Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions -- application for relief from shareholder meeting, information circular and minority approval requirements contained in Part 4 of MI 61-101 in connection with a business combination -- issuer subject to CCAA proceedings -- for a related party transaction, there is an exemption in MI 61-101 from the shareholder meeting, information circular and minority approval requirements in the context of a court-approved bankruptcy or insolvency transaction; no equivalent exemption exists for a business combination transaction -- court-appointed monitor concluded that holders of issuer's existing equity securities have no economic interest -- CCAA court approved business combination transaction -- CCAA court made aware of provisions of MI 61-101 and did not otherwise require minority approval.

Applicable Legislative Provisions

Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, ss. 4.2, 4.5, 9.1.

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions.


IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, c. S.5, AS AMENDED

AND

IN THE MATTER OF
MULTILATERAL INSTRUMENT 61-101
PROTECTION OF MINORITY SECURITY HOLDERS
IN SPECIAL TRANSACTIONS
(“MI 61-101”)

AND

IN THE MATTER OF
RS TECHNOLOGIES INC.
(the “Filer”)

ORDER
(Section 9.1 of Multilateral Instrument 61-101)



UPON the application (the "Application") of the Filer to the Director of the Ontario Securities Commission (the "Commission") for a decision pursuant to Section 9.1 of MI 61-101 exempting the Filer from the shareholder meeting, information circular and minority approval requirements of Sections 4.2 and 4.5 of MI 61-101 in connection with a proposed business combination transaction involving the Filer (the "Exemptive Relief Sought").

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

AND WHEREAS terms defined in National Instrument 14-101 Definitions have the same meaning in this order, unless otherwise defined in this order;

AND UPON the Filer having represented to the Director that:

1. The Filer is a corporation incorporated under the Business Corporations Act (Alberta) ("ABCA"). The Filer was previously known as "Resin Systems Inc." and in June of 2010 formally changed its name to RS Technologies Inc. The Filer is an ISO 9001:2008 certified company and its core business is the design, engineering and manufacturing of modular composite poles.

2. The Filer's head office and registered office is located at 233 Mayland Place N.E., Calgary, Alberta, T2E 7Z8.

3. The Filer's authorized share capital consists of an unlimited number of common shares ("Common Shares") and unlimited number of preferred shares ("Preferred Shares"). As of August 7, 2013, the Filer had 17,963,864 issued and outstanding Common Shares, 6,666,480 issued and outstanding Preferred Shares and 4,977,586 issued and outstanding warrants. As of August 7, 2013 the Filer also had 10,000 stock options outstanding.

4. The Filer is a reporting issuer in each of the Provinces of Alberta, British Columbia, Ontario and Nova Scotia.

5. The Common Shares were previously listed on the Toronto Stock Exchange ("TSX") until March 29, 2011. On March 30, 2011, the Common Shares were listed for trading on the NEX board of the TSX Venture Exchange ("TSXV"). Effective June 27, 2011, the Common Shares were delisted from the NEX board of the TSXV and have not since traded on a recognized exchange. None of the Filer's securities are currently trading on a recognized exchange.

6. In February 2013, the board of directors of the Filer (the "Board") determined that it was in the best interests of the Filer and its stakeholders that the Filer investigate the option to proceed with proceedings under the Companies Creditors Arrangement Act (Canada) ("CCAA") initiated by the Filer. In order to proceed with such investigation, the Board determined to establish a special committee comprised of certain members of management and certain directors, on behalf of the Board, to identify and engage an appropriate restructuring professional for the Filer to provide advice on responsibilities, options and assist in any potential restructuring, and to develop a recommended course of action if the Board decided to initiate a CCAA proceeding.

7. The Board did not form an independent committee of directors in connection with the CCAA proceedings as it was determined that none of David Werklund, Michael McGee, Ida Melbye-Larsen, Brian Felesky and Jim Gray were independent directors of the Filer for the purposes of CCAA proceedings.

