Going Public in the
Canadian Capital Markets
Daniel Bloch
November 22, 2011
Aird & Berlis LLP
• Aird & Berlis LLP is a Toronto Canada based
full service law firm with over 75 years of
experience offering Canadian legal services
• The firm is well positioned to be the gateway to
Canada for non-Canadians wishing access to
the Canadian capital markets
2
Canada’s Competitive Strengths
1. Strong Capital Markets:
• Canada has been ranked the soundest
financial system for 3 consecutive years
• Canada is the market of choice for resource
companies
• Canada’s capital markets provide earlier
access to US capital without the higher cost
of regulatory compliance
• Canada has a strong culture, well versed in
equity investments
3
Canada’s Competitive Strengths (Cont’d)
2. Natural Resource Wealth:
• Canada is the world’s largest producer of
Zinc and Uranium
• Canada is a major producer of gold, nickel,
aluminum and lead
• Canada has the largest oil reserves in the
world after Saudi Arabia
4
Toronto Stock Exchange (“TSX”) and
TSX Venture Exchange (“TSXV”)
(as of December 31, 2010)
•
•
•
•
Total financings in 2010 amounted to $54B
Value of stocks traded in 2010 was $1.4T
524 going public events
More listed issuers than any exchange in North
America. 3670 listed issuers in total
• 2nd highest number of listed issuers globally
• 318 listed issuers with no connection to
Canada other than their listing
• Many additional issuers with no connection to
Canada other than being a Canadian
incorporated corporation
5
TSX and TSXV:
Global Leaders in Mining
(as of December 31, 2010)
• Most listed mining issuers in the world, totalling
1531 issuers (58% of the world’s public mining
companies)
• Raised $17.8B through over 2400 financings in
2010 (60% of the world’s mining equity capital)
6
Mining (Con’t)
• 50% of the 9,500 mineral exploration projects
held by TSX and TSXV companies are outside
of Canada
• Over 200 analysts cover listed mining issuers
• In the past 10 years, 80% of the total global
number and 36% of the total global value of
mining financings have been completed on the
TSX and TSXV
7
Diversified Mining Exchanges
• The TSX and TSXV provide superior access to capital for junior
explorers, while concurrently listing some of the world’s largest
mining companies, including:
Largest Mining Companies Listed on the TSX
Ticker
Company
Market Cap. (Dec. 31, 2010)
ABX
Barrick Gold Corporation
$53.0B
POT
Potash Corporation of Saskatchewan Inc.
$44.2B
G
Goldcorp Inc.
$36.6B
TCK
Teck Resources Limited
$36.5B
K
Kinross Gold Corporation
$21.4B
CCO
Cameco Corporation
$15.9B
AGU
Agrium Inc.
$14.4B
SLW
Silver Wheaton Corp.
$13.6B
AEM
Agnico-Eagle Mines
Ltd. $12.9B
IVN
Ivanhoe Mines Ltd.
$12.2B
8
TSX and TSXV:
Leading Marketplace for Oil & Gas
(as of December 31, 2010)
• More oil & gas listings than any other public
marketplace, totalling 394 issuers
• $11.3B oil & gas equity raised through 504
financings
• 55 new oil & gas listings in 2010
• Exchanges home to 35% of the world’s public
oil & gas companies
• Large and experienced analyst community
• High graduation potential from TSX to TSXV
• Tailored and flexible listing criteria to
accommodate junior issuers
9
TSX & TSXV:
Global Leaders in Technology
(as of December 31, 2010 and first 6 months of 2011)
• 2nd in North America for number of listed
technology companies in 2010, totalling 182
issuers
• $378M of equity capital raised through 101
financings in 2010
• 54 financings completed in first half of 2011
• 13 new listings in 2010 and 6 in the first half of
2011
• Active institutional investor community
• Great visibility and analyst coverage
• Good graduation potential from TSX to TSXV
10
Superior Analyst Coverage
• The top 10 tech companies set out in this chart get covered by an
average of 14 analysts. Nasdaq technology companies between
$500M-$5B market cap get covered by an average of 11 analysts
Largest TechnologyCompanies Listed on the TSX
Ticker
Company
Market Cap. (Dec. 31, 2010)
RIM
Research in Motion Limited
$14.6B
GIB
CGI Group Inc.
$5.5B
OTC
Open Text Corporation
$3.5B
SXC
SXC Health Solutions Corporation
$3.5B
CAE
CAE Inc.
