Order: In the Matter of James H. Ting et al.
R.S.O. 1990, c. S.5, AS AMENDED
AND
IN THE MATTER OF
JAMES H. TING,
FRANK E. HOLMES, CHUCK C. H. TAM,
DOUGLAS A. C. DAVIS and KENNETH C. SMITH
ORDER
(Section 127)
WHEREAS on September 22, 1999, the Ontario Securities Commission (the"Commission") made a temporary order pursuant to subsection 127(5) of the SecuritiesAct, R.S.O. 1990, c. S.5, as amended (the "Act"), that none of the Respondents shall tradein any securities of Semi-Tech Corporation ("Semi-Tech"), The Singer Company N. V.("Singer") and G. M. Pfaff A.G. ("Pfaff"), subject to the terms set out in the order, for aperiod of 15 days from the date of the order (the "Temporary Cease Trading Order");
AND WHEREAS on September 23, 1999 the Commission issued a Notice ofHearing pursuant to subsection 127(9) of the Act;
AND WHEREAS the Commission has reviewed the Statement of Agreed Facts agreed to between Staff of the Commission and the Respondents;
AND WHEREAS the Commission has been advised by Nigel Campbell, counsel forthe Respondents, James H. Ting, Frank E. Holmes and Chuck C. H. Tam, and by PeterGriffin, counsel for the Respondents, Douglas A. C. Davis and Kenneth C. Smith, that theRespondents do not oppose the Commission making a final Order on the same terms asthe Temporary Cease Trading Order;
AND WHEREAS the Commission is of the opinion that it is in the public interest todo so;
IT IS THEREFORE ORDERED pursuant to subsection 127(1) 2. of the Act that:
None of the respondents, James H. Ting, Frank E. Holmes, Chuck C.H. Tam,Douglas A.C. Davis or Kenneth C. Smith shall trade in any securities of Semi-Tech,Singer or Pfaff until:
(a) two full business days following the receipt by the Commission of such filingsas Semi-Tech is required to make pursuant to Ontario securities law; or
(b) further order of the Commission.
October 6th, 1999.
"Howard I. Wetston""Morley P. Carscallen"
"R. Stephen Paddon"
R.S.O. 1990, c. S.5, AS AMENDED
AND
IN THE MATTER OF
JAMES H. TING, FRANK E. HOLMES,
CHUCK C. H. TAM, DOUGLAS A. C. DAVIS and KENNETH C. SMITH
STATEMENT OF AGREED FACTS
The Parties
1. Semi-Tech Corporation ("Semi-Tech") is an Ontario corporation and an Ontarioreporting issuer whose shares are listed on the Toronto Stock Exchange ("TSE").
2. On September 21, 1999, the TSE suspended trading in the shares of Semi-Techindefinitely.
3. Semi-Tech indirectly owns approximately 50% of The Singer Company N.V.("Singer"), which represents approximately 90% of the assets of Semi-Tech.Singer is one of the world's largest manufacturers and distributors of consumersewing machines. Singer is incorporated in the Netherlands Antilles and is listedon the New York Stock Exchange ("NYSE").
4. Singer owns approximately 80% of G. M. Pfaff AG ("Pfaff"), a Germanmanufacturing company involved in the same line of business as Singer. Pfaff islisted on the Frankfurt Stock Exchange.
(i) Ting
5. Ting is the President, CEO and the Chairman of the Board of Semi-Tech.
6. Ting is also the Chairman of the Board of Singer.
(ii) Holmes
7. Holmes is an officer (Executive Vice-President and Secretary) and a director ofSemi-Tech.
8. Holmes is also a director of Singer.
(iii) Tam
9. Tam is an officer (Executive Vice-President) and director of Semi-Tech.
(iv) Smith
10. Smith is a retired professor of engineering. Smith states that he was a director ofSemi-Tech until September 6, 1999, when he advises he submitted his resignationby way of letter dated September 6, 1999. Staff of the Commission are not in aposition to concede or deny that Smith resigned as of that date. The records of theCompanies Branch indicate that Smith is still a director of Semi-Tech. NeitherSmith nor Semi-Tech has previously advised the Commission of any change inSmith's status as a director.
(v) Davis
11. Davis was a director of Semi-Tech up until July 6, 1999, at which time he resigned.Davis advised Semi-Tech that he was resigning as a director of the companyeffective as of that date by way of letter dated July 6, 1999 sent by fax and courieron that date.
12. (for formatting purposes only)
13. Holmes, Davis and Smith each sat on the Audit Committee of Semi-Tech.
Temporary Cease Trading Order, dated September 22, 1999
14. On September 22, 1999, the Commission made the Temporary Cease TradingOrder pursuant to subsection 127(5) of the Securities Act, R.S.O. 1990, c. S.5 (the"Act") prohibiting the respondents from trading in any securities of Semi-Tech,Singer or Pfaff until two full business days following receipt by the Commission ofsuch filings as Semi-Tech is required to make pursuant to Ontario securities law oruntil further order of the Commission.
