Canada: Capital Markets Bulletin - March 17-21, 2014

Edited by Alexandra Iliopoulos and Gregory Hogan

From the Regulators

News and Notices

IIROC Proposes Reducing Margin Requirements for Certain Cash and Security Borrowing/Lending Transactions
By: Alexis Bowie, Anita Kim, Jamie Litchen and Joel McElravy

The Investment Industry Regulatory Organization of Canada ("IIROC") has published for comment IIROC Notice 14-0066, Margin requirements for certain cash and security borrowing and lending arrangements (available here). IIROC is seeking comments on certain proposed technical amendments to capital and margin rules for cash and securities borrowing and lending transactions.

The proposed changes involve amendments to Schedules 1, 7 and 7A of Dealer Member Form 1, and include a discussion on the different types of counterparties defined within IIROC's capital and margin rules.

The comment period closes on June 11, 2014.

Legal Briefs and Commentary

Updates and commentary from Canada and around the world

CSA Proposes Amendments to the Accredited Investor and Minimum Amount Prospectus Exemptions: Additional Requirements and Narrowed Availability
By: Nancy Choi and Sean Williamson

The Canadian Securities Administrators recently released a number of proposed amendments to National Instrument 45-106 – Prospectus and Registration Exemptions, including changes to the accredited investor and the $150,000 minimum amount exemptions. If implemented, the amendments will create additional new administrative obligations for the documentation of offerings made to accredited investors and would eliminate the ability of individuals to use the minimum amount exemption. For more details, click here. 

CBB Knowledge Centre

Tips and guidelines to assist our clients in understanding the law and becoming better drafters

Drafting Tip of the Month

Using "To the Best of My Knowledge"
By: Corporate Counsel Bulletin Board
 
When drafting representations and warranties, it is often advisable to qualify a statement with the phrase "to the best of X's knowledge." This is called a "knowledge qualifier."

There is often discussion as to whether or not to include the modifier "best of." In Confederation Life Assn v Miller, the Supreme Court of Canada interpreted "to the best of my knowledge" as not requiring extra diligence to ascertain the truth of the stated knowledge.

More recently, in John Levy Holdings Inc v Cameron & Johnstone Ltd, the Court of Appeal for Ontario held that the "best of" knowledge qualifier did not even impose a duty to discover whether the knowledge was in fact true. (See also Vokey v Edwards.)

However, there is a common notion that including "best of" sets a higher standard of diligence than simply stating "to my knowledge." If you use "to the best of my knowledge," the other side may infer that you have exercised greater diligence than was the case.

To avoid uncertainty and the risk of litigation, include a provision that defines what level of diligence is required of the party making the statement. For example:

Option #1 – Diligence Required: "Where any representation, warranty, or other statement in this agreement, or in any other agreement or other document delivered in connection with this agreement, is expressed by a party to be "to its knowledge", or is otherwise expressed to be limited in scope to facts or matters known to the party or of which the party is aware, it means (i) the current, actual knowledge of directors and officers of such party [or Insert individual(s) names for each party, not the name of a legal entity], and (ii) the knowledge that would or should have come to the attention of any such directors or officers [Insert individual(s) names for each party, not the name of a legal entity] had such individuals duly investigated the facts related to that statement and made reasonable inquiries of other individuals reasonably likely to have knowledge of facts related to that statement."

Option #2 – No Diligence Required: "Where any representation, warranty, or statement in this agreement, or in any other agreement or other document delivered in connection with this agreement, is expressed by a party "to its knowledge", or is otherwise expressed to be limited in scope to facts or matters known to the party or of which the party is aware, it means the current, actual knowledge of the directors and officers of such party [or Insert individual(s) names for each party, not the name of a legal entity], without the requirement to make any other inquiry or investigation."

For further information, see this blog posting on the topic, as well as this follow-up.

