Application for partial revocation of cease trade order -- variation of cease trade order to permit certain trades for the purpose of debt settlement and private placement financing -- partial revocation granted subject to conditions.
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 ONLINE DIRECT INC. (the "Applicant")
ORDER (Section 144)
WHEREAS the Applicant is subject to a cease trade order dated October 30, 2001 made pursuant to subsection 127(8) of the Securities Act, R.S.O. 1990., chapter s.5, as amended, ordering that trading in securities of the Applicant cease until it is revoked by a further order of revocation (the "Cease Trade Order");
AND WHEREAS the Applicant has made an application to the Ontario Securities Commission (the "Commission") pursuant to section 144 of the Act for a partial revocation of the Cease Trade Order;
AND WHEREAS the Applicant has represented to the Commission that:
1. The Applicant was formed by certificate of amalgamation under the Canada Business Corporations Act on March 31, 1999.
2. The Applicant's registered and head office is located at 65 Queen Street West, Suite 510, Toronto, Ontario, M5H 2M5.
3. The Applicant is a reporting issuer under the securities legislation of Ontario, Alberta and British Columbia and is not a reporting issuer or equivalent under the securities legislation of any other jurisdiction in Canada.
4. The Applicant's authorized capital consists of an unlimited number of common shares ("Common Shares"), of which 16,990,665 Common Shares are issued and outstanding.
5. Other than as identified in paragraph 18, the Applicant does not have any securities, including debt securities, issued or outstanding other than the Common Shares.
6. No securities of the Applicant are traded in Canada or any other country on a marketplace as defined in National Instrument 21-101 -- Marketplace Operation or any other facility for bringing together buyers and sellers of securities where trading data is publicly reported.
7. The Cease Trade Order was issued due to the failure of the Applicant to file audited annual statements for the year ended March 31, 2001 and interim financial statements for the period ended June 30, 2001 (the "Financial Statements").
8. The comparative financial statements for the year ended March 31, 2001 were filed on December 28, 2012. Financial statements for the years ended March 31, 2010, March 31, 2011 and March 31, 2012 and related management's discussion and analyses were filed in December 2012 and February 2013, respectively. Interim financial statements for the three, six and nine-month periods ended June 30, September 30, and December 31, 2011 and 2012 were filed in June 2013. Financial statements for the year ended March 31, 2013 and related management's discussion and analysis were filed in August 2013. Interim financial statements for the three, six and nine-month periods ended June 30, September 30 and December 31 2013 as well as related management's discussion and analyses for the six and nine-month periods ended September 30 and December 31 2013 were filed in November 2013 and February 2014. No other continuous disclosure documents required by applicable securities legislation have been filed by the Applicant since the Cease Trade Order was issued.
9. The Applicant is also subject to cease trade orders of the Alberta Securities Commission (the "ASC") dated October 30, 2001 and the British Columbia Securities Commission (the "BCSC") dated January 31, 2002 (such cease trade orders being together referred to as the "Other Cease Trade Orders").
10. Other than the Cease Trade Order and Other Cease Trade Orders, the Applicant has not previously been subject to any other cease trade order.
11. The Applicant's principal assets consist of less than $1,000.00 in cash as of the date hereof.
12. The Applicant has accumulated debt of $764,853.88 as of the date hereof, of which $720,678.88 (the "Shareholder Loan") is owed to Jean-Claude Bonhomme (the "Creditor"), a shareholder, officer, director and unsecured creditor of the Applicant. The Applicant used the majority of the advances made under the Shareholder Loan between 2001 and 2013 to meet its operational and administrative expenses.
13. The Creditor's province of residence is Ontario. He is an accredited investor, as such term is defined in subsection 73.3(1) of the Act and in section 1.1 of National Instrument 45-106 -- Prospectus Exemptions ("Accredited Investor").
14. The Applicant suffered financial distress as a consequence of ceasing to carry on an active business in 2002. The Applicant periodically used some of the advances made under the Shareholder Loan to prepare, file and deliver financial statements and other continuous disclosure documents required by applicable securities legislation, as described in paragraph 8. The failure to prepare, file and deliver financial statements and other continuous disclosure documents required by applicable securities legislation for certain periods was due to insufficiency of funds.
15. The Applicant is seeking to effect a financing transaction to enable it to bring itself into compliance with its continuous disclosure obligations and to fund its business operations, one or more of which transactions, or the actions associated therewith, may constitute a contravention of the Cease Trade Order. More specifically, the Applicant proposes to complete a brokered or non-brokered private placement of its securities (the "Private Placement") with Accredited Investors resident in the provinces of Ontario, Alberta or British Columbia (each Accredited Investor, a "Potential Investor") to raise gross proceeds of up to $300,000.00. The Applicant is proposing to raise the $300,000.00 by selling Common Shares for a subscription price equal to $0.005 per Common Share.
