Securities Law & Instruments

Headnote

Application by an issuer for a revocation of a cease trade order -- cease trade order issued because the issuer had failed to file certain continuous disclosure materials required by Ontario securities law -- defaults subsequently remedied by bringing continuous disclosure filings up-to-date -- cease trade order revoked.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 127, 144.

IN THE MATTER OF

THE SECURITIES ACT,

R.S.O. 1990, CHAPTER S.5, AS AMENDED

(THE "ACT")

AND

IN THE MATTER OF

SHERMAG INC.

ORDER

(Section 144)

WHEREAS a Director of the Ontario Securities Commission (the "Commission") issued a temporary cease trade order dated November 20, 2009 pursuant to paragraphs 2 and 2.1 of subsection 127(1) and subsection 127(5) of the Act, as extended by an order dated December 2, 2009 pursuant to paragraphs 2 and 2.1 of subsection 127(1) and subsection 127(5) of the Act (the "Ontario CTO") which provided that all trading of the securities of Shermag Inc. (the "Applicant") are subject to a cease trade order;

AND WHEREAS the Applicant has applied to the Commission pursuant to section 144 of the Act for a full revocation of the Ontario CTO;

AND WHEREAS the Applicant has represented to the Commission that:

1. The Applicant is incorporated under the Companies Act (Québec) on January 28, 1977 and continued under Part 1A of the Companies Act (Québec) on January 30, 1981. Its head office is located in Sherbrooke, Québec.

2. The Applicant is a reporting issuer in the Provinces of Quebec and Ontario.

3. The connecting factor used to identify Quebec as the principal regulator is the location of the Applicant's head office and business operations.

4. Prior to the Reorganization (as defined below), the Applicant's authorized capital consisted of an unlimited number of common shares ("Common Shares") and preferred shares ("Preferred Shares"), of which 55,015,391 Common Shares and 700,000 Second-ranking Series 1 Preferred Shares were then issued and outstanding.

5. The Preferred Shares have never been listed on an exchange. Trading of the Common Shares on the TSX was halted on May 1st 2009, and the Common Shares were subsequently de-listed on July 31, 2009.

6. The Ontario CTO was issued by the Commission as a result of the Applicant's failure to file the following continuous disclosure materials as required by Ontario securities law:

a. its audited annual financial statements for the years ended March 31, 2008 and 2009;

b. management's discussion and analysis relating to audited annual financial statements for the years ended March 31, 2008 and 2009; and

c. its interim financial statements and related management discussion and analysis for the interim periods ending June 30 2008, September 30, 2008, December 31, 2008 and June 30 2009.

7. The Applicant is also subject to cease trade orders (collectively, the "Quebec CTO") issued by the Autorité des marchés financiers du Québec (the "AMF") dated November 16, 2009 and December 1, 2009.

8. On May 5, 2008 (the "Filing Date"), the Applicant and its subsidiaries, Jaymar Furniture Corp., Scierie Montauban Inc., Megabois (1989) Inc., Shermag Corporation and Jaymar Sales Corporation (collectively, the "Applicants") applied for and obtained an order (the "CCAA Order") of the Quebec Superior Court (the "Court") for their protection under the Companies' Creditors Arrangement Act, including a general stay of proceedings against the Applicants until June 4, 2008 (the "Stay Termination Date").

9. The CCAA Order, inter alia, allowed the Applicant to continue operating as it attempted to develop a restructuring plan by staying, as of the Filing Date, substantially all claims against the Applicants, their respective property and assets and their respective directors, officers, agents, contractors and employees.

10. Pursuant to the CCAA Order, the Applicant obtained from the Court an order releasing it from certain obligations, and in particular that of preparing any document related to a potential shareholders' meeting, including the annual financial statements, management information, circular and annual information form.

11. From June 4, 2008 onwards, the Applicants received successive new orders from the Court, inter alia, further extending the Stay Termination Date. The last such order was issued on August 12, 2009, and extended the Stay Termination Date to October 16, 2009.

12. On August 20, 2009, the Applicant filed a restructuring plan (the "Plan") before the Court which provided, among other things, that Groupe Bermex Inc. would subscribe for 41,666,667 Common Shares for aggregate consideration consisting of $1,250,000, or $0.03 per Common Share. On September 10, 2009, the creditors of the Applicant approved the Applicant's Plan and the Court sanctioned the Plan on September 15, 2009. The transactions comprising the Plan closed on October 9, 2009 and on October 14, 2009, all the conditions precedent to the closing of the transactions comprising the Plan were met.

13. Following the closing of the transactions comprising the Plan, Groupe Bermex Inc. became the Applicant's controlling shareholder, holding 44,279,567 Common Shares, or 80.5% of the issued and outstanding Common Shares.

