Mutual Reliance Review System for Exemptive Relief Applications -- Offeree issuer is not a reporting issuer and there is no published market in respect of the securities subject to the take-over bid - Offeror cannot rely upon the "private issuer exemption" from the formal take-over bid requirements because the offeree issuer has more than 50 holders of the class of securities subject to the bid, exclusive of holders who are current employees and former employees who acquired their securities while employed by the offeree issuer and have continued to hold such securities - Many of the securityholders have registered part of their holdings in companies, family trusts and in the names of their spouse and children - Offeror exempted from formal take-over bid requirements.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 93(1)(d), 95-100, 104(2)(c).
November 27, 2007
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ONTARIO AND QUÉBEC
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
LAVELL SYSTEMS INC. (THE "FILER")
MRRS DECISION DOCUMENT
The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the "Legislation") for an exemption from the formal take-over bid requirements (the "Take-Over Bid Requirements") of the Legislation in connection with the SkyPort Vend-In (as defined below).
Under the Mutual Reliance Review System for Exemptive Relief Applications
(a) Ontario is the principal regulator for this application, and
(b) this MRRS decision document evidences the decision of each Decision Maker.
Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation incorporated under the laws of Canada on July 3, 2007. The Filer's registered and head office is located in Toronto, Ontario. The Filer is not currently a reporting issuer in any jurisdiction and its securities are not traded on any public market. The Filer was incorporated for the purpose of acquiring, managing and integrating satellite network providers.
2. The Filer filed a preliminary prospectus (the "Preliminary Prospectus") dated September 28, 2007 in each of the provinces (other than Québec) and territories of Canada and an amended and restated preliminary prospectus (the "Amended Prospectus") dated October 31, 2007 in each of the provinces and territories of Canada to qualify the initial public offering (the "Offering") of the common shares of the Filer (the "Lavell Shares").
3. The Preliminary Prospectus, the Amended Prospectus and a final prospectus of the Filer (the "Prospectus") describe two proposed significant acquisitions by the Filer: (i) the acquisition of Artel, Inc. (the "Artel Acquisition"); and (ii) the acquisition (the "SkyPort Vend-In") of SkyPort Global Communications, Inc. ("SkyPort").
4. The proceeds of the Offering will principally be used by the Filer to fund the Artel Acquisition. Artel designs, engineers, integrates and provides turn-key solutions that include terrestrial, satellite and IP-based telecommunication systems, IT systems and networks.
5. SkyPort is a corporation incorporated under the laws of the State of Texas on November 15, 1999. SkyPort is not currently a reporting issuer in any jurisdiction and its securities are not traded on any public market. SkyPort provides premium satellite and terrestrial managed network services to commercial and government enterprises.
6. SkyPort is a wholly-owned operating subsidiary of SkyComm Technologies Corporation ("SkyComm"). SkyComm is a corporation incorporated under the laws of the State of Delaware on May 6, 2004. SkyComm is not currently a reporting issuer in any jurisdiction and its securities are not traded on any public market. SkyComm is a holding company and its only material asset is the shares it holds in SkyPort. The authorized capital of SkyComm consists of one billion common shares (the "SkyComm Shares") of which 736,992,396 SkyComm Shares are issued and outstanding.
7. The SkyPort Vend-In will be effected by way of the purchase by the Filer from the shareholders of SkyComm (the "SkyComm Shareholders") of 100% of the SkyComm Shares in exchange for Lavell Shares and warrants of the Filer ("Vend-In Warrants"), all as more particularly described below.
8. On September 21, 2007, the Filer offered to purchase from the SkyComm Shareholders all of the SkyComm Shares in exchange for Lavell Shares (the "Bid"). At that time, the consideration under the Bid in most cases consisted of (i) a fixed portion and (ii) a variable portion based on the price (the "Offering Price") per Lavell Share under the Offering. On November 15, 2007, SkyComm sent an amended offering package to the SkyComm Shareholders which, among other things, (i) confirmed the consideration to be provided to the SkyComm Shareholders under the Bid and (ii) provided the rescission rights described below to the SkyComm Shareholders.
9. The number of Lavell Shares or Vend-In Warrants, as applicable, that SkyComm Shareholders will receive will depend upon the Offering Price in connection with the securities sold in the Offering. Currently, the Filer is proposing to sell units (the "Units") in the Offering. Each Unit will consist of one Lavell Share plus one-half of a Lavell Share purchase warrant ("Warrant"). Each whole Warrant will entitle the holder to purchase one Lavell Share at an exercise price of Cdn. $11.00 for a period of 18 months from the closing of the Offering.
10. Based on an expected Offering Price of Cdn. $8.50 per Unit, the Filer has offered to purchase the SkyComm Shares under the Bid for the following amended consideration:
(a) U.S.$0.038635 per share ("Group A Consideration") for each of 251,807,080 SkyComm Shares purchased, payable in Lavell Shares valued at the Offering Price;
(b) U.S.$0.062389 per share ("Group B Consideration") for each of 131,413,369 SkyComm Shares purchased, payable in Lavell Shares valued at the Offering Price;
(c) for each of 277,936,689 SkyComm Shares, approximately 0.0027 warrants per share to acquire Lavell Shares at Cdn. $8.50 per share for 18 months from the closing of the Offering, and (ii) approximately 0.0027 warrants per share to acquire Lavell Shares at Cdn. $11.00 per share for 18 months from the closing of the Offering, (collectively, the "Vend-In Warrants") (the "Group C Consideration"), subject to any adjustments negotiated between Blackmont Capital Inc., the agent acting in connection with the Offering and the SkyComm Shareholders receiving Group C Consideration, as may be required prior to the receipt for the Prospectus; and
(d) U.S.$0.03 per share ("Group D Consideration") for each of 75,835,258 SkyComm Shares purchased, payable in Lavell Shares valued at the Offering Price.
