Securities Law & Instruments

Headnote

Section 144 -- application for partial revocation of cease trade order -- holders of Class A common stock of the Applicant's subsidiary have right to receive common shares of the Applicant upon redemption of Class A common stock -- holders of Class A common stock not entitled to vote at Applicant's meetings of shareholders unless redemption right is exercised -- variation of cease trade order to permit certain trades in common shares of the applicant in satisfaction of the consideration due in connection with the redemption of Class A common stock -- partial revocation granted subject to conditions.

Applicable Legislative Provisions

Securities Act , R.S.O. 1990, c. S.5, as am., ss. 127, 144.

IN THE MATTER OF

THE SECURITIES ACT,

R.S.O. 1990 C. S.5, AS AMENDED

(the "Act")

AND

IN THE MATTER OF

REDLINE COMMUNICATIONS GROUP INC.

ORDER

(Section 144)

WHEREAS the securities of Redline Communications Group Inc. (the "Applicant") are subject to a temporary cease trade order made by the Director dated June 11, 2010 under paragraph 2 of subsection 127(1) and subsection 127(5) of the Act and a further cease trade order issued by the Director on June 23, 2010 pursuant to subsection 127(1) of the Act (together, the "Cease Trade Order") directing that the trading in securities of the Applicant cease until further order by the Director;

AND WHEREAS the Applicant has applied (the "Application") to the Ontario Securities Commission (the "Commission") pursuant to section 144 of the Act for a partial revocation of the Cease Trade Order;

AND WHEREAS the Applicant has represented to the Commission that:

1. The Applicant was incorporated under the laws of Canada on September 14, 2007. The Applicant has two subsidiaries; Redline Communications Inc. ("Redline"), a Canadian corporation and Redline Communications, Inc. ("RCI"), a Delaware corporation.

2. The Applicant's registered office and principal place of business is located at 302 Town Centre Boulevard, Suite 100, Markham, Ontario, Canada, L3R 0E8.

3. As at the date hereof, the authorized capital of the Applicant consists of an unlimited number of common shares (the "Common Shares") of which 17,540,542 are issued and outstanding.

4. The Applicant is a reporting issuer or the equivalent thereof in each province and territory of Canada.

5. The Applicant does not have any securities listed or quoted on any exchange or market in Canada or elsewhere, other than the Common Shares which are listed for trading on the Toronto Stock Exchange under the symbol "RDL".

6. The Cease Trade Order was issued as a result of the failure of the Applicant to file, in accordance with applicable securities laws, audited annual financial statements and related management's discussion and analysis for the period ending December 31, 2009, interim financial statements and related management's discussion and analysis for the three-month period ended March 31, 2010 and certification of the foregoing filings as required by National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings (collectively, the "2009 Annual and 2010 Q1 Interim Filings"). In addition, the Applicant has also failed to file its interim financial statements and related management's discussion and analysis for the three-month period ended June 30, 2010 and certification of such documents (the "2010 Q2 Interim Filings" and together with the 2009 Annual and 2010 Q1 Interim Filings, the "Required Documents").

7. In connection with the closing of the Applicant's initial public offering in Canada in 2007 (the "IPO"), the Applicant, RCI and Redline undertook a capital reorganization (the "Reorganization") pursuant to which:

(a) The holders of exchangeable shares in the capital of Redline contributed their shares to the Applicant in exchange for common shares in the capital of the Applicant;

(b) RCI merged with a newly-formed Delaware corporate subsidiary, with RCI surviving the merger, and

(c) Certain holders of RCI common stock received shares of Class A common stock in the capital of RCI ("Class A Common Stock") for each share of RCI common stock held.

8. RCI's Certificate of Incorporation provides that holders of Class A Common Stock may elect to have all or a portion of their Class A Common Stock redeemed by RCI for Common Shares (the "Class A Redemption Right").

9. In connection with the IPO and as part of the Reorganization, the Applicant and RCI entered into a support agreement dated October 25, 2007 (the "Support Agreement"). Pursuant to the Support Agreement, if an election is made in respect of the Class A Redemption Right, RCI is obligated to redeem each share of Class A Common Stock, for one Common Share (the "Redemption Consideration").

10. The Support Agreement provides that, upon notice and direction from RCI, the Applicant is required, subject to applicable laws, to forthwith issue and deliver to RCI the requisite number of Common Shares. Simultaneously with delivery of the Common Shares to RCI, RCI is required, subject to applicable laws, to forthwith deliver to the Applicant the number of shares of Class A Common Stock redeemed.

11. The Applicant's final prospectus dated October 18, 2007 qualified the Applicant's distribution to RCI, pursuant to the Support Agreement, of the right to acquire Common Shares in exchange for Class A Common Stock. The Common Shares received by RCI are, in turn, delivered to the holders of Class A Common Stock as payment of the Redemption Consideration.

12. The purpose of the Support Agreement is, among other things, to ensure that shares of Class A Common Stock have the economic equivalence of the Common Shares. Under the Support Agreement, the Applicant agreed that, so long as any Class A Common Stock are outstanding, the Applicant will, among other things: (a) not declare or pay a dividend on the Common Shares unless (i) RCI simultaneously declares or pays, as the case may be, an equivalent dividend on the Class A Common Stock, and (ii) RCI has sufficient money or other assets or authorized but unissued securities available to enable the due declaration and the due and punctual payment of an equivalent dividend on the Class A Common Stock; and (b) take all such actions and do all such things as are necessary or desirable to enable, cause and permit RCI to pay and otherwise perform its obligations with respect to the satisfaction of the Redemption Consideration in respect of each issued and outstanding share of Class A Common Stock upon exercise of the Class A Redemption Right.

