Securities Law & Instruments

Headnote

Section 144 -- application for variation of cease trade order -- issuer cease traded due to failure to file with the Commission annual financial statements -- issuer has applied for a variation of the cease trade order to permit the issuer to proceed with a private placement -- potential investors to be accredited investors and to receive copy of cease trade order and partial revocation order prior to making investment decision -- partial revocation granted subject to conditions.

Applicable Legislative Provisions

Securities Act, R.S.O., c. S.5, as am., ss. 127, 144.

National Instrument 45-106 Prospectus and Registration Exemptions.

IN THE MATTER OF

THE SECURITIES ACT,

R.S.O. 1990, c. S.5, AS AMENDED

(the "Act")

AND

IN THE MATTER OF

REDLINE COMMUNICATIONS GROUP INC.

ORDER

(Section 144)

WHEREAS the securities of Redline Communications Group Inc. (the "Applicant") are subject to a temporary cease trade order made by the Director dated June 11, 2010 under paragraph 2 of subsection 127(1) and subsection 127(5) of the Act and a further cease trade order issued by the Director on June 23, 2010 pursuant to subsection 127(1) of the Act (together, the "Cease Trade Order") directing that the trading in securities of the Applicant cease until further order by the Director;

AND WHEREAS the Applicant has applied (the "Application") to the Ontario Securities Commission (the "Commission") pursuant to section 144 of the Act for a partial revocation of the Cease Trade Order;

AND WHEREAS the Applicant has represented to the Commission that:

1. The Applicant was incorporated under the laws of Canada on September 14, 2007.

2. The Applicant's registered office and principal place of business is located at 302 Town Centre Boulevard, Suite 100, Markham, Ontario, Canada, L3R 0E8.

3. As at the date hereof, the authorized capital of the Applicant consists of an unlimited number of common shares (the "Common Shares") of which 17,540,542 are issued and outstanding. As at the date hereof, 3,741,067 of Class A Common Stock in the capital of Redline Communications, Inc., a subsidiary of the Applicant, are exchangeable on a one-for-one basis for no additional consideration for an additional 3,741,067 Common Shares.

4. The Applicant is a reporting issuer or the equivalent thereof in each province and territory of Canada.

5. The Applicant does not have any securities listed or quoted on any exchange or market in Canada or elsewhere, other than the Common Shares which are listed for trading on the Toronto Stock Exchange under the symbol "RDL".

6. The Cease Trade Order was issued as a result of the failure of the Applicant to file, in accordance with applicable securities laws, audited annual financial statements and related management's discussion and analysis for the period ending December 31, 2009 (the "2009 Annual Filings"), interim financial statements and related management's discussion and analysis for the three-month period ended March 31, 2010 (the "2010 Q1 Interim Filings") and certification of the foregoing filings as required by National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings (collectively with the 2009 Annual Filings and the 2010 Q1 Interim Filings, the "Required Documents").

7. The Applicant's failure to file the Required Documents is a result of an internal review which revealed the Applicant may not have been following proper revenue recognition accounting principles. If the Applicant cannot proceed with the Financing (as defined below), it is likely that the Applicant will not be able to continue its operations.

8. In addition to the Cease Trade Order, the securities of the Applicant are subject to the following cease trade orders:

(a) an order issued by the Autorité des marchés financiers on June 11, 2010;

(b) an order issued by the British Columbia Securities Commission on June 15, 2010; and

(c) an order issued by the Manitoba Securities Commission on June 18, 2010.

9. The Applicant intends to pursue a private placement of convertible securities (the "Financing") to raise up to $5 million to allow the Applicant to fund operations, and to satisfy certain outstanding debts, filing fees and other expenses as described more fully in paragraph 13 below. The Financing will be conducted on a prospectus exempt basis with subscribers who are accredited investors (as such term is defined in National Instrument 45-106 Prospectus and Registration Exemptions) resident in Quebec and Ontario only (each a "Potential Investor").

10. The Financing will entail a private placement of convertible debentures (the "Securities") for aggregate proceeds of up to $5 million on terms that will be negotiated with the subscribers who are interested in participating in the Financing.

