Verticore & Narrowcast Communications - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications - Registration and prospectus relief granted in respectof trades in shares or non-reporting U.S. issuer upon exercise of various rights attached to exchangeable securities ofnon-reporting Ontario issuer - first trade relief granted in respect of trades in shares of U.S. non-reporting issuer providedtrades made as market outside of Ontario and de minimus market in Ontario at time trades are executed.

Applicable Ontario Statutes

Securities Act, R.S.O. 1990, c.S.5, as am., ss. 25, 53, 72(5), 74.

Applicable Ontario Rules

Rule 45-501: Exempt Distributions, (1998) 21 .S.C.B. 6548.

Rule 72-501: Prospectus Exemption for First Trade Over a Market Outside Ontario, (1998) 21 O.S.C.B. 3873.

IN THE MATTER OF THE SECURITIES LEGISLATION

OF BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN AND ONTARIO

AND

IN THE MATTER OF THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

VERTICORE COMMUNICATIONS LTD.

AND

NARROWCAST COMMUNICATIONS CORP.

MRRS DECISION DOCUMENT

WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of BritishColumbia, Alberta, Saskatchewan and Ontario (collectively, the "Jurisdictions") has received an application (the"Application") from Verticore Communications Ltd. ("Verticore") and Narrowcast Communications Corp. ("Narrowcast"),for a decision pursuant to the securities legislation, regulations, rules and/or policies of the Jurisdictions (the"Legislation") that certain trades in securities of Narrowcast shall not be subject to the requirements contained in theLegislation to be registered to trade in a security (the "Registration Requirement") and to file a preliminary prospectusand a prospectus and receive receipts therefor (the "Prospectus Requirement");

AND WHEREAS pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the"System"), the Ontario Securities Commission is the principal regulator for this Application;

AND WHEREAS Verticore and Narrowcast have represented to the Decision Makers that:

1. Verticore, a corporation incorporated under the laws of the Province of Ontario, is not a reporting issuer underthe Legislation. Verticore is engaged in the electronic distribution and display of information and advertisingin specific locations including elevator cabs and elevator waiting areas.

2. In order to provide better access to the United States capital markets, Verticore completed a reorganization (the"Reorganization") on August 22, 2000. As a result of the Reorganization, Verticore became an indirect, wholly-owned subsidiary of Narrowcast.

3. Narrowcast is a company organized under the laws of Delaware and is not a reporting issuer under theLegislation. None of Narrowcast's securities have been registered under the United States SecuritiesExchange Act of 1933, as amended, and none of its securities are publicly traded on any stock exchange ormarket. Narrowcast is engaged in the electronic distribution and display of information and advertising inspecific locations including elevator cabs and elevator waiting areas.

4. As part of the Reorganization, articles of amendment were filed on August 21, 2000 under the BusinessCorporation Act (Ontario) in respect of Verticore (the "Articles of Amendment") pursuant to which (a) three newclasses of exchangeable shares were created (each an "Exchangeable Share", collectively, the "ExchangeableShares"); (b) a class of New Common Shares was created; and (c) each issued and outstanding share ofVerticore was changed into one newly created Exchangeable Share of the class set out opposite such existingshare class below:

5. Immediately following the filing of Articles of Amendment, one New Common Share was issued to 3044011Nova Scotia Company ("Nova Scotia Subco"), a corporation incorporated under the laws of Nova Scotia solelyto facilitate the Reorganization.

6. Nova Scotia Subco issued one common share to Narrowcast so that, as a result, following completion of theReorganization, Narrowcast indirectly owns the issued and outstanding New Common Share of Verticore(representing all of the voting shares of Verticore) and the shareholders of Verticore (prior to theReorganization) own all of the issued and outstanding Exchangeable Shares.

7. After giving effect to the Reorganization, the authorized capital of Verticore consists of an unlimited numberof New Common Shares, Common Exchangeable Shares, Class B Exchangeable Shares and Class CExchangeable Shares, of which one New Common Share, 2,250,891 Common Exchangeable Shares,4,730,017 Class B Exchangeable Shares and 1,200,000 Class C Exchangeable Shares are issued andoutstanding.

8. As part of the Reorganization, warrants to purchase an aggregate of 685,260 Verticore shares were convertedinto warrants (the "Warrants") to acquire the relevant class of Exchangeable Securities, and options topurchase an aggregate of 993,500 Verticore common shares were converted into options (the "NarrowcastOptions") to purchase equivalent securities of Narrowcast.

