Securities Law & Instruments


Clause 104(2)(c) - Issuer bid for warrants andpossible indirect issuer bid for underlying securities afteramendment to outstanding share purchase warrants permittinglender to require repurchase of warrants at pre-determined price- Warrants originally issued as part of a financing agreementbut lender required repurchase rights as a condition for advancingfurther funds - granting of the put right and call right isa financing scheme and not in substance an issuer bid - issuerbid for warrants exempt from issuer bid requirements of PartXX.

Statutes Cited

Securities Act, R.S.O. 1990, c. S.5, as amendedss. 89(1), 95, 96, 97, 98, 100 and 104(2)(c).









(Clause 104(2)(c))

UPON the application (the "Application")of Microtec Enterprises Inc. ("Microtec") to the OntarioSecurities Commission (the "Commission") for an orderpursuant to section 104(2)(c) of the Act exempting Microtecfrom the requirements of sections 95-98 and section 100 of theAct (the "Issuer Bid Requirements") in connectionwith the proposed amendment to certain outstanding share purchasewarrants of Microtec (the "Warrants") previously issuedto GE Capital Canada Equipment Financing Inc. ("GE")as more fully described below;

AND UPON considering the Applicationand the recommendation of the staff of the Commission;

AND UPON Microtec having representedto the Commission as follows:

1. Microtec was formed by Certificate of Amalgamationunder the Companies Act (Quebec) on June 30, 1996.

2. Microtec is a reporting issuer in the Provinceof Ontario and is not on the list of defaulting issuers maintainedpursuant to Section 72(9) of the Act.

3. The authorized share capital of Microtecconsists of an unlimited number of subordinate voting shareswithout par value (the "Subordinate Voting Shares"),an unlimited number of multiple voting shares without parvalue (the "Multiple Voting Shares"), an unlimitednumber of first-ranking preferred shares without par value,issuable in series and an unlimited number of second-rankingpreferred shares without par value, issuable in series, ofwhich 4,898,252 Subordinate Voting Shares, 5,529,052 MultipleVoting Shares and no preferred shares are issued and outstandingas at December 31, 2002. The Subordinate Voting Shares arelisted on the Toronto Stock Exchange (the "TSX").

4. In December 1999, Microtec and each ofits subsidiaries (the "Microtec Group") enteredinto a credit agreement with GE, as agent and lender, (asamended, modified, supplemented or restated from time to time)(the "Term B Agreement") in the amount of $15,000,000.

5. In connection with the Term B Agreement,GE received Warrants, which provide GE with the right to purchasea maximum of 904,177 Subordinate Voting Shares (to a maximumof 7.5% of the participating equity of Microtec on a fully-dilutedbasis) at a price of $1.43 per Subordinate Voting Share. OnAugust 21, 2002, the TSX conditionally approved amendmentsto the Warrants to allow for the immediate exercise of theWarrants. This amendment became effective on September 30,2002. Effective as of January 2, 2003, as the result of acorporate reorganization, GE conveyed the Warrants to a newwholly-owned GE general partnership called "GE CanadaEquipment Financing G.P.". No other Warrants are issuedand outstanding.

6. The Subordinate Voting Shares issuableupon exercise of the Warrants have been reserved for issuanceand approved for listing on the TSX. The Warrants are notlisted on the TSX.

7. The Warrants were issued to GE with theexpectation that the value of the Warrants would eventuallysupplement the financial return to GE under the Term B Agreement.However, as a result of market conditions and other factors,the exercise price of the Warrants has remained substantiallyabove the 30 day moving average price of the Subordinate VotingShares on the TSX, which as of January 8, 2002 was $1.05.

8. Microtec entered into a senior amendedand restated credit agreement dated as of January 22, 2002(the "Term A Agreement") (as amended, modified,supplemented or restated from time to time) in the amountof $65,000,000. The Term A Agreement includes GE as lenderand as Syndication Agent and Documentation Agent.

9. In connection with the renewal of the TermA Agreement, Microtec was advised that certain participantsin the syndicate of lenders would not be renewing their commitments.As a result, Microtec requested that GE increase its commitmentunder the Term A Agreement from $20,500,000 to $25,000,000.

10. In consideration of increasing its commitmentunder the Term A Agreement, GE requested certain assuranceswith respect to its anticipated return under the Term B Agreementfrom the Warrants.

11. On November 15, 2002, the Microtec Groupand GE entered into an Accomodation Fee Letter (the "AccomodationFee Letter") that provides, upon the occurrence of certainevents, for the payment by Microtec of an accomodation fee(the "Accomodation Fee") in connection with theloan provided by GE under the Term B Agreement.

