Telebackup Systems faces a $1.5-million suit from D. Grant Macdonald
Capital of Vancouver, the private financial advisory and merchant
banking firm owned by Mr. Macdonald, the president of
Vancouver-based brokerage Brink Hudson & Lefever. In a statement of
claim filed Friday in the Supreme Court of British Columbia, Macdonald
Capital claims it is entitled to options on Telebackup's rights offering
last year, based on financial advisory work done. The suit seeks options
for ten per-cent of the value of any financing arranged. Under the rights
offering, Telebackup effectively issued 1.82 million shares at $1.50 and
914,000 warrants, exercisable at $3 per share with a $4 cap.
Macdonald Capital effectively seeks options on 182,000 shares at
$1.50 and 91,400 warrants.
Shares of Telebackup, a star Canadian tech stock this year amid a
weak overall tech stock market, rose 35 cents to $9.50 on the Alberta
Stock Exchange on Monday. The stock, which traded at $4 in mid-July,
has risen from $5.30 on Sept. 1, when Telebackup disclosed a
$10-per-share stock merger offer from Veritas Software. Based on the
current $9.50 share stock price, Macdonald's claimed options are worth
$1.44-million, while the warrants are worth $90,000.
The court dispute traces back to Telebackup's engagement of
Macdonald Capital as its non-exclusive financial advisor on Apr. 25,
1997. Macdonald claims Telebackup agreed to pay it $5,000 per month
plus expenses, a two per-cent commission on all money raised by
third-party underwriters or financiers, a negotiable commission for all
money raised directly and the disputed ten per-cent options. In a
court-filed affidavit, Rick Mark of Vancouver, Macdonald Capital's
former executive vice-president, notes the initial engagement
agreement was signed two weeks after he and Mr. Macdonald met with
Byron Osing, Telebackup's president and chief executive, CFO Lynn
Thurlow and Karsten Nilson, a founding shareholder of Telebackup.
Mr. Osing and Mr. Mark met with a handful of Bay Street finance targets
in early May, 1997, starting with Peter Legault, a director of brokerage
Thomson Kernaghan. Mr. Mark notes that Mr. Legault, a broker with
strong telecommunications experience, already knew telecom industry
consultant Eamon Hoey. Although Mr. Thurlow told Grant Macdonald
Capital in a May 21 letter that Telebackup was "very happy with the
progress made to date," Mr. Osing challenged the ten per-cent options
demand a week later. In a court-filed letter, the Telebackup president
noted he consulted two incoming directors, "very successful" tech
industry veterans. These savvy directors, presumably including Mr.
Hoey, called Macdonald Capital's requests for warrants and options
"completely unreasonable, given standard ASE and TSE guidelines"
according to Mr. Osing.
The dispute between Macdonald Capital and Byron Osing has
simmered ever since. "Have a good weekend and be prepared for
verbal/physical abuse when you meet up with Byron," Mr. Thurlow told
Mr. Mark in a June 13, 1997, fax-memo. An attached outline reviewed a
proposed revised engagement agreement. Mr. Thurlow noted
Telebackup's milestone targets included an initial $1-million private
placement, a $3-million to $5-million Toronto underwriting, completion of
a listing on the TSE and the successful completion of a secondary
public offering and a potential listing on Nasdaq's National Market
System. Telebackup proposed offering options on 160,000 founders'
shares and options for 60,000 more shares from the company itself,
contingent on stipulated performance.
Telebackup formally terminated Macdonald Capital on Nov. 21, 1997,
and stopped paying the $5,000 monthly retainer. Mr. Thurlow reminded
Mr. Mark that Macdonald failed to raise the $1-million private
placement. "The proposed options cannot be granted since they are
performance-based for future services and were not approved by the
board or regulatory bodies. Our legal counsel in fact has informed us
that the Alberta Stock Exchange will never approve the granting of any
options under this agreement," stated Mr. Thurlow in the termination
letter. By this time, Telebackup had paid Macdonald Capital $80,000,
including $55,000 as commission on the $2.75-million rights offering,
which was handled by Thomson Kernaghan. "As the market for our
shares has appreciated considerably, we hope you have also profited
from the sale of whatever shares you have acquired and sold or are
currently holding. We feel this is a generous compensation for the work
performed," stated Mr. Thurlow.
Macdonald also received a further $54,225 in July 1998 on the warrants
portion of the offering, boosting its total fees to $134,000. With
Telebackup's shares now soaring, Macdonald Capital has renewed its
effort to collect on its options demand. Lawyer Robert Taylor of Walsh &
Company seeks unspecified damages and a declaration that
Telebackup has been "unjustly enriched" at the expense of Macdonald
Capital.
(c) Copyright 1998 Canjex Publishing Ltd.
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