ARCHIVED -  Public Notice CRTC 1991-27

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Public Notice

Ottawa, 1 March 1991
Public Notice CRTC 1991-27
Skyline Cablevision Limited
Part of Ottawa and part of the National Capital Region, Ontario- 901088500 - 901089300
In Notice of Public Hearing CRTC 1990-13 dated 28 September 1990, the Commission indicated that it wished to discuss with Skyline Cablevision Limited (Skyline) whether a change of control had occurred without the prior approval of the Commission, contrary to its regulations and policies. This matter was considered at a Public Hearing in the National Capital Region commencing 27 November 1990.
Skyline was authorized to provide cable television service to part of Ottawa in 1965. Control of Skyline has resided with Ottawa-based shareholders, including Mr. Hyman Soloway of Soloway Holdings Limited (SHL), through their participation in a voting trust (the 1967 voting trust) created by a voting trust agreement dated 12 June 1967.
As stated by Mr. Soloway at the public hearing, the purpose of the 1967 voting trust agreement was two-fold. First, the 1967 voting trust provided a convenient mechanism for resolving disputes amongst the Ottawa-based shareholders. Second, the right of first refusal in the 1967 voting trust agreement helped assure that ownership of the shares would remain within the trust.
The 1967 voting trust held 112,000 (74.7%) of Skyline's 150,000 voting shares. No single shareholder ever held a majority of the shares in the 1967 voting trust. Members of the voting trust included SHL, Kamlo Holdings Limited (Kamlo), Shenkman Corporation (Shenkman), Laronel Investment Limited (Laronel), Gabrie Holdings Limited (Gabrie) and Holo Investments Limited (Holo).
After the CRTC approved a share transfer on 24 July 1986 the shares of Skyline were held as follows: Standard Broadcasting Corporation Limited (Standard) held 50,000 non-voting shares and 38,000 voting shares; SHL held 39,411 voting shares; Kamlo held 26,970 voting shares; Shenkman held 6,823 voting shares; Laronel held 20,497 voting shares; Gabrie held 12,545 voting shares; and Holo held 5,754 voting shares. Standard's shares were the only shares not involved in the 1967 voting trust.
The share distribution in Skyline was altered on 17 August 1989. The 38,796 shares held by Holo, Gabrie and Laronel were transferred to SHL, Kamlo and Shenkman, the remaining members of the 1967 voting trust. On the same date, these remaining members of the 1967 voting trust directed that 13,000 of the 38,796 shares be transferred to Rogers Communications Inc. (Rogers). Following this transfer, the shares of Skyline were distributed as follows: Standard held 50,000 non-voting shares and 38,000 voting shares; SHL held 51,590 voting shares; Kamlo held 36,970 voting shares; Rogers held 13,000 voting shares; and Shenkman held 10,440 voting shares.
The three remaining members of the 1967 voting trust (SHL, Kamlo and Shenkman) entered into a new voting trust (the 1989 voting trust) on 17 August 1989. The 1989 voting trust involved all 99,000 shares held by the three members or 66.0% of Skyline's 150,000 voting shares. Of the voting shares within the 1989 voting trust, SHL now held a clear majority with 52.1%. This was the first time that a single shareholder held a majority of shares in either the 1967 voting trust or the 1989 voting trust.
At the public hearing, Mr. Soloway stated that the share transfers of 17 August 1989 "necessitated amendments to the agreement of a housekeeping nature". The Commission, however, expressed concern that these changes would seem to have resulted in a transfer of effective control of Skyline. A primary test of effective control is the legal ability to elect a majority of the Board of Directors of a company, either through the ownership of a majority of voting securities or by a contractual arrangement such as a voting trust.
According to the terms of the 1967 voting trust agreement, "at all elections of directors the Voting Trustees shall [would] vote such shares to elect as directors a number of six (6) individuals constituting not less than fifty percent (50%) of the Board of Directors as now [then] constituted". The 1967 voting trust agreement also stipulated that every shareholder that had deposited shares to the trust representing six percent (6%) of the shares in Skyline could nominate a director. The 1989 voting trust agreement, however, set out new procedures for the nomination and election of directors to the Board.
Specifically, the 1989 voting trust agreement stated both that a majority of Skyline's Board of Directors would be nominated by the two trustees and that "the present directors" would be two nominees of SHL and two nominees of Kamlo. The 1989 voting trust agreement also included a clause stating that if the two voting trustees, Mr. Soloway and Mr. David Loeb, could not agree on a decision required of them, an ordinary resolution duly passed by the shareholders within the trust would bind the trustees to act according to that resolution. An ordinary resolution requires the support of votes representing a majority of shares in the 1989 voting trust.
The Commission notes that, by virtue of SHL holding the majority of the shares within the 1989 voting trust, SHL could carry any such resolution. The Commission further notes that since Mr. Soloway was also one of the two trustees, he could disagree with the other trustee and create a situation that would require an ordinary resolution to bind the trustees. The Commission expressed concern that this clause in the 1989 voting trust agreement, combined with SHL's majority position, could result in SHL appointing a majority of Skyline's Board of Directors once the term of "the present directors" ended.
Mr. Soloway stated at the hearing that once the Commission's concerns were brought to the attention of the members of the trust during the summer of 1990, the 1989 trust agreement was amended retroactively on 1 August 1990. The amendment altered the terms of the 1989 voting trust agreement by requiring that a special resolution supported by votes representing two-thirds of the shares in the trust would be required to issue a binding directive to the trustees.
