COURT FILE NO.: CV-21-671502

DATE: 20221108

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Zach Justein and Joseph Weinberg Applicants

AND:

DeFi Technologies Inc. Respondent

BEFORE: Pollak J.

COUNSEL: Gabriel Latner, for the Applicants

Kevin Richard, for the Respondent

HEARD: August 11, 2022

ENDORSEMENT

[1] The Applicants, Zach Justein and Joseph Weinberg, work in the “cryptocurrency and decentralized finance space”.

[2] The Respondent, DeFi Technologies, ("DeFi”) is a publicly traded company that operates in the digital asset investment industry. DeFi was formerly known as Routemaster Capital Inc. (“Routemaster”). From September 2020 to February 2021, Mr. Baizak was the Chief Executive Officer (“CEO”) and a director of Routemaster. Mr. Wouter Witvoet was the CEO of DeFi between February 16, 2021, and October 4, 2021, and president of DeFi from October 4, 2021, until December 14, 2021. Mr. Russell Starr has been the CEO and Executive Chairman of DeFi since October of 2021.

[3] The Applicants are seeking damages in this Application for the alleged deliberate breach of option agreements granting them a total of 750,000 options (the “Option Agreements”).

[4] The Applicants seek $3,172,500 in damages. This amount, they argue, restores them to the position they would have been in if the Respondent had honoured the Option Agreements. Since the Respondent purported to cancel the Option Agreements and, by extension, obviated the Applicant’s right to exercise them, the Applicants used the highest intervening price to calculate their damages: $4.41 less the exercise price per option $0.18, totaling $4.23. The Applicants maintain their entitlement whether the amount is calculated under contract law or as an oppression remedy under the Business Corporations Act, R.S.O. 1990, c. B. 15 (“the OBCA”) (as in this Application).

[5] On November 17, 2020, the Respondent’s board of directors unanimously approved a resolution (the “Resolution”) recognizing that Mr. Weinberg was an advisor and approving the grant of 750,000 options to him on the accelerated vesting schedule that the Applicants had negotiated with Mr. Witvoet and Mr. Newton. The resolution provides:

“WHEREAS the Company wishes to grant 750,000 stock options, each such option being

exercisable to acquire one common share of the Company, subject to adjustment in accordance with the terms of the Stock Option Plan of the Company, with an exercise price of $[______] and expiring on the date that is five years from the date of issue to Mr. Joseph Wineberg [sic], an advisor to the Company;

… Be it therefore resolved that:

1. the Company hereby grants an aggregate of 750,000 stock options to purchase an equal number of common shares of the Company at an exercise price of $[____], each option to expire on the date that is five years from the date of issue, such grant of options is subject to regulatory approval, to Mr. Joseph Wineberg [sic]

2. the options granted to Mr. Joseph Wineberg [sic] will vest in four equal instalments every 1.5 months such that all options fully vest by the date that falls 6 months from the date of grant and shall remain subject to a statutory four month hold period from the date of grant; (emphasis added)”

[6] The Resolution further authorized and directed any officer of the Respondent to take such steps as were necessary to carry out the Resolution’s terms, and ratified any steps previously taken:

1. any officer or director of the Corporation be and is hereby authorized and directed for and on behalf of the Corporation to execute, under the corporate seal of the Corporation or otherwise, and to deliver to the parties thereto and to do all such other acts or things as they may determine necessary or desirable to carry out the terms of these resolutions…

2. any acts taken prior to the effective date of these resolutions by any director or officer in connection with the foregoing resolutions or the subject matter thereof are hereby authorized, approved, ratified and confirmed the Respondent’s board of directors unanimously passed a resolution (the “Resolution”) approving the options grant – on the exact same terms that the Applicants had negotiated with Mr. Witvoet and Mr. Newton.

[7] On March 5, 2021, prior to execution of the Option Agreements, Mr. Kenny Choi (in-house counsel of the Respondent), advised by email that the Option Plan had been approved at the Respondent’s annual general meeting on February 26, 2021.

[8] The stock option grant was publicly announced by the Respondent on November 18, 2020. It was also noted in the Respondent’s public filings with the Ontario Securities Commission.

