EStation Network Services Inc. and New Millennium Venture Fund Inc. - s. 144
Headnote
Section 144 -- partial revocation of cease trade order to permit certain trades of securities to a wholly-owned subsidiary -- issuer is insolvent person under the Bankruptcy and Insolvency Act (Canada) -- partial revocation to facilitate foreclosure by applicant upon the assets of the issuer.
Statutes Cited
Securities Act, R.S.O., c. S.5, as am., s. 127 and s. 144.
Personal Property Security Act, R.S.O., c. P.10, as am.
Bankruptcy and Insolvency Act, R.S. 1985, c. B-3, as am.
IN THE MATTER OF
THE SECURITIES ACT, R.S.O. 1990,
C.S.5, AS AMENDED (the "Act")
AND
IN THE MATTER OF
ESTATION NETWORK SERVICES INC.
AND
IN THE MATTER OF
NEW MILLENNIUM VENTURE FUND INC.
ORDER
(Section 144)
WHEREAS the securities of EStation Network Services Inc. ("EStation") currently are subject to a temporary order made by the Director on behalf of the Ontario Securities Commission (the "Commission"), pursuant to paragraph 2 of subsection 127(1) and subsection 127(5) of the Act, on May 23, 2003 as extended by a further order of the Director made on June 4, 2003, on behalf of the Commission pursuant to subsection 127(8) of the Act (collectively, the "Cease Trade Order"), directing that trading in securities of EStation cease until the Cease Trade Order is revoked by a further order of revocation;
AND WHEREAS New Millennium Venture Fund Inc. ("New Millennium") has applied to the Director pursuant to section 144 of the Act for an order varying the Cease Trade Order;
AND WHEREAS New Millennium has represented to the Director that:
1. EStation was incorporated under the laws of Ontario and is a reporting issuer under the securities legislation of the provinces of Ontario, British Columbia and Alberta.
2. On October 30, 2001 the name of EStation was changed from EStation.com to EStation Network Services, Inc.
3. EStation is engaged in the development, installation and operation of a network of web-enabled automated seller machines and other self-service devices throughout Canada.
4. On November 25, 2002 EStation had a total of 97,728,575 common shares (the "Common Shares"), 26,996,107 Series B Subscription Receipts, 33,333,333 Series C Subscription Receipts (the "Series C Subscription Receipts") and 40,000,000 special warrants issued and outstanding, 19,658,333 options to acquire Common Shares and 2,000,000 warrants to acquire Common Shares outstanding and a $500,000 7% secured debenture (the "Debenture").
5. On November 25, 2002 all issued and outstanding Series B Subscription Receipts were exchanged for Common Shares on the basis of 1.1 Common Shares for each Series B Subscription Receipt.
6. The Common Shares were suspended from trading on the NEX on or about May 23, 2003.
7. EStation is an insolvent person under the Bankruptcy and Insolvency Act (Canada) (the "BIA").
8. New Millennium was incorporated under the laws of Ontario by articles of incorporation dated November 10, 1999 and amended by articles of amendment dated January 5, 2000, January 6, 2000 and January 18, 2002.
9. New Millennium is registered as a labour sponsored investment fund corporation under the Canada Small Business Investment Funds Act (Ontario) (the "CSBIFA") and is a prescribed labour-sponsored venture capital corporation under the Income Tax Act (Canada).
10. As of the date hereof, New Millennium is the holder of the Series C Subscription Receipts, the Debenture and 25,000,000 special warrants.
11. The Series C Subscription Receipts were issued by EStation to New Millennium on November 23, 2001 in exchange for gross cash consideration of $1,000,000.
12. The Series C Subscription Receipts are governed by the terms of a trust indenture dated as of November 23, 2001 between EStation and Computershare Trust Company of Canada, as trustee (the "Trust Indenture").
13. The Series C Subscription Receipts are secured by way of a floating charge over all of the personal property of EStation (the "Series C Security") pursuant to a security agreement made as of November 23, 2001.
