Isotechnika Inc. and Azimuth Opportunity, Ltd. - MRRS Decision

MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- Application by a TSX- listed issuer and foreign resident purchaser for exemptive relief in relation to a proposed distribution of securities by the issuer by way of an "equity line of credit"-- a draw down under an equity line of credit may be considered to be an indirect distribution of securities by the issuer to purchasers in the secondary market through the equity line purchaser acting as underwriter -- relief granted to the issuer and purchaser from certain registration and prospectus requirements, subject to terms and conditions, including a 10% restriction on the number of securities that may be distributed under an equity line in any 12-month period, certain restrictions on the permitted activities of the purchaser and certain notification and disclosure requirements.

Applicable Ontario Statutory Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 1(1) (definition of "distribution" and "underwriter"), 25(1)(a), 59(1), 71(1), 74(1), 147.

Applicable Ontario Rules

National Instrument 45-106 Prospectus and Registration Exemptions s. 1(1) "accredited investor".

National Instrument 41-101 Prospectus Disclosure Requirements.

National Instrument 44-101 Short Form Prospectus Distributions.

Citation: Isotechnika Inc., 2006 ABASC 1330

May 19, 2006

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ALBERTA AND ONTARIO (THE JURISDICTIONS)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

ISOTECHNIKA INC. (Isotechnika) AND

AZIMUTH OPPORTUNITY, LTD.

(Azimuth and, together with Isotechnika, the Filer)

 

MRRS DECISION DOCUMENT

Background

1. The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application (the Application) from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) that in connection with the distribution of common shares of Isotechnika (Isotechnika Shares) by Isotechnika under a prospectus through Azimuth pursuant to a proposed equity line of credit arrangement between Azimuth and Isotechnika (the Equity Line):

1.1 the requirements under the Legislation that a person or company trading in a security or acting as an underwriter be registered (i) as a dealer, or (ii) as a salesperson or (iii) as a partner or as an officer of a registered dealer that acts on behalf of the dealer (together, the Registration Requirements) do not apply to Azimuth or its directors, officers or employees;

1.2 the requirements of the Legislation:

1.2.1 requiring Isotechnika to include and Azimuth to execute a certificate as part of the Prospectus (the Underwriter Certificate Requirement) do not apply to Isotechnika or Azimuth, as the case may be;

1.2.2 requiring Azimuth to send or deliver to a First Purchaser (as defined in paragraph 4.7.6 herein) a prospectus within two business days of a sale to the First Purchaser (the Prospectus Delivery Requirement) do not apply to Azimuth;

1.2.3 granting purchasers of securities under a prospectus the statutory right to withdraw from the purchase within two business days after receipt of the prospectus (the Withdrawal Right) do not apply to First Purchasers; and

1.2.4 granting purchasers of securities under a prospectus the statutory right as against Azimuth, as underwriter, to rescind the purchase or to claim damages in the event of a misrepresentation in the prospectus (the Prescribed Statutory Rights of Action) do not apply to First Purchasers;

1.3 the requirements under the Legislation that a prospectus include the following disclosure (the Prescribed Prospectus Requirements) do not apply to the Prospectus:

1.3.1 information concerning the plan of distribution specified in section 3.1 of National Instrument 41-101 Prospectus Disclosure Requirements (NI 41-101);

1.3.2 statements respecting statutory rights to withdraw, or to claim rescission or damages for prospectus misrepresentations, under section 4.1 of NI 41-101 and item 20.1 of Form 44-101F1 Short Form Prospectus (Form 44-101F1);

1.3.3 a distribution table and information concerning the underwriting and any market-out clause under items 1.6, 1.10 and 5.1 of Form 44-101F1; and

1.3.4 pricing information under item 5.3 of Form 44-101F1;

(the relief described in paragraphs 1.1 to 1.3 above being collectively referred to as the Requested Relief); and

1.4 the Application and this MRRS Decision Document (collectively the Confidential Materials) be held in confidence by the Decision Makers until the occurrence of the earliest of the following:

1.4.1 the date on which the first supplement to the Prospectus (as defined below) is filed by Isotechnika in respect of the Equity Line;

1.4.2 the date on which Isotechnika advises the Decision Makers that there is no longer any need to hold the Confidential Material in confidence; and

1.4.3 90 days from the date of this MRRS Decision Document

(the relief described in paragraph 1.4 being referred to as the Confidentiality Relief).