15. Pursuant to section 127(6) of the Act, the Notice of Hearing and Statement ofAllegations herein was served on the respondents and this hearing wascommenced within fifteen days of the date of the Temporary Case Trading Order.
Grounds for Making and Continuing the terms of the Temporary Cease TradingOrder
16. According to documents filed with the court, the Board of Directors of Semi-Techadopted a resolution approving the filing of a voluntary petition for relief from itscreditors pursuant to Chapter 11 of Title 11 of the United States Code in the UnitedStates Bankruptcy Court for the Southern District of New York.
17. Semi-Tech was required to file its annual audited financial statements for itsfinancial year ending March 31, 1999 on or before August 18, 1999, in accordancewith subsection 78(1) of the Act, which requires a reporting issuer to file its auditedannual financial statements within 140 days of its year end. Semi-Tech's annualaudited financial statements consist essentially of the consolidation of the financialstatements of Singer and the equity accounting of Semi-Tech (Global) CompanyLimited ("Semi-Tech Global") (now known as Akai Holdings Limited), of which Semi-Tech owned approximately 40%.
18. Semi-Tech Global is a Bermuda corporation. Ting is also an officer and director ofSemi-Tech Global.
19. On August 17, 1999, Semi-Tech applied pursuant to paragraph 80(b)(iii) of the Actfor an extension to file its annual audited financial statements. This application wasnot granted. Semi-Tech did not file its annual audited financial statements onAugust 18, 1999 and has not filed these financial statements as of the date of thishearing, October 6, 1999. Further, Semi-Tech has also since failed to comply withits interim filing obligations in respect of its quarterly financial statements, contraryto paragraph 77(1)(b) of the Act.
20. On September 6, 1999, Pfaff commenced insolvency proceedings in Germanyseeking relief from its creditors.
21. On September 7, 1999, Semi-Tech filed a voluntary petition for relief from itscreditors pursuant to Chapter 11 of Title 11 of the United States Code in the UnitedStates Bankruptcy Court for the Southern District of New York.
22. Also on September 7, 1999, Singer announced that the completion of the audit ofits 1998 financial statements would be delayed for an indefinite period of time.Singer stated that the auditors had suspended their work on the audit and that thedetermination as to whether or not the audit would be completed could not be madeat that time. There is therefore currently no assurance that the audit of Singer willever be completed. Semi-Tech stated that it was therefore unable to commit to atime frame for the filing of its (consolidated) audited annual financial statements.
23. Singer's auditors have raised questions about a proposed significant acquisition ofcertain Russian assets by Singer. Singer's auditors have expressed concerns aboutthe accounting treatment of this transaction and, in particular, of the deposit. Onthis issue, Holmes advises that: on December 16, 1997, Singer entered into anagreement to acquire the shares of A/O Concern Podolsk, a closed joint stockcompany organized under the Laws of the Russian Federation. This companyowned and managed the old Singer sewing machine factory built by Singer in the19th century and confiscated by the Russian government after the revolution.Shortly after entering into the agreement, a U.S. $50 million deposit was paidagainst the purchase price, which was to be determined by an independentappraisal. On August 9, 1999, Singer entered into an amended agreement topurchase only certain assets for the agreed price of approximately U.S. $30.6million. The balance of the deposit plus interest (approximately U.S. $23.6 million)was to be returned to Singer according to an agreed upon payment schedule. Notall of the funds were returned to Singer prior to September 12, 1999. Singer'sauditors have been unable to confirm if this transaction constitutes a related partytransaction for accounting purposes. Staff of the Commission are not in a positionto concede or deny the accuracy of this account of the Russian transaction. Singerhas retained outside counsel to conduct a formal investigation into the nature andextent, if any, of any relationships that may exist between the vendor and certainparties including Singer and Semi-Tech Global.
24. On July 27, 1999, prior to the subsequent announcement by Singer on September7, 1999 that the audit of its 1998 financial statements would be delayed indefinitely,Singer issued a press release in respect of the proposed Russian acquisition inwhich it advised that if discussions with the vendor "were not satisfactorily resolvedin the near future the company [Singer] could be required to take an additionalcharge to net income of up to $53 million for the fiscal year 1998".
25. On September 12, 1999, Singer filed a voluntary petition for relief from its creditorspursuant to Chapter 11 of Title 11 of the United States Code in the United StatesBankruptcy Court for the Southern District of New York.
26. As set out above, Semi-Tech is in arrears of its annual and interim filing obligations,contrary to the relevant provisions of the Act. Further, Semi-Tech has not releasedany financial information since the announcements concerning the aforementionedinsolvency proceedings and the suspension of Singer's audit.
27. Singer has released its unaudited results for its year ended January 2, 1999 andits first and second quarters ended March 31 and June 30, 1999. Upon the releaseof the quarterly results on September 7, 1999, Singer announced that there willprobably be adjustments to its year-end results which could affect future periods butdid not specify the magnitude of these adjustments. Semi-Tech Global hasreleased its annual audited results.