8. On or about February 13, 2013, the Filer engaged FTI Consulting Canada Inc. (the "Monitor") to assist it with considering strategic alternatives in order to address its current financial circumstances and challenges to its operations and to provide independent advice and guidance to the Board.

9. On February 28, 2013, in consultation with the Monitor, the board of directors of the Filer unanimously resolved to direct the Filer to proceed toward making preparations for a filing under the CCAA, if necessary, and to negotiate and finalize agreements and documents necessary for such filing. Subsequent to this resolution, management of the Filer negotiated with Werklund Capital Corporation ("Werklund") and Melbye Skandinavia SA ("Melbye" and together with Werklund, the "Purchasers") to provide support to the Filer in the CCAA proceedings, including potentially participating in the SISP (as defined below) and submitting a form of Credit Bid Purchase Agreement (as defined below).

10. On March 13, 2013, immediately prior to Filing Date (as defined below), Messrs. Brian Felesky, Jim Gray and Paul Giannelia resigned from the board of directors of the Filer. The remaining directors, being Messrs. David Werklund, Michael McGee and Ida Melbye-Larsen (the "Remaining Directors") approved seeking of the Interim Order (as defined below).

11. On March 14, 2013 (the "Filing Date"), the Filer obtained protection from its creditors pursuant to an initial order (the "Initial Order") granted under the CCAA by the Court of Queen's Bench of Alberta (the "Court"). The Monitor was appointed as monitor of the affairs and finances of the Filer pursuant to the Initial Order.

12. As none of the Remaining Directors were independent directors of the Filer for the purposes of the CCAA proceedings, the Monitor, in addition to its prescribed rights and obligations under the CCAA, was empowered pursuant to the Initial Order to, among other things: (a) negotiate, subject to the Court's approval, a form of sale and investor solicitation procedure; (b) assist the Filer in its development of the plan of compromise and arrangement; and (c) have full and complete access to the Filer's property to adequately assess the Filer's property, business and financial affairs and to perform its duties arising under the Initial Order.

13. Pursuant to an affidavit sworn in support of the Initial Order, the President and Chief Executive Officer of the Filer stated that based on current assets and liabilities, the Filer was insolvent as its liabilities exceeded its assets and the Filer was unable to meet its obligations generally as they became due. Pursuant to paragraph 2 of the Initial Order, the Filer was a company to which the CCAA applies. Section 3(1) of the CCAA provides that such Act applies in respect of a debtor company or affiliated debtor companies if the total of claims against the debtor company or affiliated debtor companies, determined in accordance with section 20 of such Act, is more than $5,000,000 or any other amount that is prescribed. A "debtor company" is defined under the CCAA as a company that:

(a) is bankrupt or insolvent,

(b) has committed an act of bankruptcy within the meaning of the Bankruptcy and Insolvency Act (Canada) or is deemed insolvent within the meaning of the Winding-up and Restructuring Act (Canada), whether or not proceedings in respect of the company have been taken under either of those Acts,

(c) has made an authorized assignment or against which a bankruptcy order has been made under the Bankruptcy and Insolvency Act (Canada), or

(d) is in the course of being wound up under the Winding-up and Restructuring Act (Canada) because the company is insolvent.

14. The Initial Order, inter alia, allows the Filer to continue operating as it attempts to develop a restructuring plan by staying, as of the Filing Date, substantially all claims against the Filer, its property and assets and its directors, officers, agents, contractors and employees until April 12, 2013 (the "Stay Period").

15. The Initial Order also authorized the Monitor to enter into interim financing in the form of an interim credit facility (the "Interim Facility") up to a maximum amount of $750,000 to be provided by the Purchasers (each for a 50% interest) in favour of the Filer to finance operations and costs incurred during the proceedings under the CCAA. The Court granted to the Purchasers a super priority charge to secure the obligations of the Filer under the Interim Facility. On June 11, 2013, the Court approved an increase in the maximum amount of the Interim Facility from $750,000 to $2,750,000.

