Securities Law & Instruments

Headnote

Mutual Reliance Review System for Exemptive Relief Applications - registration andprospectus relief granted in respect of trades in exchangeable securities of a non-reportingCanadian issuer, common shares of U.S. issuer and grant of various rights made inconnection with a merger involving a non-reporting Canadian issuer and U.S. companieswhere various statutory exemptions are not available for technical reasons; first trade inrespect of trades in common shares of U.S. issuer shall be a distribution unless the U.S.issuer is and has been a reporting issuer for at least twelve months, or, alternatively, thetrade is executed on a stock exchange or market outside of Canada and the market inCanada for such securities is de minimis when first trades are executed.

Applicable Ontario Statutory Provisions

Securities Act, R.S.O. 1990, c.S.5, as am., ss. 25, 35(1)12, 35(1)16, 35(1)17, 53, 72(1)(j),72(1)(k), 73(1)(a), 72(5) and 74(1).


IN THE MATTER OF THE SECURITIES LEGISLATION OF ALBERTA AND ONTARIO

AND

IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF
FARMS.COM, INC., FARMS.COM, LTD., FARMS.COM ULC AND EHARVEST.COM INC.

MRRS DECISION DOCUMENT


WHEREAS the local securities regulatory authority or regulator (the "DecisionMakers") in each of the provinces of Alberta and Ontario (the "Jurisdictions") has receivedan application from Farms.com, Inc. ("Farms N.C."), Farms.com, Ltd. ("Farms"), Farms.comULC ("Farms N.S.") and eHARVEST.com Inc. ("eHarvest") (collectively, the "Filers") for adecision pursuant to the securities legislation of the Jurisdictions (the "Legislation") thatthe prospectus and registration requirements contained in the Legislation shall not applyto the trades in securities made in connection with (i) the combination of the businessesof Farms N.C. and eHarvest (the "Combination") and (ii) the reorganization of the sharecapital of eHarvest (the "Reorganization"), subject to certain terms and conditions;

AND WHEREAS pursuant to the Mutual Reliance Review System for ExemptiveRelief Applications (the "System"), the Ontario Securities Commission is the principalregulator for this application;

AND WHEREAS the Filers have represented to the Decision Makers that:

1. Farms N.C. is a corporation organized under the laws of the State of North Carolinaand is not a reporting issuer under the Legislation.

2. The authorized capital of Farms N.C. consists of 1,000,000 shares of PreferredStock, $.01 par value, and 1,000,000 shares of Non-Voting Common Stock, $.01par value, none of which have been designated or are issued and outstanding, aswell as 3,000,000 shares of Common Stock, $.01 par value, of which 811,143shares (the "Farms N.C. Shares") have been issued and are outstanding and areheld by non-residents of Canada.

3. eHarvest is a corporation organized under the laws of Ontario and is not a reportingissuer under the Legislation.

4. The head office of eHarvest is located at 512 Woolwich Street, Suite 2, Guelph,Ontario.

5. The authorized capital of eHarvest consists of an unlimited number of Class Acommon shares without par value ("eHarvest Shares"), an unlimited number ofClass B common shares, and an unlimited number of preference shares of which(i) 3,354,579 shares have been designated as non-voting Series A PreferredShares (the "Series A Non-Voting Preferred Shares"), (ii) 3,354,579 shares havebeen designated as voting Series A Preferred Shares, (iii) 2,276,349 shares havebeen designated as non-voting Series B Preferred Shares, (iv) 2,276,349 shareshave been designated voting Series B Preferred Shares,(v) 2,081,274 shares havebeen designated as non-voting Series C Preferred Shares, and, (vi) 2,081,274shares have designated as voting Series C Preferred Shares.

6. As at the date hereof, 12,580,000 eHarvest Shares and 3,354,579 Series A Non-Voting Preferred Shares are issued and outstanding, all of which are held by 37residents of Ontario, one resident of Alberta (the "Canadian Shareholders") andfour non-residents of Canada.

7. Prior to the Reorganization, eHarvest will amend its articles of incorporation toauthorize an unlimited number of non-voting exchangeable shares (the"Exchangeable Shares").

8. Farms was incorporated under the laws of the State of Delaware to facilitate theCombination and is not a reporting issuer under the Legislation or subject to thereporting requirements of the United States Securities Exchange Act of 1934.