9. Narrowcast's authorized capital consists of 500,000,000 shares of Parent Common Shares, 300,000,000shares of Serial Preferred Stock and 200,000,003 shares of Preferred Stock of which 70,000,000 shares havebeen designated Class B Convertible Preferred Stock, 30,000,000 shares have been designated Series 1 ClassC Convertible Preferred Stock, 100,000,000 shares have been designated Series 2 Class C ConvertiblePreferred Stock, one share has been designated Series X Special Voting Stock, one share has beendesignated Series Y Special Voting Stock and one share has been designated Series Z Special Voting Stock,of which 3,333 Parent Common Shares, 637,500 shares of Class B Preferred Stock, 82,830 shares of Series1 Class C Preferred Stock, 3,891,000 shares of Series 2 Class C Convertible Preferred Stock and one shareof each of the Series X Special Voting Stock, Series Y Special Voting Stock and Series Z Special Voting Stockare currently issued and outstanding.

10. The Reorganization was unanimously approved by the directors and shareholders of Verticore.

11. The Exchangeable Shares are exchangeable (as described herein) on a one-for-one basis for shares ofNarrowcast or any successor corporation thereto (the "Parent Stock") at any time at the option of the holderor upon the occurrence of certain events including the liquidation, dissolution or winding-up of Narrowcast.Each Exchangeable Share is exchangeable into the corresponding class of Parent Stock set out opposite itin the chart below:

Each class of Exchangeable Shares (other than Common Exchangeable Shares) is also convertible intoCommon Exchangeable Shares, initially on a one for one basis (as adjusted for certain dilutive events). Eachshare of Parent Stock (other than Parent Common Shares) is convertible into a Parent Common Share, initiallyon a one for one basis (as adjusted for certain dilutive events).

12. The Exchangeable Shares provide a holder with a security of a Canadian issuer having economic and votingrights which are, as nearly as practicable, equivalent to those of the corresponding class of Parent Stock.

13. The share provisions attaching to the Exchangeable Shares provide that:

a. except as required by applicable law, the holders of Exchangeable Shares are not permitted to voteat meetings of the shareholders of Verticore;

b. each Exchangeable Share is entitled to a dividend from Verticore payable at the same time as, andin U.S. dollars or the Canadian dollar equivalent thereof (at the discretion of the Verticore board ofdirectors), each dividend paid by Narrowcast on a share of the corresponding class of Parent Stock;

c. subject to the exercise by Nova Scotia Subco or Narrowcast of their call right described in subsection13(g), holders of Exchangeable Shares are entitled, at any time, to exchange their ExchangeableShares for shares of the corresponding class of Parent Stock, through a retraction provision attachedto the Exchangeable Shares. Upon retraction, a holder is entitled to receive from Verticore, for eachExchangeable Share retracted, an amount equal to the market price of one share of the correspondingclass of Parent Stock, to be satisfied by Verticore delivering to such holder one share of thecorresponding class of Parent Stock for each such Exchangeable Share and paying to the holder anadditional amount equivalent to all declared and unpaid dividends on each such Exchangeable Shareretracted;

d. subject to the exercise by Nova Scotia Subco or Narrowcast of their call right described in subsection13(h), on the liquidation, dissolution or winding-up of Verticore, holders of Exchangeable Shares areentitled to receive for each Exchangeable Share an amount equal to the market price of one shareof the corresponding class of Parent Stock, which will be satisfied by delivery of one share of thecorresponding class of Parent Stock, together with an additional amount equivalent to the full amountof all declared and unpaid dividends on such Exchangeable Share;

e. subject to the exercise by Nova Scotia Subco or Narrowcast of their call right described in subsection13(i), Verticore will be required to redeem all of the Exchangeable Shares then outstanding on June30, 2007, which is seven years from the effective date of the Reorganization (the "AutomaticRedemption Date"). The board of directors of Verticore will have discretion to postpone such date.Upon any such redemption by Verticore, each shareholder will be entitled to receive from Verticore,for each Exchangeable Share redeemed, an amount equal to the market price of a share of thecorresponding class of Parent Stock, which amount will be satisfied by the delivery on behalf ofVerticore of one share of the corresponding class of Parent Stock, plus an additional amountequivalent to the full amount of all declared and unpaid dividends on each such redeemed share;

f. Verticore may accelerate the Automatic Redemption Date when:

(i) there remain less than 816,719 Exchangeable Shares outstanding;