16. On April 11, 2013, June 27, 2013, July 29, 2013 and August 23, 2013 the Court granted further orders extending the Stay Period to June 28, 2013, July 31, 2013, August 31, 2013 and September 13, 2013, respectively.

17. Werklund is a corporation incorporated under the ABCA.

18. Werklund is controlled by David Werklund, the chairman and voting member of the board of directors of the Filer. Michael McGee is a nominee of Werklund and voting member of the board of directors of the Filer.

19. On July 5, 2011, the Filer entered into a secured convertible debenture with Werklund (the "Convertible Debenture") pursuant to which Werklund agreed to extend the Filer a term loan in the aggregate amount of $6,000,000. Under the terms of the Convertible Debenture, Werklund was granted the option (exercisable at any time) to convert all or any portion of the debt outstanding under the Convertible Debenture into Common Shares.

20. Melbye is corporation incorporated under the laws of Norway.

21. Ida Melbye-Larsen is a voting member of the board of directors of the Filer.

22. Pursuant to the terms of a debenture syndication and agency agreement dated August 31, 2012 between the Purchasers, Werklund assigned and transferred to Melbye ownership and control of an undivided 50% interest in the Convertible Debenture, as well as the security and ancillary documents related to the Convertible Debenture. Each of the Purchasers rank equally pari passu with one another and are secured pro rata based on their respective amounts funded to the Filer under the Convertible Debenture. The entire principal amount available under the Convertible Debenture has been fully drawn.

23. Pursuant to the terms of the Convertible Debenture, the Purchasers are entitled to acquire an aggregate of 18,181,818 Common Shares upon conversion of the Convertible Debenture at the conversion price of $0.33 per Common Share, which would represent approximately 50.3% of the outstanding Common Shares. The Convertible Debenture is set to mature on January 5, 2014 and the entire amount of the Convertible Debenture will be due and payable by the Filer on that date.

24. In accordance with the powers granted to it pursuant to the Initial Order and in consultation with the Current Board, the Monitor recommended to the Court that it approve to Monitor, on behalf of the Filer, the entering into of an asset and share purchase agreement among the Filer, as vendor, the Purchasers, as purchasers, and the Monitor (the "Credit Bid Purchase Agreement").

25. On April 11, 2013, the Court (i) approved a sale and investor solicitation procedure ("SISP"), (ii) approved the Credit Bid Purchase Agreement pursuant to which the Purchasers agreed to acquire the business of the Filer in the context of its CCAA proceedings, (iii) designated the Credit Bid Purchase Agreement as the stalking horse bid for the purposes of the SISP, and (iv) authorized and directed the Filer and the Monitor to enter into the Credit Bid Purchase Agreement with the Purchasers and complete the various transactions contemplated thereby in accordance with the terms and conditions of the Credit Bid Purchase Agreement.

26. Pursuant to terms of the SISP, the Monitor carried out phase one of the SISP, the purpose of which was to solicit non-binding indications of interest to purchase all of the assets or shares of the Filer. The Monitor did not receive any qualified non-binding indications of interest by the phase one deadline of May 21, 2013.

27. Conditional on the Monitor not receiving any qualified, non-binding indications of interest pursuant to phase one of the SISP, the Credit Bid Purchase Agreement contemplates the acquisition of the business of the Filer in the context of its CCAA proceedings by the Purchaser (the "Transaction") pursuant to either:

(a) a share purchase, whereby the Filer would sell and issue to the Purchasers all of the newly created Class A shares (the "Purchased Shares") in the capital of the Filer, 50% of which would be registered in the name of Werklund and 50% of which would be registered in the name of Melbye, conditional on, among other things, approval and sanctioning of a plan of compromise and arrangement under the CCAA and the ABCA (the "Share Purchase"); or

(b) an asset purchase, whereby the Purchasers would each purchase an undivided 50% interest in all of the Filer's assets, provided certain conditions are satisfied (the "Asset Purchase").