12. The Accomodation Fee Letter further providesthat upon the fulfillment of certain conditions, includingthe approval of applicable regulatory authorities, GE andMicrotec shall enter into an amending agreement (the "AmendingAgreement") at which time the Accomodation Fee Letterwill terminate and the Warrants will be amended to providefor a payment (the "Put Price") equivalent to theAccomodation Fee in the same circumstances as were applicableunder the Accomodation Fee Letter. Further, GE agreed to refrainfrom exercising its rights under the Warrants until the terminationof the Accomodation Fee Letter, provided Microtec is not indefault under the Accomodation Fee Letter.

13. Pursuant to the Amending Agreement GEshall be provided a right (the "Put Right") to requireMicrotec to repurchase from GE the Warrants for an amountequal to the Put Price upon the earlier of the expiry dateof the Warrants and the occurrence of certain events basedupon the payment, termination or maturity of the loans underthe Term B Agreement, a recapitalization of Microtec, or theoccurrence of an event of default under the Term A Agreementor Term B Agreement (each, a "Put Event"). The AmendingAgreement also provides Microtec a right (the "Call Right")to require GE to sell to Microtec the Warrants for an amountequal to the Put Price exercisable at any time.

14. The Put Price to be paid by Microtec inrespect of the exercise of the Put Right or the Call Rightunder the Warrant shall be equal to $2,100,000, provided thatthe Put Price shall be increased to $3,000,000 if any PutEvent occurs after December 31, 2003 and certain financialconditions have not been achieved by Microtec.

15. The Amending Agreement was conditionallyapproved by the TSX on December 27, 2002.

16. Pursuant to a side letter (the "SideLetter"), Microtec and GE agreed to amend the AmendingAgreement to allow for the partial exercise of the Call Rightby Microtec at any time. The Side Letter remains subject tothe approval of the TSX.

17. On December 12, 2002, Microtec renewedthe Term A Agreement pursuant to which GE increased its participationfrom $20,500,000 to $25,000,000.

18. The Accomodation Fee was negotiated betweenMicrotec and GE to include a portion of the expected returnby GE under the Term B Agreement and was part of the considerationrequired by GE for increasing its participation under theTerm A Agreement. GE was no longer prepared to rely on theWarrants to eventually supplement the financial return toGE under the Term B Agreement.

19. The issuance of the Warrants and enteringinto the Amending Agreement as part of the consideration forthe credit facility provide GE with a form of delayed payment.

20. GE, whose affiliate is the only holderof Warrants, has advised Microtec that it is knowledgeableof the affairs of Microtec, considers itself able to evaluatethe amendment to the Warrants without the assistance of anissuer bid circular or a valuation of the Warrants and doesnot object to the granting of the relief requested herein.

21. The board of directors of Microtec hasdetermined that the Amending Agreement is in the best interestsof Microtec and all its securityholders, including the publicholders of the Subordinate Voting Shares. The board of directorsof Microtec unanimously approved the Amending Agreement ina meeting on November 14, 2002.

22. As a result of its involvement with Microtec,GE appointed an observer with no voting rights to the boardof directors of Microtec in December 1999. This observer didnot assist the discussions of the board of directors in theconsideration of the renewal of the Term A Agreement or inthe entering into of the Amending Agreement.

23. The Amending Agreement will improve thefinancial position of Microtec, will not adversely affectMicrotec or the rights of any of Microtec's security holdersand will not materially affect control of Microtec.

24. GE represented the most convenient andcost effective means of obtaining increased financing necessaryfollowing the withdrawal of two lenders from the Term A lendingsyndication. GE would not have increased its participationunder the Term A Agreement if Microtec was not willing toenter into the Amending Agreement.

25. The transaction is supported by the twoprincipal shareholders of Microtec Raymond Gilbert, the Chairmanof the Board of Directors and Chief Executive Officer of Microtec,and Telesystem Ltd. (the "Principal Shareholders").The Principal Shareholders represent approximately 90% ofvoting shares and 69% its equity shares. The Principal Shareholdersare acting at arm's length from GE.

26. The negotiation of the terms of the AmendingAgreement between GE and the Microtec Group were conductedat arm's length.

27. The Amending Agreement, and the Put Rightand Call Right thereunder, constitutes an "issuer bid"for the Warrants and may constitute an issuer bid for theSubordinate Voting Shares under s. 89(1) of the Act. However,the purpose of the transaction contemplated by the AmendingAgreement is not to acquire, directly or indirectly, SubordinateVoting Shares, but to provide financing for the Microtec Group.

AND UPON the Commission being satisfiedthat to do so would not be prejudicial to the public interest;

IT IS ORDERED pursuant to clause 104(2)(c)of the Act that Microtec be exempt from the Issuer Bid Requirementsin connection with the proposed amendment to the Warrants asset out in the Amending Agreement (as amended by the Side Letter).

January 21, 2003.

"Howard I. Wetston"                    "H.Lorne Morphy"