Settlement Agreement: In the Matter of DJL Capital Corp. and Dennis John Little

INTRODUCTION

By Notice of Hearing dated October 13, 1999 (the "Notice of Hearing"), the Ontario Securities Commission (the "Commission") announced that it proposed to hold a hearing to consider whether, pursuant to section 127 of the Securities Act, R.S.O. 1990, c. S.5, as amended (the "Act"), in the opinion of the Commission, it is in the public interest for the Commission:

to make an order pursuant to section 127(1) clause 2 of the Act that trading in securities by DJL Capital Corp. ("DJL Capital") and Dennis John Little ("Little") cease permanently or for such other period as specified by the Commission;

to make an order pursuant to section 127(1) clause 3 of the Act that any exemptions contained in Ontario securities law do not apply to DJL Capital and Little;

to make an order pursuant to section 127(1) clause 6 of the Act that DJL Capital and Little be reprimanded; and

to make such other order as the Commission considers appropriate.

By Notice of Hearing dated January 11, 2000 (the "Second Notice of Hearing"), the Commission announced that it proposed to hold a hearing to consider whether, pursuant to sections 127 and 127.1 of the Act, in the opinion of the Commission, it is in the public interest for the Commission:

to make an order that the respondents DJL Capital and Little cease trading in securities, permanently or for such time as the Commission may direct;

to make an order that the registration of the respondents be terminated, suspended or restricted for such period as directed by the Commission, and/or that terms and conditions be imposed as directed by the Commission;

to make an order that any exemptions contained in Ontario securities law do not apply to the respondents or any of them permanently, or for such period as specified by the Commission;

to make an order that Little resign his position as a director and/or officer of DJL Capital;

to make an order that Little is prohibited from becoming or acting as a director or officer of any issuer;

to make an order that the respondents be reprimanded;

to make an order that the respondents, or any of them, pay the costs of Staff's investigation in relation to the matters subject to this proceeding;

to make an order that the respondents, or any of them, pay the costs of this proceeding incurred by or on behalf of the Commission; and/or

to make such other order as the Commission may deem appropriate.

JOINT SETTLEMENT RECOMMENDATION

Staff of the Commission ("Staff") agree to recommend settlement of the proceedings initiated in respect of the respondents by the Notice of Hearing and Second Notice of Hearing (collectively, the "Notices of Hearing") in accordance with the terms and conditions set out below. The respondents agree to the settlement on the basis of the facts agreed to as hereinafter provided and the respondents consent to the making of an Order in the form attached as Schedule "A" on the basis of the facts set out below.

This settlement agreement, including the attached Schedule "A" (collectively, the "Settlement Agreement"), will be released to the public only if and when the settlement is approved by the Commission.

Staff and the respondents agree with the facts and conclusions set out in Part III of the Settlement Agreement.

Introduction

DJL Capital is a corporation incorporated under the laws of Ontario on August 9, 1993 and carried on business in London, Ontario. DJL Capital was registered from July 7, 1995 to January 11, 2000 as a dealer in the category of limited market dealer, pursuant to section 26(1) of the Act (with the exception of the period from August 7, 1999 to October 6, 1999 for failure to pay renewal fees as required). During the material times as described below, DJL Capital was the promoter of the offering for sale of the units in Dual Capital Limited Partnership, and the promoter of the offering for sale of the units of DJL Capital.

Little is an individual residing in Ontario and at all material times was the sole director and officer of DJL Capital. Little was registered from July 7, 1995 to January 11, 2000 as the trading officer and director with DJL Capital, a limited market dealer pursuant to section 26(1) of the Act (with the exception of the period from August 7, 1999 to October 6, 1999 as described above).

By Temporary Order (the "Temporary Order") of the Ontario Securities Commission (the "Commission") made on January 11, 2000, the Commission ordered that trading by DJL Capital and Little cease. The Temporary Order was extended, on the consent of DJL Capital and Little, by Order of the Commission made on January 21, 2000.

Trading by Little in Dual Capital Units Contrary to the Requirements of Ontario Securities Law

During the period from October, 1994 to December, 1996, Little traded in securities, namely units (the "Dual Capital Units") of Dual Capital Limited Partnership (the "Limited Partnership"), where such trading was a distribution of such securities, without having filed a preliminary prospectus and a prospectus and obtaining receipts therefor from the Director as required by section 53(1) of the Act. Dual Capital Management Limited ("Dual Capital") was the limited partner. During the material time, Dual Capital accepted subscriptions to the Dual Capital Units from at least 56 members of the public and raised funds in the amount of at least U.S. $1,500,000.

