Court File and Parties

COURT FILE NOS.: CV-19-621515-00CL CV-19-626090-00CL DATE: 20200123 ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST

BETWEEN:

SPACEBRIDGE INC., ADVANTECH AMT CORP., ADVANTECH WIRELES DO BRASIL PRODUTOS DE TELECOMUNICAÇÕES LTDA., ADVANTECH WIRELESS (EMEA) LTDS. and DAVID GELERMAN Applicants

Jason Wadden and Michael Richards, for the Applicants/Respondent

– and –

BAYLIN TECHNOLOGIES INC., ADVANTECH WIRELESS TECHNOLOGIES INC. (formerly BAYLIN TECHNOLOGIES HOLDINGS CANADA INC.), ADVANTECH WIRELESS TECHNOLOGIES (USA) INC., (formerly BAYLIN TECHNOLOGIES (USA) INC.), ADVANTECH WIRELESS TECHNOLOGIES INC. (EMEA) LIMITED), (formerly BAYLIN TECHNOLOGIES (EMEA) LIMITED), 2385796 ONTARIO INC., JEFFREY ROYER, RANDY DEWEY, JANICE DAVIS, BARRY REITER, DONALD SIMMONDS, HAROLD WOLKIN, DAVID SASKA and DAVIES WARD PHILIPS & VINEBERG LLP Respondents

Steve Tenai and Miranda Spence, for the Respondents/Applicants

HEARD: October 29, 2019

AND BETWEEN:

BAYLIN TECHNOLOGIES INC. and 2385796 ONTARIO INC. Applicants – and – DAVID GELERMAN Respondent

l. a. pattillo j. :

Introduction

[1] The Applicants David Gelerman (“Gelerman”) and Spacebridge Inc. (“Spacebridge”) seek the following relief:

a) an order pursuant to s. 248 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (the “OBCA”) to allow Gelerman to complete his term as a director of the Respondent Baylin Technologies Inc. (“Baylin”); and

b) an order providing that share certificates held in trust be released to Spacebridge in accordance with the terms of the Consulting Agreement made January 17, 2018 between Baylin, Spacebridge and Gelerman (the “Consulting Agreement”).

[2] In response, Baylin together with 2385796 Ontario Inc. (“238”) commenced a Cross-Application against Gelerman for a declaration that Gelerman is in breach of Baylin’s Majority Voting Policy, that his conduct in not tendering his resignation as a director of Baylin is oppressive and an order requiring Gelerman to tender his resignation.

[3] Notwithstanding that the relief requested before me is only part of the relief sought against Baylin, 238 and numerous other Respondents in the Gelerman Application, the issues before the court as raised in both the Application and the Cross-Application, deal only with the question of whether Gelerman can continue to remain a director of Baylin for the current term and whether Baylin is entitled to set-off share certificates held in trust pursuant to the asset purchase agreement made as of January 17, 2018, between Baylin and related companies (the “Baylin Group”) and Spacebridge and related companies (the “Spacebridge Group”) (the “APA”) and the Consulting Agreement.

Background

[4] Gelerman is the President and CEO of Spacebridge, formerly Advantech Wireless Inc. Spacebridge is engaged in the business of satellite communication, baseband and VSAT equipment design and manufacturing.

[5] Baylin is a public company listed on the Toronto Stock Exchange (“TSX”) which is in the business of designing, producing and supplying radio frequency equipment.

[6] The Respondent Jeffery Royer (“Royer”) is a member of the Board of Directors and the Chairman of Baylin.

[7] 238 is an Ontario company which is owned by Royer’s wife and owns 16 million shares in Baylin. Royer is its sole director and officer of 238.

[8] Pursuant to the APA, Spacebridge agreed to sell that portion of its business which developed, manufactured and sold satellite and radar radio frequency, terrestrial microwave and antenna equipment and services (the “RF Business”) to Baylin.

[9] The purchase price was comprised of (i) $49 million in cash with $6 million held in an Escrow Account; (ii) $1 million of Baylin common shares; and (iii) earn out payments of up to $6 million over a two-year period.

