Securities Law & Instruments

Headnote

Application for revocation of cease trade order and order deeming issuer to have ceased to be a reporting issuer.

Issuer was subject to cease trade order as a result of its failure to file with the Commission annual financial statements. Issuer has brought its filings up to date. Full revocation granted.

Issuer is a closely held issuer. No securities of issuer are traded on a marketplace. Issuer has not completed a conventional public offering. Issuer obtained shareholder approval to make the application to be deemed to have ceased to be a reporting issuer. Issuer has agreed to provide shareholders with audited financial statements on an annual basis and unaudited financial statements on a semi-annual basis. Issuer deemed to have ceased to be a reporting issuer.

Applicable Ontario Statutory Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 83, 127 and 144.

IN THE MATTER OF

THE SECURITIES ACT

R.S.O. 1990, c. S.5, AS AMENDED (the "Act")

AND

IN THE MATTER OF

SIMEX INC.

 

ORDER

(Section 83 and section 144)

UPON the application (the "Application") of SimEx Inc. (the "Corporation") to the Ontario Securities Commission (the "Commission") for an order:

(a) under section 144 of the Act revoking the temporary order made by the Commission, pursuant to paragraph 2 of subsection 127(1) on November 20, 2003 and extended by a further order of the Commission, pursuant to subsection 127(8) of the Act on December 2, 2003 (collectively, the "Cease Trade Order"), ordering that trading in the securities of the Corporation cease until the Cease Trade Order is revoked by a further order of revocation; and

(b) under section 83 of the Act deeming the Corporation to have ceased to be a reporting issuer under the Act;

AND UPON considering the Application and the recommendation of staff of the Commission;

AND UPON the Corporation having represented to the Commission as follows:

1. The Corporation was amalgamated under the Business Corporations Act (Ontario).

2. The Corporation is not a reporting issuer or the equivalent in any jurisdiction of Canada other than Ontario.

3. The authorized capital of the Corporation consists of an unlimited number of common shares ("Common Shares") and an unlimited number of preferred shares, issuable in series.

4. As of September 30, 2004, the Corporation had the following securities outstanding:

(a) 10,397,302 Common Shares;

(b) 6,133,750 warrants (the "Existing Warrants") to purchase an equal number of Common Shares for nominal consideration; and

(c) Series 2 debentures in the principal amount of $8,575,000 (the "Series 2 Debentures") and Series 3 debentures in the principal amount of $6,425,000 (the "Series 3 Debentures" and together with the Series 2 Debentures, the "Debentures").

The Corporation has no securities outstanding other than the Common Shares, the Existing Warrants and the Debentures.

5. As of September 30, 2004, there were 70 registered holders of Common Shares, of which 20 were residents of Ontario and there were 57 beneficial owners of Common Shares, of which 15 were residents of Ontario.

6. As of September 30, 2004, there were 11 beneficial owners of the Existing Warrants, of which eight were residents of Ontario.

7. As of September 30, 2004, there were 12 beneficial owners of the Debentures, of which nine were residents of Ontario.

8. In the aggregate, four of the beneficial owners of the Corporation's securities are directors or employees of the Corporation.

9. No securities of the Corporation are traded on a marketplace as defined in National Instrument 21-101 Marketplace Operation and, to the best of the knowledge of management after due inquiry, no trading of any kind has occurred in the Corporation's securities since 1996.

10. The Corporation became a reporting issuer in November 1996 concurrently with the completion of a financing pursuant to which certain purchasers of Common Shares required that the Corporation become a reporting issuer with the intention that the Common Shares would be freely tradable under applicable securities legislation; however, despite the Corporation's reporting issuer status, no holder of Common Shares has, to the best of the knowledge of management after due inquiry, ever traded its Common Shares.

11. Holders of an aggregate of 5,749,008 Common Shares have agreed to significant restrictions on their right to transfer their shares by signing a shareholders' agreement (the "Shareholders' Agreement") in connection with the issuance of the Series 2 Debentures on December 21, 2001 (the "Series 2 Financing").

12. In the Shareholders' Agreement, the parties committed not to transfer their Common Shares except in accordance with the Shareholders' Agreement or with the prior written consent of a majority of those persons participating in the Series 2 Financing (the "Investors").

13. All of the Common Shares and warrants which were qualified by the Corporation's prospectus dated January 16, 1998 (the "Prospectus") were issued to four persons, each of whom is a party to the Shareholders' Agreement. All of the warrants qualified by the Prospectus have either expired or were exercised and converted into Common Shares. As the Shareholders' Agreement places significant restrictions on the transfer of Common Shares owned by parties to the Shareholders' Agreement, the Common Shares qualified by the Prospectus are effectively not freely tradable.