Public Company Activity

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

Public Offerings [lead underwriters noted/agents noted]

Initial Public Offerings

Equity Offerings

Upcoming Shareholder Meetings 

• On April 9, 2014, the shareholders of Jemi Fibre Corp.("Jemi") will be asked to vote to approve the proposed acquisitions by Jemi of all of the issued and outstanding shares of WoodEx Industries Ltd., Kootenay Wood Preservers Ltd. and Prairie Holdings Inc.
  
• On April 10, 2014, the shareholders of Braeval Mining Corporation ("Braeval") will be asked to vote to approve a business combination whereby Braeval will acquire all of the issued and outstanding common shares of Oban Exploration Limited, a newly formed subsidiary of Braeval.
  
• On April 14, 2014, the shareholders of Bioniche Life Sciences Inc. ("Bioniche") will be asked to vote to approve the sale of all of the issued and outstanding shares of Bioniche Animal Health Europe Limited, Bioniche Animal Health USA, Inc., Bioniche Animal Health (A/Asia) Pty. Ltd. and Bionice Animal Health Canada Inc., all of which are wholly-owned subsidiaries by Bioniche, to Vétoquinol SA.
  
• On April 16, 2014, the shareholders of Coastal Contacts Inc. ("Coastal") will be asked to vote to approve a plan of arrangement pursuant to which 8800499 Canada Inc., a wholly-owned subsidiary of Essilor International (Compagnie Générale d'Optique), S.A., will acquire all of the issued and outstanding common shares of Coastal.

Risk Factor of the Month
Our focus on risk factors is intended to highlight the ways in which issuers are disclosing specific, material risks to their business rather than relying on market standards or boilerplate.

Ten Peaks Coffee Company Inc., Annual Information Form (March 12, 2014)
By: Myroslav Chwaluk

Coffee Prices and Availability

Green coffee bean prices are subject to substantial price fluctuations, generally caused by multiple factors, including weather, pests that affect coffee plants, political and economic conditions in certain coffee-producing countries and other supply-related matters. In addition, green coffee prices have been affected in the past, and may be affected in the future, by the actions of certain organizations and associations, such as the International Coffee Organization and the Association of Coffee Producing Countries, which have historically attempted to influence commodity prices of green coffee through agreements establishing export quotas or restricting coffee supplies worldwide. When green coffee exports are constrained from one or more country due to poor crops or other factors, SWDCC may not be able to secure sufficient high-quality coffee to meet demand, resulting in lost sales. Moreover, SWDCC's toll customers may not receive coffee when they require it, resulting in lower toll volumes. Volatility in the coffee commodity price affects SWDCC in a number of ways. When coffee prices rise rapidly, customers tend to reduce their purchases and inventory levels. In addition, sustained increases in coffee commodity prices are passed onto consumers in the form of higher retail prices, which reduces consumer demand. Both factors tend to reduce SWDCC's processing volumes and/or sales. Conversely, when the coffee commodity price declines, customers replenish their inventories and reduce retail prices, stimulating demand.

In addition, SWDCC sells coffee at current market prices. Thus, when coffee commodity prices rise (fall), Ten Peaks' revenue will also rise (fall) even if its processing volumes do not grow. In turn, this increases (decreases) the value of accounts receivable, which may increase (decrease) the credit risk of the business.

Finally, higher coffee prices drive up the cost of coffee inventories, which SWDCC regularly replaces in order to support its non-toll business. Inventory purchases are funded through SWDCC's operating line of credit, resulting in increased bank indebtedness when coffee prices rise. This increases the liquidity risk of the business.

What We're Reading

Capital Markets

Blog Post: Do-It-Yourself Activism (Harvard Law School Forum on Corporate Governance and Financial Regulation)
By: Greg Hogan

This post is from Gerry Hansell, senior partner and managing director at The Boston Consulting Group. In light of the growing influence of activist investor of all stripes and thus the increasing likelihood that companies will face a campaign from one or more such investors, Hansell recommends that companies adopt a proactive rather than reactive response. He calls this response "Do-It-Yourself Activism." His post summarizes the methods that these investors use to unlock value and lays out a five point plan to get out of their crosshairs by doing what the activist investor might seek before the investor starts a campaign.

