Rule 61-501 -- Related party transactions --acquisition of mineral property by Issuer. Pursuant to acquisitionagreement Issuer must assume certain liabilities on closing.Issuer obtaining loan to cover liabilities. Pursuant to loanagreement, lender requiring personal guarantee of Presidentof Issuer. President proposing that in consideration of providingguarantee, mineral property be individually owed as to 51% byhim, and 49% by Issuer, with Issuer maintaining an option toacquire 26% ownership from Issuer for 2 year period. A majorityof the minority shareholders have expressed support for thetransaction and will consent to the transaction in writing.
Rule 61-501 -- Insider Bids, Issuer Bids, GoingPrivate Transactions and Related Party Transactions, ss. 5.5,5.6(17), 5.7, and 9.1.
IN THE MATTER OF
ONTARIO SECURITIES COMMISSION
RULE 61-501 ("RULE 61-501")
IN THE MATTER OF
(Section 9.1 of Rule 61-501)
UPON the application of ONTZINC Corporation(the "Issuer") to the Director of the Ontario SecuritiesCommission pursuant to section 9.1 of Rule 61-501 for a decisionexempting the Issuer from the minority approval requirementset forth in section 5.7 of Rule 61-501 in connection with aproposed related party transaction with Clifford Frame ("Mr.Frame");
AND UPON considering the applicationand the recommendation of staff of the Commission;
AND UPON the Issuer having representedto the Director as follows:
1. The Issuer is a corporation existing underthe laws of the Province of Ontario. The Issuer is a reportingissuer in the Provinces of Alberta, British Columbia, Ontarioand Quebec and is not in default under the securities legislationof any of these jurisdictions.
2. The authorized capital of the Issuer consistsof an unlimited number of common shares (the "CommonShares") without par value and an unlimited number ofpreference shares (the "Preference Shares") withoutpar value, issuable in series, of which 99,042,659 CommonShares and no Preference Shares are issued and outstanding.The Common Shares are listed for trading on the TSX VentureExchange ("TSXV").
3. Pursuant to an amended and restated assetpurchase agreement dated as of June 10, 2003 (the "AcquisitionAgreement") by and between St. Lawrence Zinc Company("St. Lawrence"), a corporation related to the Issuer,and ZCA Mines, Inc. ("ZCA"), St. Lawrence has agreedto purchase all of the real property assets (including realproperty leases), equipment and supplies of ZCA located inSt. Lawrence and Franklin Counties, New York (collectively,the "Balmat Mine") from ZCA for consideration ofUS$20,000,000. The purchase price is payable out of 30% ofnet cash flow from the operations after allowing for reasonablecapital and exploration expenditures of St. Lawrence in connectionwith the Balmat Mine. In the event of the price of zinc equalingor exceeding US$0.70 per pound over 24 consecutive months,the purchase price will be increased by US$5,000,000. TheAcquisition Agreement was approved by the United States BankruptcyCourt for the Southern District of New York on June 10, 2003.
4. Pursuant to the Acquisition Agreement,St. Lawrence shall, at the Closing (as defined in the AcquisitionAgreement), assume and/or perform the Assumed Liabilities(as defined in the Acquisition Agreement), which include,a US$1,000,000 environmental bond (the "Bond"),all debts, obligations, commitments and liabilities arisingout of or directly relating to the ownership and operationof the Balmat Mine after Closing and any liabilities relatingto the reclamation of the Hyatt and Edwards Mines and theNo. 2 Mine and Mill, and the completion and acceptance bythe New York Department of Environmental Conservation of thereclamation currently under way at the Pier Point Mine.
5. St. Lawrence has concluded that it requiresapproximately US$5.1 million to enable it to carry the costsof the Balmat Mine for a two year period following the Closing.
6. In order to meet these anticipated financialrequirements, St. Lawrence entered into an agreement datedAugust 14, 2003 (the "Loan Agreement") with KennedyFunding, Inc. ("Kennedy") for a US$5.1 million loanfrom Kennedy to St. Lawrence. Pursuant to the Loan Agreement,Kennedy is requiring a personal guarantee of Mr. Frame, Presidentof the Issuer. In addition, Mr. Frame has advanced US$1,000,000to St. Lawrence to cover the cost of the Bond.
