Systech Retail Systems Corp. - MRRS Decision

Headnote

Mutual Reliance Review System for ExemptiveRelief Applications -- Relief from registration and prospectusrequirements in connection with an arrangement under the Companies'Creditors Arrangement Act (Canada). First trade deemed a distributionunless made in accordance with specified provisions of MultilateralInstrument 45-102 -- Resale of Securities.

Applicable Ontario Statutory Provisions

Securities Act, R.S.O. 1990, c. S.5, as am.,ss. 25, 53 and 74(1).

Applicable Ontario Rules

Rule 45-501 -- Exempt Distributions.

Applicable Multilateral Instruments

Multilateral Instrument 45-102 -- Resale ofSecurities.

IN THE MATTER OF

THE SECURITIES LEGISLATIONOF

ALBERTA, SASKATCHEWAN, MANITOBA,

ONTARIO, QUÉBEC, NOVASCOTIA, NEW BRUNSWICK,

PRINCE EDWARD ISLAND AND NEWFOUNDLANDAND LABRADOR

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEWSYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

SYSTECH RETAIL SYSTEMS CORP.

MRRS DECISION DOCUMENT

WHEREAS the local securities regulatoryauthority or regulator (the Decision Maker) in each of Alberta,Saskatchewan, Manitoba, Ontario, Québec, Nova Scotia,New Brunswick, Prince Edward Island and Newfoundland and Labrador(collectively, the Jurisdictions) has received an applicationfrom Systech Retail Systems Corp. (Systech) for a decision underthe securities legislation of the Jurisdictions (the Legislation)that the requirements contained in the Legislation to be registeredto trade in a security (the Registration Requirement) and tofile and obtain a receipt for a preliminary prospectus and aprospectus (the Prospectus Requirement) shall not apply to certaintrades in connection with a plan of compromise and arrangement(the CCAA Plan) under the Companies' Creditors ArrangementAct (the CCAA) and a consolidated amended plan of reorganization(the U.S. Plan and, together with the CCAA Plan, the Plans)under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C.§§ 101-1330, as amended (the U.S. Bankruptcy Code);

AND WHEREAS under the Mutual RelianceReview System for Exemptive Relief Applications (the System),the Ontario Securities Commission is the principal regulatorfor this application;

AND WHEREAS, unless otherwise defined,the terms herein have the meaning set out in National Instrument14-101 Definitions or in Québec Commission Notice 14-101;

AND WHEREAS Systech has represented tothe Decision Makers that:

1. Systech is a corporation organized underthe laws of the Province of Ontario and its registered officeis located in Mississauga, Ontario.

2. Systech is a reporting issuer (or its equivalent)in each of the Provinces of Ontario, British Columbia andQuébec and has been so for a period in excess of 12months.

3. Systech is not on the list of defaultingissuers maintained by the Decision Makers in the Provincesof Ontario and Québec pursuant to the Legislation orby the British Columbia Securities Commission pursuant tothe Securities Act (British Columbia) and the regulationsand rules made thereunder.

4. Systech is not currently a qualified issueras defined under Multilateral Instrument 45-102 Resale ofSecurities (45-102), but is an electronic filer under NationalInstrument 13-101 System for Electronic Document Analysisand Retrieval (SEDAR).

5. The authorized capital of Systech consistsof an unlimited number of common shares, an unlimited numberof Series A convertible preferred shares and an unlimitednumber of Series C convertible preferred shares, of which,as at August 7, 2003, there were 36,645,901 common shares,301,059 Series A convertible preferred shares and 1,174,947Series C convertible preferred shares issued and outstanding.

6. As at August 7, 2003, there were outstandingwarrants of Systech (the Old Warrants) exercisable for 10,161,214common shares of Systech and options (the Old Options) grantedby Systech pursuant to two option plans in respect of directors,officers, employees and consultants exercisable for 1,644,500common shares of Systech.

7. The outstanding common shares of Systechare listed and posted for trading on the Toronto Stock Exchange(the TSX) under the symbol "SYS".

