About four years after the $80-million sale of its major asset, about three years after a proxy battle that saw the incumbents thrown out and millions of dollars in legal bills, a resolution of the issues at Unique Broadband Systems and its subsidiary Look Communications still has not been reached.
That resolution is also made more difficult because of the different decisions made by a number of judges on basically the same set of facts. Those facts relate to the amount ? and the process used to determine those amounts ? following the sale of Look?s spectrum assets.
It is in that context that this week?s ruling by Madame Justice Mesbur of the Ontario Superior Court of Justice has to be seen. At one level the decision is a vindication for the new management team at UBS given that Justice Mesbur ruled that the company?s former board breached its fiduciary duty.
?The compensation committee was not independent. The board was conflicted,? wrote Justice Mesbur. ?The board failed to consider the interests of shareholders when it came to its decisions concerning the [stock appreciation rights] SAR cancellation pool and the deferred bonus pool.?
Given that breach of trust, Justice Mesbur wrote that she agreed with an earlier decision by Justice Lax who ?determined that the appropriate remedy for the breaches there was to set aside the agreement that resulted from the decision taken in breach of those duties. It seems to me that the same remedy should apply here.? Accordingly she ruled that the SAR cancellation award and deferred bonus award in favour of Gerald McGoey, its former chief executive, be set aside.
That decision contradicts an earlier ruling by Justice Marocco who determined that UBS must honour its indemnity obligations in favour of Mr. McGoey/Jolian.
Justice Mesbur wrote that ?given my findings that Mr. McGoey breached his fiduciary duties to UBS in relation to setting the enhanced benefits for himself, I must conclude UBS has no obligation to indemnify. Any money UBS has paid on this account must be repaid.?
But Justice Mesbur wasn?t done with the matters at hand. While ruling that the board breached its fiduciary duty, she determined that Mr. McGoey was entitled to a payment because he was terminated without cause.
And the cause was unusual given that it extended to Mr. McGoey ?not being elected to the board and appointed CEO.? While that feature had been part of Mr. McGoey?s contract with UBS since 2002, it was not disclosed until May 2010, or just prior to the proxy fight reached its peak at the annual meeting.
?On a plain reading of the Jolian Management Services Agreement [Jolian was a company controlled by Mr. McGoey] he was thus, by definition, terminated without cause. As a result, he is entitled to his enhanced termination benefits [set at three times his annual compensation] unless there has been a Jolian default or some other reason to deprive him of them.?
Justice Mesbur could find neither a Jolian default nor another reason.
So who won?
Given that Mr. McGoey is set to receive his termination without cause monies (which could be around $3-million) he did well. Whether he will collect any is a moot point given that UBS has been operating under CCAA for almost two years. (As a result of this week?s decision he is UBS?s largest creditor.)
But he didn?t so as well as he had originally anticipated given that he was seeking $9.5-million, an amount revised down to $5.8-million.
For its part, UBS, which hasn?t paid any money to McGoey, now must come up with about $3-million.
But in legal matters the finishing line can be far into the future. Accordingly UBS could appeal given that it believes Mr. McGoey is entitled to nothing.
Meanwhile there is developments on other UBS/Look issues.
Next Monday lawyers will be back in court on a related matter: an appeal from a decision made in a ruling that was in favour of LOOK Communications and against Mr. McGoey and some former insiders. That company originally made made large payments to the insiders ? but that decision was overturned late last year by Justice Laurence Pattillo. The reason: Justice Pattillo determined that behavior by insiders was not proper enough to have their legal bills aid. And Justice Pattillo used a high standard in making that ruling:?Look ?must establish a strong prima facie case that the applicants acted mala fides towards the corporation. That is, it must establish on the evidence that it is likely to succeed at trial.?
Given the time taken so far and the mixed messages received, it?s a tough call on when the mess will end. But there may be a natural end as at some stage, UBS will be out of cash.
For its part, Look is working on completing a change of business transaction: the acquisition of Sunwave Gas & Power Inc. a Toronto-based privately-held provider of innovative energy commodity products and services. At the same time, Look is seeking to raise another $9-million.
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