[9] Because Mr. Weinberg was assisted by Mr. Justein, the Applicants requested, and the Respondent agreed, to divide the 750,000 options between the Applicants. Mr. Justein received 225,000 options, and Mr. Weinberg 525,000.

[10] On September 3, 2021, the Applicants attempted to exercise 367,500 options, but were advised by the Respondents in-house counsel Mr. Kenny Choi, that the option grants had been cancelled as the Applicants had not become Consultants and were therefore not eligible to receive options under the Plan.

[11] The Respondent admits that the Option Agreements are authentic and signed by an authorized officer.

[12] The Respondent, however, claims that the Option Agreements are invalid because they were subject to the terms of the Respondent’s option plan (the “Option Plan”) which, they allege, the Applicants did not satisfy. The options were subject to the policies of the TSX-V stock exchange, which include the requirement that options only be granted to advisors or consultants who have a written advisory agreement with the issuer. It was argued that as Mr. Wouter Witvoet and Mr. Olivier Newton did not have authority to bind the Respondent with the purported advisory agreements, the Respondent was not aware of any valid Advisory Agreement.

[13] Counsel for the Respondent and the Respondent did not have the power to unilaterally cancel the Option Agreements. Rather, the Respondent’s board of directors as the administrator of the option plan, had the power to do so. Further, the terms of the Option Agreements provided that a termination of the Option Agreements would have no effect on already vested options.

[14] The Respondent admits that it was not listed on the TSX-V exchange when it entered into the Option Agreements, therefore, the TSX-V policies cannot invalidate the Option Agreements.

[15] At Mr. Witvoet and Mr. Newton’s request, Mr. Weinberg signed an advisory agreement with the Respondent on November 17, 2020 (the “Advisor Agreement”).

[16] The Respondent admits that the Option Agreements are authentic, and that they were signed in March of 2021 by Mr. Kenny Choi, who was an officer of the Respondent, and who was authorized to sign the Option Agreements.

[17] Mr. Newton provided the Applicants with a copy of the Option Plan on November 13, 2020, prior to execution of the Advisor Agreement on the same day.

[18] The Applicants also claim this is the rare case where punitive damages are warranted. They claim that the Respondent’s refusal to honour the Option Agreements was entirely baseless, self-serving, and oppressive, thereby justifying punitive damages.

[19] The issues on this Application are:

a. Whether the Option Agreements are enforceable;

b. Whether the Respondent’s conduct has been oppressive;

c. What the proper remedy is;

d. Whether punitive damages are appropriate; and

e. Whether enhanced costs are warranted.

[20] The Respondent’s position is that the Options Agreements are clearly “subject to the conditions set out in the [Stock Option Plan]”.

[21] DeFi’s submissions are summarized as follows:

i. “The Respondents position is that the Applicants cannot enforce the Options Agreement which clearly requires compliance with the terms and conditions of the Plan. The Applicants failed to comply with key eligibility requirements under the Plan, as they failed to meet the four requirements in the definition of a Consultant;

ii. The Applicants have not made out an oppression claim, which claim was pleaded in this matter with no particulars. The Applicants have not met the test set out by the Supreme Court of Canada in BCE Inc. v 1976 Debentures. The terms of the Plan apply equally to everyone and DeFi is applying it to everyone. In this case, the Applicants are asking for it to not apply to them, which would be unfair;

iii. The Applicants’ evidence concerning damages is wholly deficient. The Applicants have provided no evidence as to share price values, have ignored that the evidence shows they sought to exercise less than half of the options in September 2021, and never sought to exercise any further options. It must be noted that to the extent the Applicants were found to be entitled to options, any options which they did not try to exercise would have already expired pursuant to the Plan;

iv. Punitive damages are inappropriate. Awarding punitive damages requires a very high standard of egregious behaviour and nothing of that sort exists here; and

v. The Applicants’ request for enhanced costs are completely unwarranted and DeFi should be awarded their costs.”

[22] DeFi attacks the validity of the purported Advisory Agreement as it was not signed by DeFi or Routemaster. The Applicants could not provide a signed copy.