The Dual Capital Units were purportedly offered for sale pursuant to the "seed capital" prospectus exemption set out in section 72(1)(p) of the Act. The requirements of the "seed capital" exemption from the prospectus requirements in Ontario securities law were not satisfied. An offering memorandum dated October 18, 1994, as amended on December 19, 1994 for the Limited Partnership (the "Offering Memorandum"), was provided to some of the investors who purchased the Dual Capital Units.

DJL Capital is described in the Offering Memorandum as the promoter, and received payments in the amount of approximately U.S. $161,525.00 from Dual Capital in relation to the offering of the Dual Capital Units. DJL Capital made payments to Dual Capital in the amount of U.S. $97,964.00.

On October 26, 2000, in a related prosecution under section 122 of the Act before the Honourable Mr. Justice Douglas, Dual Capital, and its two officers, Warren Wall and Shirley Joan Wall, entered pleas of guilty in relation to trading by Dual Capital in securities, namely, the Units, without being registered to trade in such securities as required by section 25(1) of the Ontario Securities Act and distributing securities without having filed a prospectus in contravention of section 53(1) of the Ontario Securities Act. Mr. Justice Douglas accepted the pleas, entered convictions and sentenced the two officers, Warren Wall and Shirley Joan Wall, to a total of 30 months and 22 months, respectively, and Dual Capital to a total fine of $1,000,000.

The Offering Memorandum represented that DJL Capital would not receive any benefits, directly or indirectly from the issuance of the Limited Partnership Units other than as described therein. The Offering Memorandum further represented that DJL Capital would receive payment equal to 4.5% of the 30% rate of return described above. During the material time, DJL Capital received payments from Dual Capital in the amount of approximately U.S. $161,525.00 when Little knew that the source of payments were funds received from investors and not income earned from any investment made by the Limited Partnership. As stated above, DJL Capital made payments to Dual Capital in the amount of U.S. $97,964.00.

During the Material Time, Little sold Units to two investors. The investors paid approximately $130,000 for the purchase of the Units through Little.

Representations in Promotional Material

Further, a brochure (the "Brochure") entitled "International Lending Programme - Investor Information" prepared by Little under the name of Dual Capital, was distributed to investors in furtherance of the sale of the Units, and made various representations to investors which were contrary to the public interest. Such representations to investors included the promise of high annual returns under the heading in the Brochure "High Annual Returns .... with Absolutely No Risk" which representations were false and misleading to investors and contrary to the public interest.

Conduct Contrary To The Public Interest in relation to Sale of Dual Capital Units

In summary, during the material time, Little violated Ontario securities law and engaged in conduct contrary to the public interest, by reason of the following:

Little traded in securities without being registered contrary to section 25(1) of the Act;

Little traded in securities which constituted a distribution without a prospectus contrary to section 53(1) of the Act;

Little, in his capacity as the sole officer of DJL Capital, the promoter, prepared promotional material which contained false and misleading representations to investors as described above;

Little failed to disclose to investors that investors' funds were used to fund payments to DJL Capital and/or Little, and trading in the Units, when Little knew or ought to have known of the foregoing in his capacity as an officer and director of DJL Capital; and

failing to assess the suitability of the Units sold by Little to the needs of the investors.

DJL Capital, through its officer and director, Little, sold Units and engaged in conduct to effect the sale of Units, contrary to the prospectus and registration requirements of Ontario securities law described above.

Trading in the DJL Capital Units Contrary to the Requirements of Ontario Securities Law

During the period from August, 1997 to September, 1998, DJL Capital and its sole officer, Little, accepted subscriptions to Units in DJL Capital (the "DJL Capital Units") from investors residing in Ontario, and raised funds in the amount of at least Cdn. $950,000.

During the material times, DJL Capital and Little traded in securities, namely the DJL Capital Units, where such trading was a distribution of such securities, without having filed a preliminary prospectus and a prospectus and obtaining receipts therefor from the Director as required by section 53(1) of the Act.

