Securities Law & Instruments

Headnote

Section 144 -- variation of cease trade order to permit trades of securities pursuant to a reorganization.

Statutes Cited

Securities Act, R.S.O., c. S.5, as am., ss. 127 and 144.

IN THE MATTER OF

THE SECURITIES ACT

R.S.O. 1990, c. S.5. AS AMENDED (the Act)

AND

PEAKSOFT MULTINET CORP.

 

ORDER

(Section 144)

WHEREAS the securities of PeakSoft Multinet Corp. (PeakSoft) are subject to a temporary order (the Temporary Order) of the Director, Corporate Finance made on behalf of the Ontario Securities Commission (the Commission) pursuant to paragraph 2 of subsection 127(1) and subsection 127(5) of the Act on March 5, 2002, as extended by further order of the Director, Corporate Finance on March 15, 2002 on behalf of the Commission pursuant to subsection 127(8) of the Act, that trading in the securities of PeakSoft cease (collectively, the Cease Trade Order);

AND WHEREAS PeakSoft has applied to the Commission for a partial revocation of the Cease Trade Order pursuant to section 144 of the Act (the Application);

AND UPON PeakSoft having represented to the Commission that:

1. PeakSoft was incorporated under the Company Act (British Columbia) on August 24, 1994 as Peak Technologies Inc., thereafter being continued into the Province of Alberta under the Business Corporations Act (Alberta) (the ABCA) on August 16, 1996, and changing its name to PeakSoft Corporation on October 27, 1997, and to PeakSoft Multinet Corp. on February 17, 1999.

2. PeakSoft is a reporting issuer in Ontario, Alberta and British Columbia, having become such on or about June 11, 1997 upon the filing of a prospectus in each of these jurisdictions.

3. PeakSoft's authorized capital consists of an unlimited number of common shares, of which 3,830,974 are issued and outstanding as fully paid and non-assessable. To the knowledge of PeakSoft, the entities which own more than 10 percent of any class of securities of PeakSoft are:

(a) Elliott International, L.P. (formerly known as Westgate International, L.P.), Grand Cayman, Cayman Islands, which owns 905,636 shares, and, through brokers, a further 17,149 shares, representing approximately 24 percent of PeakSoft's issued and outstanding common shares; and

(b) The Liverpool Limited Partnership, Hamilton, Bermuda, which owns 905,636 shares, and, through brokers, a further 17,149 shares, representing approximately 24 percent of PeakSoft's issued and outstanding common shares.

(these partnerships being collectively referred to hereinafter as the Significant Shareholders).

4. The Cease Trade Order was issued by reason of the failure of PeakSoft to file with the Commission the audited annual financial statements for the year ended September 30, 2001 (the 2001 Annual Financial Statements).

5. PeakSoft has not carried on business since September 30, 2001. It owns no material assets or liabilities other than indebtedness owed to its creditors, including the Indebtedness (as defined in paragraph 12 below).

6. On February 25, 2002, the British Columbia Securities Commission (the BCSC) issued a cease trade order against PeakSoft for having failed to file the 2001 Annual Financial Statements. On March 15, 2002, the Alberta Securities Commission (the ASC) issued a cease trade order against PeakSoft for having failed to file the 2001 Annual Financial Statements and its interim unaudited financial statements for the three-month period ended December 31, 2001.

7. PeakSoft was unable to file the financial statements referred to above due to financial hardship.

8. On December 27, 2002, the 2001 Annual Financial Statements were filed with the Commission, the BCSC and the ASC, and were mailed to the shareholders of PeakSoft.

9. On January 3, 2003, the interim financial statements of PeakSoft for:

(a) the 3-month period ended December 31, 2001;

(b) the 6-month period ended March 31, 2002; and

(c) the 9-month period ended June 30, 2002;

were mailed to the shareholders of PeakSoft and were filed with the Commission, the ASC and the BCSC. As of January 3, 2003, PeakSoft had remedied all outstanding deficiencies with respect to the filings of annual and interim financial statements. PeakSoft has subsequently filed its annual and interim financial statements in a timely manner.

