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Units
The Offering consists of a minimum of 12,393,605 Units consisting of one Common Share and one-half of one Warrant. The Units are separable into Common Shares and Warrants
Immediately following the closing of the Offering.
Common Shares
Avnel is authorized to issue an unlimited number of ordinary shares of no par value, referred to in this prospectus as ‘‘common shares’’. At the date of this prospectus, Avnel has an aggregate of 200,000 common shares issued and outstanding.
The holders of the common shares shall be entitled to:
(a) vote at all meetings of shareholders of Avnel, except meetings at which only holders of a specified class of shares are entitled to vote;
(b) receive, subject to the rights, privileges, restrictions and conditions attaching to any other class of shares of Avnel, any dividends declared by Avnel; and
(c) receive, subject to the rights, privileges, restrictions and conditions attaching to any other class of shares of Avnel, the remaining property of Avnel upon the liquidation, dissolution or winding-up of Avnel, whether voluntary or involuntary.
Warrants
Each Warrant entitles the holder to purchase one Warrant Share at a price of C$1.06 per share at any time before 5:00 p.m. ( Toronto time) on the .fifth anniversary of the Closing Date after which time the Warrants become null and void. The Warrants will be issued under an indenture (the ‘‘Warrant Indenture’’) to be entered into between the Company and Computershare Trust Company of Canada (the ‘‘Trustee’’) on or before the closing of the Offering. The Company will appoint the principal transfer office of the Trustee in Toronto (or such other location as the Company may designate from time to time) as the location at which the Warrants may be surrendered for exercise, transfer or exchange. Under the Warrant Indenture, the Company may, subject to applicable law, purchase in the market, by
private contract or otherwise, any of the Warrants then outstanding, and any Warrants so purchased will be cancelled.
The Warrant Indenture will provide for adjustment in the number of Common Shares issuable upon the exercise of the Warrants and/or the exercise price per Common Share upon the occurrence of certain events, including:
(i) the issuance of Common Shares or securities exchangeable for or convertible into Common Shares to all or substantially all of the holders of the Common Shares by way of a stock dividend or other distribution (other than a ‘‘dividend paid in the ordinary course’’, as de.ned in the Warrant Indenture, or a distribution of Common Shares upon the exercise of the Warrants or pursuant to the exercise of directors, officers or employee stock options granted under the Company’s stock option plan);
(ii) the subdivision, redivision or change of the Common Shares into a greater number of shares;
(iii) the consolidation, reduction or combination of the Common Shares into a lesser number of shares;
(iv) the issuance to all or substantially all of the holders of the Common Shares of rights, options or warrants under which such holders are entitled, during a period expiring not more than 45 days after the record date for such issuance, to subscribe for or purchase Common Shares, or securities exchangeable for or convertible into Common Shares, at a price per share to the holder (or at an exchange or conversion price per share) of less than 95% of the ‘‘current market price’’, as de.ned in the Warrant Indenture, for the Common Shares on such record date; and
(v) the issuance or distribution to all or substantially all of the holders of the Common Shares of securities of the Company including rights, options or warrants to acquire shares of any class or securities exchangeable or convertible into any such shares or property or assets and including evidences of indebtedness, or any property or other assets.
The Warrant Indenture will also provide for adjustment in the class and/or number of securities issuable upon the exercise of the Warrants and/or exercise price per security in the event of the following additional events:
(1) reclassifications of the Common Shares;
(2) consolidations, amalgamations, arrangements or mergers of the Company with or into any other corporation or other entity (other than consolidations, amalgamations, arrangements or mergers which do not result in any reclassification of the outstanding Common Shares or a change of the Common Shares into other shares); or
(3) the transfer of the undertaking or assets of the Company as an entirety or substantially as an entirety to another corporation or other entity.
No adjustment in the exercise price or the number of Common Shares purchasable upon the exercise of the Warrants will be required to be made unless the cumulative effect of such adjustment or adjustments would result in a change of at least 1% in the prevailing exercise price or a change in the number of Common Shares purchasable upon exercise by at least one one-hundredth of a Common Share, as the case may be.
