Soft Tracks beats Cafik in court
IP Applications' Soft Tracks beats Cafik in court
2005-05-11 14:24 ET - Street Wire
by Stockwatch Business Reporter
Vancouver businesswoman Juliana Cafik can expect a cheque for $1 from IP Applications Inc.'s Soft Tracks Enterprises Ltd. subsidiary. The nominal payment results from a judgment handed down in B.C. Supreme Court dismissing Ms. Cafik's civil complaint that IP Applications underpaid her for her 6.9-per-cent interest in Soft Tracks.
Ms. Cafik's lawsuit
Ms. Cafik, who opposed a bid by IP Applications to buy Soft Tracks from the start, sued on March 11, 2004, after the deal closed despite her objections. She said Soft Tracks was worth $4,653,408, not the $550,000 it was sold for. She said Soft Tracks, when acquired by IP Applications, had $1.16-million in the bank and was expecting $1-million in revenue in the 15 months following the deal.
Ms. Cafik said Soft Tracks' majority shareholders, subsidiaries of the Bank of Nova Scotia and Sasktel, voted in favour of the deal because they would benefit from a joint venture they had with Soft Tracks.
Ms. Cafik sued on behalf of herself, her company (Enterprise Payment Solutions Inc.) and a numbered company controlled by her father. She sought a court-determined value for her Soft Tracks shares, plus legal costs.
Soft Tracks' defence
Soft Tracks, in a defence outline filed in B.C. Supreme Court on Jan. 14, 2005, said Soft Tracks was not worth anything close to the $4,653,408 price tag Ms. Cafik put on the company. The company pointed to an evaluation prepared by KPMG's Michael Bowie valuing Soft Tracks at a much lower $700,000.
Lessening Soft Tracks' worth even further, the company says it owed $200,000 to various creditors, dropping its value to $500,000, or $50,000 less than what IP Applications paid. (The money IP Applications did pay went to Soft Tracks' preferred shareholders, who had top priority on any money up to $1.27-million, and not Ms. Cafik.)
Soft Tracks also pointed out that Ms. Cafik and her company received $26,054 when Soft Tracks sold off its tax losses on Jan. 19, 2004.
Soft Tracks wins
B.C. Supreme Court Justice Ian H. Pitfield, in his April 15 judgment, said there was little evidence to indicate Soft Tracks was worth $4,653,408, as Ms. Cafik had claimed. "I find that the Cafik Group estimate of value to be unreliable and not indicative of the value of the [Soft Tracks] business," wrote Judge Pitfield.
He says Ms. Cafik's evaluation relied heavily on out-of-date numbers prepared by Soft Tracks' management in December, 2003. "In my opinion the management estimate of $2.5 million cannot be relied upon as a reasonable measure of the [Soft Tracks] business. It was a valuation that had not been exposed to the open market," Judge Pitfield wrote.
He said the KMPG evaluation of $700,000 for Soft Tracks was more reliable and up to date.
As for the $1.16-million Soft Tracks had in the bank, Judge Pitfield said the company had several obligations offsetting that amount. "It is not unreasonable to expect that some significant concession on price would be required if those obligations were to be assumed," he wrote.
"In all of the circumstances, I am satisfied that the value of the common shares owned by the Cafik Group and any other dissenter was the nominal, aggregate amount of $1. I fix the total price for the purchase of all shares of New Soft Tracks owned by each dissenter at $1," Judge Pitfield concluded.
IP Applications, which has completed a 1:5 rollback since the Soft Tracks deal closed, lost one cent on Tuesday to close at 44 cents.