[23] The Options Agreements state that the grant of options would be “all on the terms and subject to the conditions set out in the Plan. The Plan provides that “Options may be granted to any Eligible Person”. An Eligible Person is defined in the Plan as:

“Eligible Person” means:

(i) an Employee, senior officer or director of the Company or any Subsidiary

Company;

(ii) a Consultant;

(iii) an individual providing Investor Relations Activities for the Company;

(iv) a company, all of the voting securities of which are beneficially owned by

one or more of the persons referred to in (i), (ii) or (iii) above.

[24] The Plan defines a Consultant as:

“Consultant” means an individual, other than an Employee, senior officer or

director of the Company or a Subsidiary Company, or a Consultant Company, who;

(i) provides ongoing consulting, technical, management or other services to the Company or a Subsidiary Company, other than services provided in relation to a distribution of the Company’s securities,

(ii) provides the services under a written contract between the Company or a Subsidiary Company and the individual or Consultant Company,

(iii) in the reasonable opinion of the Company spends or will spend a significant amount of time and attention on the affairs and business of the Company or a Subsidiary Company, and

(iv) has a relationship with the Company or a Subsidiary Company that enables the individual or Consultant Company to be knowledgeable about the business and affairs of the Company.

[25] DeFi’s position is that for stock options to be validly granted under the Plan, the recipient must meet all requirements to be a Consultant. It is submitted that the Applicants met none of the requirements.

[26] I find that the Board did pass the resolution, which approved the grant of options, and recognized that Mr. Weinberg was an advisor (and therefore an eligible optionee). The power to administer the Option Plan and determine optionee eligibility is vested in the Board and not in the Respondent’s management. There is no Board resolution cancelling the Option Agreements. There is no evidence of any board resolution subsequently determining that the Applicants were not eligible.

[27] All of the above submissions by DeFi do not alter the fact that the stock options were granted by the Board who had the authority to do so and decided that all of the required conditions were met. On this basis, I do not accept this submission of DeFi.

[28] The oppression remedy in s. 248 of the OBCA, is an equitable remedy that is fact specific. The determination of what is just and equitable is judged by the reasonable expectations of the stakeholders.

[29] The parties agree that the Applicants must identify the expectations that they claim have been violated by the conduct at issue and establish that those expectations were reasonably held. In the Supreme Court of Canada case of BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560, it was stated:

[70] At the outset, the claimant must identify the expectations that he or she claims have been violated by the conduct at issue and establish that the expectations were reasonably held. As stated above, it may be readily inferred that a stakeholder has a reasonable expectation of fair treatment. However, oppression, as discussed, generally turns on particular expectations arising in particular situations. The question becomes whether the claimant stakeholder reasonably held the particular expectation. Evidence of an expectation may take many forms depending on the facts of the case.

[30] The Court further set out the following analysis:

a. Does the evidence support the reasonable expectation asserted by the claimant? and

b. Does the evidence establish that the reasonable expectation was violated by conduct falling within the terms: “oppression”, “unfair prejudice” or “unfair disregard” of a relevant interest?

[31] DeFi submits that (1) the evidence does not support the reasonable expectation asserted by the Applicants; and (2) the evidence does not establish that the Applicants’ expectation was violated by DeFi’s conduct. I disagree.

[32] The evidence of the Applicants is that their expectation was that they would be able to exercise options in return for their services provided. I agree that it cannot be a reasonable expectation that the agreement could possibly be unenforceable if management decided they were not Consultants as defined in the Plan. I find that the Applicants’ reasonable expectation was that they would receive the 750,000 options.

[33] DeFi further submits that even if this Court finds that the Option Agreement was valid, that the Applicants have not led proper evidence to support any award of damages. The Applicants did not include any trading information on the price of shares of DeFi, nor any attempts to exercise options other than less than half of the options which they sought to exercise in September 2021. However, the evidence is that the Respondent advised the Applicants that the options were cancelled. The Applicants have, however, submitted that it had no authority to do so. The pertinent question is, were they cancelled or not? This point was not addressed in argument by either party. The Applicants provided a link to a webpage in their factum. Such evidence is not sufficient.