8. On January 13, 2003, Systech and its subsidiariesfiled voluntary petitions for relief pursuant to Chapter 11of the U.S. Bankruptcy Code in the United Stated BankruptcyCourt for the Eastern District of North Carolina (the U.S.Court). In addition, on January 16, 2003 and January 20, 2003,Systech and certain of its Canadian subsidiaries sought, andby order of the Ontario Superior Court of Justice (the CanadianCourt and, together with the U.S. Court, the Courts), wasgranted protection from its creditors pursuant to the CCAA.

9. The Plans provide for a comprehensive recapitalizationof Systech and its subsidiaries through the settlement ofclaims in consideration of the issuance of new debt, 1,908,329,606additional common shares (the New Common Shares) and 136,148,285warrants (the New Warrants) of Systech, each whole New Warrantentitling the holder to acquire one common share of Systechat a price of Cdn$0.025 per share for a period of 5 yearsfollowing implementation of the Plans. The aggregate numberof the New Warrants will equal 7% of the number of commonshares of Systech outstanding after implementation of thePlans. The Plans have the support of Systech's senior securedlenders, Park Avenue Equity Partners, L.P. and IntegratedPartners Limited Partnership One (the "Senior SecuredLenders").

10. A disclosure statement for the U.S. Plan(the Disclosure Statement), which was prepared in accordancewith the requirements of the U.S. Bankruptcy Code, was conditionallyapproved by the U.S. Court on July 3, 2003 and distributedto the Senior Secured Lenders, secured creditors and eachholder of impaired unsecured claims under the U.S. Plan.

11. The Disclosure Statement provides a detaileddescription of the terms of the U.S. Plan, the backgroundand events leading up to the filing of the Plans and prospectus-leveldisclosure of the business of Systech and includes proforma financial statements.

12. The CCAA Plan was filed with the CanadianCourt on August 6, 2003. A Canadian disclosure statement,containing information specific to the CCAA proceedings andincluding a summary of the Disclosure Statement was sent toeach of the Senior Secured Lenders, secured creditors andeach person that would have been an affected unsecured creditorunder the CCAA Plan.

13. On the implementation of the Plans, amongother things, the following trades (the Trades) will occurin the Jurisdictions:

13.1 The secured claims of the Senior SecuredLenders will be satisfied through the issuance to the SeniorSecured Lenders of a pro rata share of the New CommonShares and New Warrants, which New Common Shares, togetherwith the existing 3,333,333 common shares of Systech ownedby Park Avenue Equity Partners, L.P., shall represent 80%of the common shares of Systech outstanding after implementationof the Plans;

13.2 The secured and unsecured claims ofRobert Simon will be satisfied as follows: (a) payment ofCdn$325,000 in cash to Robert Simon on the date of the implementationof the Plans; (b) the balance owing to Robert Simon to bepaid from royalties due to Systech pursuant to a softwaredevelopment agreement between MGV Computer Holdings, Inc.and IBM after implementation of the Plans (all such paymentsare contingent on such royalties and are non-recourse);(c) 3.25% of the common shares of Systech and New Warrantsowned by the Secured Lenders and management of Systech willbe held in escrow as security to Robert Simon of the obligationof Systech in 13.2(b) above; and (d) the payment noted in13.2(a) is inclusive of a payment of Cdn$25,000 in cashto George Patterson (a former shareholder of MGV ComputerHoldings, Inc.) on the date of the implementation of thePlans for work performed on the agreement noted in 13.2(b)above as a director;

13.3 The secured claim of Systech Group,Inc. will be satisfied through the issuance to Systech Group,Inc. of a pro rata share of the New Common Sharesand New Warrants, which New Common Shares shall represent6.47578% of the common shares of Systech outstanding afterimplementation of the Plans and, together with the existing21,865,597 common shares of Systech owned by Systech Group,Inc., Systech Group, Inc. shall own approximately 7.6% ofthe common shares of Systech outstanding after implementationof the Plans;

13.4 Holders of impaired unsecured claimswill be satisfied through the issuance to such holders ofa pro rata share of the New Common Shares and NewWarrants, which New Common Shares shall represent 10% ofthe common shares of Systech outstanding after implementationof the Plans;