[10] Paragraph 4.16 of the APA provides as follows:

(a) Subject to Gelerman meeting, at all applicable times, the requirements of the TSX and Applicable Laws, Baylin shall:

i. following the Closing Date request of its board of directors to appoint Gelerman to such board of directors, to hold such position until the first annual general meeting of holders of Baylin Common Shares that occurs following the Closing; and

ii. at each of the 2018 and 2019 annual meetings of holders of Baylin Common Shares, Baylin shall nominate Gelerman for election to its board of directors and shall honestly and in good faith, subject to Applicable Law, assist Gelerman to obtain the votes necessary to secure membership on the board of directors of Baylin,

provided that Gelerman shall immediately resign from the Board and any obligations of the Purchaser or Baylin pursuant to this Section 4.16 shall terminate and fall away immediately, on the sale, transfer or disposition by Advantech OpCo [Spacebridge] of any of the Baylin Common Shares issued to it pursuant to Section 2.9(a).

(b) In the event that Gelerman is appointed or elected to the board of directors of Baylin pursuant to Section 4.16(a), such appointment will be deemed to be on an executive director basis, such that Gelerman shall be deemed not to be independent of Baylin as a result of his former interest in the Business and shall not be entitled to any remuneration paid to non-executive directors.

[11] Article 8 of the APA is entitled Indemnification and Set-Off and provides for indemnities from both the Vendor and the Purchaser to each other. Paragraph 8.8 deals with the right of set-off:

The Purchaser [Baylin] may set-off any indemnification amount to which it may be entitled under this Agreement against amounts otherwise payable by the Purchaser to the Vendors [Spacebridge], if any, by giving notice to the Vendors specifying in reasonable detail the basis of such set-off. The exercise of such right of set-off by the Purchaser in good faith, whether or not ultimately determined to be valid and in accordance with this Agreement, will not constitute an event of default under this Agreement or any other document made in order to carry out the Transactions. Neither the exercise of, nor the failure to exercise, such right of set-off will constitute an election of remedies or limit the Purchaser in any manner in respect of the enforcement of any other remedies that may be available to it.

[12] Also by Agreement made as of January 17, 2018, Baylin, Spacebridge, Gelerman and Stella Gelerman (“Stella)” entered into a Consulting Agreement which provided, among other things, that Spacebridge would provide Consulting Services of Gelerman, in his capacity as Chief Technology Officer and Stella, in her capacity as Special Advisor to Baylin, for a term of two years until December 31, 2019.

[13] Section 3.1 of the Consulting Agreement provides that Baylin shall pay Spacebridge a fee of $1,250,000 per annum for the Consulting Services which shall be paid as follows:

a) by delivery to, or to the direction of the Consultant [Spacebridge] on the final business day of each March, June, September and December that occurs in the 24-month period following the Effective Date, the sum of $156,250; and

b) by delivery to Davies Ward Phillips & Vineberg LLP (“DWPV”), as trustee for the Consultant, on the Effective Date, such number of common shares in the capital of Baylin (the “Baylin Common Shares”) as is equal to:

(1) one million two hundred and fifty thousand dollars ($1,250,000); divided by,

(2) the volume weighted average price of the Baylin Common Shares traded on the facilities of the Toronto Stock Exchange during the five (5) trading day period ending on the last trading day prior to the Effective Date, which shares shall be held by DWPV and released to the Consultant in accordance with Section 3.2.

[14] Section 3.2 of the Consulting Agreement provides:

Restricted Shares. On the date hereof, Baylin shall deliver the Baylin Common Shares referred to in Section 3.1(b) in eight (8) equal parts, each part to be issued on a separate share certificate. The eight (8) share certificates shall be released by DWPV and delivered to the Consultant, as to one certificate in each instance, at each of the Effective Date and thereafter on the final business day of each March, June, September and December that occurs in the 20-month period following the Effective Date.

[15] Following the closing of the APA, in accordance with paragraph 4.16(a)(i) of the APA, Gelerman was appointed to Baylin’s Board of Directors. Further, at Baylin’s 2018 Annual General Meeting held on May 8, 2018, Gelerman was nominated for election to the Board and was elected by the shareholders.

[16] In accordance with the terms of the Consulting Agreement, three of the share certificates held by Davies Ward Phillips Vineberg LLP. (“DWPV”) representing 144,675 shares of Baylin have been released to Spacebridge. No further share certificates have been released by DWPV because Baylin has not agreed to their release.

