respect of NRG's market repositioning.
18. The TSE has consented to the continuation of the Bid in accordance with its terms, notwithstanding the acquisition of Shares from Rae-Grant and the proposed acquisition of Shares from the Three Executives.
AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;
IT IS ORDERED pursuant to clause 104(2)(c) of the Act that the purchase by NRG of 1,000,002 Shares from the Three Executives is exempt from the Issuer Bid Requirements.
February 16, 2001.
Howard I. Wetston, Robert W. Davis