Canada: Capital Markets Bulletin - February 10-14, 2014

Last Updated: February 16 2014
Article by Gregory Hogan, Alexandra Iliopoulos, Sean Williamson and Joyce Lim


News and Notices

TSX Mandates Majority Voting to Further Enhance Corporate Governance
Today the TSX amended its Company Manual to require each director of a TSX listed issuer, other than a listed issuer that is majority controlled (as defined in the amendments), to be elected by a majority of the votes cast. The requirement would not apply at contested meetings. Issuers will need to adopt a majority voting policy if they do not otherwise satisfy this requirement through another manner acceptable to TSX (statutes, articles, by-laws). The amendments become effective June 30, 2014. Issuers with fiscal years ending on or after June 30, 2014 must comply with the amendments at their first annual meeting following June 30, 2014. The final rules can be found here.

2014 Federal Budget Tabled in Parliament on Tuesday
On February 11, 2014, Ottawa unveiled the federal budget for 2014. Please click here to access the Cassels Brock summary of certain fundamental tax measures contained in the Canadian federal government's budget. Key highlights covered in this summary include:

  • Mining and energy sector highlights;
  • International tax measures;
  • Business tax measures;
  • Charities and non-profit organizations highlights;
  • Personal tax measures; and
  • Sales tax measures.

Relief Applications of Note

Minority Approval of Related Party Transactions by Written Consent: In the Matter of Samco Gold Limited and In the Matter of TerraVest Capital Inc.
By: Greg Hogan
In a related party transaction, minority approval under Multilateral Instrument 61-101 ("MI 61 -101") by way of written consent from a majority of disinterested shareholders may be available on application to the securities regulators, leading to reduced costs and delays.

Each of these decisions was reported in the same week. Each involved related party transactions that were required to be approved by "minority" shareholders, being all of the shareholders that were not interested in the transaction in question, at a meeting of shareholders.

Samco had agreed to acquire, from a director of Samco, the right to participate in the benefits arising from the enforcement of an Argentinean court decision relating to a contract breach. Samco provided each shareholder from whom written consent for the transaction was sought a disclosure document, including copies of the press release and the relevant agreement, the contents of which complied with the disclosure requirements set out in Section 5.3(3) of MI 61-101, along with a form of written consent. Samco received signed consents from shareholders representing approximately 68.4% of the Samco common shares held by disinterested shareholders.

TerraVest was making an acquisition of another issuer from two shareholders of TerraVest. TerraVest provided the single shareholder from whom written consent for the transaction was sought a disclosure document, including a copy of a formal valuation, the contents of which complied with the disclosure requirements set out in Section 5.3(3) of MI 61-101, along with a form of written consent. This shareholder beneficially owned, or exercised direction or control over, 3,933,872 common shares of TerraVest, which represented approximately 31.68% of the issued and outstanding common shares and 61.03% of the common shares held by all disinterested minority shareholders.

In each case, the issuers were permitted to satisfy the minority approval requirement by way of written consent on the basis that (i) the majority of the minority approval was a foregone conclusion, so sending the circular and holding the meeting would be an unreasonable expense and a source of unnecessary delay, and (ii) the disclosure that shareholders would have obtained in a circular was posted on SEDAR at least 14 days prior to the completion of the transaction.

From the Courts

Confirmation that "Sunset" Clauses in Plans of Arrangement are Effective and Enforceable: Sturm v. Sprott Resource Lending Corporation, 2014 BCSC 190
By: Greg Hogan
This decision provides comfort to participants in M&A transactions (including boards) that, following issuance of a final order approving a plan of arrangement, the plan and its operation will be extremely difficult to impugn.

The plaintiff in this case was an investor who had purchased shares in a number of corporations that were subject to plans of arrangement. The plaintiff was required to take specified steps to exchange his shares for new shares. Despite receiving written notice of the need to do so, the plaintiff did not take those steps and after the 6 year deadline imposed by those arrangements had passed, the entitlement to these new shares expired. The relevant deadline provisions in the various transactions (the "sunset" clause or the "proscription" clause) were typical for these types of plans and stated that failure to take the required steps and deliver the required documents to exchange the share certificates within 6 years would mean that the shareholder was deemed to have surrendered to the acquiror/resulting issuer all rights and interest in such shares together with all entitlements to dividend distributions and interest thereon. In the final orders approving the plans of arrangement, the court had declared that the plans were in fact fair to shareholders.

The court held that the plans, including the sunset clauses, were effective and enforceable. The final order stood as the court's decree on fairness and reasonableness and was binding.