[17] On May 8, 2019, Baylin’s counsel wrote a letter to Spacebridge advising that as a result of the Baylin Group’s various indemnity claims under the APA, Baylin intended to exercise its right of set-off for the indemnity claims in the APA against any amounts payable to Spacebridge under the Consulting Agreement. The letter was copied to, among others, DWPV.

The TSX Majority Voting Policy

[18] In 2014, the TSX adopted the Majority Voting Requirement Policy (the “Majority Voting Requirement”), the current version of which is set out in subsection 461.3 of the TSX Company Manual and provides, in part, as follows:

Each director of a listed issuer must be elected by a majority (50% + 1 vote) of the votes cast with respect to his or her election other than at contested meetings (“Majority Voting Requirement”).

A listed issuer must adopt a majority voting policy (a “Policy”), unless it otherwise satisfies the Majority Voting Requirement in a manner acceptable to TSX, for example, by applicable statutes, articles, by-laws or other similar instruments. The policy must, substantially, provide for the following:

(a) any director must immediately tender his or her resignation to the board of directors if he or she is not elected by at least a majority (50% + 1 vote) of the votes cast with respect to his or her election;

(b) the board shall determine whether or not to accept the resignation within 90 days after the date of the relevant security holders’ meeting. The board shall accept the resignation absent exceptional circumstances;

(c) the resignation will be effective when accepted by the board;

(d) a director who tenders a resignation pursuant to this Policy will not participate in any meeting of the board or any sub-committee of the board at which the resignation is considered; and

(e) the listed issuer shall promptly issue a news release with the board’s decision, a copy of which must be provided to the TSX. If the board determines not to accept the resignation, the news release must fully state the reasons for that decision.

Listed issuers that are majority controlled are exempted from the Majority Voting Requirement. …

[19] At the time of the APA, Royer exercised control over 60.54% of Baylin’s common shares through his control and direction over 238 as its sole director and officer, and his control over shares held by both his wife and a family trust. As a result, Baylin was exempt from the Majority Voting Requirement.

[20] At the end of June 2018, Baylin acquired Alga Microwave Inc. The acquisition was financed, in part, by the issuance of Baylin common shares. As a result, the shares of Baylin over which Royer exercised control and direction dropped below 50% and it was therefore required to adopt a Majority Voting Policy to implement the Majority Voting Requirement.

Baylin’s Majority Voting Policy

[21] On March 13, 2019, Baylin’s Board approved a Majority Voting Policy (the “Policy”) which provides, in part, as follows:

If a director receives more “withheld” votes than “for” votes at any shareholders meeting where shareholders vote on the uncontested election of directors, the director must immediately submit to the Board his or her resignation, to take effect upon acceptance by the Board. The Board must determine whether or not to accept the resignation within 90 days, during which time an alternate Board member may be appointed. The Board will accept the resignation absent exceptional circumstances that would warrant the applicable director to continue to serve on the Board. Exceptional circumstances are expected to meet a high threshold. In determining whether to accept the resignation, the Board will consider various matters including, but limited to, if: (i) acceptance of the resignation would result in the Company not being compliant with its Articles, By-laws, and securities law requirements regarding the composition of the Board; (ii) the resigning director is a key member of an established active special committee which has a defined term or mandate and accepting the resignation of such director would jeopardize the achievement of the special committee’s mandate; or (iii) majority voting was used for a purpose inconsistent with the policy objectives of the Toronto Stock Exchange. The director under consideration will not participate in any Board or committee meeting relating to his or her potential resignation.

[22] Gelerman was present at the meeting and voted in favour of the Policy.

[23] On March 23, 2019, Barry Reiter (“Reiter”), the Chair of Baylin’s Corporate Governance and Compensation Committee of the Board (the “Committee”) sent Gelerman a letter by email. The letter advised him that while the Committee intends to nominate him for election to the Board at Baylin’s forthcoming Annual Meeting of Shareholders in accordance with paragraph 4.16 of the APA, 238, Baylin’s largest common shareholder, does not intend to vote in favour of his re-election as a director. Gelerman was encouraged to contact 238 (via Royer) to discuss its concerns with him continuing as a director or not stand for re-election or leave matters as they stand.

