Fareport Capital Inc.

Fareport Capital Inc.

September 12, 2005 17:56 ET

Fareport Capital Update

TORONTO, ONTARIO--(CCNMatthews - Sept. 12, 2005) - Fareport Capital Inc (TSX VENTURE:CAB) -

Further to the information disclosed in its news release of August 29, 2005, and in compliance with its obligations pursuant to Ontario Securities Commission ("OSC") Policy 57-603, Fareport Capital Inc. ("Fareport") wishes to update its shareholders and other stakeholders concerning certain corporate governance matters, its proposed restatement of certain financial results, and the conduct of the litigation relating to the matters alleged in the statement of claim issued by Fareport on July 19, 2005 (the "Civil Claim").

Governance Matters

On September 9, 2005, Fareport held a duly constituted meeting of its board of directors (the "Board") with all directors present. At that meeting, the Board approved and ratified the commencement of the Civil Claim against certain former members of management, their associates and their advisors and the retention of Lax O'Sullivan Scott LLP as litigation counsel to the Company, and as litigation counsel to Lou Elmaleh, David Danziger and Michael Rabinovici in their capacity as directors of the Company.

The Board determined that it was not necessary to consider the issue of the ratification of the termination of Robert Donaldson as President of the Company, and of Nikolai Choumekevitch, as it was agreed that these matters were within the scope of the authority of the Company's Chief Executive Officer. Because the parties to the Civil Action had agreed to the provisions of a standstill agreement (described below) including, but not limited to an agreement on the part of the debenture holders to refrain from taking steps to enforce their security interests, the Board deferred the ratification of the cancellation of debentures held by Boulos Holdings, 655947 Ontario Ltd., JMS Capital Corp., Robert Donaldson, Paladin Applied Analytics Inc., 1338733 Ontario Inc., Oakbrook Investments and Paul Pathak / Chitiz Pathak LLP, and the ratification of the cancellation of shares reserved for issuance to these debenture holders. The demand for the resignation of Robert Donaldson as a director was also deferred on the understanding that he, in future meetings of the board, would not participate in any discussions or votes directly or indirectly related to matters arising under the Civil Claim. Mr. Donaldson is no longer involved in the management of Fareport.

Restatement of Financial Results

There have been no changes to the plans announced in our prior news release to generate a restated closing balance for the fiscal year ended July 31, 2003 and re-stated financial results for the fiscal years ended July 31, 2004 and July 31, 2005 (the "Restatement Period"). As previously announced, Fareport will submit these re-stated financial statements for the Restatement Periods, when complete, for subsequent audit by its new external auditors, Segal LLP. Management continues to project that the process of completing the restatement of its historic financial statements for the Restatement Periods and the audit thereof to enable their public release in approximately mid-November, 2005.

As a result of its default, Fareport could, in accordance with Policy 57-603, become subject to a cease trade order pending the release of restated historic financial results and compliance with its financial reporting obligations generally.

Conduct of Litigation and Ongoing Investigations

On September 7, 2005, at a scheduling hearing (the "Application") brought by one of the parties to the Civil Claim, Mr. Justice Campbell of the Ontario Superior Court of Justice, Commercial List, granted Fareport's request to transfer the Civil Claim to the Commercial List to be dealt with together with the Application. Justice Campbell further endorsed all of the terms in a standstill agreement between the parties as proposed by Fareport. The general purpose of the standstill agreement is to restrict the actions of all litigants pending the resolution of the Civil Claim by the courts. As a result, until the Civil Claim is resolved by the courts, the debenture holders who are parties to the Civil Claim are prohibited from taking any further steps to enforce their debentures. Fareport, for its part, is required to provide notice to Robert Donaldson of any future meetings of the boards of directors, and Fareport shall not, except in relation to arm's length parties and in the ordinary course of business, borrow money, enter into contracts or issue securities. Fareport also may not grant options or other equity compensation to its management, and certain options previously granted to management will be surrendered, pending the resolution of the matters before the courts and/or confirmation and approval of the grants by a special meeting of Fareport shareholders. Finally, all the parties to the Application and the Civil Claim, and those directly or indirectly controlling those parties, shall not trade in shares of Fareport pending the resolution of the matters now before the Court. Fareport shall consent to the imposition of a Management Cease Trade Order, if the OSC wishes to impose such an order, pursuant to OSC Policy 57-603 prohibiting present and certain past directors, officers and insiders of Fareport from trading securities of Fareport pending the resolution of the matters before the court.

The Company continues to cooperate and assist with ongoing investigations by securities and other regulators in relation to the matters alleged in the Civil Claim and is similarly committed to co-operating with any criminal investigations into the allegations.

Fareport will provide further updates in these matters in accordance with OSC Policy 57-603 including updates bi-weekly and otherwise as may be appropriate.

Contact Information

  • Fareport Capital Inc.
    Mr. Lou Elmaleh
    Chair and Chief Executive Officer
    (416) 750-1167 x 400