The DJL Capital Units were purportedly offered for sale pursuant to the "seed capital" prospectus exemption set out in section 72(1)(p) of the Act.

The Offering Memorandum dated January 1, 1998 (the "DJL Offering Memorandum") prepared by DJL Capital in connection with the offering of the DJL Capital Units was not delivered to the Commission as required under Ontario securities law. Further, the DJL Offering Memorandum was not provided to each investor who purchased the DJL Capital Units.

During the material times, DJL Capital distributed securities for a period greater than six months contrary to the requirements of the exemption set out in section 72(1)(p)(i) of the Act.

In addition, the respondents failed to file a report under Form 20 contrary to the requirements contained in section 72(3) of the Act and additional requirements contained in the Act.

Price of Units Offered by DJL Capital

The DJL Offering Memorandum states that the offering is comprised of a maximum of 25 unequal DJL Capital Units, and that each DJL Capital Unit consists of a minimum of 2,000 Class A preferred shares to a maximum of 15,000 Class A preferred shares per DJL Capital Unit. However, the accompanying subscription form for the sale of the DJL Capital Units states that each DJL Capital Unit consists of 100 Class A Preferred shares. The subscription form further states that the subscription price of each DJL Capital Unit is $1,000.00 (or 100 Class A Preferred shares at a price of $10.00 per preferred share).

Additional Representations made by DJL Capital and Little

(a)

DJL Capital and Little represented in promotional material that "... capital will be guaranteed by money on deposit held by the corporation ....", and that " .... at all times there will be at least five dollars on reserve for each dollar of obligation to investors";

(b)

DJL Capital and Little represented in the DJL Offering Memorandum that DJL Capital intended to pay a 12% annual dividend on its preferred shares and that the return would commence March 31, 1998 once funding was completed and that dividends would thereafter be paid quarterly; and

(c)

DJL Capital and Little represented in the DJL Offering Memorandum that DJL Capital ".... anticipates profits of $15,000,000.00 by the year 2002" and that this ".... anticipated growth of approximately 750% over five years should allow all shareholders to experience a significant gain". It is further stated in the DJL Offering Memorandum that DJL Capital ".... anticipates an annualized rate of return of approximately 100%".

Other Matters

Little represents to Staff that he has limited assets or funds on hand, as more particularly described in the Statutory Declaration filed herein and marked as Schedule "C" to this Settlement Agreement. Little further represents to Staff that he requires such limited assets and funds for the purpose of paying household and living expenses. Little represents to Staff that the income earned by him in 2000, 2001 and 2002, as set out in Schedule C-7 of the Statutory Declaration, relates to work he did as a consultant. Little further represents that no funds or income received in 2000, 2001 and 2002, as set out in Schedule C-7, were from the sale of securities or related to trading in securities.

Conduct Contrary to the Public Interest

DJL Capital acted contrary to the public interest by:

(a)

trading in securities which constituted a distribution without a prospectus contrary to section 53(1) of the Act;

(b)

trading in securities contrary to its registration under section 26(1) of the Act; and

making representations to investors in the Offering Memorandum and promotional material, as described above, which representations were false and misleading to investors and contrary to the public interest.

Little acted contrary to the public interest by:

(a)

trading in securities which constituted a distribution without a prospectus contrary to section 53(1) of the Act;

(b)

trading in securities contrary to his registration under section 26(1) of the Act; and

(c)

authorizing, permitting or acquiescing in the representations made by DJL Capital, and making such representations, to investors in the DJL Offering Memorandum and promotional material, as described above, which representations were false and misleading to investors and contrary to the public interest.

IV

The respondents, DJL Capital and Little, agree to the following terms of settlement:

(a)

pursuant to clause 2 of subsection 127(1) of the Act, Little will cease trading securities (which term includes, for the purpose of this settlement, a purchase of a security) permanently effective the date of the Order of the Commission approving the proposed settlement agreement herein, with the sole exception that after five years from the date of the Order approving this settlement, Little is permitted to trade securities through a registered dealer for the account of his registered retirement savings plan (as defined in the Income Tax Act (Canada));

(c)

