Securities Law & Instruments

Headnote

Mutual Reliance Review System for Exemptive Relief Applications - relief from theregistration and prospectus requirements of the Act in respect of certain trades made inconnection with the cross-border acquisition of a non-reporting Canadian issuerutilizing an exchangeable shares structure.

Applicable Ontario Statutes

Securities Act, R.S.O. 1990, c.S.5, as am., 25, 53, 74(1).

IN THE MATTER OF THE SECURITIES LEGISLATION OF ALBERTA, BRITISH COLUMBIA AND ONTARIO

AND

IN THE MATTER OF THE
MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF
REDBACK NETWORKS INC., 610380 B.C. INC., 610381 B.C. INC. andABATIS SYSTEMS CORPORATION

MRRS DECISION DOCUMENT


WHEREAS the local securities authority or regulator (the "Decision Maker") in eachof Alberta, British Columbia and Ontario (the "Jurisdictions") has received an applicationfrom Redback Networks Inc. ("Redback") 610380 B.C. Inc. ("Newco") and 610381 B.C. Inc.("Exchangeco") for a decision under the securities legislation of the Jurisdictions(the "Legislation") that the requirements under the Legislation to be registered to trade ina security (the "Registration Requirement") and to file and to obtain a receipt for apreliminary prospectus and a prospectus (the "Prospectus Requirement") shall not applyto certain trades and distributions of securities to be made in connection with anagreement for Exchangeco to acquire all of the issued and outstanding shares of AbatisSystems Corporation ("Abatis") pursuant to a plan of arrangement (the "Plan ofArrangement") under section 192 of the Canada Business Corporations Act (the "CBCA")involving Abatis and its securityholders (the "Transaction");

AND WHEREAS pursuant to the Mutual Reliance Review System for ExemptiveRelief Applications (the "System"), the British Columbia Securities Commission is theprincipal regulator for this application;

AND WHEREAS Redback, Newco and Exchangeco have represented to theDecision Makers that:

1. Redback is a corporation incorporated under the laws of the State of Delaware;

2. Redback is currently subject to the reporting requirements of the United StatesSecurities Exchange Act of 1934, as amended, and is not a reporting issuer in anyof the Jurisdictions or under the securities legislation of any other province ofCanada;

3. Redback's authorized capital consists of 750,000,000 shares of common stock("Redback Common Shares"), US $0.0001 par value per share, and 10,000,000shares of preferred stock, US $0.0001 par value per share. As of the close ofbusiness on July 31, 2000, 147,698,218 Redback Common Shares, no shares ofpreferred stock, options to purchase 25,637,392 Redback Common Shares,convertible debt exercisable for 2,621,500 Redback Common Shares and warrantsto purchase 692,472 Redback Common Shares were issued and outstanding;

4. the Redback Common Shares are quoted on the NASDAQ National Market("NASDAQ");

5. Exchangeco is an indirect wholly-owned subsidiary of Redback and a directwholly-owned subsidiary of Newco. Exchangeco was incorporated under the lawsof the Province of British Columbia on July 10, 2000;

6. the authorized capital of Exchangeco consists of 100,000,000 common shares. Asof the date hereof, there was one common share outstanding and owned by Newco.Prior to the completion of the Transaction, the memorandum and articles ofExchangeco will be amended (i) to create a class of 100 million non-votingpreferred shares with a cumulative 6% annual dividend and (ii) to create a class of10 million exchangeable shares ("Exchangeable Shares"). The ExchangeableShares will rank senior to the common shares of Exchangeco and junior to thepreferred shares of Exchangeco. All issued and outstanding preferred shares (ifany) and common shares of Exchangeco will be held by Newco;

7. Exchangeco is not a reporting issuer in any of the Jurisdictions or under thesecurities legislation of any other province of Canada;

8. Newco was incorporated as a wholly-owned subsidiary of Redback under the lawsof the Province of British Columbia on July 10, 2000;

