Decision: In the Matter of Crystallex International Corporation
R.S.O. 1990, c. S.5, AS AMENDED
AND
IN THE MATTER OF
CRYSTALLEX INTERNATIONAL CORPORATION
DECISION
By the attached Referral of Questions (the "Referral") the Director, pursuant to subsection61(4) of the Act, referred to the Commission for determination two questions. Termsdefined in the Referral have the meaning given to them in the Referral when used in thisDecision.
We answer the questions as follows:
1. The issuance of Repayment Rights to SBL and the resale by SBL of CommonShares acquired on the exercise of Repayment Rights would effectively constitutea distribution by Crystallex to the persons and companies purchasing from SBL onthe resale, unless the Common Shares have, in the meantime, "come to rest" in thehands of SBL, which would not be the case if SBL elects to dispose of the CommonShares, instead of holding them, as described under "Loan Repayment Rights" inthe Prospectus.
2. Under those circumstances, investors who purchase from SBL such commonshares would be entitled to a prospectus, with rights of damages and rescission asprovided in the Act.
We will give Reasons for this Decision if requested so to do.
March 30, 1999.
"J. A. Geller"
"K. D. Adams"
"R. Stephen Paddon"
R.S.O. 1990, CHAPTER S.5, AS AMENDED (the "Act")
AND
IN THE MATTER OF
CRYSTALLEX INTERNATIONAL CORPORATION
REFERRAL OF QUESTIONS
(S. 61(4))
WHEREAS:
(A) Crystallex International Corporation ("Crystallex") acquired the San Gregorio goldmine and property in Uruguay (the "Assets") in October, 1998 from the courtappointed receiver of the previous owner of the Assets. Standard Bank LondonLimited ("SBL"), as the secured creditor with a priority claim over the Assets,supported and participated in that procedure;
(B) the Assets were acquired at a gross value of U.S.$29 million, satisfied by U.S.$7million in cash, U.S.$6 million from the liquidation of certain acquired companyassets and U.S.$16 million in non-recourse project finance underwritten by SBL (the"Original Loan"). In addition, a further U.S.$1.2 million equipment finance loan (the"Equipment Loan") was arranged by SBL to upgrade equipment necessary for theoperation of the project. The Original Loan and the Equipment Loan are collectivelyreferred to as the "SBL Loans". The borrower under the SBL Loans is Minera SanGregorio S.A. ("MSG"), an indirect wholly-owned subsidiary of Crystallex;
(C) the Original Loan is repayable in gold, cash or, exclusively at Crystallex's option,freely tradeable Common Shares. The Equipment Loan is repayable in cash or,exclusively at Crystallex's option, freely tradeable Common Shares. The freetradeability of the Common Shares is a fundamental term of the loan agreement;
(D) Crystallex filed a preliminary short form prospectus dated February 2, 1999 (the"Prospectus") with respect to the distribution to SBL of U.S. $17.2 million of loanrepayment rights ("Repayment Rights"). The principal amount currentlyoutstanding under the SBL Loans is U.S. $17.2 million;
(E) the Repayment Rights are exercisable, at the exclusive option of Crystallex, forCommon Shares of Crystallex. The Repayment Rights expire when the SBL Loansmature;
(F) the shareholders of the Corporation have approved the issuance of up to36,358,966 Common Shares upon exercise of the Repayment Rights, which isapproximately 99% of Crystallex's issued and outstanding capital;
(G) MSG is credited with a repayment of the SBL Loans regardless of whether SBLsells any Common Shares received on exercise of the Repayment Rights;
(H) staff of the Commission is of the view that the issuance of the Repayment Rightsby Crystallex to SBL, the issuance of Common Shares to SBL pursuant to thoseRepayment Rights and the resale by SBL of those Common Shares into thesecondary market is one distribution such that the ultimate purchasers, being thosethat acquire Common Shares in the secondary market from SBL, should receive aprospectus and the rights afforded thereunder; and
(I) such other facts as may be adduced before the Commission;
AND WHEREAS it appears to me that the Preliminary Prospectus raises materialquestions involving the public interest under subsection 61(1) of the Act;
THE DIRECTOR REFERS the following questions to the Commission fordetermination pursuant to subsection 61(4) of the Act;
1. Does the issuance of the Repayment Rights to SBL and the resale by SBL ofCommon Shares acquired on the exercise of the Repayment Rights effectivelyconstitute a distribution to the secondary market?
2. Are investors who purchase, from SBL, Common Shares acquired by SBL on theexercise of Repayment Rights entitled to a prospectus, with concomitant rights fordamages and rescission?
"Kathryn Soden"
Director Corporate Finance