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Genesys S. A. & Astound Incorporated - ss. 74(1)
THE SECURITIES ACT
R.S.O. 1990, C.S. 5, AS AMENDED (the "Act")
AND
IN THE MATTER OF
GENESYS S.A. AND
ASTOUND INCORPORATED
RULING
(Subsection 74(1), clause 80(b)(iii) and
paragraph 121(2)(a)(ii) of the Act, and section 5.1 of Rule 51-501)
UPON the application of GENESYS S.A. ("GENESYS"), GENESYS ACQUIRECO (an indirect wholly-owned subsidiary of GENESYS), GENESYS CALLCO (an indirect wholly-owned subsidiary of GENESYS) and ASTOUND Incorporated ("ASTOUND") (collectively, the "Applicant") to the Ontario Securities Commission (the "Commission") for:
(a) a ruling pursuant to Section 74(1) of the Act that certain trades of securities in connection with the proposed merger (the "Merger") of GENESYS and ASTOUND, to be effected by way of a plan of arrangement (the "Arrangement") under Section 182 of the Business Corporations Act (Ontario), shall be exempt from the requirements of Sections 25 and 53 of the Act to be registered to trade in a security (the "Registration Requirements") and to file a preliminary prospectus and a prospectus and receive receipts therefor prior to distributing a security (the "Prospectus Requirements");
(b) an order pursuant to subsection 80(b)(iii) of the Act and section 5.1 of Rule 51-501 AIF and MD&A ("Rule 51-501") that ASTOUND be exempt from the requirements of Sections 75, 77, 78, 79 and 81(2) and Rule 51-501 of the Act to issue a press release and file a report regarding material changes (the "Material Change Reporting Requirements"), to file and deliver interim and annual financial statements (the "Financial Statement Requirements"), to file information circulars (the "Proxy Requirements") and to file annual information forms (including management's discussion and analysis of the financial condition and results of operation of ASTOUND (the "AIF Requirements"));
(c) an order pursuant to Section 121(2)(a)(ii) of the Act that the requirements contained in Sections 107, 108 and 109 of the Act for an insider of a reporting issuer to file reports disclosing the insider's direct or indirect beneficial ownership of, or control or direction over, securities of the reporting issuer (the "Insider Reporting Requirement") shall not apply to insiders of ASTOUND;
AND UPON considering the application and the recommendation of the staff of the Commission;
AND UPON the Applicant having represented to the Commission that:
1. GENESYS is a public company in France, the shares of which are listed on the Nouveau Marché of Euronext Paris (the Paris Bourse).
2. GENESYS is currently subject to the reporting requirements of the Commission des Opérations de Bourse ("COB") and the Nouveau Marché of Euronext Paris and is not a reporting issuer under the Act or under the securities legislation of any province or territory of Canada. GENESYS has filed a registration statement on Form F-4 for filing with the Securities and Exchange Commission, and such registration statement was declared effective under the Securities Exchange Act of 1934 (United States) (the "U.S. Securities Exchange Act") on February 12, 2001.
3. As at December 18, 2000, GENESYS' authorized capital consisted of 12,842,109 shares (the "GENESYS Shares") of nominal value of EURO 4.57 each, of which 9,342,381 GENESYS Shares were issued and outstanding.
4. GENESYS ACQUIRECO will be an indirect wholly-owned subsidiary of GENESYS. It will be incorporated under the Business Corporations Act (Nova Scotia) for the purpose of implementing the Arrangement. GENESYS ACQUIRECO's only material assets upon completion of the Arrangement will be the issued and outstanding common shares in the capital of ASTOUND (the "ASTOUND Common Shares"), the issued and outstanding Class A preferred shares in the capital of ASTOUND (the "Class A Preferred Shares") and the issued and outstanding Class C shares in the capital of ASTOUND (the "Class C Shares").
5. The authorized capital of GENESYS ACQUIRECO will consist of an unlimited number of common shares and an unlimited number of Class A, Class B, Class C and Class D preferred shares. Upon completion of the Arrangement, all of the issued and outstanding common shares and preferred shares of GENESYS ACQUIRECO will be held directly or indirectly by GENESYS.
6. GENESYS CALLCO will be an indirect wholly-owned subsidiary of GENESYS. It will be incorporated under the Business Corporations Act (Nova Scotia) for the purpose of implementing the Arrangement. GENESYS CALLCO will hold the various call rights related to the non-voting exchangeable shares to be created in the capital of ASTOUND under the Arrangement (the "Exchangeable Shares").