Blogs and the Markets: Greenlight Capital Seeks to Sue Anonymous Blogger
By: Sean Williamson

The New York Times DealBook blog had an interesting piece on a dispute between US hedge fund manager David Einhorn and his Greenlight Capital, and the market watching blog Seeking Alpha which posted an anonymously authored piece disclosing that Einhorn was poised to obtain a significant stake in a semiconductor developer, Micron Technology Inc. Greenlight has filed a petition in the New York State Supreme Court to have the anonymous blogger identified by Seeking Alpha so that it can sue the author personally for the added cost that was incurred to purchase the stake in Micron, after its stock price spiked upon the information being posted. Einhorn and Greenlight allege that the only people who would have known about the pending transaction would have been subject to confidentiality or other duties not to disclose such information. Though this is a US case, there are a number of interesting and complex issues at stake which are relevant to the Canadian legal and capital markets industries, including insider trading, freedom of speech, protection of journalists' sources' identities, confidentiality provisions and professional obligations. The hearing has been postponed until April 1.

M&A

Research: Shareholder Litigation Involving US Mergers and Acquisitions (Cornerstone Research)
By: Greg Hogan

This report from Cornerstone Research looks at litigation challenging M&A transactions in the United States from 2007 through 2013, filed by shareholders of public target companies. Among the key findings of this research were that in 2013:For some colour on incentives to settle and difficulties in settling post closing, see this post in The D&O Diary, which refers to a law firm commentary from Wilson Sonsini partner Doug Clark.

• 94 percent of transactions were subjected to shareholder challenges
• Transactions attracted an average of more than five lawsuits
• For the first time, the percentage of transactions valued under $1 billion subjected to shareholder challenge was the same as that for transactions valued over $1 billion
• Litigation was resolved before closing in 75 percent of the transactions, with a majority settling

Corporate Governance

Profile of Mining Legend Peter Munk
By: Sean Williamson  

Last weekend, The Globe and Mail carried a profile of Canadian mining magnate Peter Munk as he prepares to step down as chairman of Barrick Gold Corp. at the company's next annual general meeting of shareholders, set to be held on April 30. The piece details the ups and downs of Munk's time at the helm of Barrick and his thoughts on the path the company has taken.

Diversions

Links You Need to See...
By: Greg Hogan  

• Why Chocolate is So Good For You(io9)
• The Toxins That Threaten Our Brains (41 Million IQ Points Worth!)(The Atlantic)
• Truth to the Five Second (or More) Rule?(NPR)
• The Woman Who's Teaching the NHL How to Skate

Help for Wine Drinkers
By: Sean Williamson  

Like drinking wine? Ever get uncomfortable when someone puts their nose into a glass of cabernet and says that they detect a strong hint of melted road tar underlying an otherwise jammy, red-fruit bouquet? Us, too. Thankfully, The New York Times wine critic, Eric Asimov, launched a new series in the paper called "Wine School" which is dedicated to the enjoyment and appreciation of "drinking" wine, as opposed to "tasting", which the first instalment in the series makes sound like no fun at all.

What We've Been Up To

Recent Transactions

We acted for Canaccord Genuity Corp.and a syndicate of underwriters in connection with Callidus Capital Corporation's initial public offering of common shares. The proceeds of the offering will be used to repay debt and to finance additional loans to the company's clients.

We acted for Macquarie Capital Markets Canada Ltd.and a syndicate of agents in connection with a private placement of units of Laurentian Goldfields Ltd. In connection with the offering, Laurentian acquired the Madsen Gold Project from Claude Resources Inc.

We acted for CWAL Investments Ltd.in connection with an unsolicited take-over bid for Coast Wholesale Appliances Inc. to acquire all of the shares of Coast not already owned by CWAL.

We acted for Beacon Securities Limited and a syndicate of agents in connection with a private placement of subscription receipts of Wind Power Holdings Inc. The offering was made in conjunction with an amalgamation of Wind Power with Mira III Acquisition Corp, a capital pool company, which will be completed at a later date. The company resulting from the amalgamation is expected to be a TSX-listed issuer.

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.