Securities Law & Instruments

Headnote

Rule 61-501 - Related party transaction - Relieffrom valuation requirements granted in connection with proposedsale of real estate assets to related party - Related partysale will occur only after assets have been listed for salefor 60 day period - Related party sale will only involve assetsthat remain at the end of 60 day period - Related party salewill occur at price fixed at start of 60 day period which issame price as list price to arm's length market subject to reductionfor sales commissions avoided - Related party sale subject tominority approval.

Rule Cited

Rule 61-501 - Insider Bids, Issuer Bids, GoingPrivate Transactions and Related Party Transactions, ss. 5.5and 9.1.

IN THE MATTER OF
ONTARIO SECURITIES COMMISSION RULE 61-501

AND

IN THE MATTER OF
HARDWOOD PROPERTIES LTD.

RULE 61-501
(Section 9.1)

UPON the application (the "Application")of Hardwood Properties Ltd. ("Hardwood") to the Directorfor a decision pursuant to section 9.1 of Rule 61-501 that theproposed sale of all of its inventory of condominium and apartmentunits ("Units") to Wako Holdings Ltd. (the "RelatedParty Sale"), a corporation that is wholly owned by insidersof Hardwood, be exempt from the valuation requirements containedin section 5.5 of Rule 61-501;

AND UPON considering the Applicationand the recommendation of staff of the Commission;

AND UPON Hardwood having representedto the Director as follows:

1. Hardwood is a corporation governed by theBusiness Corporations Act (Alberta) (the "ABCA").

2. Hardwood is a Calgary-based real estate companyengaged in the re-construction, management and sale of multi-familyresidential properties.

3. Hardwood is a reporting issuer in the provincesof British Columbia, Alberta and Ontario.

4. Wako Holdings Ltd. ("Wako") isa Calgary-based corporation governed by the ABCA.

5. Wako is a private holding corporation, 50%of the voting shares of which are owned by Mr. Konstantinos(Gus) Kolias, the President, Chief Executive Officer and a directorof Hardwood, and the remaining 50% of which are owned by Mrs.Erin Kolias, a director of Hardwood and spouse of Mr. Gus Kolias.

6. Each of Wako, Mr. Gus Kolias and Mrs. Koliasis a "related party" (collectively, the "RelatedParty"), as such term is defined in Rule 61-501, and theRelated Party Sale is a "related party transaction",as such term is defined in Rule 61-501.

7. The authorized share capital of Hardwoodconsists of an unlimited number of common shares ("CommonShares") and an unlimited number of preferred shares, issuablein one or more series ("Preferred Shares").

8. As at April 19, 2002, there were approximately12,847,581 Common Shares issued and outstanding and no PreferredShares issued and outstanding.

9. In addition, as at April 19, 2002, approximately1,307,000 options ("Options") to purchase Common Shareswere outstanding, each of which entitles the holder thereofto purchase one Common Share upon payment of the applicableexercise price.

10. The Common Shares are listed on the TSXVenture Exchange (the "TSX").

11. Mr. Gus Kolias is the holder of 459,780Common Shares, Mrs. Kolias is the holder of 143,000 Common Sharesand Wako is the holder of 1,151,668 Common Shares.

12. Hardwood owns up to 89 residential and 3commercial Units in 4 projects, excluding units that are subjectto conditional or unconditional contracts of purchase and sale.

13. The Units have been listed for sale pursuantto standard industry terms for varying periods of time. TheUnits will continue to be listed for sale until June 30, 2002,the effective date of the Related Party Sale.

14. The directors of Hardwood have scheduledan annual and special meeting of shareholders for Tuesday, June11, 2002 (the "Special Meeting"). Hardwood is in theprocess of preparing a management information circular and proxystatement (the "Circular") to solicit proxies forthe Special Meeting. Hardwood anticipates that the Circularwill be mailed to shareholders on or about May 8, 2002.

15. On May 19, 2000, Hardwood announced thatits board of directors had approved a proposal for the implementationof strategic initiatives with a view to maximizing shareholdervalue. The proposal called for the re-construction and orderlysale of Hardwood's remaining real estate assets. During thisprocess, the board of directors was to consider the currentstate of the real estate sector and the public markets in generalto determine a future course of direction for Hardwood. Thesale of the remaining real estate assets was approved by theshareholders of Hardwood at their annual meeting held on June27, 2000. Hardwood has continuously sold down its inventoryof Units since that time. Hardwood continues to list the remainingUnits for sale through real estate agents.

