Mutual Reliance Review System for ExemptiveRelief Applications - Relief from registration and prospectusrequirements in connection with an arrangement under the Companies'Creditors Arrangement Act (Canada).
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c.S.5, as am, ss.25(1), 53(1), 74(1).
Applicable Ontario Rules
OSC Rule 45-501 - Exempt Distributions,s.2.8.
Applicable Multilateral Instrument
Multilateral Instrument 45-102 - Resale ofSecurities, s.2.6, 2.8
IN THE MATTER OF
THE SECURITIES LEGISLATIONOF
BRITISH COLUMBIA, ALBERTA,SASKATCHEWAN, MANITOBA,
ONTARIO, QUÉBEC, NOVASCOTIA, NEW BRUNSWICK,
NEWFOUNDLAND AND LABRADORAND PRINCE EDWARD ISLAND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEWSYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
360NETWORKS (HOLDINGS) LTD.
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in eachof British Columbia, Alberta, Saskatchewan, Manitoba, Ontario,Québec, Nova Scotia, New Brunswick, Newfoundland andLabrador and Prince Edward Island (the "Jurisdictions")has received an application from 360networks (holdings) ltd.(the "Filer" or "Holdings"), a wholly-ownedsubsidiary of 360networks inc. ("360"), for a decisionunder the securities legislation of the Jurisdictions (the "Legislation")that the requirements contained in the Legislation to be registeredto trade in a security (the "Registration Requirement")and to file and obtain a receipt for a preliminary prospectusand a prospectus (the "Prospectus Requirement") shallnot apply to certain trades in connection with a plan of compromiseand arrangement under the Companies' Creditors ArrangementAct (Canada) (the "Canadian Plan") and a relatedplan of reorganization under the U.S. Bankruptcy Code(the "U.S. Plan" and, together with the Canadian Plan,the "Plans");
AND WHEREAS under the Mutual RelianceReview System for Exemptive Relief Applications (the "System"),the Ontario Securities Commission (the "OSC") is theprincipal regulator for this application;
AND WHEREAS the Filer has representedto the Decision Makers that:
1. 360 is a company continued under the CompaniesAct (Nova Scotia). Its head office is located in Vancouver,British Columbia.
2. 360, through its subsidiaries, is in thebusiness of offering optical network services to telecommunicationsand data communications companies in North America.
3. The authorized share capital of 360 consistsof 500 billion Subordinate Voting Shares (the "360 CommonShares"), 500 billion Multiple Voting Shares and 500billion non-voting Preferred Shares issuable in series, ofwhich 741,531,333 360 Common Shares, 81,840,000 Multiple VotingShares and 700,000 series 1 non-voting Preferred Shares wereoutstanding as at August 31, 2002.
4. 360 is, and has been for longer than 12months, a reporting issuer or the equivalent under the Legislationof each of the Jurisdictions. 360 is also a foreign privateissuer under the U.S. Securities Exchange Act of 1934,as amended, and is subject to the reporting requirements ofthat Act.
5. The 360 Common Shares are listed on theToronto Stock Exchange ("TSX") but are suspendedfrom trading and were, prior to July 27, 2001, listed on theNasdaq National Market ("Nasdaq").
6. As a result of 360's failure to file financialstatements required under the Legislation the securities of360 have, since July 19, 2002, been subject to cease tradeorders of the OSC and the Executive Director of the BritishColumbia Securities Commission and have, since July 23, 2002and August 2, 2002, been subject to cease trade orders ofthe Québec Securities Commission and the Alberta SecuritiesCommission, respectively.
7. Other than the shares of Holdings it owns,360 itself has no material assets or operations of any materialvalue to the business of the 360 group of companies, and isnot a party to the Plans. Upon implementation of the Plans,Holdings will replace 360 as the ultimate parent company inthe 360 group.
360networks (holdings) ltd.
8. Holdings is currently amalgamated underthe Business Corporations Act (Alberta), but is inthe process of being continued under the Canada BusinessCorporations Act (the "CBCA"). Its head officeis located in Vancouver, British Columbia.