(ii) an initial public offering of Narrowcast occurs; or

(iii) a change of control of Narrowcast occurs;

g. Notwithstanding the foregoing, Nova Scotia Subco and Narrowcast shall have an overriding call rightto purchase the Exchangeable Shares that are the subject of a retraction notice, for a price per shareequal to the market price of one share of the corresponding class of Parent Stock, upon being notifiedby Verticore of a proposed retraction of any such Exchangeable Shares, which call right shall besatisfied by the delivery by or on behalf of Nova Scotia Subco or Narrowcast of one share of thecorresponding class of Parent Stock, plus an additional amount equivalent to the full amount of alldeclared and unpaid dividends on each such retracted Exchangeable Share;

h. Notwithstanding the foregoing, Nova Scotia Subco and Narrowcast shall have an overriding call rightto purchase each outstanding Exchangeable Share for a price per share equal to the market price ofone share of the corresponding class of Parent Stock, upon being notified of the liquidation,dissolution or winding-up of Verticore, which call right shall be satisfied by the delivery by or on behalfof Nova Scotia Subco or Narrowcast of one share of the corresponding class of Parent Stock, plusan additional amount equivalent to the full amount of all declared and unpaid dividends on each suchExchangeable Share; and

i. Notwithstanding the foregoing, Nova Scotia Subco and Narrowcast shall have an overriding call rightto purchase all, but not less than all, Exchangeable Shares for a price per share equal to the marketprice of one share of the corresponding class of Parent Stock, upon being notified by Verticore of aproposed redemption of any such Exchangeable Shares, which call right shall be satisfied by thedelivery by or on behalf of Nova Scotia Subco or Narrowcast of one share of the corresponding classof Parent Stock, plus an additional amount equivalent to the full amount of all declared and unpaiddividends on each such redeemed Exchangeable Share.

14. In order to provide holders of the Exchangeable Shares with voting rights in Narrowcast, Verticore has enteredinto a voting trust agreement (the "Voting Trust Agreement") with Narrowcast and an individual trustee (the"Trustee").

15. Contemporaneous with the Reorganization, Narrowcast issued one share of each of Class 1 Special VotingStock, Class 2 Special Voting Stock and Class 3 Special Voting Stock (collectively, the "Parent Special VotingShares") to the Trustee to be held pursuant to the Voting Trust Agreement, each of which Parent Special VotingShare corresponds to a class of Exchangeable Shares. For each such Parent Special Voting Share held, theTrustee is entitled at Narrowcast stockholder meetings to cast the number of votes which is equal to the numberof votes which would attach to the Parent Stock for which the Exchangeable Shares of the class correspondingto such Parent Special Voting Share outstanding at such time (excluding those owned by Narrowcast, NovaScotia Subco and affiliates thereof) are then exchangeable.

16. The Voting Trust Agreement provides that the Parent Special Voting Shares are held by the Trustee for thebenefit of holders of Exchangeable Shares from time to time (other than Narrowcast, Nova Scotia Subco andaffiliates thereof) and each vote attached thereto will be voted by the Trustee as instructed by holders of therelated Exchangeable Shares pursuant to proxies delivered to such holder by the Trustee or pursuant to theinstructions of such holder.

17. Pursuant to an exchange rights agreement entered into by Narrowcast, Verticore, Nova Scotia Subco and theholders of Exchangeable Shares (the "Exchange Rights Agreement"), Nova Scotia Subco granted to theholders of Exchangeable Shares a put right (the "Exchange Right") exercisable upon the insolvency ofVerticore.

18. The Exchange Right, when exercised, will require Nova Scotia Subco to purchase from a holder ofExchangeable Shares all or any part of the Exchangeable Shares held by such holder and the purchase pricefor each Exchangeable Share purchased by Nova Scotia Subco will be an amount equal to the market priceof one share of the corresponding class of Parent Stock, to be satisfied by the issuance and delivery by or onbehalf of Nova Scotia Subco to the holder of one share of the corresponding class of Parent Stock, plus anadditional amount equivalent to the full amount of all declared and unpaid dividends on the purchasedExchangeable Share.

19. At the effective time of the Reorganization, Verticore, Narrowcast and Nova Scotia Subco entered into asupport agreement (the "Support Agreement") providing that Narrowcast, among other things, will (i) not declareor pay dividends on any Parent Stock unless Verticore is able to and simultaneously declares and pays anequivalent dividend on the corresponding Exchangeable Shares; (ii) take all action and do all necessary thingsto ensure that Verticore is able to pay to the holders of Exchangeable Shares the equivalent number of sharesof corresponding Parent Stock, as the case may be, in the event of a liquidation, dissolution or winding-up ofVerticore, a retraction request by a holder of Exchangeable Shares, or a redemption of Exchangeable Sharesby Verticore; and (iii) take all action and do all things necessary to ensure that Nova Scotia Subco has sufficientParent Stock to meet its obligations under the call rights granted to it and under the Exchange Right.

20. The Support Agreement also provides that, without the prior approval of the holders of the ExchangeableShares, actions such as distributions of stock dividends, options, rights and warrants for the purchase ofsecurities or other assets, reclassifications, reorganizations and other changes cannot be taken in respect ofa class of Parent Stock without the same or an economically equivalent action being taken in respect of thecorresponding class of Exchangeable Shares.