[24] The March 23rd letter then stated:

We do not wish to speak for 2385796 Ontario Inc. as to its concerns. Mr. Royer is best able to express those concerns on its behalf. However, among other things, we understand that your acknowledged conflict of interest in relation to pending claims between Baylin and Spacebridge and your having raised the potential of material counterclaims by Spacebridge against Baylin is one factor in that shareholder’s reasoning.

[25] Gelerman’s evidence is that he never saw the March 23, 2019 letter until the Annual General Meeting. He said he gets around 400 emails a day and the letter “fell through the cracks.”

[26] In the absence of any response by Gelerman to the March 23rd letter, Aird & Berlis, Baylin’s legal counsel, wrote to Gelerman on April 2, 2019 and after referring to the March 23rd letter stated that unless Gelerman indicated otherwise, Baylin will proceed on the basis that he is willing to let his name stand for election at the upcoming shareholder’s meeting. Gelerman received the April 2 letter but did not respond to it.

[27] The Annual General Meeting of Shareholders of Baylin was held on May 14, 2019 (the “AGM”). Eight nominees, including Gelerman, were proposed by Baylin to be elected to the Board. There were 35 shareholders represented in person or by proxy holding an aggregate of 27,827,923 common shares as at the record date. The Report of the Voting Results as filed on SEDAR stated that all eight nominees were elected to serve office. The results of the vote were as follows:

Matter 1 : Election of Directors

On a vote by way of ballot, each of the eight nominees proposed by management was elected to serve as a director of the Company to hold office for the ensuing year or until their successors are elected or appointed. The numbers in respect of the vote are based on the ballots received:

Nominee	Votes In Favour		Votes Withheld
Jeffrey C. Royer	27,693,333	99.88	33,990	0.12
Randy L. Dewey	27,724,233	99.99	3,090	0.01
Janice Davis	27,725,233	99.99	2,090	0.01
David M. Gelerman	8,077,196	29.13	19,650,127	70.87
Barry J. Reiter	27,722,833	99.98	4,490	0.02
Donald E. Simmonds	26,616,267	95.99	1,111,056	4.01
Harold M. Wolkin	26,585,367	95.88	1,141,956	4.12
David J. Saska	27,721,833	99.98	5,490	0.02

[28] Immediately following the meeting, Gelerman received an email from Reiter in his capacity as Chair of the Committee, advising him that although he’d been duly elected as a director, “more votes were withheld than were voted in favour” of his selection. Reiter requested that, in accordance with Baylin’s Majority Voting Policy, Gelerman submit his resignation as a director and attached a form of resignation.

[29] On the following day, May 15, 2019, in the absence of Gelerman submitting his resignation and the Board considering it, Baylin removed Gelerman’s name as a director from its website and disconnected his access to the software used to provide directors with materials and board packages. Subsequently, on service of the Application, Baylin reversed those decisions.

[30] On May 22, 2019, Gelerman, through his counsel, advised Baylin that he would not be tendering his resignation. Gelerman took the position that the decision by Baylin’s directors to withhold their support for his election was a breach of the APA.

[31] As noted at the outset, while the Applicants’ Notice of Application claims broad relief against Baylin pursuant to the OBCA oppression remedy concerning Baylin’s alleged oppressive conduct in preventing Gelerman from acting as both Chief Technology Officer and as a director, the issues before me concern the narrower question of whether Gelerman is required to tender his resignation as a director following the May 2019 meeting as a result of Baylin’s Majority Voting Policy and whether Baylin is entitled to exercise its right of set-off in the APA to prevent the release of the Baylin shares from trust under the Consulting Agreement.

Position of the Parties

a) Spacebridge and Gelerman

[32] The Applicants allege that Baylin failed to act honestly and in good faith to assist Gelerman in being elected as a director as required by paragraph 4.16 of the APA. They also submit that Royer and the other directors of Baylin acted oppressively in withholding their votes for Gelerman as a director at the May 2019 meeting. Further, they submit that Baylin’s Policy was passed in circumstances which were oppressive.

[33] The Applicants also submit that Baylin has no right or entitlement to set-off the Baylin shares due to Spacebridge in accordance with the terms of the Consulting Agreement.

b) Baylin

[34] Baylin and 238 (and the other shareholders represented by Royer) submit that 238 had an unfettered right to vote their shares as they saw fit. In voting the shares, Royer was acting in the capacity of a shareholder, not a director. Further, Baylin is not in breach of the APA. It nominated Gelerman for re-election as a director and took steps to alert him to the issue in advance of the shareholders meeting, but he did not respond.