9. The authorized share capital of Holdingscurrently consists of an unlimited number of each of the following:(i) Class "A" Common Voting Shares, (ii) Class "B"Common Voting Shares, (iii) Class "C" Common Non-VotingShares, (iv) Class "I" Preferred Voting Shares,(v) Class "II" Preferred Non-Voting Shares, and(vi) Class "III" Preferred Non-Voting Shares. Asof August 31, 2002, 30,297,073 Class "A" CommonVoting Shares were outstanding, all of which were held by360. Once Holdings is continued under the CBCA, its authorizedshare capital will consist of one class of an unlimited numberof Preference shares and one class of an unlimited numberof Common shares (the "Holdings Common Shares");only Holdings Common Shares will be outstanding at the timeof implementation of the Plans.
10. Holdings is not a reporting issuer orthe equivalent under the securities legislation of any provinceor territory of Canada.
The Plans - General
11. On June 28, 2001 the Supreme Court ofBritish Columbia (the "BC Court") granted an orderunder the CCAA (such order, as amended and restated by anorder made July 20, 2001, the "Original Order")that, among other things, provided most of the Canadian companiesin the 360 group protection from their creditors until December31, 2001. The BC Court subsequently granted orders extendingthe stay of proceedings provided for in the Original Orderuntil October 31, 2002.
12. Also on June 28, 2001, certain U.S. companiesin the 360 group filed voluntary petitions in the U.S. BankruptcyCourt (the "U.S. Court") pursuant to Chapter 11of the U.S. Bankruptcy Code.
13. On September 4, 2002 the BC Court declared,among other things, that the Canadian Plan is fair and reasonableand granted its final approval of the Canadian Plan. The approvalof the U.S. Court to the U.S. Plan was obtained on October1, 2002.
14. The purpose of the Plans is, among otherthings, to provide for the compromise, settlement and paymentof claims of certain creditors of the 360 group of companiesby way of the distribution of cash, notes and/or equity sharesof Holdings to such creditors.
15. None of 360's subsidiaries carrying onbusiness outside of North America is covered by the Plans.The subsidiaries engaged in the 360 group's trans-Atlanticbusiness are not being restructured and will be disposed ofor liquidated in due course. The 360 group's European andAsian affiliates are in the process of being liquidated underthe laws of each applicable country. The South American affiliatesthat comprise the 360americas group of companies (formerly,GlobeNet) are pursuing their own debt restructuring outsideof any insolvency court. The South American affiliates thatare not part of the 360americas group of companies will bedisposed of or liquidated in due course.
16. Currently, North American operations constitutethe largest and only revenue producing part of the 360 group'sbusiness. Such operations are held by those Canadian and U.S.subsidiaries covered by the Plans. Holdings will be the ultimateparent company of those subsidiaries upon implementation ofthe Plans.
17. 360's issued shares are not dealt within any way under the Plans, and shareholder approval of thePlans is not required under the CCAA or applicable corporatelegislation.
18. For purposes of considering and votingon the Canadian Plan and receiving distributions under it,there are two classes of creditors: The senior lender classand the general creditor class. The U.S. Plan has those sameclasses plus certain other classes such as for other securedcreditors, intercompany claims and equity interests. The creditorsin the senior lender class under the Plans are herein collectivelycalled the "Senior Lenders". The creditors in thegeneral creditor class under the Canadian Plan, together withgeneral unsecured creditors under the U.S. Plan, are hereincollectively called the "General Creditors".
19. The Senior Lenders and the general creditorsunder the Canadian Plan approved the Canadian Plan at separatemeetings held on August 27, 2002. In connection with the meetings,such creditors were provided with an information circularcontaining detailed disclosure respecting the reorganizationunder the Plans and a copy of the Canadian Plan (in the caseof creditors of the Canadian Companies). A Disclosure Statementwas also sent to all creditors of the applicable U.S. companiesin connection with the U.S. Plan, together with a copy ofthe U.S. Plan. Creditors of the U.S. companies had until September24, 2002 to submit ballots in respect of the U.S. Plan. Suchcreditors have now approved the U.S. Plan.