Each Warrant will terminate immediately prior to the specified effective date of a transaction (a ‘‘Corporate Transaction’’) resulting in a ‘‘change of control’’ (as de.ned in the Warrant Indenture) of the Company, unless the Warrant is assumed by the successor corporation or its parent corporation in connection with the Corporate Transaction. Upon approval of a Corporate Transaction by the Company’s board of directors, the Company will give
notice to each registered holder of Warrants (each, a ‘‘Warrantholder’’), which will set forth terms that permit the Warrantholder to exercise its Warrants on a basis that provides the Warrantholder with the ability to participate in the Corporate Transaction or, failing completion of the Corporate Transaction, to retain all rights under the Warrants in accordance with the terms of the Warrant Indenture.
Each Warrant must be exercised within 10 business days of receipt of notice from the Company that the 20 day weighted average trading price is equal to or exceeds 150% of the exercise price, after which the Warrants shall terminate immediately.
The Company will also covenant in the Warrant Indenture that, during the period in which the Warrants are exercisable, it will give notice to Warrantholders of certain stated events, including events that would result in an adjustment to the exercise price for the Warrants or the number of Common Shares issuable upon exercise of the Warrants, at least 10 business days prior to the record date or effective date, as the case may be, of such event.
No fractional Warrants will be issued or otherwise provided for, and no person who purchases or holds a fraction of a Warrant shall be entitled to any cash or other consideration is lieu of any interest in or claim to any fraction of a Warrant. No fractional Common Shares will be issuable upon the exercise of any Warrants, but cash will be paid in lieu of any fractional share entitlement based on the ‘‘current market value’’, as de.ned in the Warrant Indenture, of the Common Shares. Warrantholders will not have any voting or pre-emptive rights or any other rights which a holder of Common Shares would have.
From time to time, the Company and the Warrant Trustee, without the consent of the Warrantholders, may amend or supplement the Warrant Indenture for certain purposes, including curing defects or inconsistencies or making any change that does not prejudice the rights of any Warrantholder. Any amendment or supplement to the Warrant Indenture that would prejudice the interests of the Warrantholders may only be made by ‘‘extraordinary resolution’’, which is de.ned in the Warrant Indenture as a resolution either (1) passed at a meeting of the Warrantholders at which there are Warrantholders present in person or represented by proxy representing at least 25% of the aggregate number of the then outstanding Warrants (unless such meeting is adjourned to a prescribed later date due to a lack of quorum, at which adjourned meeting the Warrantholders present in person or by proxy shall form a quorum) and passed by the affirmative vote of Warrantholders representing not less than 75% of the aggregate number of all the then outstanding Warrants represented at the meeting and voted on the poll upon such resolution, or (2) adopted by an instrument in writing signed by the Warrantholders representing not less than 75% of the aggregate number of all the then outstanding Warrants.
The foregoing summary of certain provisions of the Warrant Indenture does not purport to be complete and is qualified in its entirety by reference to the provisions of the Warrant Indenture.
Convertible Loan Notes
Immediately prior to the closing of the Offering, Avnel shall issue to each of Elliott and Fern notes convertible into common shares of Avnel (the ‘‘Convertible Loan Notes’’) in exchange for the cancellation of approximately 50% of the Elliott and Fern Loans outstanding as at December 31, 2004 and the Minority Shareholder Loans subsequently acquired by Elliott and Fern. The aggregate principle amount of the Convertible Loan Notes is anticipated to be
approximately $10.5 million plus interest accrued from January 1, 2005 to the date of Closing at a rate of 8.5%. Each Convertible Loan Note is convertible by the holder, without payment of additional consideration, at any time following completion of the Offering, into common shares of Avnel at 125% of the Offering price (the ‘‘Conversion Price’’), and bears interest at the six month U.S. LIBOR plus 2.0% payable bi-annually. Avnel may elect to pay the interest in
common shares in lieu of cash, in which case the value of such common shares shall be equal to the 20-day weighted average trading price immediately prior to the interest payment date. Avnel may, upon maturity, elect to repay the outstanding principal amount in common shares of Avnel at the Conversion Price if the 40-day weighted average trading price of the common shares prior to the conversion date is equal to 200% of the Offering price. The Convertible Loan Notes will contain standard antidilution provisions. The term of the Convertible Loan Notes is five years.
