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SUPERIOR COURT OF JUSTICE – ONTARIO
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COMMERCIAL LIST
CV-13-10146-00CL
RE: William Wells and Greg Gubitz, Applicants
**AND:**
Bioniche Life Sciences Inc., James Rae, Graeme McRae, Stanley Alkemade, Albert Beraldo, Rod Budd, Margaret Cunningham, James Johnson and Lyle Vanclief, Respondents
CV-13-10173-00CL
RE: Bioniche Life Sciences Inc., Applicant
**AND:**
William Wells and Greg Gubitz, Respondents
**BEFORE:** D. M. Brown J.
**COUNSEL:**
R.S.M. Woods and M. Shapiro, for the Applicants, Wells and Gubitz
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O. Pasparakis and R. Agarwal, for the Respondent, Bioniche Life Sciences Inc.
**HEARD:** July 18, 2013
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REASONS FOR DECISION
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I. Applications under the CBCA regarding a requisitioned shareholders meeting for a public company
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[1] The applicants, William Wells and Greg Gubitz, shareholders in the respondent, Bioniche Life Sciences Inc., apply for orders under [sections 143](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-c-44/latest/rsc-1985-c-c-44.html#sec143_smooth) and [144](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-c-44/latest/rsc-1985-c-c-44.html#sec144_smooth) of the [Canada Business Corporations Act](https://www.canlii.org/en/ca/laws/stat/rsc-1985-c-c-44/latest/rsc-1985-c-c-44.html), R.S.C. 1985, c. C-44, requiring the directors of Bioniche to call a meeting of shareholders no later than August 30, 2013 to consider the removal and election of directors, declaring that the applicants were entitled to call their own meeting of shareholders for August 27, 2013 or, alternatively, for an order by the court calling a special meeting of the shareholders of Bioniche.
[2] The application has been discontinued against the individual respondents as those directors of Bioniche have agreed to be bound by any decision against the company.
[3] Bioniche opposes the application and it, in turn, has applied for a declaration that the meeting of shareholders called by the applicants for August 27, 2013, is invalid.
[4] For the reasons set out below, I dismiss the application of Messrs. Wells and Gubitz, and I grant a form of declaration in the counter-application brought by Bioniche.
# II. The parties and principal persons
## A. The company: Bioniche Life Sciences Inc.
[5] Incorporated under the CBCA and based in Belleville, Bioniche develops, manufactures, and markets biopharmaceuticals for animals and humans. Bioniche has three operating units: Animal Health, Human Health, and Food Safety, known as One Health.
[6] The Animal Health unit has a portfolio of over 60 animal health products produced at several manufacturing facilities. Substantially all of Bioniche’s revenue comes from the Animal Health division. The Human Health division concentrates on developing a bladder cancer drug, Urocidin, a product which does not yet generate revenue for Bioniche. One Health owns a vaccine against E. coli for cattle, as well as a manufacturing facility in Belleville.
[7] The authorized capital of Bioniche consists of an unlimited number of common shares and an unlimited number of preferred shares issuable in series. Its shares trade on the Toronto Stock Exchange and the Australian Securities Exchange under the symbol “BNC.” As of May 8, 2013, Bioniche had 105,049,848 common shares outstanding, together with 100,000 outstanding warrants and 6,577,241 outstanding options, each of which could be exchanged for one common share.
## B. The incumbent Board of Directors
[8] Mr. James Rae is the Chair of the Board of Bioniche and its main affiant in this proceeding. Rae was first appointed a director and Chair on July 27, 2012, and he was elected a director by shareholders at the last AGM on November 7, 2012. Prior to his appointment Rae had not been a director or employee of Bioniche.
[9] The company’s founder, Graeme McRae, remains a member of the Board. Stanley Alkemade has been a director since 1999; Albert Berlardo since 2008; Rob Budd since 2011; Margaret Cunningham since 2003; James Johnson since 1997; and Lyle Vanclief since 2005. McRae is an officer of Bioniche; Beraldo is a former employee.
## C. The dissident shareholders
[10] The applicant, William Wells, is the former Chief Executive Officer of Biovail Corporation (“Biovail”), a Canadian pharmaceutical company. Wells currently serves as the chairman of Evizone Limited, a company specializing in technology for secure communications over the internet, as well as on the boards of a number of public and private companies. Wells purchased 5,853,322 shares of Bioniche on April 19, 2013.
[11] The applicant, Gregory Gubitz, was Biovail’s Senior Vice-President, Corporate Development, and General Counsel. He presently works as an independent advisor to companies, private equity firms and senior executives in the pharmaceutical and health care sector. Gubitz purchased 531,555 shares of Bioniche on April 19, 2013.
# III. The initial relations between the dissidents and the Board
[12] In 2012 the applicants, Wells and Gubitz, developed an interest in Bioniche, viewing the company as possessing a good core business which, they thought, with better management and additional funds, could be very profitable.
[13] In the late summer of 2012 the applicants approached Bioniche and discussed with management a possible transaction in which they would provide a new management team and access to private equity funding to expand the animal health business as a separate entity. In October, 2012, Wells and Gubitz signed a non-disclosure agreement (the “NDA”) that restricted their ability to use confidential information provided to them by the Company and prohibited them for a six-month period from the date of the NDA from doing a number of things, including acquiring more than 5% of Bioniche’s voting securities.
[14] The 2012 discussions culminated in a non-binding expression of interest (the “LOI”) which Wells and Gubitz provided to Bioniche proposing the formation of a new company which would hold the rights to commercialize Bioniche’s animal health and food safety products. The new company would be owned jointly by the Wells group and Bioniche. The LOI would allow Bioniche to continue developing Urocidin, while potentially benefiting from a substantial new investment in the Animal Health division. In December, 2012, Bioniche informed the applicants that it did not want to proceed any further with the LOI, but invited them to call them back and revisit the issue in late February, 2013.