14. The Cease Trade Order was issued due to the Corporation's failure to file with the Commission audited annual financial statements for the financial year ended June 30, 2003.

15. The Corporation has filed with the Commission audited annual financial statements for the financial year ended June 30, 2003 and unaudited interim financial statements for the interim periods ended September 30, 2003, December 31, 2003 and March 31, 2004.

16. Other than (i) the Cease Trade Order, and (ii) the failure to file with the Commission and deliver to the holders of Common Shares, within the required time periods, (x) audited annual financial statements for the financial year ended June 30, 2003, and (y) unaudited interim financial statements for the interim periods ending September 30, 2003, December 31, 2003 and March 31, 2004, the Corporation is not in default of any requirement of the Act or the rules and regulations made thereunder.

17. The Corporation was for several months in default of its obligation to pay interest under the Debentures and as a result the Debentures were in default and overdue interest was itself accruing interest at a rate of 22% per annum, compounded quarterly. As at December 31, 2003, $3,601,157 in overdue and unpaid interest had accrued. The Corporation was not in a financial position to be able to pay the overdue interest nor was the Corporation able to pay current interest when due, which was accruing at the rate of 15% per annum. There was no practical likelihood that this default could be corrected by the Corporation. Recognizing this, and at the insistence of its bank, the Corporation agreed to restructure the Debentures (the "Refinancing") to cure the default.

18. The holders of the Debentures required that it be a term of the Refinancing that the Corporation make an application to cease to be a reporting issuer under the Act and it was a condition to the completion of the Refinancing that holders of at least 90% of the outstanding Common Shares consent to such application.

19. As certain of the Investors are (and were at the time of the Series 2 Financing) major shareholders or management of the Corporation, the Series 2 Financing was a "Related Party Transaction" within the meaning of the Act and accordingly the Series 2 Financing was subject to the requirements of Ontario Securities Commission Rule 61-501 Insider Bids, Issuer Bids, Business Combinations and Related Party Transactions ("Rule 61-501"). The Corporation applied for and obtained exemptive relief from the Commission from the valuation and minority approval requirements for related party transactions. The Commission granted the exemption on the basis that substantially all of the holders of Common Shares who were not participating in the Series 2 Financing consented to the transaction.

20. Certain of holders of the Debentures are still "related parties" of the Corporation within the meaning of Rule 61-501. The board of directors of the Corporation (the "Board") and the independent members of the Board determined that the Refinancing qualified for the "Financial Hardship" exemption in section 5.6 of Rule 61-501 from the formal valuation and minority approval requirements for related party transactions.

21. By letter (the "Consent Request Letter") dated April 12, 2004, the Corporation informed the holders of Common Shares of the Refinancing and requested their consent to the application to the Commission to cease to be a reporting issuer.

22. The Consent Request Letter explained that, if the Corporation ceased to be a reporting issuer, it would no longer be (i) required to provide unaudited interim financial statements, AIFs, MD&A and press releases and material change reports required by securities legislation, and (ii) subject to reporting issuer rules for related party and similar transactions. The Consent Request Letter also confirmed that the Common Shares would not be freely tradeable if the Corporation ceased to be a reporting issuer.

23. As each of the holders of the Existing Warrants is also a holder of Common Shares of the Corporation, each of the holders of the Existing Warrants received the Consent Request Letter.

24. In the Consent Request Letter, the Corporation agreed to provide the holders of Common Shares with annual audited financial statements within 140 days of the Corporation's year-end and semi-annual unaudited financial statements within 60 days of the end of the first half of the Corporation's financial year.

25. As of September 30, 2004, of a total of 70 holders of Common Shares: (i) 54 holders of Common Shares, holding 9,840,291 Common Shares and representing approximately 95% of the outstanding Common Shares (on a fully diluted basis), have consented to the application to the Commission for an order discontinuing the Corporation's reporting issuer status, (ii) one holder of Common Shares, representing less than 1% of the outstanding Common Shares (on a fully diluted basis) has responded negatively to the request for consent, and (iii) the remaining 15 holders of Common Shares have failed to respond.

26. The Corporation does not intend to seek public financing by way of an issue of securities.

AND UPON considering the Application and the recommendation of Staff of the Commission;

AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;

IT IS ORDERED pursuant to section 144 of the Act that the Cease Trade Order be and is hereby revoked.

October 19, 2004.

"Cameron McInnis"

AND IT IS FURTHER ORDERED pursuant to section 83 of the Act that the Corporation is deemed to have ceased to be a reporting issuer for the purposes of Ontario securities law.

October 19, 2004.

"Robert L. Shirriff"
"Paul M. Moore"