7. In consideration of providing his personalguarantee, Mr. Frame has proposed that St. Lawrence wouldinitially be owned 51% by Frame Mining Company ("Frameco"),a corporation wholly owned by Mr. Frame, and 49% by BalmatHolding Corp. ("Balmat"), a company which wouldbe wholly-owned by the Issuer. The Issuer's ownership of St.Lawrence would increase to 75% (prior to any further financings)upon the Issuer repaying to Mr. Frame US$1,200,000 in connectionwith the Bond and the release of Mr. Frame's personal guarantee.In addition, the Issuer has the option of increasing its ownershipof St. Lawrence to 100% upon making a US$800,000 payment toFrameco.
8. The acquisition of the Balmat Mine (includingthe proposed ownership structure of the Balmat Mine) and thecompletion of the transaction contemplated by the Loan Agreement(collectively, referred to as the "Transaction")are subject to a number of conditions including, without limitation,the approval of all applicable regulatory authorities.
9. Mr. Frame is a "related party"to the Issuer in accordance with the definition containedin Rule 61-501. Mr. Frame is an officer and director of theIssuer and holds, directly and indirectly, 6,487,703 commonshares in the capital of the Issuer, representing approximately6.55% of the Issuer's issued and outstanding shares. In addition,Catherine Frame, Mr. Frame's spouse holds 17,384,985 commonshares in the capital of the Issuer representing approximately17.55% of the Issuer's issued and outstanding shares. Therefore,the Transaction will be a "related party transaction"under Rule 61-501.
10. At a meeting of the board of directorsof the Issuer (the "Board") held on July 15, 2003,the Board appointed a committee of independent directors (the"Independent Committee") consisting of two independentdirectors of the Issuer. The Independent Committee has reviewedthe Transaction and recommended approval of the Transaction.Upon the recommendation of the Independent Committee, theBoard (with Mr. Frame abstaining from voting) has consideredand approved the Transaction.
11. The Board, acting in good faith, has determinedthat the terms of the Transaction are not less advantageousto the Issuer than if the Transaction was with a party dealingat arm's length with the Issuer.
12. Upon final regulatory approval, includingapproval by the TSXV, the Issuer will disclose the detailsof the Transaction in a press release and in a material changereport (the "Disclosure Document"). The DisclosureDocument will, among other things, include a summary of theformal valuation of the Transaction that the Issuer has obtainedfor the Transaction.
13. It is expected that a majority of theShareholders who deal at arm's length with Mr. Frame (the"Outside Shareholders") will provide their writtenconsent (the "Consent") to the Transaction. Noneof the Outside Shareholders are participating in the Transaction.Since the Outside Shareholders who intend to provide writtenconsents to the Transaction own more than 50% of the CommonShares held by all minority shareholders, approval of theTransaction by a majority of the minority shareholders ata shareholders' meeting would be a foregone conclusion.
14. The Issuer shall send a copy of the DisclosureDocument to each Outside Shareholder.
15. The Consent will describe the relevantdetails of the Transaction and include an acknowledgment byeach Outside Shareholder that the Disclosure Document providedby the Issuer describes the Transaction in sufficient detailto allow the Outside Shareholder to make an informed decision.
AND UPON the Director being satisfiedthat to do so would not be prejudicial to the public interest;
IT IS DECIDED by the Director pursuantto section 9.1 of Rule 61-501 that the Issuer shall not be subjectto the minority approval requirement in section 5.7 of Rule61-501 in connection with the Transaction, provided that:
(a) the Outside Shareholders consent in writingto the Transaction which consent must contain an acknowledgementthat they are aware of the terms of the Transaction and mustbe filed with the Director; and
(b) the Issuer complies with the other applicableprovisions of Rule 61-501.
September 19, 2003.