Issuer is connected issuer, but not a related issuer, in respect of certain registrants thatare underwriters in a proposed securities distribution by the issuer - issuer not infinancial difficulty - underwriters exempt from the regulatory requirement for anindependent registrant to underwrite a portion of the distribution.
Securities Act, R.S.O. 1990, c.S.5, as am.
Regulation made under the Securities Act, R.R.O. 1990, Reg. 1015, as am., ss. 219(1),224(1)(b) and 233.
Rule 33-5B In the Matter of the Limitations on a Registrant Underwriting Securities of aRelated Issuer or Connected Issuer of the Registrant.
IN THE MATTER OF
IN THE MATTER OF
CIBC WORLD MARKETS INC., RBC DOMINION SECURITIES INC.,NESBITT BURNS INC., SCOTIA CAPITAL INC. ANDTD SECURITIES INC.
(Section 233 of the Regulation)
WHEREAS the Ontario Securities Commission (the "Commission") has receivedfrom CIBC World Markets Inc. ("CIBC") on behalf of itself and RBC Dominion SecuritiesInc. ("RBC"), Nesbitt Burns Inc. ("NBI"), Scotia Capital Inc. ("SCI") and TD Securities Inc.("TDSI") (collectively, the "Underwriters") an application for an order pursuant to section233 of the Regulation under the Act that the Underwriters be exempt from the requirementscontained in Section 224(1)(b) of the Regulation as modified by Rule 33-5B of theCommission entitled In the Matter of the Limitations on a Registrant Underwriting Securitiesof a Related Issuer or Connected Issuer of the Registrant (the "Rule") in respect of theproposed initial public offering (the "Offering") of common shares (the "Common Shares")of Maxxcom Inc. (the "Company" or "Maxxcom") pursuant to a prospectus;
AND WHEREAS the Underwriters have represented to the Commission that:
1. Maxxcom was incorporated under the laws of the Province of Ontario on November2, 1998 and had not carried on operations until the commencement of theReorganization (as defined below) effective March 1, 2000.
2. The Company's principal and registered office is located in Toronto, Ontario. Anapplication has been filed with The Toronto Stock Exchange for the listing of theCommon Shares on that exchange.
3. A preliminary prospectus dated December 29, 1999 and an amended and restatedpreliminary prospectus dated February 22, 2000 (the "Amended PreliminaryProspectus") have been filed with the securities commissions or other securitiesregulatory authorities of each province of Canada.
4. The Company is comprised primarily of companies previously comprising theCommunications and Marketing Services Division of MDC Corporation Inc. ("MDC"or the "Principal Shareholder"), a reporting issuer in each of the provinces ofCanada, substantially all of which were transferred to the Company effective March1, 2000 pursuant to a corporate reorganization of the Principal Shareholder (the"Reorganization"). The purpose of the Reorganization was to transfer to Maxxcomsubstantially all of the companies comprising such division.
5. Of the net proceeds of the Offering to be received by the Company after deductionof the Underwriters' fee and the estimated expenses of the Offering payable by theCompany: (i) substantially all will be used to repay indebtedness of the Companyto the Principal Shareholder incurred in connection with the Reorganization; and(ii) the balance will be used for working capital and general corporate purposes.
6. The Company is expected to enter into an underwriting agreement with theUnderwriters and certain other underwriters (collectively, the "IndependentUnderwriters") with respect to the Offering. The proportionate share of the Offeringunderwritten by each of the Underwriters and the proportionate share underwrittenby each of the Independent Underwriters is expected to be as follows:
Underwriter Proportionate Share
Bunting Warburg Dillon Read Inc. 7.5%
Griffiths McBurney & Partners 7.5%
National Bank Financial Inc. 7.5%
Canaccord Capital Corporation 2.5%
Thomson Kernaghan & Co. Ltd. 2.5%
7. The Amended Preliminary Prospectus does, and the prospectus will, contain acertificate signed by each of the Underwriters and each of the IndependentUnderwriters.
8. It is contemplated that on or prior to the closing of the Offering, Maxxcom will enterinto a credit facility with one or more of the Canadian Imperial Bank of Commerce(the "CIBC Bank"), the Royal Bank of Canada (the "Royal Bank") and The Bank ofNova Scotia ("BNS") among others, pursuant to which the CIBC Bank, the RoyalBank, and BNS will make available approximately Cdn.$75,000,000 to be used foroperating and acquisition purposes (the "Credit Facility").
9. MDC has a US$280,000,000 syndicated credit facility (the "MDC Credit Facility")with a banking syndicate in which the CIBC Bank, the Royal Bank, the Bank ofMontreal, BNS, The Toronto-Dominion Bank, Laurentian Bank of Canada, ComericaBank-Canada and Caisse de depot et placement du Quebec (collectively, the"Banks") hold 17.9%, 17.9%, 12.5%, 17.9%, 8.9%, 7.1%, 8.9% and 8.9% interests,respectively. As of January 17, 2000, approximately US$101 million and Cdn.$43million was outstanding on the MDC Credit Facility. The Underwriters understandthat MDC will apply some of the amounts it receives from Maxxcom in connectionwith the Offering to repay amounts owing under the MDC Credit Facility.
10. Each of the Underwriters is a direct or indirect subsidiary of one of the Banks.
11. Maxxcom is in good financial condition and is not under any immediate financialpressure to proceed with the Offering.
12. In light of the Credit Facility and the MDC Credit Facility, Maxxcom may beconsidered a connected issuer of the Underwriters pursuant to the definition of"connected issuer" contained in subsection 219(1) of the Regulation.
13. The Underwriters will not comply with the proportional requirements of Section224(1)(b) of the Regulation as modified by the Rule based on the proposedcomposition of the underwriting syndicate, since the portion underwritten by theUnderwriters would exceed 50% of the amount of the Offering and each of theIndependent Underwriters will have an individual participation of less than 10%.
14. Maxxcom is not a related issuer of the Underwriters and Maxxcom is not a"specified party" as defined in the Proposed Multi-jurisdictional Instrument No. 33-105 - Underwriting Conflicts (1998) 21 O.S.C.B. 788 (the "Proposed ConflictsInstrument").
15. The distribution will be made under a prospectus which contains the informationrequired in Appendix C to the Proposed Conflicts Instrument.
16. The prospectus will identify the Independent Underwriters and disclose their rolein the structuring and pricing of the distribution and in the due diligence activitiesperformed by the Underwriters for the distribution.
17. The Banks did not participate in the decision to make the Offering nor in thedetermination of the terms of the distribution or the use of proceeds thereof.
18. The Underwriters will not benefit in any manner from the Offering other than thepayment of their fee in connection with the Offering.
AND UPON the Commission being satisfied that to do so would not be prejudicialto the public interest;
IT IS ORDERED pursuant to Section 233 of the Regulation that the Underwritersare exempt from the requirements contained in Section 224(1)(b) of the Regulation inrespect of the Offering.
March 3rd, 2000.
"J. A. Geller" "R. Stephen Paddon"