SimEx Inc. - s. 9.1 of OSC Rule 61-501 Related Party Transactions

Headnote

RuleCited

INTHE MATTER OF

ONTARIOSECURITIES COMMISSION

RULE61-501 ("Rule 61-501")

AND

INTHE MATTER OF

SIMEXINC.

Rule61-501

(section9.1)

UPONthe application (the "Application") of SimEx Inc. ("SimEx")to the Director for a decision pursuant to section 9.1 of Rule61-501 that, in connection with the issuance of subordinateddebentures and warrants to acquire common shares of SimEx tocertain investors described below, including investors who arerelated parties of SimEx for purposes of Rule 61-501, to inpart fund the acquisition by SimEx of all of the outstandingshares of Iwerks Entertainment, Inc. (the "Iwerks Acquisition"),SimEx be exempt from sections 5.5 and 5.7 of Rule 61-501;

ANDUPON considering the Application and the recommendationof staff of the Commission;

ANDUPON SimEx having represented to the Director as follows:

1.SimEx is amalgamated under the Business Corporations Act(Ontario), is a reporting issuer in Ontario and, to the bestof its knowledge, is not in default of any requirement of theSecurities Act (Ontario) or the regulations or rulesmade thereunder. The head office of SimEx is in Ontario.

2.SimEx is a very closely held reporting issuer with approximately62 registered shareholders and fewer beneficial shareholders,excluding employees and former employees. No public market existsfor its securities and, to the knowledge of management, no tradinghas occurred in its securities since 1996.

3.As at November 29, 2001, 10,397,302 common shares of SimEx ("CommonShares") were issued and outstanding and 1,417,500 warrantsto purchase Common Shares ("Existing Warrants") for a nominalprice of $0.001 per Common Share were outstanding for a totalof 11,814,802 Common Shares outstanding, assuming the exerciseof all Existing Warrants.

4.Triax Growth Fund Inc. ("Triax") was incorporated under thelaws of Canada and is registered as a labour sponsored investmentfund corporation in Ontario and as a labour sponsored venturecapital corporation in Canada, Nova Scotia and New Brunswick.Triax is managed by Triax Capital Management Inc. which hasretained Altamira Management Ltd. to act as the fund's investmentadvisor.

5.Triax beneficially owns 1,902,020 Common Shares and 337,500Existing Warrants, representing approximately 18.3% of the outstandingCommon Shares (or 19%, assuming the exercise of all ExistingWarrants). Triax also holds $750,000 principal amount of Series1 Convertible Debentures of SimEx due May 1, 2006 ("Series 1Debentures"). Triax does not currently have a representativeon the board of directors of SimEx (the "Board").

6.Working Ventures Canadian Fund Inc. ("Working Ventures") isa labour sponsored investment fund which is incorporated underthe laws of Canada and is governed by, among other legislation,the Community Small Business Investment Funds Act (Ontario).

7.Working Ventures beneficially owns 1,431,579 Common Shares and337,500 Existing Warrants, representing approximately 13.8%of the outstanding Common Shares (or 15%, assuming the exerciseof all Existing Warrants). Working Ventures also holds $750,000principal amount of Series 1 Debentures.

8.The current nominee of Working Ventures on the Board is BruceWylie.

9.Michael Needham ("Needham") is President, Chief Executive Officer,a director and a founder of SimEx. Shiori Sudo ("Sudo") is ExecutiveVice President and Secretary, a director and a founder of SimEx.Brian Peebles ("Peebles") is the Vice President, Operationsand a director of SimEx. Moses Znaimer ("Znaimer") is a directorof SimEx. Allen Yamashita ("Yamashita") is a senior officerof a subsidiary of SimEx. Needham, Sudo, Peebles, FiloselleProperties Limited ("FPL") and Tamara International Partnership,a corporation and partnership, respectively, in which Znaimerhas a significant interest, beneficially own, in the aggregate,2,410,409 Common Shares and 517,500 Existing Warrants, representingapproximately 23.3% of the outstanding Common Shares (or 24.8%,assuming the exercise of all Existing Warrants). Needham, Sudo,Peebles, Yamashita and FPL also hold, in the aggregate, $1,150,000principal amount of Series 1 Debentures. This group is referredto herein as "Management".

10.SimEx is proposing to issue $8,575,000 principal amount of juniorsubordinated debentures (the "Subordinated Debentures") andwarrants to purchase 4,716,250 Common Shares exercisable forthe nominal consideration of $0.001 per share (the "Warrants")(the "Proposed Financing") to be issued to the persons listedbelow (collectively the "Investors") as follows:

The Debentures will be subordinated to SimEx's bank credit facility.The consideration to be paid by the Investors to SimEx in exchangefor the Subordinated Debentures and Warrants consists of cashand, in the case of Triax, Working Ventures, First Ontario LabourSponsored Investment Fund Inc. and Management, the exchangeof the outstanding Series 1 Debentures held by each of them.Investors will receive 55,000 Warrants for each $100,000 principalamount of Subordinated Debentures purchased.