Minority Shareholder’s and Agents’ Warrants
On February 22, 2005, Avnel entered into the Call Option Agreement with the Minority Shareholder pursuant to which Avnel granted to the Minority Shareholder two warrants (the ‘‘Minority Shareholder Warrants’’) providing, respectively, a right to acquire the number of common shares of Avnel equal to (i) 3.0% of the aggregate number of shares held by Elliott and Fern as of the Closing Date immediately following completion of the Offering, and (ii) 3.0% of common shares underlying Convertible Loan Notes of Avnel held by Elliott and Fern on the Closing Date. The price of the first Minority Shareholder Warrants, if exercised, shall be the quotient of (i) the aggregate amount of the outstanding capital investment held by Elliott and Fern (exclusive of any accrued, unpaid interest) on the Closing Date and (ii) the number of common shares of Avnel held by Elliott and Fern on the Closing Date, estimated to be $20,454,000. The price of the second Minority Shareholder Warrants, if exercised, shall be equal to the conversion price specified in the Convertible Loan Note as of the date such Minority Shareholder Warrant is exercised. In each case, the Minority Shareholder Warrants may only be exercised upon completion of the Offering or in the event of default on the part of either Elliott or Fern of their obligations upon the exercise of the call option. See ‘‘Options to
Purchase Common Shares — The Call Option’’.
For a description of the Agents’ Warrants, see ‘‘Plan of Distribution’’.
Stock Option Plan
On February 23, 2005, the board of directors of Avnel adopted the Company’s Stock Option Plan (the ‘‘Plan’’) effective upon the completion of the Offering. The Plan was adopted by the board of directors in order to have a stock option plan which complies with the rules and policies of the TSX in place upon completion of the Offering.
The Plan provides that the total aggregate number of Avnel common shares which may be issued pursuant to the Plan shall not exceed a number of common shares equal to 10% of the estimated number of issued and outstanding shares on the closing of the Offering; and the number of Avnel common shares which may be reserved for issuance pursuant to the Plan (or any other employee-related plan or options for services) must not exceed 5% of the total number of issued shares in the same class at the time of offer and must not exceed 5%, to any one person, of the Avnel common shares issued and outstanding on a non-diluted basis from time to time.
The Plan will be administered by the sole board committee of Avnel, performing the functions of a Compensation Committee, which will have full and final authority with respect to the granting of options and performance units thereunder. Options may be granted under the Plan to such directors, officers, employees or consultants of Avnel and its subsidiaries or a designated affiliated entity as the committee may from time to time designate. The exercise price of any options granted under the Plan shall be determined by the sole board committee, but in any event will be in compliance with the rules and policies of the stock exchange upon which the common shares are listed from time to time, if any. Under the Plan, Avnel may provide financial assistance to eligible persons to purchase common shares or
pay income taxes, subject to applicable law and the rules and policies of any securities regulatory authority or stock exchange with jurisdiction over the Company or a trade in its securities. Any financial assistance so provided will be repayable with full recourse and the term of any such financing shall not exceed the term of the option to which the financing applies.