13. Although the Class A Common Stock have the economic equivalence of the Common Shares, holders of Class A Common Stock are not entitled to vote on matters relating to the Applicant and as such, currently would not be able to vote on matters put forth to holders of Common Shares at any meeting of shareholders.

14. At the time of the IPO, the Applicant was advised by U.S. counsel that for U.S. tax purposes, the issuance of voting rights via a special share or voting trust arrangements to holders of Class A Common Stock would result in the deemed exchange of the Class A Common Stock for Common Shares with the resulting tax consequences. As a result, the Applicant, RCI and the holders of Class A Common Stock decided that the grant of such rights would be prejudicial to the Reorganization.

15. The Support Agreement also provides that the Applicant will not, without the prior approval of holders holding more than 50% of the Class A Common Stock, distribute to the holders of Common Shares assets of the Applicant unless the economic equivalent on a per share basis of such assets are distributed simultaneously to holders of Class A Common Stock.

16. Neither the Applicant nor RCI have any right to force the redemption of Class A Common Stock in exchange for Common Shares. The Reorganization was structured so as to avoid the holders of Class A Common Stock from having to recognize a gain on the disposition of their Class A Common Stock at an unfavourable time.

17. The certificate of incorporation of RCI provides that in the event of (i) any merger or consolidation of the Applicant with or into another entity (with respect to which less than a majority of the outstanding voting power of the surviving or consolidated corporation immediately following such event is held by persons or entities who were stockholders of the Applicant immediately prior to such event); (ii) the sale, exclusive license or transfer of all or substantially all of the properties and assets of the Applicant or its subsidiaries; or (iii) any other change of control of a majority of the outstanding voting power of the Applicant, each outstanding share of Class A Common Stock shall be automatically redeemed by RCI for the Redemption Consideration as of the close of business of the date immediately preceding such event.

18. There are currently 3,741,067 shares of Class A Common Stock that are subject to the Class A Redemption Right. RCI has received redemption requests from holders of Class A Common Stock and has in turn requested that the Applicant deliver Common Shares as payment of the Redemption Consideration, pursuant to the terms of the Support Agreement.

19. As the issuance of Common Shares in satisfaction of the Redemption Consideration would involve a trade of securities of the Applicant, it could not be completed without a partial revocation of the Cease Trade Order.

20. All trades in connection with a redemption of Class A Common Stock (collectively, the "Redemption") will be completed in accordance with all applicable laws.

21. Prior to the completion of any Redemption, each shareholder exercising the Class A Redemption Right will:

(a) receive:

i. a copy of the Cease Trade Order; and

ii. a copy of the order for the partial revocation of the Cease Trade Order for which this application has been made;

(b) provide signed and dated acknowledgements which clearly state that all of the Applicant's securities, including the Common Shares issued in connection with the Redemption, will remain subject to the Cease Trader Order, and that the issuance of a partial revocation order does not guarantee the issuance of a full revocation order in the future.

22. The Applicant is not in default of any requirements of the Cease Trade Order or the Act or the rules and regulations made pursuant thereto, subject to the deficiencies outlined in paragraph 6 above.

23. The Applicant has obtained relief for failure to hold its 2010 annual general meeting (the "Meeting") within the time periods required by the Canada Business Corporations Act. The Applicant's annual shareholders' meeting is currently scheduled to take place on September 30, 2010.

24. The Applicant expects to file the Required Documents on SEDAR no later than September 30, 2010 to bring its continuous disclosure record up to date.

25. Following the filing of the Required Documents, the Applicant intends to apply to Commission and to the other applicable securities regulatory authorities for a full revocation of the Cease Trade Order and any cease trade orders in effect in such other jurisdictions. This full revocation will not be granted prior to the record date of the Meeting, thereby depriving the shareholders who wish to exercise the Class A Redemption Right from being able to receive Common Shares and attend and vote at the Meeting.

26. The Applicant is not considering, nor is it involved in any discussion relating to a reverse take-over, merger, amalgamation or other form of combination or transaction similar to any of the foregoing.

AND UPON considering the Application and the recommendation of the staff of the Commission;

AND UPON the Director being satisfied that to do so would not be prejudicial to the public interest;

IT IS ORDERED that the Cease Trade Order is partially revoked solely to permit trades and acts in furtherance of trades in Common Shares that are necessary for and in connection with the Redemption, provided that:

1. prior to the completion of the Redemption, each shareholder exercising the Class A Redemption Right will:

(a) receive:

i. a copy of the Cease Trade Order; and

ii. a copy of the order for the partial revocation of the Cease Trade Order for which this application has been made;

(b) provide signed and dated acknowledgements which clearly state that all of the Applicant's securities, including the Common Shares issued in connection with the Redemption, will remain subject to the Cease Trader Order, and that the issuance of a partial revocation order does not guarantee the issuance of a full revocation order in the future;

2. the Applicant undertakes to make available copies of the written acknowledgements referred to in paragraph 1(b) to staff of the Commission on request

DATED September 2, 2010

"Jo-Anne Matear"
Assistant Manager, Corporate Finance
Ontario Securities Commission