Mutual Reliance Review System for Exemptive Relief Applications - Issue of commonshares by issuer to holders of its debentures, in satisfaction of the interest and principalamounts owing in respect of the debentures, exempted from registration andprospectus requirements - Issuer has no current operating revenue or cash flow - Firsttrades in common shares acquired pursuant to decision made subject to resalerestrictions corresponding to subsection 72(5) of the Ontario Act - Debentures wereoriginally issued pursuant to a prospectus.
Applicable Ontario Statute
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25, 53, 72(5).
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the "DecisionMaker") in each of the provinces of Alberta, British Columbia, Manitoba, New Brunswick,Newfoundland, Nova Scotia, Ontario, Prince Edward Island and Saskatchewan (the"Jurisdictions") has received an application from ITEC-Mineral Inc. ("ITEC" or the"Corporation") for a decision pursuant to the securities legislation (the "Legislation") of theJurisdictions that the issue by ITEC of common shares ("Common Shares") of ITEC, insatisfaction of interest and principal amounts owing in respect of previously issued 9.5%convertible unsecured subordinated debentures (the "Debentures") of ITEC, to be madeto holders of the Debentures, shall not be subject to the "registration requirement" (the"Registration Requirements") or the "prospectus requirement" (the "ProspectusRequirements") of the Legislation, as such terms are defined in National Instrument 14-101;
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 ITEC has represented to the Decision Makers that:
1. ITEC is a corporation incorporated under the Companies Act (Quebec) onSeptember 23, 1987 under the name "Orphée Resources Inc." On November 15,1994, in connection with a reverse take-over of the Corporation, then having thename ITEC-Mineral Inc., the Corporation's articles were amended to, among otherthings, change the name of the Corporation to its current name. ITEC is presentlyengaged principally in the business of the reclamation of mine tailing waste sites.
2. ITEC is a reporting issuer, or the equivalent, in each of the provinces of Canadaand is not in default of any of the requirements of the Legislation of any Jurisdiction.The head office and registered office of ITEC is in Quebec.
3. The authorized share capital of ITEC consists of an unlimited number of commonshares ("Common Shares"). As of August 10, 2000, there were approximately12,307,009 Common Shares that were issued and outstanding.
4. The Common Shares are listed and posted for trading on The Toronto StockExchange (the "TSE").
5. The Debentures were issued on September 25, 1997 as part of an offering of units(the "Units") by ITEC. Each Unit consisted of:
(i) $800 principal amount of Debentures;
(ii) 160 warrants ("Warrants") to purchase an adjustable number of CommonShares; and
(iii) a deferred payment receipt, evidencing the right to acquire a further $200principal amount of Debentures and a further 40 Warrants.
6. The securities comprising the Units were issued by ITEC pursuant to a prospectus(the "Prospectus") dated September 10, 1997, which was filed with the securitiesregulatory authority or regulator (the "Securities Regulators") in each of theprovinces of Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland,Ontario, Quebec and Saskatchewan, and, in respect of which receipts wereobtained therefor, under the applicable securities legislation.
7. The Debentures were issued under a trust indenture (the "Trust Indenture") datedSeptember 25, 1997 made between ITEC and Montreal Trust Company (the"Trustee").
8. The total principal amount owing in respect of outstanding Debentures is$16,552,000, of which $13,241,600 principal amount will mature on the firstbusiness day following September 25, 2002 and the remaining $3,310,400 principalamount will mature on the first business day following September 25, 2003.
9. Before the 1999 Debenture Amendments and the 2000 Debenture Amendmentsreferred to below (collectively, the "Debenture Amendments"), the Trust Indentureprovided that:
(i) the principal amount under the Debentures was convertible, at the option ofthe holder, at any time prior to maturity, into Common Shares, at aconversion price of $1.25 per Common Share; and
(ii) in the event that the weighted-average trading price of the Common Shareson the TSE for a 20-day trading period was at least $3.00 (the "TradingPrice Condition Trigger Price"), the Debentures were convertible by theTrustee, on behalf of the Corporation, into Common Shares.
10. It is a term of the Debentures that ITEC pay interest semi-annually at an annual rateof 9.5 per cent. The first two semi-annual payments due under the Debentures(being the payment due on March 25 and September 25, 1998) were paid whendue. The interest payments due on March 25, 1999, September 29, 1999 andMarch 25, 2000 have not been paid and remain in arrears.
11. On March 25, 1999, ITEC requested that the holders of its Debentures authorizepostponement of the interest payment under the Debentures then due on March 25,1999 until September 25, 1999. Effective as of April 27, 1999, the holders of therequisite aggregate principal amount of the Debentures authorized thepostponement.
12. On September 17, 1999, ITEC announced that it was not in the financial positionto satisfy the interest payments under the Debentures which were then due onSeptember 25, 1999, (being the interest payment due on September 25, 1999 andthe March 25, 1999 interest payment which had been postponed).
13. At a meeting (the "1999 Meeting") held on December 13, 1999, holders of therequisite aggregate principal amount of Debentures approved, subject to anyrequisite regulatory approval, various amendments to the Trust Indenture (together,the "1999 Debenture Amendments"), described in a management informationcircular dated December 13, 1999 that was sent by ITEC to holders of theDebentures and filed with the Securities Regulators, including the following.