2. Under the Mutual Reliance Review System for Exemptive Relief Applications:

2.1 the Alberta Securities Commission is the principal regulator for this application; and

2.2 this MRRS Decision Document evidences the decision of each Decision Maker.

Interpretation

3. Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are defined in this decision.

Representations

4. This decision is based on the following facts represented by the Filer:

4.1 Isotechnika is a corporation governed by the Business Corporations Act (Alberta) having its registered and head office in Edmonton, Alberta. Isotechnika is a "reporting issuer" (or its equivalent) under the securities legislation of all of the provinces of Canada. The Isotechnika Shares are listed and posted for trading on the Toronto Stock Exchange (the TSX) under the symbol "ISA".

4.2 Isotechnika is eligible to file a short form prospectus under NI 44-101.

4.3 Azimuth is a corporation incorporated under the laws of the Territory of the British Virgin Islands. Acqua Wellington Asset Management Ltd., an international business company incorporated in the Bahamas, is the investment adviser to Azimuth.

4.4 Azimuth is not a "reporting issuer" (or its equivalent) under the securities legislation of any province or territory of Canada. None of Azimuth or its associates, affiliates and insiders is registered in any province or territory of Canada as a dealer, advisor or underwriter (or their equivalents) or a participating organization, approved participant or member, as the case may be, of any exchange or over-the-counter market.

4.5 Azimuth is an "accredited investor" as defined in National Instrument 45-106 Prospectus and Registration Exemptions.

4.6 Isotechnika intends to file a prospectus (the Prospectus) prepared in accordance with the requirements of National Instrument 44-102 Shelf Distributions, as varied by the Requested Relief, with the securities commissions of Alberta and Ontario, to qualify the issuance of the Isotechnika Shares under the Equity Line. References to the Prospectus include any amendment, restatement or supplement to the Prospectus filed in respect of a particular Drawdown or otherwise in accordance with the Legislation.

4.7 Upon receipt of the Requested Relief, Azimuth and Isotechnika will enter into a subscription agreement (the Subscription Agreement) the principal terms of which will include the following:

4.7.1 Azimuth will commit to purchase from Isotechnika, and Isotechnika will have the right but not the obligation to sell to Azimuth, up to $40,000,000 of Isotechnika Shares in a series of drawdowns (each a Drawdown) over a 24-month period (the Term).

4.7.2 Isotechnika will, in its sole discretion, determine the aggregate dollar amount of Isotechnika Shares it sells under the Equity Line and in each Drawdown, within specified minimum and maximum dollar amounts for each Drawdown. Isotechnika will issue to Azimuth a notice of each drawdown (a Drawdown Notice) that will specify the aggregate dollar amount being sold in that Drawdown and the minimum price per share less the applicable discount at which it will sell Isotechnika Shares in that Drawdown. Subject to certain adjustments and conditions, Azimuth will be obligated to purchase from Isotechnika the dollar amount of Isotechnika Shares specified in the Drawdown Notice (the Drawdown Amount), for which it will receive the number of Isotechnika Shares equal to (i) the Drawdown Amount divided by (ii) a price per share (the Discounted Price) calculated by applying a specified percentage discount to the market price for Isotechnika Shares determined over a specified 20-day pricing period (the Pricing Period).

4.7.3 Forthwith upon issuance of a Drawdown Notice, Isotechnika will issue a news release (a Drawdown News Release): (i) disclosing the issuance of the particular Drawdown Notice to Azimuth; (ii) stating that the Prospectus (amended, restated or supplemented, as the case may be, in respect of the Drawdown) has been or will be filed and is or will be available on the System for Electronic Document Analysis and Retrieval (SEDAR); and (iii) describing the rights of action provided in accordance with paragraph 4.7.7.

4.7.4 If Azimuth and Isotechnika agree to change the minimum price at which Isotechnika Shares will be sold under the Equity Line, they will forthwith issue a news release disclosing that change.