Steps in Implementing the Plans
20. In connection with and as a conditionof implementation of the Plans:
(a) certain Canadian subsidiaries of the360 group will transfer a portion of the shares of entitiesof the Urbanlink group of companies owned by them to anentity qualified to hold the same pursuant to the requirementsof the Canadian Radio-television and TelecommunicationsCommission;
(b) 360 will transfer and/or assign certainshares in a subsidiary, inter-corporate debt and contractualrights to Holdings and certain other of its subsidiariesfor nominal consideration;
(c) Holdings and other subsidiaries of the360 group will assign certain inter-corporate debt to certainother subsidiaries of the 360 group, including 360networksholdings (USA) inc. ("Holdings USA"), a U.S. companyof the 360 group;
(d) Holdings will issue, at the directionof Holdings USA, Holdings Common Shares to JPMorgan ChaseBank (the "Agent") as agent and collateral agentfor the Senior Lenders under a senior secured credit facilitygranted to the Senior Lenders, in satisfaction of a portionof the indebtedness owed to the Senior Lenders; and
(e) Holdings will file Articles of Reorganizationunder the CBCA to consolidate its authorized and issuedHoldings Common Shares, such that 360 will hold 2/3 of apost-consolidation Holdings Common Share ("New CommonShare") and the Agent will hold two New Common Shareson behalf of the Senior Lenders.
21. Thereafter, Holdings will issue additionalNew Common Shares in exchange for further shares of HoldingsUSA for distribution under the Plans. Such New Common Shareswill be allocated as follows:
(a) 80.5% to the Senior Lenders (the "SeniorLender Pool");
(b) 2% to the General Creditors under theCanadian Plan (the "Canadian Creditor Pool") and10% to General Creditors under the U.S. Plan (the "U.S.Creditor Pool"); and
(c) 7.5% to certain personnel ("Employees")of companies of the 360 group (the "Employee Pool").
22. Under the Plans, the Senior Lenders willreceive in the aggregate:
(a) U.S.$135 million of cash;
(b) new senior secured notes of Holdingsin the aggregate principal amount of U.S.$215 million ("NewNotes"); and
(c) New Common Shares, as more particularlydescribed below.
Such cash, New Notes and New Common Shareswill be issued to the Agent on behalf of the Senior Lenders,at the instruction of Holdings USA.
23. Upon implementation of the Plans:
(a) each Senior Lender will receive itspro-rata share of the Distributable Cash (as defined inthe Plans), together with its pro-rata share of:
(i) the New Notes; and
(ii) the 12,075,000 New Common Sharesallocated to the Senior Lender Pool;
(b) each General Creditor will, subjectto the below, receive a pari passu distribution ofthe 300,000 New Common Shares allocated to the CanadianCreditor Pool (in the case of General Creditors receivingNew Common Shares under the Canadian Plan) or the 1,500,000New Common Shares allocated to the U.S. Creditor Pool (inthe case of General Creditors receiving New Common Sharesunder the U.S. Plan);
(c) each General Creditor with a distributionclaim of greater than U.S.$100,000 and who makes a LumpSum Election (as defined in the Plans) will, subject tothe availability of sufficient funds, receive cash in lieuof New Common Shares equal to the amount such General Creditorwould otherwise be entitled to receive under the Plans;
(d) each General Creditor with a claim ofU.S.$100,000 or less will be deemed to have made a LumpSum Election and will receive cash rather than New CommonShares;
(e) each General Creditor under the U.S.Plan will receive a percentage of certain U.S. preferencerecoveries, which are only available under U.S. law; and
(f) certain Employees will receive New CommonShares from the 1,125,000 New Common Shares allocated tothe Employee Pool, or options to acquire same (the "ArrangementOptions"). In addition, certain Employees and outsidedirectors of Holdings will be granted stock options of Holdingsunder the 2002 Long Term Incentive and Share Award Planreferred to in the Plans, and New Common Shares will beconditionally allotted and reserved for issuance to theEmployees and outside directors upon the exercise of suchoptions. The allocation and eligibility, if any, of eachEmployee or outside director for such New Common Sharesand options is to be determined.