$3.3B
MDA
MacDonald, Dettwiler and Associates Ltd.
$2.2B
CLS
Celestica Inc.
$1.7B
CSU
Constellation Software Inc.
$1.2B
ET
Evertz Technologies Limited
$979.3M
WIN
Wi-LAN Inc.
925.4M
11
Canadian Corporations
• Although not required, international issuers may
incorporate a Canadian corporation to list on
the TSX or the TSXV
• A Canadian corporation may be used to provide
investor confidence in shareholder rights and
corporate governance
12
Methods of Going Public
1. Initial Public Offering (“IPO”)
• An IPO involves the issuer filing of a prospectus
with one or more Canadian securities
commissions
• Issuers must complete a listing application to
have shares listed on the TSX or TSXV
13
Methods of Going Public (Cont’d)
2. Reverse Takeover (“RTO”)
• An RTO involves having a private company sell
its shares (or in theory) assets into a TSX or
TSXV listed shell company
• The private company shareholders would then
become the majority shareholders of the TSX
or TSXV listed shell company
14
Methods of Going Public (Cont’d)
3. Qualifying Transaction (“QT”)
• Capital Pool Companies (“CPC”) are
exclusive to the TSXV
• A CPC may raise between CDN $200,000
and CDN $5,000,000
• Proceeds are then targeted toward
completing a QT by merging with or
acquiring an operating company or assets
within 24 months of listing
15
Methods of Going Public (Cont’d)
• In Canada, a Special Purpose Acquisition Corporation
(“SPAC”) offers an alternative vehicle for listing on the
TSX
• A SPAC allows the public to invest in companies or
industry sectors normally sought by private equity firms
• Two step process:
• 1) A SPAC is initially listed as a non-operating cash
entity. Must raise a minimum of CDN $30 million
• 2) Proceeds are then targeted toward the acquisition
of an operating company or assets within 36 months
of listing (a “Qualifying Acquisition”)
16
Shareholders:
Going Public Obligations
• In “going public”, escrow requirements may be
imposed on:
• certain members of management
• directors
• promoters
• significant (i.e. 10% and 20%)
shareholders
• in certain circumstances, spouses of the
foregoing
17
Shareholders:
Going Public Obligations (Cont’d)
• Escrow periods range: 18 months to 3 years
• Securities held in escrow are released in
prescribed percentages over the escrow period
• Transfers of securities before the escrow
expires are generally not permitted
• Escrow securities may be pledged to a financial
institution as collateral for a loan
18
Securities Regulation:
Corporate Governance
• Good corporate governance is a theme that
runs throughout all aspects of securities
regulation
• Common governance themes include:
• Independence: board & committee
• Qualifications & Competency: financial
literacy and director education
• Disclosure: timeliness, governance policies,
shareholder approval of stock option plans,
certificates and DC&P
• Liability: more time and more money
19
Securities Regulation Comparison:
Canada / United States / Israel
1. Regulatory Overview - Canada
• Securities Regulation is managed through laws
established by Canada's 13 provincial and
territorial governments
• Provincial/Territorial regulators work together to
harmonize regulation through the Canadian
Securities Administrators (CSA)
• TSX and TSXV rules and policies govern
conduct of issuers
• Self-regulatory organizations, such as
Investment Industry Regulatory Organization of
Canada (IIROC), assist in regulating the market
20
Securities Regulation Comparison (Cont’d)
2. Regulatory Overview - United States
• Securities regulation is governed by both
federal and state-level regulation
• The primary federal regulator is the SEC
• Also regulated by various exchanges and selfregulatory organizations such as FINRA
• Securities regulation is impacted by the
Sarbanes-Oxley Act (“SOX”)
21
‫)‪Securities Regulation Comparison (Cont’d‬‬
‫‪• 3. Regulatory Overview - Israel‬‬
‫• החוקים הינם מדינתיים‪ .‬החוקים המרכזיים‪ :‬חוק‬
‫החברות‪ ,‬התשנ"ט‪ 1999-‬וחוק ניירות ערך‪,‬‬
‫התשכ"חח‪ 1968-‬והתקנות שהותקנו מכוחם‪.‬‬
‫• הרגולטור הינו הרשות לניירות ערך (‪.)the ISA‬‬
‫• בנוסף‪ ,‬ישנם את הכללים הקבועים בתקנון הבורסה‬
‫לניירות ערך בתל אביב בע"מ‪.‬‬
‫‪22‬‬
1. Composition of the Board of Directors
CANADA
•The board should have a
majority of “independent”
directors and an “independent”
chair
UNITED STATES
•Listed companies must have a
majority of independent directors
•Independent directors must be
identified in annual proxy statements
(or in Form 10-k or 20-F if no annual
statement).
