ARC International Corporation & ARC Sports Ltd. - s. 9.1

UPON the application (the "Application") by Jerry Zucker ("Zucker") and 1448365 Ontario Limited ("Acquireco") to the Director for a decision pursuant to section 9.1 of Rule 61-501 that ARC International Corporation ("Arc") be exempt from Part 5 of Rule 61-501 in respect of the acquisition of certain assets by Acquireco in connection with the liquidation of the assets of ARC Sports Ltd. ("Arc Sports"), a subsidiary of Arc;

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

AND UPON Zucker and Acquireco having represented to the Director as follows:

1. Arc is governed by the Business Corporations Act (Ontario) (the "OBCA") and is a reporting issuer in Ontario and Quebec.

2. The common shares of Arc (the "Shares") were traded on the American Stock Exchange until October 6, 2000. Since October 8, 2000, the Shares have been trading on the OTC Bulletin Board System. On December 18, 2000, the Shares traded at $0.0156.

3. According to Arc's interim financial statements for the six months ended June 30, 2000 (the "June 2000 Financial Statements"), there were 17,390,520 Shares issued and outstanding at June 30, 2000. As at November 29, 2000, Arc's market capitalization, calculated in accordance with section 1.1 of Rule 61-501, was less than US$ 300,000.

4. Arc has not filed its interim financial statements for the nine months ended September 30, 2000. Consequently, on December 12, 2000, the Commission made a temporary order that trading cease in securities of Arc for a period of fifteen days.

5. Arc Sports is governed by the OBCA and is a wholly-owned subsidiary of Arc. Arc Sports owns and operates three ice skating facilities in the Toronto metropolitan area (the "Arenas").

6. Zucker resides in Charleston, South Carolina. Zucker controls Acquireco, a corporation governed by the OBCA that is not a reporting issuer or the equivalent in any province or territory of Canada.

7. Zucker, Arc's largest single shareholder, beneficially owns approximately 4,326,500 Shares, representing approximately 25% of the class. Zucker acquired his ownership interest in Arc through a series of purchases in the open market between July and October 1999 and through a private placement from treasury of 2,800,000 Shares on November 29, 1999.

8. A representative of Zucker served as a member of Arc's board of directors from December 15, 1999 until April 17, 2000, when such representative resigned from the board for reasons, among others, relating to a claim that Zucker subsequently brought against certain former officers and directors of Arc alleging intentional misrepresentation and other claims in connection with Zucker's acquisition of Shares.

9. As disclosed in the June 2000 Financial Statements, Arc does not have sufficient cash available to satisfy all its commitments and has incurred significant negative cash flow from operations. Arc and certain of its subsidiaries are not in compliance with covenants under various credit facilities, including a US$25 million credit facility with Arc's senior lender. Certain other subsidiaries have received demands for the payment of outstanding debts and have not made such payments. On December 7, 2000, Arc Sports made an assignment into bankruptcy. Accordingly, it is reasonable to conclude that Arc is insolvent.

10. All of Arc's directors resigned on October 20, 2000 and no one has been appointed in their place.

11. Certain secured creditors of Arc and its subsidiaries have begun to take actions to realize on their security. On October 23, 2000, Penfund Capital (No. 1) Limited ("Penfund"), a secured creditor of Arc Sports, appointed Richter & Partners Inc. ("Richter") as receiver and manager of Arc Sports' property, assets and undertakings (the "Arc Sports Receivership"). On the same day, Richter was appointed by the Ontario Superior Court of Justice to manage the liquidation of Arc's assets (the "Arc Liquidation"). On the bankruptcy of Arc Sports, Richter also was appointed as its trustee in bankruptcy.

12. Richter and Penfund are acting at arm's length to Zucker and his affiliates and, to the best of Zucker's knowledge, to Arc.

13. Zucker believes that it is unlikely that the shareholders of Arc (the "Shareholders"), including Zucker, will receive any value in connection with the Arc Liquidation because the fair market value of Arc's assets is considerably less than Arc's outstanding liabilities. Furthermore, since Arc Sports' assets also are being liquidated by its creditors, the Shareholders are even less likely to receive any value from Arc's investment in Arc Sports.

14. In its capacity as receiver, manager and trustee in bankruptcy of Arc Sports, Richter is selling all of Arc Sports' right, title and interest in the real and personal property comprising the Arenas. Richter has solicited offers to purchase the Arenas. Zucker and Acquireco have submitted to Richter a bid relating to the purchase of the Arenas. Zucker understands that there are at least two other interested bidders who have submitted bids to Richter regarding the Arenas.

15. Richter currently is negotiating a definitive purchase and sale agreement with Zucker's representatives regarding the proposed purchase by Acquireco of the Arenas (the "Agreement"). The Agreement will provide that Zucker, through Acquireco, will agree to purchase the Arenas (the "Acquisition"), subject to satisfaction of various conditions, including receipt of the decision requested in the Application.

16. Zucker is a related party with respect to Arc within the meaning of Rule 61-501 because he beneficially owns, or exercises control or direction over, more than 10% of the Shares.

17. The Acquisition will be a related party transaction within the meaning of Rule 61-501 because Arc Sports, a wholly-owned subsidiary of Arc, is proposing to sell the Arenas to Zucker and, therefore, Arc may be considered to be indirectly disposing of assets to a related party.

18. Arc cannot rely upon:

(a) the exemptions from section 5.5 of Rule 61-501 (the "Formal Valuation Requirement") and section 5.7 (the "Minority Approval Requirement") in subsections 5.6(2) and 5.8(2), respectively, of Rule 61-501 because the Arenas' fair market value exceeds 25% of Arc's market capitalization;

(b) the exemption from the Formal Valuation Requirement in subsection 5.6(13) of Rule 61-501 because the Assets' fair market value exceeds $500,000;

(c) the exemptions from the Formal Valuation Requirement and the Minority Approval Requirement in subsections 5.6(7) and 5.8(4), respectively, of Rule 61-501 because the Acquisition is being effected by a privately-appointed receiver, rather than pursuant to a court-supervised bankruptcy, liquidation or reorganization; or

(d) the exemptions from the Formal Valuation Requirement and the Minority Approval Requirement in subsections 5.6(8) and 5.8(5) because: (i) the Acquisition is not necessarily being effected to improve Arc's financial position; and (ii) Arc has no board of directors to make the determinations prescribed by these subsections.

19. In a letter dated December 19, 2000 to the Director, Richter has stated that:

(a) it has reviewed the Application (including a draft of this decision) and has no reason to believe that any of the information presented in the Application (including the draft decision) is inaccurate;

(b) in connection with the Arc Liquidation and the Arc Sports Receivership, it is conducting a process solely intended to maximize value for the creditors (and if there are any assets remaining after satisfying creditors, the shareholders) of Arc and Arc Sports, respectively; and

(c) its preliminary view is that there will be no surplus available for distribution to the Shareholders after realization on the assets of Arc and its subsidiaries, including Arc Sports.

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

IT IS DECIDED pursuant to section 9.1 of Rule 61-501 that, in connection with the acquisition by Acquireco of the Arenas from Arc Sports, Arc shall not be subject to Part 5 of Rule 61-501, provided that, on or prior to the completion of the Acquisition, Zucker issues and files a news release that:

(i) contains the information prescribed by subsections 5.2(a)-(d) of Rule 61-501; and

(ii) discloses the principal representations made by Zucker and Acquireco in the Application.

December 27, 2000.

Janet Holmes
Acting Director, Take-over/Issuer Bids,
Mergers & Acquisitions