28. The purchase price payable by the Purchasers under the Credit Bid Purchase Agreement (the "Purchase Price") is the aggregate amounts outstanding under the Convertible Debenture and the Interim Facility, as well as the aggregate of certain obligations of the Filer, including the accrued and unpaid priority payables, unpaid restructuring costs and the amount outstanding under a key employee retention plan. The Purchase Price does not include payment to holders of Common Shares and Preferred Shares (together, the "Existing Equity Securities") as consideration for the cancellation of such securities under a plan of compromise and arrangement.

29. Pursuant to the Credit Bid Purchase Agreement, the determination of whether to proceed by way of the Share Purchase or Asset Purchase depends on whether the conditions precedent set-out in Section 8.4 of the Credit Bid Purchase Agreement have been satisfied (the "Share Purchase Conditions"). If the Share Purchase Conditions have been satisfied prior to closing of the Transaction, the Purchaser will proceed with the Share Purchase; if the Share Purchase Conditions have not been satisfied prior to closing of the Transaction, the Purchasers will proceed with the Asset Purchase (in each case subject to additional closing conditions).

30. The Monitor, in accordance with the powers granted to it pursuant to the Initial Order and in consultation with the Remaining Directors, has made the following determinations:

(a) The Filer is currently insolvent;

(b) The Transaction is in the best interest of the Filer and all its stakeholders;

(c) There are no better alternatives to the Transaction for the Filer and its stakeholders;

(d) No proposal has been made to the Filer by any person pursuant to which its holders of Existing Equity Securities would receive any consideration for their Existing Equity Securities of the Filer;

(e) The Remaining Directors are aware that the shareholder meeting and minority approval requirements prescribed by MI 61-101 are triggered by the Transaction if carried out by way of the Share Purchase, however the Remaining Directors have determined that such requirements should not, in the circumstances, be applicable due to the fact that the Remaining Directors have satisfied themselves that the fair market value of the issued and outstanding Existing Equity Securities of the Filer is nil;

(f) The Remaining Directors will not request or recommend a shareholder meeting or minority approval with respect to the Transaction;

(g) Holders of Existing Equity Securities do not have any economic interest in the outcome of the CCAA proceedings in that they will not receive any consideration for their Existing Equity Securities and therefore their voting interest should not be considered within the context of the Transaction; and

(h) The only viable solution for the Filer and the applicants to emerge from CCAA protection and continue its business that has been presented or proposed is the Transaction.

31. The Fifth Report of the Monitor (the "Fifth Report") contains the Monitor's opinion as to the fair market value of the Filer (the "Liquidation Analysis"). In determining the fair market value of the Filer, the Liquidation Analysis provides the estimated book value and high and low liquidation values of the following assets of the Filer: (i) accounts receivable, (ii) inventories, (iii) machinery and equipment, (iv) building and (v) patents and intellectual property. For certain assets of the Filer, such estimates were based upon third-party appraisals and the unaudited books and records of the Filer. According to the Liquidation Analysis, the Filer had a book value of assets of $10,971,676, an estimated high liquidation value of assets of $4,089,208 and an estimated low liquidation value of assets of $2,496,337. Based on these figures, the Filer does not have sufficient assets to meet its outstanding liabilities, which are estimated to be approximately $21,000,000. Accordingly, the Monitor concluded that the holders of Existing Equity Securities have no economic interest and would recover nil pursuant to the Asset Purchase or in a liquidation.

32. On August 23, 2013, the Monitor obtained an order (the "Meeting Order") from the Court, in accordance with the SISP, providing various relief including, amongst others, authorizing the Monitor to file a plan of compromise and arrangement effecting the Share Purchase (the "Plan") with the Court, convene a meeting (the "Creditors' Meeting") of Affected Creditors (as defined in the Plan), and take steps incidental to the foregoing.

33. The Creditors' Meeting took place a 2:00 p.m. MST on August 29, 2013. Pursuant to Section 6 of the CCAA, a majority in number representing two-thirds in value of creditors present and voting either in person or by proxy at a meeting of creditors is required for the approval of a plan of arrangement or compromise. At the Creditors' Meeting, the Plan was approved by 100% of Affected Creditors voting by proxy.

