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

Last Updated: March 18 2014

Edited by Alexandra Iliopoulos and Gregory Hogan


News and Notices

New OSC Initiatives Aimed at Strengthening Enforcement
By: Alexis Bowie, Anita Kim, Jamie Litchen and Joel McElravy

The Ontario Securities Commission's Staff ("OSC Staff") has announced that it is proceeding with the following enforcement initiatives:

  1. "No-contest settlements" – a program whereby certain kinds of enforcement cases could be settled without the respondent making formal admissions respecting its misconduct;
  2. A program for explicit no-enforcement action agreements;
  3. Clarifying the self-reporting process under the current credit for cooperation program; and
  4. Enhanced public disclosure of credit granted to persons who co-operate with OSC Staff in the course of an enforcement investigation.

It should be noted that the initiatives described above do not affect any of the Ontario Securities Commission's Rules of Procedure, and that any decision to accept or reject a proposed no-contest settlement would ultimately be determined by the Ontario Securities Commission hearing panel considering the matter.

Further information about these initiatives can be found in OSC Staff Notice 15-702 Revised Credit for Cooperation Program.

IIROC Releases Proposed Guidance on Underwriting Due Diligence
By: Alexis Bowie, Anita Kim, Jamie Litchen and Joel McElravy

On March 6, 2014, the Investment Industry Regulatory Organization of Canada ("IIROC") released proposed guidance for underwriters conducting due diligence in the context of securities offerings (the "Proposal"). The Proposal stems from a review by IIROC of its members' underwriting activities, and its identification of different due diligence and record-keeping practices across members.

IIROC has released the Proposal in an attempt to promote consistency and enhanced standards in respect of the underwriting due diligence practices of its members.

The overarching theme of the guidance offered by the Proposal is the need, on the part of underwriters, to apply professional judgment and context-specific analysis to the due diligence process. Aside from the most basic due diligence functions, a formulaic or "check-the-box" type approach should be eschewed for a due diligence process that considers the particular details of the offering, and the level of due diligence that is both reasonable and appropriate in the circumstances (e.g. offerings involving certain foreign and emerging market issuers may necessitate a higher level of due diligence). Form should not trump substance. While a member's due diligence process should be flexible and context driven, it should not be ad-hoc. Rather, the Proposal would require that an underwriter maintain written due diligence policies and procedures and an oversight process to identify compliance issues that arise in the course of a member's underwriting activities.

More generally, the Proposal emphasizes the important role underwriters play as gatekeepers to the capital markets. The Proposal notes that a gatekeeper role necessitates a due diligence process that encompasses a much broader purpose, one that goes beyond risk mitigation or limitation of liability, and that seeks to play a role in "protecting investors, fostering fair and efficient capital markets and creating and maintaining confidence in capital markets."

The complete text of the Proposal is available here, and includes a summary of suggested and common due diligence practices, and a list of matters to be considered by underwriters when formulating a due diligence plan. IIROC is soliciting comments and answers to various questions from members and interested parties up until June 4, 2014.


Updates and commentary from Canada and around the world

Finders and Referral Agents Beware! Proposed Changes for Unregistered Individuals in Canada

Brian Koscak and Peter Dunne from our Securities Group have published an article on the implications of the proposed amendments to National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations ("NI 31-103"). The article focuses on the proposed amendment to section 8.5(a) of NI 31-103, which currently provides an exemption to the registration requirement to a person or company who makes a trade, if such trade is made solely through an agent who is a dealer registered in a category that permits the trade. The Canadian Securities Administrators proposes to amend the exemption by removing the "solely" qualifier and adding language to restrict the circumstances in which the exemption may be relied upon. For the full article, please click here.

Nothing in Life is Free, Including Employees

Geoffrey Breen from our Employment & Labour Group has published an article cautioning employers to be wary of hiring interns on a without-pay basis. As employment standards legislation in most jurisdictions only permits interns to be unpaid in very limited circumstances, employers could find themselves facing significant fines or ordered to pay damages for failing to pay or provide employment benefits to the interns they hire. Needless to say, the improper use of unpaid interns has the potential to be exploitative and can be very damaging to an employer's reputation at the same time. For the full article, please click here.


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

Disclosure Matters

Material Change Report Filed in Connection with Related Party Transaction
By: Jennifer Hansen and Jennifer Poirier

Issuers are reminded that in a material change report, if any, required to be filed in connection with a related party transaction, they must provide the detailed disclosure described in section 5.2 of MultiIateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions. This disclosure includes, among other things, (i) a description of the interest in the transaction of every interested party (and any associated entities of the interested parties) and of the related parties; (ii) the anticipated effect of the transaction on the percentage of securities of the issuer or an affiliated entity of the issuer beneficially owned or controlled by any of the foregoing persons, for which there would be a material change in that percentage; (iii) a discussion of the review and approval process adopted by the board of directors and the special committee; and (iv) the formal valuation and minority approval exemptions, if any, on which the issuer is relying.

If the material change report described above is filed less than 21 days before the expected closing of the transaction, issuers must explain in the news release and in the material change report why the shorter period is reasonable or necessary in the circumstances.