9. the authorized capital of Newco consists of 100,000,000 common shares. As of thedate hereof there was one common share outstanding and owned by Redback.Prior to the completion of the Transaction, the memorandum and articles of Newcowill be amended to create a class of 100,000,000 non-voting preferred shares witha cumulative 6% annual dividend. All issued and outstanding preferred shares (ifany) and common shares of Newco will be held by Redback;

10. Newco is not a reporting issuer in any of the Jurisdictions or under the securitieslegislation of any other province of Canada;

11. Abatis is a company incorporated under the CBCA on February 18, 1998;

12. the authorized capital of Abatis consists of an unlimited number of Class A VotingCommon Shares (the "Abatis Voting Common Shares") and an unlimited numberof Class B Non-Voting Common Shares (the "Abatis Non-Voting Common Shares"and, together with the Abatis Voting Common Shares, the "Abatis CommonShares"). As of July 31, 2000 there were 9,461,793 Abatis Voting Common Sharesand 951,175 Abatis Non-Voting Common Shares issued and outstanding and2,975,552 Abatis Voting Common Shares were reserved, in the aggregate, forissuance upon the exercise of Abatis Options;

13. the Abatis Common Shares are not listed on a stock exchange or quotation systemand Abatis is not a reporting issuer in any of the Jurisdictions or under thesecurities legislation of any other province of Canada;

14. the Transaction will be effected by way of the Plan of Arrangement, which willrequire (i) the approval of the Abatis shareholders and the Abatis optionholders atthe special meeting (the "Meeting") of such holders to be held to consider andapprove the Transaction, voting as a single class, such that each holder of AbatisCommon Shares is entitled to one vote for each Abatis Common Share held andeach holder of Abatis Options is entitled to one vote for each Abatis Common Sharesuch holder would have received on a valid exercise of such Abatis Options and (ii)the approval of the Supreme Court of British Columbia;

15. the management proxy circular (the "Circular") delivered to Abatis shareholders andAbatis optionholders in connection with the Meeting was prepared in conformity withthe provisions of the CBCA and an interim order of the Supreme Court of B.C. (the"Interim Order") and contains prospectus-level disclosure of the business andaffairs of Redback and Exchangeco and a detailed description of the Transactionand the Plan of Arrangement;

16. on the Plan of Arrangement becoming effective, in accordance with elections madeor deemed to be made by holders of Abatis Common Shares, the outstandingAbatis Common Shares (except those held by shareholders who exercise theirrights of dissent in accordance with the Interim Order) will be exchanged forExchangeable Shares or Redback Common Shares or a combination of theforegoing according to the exchange ratio provided in the Plan of Arrangement.Outstanding Abatis Options to purchase Abatis Voting Common Shares held bydirectors, officers, employees and certain consultants of Abatis will be exchangedunder the Plan of Arrangement for options to purchase Redback Common Shares("Replacement Options");

17. each holder of Abatis Common Shares who receives Redback Common Shares orExchangeable Shares pursuant to the Plan of Arrangement will receive such sharesfrom Exchangeco. As a result of the foregoing, upon the completion of theTransaction, all of the issued and outstanding Abatis Common Shares exchangedin the Transaction will be held by Exchangeco;

18. the rights, privileges, restrictions and conditions attaching to the ExchangeableShares (the "Exchangeable Share Provisions"), together with an exchange trustagreement (the "Exchange Trust Agreement") to be entered into between Redback,Exchangeco and Montreal Trust Company of Canada (the "Trustee"), will provideholders thereof with a security of a Canadian issuer having economic rights whichare, as nearly as practicable, equivalent to those of a Redback Common Share.Exchangeable Shares will be received by certain holders of Abatis Common Shareson a Canadian tax-deferred rollover basis. The Exchangeable Shares will beexchangeable by a holder thereof for Redback Common Shares on a one-for-onebasis at any time at the option of such holder and will be required to be exchangedupon the occurrence of certain events, as more fully described below. Dividendswill be payable on the Exchangeable Shares contemporaneously and in theequivalent amount per share as dividends on the Redback Common Shares;