[35] Further, Baylin submits that there is nothing oppressive about the introduction of the Policy or its contents. It submits that the Policy follows the TSX requirements and guidance.

[36] Finally, Baylin submits that in light of the indemnifications claims it has commenced under the APA, it is entitled to set-off the share certificates pursuant to s. 8.8 of the APA.

Analysis

1. Resignation

[37] Baylin’s Majority Voting Policy was presented to the Board by Baylin’s outside counsel at the March 13, 2019 Board meeting. Whether legal advice was sought with respect to preparation of the Policy, what legal advice was provided and what legal advice was given to the Board at the meeting and prior to approving the Policy was refused based on solicitor-privilege. Notwithstanding that Gelerman is a director and entitled to such advice, apparently because he seeks it for the purpose of litigation against Baylin, it therefore becomes privileged. The issue was not argued before me.

[38] Gelerman’s evidence, which is not contradicted by Baylin, and which I accept, is that the members of the Board were advised at the March 13, 2019 meeting that the Policy was required by the TSX. Accordingly, in order to ensure Baylin was onside all TSX requirements, Gelerman voted in support of the Policy.

[39] The Policy is not, however, the Majority Voting Requirement required by the TSX or even “substantially” the Majority Voting Requirement required by the TSX. It differs in three material respects: 1) The TSX Requirement refers to the majority of votes cast at the meeting whereas the Policy is not based on votes cast but rather on “withheld votes”; 2) the TSX Requirement does not limit what may constitute “Exceptional Circumstances” which the board must find to not accept the resignation and allow the director to continue whereas the Policy restricts the Board’s determination of Exceptional Circumstances to consideration of three circumstances only; and 3) as will be seen, in restricting the Exceptional Circumstances to the three enumerated circumstances, the Policy excludes the TSX’s specific example of exceptional circumstances concerning “commercial agreements regarding the composition of the Board”.

[40] On March 9, 2017, as a result of a number of deficiencies and inconsistencies in the majority voting policies adopted by companies, the TSX staff issued a notice (2017-0001) (the “Notice”) giving guidance with respect to, among other matters, the Majority Voting Requirement in subsection 461.3 of the TSX Company Manual (the “Manual”).

[41] The Notice states that majority voting was introduced to improve corporate governance standards in Canada by providing a meaningful way for security holders to hold individual directors accountable. It notes that subsection 461.3 of the Manual “requires that each director must be elected by a majority of the votes cast with respect to his or her election.” It makes no mention of withholding votes being acceptable. Indeed, the withholding of one’s vote is equivalent to not voting. A Majority Voting Policy that provides for not voting does not provide a “meaningful way for security holders to hold individual directors accountable.” Simply put, if votes are withheld, they are not cast at the meeting.

[42] With respect to “Exceptional Circumstances”, the Notice states that they are expected to meet a high threshold. It goes on to say that “exceptional circumstances” may include: [My emphasis.]

• the issuer would not be compliant with corporate or securities law requirements, applicable regulations or commercial agreements regarding the composition of the Board as a result of accepting the Subject Director’s resignation;

• the Subject Director is a key member of an established, active Special Committee which has a defined term or mandate (such as a strategic review) and accepting the resignation of such Subject Director would jeopardize the achievement of the Special Committee’s mandate; or

• majority voting was used for a purpose inconsistent with the policy objectives of the Majority Voting Requirement

[43] It is clear from the above that, apart from requiring they meet a high threshold, what constitutes “exceptional circumstances” is not restricted to specific circumstances. The above three circumstances are examples of exceptional circumstances, but they are not the only circumstances which may constitute exceptional circumstances. At best, they constitute guidelines to inform the type of circumstances that would give rise to exceptional circumstances. What constitutes “exceptional circumstances” is a matter for the board’s determination at the time it is considering the director’s resignation.

[44] In the Policy, the “Exceptional Circumstances” are not open and unrestricted as required by the TSX Requirement. Rather, they are restricted to circumstances where acceptance of the resignation would result in Baylin being non-compliant with its articles, by-laws and securities law regarding composition of the Board; where the resigning director is a key member of an established active special committee which has a defined term or mandate and acceptance of the resignation would jeopardize the achievement of the special committee’s mandate; and where majority voting was used for a purpose inconsistent with the policy objectives of the TSX.