11. Prior to the issuance of the Cease Trade Order, Telemedia Ventures Inc., an insider of the Applicant, had indicated to the Applicant its willingness to participate in any financing of the Applicant should one be necessary to fund the short-term working capital requirements.

12. If a related party, such as Telemedia Ventures Inc., participates in the Financing, the Financing would constitute a related party transaction within the meaning of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions ("MI 61-101") and the Applicant intends to rely on the financial hardship exemption under MI 61-101.

13. The proceeds of the Financing are estimated to be applied as follows:

a.

Fees and penalties for past late filing of Required Documents

 

$25,000

 

b.

Employee salaries

 

$1,900,000

 

c.

Professional fees related to the internal review of revenue

 

$750,000

 

recognition issues

 

 

 

d.

Amounts payable to suppliers and other costs of day-to-day

 

$2,000,000

 

operations

 

 

 

e.

Professional fees related to the restatement of financial

 

$250,000

 

statements

 

 

 

f.

Professional fees related to the Financing and application for

 

$75,000

 

revocation of the cease trade orders applicable to the Applicant

 

 

 

 

Total

 

$5,000,000

14. The Applicant believes that the proceeds of the Financing will be sufficient to bring its continuous disclosure obligations up to date and pay all related outstanding fees.

15. As the Financing would involve a trade of securities and acts in furtherance of trades, the Financing could not be completed without a partial revocation of the Cease Trade Order.

16. The Financing will be completed in accordance with all applicable laws.

17. Prior to the completion of the Financing, each Potential Investor resident in Ontario will:

(a) receive:

i. a copy of the Cease Trade Order; and

ii. a copy of the order for the partial revocation of the Cease Trade Order for which this application has been made;

(b) provide signed and dated acknowledgements which clearly state that all of the Applicant's securities, including the Securities issued in connection with the Financing, will remain subject to the Cease Trader Order, and that the issuance of a partial revocation order does not guarantee the issuance of a full revocation order in the future.

18. The Applicant is not in default of any requirements of the Cease Trade Order or the Act or the rules and regulations made pursuant thereto, subject to the deficiencies outlined in paragraph 6 above.

19. Upon issuance of this Order, the Applicant will issue a press release announcing this Order and will issue a press release and file a material change report upon consummation of a Financing.

20. The Applicant intends to file the Required Documents on SEDAR within a reasonable time following the completion of the Financing to bring its continuous disclosure record up to date.

21. Following the filing of the Required Documents, the Applicant intends to apply to Commission and to the other applicable securities regulatory authorities for a full revocation of, respectively, the Cease Trade Order and the cease trade orders described in paragraph 8 above.

22. The Applicant is taking all necessary actions to obtain relief for failure to hold its 2010 annual general meeting within the time periods required by the Canada Business Corporations Act.

23. The Applicant is not considering, nor is it involved in any discussion relating to a reverse take-over, merger, amalgamation or other form of combination or transaction similar to any of the foregoing.

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

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

IT IS ORDERED that the Cease Trade Order is partially revoked solely to permit trades and acts in furtherance of trades in securities of the Applicant that are necessary for and in connection with the Financing, provided that:

1. prior to the completion of the Financing, each Potential Investor resident in Ontario will:

(a) receive:

i. a copy of the Cease Trade Order; and

ii. a copy of the order for the partial revocation of the Cease Trade Order for which this application has been made;

(b) provide signed and dated acknowledgements which clearly state that all of the Applicant's securities, including the Securities issued in connection with the Financing, will remain subject to the Cease Trader Order, and that the issuance of a partial revocation order does not guarantee the issuance of a full revocation order in the future;

2. the Applicant undertakes to make available copies of the written acknowledgements referred to in paragraph 1(b) to staff of the Commission on request; and

3. this Order will terminate on the earlier of the closing of the Financing and 60 days from the date hereof.

DATED June 29, 2010

"Jo-Anne Matear"
Assistant Manager, Corporate Finance
Ontario Securities Commission