16. In March 2002, the directors of Hardwoodreviewed the status of sales of all of Hardwood's remainingprojects and determined that it would be in the best interestsof Hardwood to reduce the current list prices of its Units inan attempt to complete the sale of Hardwood's real estate assetsin a more timely fashion. The directors also considered alternativesfor the bulk sale of Hardwood's remaining Units to avoid thecosts and time associated with the sale of the last of suchUnits on an individual basis.

17. At a meeting held on April 25, 2002, thedirectors of Hardwood considered the current state of the realestate sector and the public markets in general and, subjectto shareholder and regulatory approval, approved the liquidationand dissolution of Hardwood, pursuant to which Hardwood willfirst complete the sale of its remaining real estate assets,terminate all of its employees, satisfy all of its outstandingliabilities, and otherwise wind down and liquidate its business(the "Wind-Down Plan"). Under the Wind-Down Plan,the board of directors has specifically approved the reductionof the price per Unit, on both an individual sale and a bulksale basis, on or before May 1, 2002.

18. Hardwood will then distribute to its shareholdersall of its cash on hand (less a reserve that the directors determineto be sufficient to satisfy any unknown and unaccounted forliabilities). In connection with the Wind-Down Plan, Hardwoodwill be delisted from the TSX and dissolved.

19. Mr. Gus Kolias has indicated that he wouldbe willing to make a bulk purchase of Hardwood's remaining Unitsthrough Wako. Mr. Gus Kolias indicated that Wako would pay thebulk Unit sale price (where one existed) or reduced individualUnit list price less any avoided real estate commission, suchthat Hardwood would receive the same net proceeds whether suchUnits were sold to an arm's-length purchaser (on a bulk Unitbasis, where so listed) in the open market (with real estatecommissions payable) or to Wako (with no real estate commissionspayable).

20. As Hardwood would receive no less in a saleto Wako than it would in a sale to an arm's-length purchaserin an open market sale, Mr. Williams, as the sole non-interesteddirector, approved an agreement of purchase and sale betweenHardwood and Wako effective May 1, 2002 (the "Sale Agreement").The Sale Agreement will be a standard form Calgary Real EstateBoard purchase and sale agreement and will provide that Hardwoodwill, for a period of no less than 60 days, list for sale inthe open market all of its condominium and apartment units atcertain prices as defined in the Sale Agreement. Where Unitsare listed for sale on both an individual and bulk sale basis,Hardwood may, over such 60 day period, reduce the list pricesof individual Units, provided that the aggregate list priceof such Units on an individual basis shall never be less thanthe list price of such Units on a bulk basis. As individualUnits are sold, the related bulk sale list price shall be reducedin proportion to the number of Units sold (the foregoing individualand bulk list prices, as may be adjusted as provided for abovebeing hereinafter referred to as the "List Prices").The Sale Agreement will unconditionally obligate Wako to purchase,and Hardwood to sell, all of Hardwood's Units that either havenot been sold by June 30, 2002, or are not subject to an agreementof purchase and sale with an arm's-length purchaser on June30, 2002, that subsequently becomes unconditional and closes.The Sale Agreement will further provide that the purchase ofUnits by Wako will be completed for the List Prices of the Units,less any real estate commissions that would have been payableby Hardwood had such Units been sold to an arm's-length purchaserin the open market but that will not be payable upon a saleof such Units to Wako.

21. The structure of the transaction is suchthat any Unit sold to the Related Party will only be sold theretoif arm's length third party purchasers are not found to purchasethe Units at the List Prices.

22. The Circular will provide shareholders withfull disclosure of the proposed transaction and the SpecialMeeting will afford them the opportunity to cast a vote in respectof the transaction. Any votes cast by Mr. Gus Kolias, Mrs. Kolias,Wako, or any of their associates or affiliates will not be countedin respect of the proposed resolution approving the RelatedParty Sale.

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

IT IS DECIDED pursuant to section 9.1of Rule 61-501 that Hardwood shall be exempt from the valuationrequirements contained in section 5.5 of Rule 61-501 in connectionwith the Related Party Sale provided that:

(1) the Related Party Sale occurs at the ListPrices (subject to reduction for any avoided real estate commissionsas described in paragraph 20 above);
(2) the Related Party Sale occurs only after the Units havebeen listed for sale at the List Prices by real estate agentsfor at least 60 days and in the manner described in paragraphs20 and 21 above; and

(3) Hardwood complies with the other applicableprovisions of Rule 61-501.

May 8, 2002.

"Ralph Shay"