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Canbras Communications Corp. - ss. 104(2)(c)
Headnote
Relief from issuer bid requirements in connectionwith the acquisition by the applicant of certain of the commonshares held by a former chairman of the applicant - common sharesoriginally purchased by the former chairman within escrow froma resigning director as a favour to the applicant pending thecontemplated, but never completed, resale within escrow of suchcommon shares to an eligible party - transfer resolutions effectivelyprevent former director from ever profiting from the sale ofthe common shares - common shares to be acquired by the applicantat current market price.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c. S.5, as am.,ss. 93(3), 95, 96, 97, 98, 100 and 104(2)(c).
Applicable Ontario Regulatory Provisions
R.R.O. 1990, Regulation 1015, as am., s. 203.1(1).
IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, CHAPTER S.5,AS AMENDED
(the "Act")
AND
IN THE MATTER OF
GENERAL REGULATION MADE UNDERTHE ACT
R.R.O. 1990, Reg. 1015,
AS AMENDED (the "Regulation")
AND
IN THE MATTER OF
CANBRAS COMMUNICATIONS CORP.
ORDER
(104(2)(c))
UPON the application (the "Application")of Canbras Communications Corp. (the "Corporation")to the Ontario Securities Commission (the "OSC") foran order pursuant to subsection 104(2)(c) of the Act exemptingthe Corporation from sections 95, 96, 97, 98 and 100 of theAct and subsection 203.1(1) of the Regulation (the "IssuerBid Requirements") with respect to the acquisition by theCorporation of 12,500 of the common shares (the "Shares")of the Corporation presently held by a former chairman and formerdirector of the Corporation;
AND UPON considering the Applicationand the recommendation of the staff of the OSC;
AND UPON the Corporation having representedto the OSC as follows:
1. The Corporation, together with its subsidiariesand investee companies, have been engaged in the businessof developing and managing broadband communications systemsand services in Brazil.
2. The Corporation was incorporated underthe Company Act (British Columbia) on August 7, 1986and was continued under the Canada Business CorporationsAct on June 22, 1998.
3. The authorized capital stock of the Corporationconsists of an unlimited number of Shares. As of September13, 2002, a total number of 55,098,071 Shares were issuedand outstanding.
4. The Corporation is a reporting issuer orthe equivalent in each of the provinces of Canada and is notin default of any of the requirements of the securities legislationof each province of Canada.
5. The Shares are listed and posted for tradingon the Toronto Stock Exchange (the "TSX") underthe trading symbol "CBC".
6. In 1991 and 1995, certain directors andofficers of the Corporation were compensated for their servicesto the Corporation by the issuance to them at nominal costof certain Shares (the "Performance Shares") inlieu of cash compensation, as permitted by applicable rulespromulgated under the securities legislation of British Columbia(the "BCSC Rules").
7. By February 1995, an aggregate of 750,000Performance Shares had been issued by the Corporation to certaindirectors and officers, including 150,000 Performance Sharesto Mr. Jerry S. Grafstein ("Grafstein") and 22,500Performance Shares to Mr. Roberto Ugolini ("Ugolini").
8. When the 150,000 Performance Shares wereissued to Grafstein, he was the Chairman of the Corporationand continued to be a director of the Corporation until April2002.
9. When the 22,500 Performance Shares wereissued to Ugolini, he was a director of the Corporation andcontinued to be a director of the Corporation until his resignationin September 1996.
10. Under the BCSC Rules, all 750,000 PerformanceShares were required to be placed into escrow by their ownerson such terms as set out in the BCSC Rules. Specifically,the Performance Shares could not be transferred or sold, exceptwithin escrow, unless certain financial results were achievedby the Corporation. On February 3, 1995, an escrow agreementwas entered into by the Corporation, its transfer agent andeach of the individuals to whom Performance Shares were issued(the "Escrow Agreement").
11. In September 1996, Ugolini decided toresign from the board of directors of the Corporation (the"Board") and to sell his 22,500 Performance Sharesat a price of $2.50 per Share.
12. Under both the BCSC Rules and the termsof the Escrow Agreement, Ugolini was not permitted to sellhis 22,500 Performance Shares on the market nor to any personother than an "Eligible Person" (as defined in theEscrow Agreement). Eligible Persons include only directors,officers or employees of the Corporation.
13. As an accommodation to the Corporationand to the departing director Ugolini, Grafstein agreed topurchase 12,500 of Ugolini's 22,500 Performance Shares ata price of $2.50 per Share. The remaining 10,000 PerformanceShares held by Ugolini were purchased on the same financialterms by another Eligible Person.
14. On September 11, 1996, the Board authorizedthe sale by Ugolini of 12,500 Performance Shares to Grafstein(the "Grafstein Shares") at a purchase price of$2.50 per Share. The Board also placed certain conditionson the resale of the Grafstein Shares, including that (i)Grafstein would not be permitted to resell the Grafstein Shareswithout the prior consent of the Board; and (ii) at the directionof the Corporation, and upon receipt of all regulatory approvals,Grafstein would be required to transfer the Grafstein Sharesto other Eligible Persons at a cost not to exceed $2.50 plusinterest at a rate equal to the rate charged by the Corporation'sbank and accrued from the date of the acquisition of the PerformanceShares from Ugolini to the date of their resale to an EligiblePerson.
15. The Grafstein Shares were acquired byGrafstein from Ugolini pursuant to a purchase agreement datedSeptember 25, 1996.
16. At the time these arrangements were enteredinto, it was contemplated by the Corporation and Grafsteinthat the Grafstein Shares would eventually be transferredto another director, officer or employee of the Corporationand used as a compensation alternative for such person.
17. The Grafstein Shares were never transferredto another employee, officer or director of the Corporationand continue to be held by Grafstein.
18. Grafstein presently owns a total of 162,500Performance Shares, including the Grafstein Shares.
19. All of the 162,500 Performance Sharesheld by Grafstein were released from escrow on September 19,2002.
20. In acknowledgement of the accommodationmade by Grafstein for the benefit of the Corporation and Ugoliniin September 1996, the Corporation intends to redeem the GrafsteinShares from Grafstein. The Grafstein Shares will be redeemedat their current "market price" (as such term isdefined in subsection 183(1) of the Regulation) and not ata price of $2.50 per Share plus interest.
21. As Grafstein is neither a current nora former employee of the Corporation, but is rather a formerchairman and former director of the Corporation, the proposedredemption of the Grafstein Shares by the Corporation doesnot fall within any of the exemptions from the Issuer BidRequirements provided in subsection 93(3) of the Act.
AND UPON the OSC being satisfied thatto do so would not be prejudicial to the public interest;
IT IS ORDERED, pursuant to subsection104(2)(c) of the Act, that the acquisition by the Corporationof the Grafstein Shares is exempt from the Issuer Bid Requirements.
November 12, 2002.
"Howard I. Wetston" "HaroldP. Hands"