[34] The Applicants seek a quantum of damages that would represent the total market value of all options if they were exercised at the highest market value at some point in November 2021, without having attempted to do so at that time, or any time thereafter.

[35] The Applicants submit that they could not attempt to exercise the options after the “cancellation”. They did request to exercise less than half of the options in September 2021. DeFi submits the record is inadequate for the Court to make findings of fact concerning both the value of the stock and when the Applicant would have realized the value of the stock had options been exercised.

[36] DeFi submits that if the Applicants are entitled to options, any award is limited to less than half of the 750,000 options. The Applicants attempted to exercise only 367,500 options in September 2021 when the Respondent advised that the options were cancelled. If they were entitled to any options, the Applicants never made any attempt to exercise the remaining 382,500 options before they expired pursuant to the Plan. Section 9.1 of the Stock Option Plan provides options terminate 90 days after an Optionee ceases to be a Consultant. Even if the purported Advisory Agreement was considered an agreement, it expired on its terms on November 16, 2021. Any options would have expired by February 14, 2022 as the Applicants ceased being Consultant’s on November 16, 2021.

[37] The Applicants were not able to attempt to exercise their options after the Respondent cancelled the Agreements. They were therefore not able to tender.

[38] I find that the Applicants have met their burden of proof that the Respondent corporation acted in a manner that defeats their reasonable expectations, constituting oppression within the meaning of s. 248 of the OBCA.

[39] The executed Option Agreements provided the Applicants with a reasonable expectation that they had received 750,000 options, which fully vested by May 19, 2021, and were exercisable until the termination of the Option Agreement.

[40] The oppression remedy “is designed to provide redress for technically legal but surprising and oppressive acts.”

[41] A remedy for breach of contract, or oppression, should put the Applicants into at least as good a position as they would have been in if the Respondent had behaved appropriately.

[42] The Respondent’s shares are publicly traded. Subsequent to the Respondent’s cancellation of the options, the Applicants submit that the shares reached a market high of $4.41.

[43] The Applicant’s submit that if they had been permitted to exercise their options at the market high, they would have received $3,172,500 ([750,000 options * $4.41 share price] – [750,000 options * $0.18 exercise price]).

[44] The Respondent claims that the Applicants have put forward no evidence of damages, and specifically “any trading information as to the price of shares of DeFi.”

[45] The Respondent’s shares are publicly traded, and the market price of its shares at any given point in history is on the public record.

[46] Although I do not agree that the evidence of the Applicant’s with respect to damages is acceptable, I do find that these damages are most probably “capable of immediate and accurate demonstration by resort to readily accessible sources of indisputable accuracy.”

[47] It would not have made sense for the Applicants to lead evidence about the price of the Respondent’s shares in its initial affidavit material, because the Applicants’ claim is based on the highest price the shares might reach in the period since the Respondent purported to “cancel” the options. However, the options terminated days after the Consultant’s ceased to be Consultants, so they could not be exercised after that date.

[48] The Applicants are “entitled” to damages as a result of what the options would have been worth if the Respondent had allowed their exercise on September 23, 2021, up to, at the latest, on the date when the Option Agreements would have terminated. The parties should be able to agree on these damages, failing which, they may request a further appearance in this Application before myself.

[49] Although the Respondent took a very aggressive approach in this litigation, it did not, in my view, amount to conduct that this court must sanction. Parties are entitled to take hard line approaches in their litigation.

[50] I, therefore, do not agree that awarding punitive damages based on the Respondent’s conduct should be awarded as I do not find that the very high standard that is required to award punitive damages has been met.

Costs

[51] As the Applicants are the successful parties in this motion, they are entitled to their costs. If the parties are unable to agree on costs by reason of the operation of the Rules as a result of offers to settle, they may make submissions of no more than two pages, double spaced, sent the Respondents, uploaded to Caselines with a copy sent to my assistant Roxanne Johnson at Roxanne.johnson@ontario.ca by 12 p.m. on November 17, 2022. The Respondents may make submissions of no more than two pages, double spaced sent to the Applicants, uploaded to caselines with a copy sent to my assistant by 12 p.m. on November 24, 2022. No reply submissions will be accepted.

Pollak J.

Date: November 8, 2022