Canada: Capital Markets Bulletin - March 24-28, 2014


News and Notices

Ontario Securities Commission Releases Results of 2013 Enforcement Efforts
By: Alexis Bowie, Anita Kim, Jamie Litchen and Joel McElravy

The Ontario Securities Commission ("OSC") has released the results of its 2013 enforcement efforts.

2013 saw an increase in most areas of OSC enforcement activity, with the issuance of 159 cease trade orders, 118 exemption removals, 81 registration restrictions and 67 director and officer bans. Notably, the 159 cease trade orders issued in 2013 represented a roughly 98% increase over 2012 numbers. In total, 27 enforcement proceedings were commenced in 2013, with fraud (33%) and illegal distributions (22%) being the most common. In 2013, proceedings were commenced against 39 individual and 57 company respondents. Almost half of the proceedings commenced against individual respondents related to fraud, while approximately 70% of the proceedings commenced against companies were in respect of illegal distributions.

The OSC concluded 170 proceedings against individuals and companies in 2013 (up from 100 in 2012), with 95 concluded by settlement agreement, four by way of court proceedings and the remainder by contested hearing. Over the course of the year, the OSC secured 63 months in jail against four defendants and imposed just over $58 million in monetary sanctions. For an example of a recent settlement reached by the OSC in connection with a registration breach requirement, please see the section "Settlement Agreement" below.

For further details on the OSC's 2013 enforcement actions, please click here.

TMX Group Introduces TSX Private Markets and TSX Ignite
By: Joyce Lim

On March 25, 2014, the TMX Group announced its plans to launch TSX Private Markets to facilitate capital raising and secondary trading of securities in the exempt market across Canada. Subject to regulatory approval, TSX Private Markets is expected to launch in the third quarter of 2014 and promises to offer the following services for private and public companies:

  • Secondary trading of private issuer securities and public issuer "hold period" shares;
  • Facilitation of public issuers' private placements;
  • Capital formation for private issuers; and
  • Management of shareholder registry

The goal of TSX Private Markets is to provide companies (both public and private), investors and shareholders with more financing and investment opportunities and greater liquidity. To learn more about TSX Private Markets, please click here.

TSX Ignite is a concerted effort and collaboration by major players in the financial industry including the TMX Group, law firms, accounting firms and investment banks to provide a free learning educational platform for Canadian companies and entrepreneurs. As a proud sponsor of TSX Ignite, Cassels Brock plays an important role in ensuring that resources available through TSX Ignite are designed to provide expert insight to businesses at all stages of growth and from all sectors (both public and private) who are seeking practical business-building tools. TSX Ignite will be holding its first event in Toronto on April 30, 2014. For more information on this program, please click here.

Settlement Agreement

No Harm, No Foul? Potentially Significant Financial Consequences For Inadvertent Failure to Meet Registration Requirements Even With No Harm to Clients
By: Greg Hogan

Bank Leumi Le Israel B.M. ("Bank Leumi") is an integrated commercial bank licensed in the State of Israel. It formerly maintained a representative office in Ontario, which was registered with The Office of the Superintendent of Financial Institutions Canada as a "Foreign Bank Representative Office" ("FBRO"), pursuant to the laws of Canada. A 2011 compliance review of FBROs revealed that, prior to making the filings necessary to rely on the international dealer exemption from the registration requirements of Ontario securities laws, Bank Leumi opened accounts for Ontario residents and engaged in trading and advising in securities in respect of the accounts without registration or reliance on a valid exemption. OSC staff contacted the bank and it voluntarily took steps to bring itself into compliance with Ontario securities law and ceased opening accounts for Ontario residents. However, the OSC was still seeking a hearing to consider making orders against the bank as a result of this breach of Ontario securities laws. A settlement between the OSC and the bank was reached before that hearing, which settlement was approved on March 24, 2014. The settlement agreement noted that:

  • the bank fully cooperated with Staff during the investigation;
  • neither Staff nor the bank was aware of harm caused to any account holder or any complaints regarding the accounts or the bank's conduct in relation to the accounts; and
  • the bank acted in good faith at all material times but did not turn its attention to the fact that such trading and advising could be construed as a breach of Ontario securities law or as conduct contrary to the public interest.