24. The formal valuation, minority approvaland related requirements of OSC Rule 61-501 Insider Bids,Issuer Bids, Going Private Transactions and Related PartyTransactions and Québec Securities Commission LocalPolicy Statement Q-27 Requirements for Minority SecurityHolders Protection in Certain Transactions do not applyto the reorganization to be effected pursuant to the Plans.
25. Holdings intends to rely on exemptionsprovided under the U.S. Bankruptcy Code and exemptionsset out in section 3(a)(10) of the United States SecuritiesAct of 1933 (the "1933 Act"), so that the securitiesto be issued to creditors in the United States under the U.S.Plan and the Canadian Plan, respectively, will not be requiredto be registered under the 1933 Act. Holdings has been advisedthat the resale of such securities in the United States willnot be subject to any restriction under U.S. federal securitieslaws, except in respect of any recipients who constitute "underwriters"within the meaning of the U.S. Bankruptcy Code.
26. Holdings intends, after implementationof the Plans, to exercise its right to repurchase the fractionalNew Common Share held by 360, so that 360 itself will no longerbe an affiliate of any company of the 360 group.
27. As a result of the implementation of thePlans, Holdings will replace 360 as the ultimate parent companyin the corporate structure of the 360 group of companies.
28. The steps of implementation of the Plansinvolve or may involve a number of trades of securities inthe Jurisdictions (all such trades under and in connectionwith the Plans, the "Trades").
29. There may be no exemptions from the ProspectusRequirement and the Registration Requirement in the Legislationof certain of the Jurisdictions in respect of certain of theTrades.
30. The Filer has been advised that the implementationof the Plans is necessary for the business of the 360 groupof companies to continue as a going concern.
AND WHEREAS under the System, this MRRSDecision Document evidences the decision of each Decision Maker(collectively, the "Decision");
AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Maker with the jurisdiction to make theDecision has been met;
THE DECISION of the Decision Makers underthe Legislation is that:
1. except in British Columbia, the RegistrationRequirement and the Prospectus Requirement shall not applyto the Trades, provided that the first trade in securitiesacquired under or in connection with the Plans in a Jurisdictionshall be deemed to be a distribution or primary distributionto the public under the Legislation of such Jurisdiction;and
2. the Prospectus Requirement shall not applyto the first trade in securities acquired under or in connectionwith the Plans or to the first trade in securities acquiredupon the exercise of the Arrangement Options if
(a) except in Québec, the conditionsin subsections (3) or (4) of section 2.6 or subsections(2) or (3) of section 2.8 of Multilateral Instrument 45-102Resale of Securities ("MI 45-102") aresatisfied; and provided further that the requirement containedin paragraphs 2.6(3)1., 2.6(4)1., 2.8(2)1. and 2.8(3)1 ofMI 45-102 that the issuer have been a reporting issuer fora specified period of time prior to the trade shall notapply to such first trade if, on or before the date of suchfirst trade, the issuer shall have filed a (final) prospectuswith, and received a (final) receipt from, one or more ofthe Decision Makers; and
(b) in Québec,
(i) the issuer is a reporting issuer inQuébec,
(ii) no unusual effort is made to preparethe market or to create a demand for the securities thatare the subject of the trade,
(iii) no extraordinary commission or considerationis paid to a person or company in respect of the trade,and
(iv) if the selling shareholder is aninsider or officer of the issuer, the selling shareholderhas no reasonable grounds to believe that the issuer isin default of securities legislation.
October 25th, 2002.
"R.W. Korthals" "H.P. Hands"