7. The authorized capital of GENESYS CALLCO will consist of an unlimited number of common shares and an unlimited number of Class A, Class B, Class C and Class D preferred shares. Upon completion of the Arrangement, all of the issued and outstanding common shares and preferred shares of GENESYS CALLCO will be held directly or indirectly by GENESYS.
8. ASTOUND is a reporting issuer in Ontario and not in any other province or territory of Canada. Its shares are not listed or quoted on any stock market, traded on any automated quotation system or traded on any formal over-the-counter trading system. The ASTOUND Common Shares were previously traded over-the-counter on the Canadian Dealing Network, but have not done so since January 7, 1999 and have not otherwise been traded on any organized market.
9. ASTOUND's authorized capital consists of an unlimited number of ASTOUND Common Shares, an unlimited number of Series A preferred shares (the "ASTOUND Preferred Shares") and an unlimited number of ASTOUND Class B Preferred Shares. As at December 18, 2000, there were 17,399,324 ASTOUND Common Shares and 1,260,000 ASTOUND Preferred Shares and no Class B Preferred Shares (the "Class B Preferred Shares") issued and outstanding. As at December 18, 2000, options to acquire no more than 2,386,403 ASTOUND Common Shares were granted and outstanding under the ASTOUND Stock Option Plan (the "ASTOUND Options"), share purchase warrants to acquire 3,884,442 ASTOUND Common Shares, exercise price $1.00 per ASTOUND Common Share, were granted and outstanding (the "ASTOUND Warrants"), rights to acquire 1,137,500 ASTOUND Common Shares each exercisable for no additional consideration, were granted and outstanding (the "ASTOUND Special Warrants") and rights to acquire 1,307,375 ASTOUND Warrants, each exercisable for no additional consideration, were granted and outstanding (the "ASTOUND Overlying Warrants") (holders of ASTOUND Common Shares, ASTOUND Preferred Shares, ASTOUND Options, ASTOUND Special Warrants, ASTOUND Warrants and ASTOUND Overlying Warrants, collectively, the "ASTOUND Securityholders").
10. On September 8, 2000, pursuant to the terms of a convertible promissory note purchase agreement, ASTOUND issued to GENESYS a convertible promissory note in the principal amount of $2,500,000 due on September 8, 2005 (the "First Note"). On November 30, 2000, pursuant to the terms of the convertible note purchase agreement, ASTOUND issued to GENESYS a second convertible promissory note in the principal amount of $2,499,000 due on November 30, 2005 (the "Second Note"). Subject to certain conditions, the First Note and the Second Note are convertible into Class B Preferred Shares at the option of GENESYS. The conversion price is $2.91 per share, subject to certain anti-dilution adjustments.
11. On December 18, 2000, GENESYS and ASTOUND entered into a merger agreement (the "Merger Agreement"). The Merger will be effected by way of the Arrangement, pursuant to which GENESYS, through GENESYS ACQUIRECO and its affiliates, will own all of the ASTOUND Common Shares, Class A Preferred Shares, Class C Shares, the First Note and the Second Note.
12. Under the Arrangement, the authorized share capital of ASTOUND shall be reorganized as follows: (i) by creating, as a class of shares in the capital of ASTOUND, an unlimited number of Exchangeable Shares; (ii) by eliminating, as a class of shares in the capital of ASTOUND, the preferred shares issuable in series and eliminating, as a series thereof, the ASTOUND Preferred Shares; (iii) by creating, as a class of shares in the capital of ASTOUND, an unlimited number of Class A Preferred Shares; (iv) by creating, as a class of shares in the capital of ASTOUND, an unlimited number of Class C Shares; and (v) by providing that a holder of a fractional ASTOUND Common Share will be entitled, following the effective date of the Arrangement (the "Effective Date"), to exercise voting rights and to receive dividends in respect of such fractional ASTOUND Common Share, so that immediately after such reorganization the authorized share capital of ASTOUND shall consist of an unlimited number of Exchangeable Shares, an unlimited number of Class A Preferred Shares, an unlimited number of Class B Preferred Shares, an unlimited number of Class C Shares, an unlimited number of ASTOUND Common Shares which entitle the holder of a fractional common share to exercise voting rights and to receive dividends in respect thereof.
