Transitus Subscription Letter- Case Study
Confidential Memorandum
To: MZ
From: VC
Date: June 27, 1997
Subject: Share Purchase in T.C. Transitus Communications Inc.
Thank you for your interest in purchasing shares in Transitus. I have received your list of questions about the background and plans of Transitus which indicates that you have given this issue careful thought. We have addressed these questions as outlined below. We would be pleased to discuss any of these issues with you directly should you want.
Also attached are the standard Term Sheet and Subscription Form for this share issue under the Seed Capital exemption. Again, if you have any questions on these forms, please call me.
1. Nature of studies behind market projections
There are currently approximately 350,000 licenced cabs in Canada and the USA. The cab top sign industry has been in existence for a number of years. In the New York City area, Van Go has been the leader in the industry. Taxi top signs are well established there as a major medium. Elsewhere in the United States, taxi top signs form part of the out-of-home advertising industry. Essentially, hte out-of-home advertising industry consists of billboards, transit boards (bus boards, inside poster in trams, buses, trains), street posters, mall posters and taxi top signage. Few billboard companies and no taxi top advertising companies have established a national network and , hence, they are unable to offer their advertising clients one stop shopping with a standardised product.
2. Cab identification
Metro Taxi Denver had no deck lights for their vehicles; hence, mounting of the TRANSign presented no reduction in taxi id. Co-op cabs in Toronto mounted heir deck lights on the TRANSign and their drivers report an increase in visibility to the public and increased number of fairs.
3. Other market research
Market research included presentations to taxi companies individually (over 14 individual presentations in Ottawa, Toronto, Miami, New York, Baltimore, Los Angeles) plus introduction of the product at the ITLA Convention in Anaheim where over 120 taxi companies overwhelmingly endorsed the product. The out-of-home advertising business if the fastes growing part of the advertising industry, in part because the numbers of viewings ( and Cost Per Thousand, CPMs) are readily quantifiable and the message is non zappable.
4. Local cab companies
Discussions have been ongoing with Blueline from the beginning of the unit design, as an input to the process. Blueline was formally given a proposal to become a carrier in May 1997. They have asked for some time to review and consider it. A proposal has been given more recently (June 23) to Capital Cabs who are more likely to respond soon and favourably.
Advertising clients are being pre-sold for the Ottawa market already.
5. Committed advertising
The first advertiser was Corel Corporation. They took a multi-city but limited "test" market. Depending on the results, we expect that they will be a significant client. Other committed clients are all in Denver, our launch city. There are currently four signed agreements there, but with new agreements being sold virtually daily. Transitus full-time marketing person (Darren McCartney formerly Ottawa Senators and Coca-Cola) joined just late in May.
6. Ontario Labour Funds
There is no fund involved nor being pursued at this time. Working Ventures was approached early on and given a formal presentation in April, but they declined the opportunity. The reasons given were not related to their assessment of the financial viability of the opportunity.
7. Capital invested by founding and other shareholders
Shareholding in Transitus is detailed in the Term Sheet attached. The founding shareholders (Firestone/Milford and Brazeau/Nu-Tek) have contributed time and other resources rather than cash that appears as Paid Up Capital on Transitus balance sheet. $25,000 in cash has been contributed by Milford. Other cash investments include Hickling Capital Corporation ($125,000), Verne Chant ($40,000), Norm Sisson (VP Operations) ($20,000) and others totalling $35,000.
8. OSC Restrictions and Seed Capital exemption
The Term Sheet and Subscription Form attached address this question. In addition, such a Seed Capital exemption is limited to 25 new investors and these must be closed within a six-month period.
9. Is Transitus a CCPC?
Yes, Transitus is a Canadian Controlled Private Corporation as defined for tax purposes.
10. Founding shareholders and limitations
I am not aware of any specific restrictions on founding shareholders versus Seed Capital or other shareholders. Transitus does have three classes of shares as defined in the Term Sheet and the "founding" shareholders have Class C shares which are somewhat restricted as compared to Class B or Class A in that dividends, if any, must be paid to Class A equal to or greater than dividends paid to Class C.
If and when Transitus "goes public" through an IPO, there would possibly be certain restrictions on "founding" shareholders to be determined and defined in a prospectus.
11. Taxi licences
Taxi licenses number about 350,000. Some fleet owners control as many as 700 to 900 cabs but most are smaller- 80 to 150 vehicles. Some brokers/dispatchers control very few vehicles- they simply provide dispatch services.
12. Cab identification
The results of our Toronto experience suggests that cab id with the TRANSign actually improves. The TRANSign unit was designed as a low profile unit so that the deck lights could be mounted on top and the vehicles would still be less than 72" vertical height.
13. Concessions to cab companies
National Research Council wind tunnel testing has demonstrated that the TRANSign unit is highly aerodynamic; fuel usage is not affected in any significant manner by mounting the TRANSign. Cab owners, brokers, dispatchers all benefit from increased visibility of the vehicle, increased revenues for all parties to share and a hassle free advertising business that generates revenues with no downside.
14. Ontario roadways and MTO
Transitus meets these regulations (see attached correspondence).
15. Other MTO regulations
See attached correspondence.
16. Method of fastening
There are two methods. The standard method is by four stainless steel bolts from the LexanR frame of the unit directly through holes in the cab roof with washers and butterfly nuts inside the cab. An alternate method was developed for Blueline and other taxi companies where drivers own and use their own cars for taxi purposes and for private purposes. This method uses regualr roof mount straps at the eaves trough so the unit can be installed and removed easily.
17. Approval for fastening
The unit will be submitted to UL for their approval. CSA approval was initially requested but put on hold by Transitus in favour of UL since that will be better accepted in the USA and likely other countries. No other approvals are appropriate.
The unit has been tested on a car at high speed on a deserted roadway and in the NRC full-sized wind tunnel (also on a car). Both fastening methods were tested at NRC. No problems were encountered with any aspect of the unit.
18. Insurance implications for cab companies
For the companies we have dealt with so far, their existing insurance coverage has been sufficient to cover any additional risk due to the Transitus unit. We do not expect this aspect to become a significant problem with any company.
19. Approvals in Metro Toronto
Transitus secured the approval and recommendation of the Taxi Licencing Commission for Metro Toronto in April 1997. The Commission recommended that a by-law be passed to permit the use of the unit. This by-law is in process. There is verbal assurance by municipal officers that in the interim, there will be no problems with proceeding.
20. Federal regulations
We have not found any regulations specific to federal roadways relevant to the Transitus unit.
Attachments:
Copies of Correspondence with MTO and NY State Authorities
Term Sheet
Subscription Form
Transitus Wind Down
Case Studies