9. Farms' head office is located at 855 Ridge Lake Blvd., Suite 600, Memphis,Tennessee 38120, U.S.A.

10. As of the date hereof, the authorized capital of Farms consists of 1,000 shares ofcommon stock. Prior to completion of the Combination, Farms will amend itscertificate of incorporation to authorize 5,000,000 shares of Series A PreferredStock, 3,000,000 shares of Series B Preferred Stock, 2,500,000 shares of SeriesC Preferred Stock, 3,000,000 shares of Series D Preferred Stock, 60,000,000shares of Series E-1 Preferred Stock, 60,000,000 shares of Series E-2 PreferredStock, 100,000,000 shares of Class A common stock (the "Farms Stock"),100,000,000 shares of Class B common stock and one share of special voting stock(the "Farms Special Voting Share").

11. Farms N.S. is an unlimited liability company organized under the laws of theProvince of Nova Scotia and is not a reporting issuer under the Legislation.

12. Farms N.S.'s head office is located at 512 Woolwich Street, Suite 2, Guelph,Ontario.

13. The authorized capital of Farms N.S. consists of an unlimited number of commonshares and preference shares, of which one hundred common shares of Farms N.S.are issued and outstanding and held beneficially and of record by Farms.

14. Pursuant to the Combination, Farms N.C. and eHarvest will become subsidiariesof Farms. The Combination is to be effected by (i) Farms issuing Farms Stock toshareholders of Farms N.C. in exchange for the outstanding Farms N.C. Sharesheld by such shareholders such that Farms N.C. will become a wholly-ownedsubsidiary of Farms and (ii) Farms acquiring a portion of the eHarvest Shares inexchange for Series E-2 Preferred Shares of Farms, Farms acquiring theoutstanding eHarvest Series A Non-Voting Preferred Shares in exchange for anidentical number of Series A Preferred Shares of Farms and the remaining eHarvestShares being exchanged into Exchangeable Shares such that Farms will own allof the voting shares of eHarvest.

15. Concurrently with the closing of the Combination, the Reorganization is proposedto be effected by the creation of the Exchangeable Shares and by the CanadianShareholders (except the Founding Shareholders (as defined below)) selling,pursuant to a purchase and sale agreement, all their eHarvest Shares to eHarvestand receiving an equal number of Exchangeable Shares. The non-residents ofCanada who hold common shares of eHarvest will, at their election, (i) sell all theireHarvest Shares directly to Farms for an equal number of shares of Farms Stockor (ii) sell all their of eHarvest Shares to eHarvest in exchange for an equal numberof Exchangeable Shares. Certain of the Canadian Shareholders (the "FoundingShareholders") will also sell a portion of their eHarvest Shares directly to Farms inexchange for Series E-2 Preferred Stock of Farms. Such Series E-2 PreferredStock shall be immediately sold to a U.S. based purchaser who is purchasing theshares and is purchasing additional shares from treasury for investment purposes(the "Investment").

16. Following the completion of the Combination and Investment, Farms will have thefollowing shares issued and outstanding: 3,354,579 shares of Series A PreferredStock, 18,887,117 shares of Series E-2 Preferred Stock, 9,104,167shares of FarmsStock and one Farms Special Voting Share (which will have the voting rights equalto 10,019,379 shares of Farms Stock) which shares will be owned by non-residentsof Canada save for the Farms Special Voting Share.

17. The Exchangeable Shares will provide holders thereof with a security of a Canadianissuer having economic and voting rights which are, as nearly as practicablypossible, equivalent to those attaching to Farms Stock. Exchangeable Shares willgenerally be received for Canadian tax purposes on a tax-deferred rollover basis.

18. The Exchangeable Shares will have the following attributes:

(a) Except as required by applicable law, the holders of the ExchangeableShares shall not be entitled as such to receive notice of or to attend anymeeting of the shareholders of eHarvest or to vote at any such meeting.

(b) The Exchangeable Shares will rank prior to the common shares of eHarvestand any shares ranking junior to the Exchangeable Shares with respect tothe payment of dividends and the distribution of assets in the event of aliquidation, dissolution or winding-up of eHarvest.

(c) Each of the holders of the Exchangeable Shares will be entitled to dividendspayable on the Exchangeable Shares at the same time as, and in theamount equivalent to, the dividends payable by Farms on an equivalentnumber of shares of Farms Stock.