If the bank had made the appropriate filings before opening the accounts, it would have likely been in full compliance with Ontario securities laws. The breach here was a failure to timely file the required documents. Notwithstanding the foregoing findings and the apparently minor breach, the settlement still included a settlement payment of $500,000 by Bank Leumi. Capital markets participants are reminded to carefully review their activities in Canada to ensure that such activities are permitted or to obtain the necessary registrations or take the steps needed to rely on available exemptions from such registrations. Failure to do so can be costly.


Updates and commentary from Canada and around the world

Upcoming Shareholder Meetings

Bureau Clears Loblaw/Shoppers Deal – But Investigating Loblaw's Relationships with Suppliers

Chris Hersh and Imran Ahmad from our Competition, Antitrust & Foreign Investment Group have published an article on the proposed acquisition of Shoppers Drug Mart Corporation by Loblaw Companies Limited focused on the consent agreement entered into between Loblaw and the Competition Bureau which, among other things, requires divestitures by Loblaw in 27 local markets, in an effort by the Bureau to preserve competition in the retail sale of pharmacy products and drugstore-type merchandise. As the merger would result in Loblaw becoming the largest purchaser and retailer in Canada for many of the overlapping products sold by both companies, the Bureau's analysis focused on the impact that the proposed acquisition would have on (i) retail sales to consumers and (ii) Loblaw's market power vis-à-vis its suppliers. For the full article, please click here.

Proposed Capital-Raising Exemptions by the OSC

Brian Koscak, Greg Hogan and Sean Williamson from our Securities Group have published an article on four new prospectus exemptions that have been proposed by the OSC aimed at opening up new ways to raise capital, particularly for start-ups and small and medium-sized enterprises ("SMEs"). The four new proposed exemptions are:

  • An offering memorandum exemption. If adopted, this exemption would bring Ontario's securities laws into harmony with other jurisdictions which allow for this exemption.
  • A family, friends and business associates exemption. This will assist start-up companies and SMEs in expanding their network of investors from whom they can raise capital.
  • An exemption for distributions by a reporting issuer to its existing security holders. Offerings made under this exemption are limited to those securities which are listed on the Toronto Stock Exchange, the TSX Venture Exchange and the Canadian Securities Exchange.
  • An equity crowd-funding exemption. Under this exemption, investors can only invest up to $2,500 in any single investment to an aggregate maximum of $10,000 per calendar year.

The comment period on these proposed exemptions is open until June 18, 2014. For further details on the proposed exemptions, please view our full article here.

Shareholder Activism Increases a Credit Concern According to Moody's
By: Adria Leung Lim

Moody's Investors Services recently announced that shareholder activists are increasing in number among Moody's-rated companies. From 2013-2014, there were 61 shareholder campaigns involving Moody's-rated companies. The technology sector experienced the most activity, accounting for one quarter of all 2013 activist campaigns among both rated and non-rated companies, due to large cash balances, minimal debt levels and small dividend payments. The healthcare, energy and retail sectors were also attractive to activists, which together with technology, accounted for nearly 60% of all activist cases in 2013.

The main cause of the activism increase is likely due to the "lure of tremendous piles of cash sitting on US non-financial company balance sheets". Inexpensive debt also allows companies to leverage their balance sheets and to fund share buy backs, special dividends and other shareholder rewards. Moody's is concerned that credit quality is also affected by increased activism by encouraging potential target companies to act pre-emptively by rewarding potentially restive shareholders. Even if target companies have taken steps to address shareholders' concerns, activists may escalate pressure on corporate boards.

Moody's press release can be viewed here.