16. None of the Potential Investors are insiders or related parties of the Applicant.
17. The proceeds from the Private Placement shall be used to prepare and file continuous disclosure documents with a view to obtaining a full revocation of the Cease Trade Order and the Other Cease Trade Orders, to pay filing fees with respect thereto to the Commission, the ASC and the BCSC, to pay outstanding fees to the Applicant's transfer agent, to fund the preparation of the application for the revocation of the Cease Trade Order and the Other Cease Trade Orders and to provide working capital.
18. The Applicant also proposes to issue Common Shares in satisfaction of the debt of the Shareholder Loan at a deemed price of $0.005 per share owed to the shareholder and director of the Applicant referred to in paragraph 12 (the "Debt Conversion"). The issuance of Common Shares and the forgiveness of debt are each a "related party transaction", pursuant to subsections (g) and (l) of the definition of that term in Multilateral Instrument 61-101 -- Protection of Minority Security Holders in Special Transactions ("MI 61-101"). The issuance of Common Shares is subject to the formal valuation and minority approval requirements in MI 61-101. The forgiveness of debt is not subject to the formal valuation requirement in MI 61-101, however, it is subject to the minority approval requirement of MI 61-101. Regarding the issuance of Common Shares, the Applicant will rely on the exemption from the formal valuation requirement contained in section 5.5(b) of MI 61-101, since the securities of the Applicant are not listed on any stock exchange. Regarding both the issuance of Common Shares and the forgiveness of debt, the Applicant will rely on the exemption from the minority approval requirement contained in section 5.7(a) of MI 61-101, since neither the fair market value of the securities issued, nor the fair market value of the consideration for the transactions, insofar as it involves interested parties, exceeds 25% of the Applicant's market capitalization as determined by the board of directors of the Applicant acting in good faith. The foregoing shall be disclosed in the disclosure document for the Debt Conversion, being the news release and material change report which material change report will be in compliance with section 5.2 of MI 61-101.
19. The Shareholder Loan is comprised of two types of cash advances made by the Creditor. A number of non-interest bearing advances were made between 2001 and 2011 in the aggregate amount of $443,218.00 (the "Non-Interest Bearing Loan"). No instruments were issued by the Applicant in connection with the Non-Interest Bearing Loan; however, such advances are reflected in the financial statements of the Applicant. In addition, the Creditor made a number of advances bearing 12.5% interest per annum evidenced by promissory notes (the "Promissory Notes"), as per the table below:
Date of Promissory Note Advance
May 14, 2012
November 19, 2012
March 22, 2013
April 17, 2013
September 13, 2013
September 13, 2013
September 13, 2013
As at December 31, 2015, the Promissory Notes had accrued $67,460.88 in interest such that the combined principal and interest owing under the Promissory Notes is now $277,460.88.
20. The Applicant is of the view that the funds advanced to the Applicant under the Shareholder Loan evidenced by the Promissory Notes may have constituted the distribution of a security by the Applicant in contravention of the Cease Trade Order and the Other Cease Trade Orders.
21. The Creditor currently owns 615,645 Common Shares (3.62%).
22. Following the Private Placement and Debt Conversion, the Creditor will own 144,751,421 Common Shares (65.46%), which is calculated based on the addition of the Common Shares that will be issued to Potential Investors as a result of the Private Placement (60,000,000 Common Shares, based on raising gross proceeds of up to $300,000.00) and Common Shares that will be issued to the Creditor in connection with the Debt Conversion (144,135,776 Common Shares, based on the value of the Shareholder Loan).
23. As the Private Placement and Debt Conversion will involve trades in securities of the Applicant (including, for greater certainty, acts in furtherance of trades in securities of the Applicant), it cannot be completed without a variation of the Cease Trade Order.
24. Prior to the date hereof, the Applicant had not remedied all of the deficiencies described in paragraph 5 as it did not have sufficient funds to do so.
25. The Private Placement and Debt Conversion trades are expected to take place in Ontario, Alberta and British Columbia.
26. The Private Placement and Debt Conversion will be completed in accordance with all applicable laws.
27. The Applicant is not in default of any requirements of the Cease Trade Order, the Other Cease Trade Orders or applicable securities legislation or the rules and regulations made pursuant thereto, subject to the contraventions outlined in paragraphs 7, 8 and 20 above.