[45] While the above restricted circumstances appear at first blush to be similar to the TSX examples, they are not. Notably, in the first example, the exception for non-compliance with commercial agreements dealing with the composition of the board is omitted. Further, Royer testified that the exclusion of the commercial agreements provision was not brought to the attention of the Board at the time that it was passed. There is no evidence of why that example was omitted because Baylin has not produced the background behind the Policy wording and the legal advice it received in respect of it.

[46] Further, the last requirement in the Policy resulting in “exceptional circumstances” talks about a purpose “inconsistent with the policy objectives of the TSX” whereas the TSX example speaks to a policy objective inconsistent with the objectives of the Majority Voting Requirement. Clearly the latter is more focused than Baylin’s Policy.

[47] The oppression remedy in s. 248 of the OBCA provides a remedy for conduct that is oppressive, unfairly prejudicial to or unfairly disregards the interests of the complainant. The touchstone of the remedy is a violation of the complainants’ reasonable expectations: BCE Inc. v. 1976 Debentureholders, 2008 SCC 69.

[48] In deciding an oppression case, the court must undertake two related inquiries: first, does the evidence support the reasonable expectations of the complainant (specifically, is there evidence of the expectations of the complainant and are those expectations objectively reasonable) and, second whether the reasonable expectations were violated by conduct that is oppressive, unfairly prejudicial, or in “unfair disregard”. BCE at paras. 68, 70 and 89.

[49] In the present case, there is no issue that both Gelerman as a director and Spacebridge as a shareholder are complainants within the meaning of s. 248.

[50] The evidence establishes that, among other things, both Spacebridge and Gelerman had an expectation arising from the background leading up to the APA and the terms of the APA itself that Gelerman would be a director of Baylin for the two year period of the earn-out; that Baylin would act honestly and in good faith in assisting him to be elected to the Board for the two years; that the indemnity claims and the earn out would not preclude him from being a director; and that he would only be disqualified from acting as a director if (a) Spacebridge sold, transferred or disposed of certain shares of Baylin that it received in the sale or (b) Gelerman did not meet the TSX requirements or “Applicable Laws” at the time of nomination.

[51] Further, as a director of Baylin, Gelerman had an expectation that Baylin would provide him with all the information necessary in a timely and accurate manner in order to enable him to properly exercise his duties as a director.

[52] In my view, based on the background leading up to the APA and the provisions of the APA, coupled with the general duties of directors, I am satisfied that the above expectations of both Spacebridge and Gelerman are reasonable.

[53] While s. 4.16 of the APA does not require that Gelerman be elected a director for the two-year period, both he and Spacebridge had every reason to expect that given Gelerman’s discussions with Royer before the transaction was completed and Royer’s approval of the transaction representing the then majority shareholders that he would be a director for the period of the earn-out, absent the listed exclusions and that Baylin would act fairly and in good faith in enabling that.

[54] In my view, Baylin’s actions in presenting the Policy to the Board at the March 13, 2019 meeting on the basis that the Policy was required by the TSX was not accurate. Rather, it was misleading and false. It was also a breach of Gelerman’s reasonable expectations as a director and in my view oppressive, unfairly prejudicial to and disregarded his role as a director. The Policy which Gelerman voted for and which the Board passed on March 13th was very clearly not the TSX’s Majority Voting Requirement.

[55] Further, and based on the evidence as a whole, I am satisfied that the reason the Policy was drafted in the manner it was, was to enable the removal of Gelerman as a director of Baylin without running afoul of paragraph 4.16 of the APA. As such its passage was a breach of the Applicants reasonable expectations as found and further was oppressive and unfairly prejudicial to both Spacebridge and Gelerman.

[56] As noted, because Baylin has taken the position that the legal advice concerning the drafting and presentation to the Board is privileged, there is no direct evidence as to the reason or reasons why the Policy was drafted as it was. Nevertheless, I am satisfied that the evidence is sufficient to enable me to draw the inference that the Policy was drafted specifically with the removal of Gelerman in mind.