13. Under the Arrangement, each ASTOUND Common Share and each ASTOUND Preferred Share including those issued under the Arrangement pursuant to the exercise and deemed exercise of ASTOUND Special Warrants, ASTOUND Warrants and ASTOUND Overlying Warrants (other than those held by holders of ASTOUND Common Shares, ASTOUND Special Warrants and ASTOUND Preferred Shares who exercise their right of dissent and ASTOUND Common Shares and ASTOUND Preferred Shares, if any, held by GENESYS or any affiliate thereof), will be changed into:
(a) a number of fully paid and non-assessable Exchangeable Shares based on an exchange ratio (the "Exchangeable Share Ratio");
(b) a number of fully paid and non-assessable Class A Preferred Shares based on an exchange ratio (the "Preferred Share Ratio"); and
(c) a number of Class C Shares equal to the number of Class A Preferred Shares received under (b) above.
14. Each Exchangeable Share will be retractable by the holder at any time for one GENESYS Share. The Exchangeable Shares will be redeemable on a one for one basis for GENESYS Shares at ASTOUND's option on or after the tenth anniversary of the Effective Date or earlier in certain circumstances, including if fewer than 10% of the total number of Exchangeable Shares issued pursuant to the Arrangement are held by non-GENESYS entities and outstanding. Assuming that all the Exchangeable Shares were exchanged into GENESYS Shares, the resultant GENESYS Shares would constitute, in the aggregate, less than 10% of the aggregate outstanding GENESYS Shares.
15. Under the Arrangement, GENESYS ACQUIRECO will purchase from the holders of Class A Preferred Shares, all of the issued and outstanding Class A Preferred Shares, in consideration of a cash purchase price per share (the "Class A Purchase Price").
16. Under the Arrangement, GENESYS ACQUIRECO will purchase from the holders of Class C Shares all of the issued and outstanding Class C Shares, in consideration for a cash purchase price per share (the "Class C Purchase Price").
17. Under the Arrangement, each ASTOUND Option outstanding on the third Business Day prior to the Effective Time will cease to be exercisable to acquire ASTOUND Common Shares and will be assumed by GENESYS ACQUIRECO and exchanged for an option (a "Replacement Option") to purchase a number of GENESYS Shares equal to the product of the number of ASTOUND Common Shares that were issuable upon exercise of such option immediately prior to the Effective Time multiplied by an exchange ratio (the "Options Exchange Ratio").
18. Under the Arrangement, (a) each ASTOUND Overlying Warrant shall be exercised and shall be deemed to be exercised and the underlying share purchase warrant shall be issued with respect thereto; (b) each outstanding ASTOUND Warrant with respect to which the holder has delivered to and deposited with ASTOUND (i) a notice of exercise, and (ii) cash in an amount equal to the exercise price, prior to the date that is three Business Days preceding the Effective Date, shall be exercised and shall be deemed to have been exercised and shall thereby be changed into one ASTOUND Common Share, and each other ASTOUND Warrant shall be cancelled and forfeited with no compensation or consideration to the holder; and (c) each outstanding ASTOUND Special Warrant shall be exercised and shall be deemed to be exercised and one ASTOUND Common Share shall be issued with respect thereto.
19. Subject to the terms of an interim order (the "Interim Order") to be sought from the Superior Court of Justice (Ontario) (the "Court"), it is anticipated that the required approval of ASTOUND Securityholders shall be obtained at a meeting (the "Meeting") by the approval of (a) not less than 66 2/3% of the votes cast by the holders of the ASTOUND Common Shares, ASTOUND Options, ASTOUND Overlying Warrants, ASTOUND Special Warrants and ASTOUND Warrants and (b) not less than 66 2/3% of the votes cast by holders of ASTOUND Preferred Shares, voting separately as a class; for such purposes each holder of ASTOUND Common Shares will be entitled to one vote for each ASTOUND Common Share or ASTOUND Preferred Share held and each holder of ASTOUND Options, ASTOUND Overlying Warrants, ASTOUND Special Warrants and ASTOUND Warrants will be entitled to one vote for each ASTOUND Common Share such holder would have received on a valid exercise of such holder's ASTOUND Options, ASTOUND Overlying Warrants, ASTOUND Special Warrants and ASTOUND Warrants, as applicable.