(d) Upon the liquidation, dissolution or winding-up of eHarvest, each of theholders of the Exchangeable Shares will be entitled to receive for theirExchangeable Shares that number of shares of Farms Stock into which theirshares can be exchanged on the last day prior to the liquidation date, whichwill be satisfied by the delivery of the Farms Stock, together with an amountequal to the full amount of all declared and unpaid dividends on eachExchangeable Shares (collectively, the "Liquidation Price").Notwithstanding, the foregoing, upon any proposed liquidation, dissolutionor winding-up of eHarvest, Farms will have an overriding call right (the"Liquidation Call Right") to purchase the Exchangeable Shares from theholders of the Exchangeable Shares for the Liquidation Price (which rightmay be exercised by Farms N.S. at Farms' option).

(e) The Exchangeable Shares will be retractable at the option of the holders ofthe Exchangeable Shares at any time, subject to compliance with theprovisions thereof and applicable law, and upon retraction the holders of theExchangeable Shares will be entitled to receive from eHarvest for eachretracted Exchangeable Share one share of Farms Stock on the retractiondate, which will be satisfied by the delivery of Farms Stock together with anadditional amount equal to the full amount of all declared and unpaiddividends on each such Exchangeable Share (collectively, the "RetractionPrice"). Notwithstanding the foregoing, Farms will have an overriding callright (the "Retraction Call Right") to purchase the Exchangeable Shares fromthe holders of the Exchangeable Shares for the Retraction Price (which rightmay be exercised by Farms N.S. at Farms' option).

(f) Subject to the overriding call right of Farms and/or Farms N.S. referred tobelow, eHarvest may redeem the outstanding Exchangeable Shares on orafter March 31, 2010, or such earlier date upon the occurrence of certainevents (the "Redemption Date"), and upon a redemption by eHarvest on theRedemption Date, the holders of the Exchangeable Shares will be entitledto receive from eHarvest for each Exchangeable Share redeemed thatnumber of Farms Stock into which their shares can be exchanged on the lastday prior to the Redemption Date, which will be satisfied by the delivery ofFarms Stock together with an additional amount equal to the full amount ofall declared and unpaid dividends on each Exchangeable Share(collectively, the "Redemption Price"). Notwithstanding the foregoing, Farmswill have an overriding call right (the "Redemption Call Right") to purchasethe Exchangeable Shares from the holders of the Exchangeable Shares onthe Redemption Date for the Redemption Price (which right may beexercised by Farms N.S. at Farms' option).

(g) In the event of a subdivision, consolidation or other change in the capital ofFarms affecting the Farms Stock, or a distribution of Farms Stock to theholders thereof by way of stock dividends, options, rights or warrants, or anyother distribution of securities, assets or indebtedness of Farms or itssubsidiaries to holders of Farms Stock, the same or an economicallyequivalent change shall be simultaneously made to, or in the rights of theholders of the Exchangeable Shares, unless prior approval is given by botheHarvest and the holders of Exchangeable Shares.

19. Upon the completion of the Reorganization, eHarvest, Farms N.S. and Farms willenter into a support agreement (the "Support Agreement") pursuant to which,among other things, Farms will ensure that:

(a) eHarvest has sufficient assets available to declare and pay simultaneousand equivalent dividends on the Exchangeable Shares;

(b) eHarvest will be able to honour the redemption and retraction rights anddissolution entitlements that are attributes of the Exchangeable Shares;

(c) Farms N.S. is able to perform its obligations arising upon the exercise of theLiquidation Call Right, Retraction Call Right or Redemption Call Right if suchrights are exercised by Farms N.S.;

and in the event that a tender offer, share exchange offer, issuer bid, take-over bidor similar transaction with respect to the Farms Stock, is proposed by Farms or isproposed to Farms or its shareholders and is recommended by the board ofdirectors of Farms , Farms will use reasonable efforts expeditiously and in goodfaith to permit the holders of the Exchangeable Shares to participate in such offerto the same extent and on an economically equivalent basis as the holders ofshares of Farms Stock.