34. On September 9, 2013, pursuant to an order thereof, the Court sanctioned the Plan. As a result, the Plan binds all Affected Creditors. Pursuant to the Plan, (i) all of the Existing Equity Securities will be deemed to be redeemed and to be fully, finally and irrevocably cancelled and extinguished without any consideration, and (ii) the Purchased Shares shall be issued to the Purchasers in consideration of the Purchase Price.

35. Upon sanction of the Plan by the Court, the Share Purchase Conditions have been either satisfied or waived, with the exception of receipt of this decision of the Decision Maker in respect of the Exemptive Relief Sought herein.

36. The Filer will seek an order from the applicable securities regulatory authorities to cease to be a reporting issuer following completion of the Share Purchase.

37. The Share Purchase will constitute a "business combination" pursuant to the definition of "business combination" of MI 61-101, and therefore the requirements to call a meeting of affected securityholders and send an information circular, obtain a formal valuation, and obtain minority approval under Sections 4.2, 4.3 and 4.5, respectively, of Part IV -- Business Combinations of MI 61-101 ("Part IV") would apply to the Share Purchase.

38. The Filer has not sought exemptive relief from the requirement to obtain a formal valuation in respect of the Share Purchase because it intends to rely on the exemption in section 4.4(a) of MI 61-101 that is available when an issuer's securities are not listed or quoted on certain specified markets.

39. The Asset Purchase would constitute a "related party transaction" pursuant to the definition of "related party transaction" in MI 61-101 and would not constitute a "business combination". As a result, the Asset Purchase would be subject to the requirements under Part V -- Related Party Transactions of MI 61-101 ("Part V"), including the requirements to call a meeting of affected securityholders, send an information circular and obtain minority approval. However, the Asset Purchase would meet the "Bankruptcy, Insolvency, Court Order" exemption set forth in Section 5.7(d) of MI 61-101 from such requirements.

40. Part IV does not contain an equivalent "Bankruptcy, Insolvency, Court Order" exemption from the requirements under Part IV to call a meeting of affected securityholders, send an information circular and to obtain minority approval in connection with a business combination. As a result, if the Purchasers were to proceed by way of Share Purchase, it would be necessary to call a meeting, send an information circular and obtain minority approval, despite the fact that the Purchasers could purchase all of the assets of the Filer by way of Asset Purchase without having to satisfy those requirements.

41. Pursuant to the sixth report of the Monitor dated August 30, 2013 and filed with the Court on September 3, 2013, the Court has been advised of the requirements of MI 61-101 regarding minority approval for business combinations and the application by the Filer to the Decision Maker for a decision under the Legislation for the Exemptive Relief Sought. Pursuant to an order of the Court pronounced September 9, 2013, the Court has confirmed that it does not require compliance with Section 4.5 of MI 61-101.

42. Regardless of whether the Transaction is completed by way of Asset Purchase or Share Purchase, due to the fact that (i) the Filer is insolvent, (ii) the Monitor did not receive any qualified, non-binding indications of interest pursuant to phase one of the SISP, and (iii) the Court authorized and directed the Filer and the Monitor to enter into the Credit Bid Purchase Agreement with the Purchasers and complete the various transactions contemplated thereby in accordance with the terms and conditions of the Credit Bid Purchase Agreement (including the Purchase Price), holders of Existing Equity Securities will not receive anything of value in consideration for their shares. To grant Existing Equity Securities a right to vote in the context of the Share Purchase would be the equivalent of granting Existing Equity Securities a veto over the Transaction, despite the fact that they no longer have an economic interest in the Filer to protect.

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

IT IS DECIDED by the Director pursuant to Section 9.1 of MI 61-101 that the Exemptive Relief Sought is granted provided that the Transaction proceeds by way of Share Purchase as described above.

DATED September 11, 2013.

"Naizam Kanji"
Deputy Director, Corporate Finance
Ontario Securities Commission