10. PeakSoft's shares are listed on the TSX Venture Exchange. Currently, the trading of these common shares has been suspended due to the existence of the cease trade orders referred to above. PeakSoft was also listed on the OTC Bulletin Board, but was delisted on May 6, 2002 for failure to file required financial reports. PeakSoft has no other securities listed on any stock exchange or traded over the counter in Canada or elsewhere.

11. PeakSoft is not, to its knowledge, in default of any requirement of the Act, or the rules and regulations made pursuant thereto, other than the following:

(a) As described in paragraphs 12, 13, 14, and 16, PeakSoft has taken the following steps, one or more of which may constitute a contravention of the Cease Trade Order:

(i) PeakSoft entered into conditional Debt Conversion Agreements with its Creditors to settle CDN$6.8 million debt in exchange for 22.7 million PeakSoft shares and 0.4 million of IncuLab Shares held by PeakSoft;

(ii) PeakSoft entered into the Metz Agreements in settlement of certain of the Indebtedness owed to a director and senior officer of PeakSoft; and

(iii) PeakSoft entered into a preliminary term sheet pursuant to a reverse take-over transaction; and

(b) As described in paragraphs 12, 13, 14, and 16, PeakSoft did not file, and if such events were material changes was required to file, a material change report for the following events:

(i) Entering into the Debt Conversion Agreements;

(ii) The announcement of the Proposed RTO;

(iii) Entering into the Metz Agreements; and

(iv) Entering into the preliminary term sheet pursuant to a reverse take-over transaction.

12. PeakSoft entered into conditional debt conversion agreements (the Debt Conversion Agreements) with 10 of its creditors (the Creditors) as of December 21, 2000, August 1, 2001, and August 8, 2002. In accordance with the terms thereof, the issuance of shares under the Debt Conversion Agreements is conditional upon, among other things, shareholder and/or regulatory approval. Under the Debt Conversion Agreements, the Creditors have agreed to settle CDN$6,884,521 of debt (the Indebtedness) in exchange for the issuance of 22,639,526 PeakSoft common shares priced at $0.26 per share and for 431,989 IncuLab.com, Inc. shares (and the rights with respect thereto under certain agreements) (the IncuLab Shares) held by PeakSoft. To the knowledge of PeakSoft, none of the Creditors is resident in the Province of Ontario.

13. On August 29, 2001, PeakSoft published a press release announcing the conditional settlement of certain of the Indebtedness (totaling approximately $6,498,382) and a proposed reverse-takeover involving PeakSoft and a film and television production and distribution company (the Proposed RTO). The Significant Shareholders agreed to settle the Indebtedness owed to them in the aggregate amount of $5,121,429 in exchange for the issuance of 15,858,395 PeakSoft common shares and for the IncuLab Shares. Based on oral discussions with the Significant Shareholders, it was the understanding that the issuance of common shares under these Debt Conversion Agreements would be done in conjunction with PeakSoft entering into a merger, acquisition or financing with a third party. PeakSoft did not file a material change report at the time at which these Debt Conversion Agreements were entered into and the Proposed RTO was announced because PeakSoft was of the view that the completion of the Proposed RTO was highly speculative. The Proposed RTO transaction was cancelled when the required financing was not obtained. Due to the amount of the Indebtedness that was settled under the terms of these Debt Conversion Agreements, a material change report likely should have been filed within the prescribed period of time under the Act to disclose the existence of these Debt Conversion Agreements and the material terms thereof. On June 11, 2003, PeakSoft published a press release and filed a material change report (the Material Change Report) with the Commission, the ASC and the BCSC disclosing the material terms of these Debt Agreements.

14. In August 2002, Timothy Metz, then a director and senior officer of PeakSoft, entered into a conditional Debt Conversion Agreement (the 2002 Metz Agreement) with PeakSoft in settlement of the Indebtedness owed to him by PeakSoft in the amount of $385,958 under his employment contract for the year 2002 in exchange for the issuance of 1,484,455 common shares. In January 2003, Mr. Metz entered into a conditional Debt Conversion Agreement (hereinafter referred to as the 2003 Metz Agreement and referred collectively with the 2002 Metz Agreement, as the Metz Agreements) in payment out of his employment contract for the end of the term. Material change reports and press releases reporting the entering into of the Metz Agreements were not filed within the prescribed period of time after the execution thereof. Material change reports and press releases disclosing the Metz Agreements likely should have been filed and published within the prescribed time periods under the Act due to the amount of Indebtedness that is to be settled pursuant to the terms thereunder. On May 9, 2003, Mr. Metz cancelled the 2003 Metz Agreement. On and June 11, 2003 PeakSoft published a press release and filed the Material Change Report with the Commission, the ASC and the BCSC disclosing, among other things, the material terms of the Metz Agreements.

