Relief from issuer bid requirements -- Applicantissued its employees, senior officers and directors 2,818,286options to purchase its common shares pursuant to its stockoption plan -- the exercise price of each of the outstandingoptions is significantly higher than the current trading priceof the common shares -- under the rules of the TSX Venture Exchange,Applicant unable to issue additional options under stock optionplan -- Applicant intending to reduce exercise price of optionsby issuing replacement options with a lower exercise price --exchange of options approved by board of directors and conditionallyapproved by TSX Venture Exchange -- exchange of options to beput to a vote of disinterested shareholders of the Applicant-- relief granted from issuer bid requirements.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c. S.5, as am.,ss. 95-98, 100 and 104(2)(c).
IN THE MATTER OF
THE SECURITIES ACT,
R.S.O. 1990, Chapter S.5,AS AMENDED (the "Act")
IN THE MATTER OF
UPON the application of Avotus Corporation("Avotus") to the Ontario Securities Commission (the"Commission") for an order pursuant to clause 104(2)(c)of the Act exempting Avotus from the issuer bid requirementsof sections 95, 96, 97, 98 and 100 of the Act (the "IssuerBid Requirements") in connection with an Option ExchangeProgram (as defined below);
AND UPON considering the applicationand the recommendation of the staff of the Commission;
AND UPON Avotus having represented tothe Commission as follows:
1. Avotus is a corporation existing underthe laws of Canada.
2. Avotus is a communications management companyoffering software, products and services that monitor, analyzeand control communications information travelling over voiceand data networks.
3. Avotus has been a reporting issuer underthe Act since its formation by way of amalgamation on February20, 2001 and is not in default of any requirements of theAct or the regulation made thereunder.
4. The common shares in the capital of Avotus(the "Common Shares") are listed on the TSX VentureExchange (the "TSXV"). As of June 16, 2003, Avotushad 15,799,826 Common Shares issued and outstanding.
5. Avotus has in place a Stock Option Plan(the "Plan"), pursuant to which 2,818,284 options("Options") to purchase Common Shares are outstanding.Each Option entitles the holder to purchase one Common Share,upon payment of an exercise price that ranges from $0.22 to$6.75, with a weighted average exercise price of $1.02.
6. The closing price of the Common Sharesfrom January 1, 2003 to June 15, 2003 ranged from $0.12 to$0.46. Therefore, the exercise price of each of the outstandingOptions is significantly higher than the current trading priceof the Common Shares.
7. Avotus is not permitted to issue additionalOptions under the Plan because under applicable TSXV policies,listed companies may not, under any circumstances, grant optionsto purchase listed securities in excess of 20% of the totalnumber of listed securities issued and outstanding.
8. Applicable TSXV rules, however, permitAvotus to reduce the exercise price of the Options by (i)amending the terms of the Options to lower their exerciseprice (a "Repricing"); or (ii) issuing replacementsoptions with a lower exercise price. Either course of actionrequires the prior approval of the TSXV and, as required bythe TSXV, shareholders of Avotus.
9. On May 6, 2003, the board of directorsof Avotus determined that it is in the best interests of Avotusto approve (and did approve) an option exchange program (the"Option Exchange Program") that will be offeredto current employees (including senior officers) and directorsof Avotus (the "Eligible Participants") who hold2,418,882 Options (the "Old Options"). The OptionExchange Program will not apply to Old Options issued afterDecember 31, 2002. Board approval was subject to obtainingapproval from the TSXV and, as required by the TSXV (and describedin paragraph 1.14), the disinterested shareholders of Avotus.
10. The board approved the Option ExchangeProgram as opposed to a Repricing because it was advised thata Repricing may give rise to adverse accounting treatmentfor Avotus.
11. Under the Option Exchange Program, EligibleParticipants will be given the opportunity to exchange OldOptions for an equal number of new options to purchase CommonShares to be issued under the Plan (the "New Options").There are a maximum of 2,418,882 Old Options subject to theOption Exchange.
12. The New Options will be granted no earlierthan six months and one day from the date an Eligible Employeenotifies the Corporation of its desire to participate in theOption Exchange Program. The New Options will have an exerciseprice equal to the weighted average of the closing price perCommon Share on the TSXV on the 20 trading days ending onthe last trading day preceding the date of grant. Each NewOption will be exercisable for the remainder of the term ofits corresponding Old Option (not exceeding 10 years fromthe date of grant of the Old Option) and will vest in accordancewith the terms of the Plan.
13. The TSXV has conditionally approved theOption Exchange Program, subject to: (a) Avotus obtainingdisinterested shareholder approval for the Option ExchangeProgram (as described in paragraph 14 below); (b) Avotusnot permitting Old Options granted within the last 6 monthsto be exchanged; and (c) the restriction that if theexercise price of the New Options is equal to the DiscountedMarket Price (as defined in the TSXV Policies) of the CommonShares, a new TSXV hold period will apply to the New Options.
14. At its annual and special meeting scheduledfor June 24, 2003, Avotus will seek shareholder approval tothe issuance of New Options under the Option Exchange Programin respect of the exchange of up to 1,798,205 Old Optionsby Eligible Participants who are directors and senior officersof Avotus who, along with their Associates (as defined inthe TSXV Policies), will not be permitted to vote on the matter.
15. The exchange of Old Options by Avotusconstitutes an issuer bid under the Act. No exemptions fromthe requirements of Part XX of the Act are fully available,because (i) the maximum number of Old Options that could beexchanged exceeds 5% of Avotus' outstanding Options, contraryto the requirements of subsection 93(3)(d) of the Act; and(ii) the exemption in subsection 93(3)(d) does not apply todirectors.
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 the purchase by Avotus of up to 2,418,882 Optionsto purchase Common Shares from the Eligible Participants beexempt from the Issuer Bid Requirements.
June 27, 2003.
"Paul M. Moore"
"H. Lorne Morphy"