Telepanel Systems Inc. - ss. 83, 144

Order

Headnote

Section 144 -- variation of cease trade order to permit a corporate reorganization pursuant to section 191 of the CBCA to proceed, followed by a revocation of the cease trade order upon completion of the reorganization.

Section 83 -- issuer deemed to have ceased to be reporting issuer under the Act.

Applicable Ontario Statutory Provision:

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 1(1), 6(3), 83, 127, 144.

IN THE MATTER OF

THE SECURITIES ACT,

R.S.O. 1990, C. S.5, AS AMENDED (the "Act")

AND

IN THE MATTER OF

TELEPANEL SYSTEMS INC.

 

ORDER

(Sections 83 and 144)

WHEREAS the securities of Telepanel Systems Inc. ("Telepanel") are subject to an order issued by a director (a "Director") of the Ontario Securities Commission (the "Commission") pursuant to paragraph 2 of subsection 127(1) and subsection 127(5) of the Act, dated June 25, 2003 and as extended by a further order issued by a Director dated July 7, 2003 pursuant to subjection 127(8) of the Act (collectively, the "Cease Trade Order") directing that all trading in the securities of Telepanel cease until the Cease Trade Order is revoked by a further order or revocation;

AND WHEREAS Telepanel has applied to the Commission pursuant to sections 83 and 144 of the Act (the "Application") for an order varying the Cease Trade Order to allow the Reorganization (as defined below) to proceed, an order revoking the Cease Trade Order upon the completion of the Reorganization, and an order deeming Telepanel to have ceased to be a reporting issuer under the Act upon the completion of the Reorganization;

AND UPON Telepanel having represented that:

1. Telepanel is a corporation incorporated under the Canada Business Corporations Act (the "CBCA") and is a reporting issuer in British Columbia, Alberta and Ontario (the "Reporting Jurisdictions"). Telepanel is not a reporting issuer in any Canadian jurisdiction other than the Reporting Jurisdictions. Telepanel's head office is located at 10 Compass Court, Toronto, Ontario.

2. Telepanel develops, manufactures and supplies products used in the electronic shelf label industry. Telepanel currently has installations at approximately 60 supermarkets and warehouse chains in North America and continues to support these customers.

3. The authorized share capital of Telepanel consists of an unlimited number of common shares, of which approximately 29 million were outstanding on November 30, 2005 (the "Telepanel Shares").

4. The Telepanel Shares were listed on the Toronto Stock Exchange ("TSX") and quoted on the Nasdaq National Market ("Nasdaq"). The TSX de-listed the Telepanel Shares as a result of Telepanel's failure to meet its listing requirements. Nasdaq also delisted the Telepanel Shares.

5. In the United States, the Telepanel Shares trade only on the over-the-counter Pink Sheets Market under the trading symbol TLSXF. No securities of Telepanel are traded on a marketplace (as defined in National Instrument 21-101 Marketplace Operation) (a "Marketplace") in Canada.

6. The Cease Trade Order was issued due to the failure of Telepanel to file audited financial statements under Part XVIII of the Act for its fiscal year ended January 31, 2003.

7. Securities of Telepanel are currently also subject to cease trade orders issued by the securities regulatory authorities in the provinces of Alberta and British Columbia. Telepanel has applied for orders varying and revoking those cease trade orders as well.

8. Telepanel remains in default of certain continuous disclosure obligations under Ontario securities law in addition to the failure to file audited annual financial statements which resulted in the imposition of the Cease Trade Order.

9. Telepanel is insolvent and currently owes creditors, including secured creditors and trade creditors, more than $20 million.

10. On November 4, 2005, Telepanel and NRT Technologies Corporation ("NRT") entered into an agreement (the "Offer") pursuant to which Telepanel filed a proposal as amended, the "Proposal") for the benefit of its creditors under the Bankruptcy and Insolvency Act (Canada) (the "BIA").

11. The Proposal contemplates, among other things, the reorganization of the share capital of Telepanel under section 191 of the CBCA. As a result of this reorganization, Articles of Reorganization will be filed under the CBCA pursuant to which all of the common shares of Telepanel outstanding as at the effective date of the Proposal (the "Telepanel Shares") will be cancelled and a new class of common shares (the "New Shares") will be created. NRT will then subscribe for one New Share for an aggregate consideration of $1 million. NRT will be the sole shareholder of Telepanel upon completion of the Proposal.

