Securities Law & Instruments

IN THE MATTER OF THE SECURITIES ACT,
R.S.O. 1990, CHAPTER S.5, AS AMENDED (the "Act")

AND

IN THE MATTER OF THE REGULATION UNDER THE SECURITIES ACT,R.R.O. 1990, REGULATION 1015, AS AMENDED (the "Regulation")

AND

IN THE MATTER OF KASTEN CHASE
APPLIED RESEARCH LIMITED

ORDER

UPON the application (the "Application") of Kasten Chase Applied Research Limited ("Kasten Chase") to the Ontario Securities Commission (the "Commission") for an order:

(i)pursuant to subsection 104(2)(c) of the Act that certain acquisitions by Kasten Chase of its common shares (the "Common Shares"), pursuant to a proposed share exchange transaction (the "Reorganization") described in clause 8 below, are exempt from the requirements of Sections 95, 96, 97, 98 and 100 of the Act (the "Issuer Bid Requirements"); and

(ii)pursuant to subsection 59(2) of Schedule I of the Regulation that Kasten Chase be exempt from the requirements under subsection 32(1)(b) of the Regulation to pay a fee in connection with the filing of a report of issuer bid in respect of the Reorganization (the "Fee Requirement"), provided that a minimum fee of $800 prescribed by the Regulation is paid;

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

AND UPON Kasten Chase having represented to the Commission as follows:

1.Kasten Chase is a reporting issuer in Ontario and is not in default of the requirements of the Act.

2.Kasten Chase’s authorized capital consists of an unlimited number of Common Shares and 2,804,631 non-voting convertible redeemable preference shares. As of November 13, 2000, there were 51,463,237 Common Shares issued and outstanding.

3.The Common Shares are listed for trading on The Toronto Stock Exchange.

4.To the knowledge of Kasten Chase, the only person who owns, directly or indirectly, or exercises control or direction over greater than 10% of the outstanding Common Shares is Temple Ridge (1996) Limited ("Temple Ridge"), which currently owns 10,593,666 Common Shares, representing approximately 21.7% of the issued and outstanding Common Shares (the "TR Kasten Chase Shares").

5.Temple Ridge is a private holding company owned by Michael Davies, Paul Hyde and the Milligan Family (1998) Trust (collectively, the "Temple Ridge Holders"). Michael Davies is a Non-Executive Chairman and a member of the board of directors (the "Board") of Kasten Chase, Paul Hyde is the CEO and Vice-Chairman of the Board and Mr. Michael Milligan, a trustee for the Milligan Family (1998) Trust, is the Executive Vice-President, Chief Financial Officer, General Counsel and Secretary of Kasten Chase.

6.Temple Ridge currently has a refundable dividend tax on-hand balance (the "RDTOH Balance") for the purposes of the Income Tax Act (Canada) (the "ITA").

7.As of this date, and prior to the Reorganization, Temple Ridge has no assets other than the TR Kasten Chase Shares and approximately $12 million in cash (the "Cash Reserve"). Prior to the occurrence of the Reorganization, a portion of the Cash Reserve will be distributed to the shareholders as a capital dividend and as a reduction of capital. The balance of the Cash Reserve (the "Remaining Cash") will be used to satisfy Temple Ridge’s outstanding tax liabilities and certain other expenses.

8.The steps involved in the Reorganization include the following:

(a)Each of the Temple Ridge Holders will transfer all of the shares he holds in Temple Ridge (the "Temple Ridge Shares") to Kasten Chase in exchange for the issuance of a number of newly issued Common Shares equal in the aggregate to the number of TR Kasten Chase Shares (the "Consideration Shares"). The transfers described in the previous paragraph are expected to take place on a tax-deferred basis pursuant to subsection 85.1(1) of the ITA.

(b)The cost to Kasten Chase of the Temple Ridge Shares acquired by Kasten Chase will be deemed to be equal to the lesser of their fair market value and their paid-up capital.

(c)The Board will resolve to add to the stated capital of Kasten Chase in respect of the issuance of the Consideration Shares an amount equal to the paid-up capital of the Temple Ridge Shares acquired.