19. the Plan of Arrangement provides that, on the Effective Date, certain of theExchangeable Shares and/or Redback Common Shares (the "Escrow Shares")issued as a result of the Transaction will be held in escrow by an escrow agent (the"Escrow Agent") in accordance with the terms of an escrow agreement (the "EscrowAgreement") for a period of six months following the effective date of theTransaction. In the event that Redback suffers any losses as a result of anyrepresentations or warranties of Abatis as set out in the Arrangement Agreementbeing untrue or any breach by Abatis of its covenants under the ArrangementAgreement or in respect of certain matters disclosed by Abatis to Redback,Redback will have the right to claim against the Escrow Shares. The EscrowShares will be registered in the name of the Escrow Agent but will continue to bebeneficially owned by the former Abatis shareholders. Redback Common Sharesissued under the Plan of Arrangement will also be subject to a "lock-up" uponcompletion of the Transaction and may not be traded for a period of up to 90 daysfollowing completion of the Transaction;

20. the Exchangeable Shares will rank junior to the preferred shares and senior to thecommon shares of Exchangeco with respect to the payment of dividends and thedistribution of assets in the event of the liquidation, dissolution or winding-up ofExchangeco. The Exchangeable Share Provisions will provide that eachExchangeable Share will entitle the holder to dividends from Exchangeco payableat the same time as, and equivalent to, each dividend paid by Redback on aRedback Common Share. Subject to the overriding call right of Newco referred tobelow in this paragraph, on the liquidation, dissolution or winding-up ofExchangeco, a holder of Exchangeable Shares will be entitled to receive fromExchangeco for each Exchangeable Share held an amount equal to the currentmarket price of a Redback Common Share, to be satisfied by delivery of oneRedback Common Share, together with all declared and unpaid dividends on eachsuch Exchangeable Share held by the holder on any dividend record date prior tothe date of liquidation, dissolution or winding-up (such aggregate amount, the"Liquidation Price"). Upon a proposed liquidation, dissolution or winding-up ofExchangeco, Newco will have an overriding call right to purchase all of theoutstanding Exchangeable Shares from the holders thereof (other than Redback orits affiliates) for a price per share equal to the Liquidation Price;

21. the Exchangeable Shares will be non-voting (except as required by theExchangeable Share Provisions or by applicable law) and will be retractable at theoption of the holder at any time. Subject to the overriding call right of Newcoreferred to below in this paragraph, upon retraction the holder will be entitled toreceive from Exchangeco for each Exchangeable Share retracted an amount equalto the current market price of a Redback Common Share, to be satisfied by deliveryof one Redback Common Share, together with, on the designated payment datetherefor, all declared and unpaid dividends on each such retracted ExchangeableShare held by the holder on any dividend record date prior to the date of retraction(such aggregate amount, the "Retraction Price"). Upon being notified byExchangeco of a proposed retraction of Exchangeable Shares, Newco will have anoverriding call right to purchase from the holder all of the Exchangeable Shares thatare the subject of the retraction notice for a price per share equal to the RetractionPrice;

22. subject to the overriding call right of Newco referred to below in this paragraph,Exchangeco may redeem all the Exchangeable Shares then outstanding at any timeon or after January 31, 2010 (the "Redemption Date"). The board of directors ofExchangeco may accelerate the Redemption Date in certain circumstances, asdescribed in the Circular. Upon such redemption, a holder will be entitled to receivefrom Exchangeco for each Exchangeable Share redeemed an amount equal to thecurrent market price of a Redback Common Share, to be satisfied by the deliveryof one Redback Common Share, together with all declared and unpaid dividendson each such redeemed Exchangeable Share held by the holder on any dividendrecord date prior to the date of redemption (such aggregate amount, the"Redemption Price"). Upon being notified by Exchangeco of a proposedredemption of Exchangeable Shares, Newco will have an overriding call right topurchase from the holders all of the outstanding Exchangeable Shares (other thanshares held by Redback or its affiliates) for a price per share equal to theRedemption Price;