20. In connection with the Arrangement, ASTOUND will send to the ASTOUND Securityholders a management proxy circular (the "Circular"). The Circular will contain disclosure of the business and affairs of each of GENESYS and ASTOUND and of the particulars of the Arrangement. The disclosure provided with respect to GENESYS will be substantially identical to the disclosure provided in a registration statement on Form F-4 filed on a confidential basis (the "F-4 Filing") with the Securities and Exchange Commission ("SEC") by GENESYS with respect to a significant pending merger between GENESYS and Vialog Corporation.
21. In connection with the Arrangement, GENESYS, GENESYS CALLCO, ASTOUND and a trustee will enter into an exchange trust agreement (the "Exchange Trust Agreement") and GENESYS, GENESYS CALLCO and ASTOUND will enter into a support agreement (the "Support Agreement"). These two agreements, together with the rights, privileges, restrictions and conditions attaching to the Exchangeable Shares (the "Exchangeable Share Provisions"), result in the economic attributes of the Exchangeable Shares being substantially equivalent in all material respects to the economic attributes of the GENESYS Shares (without taking into account tax effects). However, the holders of Exchangeable Shares will not be provided with voting rights at the GENESYS level unless and until they exchange their Exchangeable Shares for GENESYS Shares.
22. Pursuant to the Exchange Trust Agreement, GENESYS CALLCO will grant to a trustee (the "Trustee") for the benefit of holders (other than GENESYS and its affiliates) of the Exchangeable Shares (the "Beneficiaries") the right to require GENESYS CALLCO to purchase from any Beneficiary all or any part of the Exchangeable Shares held by such Beneficiary upon the occurrence and during the continuance of an insolvency event involving ASTOUND. Under the Exchange Trust Agreement, the Trustee also holds for the benefit of the Beneficiaries the obligation of GENESYS CALLCO to effect an automatic exchange of Exchangeable Shares for GENESYS Shares in the case of an insolvency or liquidation event affecting GENESYS. In addition, GENESYS will covenant to, among other things, cause to be fulfilled all of the obligations of GENESYS CALLCO under the Exchange Trust Agreement.
23. The Support Agreement will restrict GENESYS from declaring or paying dividends on the GENESYS Shares unless equivalent dividends are declared and paid on the Exchangeable Shares. In addition, pursuant to the Support Agreement, GENESYS may not make any changes to the GENESYS Shares (e.g., subdivision, consolidation or reclassification) unless the same or economically equivalent changes are simultaneously made to, or in the rights of the holders of, the Exchangeable Shares.
24. The steps under the Arrangement, the creation and exercise of rights provided for in the Exchangeable Share Provisions, the Exchange Trust Agreement and the Support Agreement and the subsequent sales of Exchangeable Shares and/or GENESYS Shares by the holders of Exchangeable Shares involve or may involve a number of trades of securities, including trades related to the issuance of Exchangeable Shares, Class A Preferred Shares and Class C Shares pursuant to the Arrangement or upon the issuance of GENESYS Shares in exchange for Exchangeable Shares, the first trades of Exchangeable Shares received under the Arrangement, and the first trades of GENESYS Shares received upon the retraction or redemption of Exchangeable Shares, in connection with the liquidation, dissolution or winding-up of ASTOUND or upon the exercise of the Liquidation Call Right, the Retraction Call Right, the Redemption Call Right, the Exchange Rights or the Automatic Exchange Rights, or upon the exercise of the Replacement Options. To the extent that there are no exemptions from sections 25 and 53 of the Act for such trades (the "Trades"), and to the extent there would be particular disclosure, reporting, filing or fee payment obligations with respect to such Trades under available exemptions from sections 25 and 53 of the Act, exemptive relief is required.
25. The fundamental investment decision to be made by an ASTOUND Securityholder is made at the time of the Arrangement, when such holder votes in respect of the Arrangement. As a result of this decision, a holder (other than a holder who exercises its right of dissent) receives Exchangeable Shares and cash in exchange for its ASTOUND Common Shares, ASTOUND Special Warrants and ASTOUND Preferred Shares. The Exchangeable Shares may, at the holder's option, be retracted for GENESYS Shares. As the Exchangeable Shares will provide certain Canadian tax benefits to certain Canadian holders but will otherwise be the economic equivalent (without taking into account tax effects) in all material respects (absent voting rights) of the GENESYS Shares, all subsequent exchanges of Exchangeable Shares are in furtherance of the holder's initial investment decision at the time of the Arrangement. That investment decision will be made on the basis of the Circular, which will contain detailed disclosure of the business and affairs of each of GENESYS and ASTOUND and of the particulars of the Arrangement.
