Settlement Agreement: In the Matter of Khaldoun Kader
IN THE MATTER OF THE SECURITIES ACT,
R.S.O. 1990, c.S.5, AS AMENDED
- AND -
IN THE MATTER OF KHALDOUN KADER
SETTLEMENT AGREEMENT
1. By Notice of Hearing dated May 9, 2006 (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 and 127.1 of the Securities Act, R.S.O. 1990, c. S.5, as amended (the “Act”), it is in the public interest to approve the settlement agreement entered into by Staff of the Commission and the Respondent.
II. JOINT SETTLEMENT RECOMMENDATION2. Staff recommend settlement of the proceeding initiated in respect of the Respondent, Khaldoun Kader (“Kader”), in accordance with the terms and conditions set out below. Kader agrees to the settlement on the basis of the facts agreed to as provided in Part III and consents to the making of an Order in the form attached as Schedule “A” on the basis of the facts set out below.
III. FACTS Acknowledgement3. Solely for the purposes of this agreement and as a basis for the undertakings contained herein, Staff and Kader agree with the facts and conclusions set out in Part III of this Settlement Agreement.
Introduction4. Kader is 33 years old and is a resident of the City of Mississauga. He was granted a license as a Certified Public Accountant in 1996 from the California Board of Accountancy and has been employed in several accounting positions, both in Canada and abroad, from 1996 to the present.
5. During October and November of 2004 (the “Material Time”), Kader was employed as a Director of Finance and Treasury at IMAX Corporation (“IMAX”). Kader joined IMAX in 2001 on contract as a finance consultant and, in late 2001, was hired as a full time employee.
6. Kader’s primary responsibilities as Director of Finance and Treasury at the Material Time were to manage banking relationships including lines of credit, cash flows within IMAX and accounts receivable.
7. Kader did not participate in the preparation of quarterly financial statements during the Material Time, with the exception that he prepared the line item for bad debt expense.
8. Kader’s mother is Ms. Ghadeh Al-Jabi (“Al-Jabi”). Kader financially supports Al-Jabi.
9. IMAX is a reporting issuer in Ontario. IMAX’s common shares are listed on both the Toronto Stock Market (the “TSX”), under the symbol “IMX,” and the NASDAQ exchange, under the symbol “IMAX.”
10. Kader is not and has never been an officer or director of IMAX or any other reporting issuer.
Conduct Contrary to Ontario Securities Law and the Public Interest(a) Background Facts: 2004 Third Quarter Results
11. IMAX’s fiscal year ends December 31. Accordingly, the third quarter of 2004 ended September 30, 2004.
12. On October 28, 2004, IMAX reported its third quarter 2004 financial results. IMAX reported net earnings from continued operations of USD $0.04 per diluted share, substantially ahead of management guidance for a breakeven quarter and the First Call mean of USD $0.01. IMAX also reported significant gains in revenue as compared with the third quarter of 2003.
13. Prior to the release of the third quarter results, shares in IMAX closed on the NASDAQ Exchange October 27, 2004 at USD $5.52. Following the earnings announcement on October 28, 2005, shares in IMAX opened at USD $6.01 and rose to a high of USD $6.56 before closing at USD $6.43.
(b) Particulars of Insider Trading14. Analysts’ expectations for IMAX were that it would report earnings per share of USD $0.01 for the third quarter of 2004 and management guidance was for a breakeven quarter.
15. Prior to October 18, 2004, Kader learned, in his capacity as Director of Finance and Treasury, that the earnings per share were going to be materially higher than management guidance and analysts’ expectations.
16. On October 15, 2004, Al-Jabi opened a US dollar TD Waterhouse online internet access brokerage account in her own name (the “TD Waterhouse Account”). Money to open and fund the TD Waterhouse Account came from Kader’s pre-existing TD Canada Trust bank account.