(i) amendments providing for the satisfaction of interest payments due to theholders of Debentures on March 25, 1999 and September 25, 1999, and thepayment of the accumulated interest on such interest payments (the"Accumulated Interest"), by the issue by ITEC of such number of CommonShares as is determined by dividing the "aggregate dollar amount of theinterest payments due on March 25, 1999 and September 25, 1999 plus theAccumulated Interest" by "the greater of $0.15 per Common Share or theweighted-average trading price of the Common Shares on the TSE for the20 trading days preceding the date of the approval by ITEC's shareholdersof the 1999 Debenture Amendments";
(ii) an amendment to provide that ITEC have the option to satisfy future interestpayments under the Debenture either in cash, or, through the issue ofCommon Shares, with the number of Common Shares to be issued insatisfaction of any such interest obligations determined by dividing "theaggregate interest payment then due" by "the greater of $0.15 per CommonShare or the weighted average trading price of the Common Shares on theTSE in the 20 trading days preceding the date of payment of interest";
(iii) an amendment which would result in the required repayment of principalunder the Debentures in any year at and following maturity being limited to40 per cent of ITEC's net cash flow (defined for such purposes to mean cashflow generated by the operating activities of ITEC within the meaning of theHandbook of Canadian Institute of Chartered Accountants), and, subject toa further condition that no payment would be made unless net cash flow ina particular financial year was in excess of $500,000, provided that if theamount in any fiscal year was not sufficient to satisfy the principal amountoutstanding on the Debentures, the amount distributable in respect of theyear would be distributed on a pro rata basis to holders with any deficiencybeing carried forward to subsequent years until such time as the principalamount of the Debentures was repaid in full; and
(iv) an amendment resulting in a change in the price at which Common Shareswere convertible into Common Shares, at the option of the holder, from$1.25 to $0.65, and, a change in the Trading Price Condition Trigger Pricefrom $3.00 to $1.00.
14. The 1999 Debenture Amendments were approved by the holders of CommonShares at a special meeting of the holders that was held on December 14, 1999.
15. On August 10, 2000, the closing price for the Common Shares on the TSE, asreported by the TSE, was $0.32 per Common Share.
16. ITEC currently has no operating revenue or cash flow. The 1999 DebentureAmendments were designed, among other things, to reduce the risk of ITECultimately not being able to make payments due under the Debentures by, amongother things, encouraging holders to convert their Debentures into Common Shares,and, providing for a reduction in the conversion price in consideration for theagreement by holders of the Debentures to waive past defaults by ITEC and permitITEC to satisfy future interest amounts owing by the issue of Common Shares.
17. As of June 2, 2000, holders of the requisite aggregate principal amount ofDebentures approved further amendments (the "2000 Debenture Amendments") tothe terms of the Debentures to permit ITEC to satisfy the aggregate principalamount of $16,532,000 then outstanding in respect of the Debentures by convertingthese Debentures into Common Shares (the "Principal Shares"), at a conversionprice of 65¢ per Common Share, so that, upon the issuance of the Principal Shares,and the issuance of Common Shares for all outstanding interest amounts (the"Interest Shares") owing in respect of the Debentures in accordance with the 1999Debenture Amendments, ITEC will have satisfied all of its obligations under theDebentures.
18. Immediately upon receipt of this Decision, ITEC intends to satisfy all of itsobligations in respect of outstanding Debentures by issuing to the holders:
(i) an aggregate of 25,433,846 Principal Shares; and
(ii) an aggregate of 14,863,613 Interest Shares.
19. ITEC has scheduled an annual and special meeting (the "Special Meeting") of itsshareholders for August 21, 2000 to, among other things, approve a resolutionauthorizing the purchase by ITEC of all of the issued and outstanding shares ofElectromed Imaging Inc. ("Electromed"), a corporation engaged in the business ofmedical technology, in consideration for the issue by ITEC of 22,727,273 CommonShares, representing 60 per cent of Common Shares after giving effect to theissuance of Common Shares referred to in paragraph 18, above.
20. The management information circular (the "Circular") of ITEC which accompaniedthe notice of the Special Meeting that was sent by ITEC to the holders of itsCommon Shares, and filed with Securities Regulators, contains prospectus-leveldisclosure in respect of Electromed and ITEC's acquisition of Electromed, which,as the Circular explains, will be accounted for as a reserve take-over.
AND WHEREAS pursuant to the System this MRRS Decision Document evidencesthe decision of each Decision Maker (collectively, the "Decision");
AND WHEREAS each of the Decision Makers is satisfied that the test contained inthe Legislation that provides the Decision Maker with the jurisdiction to make the Decisionhas been met;
THE DECISION of the Decision Makers pursuant to the Legislation is that theRegistration Requirements and Prospectus Requirements shall not apply to the issue byITEC of Common Shares, that are Principal Shares or Interest Shares referred to inparagraph 18, above, to holders of then outstanding Debentures, provided that, in eachcase, the first trade in any Common Shares acquired by the holder of a Debenturepursuant to this Decision in a Jurisdiction shall be a distribution under the Legislation (the"Applicable Legislation") of the Jurisdiction, unless:
(i) at the time of the first trade, ITEC is a reporting issuer, or the equivalent, under theApplicable Legislation and has been a reporting issuer, or the equivalent, under theApplicable Legislation for at least twelve months;
(ii) disclosure of the corresponding prior issuance of the Common Shares has beenmade to the Decision Maker under the Applicable Legislation;
(iii) if, in respect of the first trade, the seller is in a "special relationship" with ITEC(where such expression is defined in the Applicable Legislation), the seller hasreasonable grounds to believe that ITEC is not in default of any requirement of theApplicable Legislation;
(iv) the first trade is not a trade from the holdings of any person or company holding asufficient number of securities to affect materially the control of ITEC, but anyholding of more than 20 per cent of the outstanding voting securities of ITEC shall,in absence of evidence to the contrary, be deemed, for these purposes, to affectmaterially the control of ITEC; and
(v) no unusual effort is made to prepare the market or to create a demand for theCommon Shares forming the subject matter of the first trade and no extraordinarycommission or consideration is paid in respect of the first trade.
August 31st, 2000.
"Howard I. Wetson" "R. Stephen Brown"