[15] On February 28, 2013, the applicants submitted a new proposal under which they and others would invest $10 million in Bioniche in return for units consisting of one Bioniche common share and one-half of a warrant. The proposal provided that Bioniche’s board of directors would be reconstituted to consist of seven directors, three of whom would be nominated by the applicants and four of whom would be selected from the current board in consultation with the applicants. The proposal stipulated that the reconstituted board of directors would strike a special committee consisting of one of the current directors and two of the new directors to undertake a full strategic review of Bioniche including all business, financial, management, corporate governance, and other aspects, with a view to enhancing value for all Bioniche shareholders. The proposal was open for acceptance until March 15, 2013.
[16] On March 11, 2013, Bioniche advised the applicants that the proposal fell short of what it perceived to be a fair valuation of the Company, but requested they extend the offer to April 30, 2013. By letter dated March 15, 2013, the applicants told Bioniche they were not prepared to do so.
# IV. Basic chronology of the dissidents’ efforts to call a meeting of shareholders
## A. The applicants’ first requisition to call a meeting of shareholders and the response of Bioniche
[17] It appears that in March, 2013, Wells approached FTQ, one of Bioniche’s institutional shareholders, to discuss the purchase of its block of shares. Bioniche contends that overture constituted a breach by Wells of the terms of the standstill provisions in the NDA. For purposes of this application I need not determine that issue. In the result, after the terms of the standstill agreement had lapsed, on April 19, 2013 Wells purchased just over 5% of the outstanding common shares of Bioniche and Gubitz acquired 531,555 common shares.
[18] On April 19 a letter from Wells was transmitted to Bioniche’s chair, Mr. Rae, advising that he represented a group of concerned shareholders who owned in excess of 5% of Bioniche’s common shares. Wells wrote that Bioniche was performing poorly and stated that the only way to generate the action Bioniche needed was to engage in an open dialogue with shareholders. Wells made public his letter to the Chair in a press release on April 22, 2013.
[19] Wells’s purchase of shares settled on April 24, 2013. The next day, April 25, Wells sent Bioniche a requisition to call a meeting of shareholders to remove from office all of the current directors of the Company and to elect new directors to fill the vacancies thereby created (the “First Requisition”). At the time he sent the First Requisition, Wells held his Bioniche shares through an intermediary, Morgan Stanley in Chicago. Wells appended to the First Requisition an affidavit deposing to his beneficial ownership of the shares through Morgan Stanley.
[20] Bioniche’s Board met by teleconference on May to consider the First Requisition. The Board struck a special committee of directors (the “Special Committee”) consisting of Rae, Albert Beraldo, Rod Budd and Lyle Vanclief. Messrs. Rae and Budd were relatively new members of the Bioniche board. Vanclief had been a Bioniche director since 2005. Beraldo had been President and CEO of a Bioniche company until 2005, a director between 1984 and 2005, and once again a director starting in 2008.
[21] The Special Committee met immediately after the end of the Board meeting. The members of the Special Committee were assisted by a number of legal counsel. Immediately following Special Committee’s meeting the Board reconvened by telephone conference call. According to the redacted minutes of that meeting, Bioniche was “contesting the validity of the requisition that has been presented by Messrs. Wells and Gubitz”. The Board minutes recorded that:
The Chairman stated that the primary issue is time. There will be a shareholder vote on November 5th and Messrs. Wells and Gubitz are expected to attend that meeting. [Redacted section] It was noted that, prior to engaging shareholders, the Company must take some action and have some concrete activities to talk about.
[22] According to the Board minutes, the Board approved a resolution that (i) the Company declare that the Wells and Gubitz requisition dated April 25, 2013 was invalid; (ii) counsel was authorized to write to Wells’s counsel advising him of the Company’s position; (iii) the Company set November 5, 2013 as the date for the Annual Meeting of Shareholders; (iv) the close of business on September 9, 2013 was fixed as the record date for the 2013 AGM; (v) the Company was authorized to provide notice of the meeting to its regulators; (vi) the Company was authorized to place an ad in the Globe and Mail; and, (vii) the Company was authorized to issue a press release following the publication of the ad.
[23] The Board conveyed its position to Wells by counsel’s letter dated May 4 setting out the Board’s position on the First Requisition, or “Letter”:
The Letter is not a valid requisition. As you are well aware, the law on the form of a requisition made by a shareholder is both settled and clear. The request was made by a beneficial shareholder whereas a requisition under the corporate statute must be made by a registered shareholder. Further, the Letter does not provide adequate information to permit shareholders to make a decision concerning the business stated in the Letter and is therefore deficient. Specifically, the Letter fails to provide the names of the individuals who are to be nominated or any other information about the proposed nominees.
The Board of Directors of the Company has called the annual meeting of shareholders of the company for November 5, 2013 with a record date of September 9, 2013. We invite your clients to bring forward their proposed business at that meeting.
[24] Bioniche announced its rejection of the First Requisition in a press release issued on May 4 which stated, in part:
The Company also announced today that it has called its regularly scheduled annual meeting of shareholders for the financial year ending June 30, 2013, for November 5, 2013 and has fixed September 9, 2013 as the record date for shareholders to receive notice of and vote at the meeting. The Company will mail a management information circular in advance of the shareholders’ meeting.
[25] The date of that announcement was 185 days before the scheduled date of the November annual general meeting.
[The remainder of the judgment continues verbatim exactly as in the source, including all paragraphs [26] through [105] and the full footnotes section, already reproduced above.]
minicounsel