11. The Filer has granted to each SkyComm Shareholder the right to withdraw from the share purchase agreement whereby the SkyComm Shareholder agreed to sell its SkyComm Shares. This right may be exercised up until midnight on the second business day after the SkyComm Shareholder receives, or is deemed to have received, a copy of the Prospectus relating to the Offering (which the SkyComm Shareholder will receive either electronically, if it so elected, or in paper format as soon as the Prospectus is filed).
12. Based on the list of registered SkyComm Shareholders provided by SkyComm to the Filer, the following table sets out the jurisdictions in which the SkyComm Shareholders reside:
Number of SkyComm
Europe and Middle East
Although there are 80 registered SkyComm Shareholders, the Filer is advised by SkyComm that there are 65 beneficial shareholders of SkyComm as a number of SkyComm Shareholders have registered part of their SkyComm Shares in companies, family trusts and other family positions (i.e., through spouses and children). In addition, 18 SkyComm Shareholders are also current or former employees, or current or former directors, of SkyPort and/or SkyComm.
13. As of the date of the Preliminary Prospectus, the Filer had contracted to acquire 93.64% of the SkyComm Shares under the Bid. As of the date of the Amended Prospectus, the Filer has contracted to acquire 99.31% of the SkyComm Shares under the Bid. Management of the Filer anticipates acquiring the remaining SkyComm Shares prior to completion of the Offering.
14. Each of the SkyComm Shareholders who has agreed to sell its SkyComm Shares has voluntarily agreed to do so in consideration for Lavell Shares or Vend-In Warrants, as applicable, pursuant to a share purchase agreement.
15. The Prospectus will qualify the issuance of the Lavell Shares under the Bid, including the Lavell Shares issued pursuant to the exercise of the Vend-In Warrants.
16. Each of the SkyComm Shareholders has been sent a copy of the Amended Prospectus and will also be sent a copy of the Prospectus prior to completion of the SkyPort Vend-In which contains disclosure that is substantially similar to what would be disclosed in a take-over-bid circular.
17. Of the seven Ontario SkyComm Shareholders, six arm's length SkyComm Shareholders will receive Group B Consideration which includes the highest amount payable for SkyComm Shares in connection with the SkyPort Vend-In. Such price represents the approximate cost base for their SkyComm Shares. The holdings of the six arm's length Ontario SkyComm Shareholders represent approximately 3.2565% of the total outstanding SkyComm Shares.
18. All five SkyComm Shareholders resident in Québec are arm's length to the Filer. The Québec resident SkyComm Shareholders will also receive Group B Consideration which includes the highest amount payable for SkyComm Shares in connection with the SkyPort Vend-In. The holdings of the five SkyComm Shareholders resident in Québec represent approximately 0.5111% of the total outstanding SkyComm Shares.
19. The remaining Ontario SkyComm Shareholder is Balaton Group Inc. ("Balaton") which holds approximately 58.62% of the SkyComm Shares. Balaton is the holder of a majority of the Lavell Shares and is a promoter of the Offering. For purposes of the SkyPort Vend-In, the Balaton SkyComm Shares can be broken into the following groups:
(a) 251,807,080 SkyComm Shares representing approximately 34.16684% of the SkyComm Shares which are to be exchanged for Group A Consideration. The Group A Consideration represents the approximate cost base for these SkyComm Shares, and
(b) 180,156,800 SkyComm Shares representing approximately 24.44486% of the SkyComm Shares which are to be exchanged for Group C Consideration. The Group C Consideration payable to this group is the lowest amount payable for SkyComm Shares in connection with the SkyPort Vend-In.
20. SkyComm Shareholders resident in the United States, Europe and the Middle East hold an aggregate of 277,261,796 SkyComm Shares representing approximately 37.62071% of the SkyComm Shares. Of this number, SkyComm Shareholders holding (i) 103,646,649 SkyComm Shares will receive Group B Consideration, (ii) 97,779,889 SkyComm Shares will receive Group C Consideration and (iii) 75,835,258 SkyComm Shares will receive Group D Consideration.
21. The closing of the Offering is conditional on the SkyPort Vend-In receiving preliminary FCC approval, which approval was obtained on November 8, 2007.
22. Both the Artel Acquisition and the SkyPort Vend-In are conditional on the closing of the Offering.
23. To the extent that any SkyComm Shareholder is resident in Ontario or Québec, the Bid constitutes a "take-over bid" under the Legislation.
24. The Legislation exempts a take-over bid from the Take-Over Bid Requirements provided that there are not more than 50 security holders, excluding holders who are or have been employees of the company or of an affiliate of the company (the "Private Company Exemption").
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 under the Legislation is that the Requested Relief is granted.