ISRAEL
•Listed companies must
have at least two
independent directors
•Independent directors are
to be elected in a general
meeting for 3 years
23
2. Code of Ethics
CANADA
•The board should adopt a written
code of ethics which promotes
integrity and deters wrongdoing
UNITED STATES
•Companies shall adopt a code of
conduct applicable to all directors,
officers and employees
ISRAEL
•Companies do not have to
adopt a code of ethics
•Ethics codes must be publicly
available and satisfy stringent SOX
requirements
•A company must disclose in annual
report whether or not it has a code of
ethics and if not, it must explain why it
does not have one
•The code must provide for an
enforcement mechanism
24
3. Audit Committees
CANADA
• Listed issuers are
required to have audit
committee composed of
at least 3 “independent”
directors who are
“financially literate”
UNITED STATES
•According to the Nasdaq Rules, an audit
committee must have at least three
directors, each of whom must:
1) meet the criteria of “independence” both
under the Securities Exchange Act and the
Nasdaq Rules;
2) not have participated in the preparation
of financial statements in the past 3 years;
and
ISRAEL
•An audit committees must
include at least three directors
•All of the independent
directors must be members of
the audit committee
•A controlling shareholder or a
relative of a controlling
shareholder cannot be
members of the audit
committee
3) have the ability to read and understand
various financial statements
•Additionally, at least one member must
have past employment experience or a
certification in finance or accounting
•SOX increased audit committee
responsibility and authority and raised
member requirements
25
4. Financial Disclosure Obligations
CANADA
UNITED STATES
•Companies must file:
1) Unaudited quarterly
statements
2) Annual report with audited
financial statements
•US companies are required to file
with the SEC:
1) Annual report with audited
financial statements
2) Quarterly financial reports
•Financial statements, generally
speaking, required to be
prepared in IFRS
•Non-U.S. Companies are
required to file with the SEC:
1) Annual report with audited
financial statements
2) Periodic Form 6-k reports
containing significant information
(these reports substitute quarterly
reporting requirements)
ISRAEL
•Companies must file:
1) Unaudited quarterly
statements )‫(דוחות סקורים‬
2) Annual report with audited
financial statements. ‫(דוחות‬
)‫מבוקרים‬
•Financial statements required
to be prepared in IFRS
26
5. Certification Obligations
CANADA
• Certifying officers must certify
that interim and annual financial
statements fairly represent the
financial condition of the issuer
UNITED STATES
•Under 302 of SOX, CEOs and
CFOs must certify each Exchange
Act report containing financial
disclosure to certify the accuracy of
the reports
•CEOs and CFOs are also obligated
to certify periodic reports containing
financial statements
ISRAEL
‫ על‬,ISOX-‫בהתאם להוראות ה‬
‫מנכ"ל החברה ונושא המשרה‬
‫הבכירה בתחום הכספים (לרוב‬
‫סמנכ"ל הכספים) לחתום על‬
‫הצהרות לפיהן הדוחות הכספיים‬
‫משקפים באופן נאות את המצב‬
‫הכספי ותוצאות הפעילות של‬
.‫החברה‬
• Certifications are sanctioned by
criminal liability
27
6. Internal Control over Financial
Reporting (“ICFR”)