[57] I refer to the following facts:

• Royer, the Chairman of Baylin, had a general dislike for Gelerman’s approach to being a director;
• The timing of the implementation of the Policy. No question that Baylin was required to implement a Majority Voting Policy. But that requirement arose as a result of the purchase of Alga Microwave at the end of June 2018. The Policy was introduced and approved in March 2019, effectively, given the notice requirements, on the eve of the annual general meeting;
• Baylin has withheld evidence of the reasons for drafting the Policy in the manner it did, contrary to the TSX Majority Voting Requirement;
• The way in which the Policy was introduced to the Board at its March 13, 2019 meeting (i.e. without explanation of the differences from the TSX Majority Voting Requirement);
• The deviation in the wording of the Policy from the TSX Majority Voting Requirement and particularly its reference to votes withheld is consistent, in my view, with wanting to avoid voting against Gelerman to remove him as a director thereby potentially coming in conflict with paragraph 4.16 of the APA;
• The removal of consideration of the “commercial agreements regarding the composition of the Board” example of exceptional circumstances. Baylin submits that deleting the commercial agreements provision was of no consequence because there was no agreement requiring Gelerman to be a director. Whether that is so, or not, the question of whether paragraph 4.16 of the APA resulted in “exceptional circumstances” (particularly given Gelerman’s term on the Board was for the period of the earn-out and only for another year) was a decision for the Board. By implementing the Policy, Baylin took that decision away from the Board, ensuring the issue could not be raised or considered by it;
• The March 23, 2019 letter from Reiter which raised allegations against Gelerman in his role of director which were unfounded. The allegations were of conflict of interest in relation to pending claims between Baylin and Spacebridge and the potential of material counterclaims against Baylin. The claims are Baylin’s indemnification claims under the APA, which Spacebridge has defended and, where appropriate, counter-claimed. Spacebridge has not commenced any separate litigation against Baylin. Further, where actual conflict has arisen at the Board, Gelerman has recused himself;
• Notwithstanding that Gelerman had been elected as a director of Baylin at the AGM and had not submitted his resignation as requested, Baylin removed him as a director from its website two days after the meeting.

[58] Finally, I consider that the Policy is contrary to the purpose of the TSX’s Majority Voting Requirement. As stated in the Notice, the purpose of the TSX Majority Voting Requirement is to provide “a meaningful way for security holders to hold individual directors accountable.” It requires that each director be elected by a majority of the votes cast for him or her. Baylin’s Policy, which provides for security holders to withhold votes, does not meet that purpose. As stated earlier, withholding votes does not hold directors accountable by the votes cast at the meeting.

[59] For the above reasons’ therefore, I find that the Policy is oppressive and unfairly prejudicial and unfairly disregards both Gelerman’s and Spacebridge’s reasonable expectations, specifically in Gelerman remaining a director for the period of the earn-out.

[60] Section 248(3) of the OBCA gives the court a broad discretion in respect of fashioning a remedy for oppression. That discretion is not limitless, however. Any order under s. 248(3) should go no further than necessary to remedy the injustice or unfairness which has been found: Wilson v. Alharayeri, 2017 SCC 39, [2017] 1 S.C.R 1037 at pars. 26 and 27.

[61] In my view, given my finding of oppression in this case, the appropriate remedy is to set aside the Policy. As a result, there is no requirement that Gelerman submit his resignation as a director. Having been elected a director by a majority of the votes cast at the AGM, Gelerman has been properly elected as a director of Baylin until the next annual general meeting. Gelerman’s election complies with TSX’s Majority Voting Requirement.

[62] In light of my conclusions concerning the Policy, I do not intend to deal with the Applicants’ argument that Royer and the other directors of Baylin acted oppressively in withholding their votes for Gelerman as a director at the May 2019 meeting.

2. Set-Off

[63] As noted, Baylin has asserted its right of set-off in the APA in respect of share certificates due to Spacebridge pursuant to the Consulting Agreement as a result of the various indemnity claims it has commenced against the Spacebridge Group under the APA.

[64] The Applicants submit that pursuant to the terms of the Consulting Agreement, Baylin has no entitlement to set-off in respect of the Baylin share certificates and Spacebridge is entitled to their release.