13.5 The Class A preferred shares and ClassC preferred shares of Systech will be cancelled and extinguishedand the holders thereof will be issued a pro ratashare of the New Common Shares and New Warrants, which NewCommon Shares shall represent 1.81147% of the common sharesof Systech outstanding after implementation of the Plans.Park Avenue Equity Partners, L.P., which is the registeredand beneficial owner of 246,575 Class A preferred sharesof Systech, has agreed to waive any right to receive a distributionof New Common Shares and New Warrants on account of itsClass A preferred share holdings;

13.6 Holders of common shares of Systech:(a) will retain such shares, which, excluding the existing3,333,333 common shares of Systech owned by Park AvenueEquity Partners, L.P., shall represent 1.71275% of the commonshares of Systech outstanding after implementation of thePlans; and (b) other than Park Avenue Equity Partners, L.P.,will be issued a pro rata share of the New Warrants;

13.7 Each holder of an Old Warrant and OldOption will not receive or retain any property under thePlans and all Old Warrants and all Old Options will be extinguishedand terminated; and

13.8 The Senior Secured Lenders shall segregateand dedicate approximately 10% of their holdings of commonshares of Systech after implementation of the Plans to amanagement stock option incentive plan to be developed bySystech following implementation of the Plans (the New Options).

14. In certain Jurisdictions, not all of theTrades are exempt from the Registration Requirement and ProspectusRequirement.

15. Other than through the vote on the Plansin the U.S. Court, shareholder approval of the Plans is notrequired under the CCAA, the Business Corporations Act(Ontario) or the U.S. Bankruptcy Code;

16. Systech has received conditional listingapproval from the TSX for the New Common Shares, the New Warrantsand the common shares of Systech issuable upon the due exerciseof the New Warrants, subject to certain conditions.

17. Section 1145(a)(1) of the U.S. BankruptcyCode exempts the offer and sale of securities from registrationunder U.S. federal and state securities laws if: (a) the securitieshave been issued "under a plan" of reorganizationby the debtor or its successor or by an affiliate participatingin a joint plan of reorganization with the debtor; (b) therecipients of the securities hold a pre-petition or administrativeexpense claim against the debtor or an interest in the debtor;and (3) the securities are issued entirely in exchange forthe recipient's claim against or interest in the debtor, or"principally" in such exchange and "partly"for cash or property. Section 1145(c) of the U.S. BankruptcyCode deems any offer or sale of securities of the kind andin the manner specified in Section 1145(a)(1) to have beena public offering, and such securities will be freely transferableunder U.S. federal securities laws, subject to certain exceptions.

18. Systech is of the view, and it has beenadvised, that implementation of the Plans is necessary forit to continue as a going concern and to provide a more favourableresult for creditors than a liquidation under applicable bankruptcylegislation.

AND WHEREAS under the System, this MRRSDecision Document evidences the decision of each Decision Maker(collectively, the Decision);

AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Maker with the jurisdiction to make theDecision has been met;

THE DECISION of the Decision Makers underthe Legislation is that the Registration Requirement and theProspectus Requirement shall not apply to the Trades providedthat: (A) all approvals required by orders of the U.S. Courtand the Canadian Court to implement the U.S. Plan and the CCAAPlan, respectively, have been obtained, and all conditions ofsuch Plans have been satisfied or waived in accordance withsuch Plans; and (B) the first trade in any New Common Sharesor New Warrants acquired under this Decision in a Jurisdictionor of the common shares of Systech issued upon the due exerciseof the New Warrants or New Options is deemed to be a distributionor a primary distribution to the public under the Legislationof such Jurisdiction unless:

1. except in the Province of Québec,the conditions in subsections (3) or (4) of Section 2.6 orsubsections (2) or (3) of Section 2.8 of 45-102 are satisfied;and

2. in the Province of Québec:

(a) the issuer is and has been a reportingissuer in the Province of Québec for the 12 monthsimmediately preceding the trade;

(b) no unusual effort is made to preparethe market or to create a demand for the securities thatare the subject of the trade;

(c) no extraordinary commission or considerationis paid to a person or company in respect of the trade;and

(d) if the selling shareholder is an insideror officer of the issuer, the selling shareholder has noreasonable grounds to believe that the issuer is in defaultof securities legislation.

September 11, 2003.