17. From October 18, 2004 to October 27, 2004, Kader directed seven (7) block purchases of IMAX shares over the NASDAQ exchange through Al-Jabi’s TD Waterhouse Account, as follows:
|
Date
|
Purchases of IMAX
|
Net Costs - USD
|
|
October 18, 2004
|
Bought 18,200
|
$ 98,966.84
|
|
October 19, 2004
|
Bought 15,800
|
$ 85,936.00
|
|
October 20, 2004
|
Bought 14,000
|
$ 73,787.00
|
|
October 21, 2004
|
Bought 12,000
|
$ 65,103.00
|
|
October 25, 2004
|
Bought 30,000
|
$ 170,895.96
|
|
October 26, 2004
|
Bought 12,000
|
$ 68,270.00
|
|
October 27, 2004
|
Bought 8,000
|
$ 44,569.16
|
|
$ 607,527.96
|
18. In total, the TD Waterhouse Account accumulated 110,000 shares at a cost of USD $607,527.96 US, exclusive of commissions. The purchases were made at values ranging from a low of USD $5.19 to a high of USD $5.73. The average purchase price over the seven (7) days of trading was USD $5.52 per share. These purchases were all made by Kader over the internet through the TD web-broker system.
19. Kader financed the purchases of IMAX shares through lines of credit.
20. On October 28, 2004, prior to the opening of trading, IMAX announced its third quarter financial results for 2004.
21. Between October 28, 2004 and November 1, 2004, Kader sold all 110,000 shares of IMAX from the TD Waterhouse Account for total proceeds, exclusive of commissions, of USD $698,246.01, as follows:
|
Date
|
Sales of
IMAX |
Net Proceeds -
USD |
|
October 28, 2004
|
Sold 80,000
|
$ 502,028.65
|
|
October 29, 2004
|
Sold 10,000
|
$ 64,259.48
|
|
November 1, 2004
|
Sold 20,000
|
$ 131,957.88
|
|
$ 698,246.01
|
22. The profit, exclusive of commissions, from the above trading was USD $90,718.05.
23. During the relevant time, no other shares were traded in the TD Waterhouse Account.
24. Kader admits and acknowledges that, at the time of his purchases of IMAX shares, he was a “person in a special relationship” with IMAX (as that term is defined in subsection 76(5) of the Act). Kader admits and acknowledges that the material increase in earnings per share for the third quarter of 2004 was a material fact that had not been disclosed when he purchased shares of IMAX. As such, the trading constituted a contravention of subsection 76(1) of the Act, and was contrary to the public interest.
(c) Kader's Misleading Statements to Staff25. In or about April, 2005, Kader advised Staff that he was not aware of the TD Waterhouse Account or the trading.
26. On May 16, 2005, Staff conducted a voluntary interview with Kader during which he maintained that he was not aware of the TD Waterhouse Account and was not responsible for the trading in it. He also stated that, at the time of the trading, he was not privy to any undisclosed material facts. He corrected some of these statements during the course of the interview.
27. Kader admits and acknowledges that the statements made to Staff as set out in paragraphs 25 and 26 above, were material to the issue of insider trading and were made by him at a time and in circumstances in which he knew they were untrue. As such, the making of these statements constituted a breach of subsection 122(1)(a) of the Act and conduct contrary to the public interest.
Respondent's Position28. Kader understands that insider trading is a very serious matter. He also understands that making misleading statements to Staff is a very serious matter. He is remorseful for his conduct.