11.It is a condition to Triax and Working Ventures participatingin the Proposed Financing that holders of at least 90% of theoutstanding Common Shares (assuming the exercise of all outstandingExisting Warrants and the Warrants) enter into a shareholderagreement.

12.In connection with the Proposed Financing, the Board has establishedan independent committee composed of the directors of SimExwho are not participating in the Proposed Financing, namelyDonald Gordon ("Gordon") and Al Mikalachki ("Mikalachki") (the"Independent Committee") to evaluate, to oversee the negotiationof the definitive terms of the Proposed Financing and to makerecommendations to the Board as to whether the Proposed Financingis in the best interest of SimEx. Gordon, together with hisfamily members, owns approximately 6.9% ofthe outstanding Common Shares (assuming exercise of all ExistingWarrants). Clients of Gordon, a U.S. investment banker, hold,in aggregate, 16.7% of the outstanding Common Shares (assumingexercise of all Existing Warrants) and are not participatingin the Proposed Financing. The Independent Committee has approvedthe term sheet relating to the Proposed Financing.

13.SimEx retained the services of financial advisors to assistit in its financing efforts. Despite the efforts of SimEx andits advisors, including at least 20 presentations by managementto potential institutional investors, SimEx was unable to securealternate financing for the Iwerks Acquisition on acceptableterms.

14.The Subordinated Debentures themselves constitute a loan oncommercial terms. The Warrants to be issued to related partiesof SimEx represent 17.6% of the outstanding Common Shares (assumingexercise of all Existing Warrants and the Warrants). The ProposedFinancing is the only financing available to SimEx for completingthe Iwerks Acquisition.

15.SimEx has offered to all existing shareholders the opportunityto participate pro rata in the Proposed Financing (subject tothe availability of prospectus and registration exemptions).SimEx is not permitted to effect a rights offering on an exempttrade basis under Ontario Securities Commission Rule 45-101because the securities to be issued are not of the same natureas those currently outstanding.

16.It is expected that shareholders owning more than 25.4% of theCommon Shares and who deal at arm's length with each of theInvestors (the "Outside Shareholders") will provide their writtenconsent to the Proposed Financing. None of the Outside Shareholdersare participating in the Proposed Financing. Since the OutsideShareholders own more than 57% of the Common Shares held byall minority shareholders, minority approval of the ProposedFinancing will be received and, accordingly, approval of theProposed Financing by a majority of the minority shareholdersat a meeting would be a foregone conclusion.

17.By virtue of their respective holdings of Common Shares, eachof Triax and Working Ventures is a related party of SimEx underRule 61-501. By virtue of being senior officers and directorsof SimEx (and, in the case of Needham, by virtue also of hisholdings of Common Shares), each of Needham, Sudo, Peebles andZnaimer is a related party of SimEx under Rule 61-501.

18.Due to the participation of the Investors in the Proposed Financing,the Proposed Financing will be a related party transaction underRule 61-501. SimEx would therefore be required, absent an exemptionor discretionary relief, to comply with the valuation and minorityshareholder approval requirements of Rule 61-501 applicableto related party transactions. The minority shareholder approvalwould be required from the holders of the Common Shares otherthan Triax, Working Ventures, and Management and their respectivejoint actors.

19.Since the consideration for the Proposed Financing includesthe Warrants, the exemption from the formal valuation requirementin subsection 5.6(11) of Rule 61-501 for a loan on commercialterms is not available in connection with the Proposed Financing.

20.The number of Common Shares that will be issued upon the exerciseof Warrants to be issued to related parties of SimEx in connectionwith the Proposed Financing represents less than 25% of thecurrently outstanding Common Shares, assuming the exercise ofall Existing Warrants.

ANDUPON the Director being satisfied that to do so wouldnot be prejudicial to the public interest;

ITIS DECIDED pursuant to section 9.1 of Rule 61-501 that,in connection with the Proposed Financing, SimEx shall not besubject to the requirements in sections 5.5 and 5.7 of Rule61-501, provided that:

a.holders of a majority of the Common Shares held by Outside Shareholderswho do not take part in the Proposed Financing consent in writingto the Proposed Financing, which consent must contain an acknowledgmentthat they are aware of the terms of the Proposed Financing andmust be filed with the Director, and

b.SimEx complies with the other applicable provisions of Rule61-501.

December21, 2001.

"RalphShay"