12. NRT is a private company controlled by John Dominelli. NRT and its shareholders are unrelated to Telepanel and its shareholders.

13. The Board of Directors of Telepanel has unanimously determined that the Proposal is in the best interests of Telepanel and has unanimously approved the Offer.

14. Telepanel accepted the Offer because (i) it provides for significant consideration to be paid by NRT, (ii) no other offers were received, and (iii) Telepanel cannot continue to operate indefinitely in its current financial position. The Offer provides the only means by which there will be some recovery for Telepanel's creditors and Telepanel will be able to continue to operate.

15. At a meeting of Telepanel's creditors held on December 1, 2005, the creditors unanimously accepted the Proposal, thus supporting the transaction with NRT even though they will be incurring significant losses.

16. Under the terms of the Proposal, Telepanel shareholders are not entitled to any payment or other compensation with respect to the cancellation of their Telepanel Shares or otherwise, as there is no value in the Telepanel Shares. Evidence of the lack of value of the Telepanel Shares is that secured creditors of Telepanel will be incurring significant losses by approving the Proposal. In addition, shareholders will not have any rights of dissent under section 190 of the CBCA. Section 191(7) of the CBCA specifically provides that shareholders do not have a right of dissent in the context of a proposal under the BIA.

17. Telepanel brought a motion before the Ontario Superior Court of Justice for directions with respect to the type and extent of notice to shareholders of the reorganization of its share capital pursuant to the Offer and the cancellation of the Telepanel Shares contemplated thereby. The Court granted an order that Telepanel post a notice in the form approved by the Court on Telepanel's website and on SEDAR informing shareholders of the transaction and dispensed with any other notice to the shareholders. Those notices were posted on November 18, 2005 and remain posted. Telepanel has not been contacted by any shareholder requesting further information with respect to the reorganization or Proposal since the posting of the notices.

18. The Proposal was approved by order of the Ontario Superior Court of Justice on December 20, 2005. The completion of the transactions contemplated by the Offer and Proposal (the "Reorganization") is expected to occur in January, 2006, subject to satisfaction of the applicable conditions.

19. Upon the completion of the Reorganization, NRT will be the sole shareholder of Telepanel. No securities of Telepanel will be traded on a marketplace (as defined in National Instrument 21-101 Marketplace Operation). Telepanel will have no securities, including debt securities, outstanding other than the one New Share issued to NRT.

20. Telepanel is concurrently seeking an order from the securities regulatory authorities in each of the Reporting Jurisdictions:

(a) that the cease trade order applicable in the Reporting Jurisdiction be partially revoked to permit

(i) the issuance of the New Share to NRT and the cancellation of the Telepanel Shares in connection with the Reorganization with the result that NRT will become the sole shareholder of Telepanel; and

(ii) all other acts in furtherance of the Reorganization that may be considered to fall within the definition of "trade" within the meaning of the Act;

(b) that the cease trade order applicable in the Reporting Jurisdiction be revoked upon NRT becoming the sole shareholder of Telepanel; and

(c) that Telepanel be deemed to cease to be a reporting issuer upon NRT becoming the sole shareholder of Telepanel.

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

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

IT IS ORDERED pursuant to section 144 of the Act that the Cease Trade Order be and is hereby partially revoked to permit:

(i) the issuance of the New Share to NRT and the cancellation of the Telepanel Shares in connection with the Reorganization with the result that NRT will become the sole shareholder of Telepanel; and

(ii) all other acts in furtherance of the Reorganization that may be considered to fall within the definition of "trade" within the meaning of the Act.

IT IS FURTHER ORDERED pursuant to section 144 of the Act that the Cease Trade Order be and is hereby revoked effective upon the completion of the Reorganization and upon NRT becoming the sole shareholder of Telepanel in connection with the Reorganization.

DATED January 10, 2006.

"Charlie MacCready"
Assistant Manager, Corporate Finance

IT IS FURTHER ORDERED pursuant to section 83 of the Act that Telepanel will be deemed to have ceased to be a reporting issuer under the Act upon the completion of the Reorganization and upon NRT becoming the sole shareholder of Telepanel in connection with the Reorganization.

DATED January 10, 2006.

"Paul M. Moore", Q.C.
Vice-Chair
 
"Robert W. Davis", FCA