21. Exemptions from the Registration Requirement and the Prospectus Requirement are not generally availablewith respect to the following trades or potential trades in connection with the Reorganization (collectively, the"Trades"):

(a) the issuance of Parent Stock to holders of Exchangeable Shares upon the exercise by such holdersof the Exchange Right against Nova Scotia Subco;

(b) the issuance of Parent Stock to holders of Exchangeable Shares in connection with the retraction ofExchangeable Shares;

(c) the issuance of Parent Stock to holders of Exchangeable Shares upon the exercise by Nova ScotiaSubco or Narrowcast of their call right upon the retraction of Exchangeable Shares;

(d) the issuance of Parent Stock to holders of Exchangeable Shares upon the redemption of such shares;

(e) the issuance of Parent Stock to holders of Exchangeable Shares in connection with the exercise byNova Scotia Subco or Narrowcast of their call right upon the redemption of the Exchangeable Shares;and

(f) the issuance of Parent Stock to holders of Exchangeable Shares in connection with the exercise byNova Scotia Subco or Narrowcast of their call right in connection with the liquidation, winding-up ordissolution of Verticore.

22. It is expected that all future financings of Verticore and Narrowcast will be undertaken in the United States andthat new investors will, primarily, be residents of the United States. No market for the securities of Narrowcastis expected to develop in the Jurisdictions. It is contemplated that Narrowcast will pursue its initial publicoffering in the United States and seek listing on the Nasdaq Stock Market.

23. If, as of the date of the Application, holders of Exchangeable Securities resident in the Jurisdictions exchangedsuch securities for securities of Narrowcast they would hold approximately 58% of the common shares ofNarrowcast and would represent in number approximately 15% of the holders of common shares of Narrowcast.

24. All disclosure material including, without limitation, copies of annual financial statements and all proxy materialswhich is furnished to holders of securities of Narrowcast resident in the United States will be provided to theholders of the Exchangeable Securities and Warrants, and will be provided to all security holders of Narrowcastresident in the Jurisdictions.

AND WHEREAS pursuant to the System, this MRRS Decision Document evidences the decision of eachDecision Maker (collectively, the "Decision");

AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation that providesthe Decision Maker with the jurisdiction to make the Decision has been met;

THE DECISION of the Decision Makers pursuant to the Legislation is that:

1. the Trades will not be subject to the Registration Requirement or the Prospectus Requirement; and

2. the first trade in any Narrowcast securities acquired pursuant to a Trade or pursuant to the exerciseof the Narrowcast Options shall be a distribution under the Legislation of the Jurisdiction in which thetrade takes place (the "Applicable Legislation"), unless:

(i) A. Narrowcast is a reporting issuer and has been a reporting issuer for at least 12 months in therelevant Jurisdiction;

B. if the seller is in a "special relationship" with Narrowcast, the seller has reasonable groundsto believe that Narrowcast is not in default under the Legislation, where, for these purposes,"special relationship" shall have the meaning ascribed to it in the Applicable Legislation; and

C. no unusual effort is made to prepare the market or to create a demand for securities ofNarrowcast and no extraordinary commission or consideration is paid in respect of such firsttrade,

then such first trade is a distribution only if it is a trade made from the holdings of any person,company or combination of persons or companies holding a sufficient number of any securities ofNarrowcast to affect materially the control of Narrowcast, but any holding of any person, company orcombination of persons or companies, holding more than 20 percent of the outstanding votingsecurities of Narrowcast shall, in the absence of evidence to the contrary, be deemed to affectmaterially the control of Narrowcast (and, for such purposes, securities of Narrowcast and theExchangeable Shares are considered to be of the same class); or

(ii) if Narrowcast is not a reporting issuer or the equivalent thereof under the Applicable Legislation, suchfirst trade is made through the facilities of a stock exchange outside of Canada or on the NasdaqStock Market and at the time of such first trade, holders of common shares of Narrowcast (withholders of Exchangeable Securities considered to be holders of common shares of Narrowcast)whose last address as shown on the books of Narrowcast or Verticore, as the case may be, is in theJurisdiction in which the holder resides, do not hold more than 10% of the common shares ofNarrowcast and represent in number, not more than 10% of the holders of common shares ofNarrowcast;

provided, however, that in either case, Verticore or Narrowcast shall provide each holder of ExchangeableShares and each holder of Narrowcast Options resident in the Jurisdictions with a copy of this MRRS DecisionDocument which outlines the limitations imposed upon the first trade of Narrowcast securities acquired upona Trade or pursuant to the exercise of Narrowcast Options.

December 12, 2000.

"J.A. Geller"       "Robert W. Davis"