[65] Baylin submits that given that it has commenced indemnification claims under the APA for several million dollars, it is entitled under the terms of the APA to give notice that the share certificates DWPV holds are subject to a right of set-off and may not be released until the indemnification claims are settled, decided or otherwise satisfied.

[66] The right to set-off in para. 8.8 of the APA provides that Baylin may “set-off any indemnification amount to which it may be entitled under this Agreement against amounts otherwise payable by the Purchaser [Baylin} to the Vendors [Spacebridge Group]…”

[67] Based on the above wording and having regard to the wording of para. 8.8 together with the entire APA and the other agreements forming part of the purchaser and sale transaction, I am satisfied that the right to set-off is not limited to amounts payable under the APA but rather encompasses any “amounts otherwise payable” by Baylin to the Spacebridge Group arising from the transaction. That would include amounts payable under the Consulting Agreement.

[68] Section 3.1 of the Consulting Agreement sets out the payment provisions. The $1,250,000 per annum fee for the two-year term is paid two ways. First by the payment to Spacebridge by Baylin of $156,250 quarterly for two years and second by the delivery to DWPV, in trust, of Baylin shares equal to $1,250,000. Further, s. 3.2 sets out the terms as to when DWPV, as trustee, is to release the shares.

[69] In respect of the share portion of the consulting fee under the Consulting Agreement, s. 3.1 specifically provides that the fee “shall be paid” by delivery of the shares to DWPV. Once the shares were delivered to DWPV in trust, that portion of the fee was paid by Baylin. It remained for DWPV to release the shares in accordance with the provisions in s. 3.2.

[70] Accordingly, given that the Baylin shares have been paid, they are not “amounts otherwise payable” as required for set-off in para. 8.8 of the APA. Accordingly, they are not subject to the set-off and DWPV should release the shares in accordance with the terms of s. 3.2 of the Consulting Agreement.

3. The Cross-Application

[71] Given my findings on the Application and the remedy ordered, Baylin and 238’s Cross-Application is dismissed. Having set aside the Policy, Gelerman is not in breach of it and Gelerman’s conduct in not tendering his resignation is not oppressive.

Conclusion

[72] For the above reasons, the Application is allowed in respect of the issues raised. Specifically:

a) Baylin’s Policy is set aside, and a declaration shall issue that Gelerman is entitled to complete his term as a director of Baylin; and

b) The Baylin share certificates held in trust should be released to Spacebridge in accordance with the provisions of s. 3.2 of the Consulting Agreement.

[73] Further, Baylin’s Cross-Application is dismissed in its entirety.

[74] If the parties are not able to agree on costs, they shall submit written cost submissions not exceeding three pages together with Cost Outlines as follows: Spacebridge and Gelerman shall submit their submissions within 15 days of these reasons. Baylin shall submit its submissions 10 days after receipt of the Applicants submissions.

L. A. Pattillo J.

Released: January 23, 2020

COURT FILE NOS.: CV-19-621515-00CL CV-19-626090-00CL DATE: 20200123 ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST

BETWEEN:

SPACEBRIDGE INC., ADVANTECH AMT CORP., ADVANTECH WIRELESS DO BRASIL PRODUTOS DE TELECOMUNICAÇÕES LTDA., ADVANTECH WIRELESS (EMEA) LTDS. and DAVID GELERMAN Applicants - and - BAYLIN TECHNOLOGIES INC., ADVANTECH WIRELESS TECHNOLOGIES INC. (formerly BAYLIN TECHNOLOGIES HOLDINGS CANADA INC.), ADVANTECH WIRELESS TECHNOLOGIES (USA) INC. (formerly BAYLIN TECHNOLOGIES (USA) INC.), ADVANTECH WIRELESS TECHNOLOGIES (EMEA) LIMITED, (formerly BAYLIN TECHNOLOGIES (EMEA) LIMITED), 2385796 ONTARIO INC., JEFFREY ROYER, RANDY DEWEY, JANICE DAVIS, BARRY REITER, DONALD SIMMONDS, HAROLD WOLKIN, DAVID SASKA and DAVIES WARD PHILIPS & VINEBERG LLP Respondents

AND BETWEEN:

BAYLIN TECHNOLOGIES INC. and 2385796 ONTARIO INC. Applicants – and – DAVID GELERMAN Respondent

REASONS FOR JUDGMENT

PATTILLO J.

Released: January 23, 2020