14. On February 12, 2010, the Applicant filed the following the following continuous disclosure materials on SEDAR:

a. its audited annual financial statements for the year ended April 3, 2009 (including audited comparative information for the year ended April 4, 2008);

b. its management's discussion and analysis relating to audited annual financial statements for the year ended April 3, 2009; and

c. its interim financial statements and related management discussion and analysis for the interim periods ending July 3, 2009 and October 2, 2009.

15. The Applicant is not in default of any requirements applicable to a reporting issuer under the Act, except for the Applicant's failure to file: (a) its annual information form for the years ended April 4, 2008 and April 3, 2009; (b) its interim financial statements and related interim management's discussion and analysis for the interim periods ended June 30, September 30 and December 31, 2008 as required by National Instrument 51-102 Continuous Disclosure Obligations; and (c) the certificates as required by National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings in respect of the filings mentioned in paragraph (b) above.

16. The Applicant's current financial situation is precarious and it is currently operating as a going concern.

17. The Applicant's board of directors are of the opinion that the Applicant's status as a reporting issuer is inappropriate and that a reorganization of the Applicant, leading to the privatization of the Applicant, is necessary and desirable. In addition, such a reorganization would provide otherwise inaccessible liquidity for the holders of Common Shares.

18. On February 26, 2010, the Applicant mailed to its shareholders and filed on SEDAR a management information circular containing prospectus-level disclosure in connection with a proposed reorganization of the Applicant.

19. On March 25, 2010, the AMF granted a partial revocation of the Quebec CTO for the purposes of the Reorganization.

20. On March 25, 2010, the Commission granted a partial revocation of the Ontario CTO for the purposes of the Reorganization.

21. The Applicant held an annual and special shareholders meeting (the "Meeting") on March 25, 2010 at which its shareholders approved a corporate reorganization of the Applicant (the "Reorganization") comprised of the following transactions:

a. the adoption of by-law 2010-1 abrogating the authorised share capital of the Applicant, replacing it with a share capital comprising three classes of shares, namely common shares, class A preferred shares and class B preferred shares (the "Recapitalization");

b. the conversion of the presently issued and outstanding Common Shares into class B preferred shares and the presently issued and outstanding Preferred Shares into class A preferred shares (the "Conversion");

c. concurrent with the Recapitalization and Conversion, the subscription by way of private placement of Groupe Bermex Inc. of 100 new common shares of the Applicant for a total subscription price of $100 (the "Private Placement"); and

d. immediately following the Recapitalization, the Conversion and the Private Placement, the repurchase by the Applicant of all the issued and outstanding class B preferred shares at a price of $0.03 per share.

22. The Reorganization constituted a "business combination" within the meaning of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions ("MI 61-101") for which an exemption existed from the formal valuation requirement as provided for in Section 4.4(1)(a) thereof.

23. At the Meeting, the Applicant obtained the necessary shareholder approval, including "minority approval" (as defined in MI 61-101), of the Reorganization, and following the Meeting, the Applicant completed the Reorganization.

24. Following the Reorganization, the outstanding securities of the Applicant are held by three holders: (a) 100 new common shares are held by Groupe Bermex Inc.; (b) 700,000 class A preferred shares are held by Investissement Québec; and (c) two convertible debentures of the Applicant in the aggregate principal amount of $1,000,000 and $3,000,000, each being convertible into new common shares and preferred shares of the Applicant, are held by Fonds de solidarité des travailleurs du Québec (F.T.Q.).

25. The Ontario CTO and the Quebec CTO remain in effect.

26. The Applicant requests the full revocation of the Ontario CTO and has requested the full revocation the Quebec CTO from the AMF.

27. The Applicant has no intention currently to seek financing by way of a public or private placement in a jurisdiction of Canada.

28. No securities of the Applicant are traded on a marketplace as defined in National Instrument 21-101 Marketplace Operation.

29. The Applicant's SEDI and SEDAR profiles are up-to-date.

30. Except as noted in paragraph 15, the Applicant is up-to-date with its continuous disclosure obligations and has paid all outstanding participation fees, filing fees and late fees associated with those obligations.

31. The Applicant will issue a press release and file a material change report in connection with the revocation of the Ontario CTO.

32. The Applicant has filed an application pursuant to Policy Statement 11-203 Respecting the Process for Exemptive Relief Applications in Multiple Jurisdictions to cease to be a reporting issuer in all jurisdictions in which it is currently a reporting issuer.

33. Upon the Applicant being deemed to have ceased to be a reporting issuer under the securities legislation of all provinces, the Applicant will no longer be a reporting issuer in any jurisdiction in Canada.

AND UPON considering the application and the recommendation of the staff of the Commission;

AND UPON the Director being satisfied that the Issuer has remedied its defaults in respect of the filing requirements under the Act;

AND UPON the Director being satisfied that to do so would not be prejudicial to the public interest;

IT IS ORDERED, pursuant to section 144 of the Act, that the Ontario CTO be and is hereby fully revoked.

DATED at Toronto this 21st day of April, 2010.

"Jo-Anne Matear"
Assistant Manager, Corporate Finance Branch
Ontario Securities Commission