15. PeakSoft is indebted to two private placees for an aggregate amount of USD$195,000 under certain promissory notes (the Promissory Notes). PeakSoft intends to issue 500,384 common shares in settlement of the Promissory Notes. To the knowledge of PeakSoft, none of the private placees are residents of Ontario.

16. Pursuant to a preliminary term sheet entered into on September 20, 2002, between PeakSoft and Alma, Inc., PeakSoft intends to enter into a merger transaction (the Merger) with PeakSoft Acquisition, Inc. (PeakSoft Acquisition), pursuant to the provisions of Delaware General Corporation Law (the Proposed Transaction). PeakSoft will be the surviving corporation and it is contemplated that existing shareholders of PeakSoft will own approximately 5 percent of the voting securities of the surviving corporation. At the time of the completion of the Proposed Transaction, it is contemplated that PeakSoft Acquisition will own at least the majority of the issued and outstanding securities of BHLC, Inc., with at least a majority of the former shareholders of BHLC, Inc. becoming stockholders of PeakSoft Acquisition pursuant to a share exchange. BHLC, Inc. is a Japanese corporation, which operates a lasik eye surgery business in Japan.

17. The Proposed Transaction is conditional upon the following re-organizational steps being completed in the following sequence:

(a) the delisting of PeakSoft from the TSX Venture Exchange;

(b) the continuance of PeakSoft (the Delaware Issuer) into the State of Delaware pursuant to the Delaware General Corporation Law and the ABCA (the Continuance) wherein each outstanding common share of PeakSoft immediately prior to the Continuance will be exchanged for one share of the common stock of the Delaware Issuer, subject to any rights of dissent exercised by PeakSoft's shareholders under the ABCA;

(c) the issuance of common stock of the Delaware Issuer pursuant to the Debt Conversion Agreements or in settlement of the Promissory Notes; and

(d) the merger of PeakSoft Acquisition with the Delaware Issuer whereby, pursuant to the Delaware General Corporation Law, the Delaware Issuer will continue as the surviving corporation under the name Paragon Medical Inc. (the Surviving Issuer), in which shareholders of PeakSoft Acquisition will receive shares in the Delaware Issuer.

18. The terms of the Proposed Transaction as negotiated between the Issuer and PeakSoft Acquisition will be set out in an agreement and plan of merger between PeakSoft and PeakSoft Acquisition (the Proposed Transaction Agreement). Under the terms of the proposed Merger, it is contemplated that shares of the Surviving Issuer issued to shareholders of the Delaware Issuer and to shareholders of PeakSoft Acquisition will be registered under the Securities Exchange Act of 1934.

19. The Debt Conversion Agreements with the Significant Shareholders and the 2002 Metz Agreement (collectively the Related Party Debt Conversion Agreements) are considered "related party" transactions under Commission Rule 61-501 (Rule 61-501). PeakSoft intends to rely on applicable exemptions from the formal valuation requirements under Rule 61-501 as it applies to the issuance of common shares under the Related Party Debt Conversion Agreements. The Material Change Report discloses PeakSoft's intention and its basis for relying on the applicable exemptions from the formal valuation requirements under Rule 61-501.

20. PeakSoft intends to hold a meeting (the Meeting) of its shareholders for the purposes of obtaining the necessary shareholder approvals under applicable corporate and securities laws for the matters described in paragraph (18) above. In preparation for the Meeting PeakSoft will send to all of its shareholders of record, a management information circular (Circular) which will contain prospectus-level disclosure concerning PeakSoft, BHLC, Inc. and the business of BHLC, Inc.

21. Other than the Proposed Transaction, PeakSoft does not intend to seek public financing by way of an offering of its securities.