20. Upon the completion of the Reorganization, Farms, eHarvest and CIBC MellonTrust Company (the "Trustee") will enter into a voting trust and exchangeagreement (the "Voting Trust and Exchange Agreement"), pursuant to which:

(a) Farms will grant a put right (the "Exchange Right") to the Trustee, as trusteefor and on behalf of and for the use and benefit of the holders ofExchangeable Shares, which may be exercised by the Trustee upon thebankruptcy, insolvency or winding-up of eHarvest or upon eHarvest notbeing permitted, pursuant to solvency requirements of applicable law, topurchase or otherwise acquire or hold the Exchangeable Shares to beretracted by it pursuant to the Exchangeable Share provisions. Thepurchase price for the Exchangeable Shares purchased by Farms under theExchange Right will be that number of shares of Farms Stock into whichthose shares can be exchanged under the Exchange Right, which will besatisfied by the delivery of Farms Stock, together with an additional amountequal to the full amount of all declared and unpaid dividends on eachExchangeable Share.

(b) The Exchangeable Shares will be automatically exchanged (the "AutomaticExchange Right") by Farms for Farms Stock in the event of a voluntary orinvoluntary liquidation, dissolution or winding-up of Farms (a "LiquidationEvent"). On the fifth business day prior to a Liquidation Event eachoutstanding Exchangeable Share will be automatically exchanged for FarmsStock. The purchase price for the Exchangeable Shares purchased byFarms pursuant to the Automatic Exchange Right will be that number ofshares of Farms Stock into which those shares can be exchanged under theAutomatic Exchange Right, which will be satisfied by the delivery of FarmsStock together with an additional amount equal to the full amount of alldeclared and unpaid dividends on each Exchangeable Share.

(c) Farms will issue and deposit with the Trustee the Farms Special VotingShare which entitles the holder to an equivalent number of votes at meetingsof the holders of Farms Stock equal to that number of Exchangeable Sharesoutstanding from time to time. The Trustee shall hold the Farms SpecialVoting Share for and on behalf of the holders of Exchangeable Shares. TheTrustee, as holder of record of the Farms Special Voting Share shall beentitled to all voting rights including the right to consent to vote in person orby proxy the Farms Special Voting Share, on any matter, question orproposition whatsoever that may properly come before the shareholders ofFarms. The Trustee shall hold the Farms Special Voting Share and anyother properties that may become the subject of the trust for the exclusivebenefit of the holders of Exchangeable Shares.

(d) Farms will provide the Trustee and the holders of Exchangeable Shares withall continuous disclosure materials furnished to holders of the Farms Stock,including without limitation such annual and quarterly reports of Farms andproxy solicitation materials required to be delivered by Farms to itsshareholders by applicable laws.

21. The issuance of the Exchangeable Shares to the Canadian Shareholders and non-residents of Canada upon the purchase by eHarvest of the eHarvest Shares andthe trade of the eHarvest Shares from the Canadian Shareholders to eHarvest are,if viewed in isolation, exempt from registration and prospectus requirements of theLegislation for trades made in a security of the issuer in connection with an issuerbid and trades made in a security to a company pursuant to an issuer bid made bythat company, respectively.

22. The following trades will or may take place in connection with the exercise of certainrights or the happening of certain events pursuant to the terms of the ExchangeableShares and will or may be subject to the registration and prospectus requirementsof the Legislation (collectively, the "Trades"):

(a) The creation in favour of Farms and/or Farms N.S. of the Retraction CallRight, the Redemption Call Right and the Liquidation Call Right.

(b) The grant by Farms pursuant to the Voting Trust and Exchange Agreement,to the Trustee for the benefit of the Canadian Shareholders and any non-resident holder of Exchangeable Shares of the Exchange Right and theAutomatic Exchange Right.

(c) The issuance by Farms of Farms Stock to the Canadian Shareholders, upon:(i) the Canadian Shareholders exercising their rights of retraction; and (ii)the redemption of the Exchangeable Shares by eHarvest on the RedemptionDate and the subsequent delivery thereof by eHarvest and the transfer of theExchangeable Shares to eHarvest by the Canadian Shareholders upon: (i)the retraction of the Exchangeable Shares; and (ii) the redemption of theExchangeable Shares by eHarvest on the Redemption Date.