(d)As a result of the change of control caused by the Reorganization, Temple Ridge will have a deemed tax year-end immediately before the effective date of the Reorganization. Kasten Chase will cause Temple Ridge, as its subsidiary, to file the appropriate tax returns to claim a refund of tax in the amount of the RDTOH Balance.

(e)On or prior to January 1, 2001, Temple Ridge will distribute its assets, including the TR Kasten Chase Shares, to Kasten Chase pursuant to the voluntary wind-up provisions in Part XVI of the Business Corporations Act (Ontario) and, immediately after such distribution, the TR Kasten Chase Shares will be cancelled.

9.The Reorganization will result in:

(a)Temple Ridge Holders directly holding the same aggregate number of Kasten Chase Common Shares that were previously held by Temple Ridge immediately prior to the Reorganization; and

(b)the cancellation of all the TR Kasten Chase Shares.

10.The Board formed an independent committee (the "Independent Committee") to review, among other matters, the proposed terms of the Reorganization and to make a recommendation to the Board regarding its implementation. The Independent Committee retained counsel to advise on this matter. Based upon a review of the proposed terms of the Reorganization, and subject to entering into appropriate definitive agreements acceptable to the Independent Committee, the Independent Committee has unanimously recommended to theBoard that Kasten Chase proceed with the transaction. In making its determination to proceed with the Reorganization, the Board has also considered a tax assessment of the consequences of the proposed transaction done by KPMG Inc., the auditors of Kasten Chase.

11.The acquisition by Kasten Chase, as a result of the Reorganization, of the TR Kasten Chase Shares will constitute both a direct and an indirect issuer bid within the meaning of Section 92 and subsection 89(1) of the Act that is not exempt from Part XX of the Act. The exemptions to the Issuer Bid Requirements are not available in respect of the Reorganization.

12.Immediately following the Reorganization, each of the Temple Ridge Holders, as well as the other shareholders of Kasten Chase (the "Public Shareholders"), will beneficially own the same aggregate number and the same relative percentages of Common Shares that they owned immediately prior to the Reorganization and will have the same rights and benefits in respect of such shares that they currently have.

13.The Temple Ridge Holders will jointly and severally indemnify and save harmless each of Kasten Chase and the directors and officers of Kasten Chase (other than the Temple Ridge Holders) from all losses or liabilities that Kasten Chase or such directors and officers may incur as a result of, or arising directly or indirectly out of, or in connection with, the Reorganization. In addition, the Temple Ridge Holders have also jointly and severally agreed to indemnify Kasten Chase from any tax liability of Temple Ridge in excess of the aggregate of the amount of the tax refund Kasten Chase is entitled to receive in connection with the RDTOH Balance and the Remaining Cash.

14.The Temple Ridge Holders will pay all costs (including legal and accounting) incurred by Kasten Chase and Temple Ridge in effecting the Reorganization.

15.The Reorganization will have no adverse economic effect on, or adverse tax consequences to, and will in no way prejudice Kasten Chase or the Public Shareholders.

16.The Reorganization allows the Public Shareholders to have access to information concerning the Temple Ridge Holders’ beneficial holdings of Kasten Chase which was not available when such holdings were held through Temple Ridge.

17.The share holding structure resulting from the Reorganization allows the Temple Ridge Holders to pursue their own individual investment goals. However, the Temple Ridge Holders may enter into a voting agreement with respect to the Commons Shares similar to an agreement that they currently have in connection with their Temple Ridge Shares.

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

IT IS ORDERED pursuant to subsection 104(2)(c) of the Act that the acquisition by Kasten Chase of the Temple Ridge Shares pursuant to the Reorganization is exempt from the Issuer Bid Requirements;

IT IS FURTHER ORDERED THAT Kasten Chase is exempt from the Fee Requirement, provided that a minimum fee of $800 prescribed by the Regulation is paid.

December 8th , 2000.


"Howard I. Wetston""J.A. Geller"