CANADA
•All issuers, except venture
issuers, are required to establish
and maintain effective ICFR
•TSXV issuers are exempt
because of limited financial
resources
•The CSA refused to implement
the requirement to obtain an
independent auditor report
UNITED STATES
•Under section 404 of SOX,
management is responsible for
establishing and maintaining
adequate ICFR and assessing
the effectiveness of internal
controls
• SOX adds an additional
requirement for an independent
auditor to attest to and report on
management’s ICFR. This is
regarded as being the most
onerous SOX provision
•The same requirements apply
to domestic and foreign issuers
ISRAEL
‫מנהלי החברה אחראים על הבקרות‬
‫והנהלים הפנימיים להבטחת האפקטיביות‬
.‫של הבקרה הפנימית על הדיווח הכספי‬
‫ בכל חברה מכהנת ועדה לבחינת‬,‫בנוסף‬
3 ‫ בה מכהנים לפחות‬,‫הדוחות הכספיים‬
‫דירקטורים ורוב חבריה דירקטורים בלתי‬
:‫ הועדה אחראית לבחון‬.‫תלויים‬
‫את ההערכות והאומדנים שנעשו בקשר‬.1
.‫עם הדוחות‬
.‫את הבקרות הפנימיות הקשורות בדוחות‬.2
.‫את שלמות ונאותות הגילוי בדוחות‬.3
‫את המדיניות החשבונאית שאומצה‬.4
‫והטיפול החשבונאי שיושם בעניינים‬
.‫המהותיים של התאגיד‬
‫ לרבות ההנחות‬,‫את הערכות השווי‬.5
‫ שעליהן נסמכים‬,‫והאומדנים שבבסיסן‬
.‫נתונים בדוחות הכספיים‬
28
7. Insider Reporting Obligations
CANADA
•An “insider” must make publicly
available filings of their direct and
indirect securities holdings
•An “insider” is:
•director or officer of a listed issuer
•a holder of 10% or more of the listed
issuer shares
•a director or officer of a holder of 10%
or more of the listed issuer shares
•An insider must file an insider report
within 5 days of a trade and in some
cases 3 days
•Reports must be filed on SEDI
•Insider trading policies are common
UNITED STATES
•SEC Rule 10b5 prohibits manipulative and
deceptive practices in connection with the
purchase or sale of any security
•Directors and Officers of an issuer are
subject to reporting requirements under
section 16 of the Securities Exchange Act
and are required to file insider reports.
•There are 2 levels of reporting for
stockholders:
1) Schedule 13G reporting – requires
stockholders with 5% or more of an issuer’s
equity to file a report with the SEC.
2) Section 16 of the Securities
Exchange Act reporting –
requires stockholders with greater
than 10% of an issuer’s securities
to file a report with the SEC
ISRAEL
‫•ישנו איסור מוחלט על שימוש במידע‬
‫פנים לצורך ביצוע עסקאות בניירות ערך‬
.‫או על מסירת מידע פנים‬
‫•כל בעל עניין מחויב למסור דיווח על‬
‫ כאשר בעל עניין הוא‬,‫שינויים בהחזקותיו‬
‫ חברה בת של‬,‫ עובד של התאגיד‬,‫התאגיד‬
‫ מהון‬5% ‫התאגיד וכן מי שמחזיק מעל‬
‫המניות המונפק של התאגיד או מכוח‬
.‫ההצבעה בו‬
‫•דיווח על החזקות בעל העניין יימסר‬
‫ ביום‬9:30 ‫לציבור לכל המאוחר עד השעה‬
‫המסחר שלאחר היום בו נודע לתאגיד על‬
‫שינוי ההחזקות וכן פעם בחודש באופן‬
.‫מרוכז‬
•Changes in ownership must be reported
within 2 business days
•Reports must be filed on EDGAR and on
the company’s website
29
8. Related Party Transactions
CANADA
ISRAEL
• “Related party transactions” between
issuers and “related parties” are regulated
in order to protect minority shareholders.
The 4 main areas of protection include:
• “Related party transactions” between issuers and
“related parties” are regulated in order to protect
minority shareholders.