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

Public Offerings [lead underwriters noted/agents noted]

Equity Offerings

Company Securities Offered/ Number Gross Proceeds Agent/Underwriter
Big Rock Brewery Inc. 695,000 Common Shares $11,815,000 Cormark Securities Inc.
Lorus Therapeutics Inc. 50,000,000 Common Shares $25,000,000 RBC Dominion Securities Inc.
Dividend 15 Split Corp. II 1,935,000 Preferred Shares and
1,935,000 Class A Shares
$35,797,500 National Bank Financial Inc.
CWC Well Services Corp. 29,800,000 Subscription Receipts $25,032,000 FirstEnergy Capital Corp.
Avigilon Corporation 3,448,280 Common Shares $100,000,120 GMP Securities L.P.
Red Eagle Mining Corporation 12,121,212 Common Shares $4,000,000 Haywood Securities Inc.
Whitecap Resources Inc. 44,643,000 Subscription Receipts $500,001,600 National Bank Financial Inc. and TD Securities Inc.
WPT Industrial Real Estate Investment Trust 3,122,700 Units US$29,041,110 RBC Dominion Securities Inc. and CIBC World Markets Inc.

Upcoming Shareholder Meetings

  • On April 10, 2014, the shareholders of Gener8 Media Corp. (formerly, Delon Resources Corp.) will be asked to vote to approve a transaction pursuant to which Gener8 will sell all of its right, title and interest in Gener8's 2D-3D conversion business to Tianjin Fu Feng Da Movie & Television Technology Investment and Development Co., Ltd., through a new wholly-owned subsidiary to be created by Feng Da for a purchase price of $25,000,000.
  • On April 11, 2014, the shareholders of Anglo Swiss Resources Inc. will be asked to vote to approve the sale of substantially all of the assets of the company, being the Kenville Gold Property, to 0995237 B.C. Limited, subject to certain conditions, including approval of the TSXV.
  • On April 14, 2014, the shareholders of Anthony Clark International Insurance Brokers Ltd. will be asked to vote to approve (i) the proposed sale of all or substantially all of the company's assets to Canada Brokerlink Inc. for total cash consideration of approximately $13,000,000; (ii) the delisting of the company's shares from the TSXV; and (iii) the voluntary liquidation and dissolution of the company.
  • On April 16, 2014, the shareholders of Animas Resources Ltd. will be asked to vote to approve a plan of arrangement involving Animas, GoGold Resources Inc. and the shareholders of Animas, pursuant to which GoGold will acquire all of the outstanding common shares of Animas not owned by GoGold and Animas will become a wholly-owned subsidiary of GoGold. Shareholders of Animas will receive 0.0851 of a common share of GoGold (a "GoGold Share") and $0.07 in cash in exchange for each Animas share held. Holders of options of Animas will receive one GoGold Share for each $0.94 of cumulative in-the-money value of Animas options held, rounded down to the nearest whole GoGold share.
  • On April 17, 2014, the shareholders of Cancana Resources Corp. will be asked to vote to approve the transfer by the company of 100% of its interest in M.L.B. de Noguira Mineração Ltda. to the Rio Madeira Joint Venture.
  • On April 17, 2014, the shareholders of Huakan International Mining Inc. will be asked to vote to approve a proposed going private transaction by way of an amalgamation of Huakan with 0996059 B.C. Ltd., a corporation owned by Hong Kong Huakan Investment Co., Limited, Sun Luck Asia Investment Limited and Power Best Resources Inc.
  • On April 17, 2014, the shareholders of Century Energy Ltd. will be asked to vote to approve the proposed sale by Century of its right, title, estate and interest in and to the Vawn Heavy Oil assets located in the Edam area of Saskatchewan, Alberta for cash consideration of $475,000.
  • On April 23, 2014, the shareholders of Santonia Energy Inc. will be asked to vote to approve a plan of arrangement involving Santonia, Tourmaline Oil Corp. and the holders of common shares of Santonia whereby Tourmaline will acquire all of the issued and outstanding Santonia common shares and Santonia will become a wholly-owned subsidiary of Tourmaline. Santonia shareholders will receive 0.03012 of a common share of Tourmaline for each Santonia common share held.



Links You Need to See...
By: Greg Hogan, Joyce Lim and Sean Williamson


Recent Transactions

We acted for Roxgold Inc., a gold exploration and development company, in connection with its bought deal offering of 49,680,000 common shares. The company intends to use the net proceeds of the offering to, among other things, advance its Yaramoko gold project, which is located in Burkina Faso, West Africa, and to conduct further exploration at the property.

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
Christopher Hersh
Imran Ahmad
Adria Leung Lim
Sean Williamson
Joyce Lim
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