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
First National Financing Corporation
  • 2,000,000 Common Shares
$49,800,000 RBC Dominion Securities Inc. and TD Securities Inc.
Neovasc Inc.
  • 4,192,000 Common Shares
$25,152,000 Cormark Securities Inc.
Roxgold Inc.
  • 43,200,000 Common Shares
$25,056,000 BMO Nesbitt Burns Inc.
BNK Petroleum Inc.
  • 15,910,000 Common Shares
$35,002,000 Macquarie Capital Markets Canada Ltd.
Encanto Potash Corp
  • Units/TBD; Flow-Through Units/TBD
TBD Secutor Capital Management Corporation
Enterprise Group, Inc.
  • 24,000,000 Commom Shares
$24,000,000 Canaccord Genuity Corp. and GMP Securities L.P.
Gear Energy Ltd.
  • 14,000,000 Common Shares
$56,000,000 FirstEnergy Capital Corp. and Peters & Co. Limited
NexGen Energy Ltd.
  • 22,300,000 Units
$10,035,000 Dundee Securities Ltd.
Primero Mining Corp.
  • 31,151,200 Common Shares
$224,288,640 Canaccord Genuity Corp.
SQI Diagnostics Inc.
  • TBD/Units
TBD Euro Pacific Canada Inc.
West Kirkland Mining Inc.
  • TBD/Units
$25,000,000 to $30,000,000 Cormark Securities Inc. and PI Financial Corp.

Take-Over Bids

Acquiror Target Securities to be Purchased Consideration
CWAL Investments Ltd. ("CWAL") Coast Wholesale Appliances Inc. All of the issued and outstanding common shares not already owned by CWAL $4.55 per common share

Upcoming Shareholder Meetings

  • On March 28, 2014, the Class A shareholders, Class L shareholders, Class B shareholders and Class P shareholders of The Business, Engineering & Technology Discoveries Fund Inc. (the "Fund") will be asked to vote, each as a class, to approve, among other things, the sale of all or substantially all of the property of the Fund to Tier One Capital Limited Partnership.
  • On April 3, 2014, the shareholders of Canada Bread Company, Limited ("Canada Bread") will be asked to vote to approve a plan of arrangement with Bimabel Canada Inc., a wholly-owned subsidiary of Grupo Bimbo, S.A.B. de C.V., whereby ("Bimabel") will acquire all of the issued and outstanding common shares of Canada Bread.
  • On April 4, 2014, the shareholders of Pennant Energy Inc. ("Pennant") will be asked to vote to approve a plan of arrangement with Blackbird Energy Inc. ("Blackbird") whereby Blackbird will acquire all of the issues and outstanding common shares of Pennant.
  • On April 7, 2014, the shareholders of Mercator Minerals Ltd. ("Mercator") will be asked to vote to approve a plan of arrangement with Mercator Intergeo MMC Ltd whereby, among other things, each Mercator shareholder, for every Mercator common share held, will receive one common share of the resulting issuer post-arrangement and one put right effective post-arrangement from the resulting issuer.


Capital Markets

Blog Post: Ending the Shareholder Lawsuit Gravy Train (Harvard Business Review)
By: Greg Hogan

This post from Justin Fox, Executive Editor, New York, of the Harvard Business Review Group, comes as the US Supreme Court hears Halliburton Co. v. Erica P. John Fund, Inc., a case in which the "fraud on the market" doctrine that underlies most securities class-action lawsuits is being put to the test. The post notes among other things that since the original decision in Basic, Inc., v. Levinson was released, there has been a shift in academic thinking on the doctrine, which consensus view describes as "not just flawed, second-best, misdirected, or in need of improvement, but flat-out senseless, mindless, and reasonless" (from University of Pennsylvania law professors William W. Bratton and Michael L. Wachter). Fox is not anticipating any sea change as a result of the decision. However, his "fun facts" do provide a concise history of the developments in United States securities laws and fraud on the market that have led up to this case and that are worth reviewing for issuers in the US market.


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


Recent Transactions

We acted for Crocodile Gold Corp. in connection with a $18 million private placement financing with Sprott Asset Management LP on behalf of certain funds and managed accounts, Eric Sprott and Luxor Capital Group. The net proceeds will be used to fund the company's growth projects, such as the Big Hill project and regional exploration programs, as well as for general working capital purposes. Click here for further details.

In the News

Paul Stein was quoted in Listed Magazine in an article titled "Waiting for the Light", which shed some light on the dark place that was the mining sector in 2013. According to the article, industry experts believe that we will be seeing more hostile transactions and proxy fights in 2014. Paul Stein agrees and says that the Goldcorp-Osisko situation - the sector's first major hostile offer in some time - is a signal to expect further consolidation among producers. Explains Paul: "Mining M&A activity will pick up out of necessity because there isn't capital available." For the full article, please click here.

We acted for a syndicate of underwriters co-led by TD Securities Inc. and BMO Capital Markets in connection with an offering of 74,290,000 units of Rubicon Minerals Corporation, an advanced stage gold development company. The proceeds of the offering will be used by the company to further develop its Phoenix Gold project.

Wendy Berman was quoted in the February 18, 2014 edition of the Financial Post in an article titled "Ontario Court Gives Companies More Powers to Fight Proxy Battles", which focused on an Ontario Superior Court decision giving companies greater leeway to defend against dissident shareholders during proxy battles. Explains Wendy: "The ruling says that companies who defend themselves in a press release are not in breach of the rules against solicitation as long as they stop short of asking people to vote for management."

Wendy goes on to say that the decision (Smoothwater Capital Partners v. Equity Financial Holdings) recognizes the reality of shareholder activism in Canada. "It shows that we're growing up in terms of proxy fights and figuring out what the rules are as these battles become more common." For the full story, please click here.

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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