23. under the Exchange Trust Agreement, Redback will grant to the Trustee for thebenefit of the holders of the Exchangeable Shares a put right, exercisable upon theinsolvency of Exchangeco, to require Redback to purchase from a holder ofExchangeable Shares all or any part of his or her Exchangeable Shares. Thepurchase price for each Exchangeable Share purchased by Redback will be anamount equal to the current market price of a Redback Common Share, to besatisfied by the delivery to the Trustee, on behalf of the holder, of one RedbackCommon Share, together with an additional amount equivalent to the full amountof all declared and unpaid dividends on such Exchangeable Share;

24. under the Exchange Trust Agreement, upon the liquidation, dissolution or winding-up of Redback, Redback will be required to purchase each outstandingExchangeable Share, and each holder will be required to sell all of his or herExchangeable Shares, for a purchase price per share equal to the current marketprice of a Redback Common Share, to be satisfied by the delivery to the Trustee,on behalf of the holder, of one Redback Common Share, together with an additionalamount equivalent to the full amount of all declared and unpaid dividends on eachsuch Exchangeable Share;

25. contemporaneously with the closing of the Transaction, Redback, Exchangeco andNewco will enter into a Support Agreement which will provide that Redback will notdeclare or pay any dividend on the Redback Common Shares unless Exchangecosimultaneously declares and pays an equivalent dividend on the ExchangeableShares, and that Redback will ensure that Exchangeco and Newco will be able tohonour the redemption and retraction rights and dissolution entitlements under theExchangeable Share Provisions and the related redemption, retraction andliquidation call rights of Newco;

26. the Support Agreement will also provide that, without the prior approval of theholders of the Exchangeable Shares, actions such as distributions of stockdividends, options, rights and warrants for the purchase of securities or otherassets, subdivisions, reclassifications, reorganizations and other changes cannotbe taken in respect of the Redback Common Shares generally without the same oran economically equivalent action being taken in respect of the ExchangeableShares;

27. the steps under the Transaction, including the exchange of Abatis Options forReplacement Options, and the attributes of the Exchangeable Shares contained inthe Exchangeable Share Provisions, the Exchange Trust Agreement and theSupport Agreement involve or may involve a number of trades of securities(collectively, the "Trades") and there may be no registration or prospectusexemptions available under the Legislation for certain of the Trades;

28. if all of the Exchangeable Shares were exchanged and all of the ReplacementOptions were exercised immediately after completion of the Transaction, formerAbatis security holders resident in the Jurisdictions would not in aggregate holdmore than 10% of the total number of issued and outstanding Redback CommonShares or represent more than 10% of the total number of holders of RedbackCommon Shares;

29. there is no organized market for the Redback Common Shares in the Jurisdictionsand none is expected to develop;

30. upon completion of the Transaction, none of Redback, Newco, or Exchangeco willbecome reporting issuers under the Legislation;

31. all disclosure material furnished to holders of Redback Common Shares in theUnited States will be provided to holders of the Exchangeable Shares and RedbackCommon Shares resident in the Jurisdictions;

AND WHEREAS under the System, this MRRS Decision Document evidences thedecision of each Decision Maker (collectively, the "Decision");

AND WHEREAS each of the Decision Makers is satisfied that the test contained inthe Legislation that provides the Decision Maker with the jurisdiction to make the Decisionhas been met;

THE DECISION of the Decision Makers under the Legislation is that:

1. the Registration Requirement and the Prospectus Requirement shall not apply tothe Trades; and

2. the first trade of Redback Common Shares acquired pursuant to the Transaction orupon the exchange, redemption or retraction of the Exchangeable Shares undertheir terms or upon exercise of Replacement Options in accordance with their termsshall be a distribution, unless the trade is made through the facilities of NASDAQor such other market or exchange outside of Canada on which the RedbackCommon Shares may be quoted or listed for trading at the time that the tradeoccurs in accordance with the rules and regulations applicable to that market orexchange.

September 11th, 2000.

"Brenda Leong"