The court rejected the argument that the sunset clauses were unfair and unenforceable. The court stated that "the binding nature of a plan of arrangement provides necessary certainty to companies and their investors". In the final orders approving the plans of arrangement, the court declared that the plans were in fact fair to shareholders. No claim of oppression was advanced by the plaintiff. In response to the plaintiff's claim that he was not attacking the fairness of the plan, which had been found to be fair by the court, but the specific manner in which the sunset clause operated, the court responded that the "plan of arrangement must be taken as including not only the substance of what was to be accomplished ... but also the procedure or means by which the former shares would be surrendered and replaced with the new shares". The court further recognized the legitimate objective of a sunset clause, being to supply a mechanism by which the share register can be made more accurate and certain.

The court also pointed out the obvious, being that if the plaintiff wished to challenge the inclusion of the sunset clauses in the plan of arrangement, he need only have attended at the meeting or at court. He did not object at the meeting or at court. The court agreed that the Company Act (the "Act") provisions related to circulars and disclosures therein on arrangements provide the basis upon which corporations are to make disclosure of arrangements to shareholders. The Act "depends upon, shareholders reviewing and if appropriate, acting on the information that is provided to them as they deem necessary". The plaintiff received the materials, and there was no question that the company was deficient in any respect making shareholders aware of the plan and its terms.

The court also rejected arguments that:

  • the sunset clause resulted in unjust enrichment;
  • the corporations owed a duty of care to the plaintiff to ensure that the plaintiff understood the sunset clauses and to make efforts to make the plaintiff aware of the loss of rights;
  • the sunset clauses were a penalty;
  • the defendant now held the new shares in trust for the plaintiff;
  • the hearing for the final order was in the nature of an ex parte application, requiring full and frank disclosure of all material facts, without which permits the court to set the order obtained aside without regard to the merits of the application; and
  • since the corporations were, without opposition, seeking to deprive the shareholders of their proprietary rights, there was an obligation to ensure that the court was fully and specifically aware of the sunset clauses in assessing fairness and reasonableness.


Information and intelligence about what public companies are doing in the market.

Public Offerings

Equity Offerings [lead underwriters/agents noted]

  • On February 6, Luna Gold Corp. filed a preliminary short form prospectus to qualify the distribution of 16,950,000 common shares at a price of $1.18 per share for gross proceeds of $20,001,000. [Cormark Securities Inc. and Canaccord Genuity Corp.]
  • On February 7, Baytex Energy Corp. filed an amended and restated preliminary short form prospectus to qualify the distribution of 33,420,000 subscription receipts at a price of $38.90 per subscription receipt each representing the right to receive one common share in the capital of the issuer. [Scotia Capital Inc. and RBC Dominion Securities Inc.]
  • On February 7, Discovery 2014 Flow-Through Limited Partnership filed a preliminary long form prospectus to qualify the distribution of transferable limited partnership units at a price of $25.00 per unit. The maximum and minimum number of securities to be offered and the maximum and minimum gross proceeds from the offering have yet to be determined. [Middlefield Capital Corporation]
  • On February 7, Transeastern Power Trust filed a preliminary long form prospectus to qualify the distribution of (i) trust units at a price of $1.00 per unit, and (ii) 7.5% convertible unsecured subordinate debentures at a price of $1,000 per debenture. The number of units and the aggregate principal amount of the debentures have yet to be determined. [Canaccord Genuity Corp.]
  • On February 10, Boulevard Industrial Real Estate Investment Trust filed a preliminary long form prospectus to qualify the distribution of (i) 8,823,530 trust units to be issued at a price of $0.17 per unit, and (ii) $3.5 million aggregate principal amount of 7% convertible unsecured subordinate debentures at a price of $1,000 per convertible debenture, for aggregate gross proceeds to the REIT of $5,000,000. [Laurentian Bank Securities Inc.]
  • On February 10, Longview Oil Corp. filed a preliminary short form prospectus to qualify the distribution of 21,150,010 common shares of Longview Oil Corp. by the selling shareholder, Advantage Oil & Gas Ltd., at a price of $4.45 per common share for gross proceeds of $94,117,544.50. [RBC Dominion Securities Inc. and FirstEnergy Capital Corp.]
  • On February 10, Timbercreek Mortgage Investment Corporation filed a preliminary short form prospectus to qualify the distribution of $30,000,000 aggregate principal amount of 6.35% convertible unsecured subordinated debentures, due March 31, 2019, in denominations of $1,000 and multiples thereof at a price of $1,000 per debenture. [TD Securities Inc. and CIBC World Markets Inc.]