28. Due to the failure of Semi-Tech to comply with its annual and interim filingobligations as prescribed by the Act, as well as Semi-Tech's failure to otherwisepublicly disclose any material information in respect of the affairs of Semi-Tech,Singer and Pfaff, it is impossible to determine if any adjustments to the consolidatedfinancial statements of Semi-Tech will be necessary and, if so, the magnitude ofthose adjustments.
Change in Auditors
29. By way of Notice of Change of Auditors, dated June 4, 1998, Semi-Tech advisedthat it was appointing Deloitte & Touche to replace Ernst & Young as its auditors,commencing with the audit of its financial results for its year ending March 31,1998. Deloitte & Touch are also the auditors for Singer. In Semi-Tech's statementfiled in accordance with National Policy #31, Semi-Tech stated that it wasappointing Deloitte & Touche as its auditors because it would be "more efficient andcost effective, and in the best interests of [Semi-Tech]" due to the strongdependence of Semi-Tech's consolidated financial statements on Singer's financialstatements.
30. In accordance with National Policy #31, Semi-Tech's Notice of Change of Auditorswas delivered to both Ernst & Young and Deloitte & Touche, both of whom indicatedin writing that they were in agreement with the statements contained in the Noticeof Change of Auditors.
31. It has since been reported in the media that Ernst & Young asked to be replacedas auditors, citing a "'breakdown in trust' ".
32. As set out above, the new auditors, Deloitte & Touche, have now suspended theiraudit of Singer's 1998 financial statements.
Current Status of Semi-Tech Review
33. Due to the failure of Semi-Tech to file its annual and quarterly financial statementsin accordance with the Act, together with the questions surrounding the change inSemi-Tech's auditors, the concerns raised in respect of the Russian transaction,and the insolvency of Semi-Tech, Singer and Pfaff, Staff of the Commission arecurrently reviewing the affairs of Semi-Tech. At this time, however, Staff of theCommission are not alleging any misconduct whatsoever against Semi-Tech, itsrelated companies or any of the individual respondents.
Final Order Prohibiting trading in any securities on Semi-Tech, Singer and Pfaff
34. By virtue of their capacity as officers and/or directors of Semi-Tech at the materialtimes that the foregoing events were happening or were about to happen and thefailure of Semi-Tech to file its financial statements or to otherwise make publicdisclosure concerning the status of Semi-Tech and its related companies, theRespondents may be in possession of, or have access to, material financialinformation concerning the above-described matters and the affairs of Semi-Techand its related companies which has yet to be publicly disclosed and which maynever be publicly disclosed due to the insolvency of Semi-Tech, Singer and Pfaff.
35. The Respondents therefore do not oppose a final Order prohibiting them fromtrading in any securities of Semi-Tech, Singer and Pfaff on the same terms as theTemporary Cease Trading Order, dated September 22, 1999, and in the same formas Schedule "A" attached hereto.
DATED at Toronto this 6th day of October, 1999.
R.S.O. 1990, c. S.5, AS AMENDED
AND
IN THE MATTER OF
JAMES H. TING,
FRANK E. HOLMES, CHUCK C. H. TAM,
DOUGLAS A. C. DAVIS and KENNETH C. SMITH
ORDER
(Section 127)
WHEREAS on September 22, 1999, the Ontario Securities Commission (the"Commission") made a temporary order pursuant to subsection 127(5) of the SecuritiesAct, R.S.O. 1990, c. S.5, as amended (the "Act"), that none of the Respondents shall tradein any securities of Semi-Tech Corporation ("Semi-Tech"), The Singer Company N. V.("Singer") and G. M. Pfaff A.G. ("Pfaff"), subject to the terms set out in the order, for aperiod of 15 days from the date of the order (the "Temporary Cease Trading Order");
AND WHEREAS on September 23, 1999 the Commission issued a Notice ofHearing pursuant to subsection 127(9) of the Act;
AND WHEREAS the Commission has reviewed the Statement of Agreed Factsagreed to between Staff of the Commission and the Respondents;
AND WHEREAS the Commission has been advised by Nigel Campbell, counsel forthe Respondents, James H. Ting, Frank E. Holmes and Chuck C. H. Tam, and by PeterGriffin, counsel for the Respondents, Douglas A. C. Davis and Kenneth C. Smith, that theRespondents do not oppose the Commission making a final Order on the same terms asthe Temporary Cease Trading Order;
AND WHEREAS the Commission is of the opinion that it is in the public interest todo so;
IT IS THEREFORE ORDERED pursuant to subsection 127(1) 2. of the Act that:
None of the respondents, James H. Ting, Frank E. Holmes, Chuck C.H. Tam,Douglas A.C. Davis or Kenneth C. Smith shall trade in any securities of Semi-Tech,Singer or Pfaff until:
(a) two full business days following the receipt by the Commission of such filingsas Semi-Tech is required to make pursuant to Ontario securities law; or
(b) further order of the Commission.
October 6th, 1999.
"Howard I. Wetston""Morley P. Carscallen"
"R. Stephen Paddon"