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Shahrzad Rafati, CEO of BroadbandTV Corp., takes part in a panel discussion at the Business Women Leaders Taskforce forum on the sidelines of the G20 Summit in Buenos Aires, Argentina, on Nov. 29, 2018.Sean Kilpatrick/The Canadian Press

The parent of BroadbandTV, which conducted one of 2020′s splashier initial public offerings on the TSX, is running out of money. Its cash balances are dropping, an unnamed stockholder had to give it a $4-million loan earlier this month, and the company warns in its latest financial report that if it doesn’t secure new financing, it’s reasonable to doubt its ability to continue.

All the more disappointing and confounding, then, that the board of BBTV Holdings Inc. BBTV-T – and its shareholders – greenlit a plan this summer to forgive a $2-million loan to its founder and chief executive officer, Shahrzad Rafati. Why did she need the money? Because she used a margin loan to buy stock in the company’s IPO – and the shares plummeted so precipitously that the margin loan got called.

These are ignominious developments for BBTV, which billed its $172-million October, 2020, IPO as the largest in Canadian history by a company with a sole female founder. At the time, Ms. Rafati said the offering meant the company was “breaking important new ground and paving the way for countless women and girls who envision a future with more potential to be leaders.”

That narrative, and Ms. Rafati’s international prominence as a spokeswoman for both Canadian and women’s entrepreneurialism, has obscured the Vancouver-based company’s underwhelming business model.

BBTV provides services to content creators and media companies who want to post videos on sites such as YouTube. While BBTV likes to emphasize growth in “total views,” its revenue is falling. Even when sales were growing, the bulk of that money was owed to the content creators, so the company has operated on razor-thin, or even negative, gross profit margins. Add in its expenses, and BBTV has never posted an operating profit, according to S&P Global Market Intelligence.

Public investors are acting accordingly: The company, valued at more than $300-million at its $16-a-share IPO price, is now worth about $6-million at recent trades of about 30 cents a share.

Bad news for Ms. Rafati, who topped up her controlling, multiple-vote shares by buying $7.5-million worth of common stock in the IPO. To do so, she took out a margin loan from an affiliate of Canadian Imperial Bank of Commerce, whose investment bank served as an underwriter on the IPO. (CIBC spokesperson Tom Wallis declined to comment on a client matter.)

BBTV’s board included three well-known tech entrepreneurs: Hamed Shahbazi, the CEO of Well Health Technologies Corp.; Dragons’ Den star Michele Romanow, who is co-chair of e-commerce financier CFT Clear Finance Technology Corp.; and Ryan Holmes, co-founder and former CEO of Hootsuite Inc. Mr. Holmes left the board on Jan. 18, while Ms. Romanow and Mr. Shahbazi – BBTV’s lead independent director – remain.

Documents filed by BBTV in June reveal the board hatched a plan as early as Nov. 12, 2020 – two weeks after the IPO – to approve a loan to Ms. Rafati in the event her margin loan was ever called. In a margin call, the shares bought with the loan have fallen so much that they are below the value the lender requires as collateral. A new loan from the company would ensure she didn’t sell her shares because, BBTV said, “it would be best if she did not make those sales and further contribute to the volatility of the share price.”

In early 2022, BBTV stock hit $2, and the margin loan was called by the CIBC affiliate. The board subsequently voted in March and May of that year to make $2-million in loans to Ms. Rafati. BBTV disclosed the loans in its June 30, 2022, financial statements, filed that August.

By February of this year, the loan – which carried 8-per-cent annual interest – was still on the books. Ms. Rafati, aided by her professional advisers, proposed a plan: The company would forgive the loan by making a “return of capital” of up to $2.2-million on her multiple-voting shares. (She is the only owner of this class of stock, and common shareholders received no similar return.) The financing technique helped her because she won’t owe any taxes on the forgiveness unless she sells her multiple-voting shares.

In its securities filings, BBTV said its board “felt that it was a fair and just approach to supporting the CEO to settle her company loans without significant adverse tax consequences. This was always described as the ‘right thing to do’ in the discussions amongst the Board to support its CEO.” Ms. Rafati “had demonstrated extensive commitment and support of the company,” accepting stock as repayment for loans she made to the company, not selling stock in the public markets and purchasing debentures in June, 2021. The company also cited her success in raising new capital post-IPO.

Ms. Rafati did not vote on the matter, and the remaining members of the BBTV board are classified as independent directors.

The company declined to respond to a number of questions, but spokesperson Ron Shuttleworth said in an e-mailed statement that the board members who approved the transaction “were free from any conflict of interest with respect to such return of capital and none of these directors received any benefit from the company, either directly or indirectly, for their votes.”

The plan also needed a shareholder blessing, in part because the Toronto Stock Exchange requires approval of a company’s transactions with its insiders when the value of the consideration exceeds 10 per cent of the company’s market capitalization. BBTV calculated the return of capital was equal to 20 per cent of BBTV’s market value at the time.

Did a shareholder rebellion ensue? Call it shareholder indifference.

There were 21 million eligible shares in the vote, as Ms. Rafati had to sit it out. Just 3.7 million votes were cast, however, and the plan passed easily. Mr. Shahbazi himself owns almost 1.3 million shares. (He also bought stock with a margin loan at IPO time but seems to have handled any potential margin call on his own.)

It’s tempting to say that if the shareholders don’t care about the loan-forgiveness plan, neither should we. But it speaks to the judgment of its board and, more broadly, how companies treat celebrity CEOs.

With retail investors who once believed in BBTV’s future completely wiped out and the company struggling to survive, the board felt Ms. Rafati was so crucial that she deserved loan forgiveness worth one-fifth of the entire company’s diminished value. Instead, the board should have taken a hard look at whether BBTV’s only chance for survival requires Ms. Rafati to depart.

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