4.7.5 Forthwith following the closing of a Drawdown, Isotechnika will issue a further news release (a Closing News Release): (i) announcing such closing; (ii) stating that the Prospectus is available on SEDAR; (iii) specifying the relevant Distribution Period (as defined below); and (iv) describing the rights of action described in paragraph 4.7.7.

4.7.6 If Azimuth, within 40 days of settlement of a Drawdown (the Distribution Period).

4.7.6.1 resells, through the TSX or otherwise into the secondary market in Canada, any of the Isotechnika Shares acquired by it pursuant to any Drawdown; or

4.7.6.2 directly or indirectly hedges the investment risk associated with its acquisition of any Isotechnika Shares by means of short sales or similar strategies involving the sale of Isotechnika Shares (or securities convertible into, exchangeable for or economically equivalent to Isotechnika Shares) through the TSX or otherwise into the secondary market in Canada;

Isotechnika will recognize the first purchasers (the First Purchasers) of such securities as having purchased pursuant to a distribution under the Prospectus and as having received constructive delivery of the Prospectus through a combination of Isotechnika's filing of the Prospectus in accordance with paragraph 4.6 and the issuance of the Drawdown News Release and the Closing News Release in connection with the particular Drawdown.

4.7.7 In the event that there is a misrepresentation in the Prospectus, each First Purchaser will be entitled to rights:

4.7.7.1 for damages, against Isotechnika, every director of Isotechnika as at the date of the Prospectus, and every other person who signs the Prospectus; and

4.7.7.2 for rescission, against Isotechnika;

and such rights will be described in the Prospectus.

4.8 The material terms of the Subscription Agreement and the Equity Line will be disclosed in a combination of the base shelf Prospectus and one or more shelf prospectus supplements. Because the price at which Isotechnika Shares will be sold in a particular Drawdown will not be fixed with certainty until the end of the Pricing Period, that pricing information will be disclosed in a prospectus supplement. Resales of Isotechnika Shares acquired by Azimuth under the Equity Line will be made at then-prevailing market prices.

4.9 Azimuth seeks relief from the Registration Requirements in respect of the sale to First Purchasers because it will sell Isotechnika Shares acquired by it under the Equity Line over the TSX and will have no direct contract with purchasers.

4.10 Azimuth seeks relief from the Underwriter Certificate Requirement because Azimuth will not be acting as a conventional underwriter with respect to the Equity Line.

4.11 Isotechnika and Azimuth seek relief from the Withdrawal Right, the Rescission Right, the Prescribed Statutory Rights of Action and the Prescribed Prospectus Requirements because of the nature of the Equity Line.

4.12 Azimuth and Isotechnika seek relief from the Prospectus Delivery Requirements in respect of sales by Azimuth to First Purchasers because Azimuth and Isotechnika will not necessarily know the identity of the First Purchasers in market transactions.

Decision

5. Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.

6. The decision of the Decision Makers under the Legislation is that:

6.1 the Requested Relief is granted provided that:

6.1.1 the number of Isotechnika Shares distributed by Isotechnika under one or more equity lines, including the Equity Line, in any 12-month period does not exceed 10% of the number of Isotechnika Shares issued and outstanding as at the start of such period;

6.1.2. Isotechnika delivers to the TSX and each Decision Maker, on request, a copy of each Drawdown Notice;

6.1.3 Azimuth does not solicit offers to purchase Isotechnika Shares and effects all sales of Isotechnika Shares through the TSX using a dealer unaffiliated with Azimuth and Isotechnika and registered under the applicable Legislation;

6.1.4 the Pricing Period in respect of a particular Drawdown commences within five trading days after the issuance of the related Drawdown Notice;

6.1.5 Azimuth makes available to the Decision Makers on request full particulars of all trading and hedging activities of Azimuth and any of its affiliates relating to securities of Isotechnika during the Term; and

6.1.6 no extraordinary commission or consideration is paid by Azimuth in respect of the distribution of Isotechnika Shares; and

6.2 The Confidentiality Relief is granted.

"Glenda A. Campbell, Q.C."
Vice-Chair
Alberta Securities Commission
 
"Stephen R. Murison"
Vice-Chai
Alberta Securities Commission