(d) The issuance by Farms of Farms Stock to the Canadian Shareholders uponFarms or Farms N.S. exercising the Retraction Call Right, Redemption CallRight, Liquidation Call Right and the subsequent delivery thereof by Farmsor Farms N.S. and the transfer of the Exchangeable Shares by the CanadianShareholders and any non-resident holder of Exchangeable Shares toFarms or Farms N.S. upon the exercise of the Retraction Call Right,Redemption Call Right and the Liquidation Call Right by Farms or FarmsN.S..

(e) The issuance by Farms of Farms Stock to the Canadian Shareholders uponthe exercise of the Exchange Right by the Trustee upon the institution of abankruptcy, insolvency or winding-up proceeding of eHarvest and thetransfer of the Exchangeable Shares to Farms by the CanadianShareholders upon the exercise of Exchange Right.

(f) The issuance by Farms of Farms Stock to the Canadian Shareholders uponthe liquidation, dissolution or winding-up of eHarvest and the transfer by theCanadian Shareholders and any non-resident holder of ExchangeableShares to eHarvest of the Exchangeable Shares upon the liquidation,dissolution or winding-up of eHarvest.

(g) The issuance by Farms of Farms Stock to the Canadian Shareholders uponthe liquidation, dissolution or winding-up of Farms pursuant to the AutomaticExchange Right and the transfer of the Exchangeable Shares to eHarvestpursuant to the Automatic Exchange Right.

(h) the issuance by Farms to the Trustee of the Farms Special Voting Share inconnection with the granting of votes to the Canadian Shareholders and thetransfer to Farms of the Farms Special Voting Share by the Trustee upon theexchange, by any means, of Exchangeable Shares for Farms Stock.

23. As at the date hereof and immediately upon completion of the Reorganization,persons or companies who are in each of the Jurisdictions, except Ontario, whobeneficially own Farms Stock or Exchangeable Shares (collectively, "FarmsEquity"), do not and will not beneficially own more than 10 per cent of the FarmsEquity and do not and will not represent in number more than 10 per cent of thetotal number of holders of Farms Equity.

24. Neither eHarvest nor Farms has any present intention of becoming a reportingissuer in any of the Jurisdictions.

AND WHEREAS pursuant to the System, this MRRS Decision Document evidencesthe decision of each of the Decision Makers (collectively, the "Decision");

AND WHEREAS each of the Decision Makers is satisfied that the test contained inthe Legislation that provides the Decision Makers with the jurisdiction to make the Decisionhas been met;

The Decision of the Decision Makers pursuant to the Legislation is that theregistration and prospectus requirements contained in the Legislation shall not apply tothe Trades, provided that:

A. Farms shall provide each recipient or proposed recipient of Farms Stock residentin the Jurisdictions with an explanation of the limitations imposed upon the firsttrade in securities acquired pursuant to this Decision Document; and

B. the first trade in Farms Stock acquired pursuant to this Decision Document shall bea distribution under the Legislation unless:

1. (i) Farms is a reporting issuer and has been a reporting issuer for atleast 12 months in the local jurisdiction of the seller;

(ii) if the seller is in a special relationship with Farms, the seller hasreasonable grounds to believe that Farms is not in default under theLegislation, where, for these purposes, "special relationship" shallhave the same meaning as in Ontario Securities Commission Rule14-501 Definitions; and

(iii) no unusual effort is made to prepare the market or to create ademand for the Farms Stock and no extraordinary commission orconsideration is paid in respect of such first trade;

then such first trade is a distribution only if it is a trade made from theholdings of any person, company or combination of persons orcompanies holding a sufficient number of any securities of Farms toaffect materially the control of Farms, but any holding of any person,company or combination of persons or companies holding more than20 per cent of the outstanding voting securities of Farms shall, in theabsence of evidence to the contrary, be deemed to affect materiallythe control of Farms; or

2. (i) at the time of the first trade in Farms Stock acquired pursuant to thisDecision Document,

(a) Farms is not a reporting issuer under the Legislation;

(b) persons or companies whose last address as shown on thebooks of Farms in each of Alberta and Ontario and who heldFarms Stock do not hold more than 10 percent of theoutstanding Farms Stock, and do not represent more than 10percent of the total number of holders of Farms Stock; and

(ii) the first trade is executed through the facilities of a stock exchangeoutside of Canada or on the Nasdaq Stock Market.

April 25th, 2000.

"Howard I. Wetston"     "R. Stephen Paddon"