26. As a result of the economic equivalency in all material respects between the Exchangeable Shares and the GENESYS Shares (without taking into account tax effects and absent voting rights), holders of Exchangeable Shares will, in effect, have a non-voting equity interest in GENESYS, rather than ASTOUND, as dividend and dissolution entitlements will be determined by reference to the financial performance and condition of GENSYS, not ASTOUND.
AND UPON the Commission being satisfied that the test contained in the Act that provides the Commission with the jurisdiction to make the following decision has been met;
THE DECISION of the Commission is that:
1. Pursuant to Section 74(1) of the Act, section 25 and 53 of the Act shall not apply to the Trades provided that the first trade in Exchangeable Shares or GENESYS Shares acquired pursuant to this ruling is made in compliance with:
(a) subsection 72(5) of the Act and subsection 2.18(3) of Rule 45-501 Exempt Distributions as if the Exchangeable Shares or GENESYS Shares had been acquired pursuant to an exemption referred to in subsection 72(5) of the Act (the Commission hereby confirming that the filing of the Circular with the Commission at the time of mailing the Circular to ASTOUND Security holders constitutes disclosure to the Commission of the exempt trade); or
(b) Rule 72-501 Prospectus Exemption for First Trade Over a Market Outside Ontario as if the Exchangeable Shares were restricted securities as defined in the Rule and the GENESYS Shares were underlying restricted securities as defined in that Rule.
2. Pursuant to Section 80(b)(iii) of the Act, the Material Change Reporting Requirements, Financial Statement Requirements and Proxy Requirements shall not apply to ASTOUND and pursuant to Section 121(2)(a)(ii) of the Act, Insider Reporting Requirements shall not apply to an insider of ASTOUND who is an insider only by virtue of being a director or senior officer of ASTOUND or a subsidiary of ASTOUND or to transactions in Exchangeable Shares by GENESYS ACQUIRECO and GENESYS CALLCO, for so long as:
(a) GENESYS sends to all holders of Exchangeable Shares resident in Ontario all disclosure material furnished to holders of GENESYS Shares or American Depositary Shares representing GENESYS Shares resident in the United States, including, without limitation, copies of its annual financial statements, interim financial statements and notices prepared in connection with GENESYS' shareholder meetings;
(b) GENESYS files with the Commission copies of all documents required to be filed by it with the U.S. Securities and Exchange Commission under the U.S. Securities Exchange Act as amended, including without limitation, copies of any Form 20-F, Form 6-K and notices prepared in connection with GENESYS' shareholder meetings;
(c) GENESYS complies with the requirements of the Nouveau Marché of Euronext Paris and French securities law in respect of making public disclosure of material information on a timely basis and forthwith issues in Ontario and files with the Commission any press release that discloses a material change in GENESYS' affairs;
(d) the Circular includes a statement that, as a consequence of this order, ASTOUND and its insiders will be exempt from certain disclosure requirements applicable to reporting issuers and its insiders in Ontario, and specifies those requirements ASTOUND and its insiders have been exempted from, and identifies the disclosure that will be made in substitution therefor;
(e) ASTOUND complies with the requirements of Section 75 of the Act in respect of material changes in the affairs of ASTOUND that would be material to holders of Exchangeable Shares but would not be material to holders of GENESYS Shares;
(f) GENESYS includes in all future mailings of proxy solicitation materials (if any) to holders of Exchangeable Shares a clear and concise statement explaining the reason for the mailed material being solely in relation to GENESYS and not in relation to ASTOUND, such statement to include a reference to the economic equivalency (without taking into account tax effects) between the Exchangeable Shares and the GENESYS Shares;
(g) GENESYS remains the direct or indirect beneficial owner of all the issued and outstanding ASTOUND Common Shares;
(h) ASTOUND does not, at any time after the closing date of the Arrangement, issue any securities to the public other than the Exchangeable Shares; and
(i) GENESYS' annual audited financial statements are reconciled to or prepared in accordance with U.S. GAAP in its Form 20-F or equivalent documents and, if effected by way of a reconciliation, such reconciliation is audited.
March 16th, 2001.
J. A. Geller, Robert W. Davis
THE DECISION of the Director is that the AIF Requirements shall not apply to ASTOUND for so long as the conditions set out in paragraph 2 of the operative portion of the above decision of the Commission are satisfied.
March 16, 2001.
Iva Vranic