•1) Enhanced public disclosure:
•Disclose particulars in a material change
report
•2) Preparation and publication of a
formal valuation from an independent
qualified valuator
•A common exemption is when the fair
market value is not more than 25% of the
market capitalization
‫ עסקאות חריגות עם בעל שליטה או עסקאות חריגות‬,‫ככלל‬
‫שלבעל השליטה יש בהן עניין אישי דורשות אישור ועדת‬
‫ על האסיפה הכללית‬.‫ דירקטוריון ואסיפה כללית‬,‫ביקורת‬
‫לאשר את העסקה ברוב קולות בעלי המניות שאין להם עניין‬
.‫אישי באישור העסקה‬
‫ כגון אישור‬,‫ישנן עסקאות נוספות הדורשות אישורים מיוחדים‬
‫תנאי כהונה והעסקה של דירקטורים ועסקאות חריגות עם‬
.‫נושאי משרה‬
‫לכללי האישור הקבועים בחוק ישנם חריגים המאפשרים‬
‫ אישור‬,‫ בין היתר‬,‫ הקלות בולטות הינן‬.‫הקלות בדרכי האישור‬
‫ הארכת עסקה קיימת‬,‫עסקה המזכה את החברה בלבד‬
‫ואישור תנאי שכר לדירקטור התואמים את השכר שנקבע‬
.‫לדירקטור חיצוני על פי התקנות‬
30
Related Party Transactions (Cont’d)
CANADA
ISRAEL
•3) Approval of disinterested shareholders – a
“majority of the minority” vote
• If approval is required, there must be a
meeting of the affected shareholders and an
information circular
•Common exemptions include:
1) The fair market value is not more than 25%
of the market capitalization
2) The fair market value is not more than
$2.5M
•4) Enhanced corporate governance
31
Continuous Disclosure
• Continuous disclosure is the backbone of
securities law in Canada
• Helps convey important information (timely and
periodic) about reporting issuers to
shareholders and the market
• Gives equal access to all investors and creates
and maintains market confidence
• Forms a key element of the short form
prospectus system
• Regulated by NI 51-102
32
Timely Disclosure
• Disclosure by listed issuers is required
forthwith upon a material change or
change of material fact
• Persons (including insiders) are not
permitted to trade if they are aware of an
undisclosed material change or undisclosed
change of material fact
• If a material change occurs, the issuer
must file a news release on a timely basis
and a material change report within 10
days
33
Timely Disclosure (Cont’d)
• Matters likely requiring disclosure
include:
1) Change in Corporate Structure
• changes in share ownership that may affect control
• major reorganizations, amalgamations, or mergers
• take-over bids, issuer bids, or insider bids
2) Change in Capital Structure
• the public or private sale of additional securities
• planned repurchases or redemption of securities
• planned splits of common shares or offerings of
warrants or rights to buy shares
• any share consolidation, share exchange, or stock
dividend
34
Timely Disclosure (Cont’d)
3) Change in Financial Results
• a significant increase or decrease in near-term earnings
prospects
• unexpected changes in the financial results for any period
• shifts in financial circumstances, such as cash flow
reductions, major asset write-offs or write-downs
• changes in the value or composition of the company’s
assets
• any material change in the company’s accounting policy
4) Change in Business and Operations
• any development that affects the company’s resources,
technology, products or markets
• a significant change in capital investment plans or corporate
objectives
35
Periodic Disclosure
• Periodic disclosure obligations include:
1) Annual financial statements
2) Interim financial statements
3) Management Discussion and Analysis
4) Business Acquisition Reports
5) Annual Information Form
6) Proxy solicitation and information
circulars
36
NI 43-101:
Disclosure for Mineral Projects
• NI 43-101 governs the reporting and display of
information related to mineral properties owned
by, or explored by, Canadian listed issuers
• TSX and TSXV also have additional
requirements for listed mining issuers
37
NI 43-101 (Cont’d)
• NI 43-101:
1) requires that all oral or written disclosure of
scientific or technical information be based
upon information prepared by or under the
supervision of a qualified person or approved
by a qualified person
2) requires the use of standardized
terminology and definitions
3) prescribes the framework and outline that all
technical reports must satisfy
38
NI 43-101 (Cont’d)
4) requires a technical report to be filed within
certain time periods for each mineral
property material to the issuer
• The purpose of the report is to support
scientific or technical information
contained in various public disclosure
documents.
• NI 43-101 prohibits certain disclosure (e.g.
quantity, grade or metal or mineral content of a
deposit that has not been categorized in an
acceptable category)
39
NI-51-101:
Disclosure for Oil & Gas Activities
• NI 51-101 requires that a reporting issuer:
1) File a “Statement of Reserves Data” with the
commission. The disclosure of this data is
subject to very specific requirements
• The standards and terminology set out in
51-101 are globally recognized
2) File a report of an independent qualified
reserves evaluator or auditor who must have
evaluated at least 75% of the future net
reserves and reviewed the balance
40
NI-51-101 (Cont’d)
3) File a “Report of Management and
Directors” confirming compliance with
disclosure obligations
4) Make information readily available to the
evaluator/auditor
• The board must review procedures relating to
information disclosure, the appointment of the
evaluator and the statement of reserves filing
• The board may delegate its responsibilities to a
reserves committee
41
Questions
42
Thank You
Name: Daniel Bloch
Title: Partner
T 1.416. 865.4739
F 1.416.863.1515
E dbloch@airdberlis.com
Israel Cell: 054 9703299