14. The Series C Security became enforceable by New Millennium no later than December 30, 2003 as a result of EStation failing to make payments due to New Millennium under the terms of the Series C Subscription Receipts and having committed certain other events of default under the Trust Indenture.
15. The Debenture was issued by EStation to New Millennium on November 25, 2002 in exchange for cash consideration of $500,000. The Debenture bears interest at the rate of 7% per annum and matured on May 31, 2003.
16. The Debenture is secured by way of a floating charge over all of the personal property of EStation (the "Debenture Security") pursuant to a security agreement dated as of November 25, 2002 (the "Debenture Security Agreement").
17. The Debenture Security became enforceable by New Millennium on May 31, 2003 when EStation failed to pay the amounts due to New Millennium upon maturity of the Debenture (the "Debenture Default"). The Debenture Security has priority over the Series C Security.
18. New Millennium proposes to transfer the Series C Subscription Receipts and the Debenture to a wholly-owned subsidiary of New Millennium ("NewCo") (collectively, the "Subsidiary Trades") and cause NewCo to enforce its rights and remedies under the Series C Security and the Debenture Security by accepting assets of EStation in full satisfaction of EStation's obligations under the Series C Subscription Receipts and the Debenture (the "Foreclosure").
19. The Foreclosure will be carried out in accordance with the Trust Indenture and the Series C Security, the Debenture and the Debenture Security Agreement and applicable law.
20. The Subsidiary Trades will be made in order to realize certain commercial, tax and legal advantages for itself and the business carried on by EStation that result from foreclosure being carried out through a separate legal entity.
21. The Subsidiary Trades will also be made because, as a labour sponsored investment fund corporation under the CSBIFA, New Millennium holds securities representing its investments in businesses, not the assets of the businesses themselves.
22. The Subsidiary Trades will be exempt from the registration and prospectus requirements of the Act pursuant to Section 2.3 of Ontario Securities Commission Rule 45-501 -- Exempt Distributions.
23. The Foreclosure is expected to occur as follows:
(a) NewCo will make a demand on EStation and will deliver to EStation a notice of its intention to enforce its rights under the Series C Security and/or the Debenture Security, in accordance with the BIA;
(b) upon the expiry of a ten day notice period, or earlier with EStation's consent, NewCo will deliver to prescribed parties a notice of its proposal to accept assets of EStation in full satisfaction of EStation's obligations under the Series C Subscription Receipts and/or the Debenture, all in accordance with the Personal Property Security Act (Ontario) (the "PPSA") and the personal property securities laws of any other applicable jurisdiction; and
(c) upon the expiry of a thirty day notice period, and provided that no written objections are delivered by a party entitled to notification of NewCo's proposal, NewCo will accept assets granted by EStation in full satisfaction of EStation's obligations under the Series C Subscription Receipts and/or the Debenture, all in accordance with the PPSA and the personal property securities laws of any other applicable jurisdiction.
24. The Cease Trade Order was issued by the Commission due to the failure of EStation to file its audited annual statement for the year ended December 31, 2002 (the "2002 Filing").
25. EStation is also subject to cease trade orders (collectively, the "Additional Cease Trade Orders") of the British Columbia Securities Commission (the "BCSC") for failure to file its annual audited financial statement for the year ended December 31, 2002 and first quarter interim unaudited financial statements for the period ended March 31, 2003 and the Alberta Securities Commission (the "ASC") for failure to file its annual audited financial statement for the year ended December 31, 2002, first quarter interim unaudited financial statements for the period ended March 31, 2003, and the second quarter interim unaudited financial statements for the period ended June 30, 2003.
26. New Millennium has not applied to the BCSC or the ASC for a partial revocation of the Additional Cease Trade Orders since the Subsidiary Trades will occur in Ontario.
27. Since the issuance of the Cease Trade Order, EStation has not filed with the Commission the 2002 Filing or any subsequent financial statements. As EStation is insolvent, it is not expected at this time that the 2002 Filing or any subsequent financial statements will be prepared or publicly disseminated.
AND UPON the Director 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 is varied solely to permit the Subsidiary Trades.
February 27, 2004.
"Erez Blumberger"