The term of any options or performance units granted shall be determined by the sole board committee at the time of the grant but, subject to earlier termination in the event of termination of employment or in the event of death or disability, the term of any options or performance units granted under the Plan shall not exceed 10 years. If desired by the sole board committee, options granted under the Plan may be subject to vesting provisions. The exercise date shall be set by the sole board committee upon the date of grant and will be subject to the acceleration of the vesting of options upon termination of employment other than for cause. Options and performance units granted under the Plan are not transferable or assignable other than by the prior written consent of the board of directors of Avnel and subject to applicable securities regulatory rules. Subject to certain exceptions, in the event that an option holder ceases to provide services to Avnel, options or performance units granted to such option or performance unit holder under the Plan will expire 90 days later. In the event of death or disability of an option holder or performance units, options or performance unit granted under the Plan expire 90 days from the death or disability of the option or performance unit holder. Upon the retirement of the option holder, his options or performance units will expire three years after his retirement.
Avnel’s board of directors may at any time terminate or amend the Plan in any respect, provided however, that the board may not, without the approval of the shareholders or such other approval as may be required, amend the Plan or any option or performance unit granted thereunder in any manner that requires shareholder or other approval under applicable law or the rules and policies of any stock exchange or quotation system upon which the common shares are listed or quoted. No amendment or termination may be made which adversely effects the existing rights of any option or performance unit holder without the option or performance unit holder’s written consent unless Avnel acquires those rights at an amount equal to the fair market value of such rights verified by an independent valuator.
CEO Compensation Option
On February 23, 2005, Avnel granted to Roy Meade, Chief Executive Officer of Avnel, an option (the ‘‘CEO Compensation Option’’) to acquire up to that number of common shares of Avnel equal to 2.5 million common shares, at an exercise price per share equal to the quotient of (i) the aggregate amount of the capital investment of Elliott and
Fern (excluding any unpaid interest thereon) on the Closing Date and (ii) the number of common shares of Avnel held by Elliott and Fern on the Closing Date. One third of the option shall be exercisable immediately upon completion of this Offering, one-third on the first anniversary of the date of grant, and the remaining one-third on the second anniversary of the date of grant. Mr. Meade’s entitlement to any unexercised portion of the CEO Compensation Option will terminate in the event he leaves employment of Avnel at his own volition prior to the exercise date. The CEO Compensation Option shall expire on the first anniversary of the date of grant in the event that an initial public offering, including this Offering, is not completed as of that date. The grant of the CEO Compensation Option shall be made in satisfaction of an outstanding obligation on the part of Avnel Cayman to grant free of charge an amount of shares representing 5% of the issued and outstanding shares of Avnel Cayman made in consideration of Mr. Meade’s agreement to accept employment with Avnel Cayman in September, 2003. The Chief Executive Officer Compensation Options do not form part of Avnel’s Plan.
The Call Option
As consideration for entering into the Transfer Agreement, Avnel, Elliott and Fern have granted to the Minority Shareholder a call option (the ‘‘Call Option’’) under the terms of a call option agreement (the ‘‘Call Option Agreement’’). The Call Option permits the Minority Shareholder to acquire three percent of each of Elliott and Fern’s respective aggregate outstanding capital interest (including any unpaid interest) in Avnel as of the date of the exercise of the Call Option. This interest shall include both the amount of debt owed by Avnel to, and any common shares of Avnel held by, Elliott and Fern. Consideration payable upon exercise of the Call Option shall be equal to three percent of Elliott and Fern’s respective outstanding equity and principal contributions (excluding any unpaid interest accrued thereon) to Avnel, less any cash interest or dividends received by Elliott or Fern, as the case may be. The Call Option may not be exercised (i) prior to January 1, 2006 or (ii) during the period following the announcement of Avnel or a decision of the board of directors of its intention to complete this Offering and ending upon an announcement that the Offering will not proceed. However, if either Elliott or Fern sell any or all of their respective capital investments in Avnel, the Call Option may be exercised in an amount proportional to the amount which is being sold. Otherwise, the Call Option may only be exercised against both Elliott and Fern in whole and not in part. The Call Option shall terminate upon the earlier of the agreement of the parties, the completion of this Offering, or December 31, 2009. An exercise of the Call Option would have no impact on Avnel’s financial statements or capitalization.
Source:
Final Prospectus May 27,2005
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