As Mr. Soloway stated at the public hearing:
 This amendment, which has been filed with the Commission, blocks me from acting unilaterally to break a deadlock.SHL held a majority of the shares in the 1989 voting trust, but not two-thirds of the shares in the 1989 voting trust.
At the public hearing, SHL argued that the language of the 1989 voting trust agreement allowed for the expansion of Skyline's Board of Directors as well as the maintenance of the majority voting position of the Ottawa shareholders. Specifically, legal counsel for SHL, Mr. Gordon Henderson, claimed that the 1989 voting trust agreement meant that "the present directors" nominated by the trustees and forming a majority of the Board of Directors would continue to be nominated by SHL and Kamlo in equal numbers. Mr. Henderson argued that the word "present" was descriptive of the situation at any given time and that the two trustees would continue to have equal representation on the Board of Directors.
SHL also argued that no shareholder in the 1989 voting trust could force any other shareholder in the trust to attend any given meeting of the three shareholders within the trust. According to the 1989 voting trust agreement, a binding resolution could only be passed at a meeting attended by at least two of the three shareholders within the trust. This requirement was said to be an effective block on SHL's ability to carry any ordinary resolution imposing its choice of directors on the other two members of the trust.
More generally, in response to the suggestion that there had been a transfer of control, Mr. Soloway stated at the public hearing that "there was no intention among any of the three shareholders who signed the [1989] agreement to give SHL control of the trust".
Further, Mr. Henderson claimed that any interpretation by the Commission that the 17 August 1989 share transfer and the 1989 voting trust agreement resulted in a transfer of effective control would be a "very technical interpretation".
The Commission has considered the arguments put forth at the hearing, but is of the view that the clear and unambiguous language of the 1989 voting trust agreement should guide the Commission's finding in this matter. In particular, the Commission finds the phrase "the present directors" to mean the directors at the present time. Therefore, there was nothing in the 1989 voting trust agreement guaranteeing that SHL and Kamlo would each nominate an equal number of directors in the future.
The Commission also considers the further assurances clause
in the 1989 voting trust agreement to be relevant. This clause stated that the parties to the agreement would undertake to give full effect to the 1989 voting trust agreement, including causing meetings to be held and resolutions passed. At the public hearing, SHL dismissed this clause as "boiler-plate". In the Commission's view, if attendance at meetings was not considered to be an obligation of the parties to the 1989 voting trust agreement, then the ability of the 1989 trust agreement to act as a dispute resolution mechanism would be effectively undermined.
The Commission further notes that the application of the binding resolution was limited in certain circumstances, but not in relation to the nomination of directors. In particular, the 1989 voting trust agreement did not allow for SHL to support a resolution binding the trustees to authorize payment of bonuses or other financial benefits, without the consent of Kamlo or unless these benefits were paid to all shareholders within the trust on a pro rata basis. The Commission considers this clause to be a recognition of the ability of SHL to carry a binding ordinary resolution. After consideration of all the evidence, a majority of the Commission has determined that due to the increase in its share holdings on 17 August 1989 and the clear terms of the 1989 voting trust agreement entered into on the same day, the majority shareholder within the trust, SHL, was in a position to exercise effective control of Skyline from 17 August 1989 until the retroactive amendment was made on 1 August 1990. A majority of the Commission is of the view that there was a change in effective control of the licensee, and that an application for prior approval of the transfer of control should have been submitted to the Commission.
Further, a majority of the Commission considers that these long-time shareholders ought to have recognized the implications of these transactions in terms of the control of Skyline.
With respect to transfers of control or ownership, the Commission is of the view that the onus is on the applicant to demonstrate to the Commission that the application filed is the best possible proposal under the circumstances and that the transaction is in the public interest. It is Commission practice in such transactions to require the applicant to propose a benefits package to the Commission.
Consistent with its submission that no transfer had occurred in this case, SHL stated that it was not disposed to consider a benefits package until the Commission's determination with respect to the transfer of control issue is rendered.
In light of the Commission's finding that a transfer of control within Skyline has taken place, the Commission, by a majority vote, requires Skyline, within 14 days of the date of this public notice, to submit an application for approval of the transfer of control and to provide to the Commission its proposed benefits commensurate with the size and nature of the transaction.
At the same hearing, the Commission considered an application by Skyline to transfer effective control of the licensee to Rogers. No decision has been rendered with respect to that proposed transfer, pending the Commission's consideration of the benefits package associated with the 1989 transfer of control.
Allan J. Darling
Secretary General

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