29. Kader has never been the subject of any prior allegations of violations of Ontario securities law.
IV. TERMS OF SETTLEMENT30. Kader agrees to the following terms of Settlement:
(a) Pursuant to clause 2 of subsection 127(1) of the Act, Kader shall cease trading securities for a period of ten (10) years effective from the date of the Order of the Commission approving the proposed settlement agreement herein with the exception that Kader shall be permitted to trade in securities limited to mutual funds in registered retirement savings plans in which he has sole beneficial interest;
(b) Pursuant to clause 3 of subsection 127(1) of the Act, and subject to (a) above, any exemptions contained in Ontario securities law shall not apply to Kader for a period of ten (10) years effective from the date of the Order of the Commission approving the proposed settlement agreement herein;
(c) Pursuant to clause 6 of subsection 127(1) of the Act, Kader shall be reprimanded;
(e) Pursuant to clause 8 of subsection 127(1) of the Act, Kader shall be prohibited from becoming or acting as a director or officer of a reporting issuer for a period of ten (10) years effective the date of the Order of the Commission approving the proposed settlement agreement herein;
V. STAFF COMMITMENT(f) Pursuant to s. 127.1 of the Act, Kader shall pay the sum of $5,000in respect of the costs of the investigation and of the hearing;
(g) Kader shall make a settlement payment of USD $136,077 to the Commission for allocation to or for the benefit of third parties under section 3.4(2) of the Act; and
(h) Kader shall attend in person at the hearing before the Commission to consider the proposed settlement.
31. If this Settlement Agreement is approved by the Commission, Staff will not initiate any other proceeding under the Act against Kader respecting the facts set out in Part III of this Settlement Agreement, subject to the provisions of paragraph 32 below.
32. If this Settlement Agreement is approved by the Commission, and at any subsequent time Kader fails to honour any of the Terms of Settlement set out in Part IV herein, Staff reserve the right to bring proceedings under Ontario securities law against the Respondent based on the facts set out in Part III of this Settlement Agreement, as well as the breach of this Settlement Agreement.
VI. PROCEDURE FOR APPROVAL OF SETTLEMENT33. Approval of this Settlement Agreement shall be sought at a public hearing of the Commission (the “Settlement Hearing”) scheduled for such date as is agreed to by Staff and Kader.
34. Counsel for Staff and counsel for Kader may refer to any part or all of this Settlement Agreement at the Settlement Hearing. Staff and Kader agree that this Settlement Agreement will constitute the entirety of the evidence to be submitted at the Settlement Hearing.
35. If this Settlement Agreement is approved by the Commission, Kader agrees to waive his rights under the Act to a full hearing, judicial review or appeal of the matter.
36. Whether or not the Settlement Agreement is approved by the Commission, Kader agrees that he will not, in any proceeding, refer to or rely on this Settlement Agreement, the settlement discussions/negotiations, or the process of approval of this Settlement Agreement as the basis of any attack on the Commission’s jurisdiction, alleged bias or appearance of bias, alleged unfairness or any other remedies or challenges that may otherwise be available.
37. If, for any reason whatsoever, this Settlement Agreement is not approved by the Commission or an Order in the form attached as Schedule “A” is not made by the Commission:
(a) this Settlement Agreement and its terms, including all discussions and negotiations between Staff and Kader leading up to its presentation at the Settlement Hearing, shall be without prejudice to Staff and Kader; and
(b) except as set out in paragraph 36 above, Staff and Kader shall be entitled to all available proceedings, remedies and challenges, including proceeding to a hearing of the allegations in the Notice of Hearing and Statement of Allegations of Staff, unaffected by this Settlement Agreement or the settlement discussions/negotiations.
VII. DISCLOSURE OF AGREEMENT
38. Except as required above, this Settlement Agreement and its terms will be treated as confidential by Staff and Kader until approved by the Commission, and forever if, for any reason whatsoever, this Settlement Agreement is not approved by the Commission, except with the written consent of Staff and Kader, or as may be required by law.
39. Any obligations of confidentiality attaching to this Settlement Agreement shall terminate upon approval of this settlement by the Commission.
40. Staff and Kader agree that if this Settlement Agreement is approved by the Commission, they will not make any public statement inconsistent with this Settlement Agreement.
VIII. EXECUTION OF SETTLEMENT AGREEMENT41. This Settlement Agreement may be signed in one or more counterparts which together shall constitute a binding agreement.
42. A facsimile copy of any signature shall be as effective as an original signature.
DATED AT TORONTO this 28th April, 2006
| " Khaldoun Kader " Khaldoun Kader |
" Michael Watson " Michael Watson Director, Enforcement Branch |
| " Alexander Cobb" Witness |
|