Little undertakes never to apply for registration in any capacity under Ontario securities law, and agrees to execute the undertaking to the Commission in the form attached as Schedule "B" to this settlement agreement;

pursuant to clause 7 of subsection 127(1) of the Act, Little shall resign his position as an officer or director of any issuer which has an interest directly or indirectly in any registrant effective the date of the Order of the Commission approving this settlement. Little shall resign his position as an officer or director of any issuer in which Little holds the position of an officer or director effective 180 days after the date of the Order of the Commission approving this settlement. Little acknowledges that the effective date of resignation by him as an officer or director of an issuer, as provided for in this settlement, is for the sole purpose of permitting Little to wind up the following companies in which he holds the position as sole officer or director:

(e)

pursuant to clause 8 of subsection 127(1) of the Act, Little is prohibited permanently from becoming or acting as an officer or director of any issuer which has an interest directly or indirectly in any registrant and from becoming an officer or director of any issuer effective the date of the Order of the Commission approving this settlement. Little is prohibited permanently from acting as an officer or director of any issuer effective 180 days after the date of the Order of the Commission approving this settlement;

Little agrees to be reprimanded by the Commission under clause 6 of subsection 127(1) of the Act; and

Little will attend, in person, at the hearing before the Commission to consider the proposed settlement.

POSITION OF RESPONDENT

The respondent Little represents to Staff that the companies referred to in paragraph 35(d) are not active and do not have any assets. In response to Staff's requests for tax returns filed by Little and DJL Capital for the past three years, Little represented to Staff that such tax returns have not yet been prepared or filed. Little represents to Staff that he has limited assets or funds on hand as more particularly described in the Statutory Declaration filed herein and marked as Schedule "C" to this Settlement Agreement. Little further represents to Staff that he requires such limited funds and assets for the purpose of paying household and living expenses.

STAFF COMMITMENT

If this Settlement Agreement is approved by the Commission, Staff will not initiate any complaint to the Commission or request the Commission to hold a hearing or issue any order in respect of any conduct or alleged conduct of the respondents in relation to the facts set out in Part III of this Settlement Agreement.

VII

PROCEDURE FOR APPROVAL OF SETTLEMENT

The approval of the settlement as set out in the Settlement Agreement shall be sought at a public hearing before the Commission in accordance with the procedures described herein and such further procedures as may be agreed upon between Staff and the respondents.

If this Settlement Agreement is approved by the Commission, it will constitute the entirety of the evidence to be submitted respecting the respondents in this matter and the respondents agree to waive any right to a full hearing, judicial review or appeal of this matter under the Act.

If this Settlement Agreement is approved by the Commission, the parties to this Settlement Agreement will not make any statement that is inconsistent with this Settlement Agreement.

If, for any reason whatsoever, this settlement is not approved by the Commission, or the Order set forth in Schedule "A" is not made by the Commission:

(a)

(b)

the terms of the Settlement Agreement will not be raised in any other proceeding or disclosed to any person except with the written consent of Staff and the respondent or as may be otherwise required by law; and

the respondents agree that they will not raise in any proceeding the Settlement Agreement or the negotiation or process of approval thereof as a basis for any attack on the Commission's jurisdiction, alleged bias, appearance of bias, alleged unfairness or any other challenge that may otherwise be available.

If, prior to the approval of this Settlement Agreement by the Commission, there are new facts or issues of substantial concern, in the view of Staff, regarding the facts set out in Part III of this Settlement Agreement, Staff will be at liberty to withdraw from this Settlement Agreement. Notice of such intention will be provided to the respondents in writing. In the event of such notice being given, the provisions of paragraph 41 in this part will apply as if this Settlement Agreement had not been approved in accordance with the procedures set out herein.

Staff or the respondents may refer to any part or all of this Settlement Agreement in the course of the hearing convened to consider this agreement. Otherwise, this Settlement Agreement and its terms will be treated as confidential by all parties to the Settlement Agreement until approved by the Commission, and forever if, for any reason whatsoever, this settlement is not approved by the Commission.

Any obligation as to confidentiality shall terminate upon the approval of this Settlement Agreement by the Commission.

EXECUTION OF SETTLEMENT AGREEMENT

This Settlement Agreement may be signed in one or more counterparts which together shall constitute a binding agreement and a facsimile copy of any signature shall be as effective as an original signature.

Dennis John Little

I, Dennis John Little, of the Town of Granton, in the Province of Ontario, do solemnly declare that: