Advantex Marketing International Inc. - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications - Relief from registration and prospectus requirementsfor the issuance of up to 55 million Incentive Warrants and up to 15 million Commitment Warrants subject to certainconditions.

Statutes Cited

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

Regulations Cited

Regulation made under the Securities Act, R.R.O. 1990, Reg. 1015, as am.

IN THE MATTER OF

THE SECURITIES LEGISLATION

OF ONTARIO AND QUEBEC

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM FOR

EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

ADVANTEX MARKETING INTERNATIONAL INC.

MRRS DECISION DOCUMENT

WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of Ontario andQuebec (the "Jurisdictions") has received an application (the "Application") from Advantex Marketing International Inc.(the "Filer or Advantex") for a decision under the securities legislation of the Jurisdictions (the "Legislation") that theregistration and prospectus requirements contained in the Legislation shall not apply in connection with the distributionof certain common share purchase warrants of the Filer;

AND WHEREAS under the Mutual Reliance Review System for Exemptive Relief Applications (the "System")the Ontario Securities Commission is the principal regulator for this Application;

AND WHEREAS the Filer has represented to the Decision Makers that:

1. Advantex was formed under the laws of the Province of Ontario upon the amalgamation of Samplex Inc.,Advantex Marketing International Inc. and 1047286 Ontario Inc., effective on February 10,1994.

2. Advantex provides consumer promotion services and customer loyalty programs to a broad range of NorthAmerican newspapers, financial institutions, retail chains, restaurants and packaged goods manufacturers.The programs developed by Advantex are designed to enhance customer acquisition and retention efforts bygiving consumers products and rewards with high perceived value and providing incremental effectivemarketing and promotion initiatives to generate revenue and supplement consumer awareness of programsponsors and participants.

3. The authorized capital of Advantex consists of an unlimited number of common shares, 500,000 Class APreference Shares and an unlimited number of Class B Preference Shares, issuable in one or more series.As at October 31, 2000, there were 42,408,117 common shares issued and outstanding and 459,781 ClassA Preference Shares issued and outstanding.

4. As of the date hereof, Advantex is a reporting issuer in each of Ontario, British Columbia, Alberta and Quebecand is not on the list of defaulting reporting issuers maintained by the securities regulatory authorities in eachof the Jurisdictions.

5. The common shares of Advantex are listed on The Toronto Stock Exchange (the "TSE") and the TSE hasaccepted notice for filing of the transactions contemplated by the Warrant Agreement (as defined below) andhas conditionally approved the listing for trading of the 70 million common shares issuable upon the exerciseof the Commitment Warrants and Incentive Warrants, subject to the approval of the shareholders of Advantex.

6. The issuance of the Incentive Warrants and the Commitment Warrants received Advantex's shareholderapproval at a shareholders' meeting of January 17, 2001.

7. Pursuant to an agreement between Advantex, CIBC and Air Canada (the "Warrant Agreement"), Advantex hasagreed to issue to CIBC and/or Air Canada 15 million common share purchase warrants (the "CommitmentWarrants") in consideration of Air Canada and CIBC entering into the Air Canada Agreement (as definedbelow) and the CIBC Agreements (as defined below), respectively. Each Commitment Warrant will entitle theholder to purchase one common share in the capital of Advantex (a "Common Share") at an exercise price of$1.08 at any time after the first anniversary of the date of issuance thereof and up to the fifth anniversary ofsuch date.

8. Pursuant to the Warrant Agreement, Advantex has also agreed to issue to Air Canada and/or CIBC anadditional aggregate of up to 55 million warrants (each an "Incentive Warrant") over a five year period.

9. At the beginning of each calendar year commencing in 2001, Air Canada and CIBC will be issued an allotmentof Incentive Warrants (the "Annual Allotment"). Each Incentive Warrant will have a term of five years from thedate of issuance.

10. No later than March 1st of the year following the issue of an Annual Allotment, commencing on March 1, 2002(the "Determination Date"), Advantex will confirm the percentage of incremental annual revenue growthgenerated from the Air Canada Agreement and CIBC Agreements and the resulting number of "vested"Incentive Warrants of the applicable Annual Allotment which Air Canada and CIBC will be entitled to exercise(as determined in accordance with the formula set out in the Warrant Agreement); provided that in the eventthat Advantex's annual revenue growth is less than 3%, such Incentive Warrants will be cancelled. Suchformula provides that if two-thirds of the annual revenue growth is attributable to the Air Canada Agreementand the CIBC Agreements, all of the applicable Annual Allotment of Incentive Warrants will becomeexercisable. In the event that the contribution of Air Canada and CIBC is less than two-thirds of such revenuegrowth, a portion of the applicable Annual Allotment will be cancelled, and the number of cancelled IncentiveWarrants in respect of a calendar year will be added to the Annual Allotment of Incentive Warrants issuablein respect of the next succeeding calendar year. The Incentive Warrants which are not cancelled will becomeexercisable effective on the applicable Determination Date.

11. The exercise price of each Incentive Warrant will be the Current Market Price on the first trading date of thecalendar year in which the Incentive Warrant is issued; the "Current Market Price" means the weighted averagetrading price per Common Share for the 20 consecutive trading days ending on the fifth trading day prior tosuch date.

12. Pursuant to an agreement (the "Air Canada Agreement") dated as of November 21, 2000, between Air Canadaand Advantex's subsidiary, Advantex Dining Corporation ("ADC"), Air Canada has agreed to sell Aeroplan Milesto ADC for award by ADC to persons who participate in Advantex's Smart BarProgram, as well as to providecertain types of support for the program.

13. Advantex and CIBC are currently negotiating two agreements (the "CIBC Agreements") pursuant to which ADCwill operate an offline loyalty reward program and an online loyalty reward program for holders of credit cardsissued by CIBC.

14. Air Canada should be considered to have the ability to obtain and analyze the information needed to assessthis particular investment opportunity without the information contained in a prospectus and Air Canada hasthe financial ability to withstand the loss of any investment in securities of Advantex to be acquired inconnection with the Warrant Agreement.

15. Air Canada is familiar with the business and affairs of Advantex as a result of its extensive negotiations withAdvantex in relation to the Warrant Agreement and the Air Canada Agreement and its future business dealingswith Advantex.

16. Air Canada is a sophisticated party which is at arm's length to Advantex.

17. The proposed issuance to Air Canada of Commitment and Incentive Warrants will not be made in connectionwith the offer or sale of securities in capital raising transactions.

18. The Commitment Warrants and Incentive Warrants are non-transferable except as between Air Canada andCIBC and between each of Air Canada and CIBC and its respective Affiliates (as defined in the WarrantAgreement).

19. The Commitment Warrants and Incentive Warrants are exercisable after the first anniversary of the issuancethereof, with the only exception that if Advantex enters into a consolidation, arrangement, amalgamation ormerger with or into another body corporate, the Commitment Warrants become immediately exercisable.

AND WHEREAS under the System, this MRRS Decision Document evidences the decision of each DecisionMaker (collectively, the Decision");

AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation that providesthe Decision Maker with the jurisdiction to make the Decision has been met;

THE DECISION of the Decision Makers under the Legislation is that the distribution of up to 7.5 millionCommitment Warrants and up to 55 million Incentive Warrants to Air Canada shall not be subject to the registration andprospectus requirements of the Legislation, provided that:

1. the first trade in an underlying Common Share of a Commitment Warrant or Incentive Warrantacquired pursuant to this Decision in a Jurisdiction (the "Applicable Jurisdiction") shall be deemed adistribution to the public under the Legislation of such Jurisdiction (the "Applicable Legislation")unless:

(a) at the time of the first trade, Advantex is a reporting issuer;

(b) no unusual effort is made to prepare the market or to create a demand for the CommonShares;

(c) no extraordinary commission or consideration is paid to a person or company in respect ofthe trade;

(d) if the seller of the underlying Common Share is an insider or officer of Advantex, the sellerhas no reasonable grounds to believe that Advantex is in default of any requirement of theApplicable Legislation;

(e) the hold period of either six, twelve or eighteen months that would be applicable to theCommitment or Incentive Warrant, as applicable, if such Commitment or Incentive Warranthad been acquired under an exemption for a trade in a security which has an aggregateacquisition cost to a purchaser of not less than $150,000 has elapsed from the later of thedate of the initial issuance of the applicable Commitment or Incentive Warrant and the dateAdvantex became a reporting issuer in the Applicable Jurisdiction; and

(f) except in Quebec, the first trade is not from the holdings of a person or company or acombination of persons or companies holding a sufficient number of any securities ofAdvantex so as to affect materially the control of Advantex or more than 20% of theoutstanding voting securities of Advantex, except where there is evidence showing that theholding of those securities does not affect materially the control of Advantex;

2. the total number of Commitment Warrants distributed to Air Canada and CIBC shall not exceed 15million Commitment Warrants, and the total number of Incentive Warrants distributed to Air Canadaand CIBC shall not exceed 55 million Incentive Warrants; and

3. Advantex has provided Air Canada with a copy of this ruling, together with a statement that as aconsequence of this ruling, certain protections, rights and remedies provided under the Legislation,including statutory rights of rescission and damages, will not be available to it with respect to thedistribution of such Commitment Warrants, Incentive Warrants and Underlying Common Shares,pursuant to this ruling.

January 31, 2001.

"J.A. Geller"       "R. Stephen Paddon"