22. PeakSoft has applied for a partial revocation of the Cease Trade Order permitting:

(a) PeakSoft to enter into the Proposed Transaction Agreement;

(b) upon shareholder approval:

(i) the exchange of each outstanding common share of PeakSoft held by Ontario shareholders for a share of the common stock of the Delaware Issuer pursuant to the Continuance; and

(ii) the Surviving Issuer to issue shares of common stock to Ontario shareholders pursuant to the Merger.

23. On December 30, 2003, PeakSoft filed revised audited financial statements for the year ended September 30, 2002; and for the interim periods ended December 31, 2003, March 31, 2003 and June 30, 2003. PeakSoft also filed and issued a press release announcing this filing of the revised financial statements. The refiling of the financial statements resulted from a review of PeakSoft's statements by the Commission, and from the suggestions made by the Commission in conjunction with its review of this application.

24. During the process of verifying the debt associated with the conditional Debt Conversion Agreements which were announced on 29 August 2001 and again on 10 June 2003, PeakSoft discovered that the debts associated with these agreements had not been completely recorded on its books.

25. PeakSoft acquired 89.5 percent of Peak.com Inc., a Washington State company, in November 2000 in exchange for certain fixed assets, a software licence agreement and the assumption of USD $410,000 in debt.

26. As a part of an agreement to acquire an interest in IncuLab.com, Inc. at the time of the sale to it of Peak.com Inc., the Significant Shareholders advanced additional funds directly to IncuLab.com, Inc. on behalf of PeakSoft for the purpose of acquiring a greater equity in IncuLab.com, Inc. These advances were characterized as a loan to PeakSoft to be repaid by it to the Significant Shareholders. During the second quarter of fiscal year 2003, PeakSoft discovered that these advances also had not been completely recorded on its books. PeakSoft was unable verify the validity of the amounts of these advances until the fourth quarter of fiscal year 2003, at which time it determined that the advances to Peak.com Inc. and to Inculab.com, Inc. for which PeakSoft was liable aggregated to USD$1,023,090.

27. The said amount of USD$1,023,090 had been included in a conditional debt conversion agreement with the Significant Shareholders, this agreement being dated for reference August 1, 2001, and announced on August 29, 2001 and again on June 10, 2003. As a result, this amount has been included in the 2001 comparatives and has been adjusted in the 2002 financial statements with retroactive effect.

28. Following the acquisition of an interest in Inculab.com, Inc. PeakSoft's management determined that IncuLab.com, Inc. had ceased to be a going concern, and that it would it not likely return to being such in the near future. As a result the investment was written off by PeakSoft as a loss. The 2001 comparative financial statements were revised by an increase of $1,548,562 to the Notes Payable on the Balance Sheet and an increase of $1,548,562 to the Loss on Investments on the Statement of Operations. On the 2002 Balance Sheet, the revision resulted in an increase in the Deficit of $1,548,562 and a corresponding increase of the same amount in the Notes Payable. The quarterly statements for December 2002, March 2003 and June 2003, have also been revised to reflect this revision.

29. Following completion of the Proposed Transaction, the Surviving Issuer intends to make a further application for a full revocation of the Cease Trade Order so as to permit trading of the securities generally.

30. PeakSoft has made applications to the ASC and the BCSC to have revoked partially the cease trade orders issued by them. On July 24, 2003, the ASC issued an order granting the partial revocation of the cease trade order issued by them in response to PeakSoft's application.

AND UPON considering the Application and the recommendation of the staff of the Commission;

AND UPON the Director being satisfied that to do so would not be prejudicial to the public interest;

IT IS ORDERED, pursuant to section 144 of the Act, that the Cease Trade Order be, and that it is hereby, partially revoked permitting:

(a) PeakSoft to enter into the Proposed Transaction Agreement; and

(b) upon shareholder approval:

(i) the exchange of each outstanding common share of PeakSoft held by Ontario shareholders for a share of the common stock of the Delaware Issuer pursuant to the Continuance; and

(ii) the Surviving Issuer to issue shares of common stock to Ontario shareholders pursuant to the Merger.

January 26, 2004.

"Cameron McInnis"