Take-Over Bids

  • On February 10, a take-over bid circular was filed under the profile of Augusta Resource Corporation ("Augusta") by HudBay Minerals Inc., ("Hudbay") offering to purchase all of the issued and outstanding common shares of Augusta for consideration per Augusta share of 0.315 of a common share of Hudbay.
  • On February 11, a take-over bid circular was filed under the profile of Brookfield Office Properties Inc. ("Brookfield Office Properties") whereby Brookfield Property Partners L.P. ("Brookfield Property Partners") and its indirect subsidiaries, Brookfield Property Split Corp. and Brookfield Office Properties Exchange LP, offered to purchase all of the issued and outstanding common shares of Brookfield Office Properties for consideration for each common share of one Brookfield Property Partners unit or US$20.34 in cash at the election of each holder, subject, in each case, to pro-ration as set out in the take-over bid circular.

Upcoming Shareholder Meetings

  • On February 28, 2014, the shareholders of Weyburn Inland Terminal Ltd. ("Weyburn") will be asked to vote to approve a plan of arrangement whereby 101249284 Saskatchewan Ltd., a wholly-owned subsidiary of Parrish & Heimbecker, Limited, will acquire all of the outstanding common shares of Weyburn for $17.25 in cash per common share.
  • On March 7, 2014, the shareholders of HHT Investments Inc. ("HHT") will be asked to vote to approve, inter alia, an arrangement which purpose is to reorganize HHT as a publicly-traded real estate investment trust. The arrangement will result in, among other things, the holders of common shares transferring their shares to Boulevard Industrial LP in consideration for units and/or Class B LP Units (in the case of shareholders that elect to transfer shares to Boulevard Industrial LP in exchange for Class B LP Units) pursuant to, and in accordance with, the terms of the arrangement.
  • On March 21, 2014, the shareholders of Red Crescent Resources Limited (formerly Nico Mining Limited) ("Red Crescent") will be asked to vote to approve the sale of all of the issued and outstanding shares of RCR Holding Anonim Sirketi held by Red Crescent, constituting all or substantially all of Red Crescent's assets, and to delist the common shares of Red Crescent from the Toronto Stock Exchange.


Capital Markets

TSX's Performance Amidst Emerging Market Jitters
This year, emerging market stocks posted their worst start to a year since 2009. Notwithstanding the uncertainty facing emerging markets, the direct exposure for the Canadian economy appears to be fairly limited. The S&P/TSX composite index has been on the rise since mid December of 2013, particularly at the start of February 2014. This performance may seem surprising but for a report by the Investment Executive, which notes that emerging markets account for only approximately 10% of Canada's total exports and that the country's dependence on foreign direct investment comes predominantly from the U.S. and developed European nations. These statistics were based on a report [subscription required] by BofA Merrill Lynch Global Research, which bore a cautionary warning that the resource sector could still be affected, given the correlation between emerging market growth and Canada's commodity prices. However, if the historical performance of the TSX is any indication, it is likely that a decline, if any, would not be extraordinary. The BofA report compared the TSX's performance during previous emerging markets crisis and noted that during those periods of financial uncertainty, the Canadian equity markets proved relatively resilient, with the TSX only experiencing single-digit declines (i.e., 2% decline during the Asian financial crisis in 1997; 4% during the Russian crisis in 1998; and 6% during the Argentine crisis in 2001).

TSX Venture Exchange Announces the 2014 TSX Venture 50
On Wednesday, the TSXV announced its annual ranking of the top TSXV-listed performing companies across 5 industries: clean tech, diversified industries, mining, oil & gas and tech & life sciences. The TSXV conducted an initial screen to identify potential candidates from over 2000 listed companies. The performances of the selected companies were then determined based on an equal weighting of the following factors: market capitalization growth, share price appreciation, trading volume and analyst coverage. To view the full list, please click here.


The True Olympic Spirit
There is talk of having Gilmore Junio carry the Canadian flag into the closing Olympic ceremony in Sochi. Junio believed that his friend and teammate, Denny Morrison, could win a medal for Canada so he decided to give up his spot in the 1,000-metres long-track speed skating in order that Morrison could compete in his place. Click here to find out the results.


Recent Transaction

We acted for Torex Gold Resources Inc. ("Torex"), a Canadian-based resource company, in connection with its bought deal offering of units. A total of 119,830,000 units were issued at a price of $1.20 per unit, for aggregate gross proceeds of $143,796,000, which included the exercise by the underwriters of the over-allotment option in full for 15,630,000 units. The net proceeds of the offering will be used to fund the ongoing mine development and construction plan for Torex's El Limón and Guajes project in Mexico and for general corporate purposes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Gregory Hogan
Sean Williamson
Joyce Lim
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