28. Upon the issuance of this Order, the Applicant will:
(a) issue a press release and file a material change report announcing, among other things, the Private Placement, the Debt Conversion and this Order;
(b) market the Private Placement and provide information relating to the Applicant to the Potential Investors in accordance with the provisions of this Order and in accordance with the applicable securities legislation and the rules and regulations made pursuant thereto; and
(c) issue securities in connection with the Private Placement and Debt Conversion.
29. To bring its continuous disclosure record up to date, the Applicant intends, within a reasonable time following the completion of the Private Placement and Debt Conversion, to file the following documents on SEDAR once completed:
(a) the remaining Financial Statements;
(b) audited annual financial statements and related management's discussion and analysis for the years ended March 31, 2014 and March 31, 2015;
(c) its interim financial statements and the related management's discussion and analysis for all interim periods in the current fiscal year, following the completion of the Private Placement and Debt Conversion;
(d) all certifications by the Chief Executive Officer and the Chief Financial Officer of the Applicant with respect to the Applicant's annual and interim filings required by Multilateral Instrument 52-109 -- Certification of Disclosure in Issuers' Annual and Interim Filings; and
(e) all other continuous disclosure documents required by applicable securities legislation to be filed by the Applicant.
30. The purpose of the Private Placement is to enable the Applicant to raise sufficient funds to reactivate its business, to bring its continuous disclosure record up to date, to apply for a full revocation of the Cease Trade Order and the Other Cease Trade Orders and to provide working capital. The purpose of the Debt Conversion is to improve the Applicant's balance sheet to make the Applicant more financeable.
31. The Applicant reasonably anticipates that it will require approximately $124,000.00 in order to undertake the necessary steps to apply for a full revocation of the Cease Trade Order and the Other Cease Trade Orders. The balance will be used to cover legacy accounts payable and to fulfill other commitments made to the OSC in connection with the full revocation of the Cease Trade Order and the Other Cease Trade Orders.
32. The Applicant reasonably believes that it will have sufficient resources upon completion of the Private Placement and Debt Conversion to bring its continuous disclosure obligations up to date and pay all related outstanding fees.
33. The proceeds of the Private Placement are estimated to be used as follows:
legacy accounts payable, including accounting and legal fees, consulting fees and outstanding transfer agent fees;
accounting and audit fees to prepare and file continuous disclosure documents;
the services of legal counsel with regard to the Private Placement and the Debt Conversion, the preparation of the materials for the annual meeting, the application for the Order and the final full revocation order;
payment of filing fees for a full revocation application to the applicable regulators, including the Commission; and
working capital and general and administrative expenses.
34. The amount listed for "payment of filing fees for a full revocation application to the applicable regulators, including the Commission" is for both partial revocation and full revocation, as well as penalties, estimated to be used as follows:
Alberta application for revocation;
British Columbia application for revocation;
Ontario application for revocation;
Alberta SEDAR fees;
British Columbia SEDAR fees; and
Ontario SEDAR fees.
35. The Applicant intends, within 60 days following the completion of the Private Placement and Debt Conversion to apply to the Commission for full revocation of the Cease Trade Order. An undertaking has been provided to the Commission to this effect.
36. The Applicant undertakes to hold its annual meeting of shareholders within three (3) months of the date that the Cease Trade Order and the Other Cease Trade Orders are revoked in full. An undertaking has been provided to the Commission to this effect.
37. The Applicant is not considering, nor is it involved in any discussion relating to a reverse take-over, merger, amalgamation or other form of combination or transaction similar to any of the foregoing.
AND WHEREAS considering the application and recommendation of staff of the Commission;
AND WHEREAS 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 Cease Trade Order is partially revoked solely to permit trades and acts in furtherance of trades that are necessary for and are in connection with the Private Placement and Debt Conversion and all other acts in furtherance of the Private Placement and Debt Conversion that may be considered to fall within the definition of "trade" within the meaning of the Act, provided that:
(a) prior to completion of the Private Placement and Debt Conversion, each Potential Investor and the Creditor will:
(i) receive a copy of the Cease Trade Order and the Other Cease Trade Orders;
(ii) receive a copy of this Order; and
(iii) receive written notice from the Applicant and acknowledge to the Applicant that all of the Applicant's securities, including the securities issued in connection with the Private Placement and Debt Conversion, will remain subject to the Cease Trade Order and the Other Cease Trade Orders until such orders are revoked, and that the granting of the Order does not guarantee the issuance of a full revocation order in the future;
(b) The Applicant will provide signed and dated written acknowledgements referred to in paragraph (a)(iii) above to staff of the Commission on request; and
(c) This Order will terminate on the earlier of: (i) the completion of the Private Placement and Debt Conversion; and (ii) 120 days from the date hereof.
DATED at Toronto, Ontario on this 23rd day of February, 2016.