Vital Retirement Living Inc. - cl. 104(2)(c)

Headnote

Clause 102(4)(c) -- application for order exempting issuer from the issuer bid requirements of Part XX of the Act in connection with the proposed acquisition for cancellation of shares of the issuer -- acquisition and cancellation of the shares is partial consideration for the transfer of assets -- completion of the transaction is critical to the business survival of the issuer and will alleviate financial hardship of the issuer -- issuer is subject to cease trade order and has filed concurrent application for partial revocation of cease trade order -- completion of the transaction will provide the issuer the resources to complete its audited and interim financial statements and to apply for full revocation of the cease trade order.

Ontario Statutes Cited

Securities Act, R.S.O. 1990, c. S.5, as amended, ss. 95, 96, 97, 98, 100 and 104(2)(c).

Ontario Rules Cited

Rule 61-501 --Insider Bids, Issuer Bids, Business Combinations and Related Party Transactions.

IN THE MATTER OF

THE SECURITIES ACT

R.S.O. 1990, c. S.5, AS AMENDED (the "ACT")

AND

IN THE MATTER OF

VITAL RETIREMENT LIVING INC.

ORDER

(Clause 104(2)(c))

WHEREAS Vital Retirement Living Inc. (the "Applicant") has made an application to the Ontario Securities Commission (the "Commission") for an order pursuant to clause 104(2)(c) of the Act exempting the Applicant from the requirements set forth in sections 95, 96, 97, 98 and 100 of the Act and the regulations made thereunder (the "Issuer Bid Requirements") in connection with a proposed transaction by which the Applicant will dispose of its interest in two retirement properties to Mel Dancy ("Dancy"), a related party of the Applicant, in exchange for, among other consideration, the common shares of the Applicant owned or controlled by Dancy;

AND WHEREAS the Commission has considered the application and the recommendation of the staff of the Commission;

AND WHEREAS the Applicant has represented to the Commission that:

1. The Applicant was incorporated on March 4, 1998 under the Business Corporations Act (Alberta).

2. The common shares of the Applicant (the "Shares") began trading on the Alberta Stock Exchange on October 6, 1998. As a result of the consolidation of Canadian junior stock exchanges, the Shares were listed on the TSX Venture Exchange until May 23, 2003.

3. The Applicant's principal business since its inception has been the development and management of retirement home facilities. The Applicant's most significant asset is a 100 bed retirement home, known as Brookside Manor (the "Brookside Property"). The Applicant also owns: (i) two smaller retirement homes, Tudhope Manor and Lafontaine Terrance (the "Homes"); (ii) a 33% interest in a retirement home management company based in Seattle, Washington, that operates over 30 retirement facilities; and (iii) more than $5,000,000 in loss carry-forwards from its operations.

4. Beginning in early 2000, the Applicant experienced a number of business reversals that contributed to the deterioration of its financial condition. By early 2003, the Applicant was unable to complete its audit for the year ended December 31, 2002 as a result of uncertainty as to the carrying value of the Homes and a lack of liquid financial resources to complete the audit. A cease trade order (the "Cease Trade Order") was issued against the Applicant by the Commission on May 23, 2003 as a result of the Applicant's failure to file financial statements for the year ended December 31, 2002.

5. Since the date of the Cease Trade Order, the Board of Directors of the Applicant (the "Board") has been working to reduce operating costs and rationalize its assets in an attempt to preserve shareholder value.

6. As part of its efforts to improve its financial position, the Applicant is pursuing two proposed transactions. The Applicant anticipates that completion of the first transaction, which involves the Brookside Property, will immediately improve its financial condition by stopping the monthly cash drain on its resources and will result in monthly payments to the Applicant commencing 9-12 months after closing.

7. The second transaction is the proposed sale by the Applicant of the Homes to Dancy (the "Transaction"). Under the Transaction, the Applicant will sell the Homes to an entity controlled by Dancy. At closing, Dancy will: (1) pay to the Applicant $67,000 in cash; (2) pay out mortgage debt on the Homes in the amount of approximately $2,237,000; and (3) deliver approximately 7,257,000 Shares back to the Applicant for cancellation (the "Share Repurchase").

8. The Share Repurchase will constitute an "issuer bid" under subsection 89(1) of the Act. There is no exemption available under the Act from the Issuer Bid Requirements and, as such, the Transaction cannot be completed without an order from the Commission exempting the Applicant from the Issuer Bid Requirements.

9. The Share Repurchase will also be contrary to the Cease Trade Order. In connection with this application, the Applicant has also applied for a partial revocation of the Cease Trade Order in order that Transaction may take place.

10. The Transaction constitutes a "related party transaction" under Commission Rule 61-501 ("Rule 61-501"). The Board, the members of which are each independent pursuant to section 7.1 of Rule 61-501, has determined that the Applicant is entitled to rely on the valuation exemption in subsection 5.5(8) and the minority approval exemption in subsection 5.7(1)(6) of Rule 61-501 on the basis that the Applicant is in serious financial difficulty, the Transaction is designed to improve the financial position of the Applicant and the terms of the Transaction are reasonable in the circumstances.

11. The Board has unanimously concluded that the Transaction represents the best available option for the Applicant to maximizing shareholder value for the public shareholders. The Homes have been listed for sale for an extended period of time without any other satisfactory offers being received.

12. In addition to providing cash resources adequate to operate the business of the Applicant until such time as the Applicant can obtain income from its other assets, the Transaction will remove the uncertainty associated with the carrying value of the Homes on the balance sheet of the Applicant.

13. The Applicant will reserve a portion of the cash proceeds of the Transaction sufficient to complete, file and deliver the financial statements and continuous disclosure documents that are in arrears. Once the Applicant had filed all documents which are in arrears, it will apply to the Commission for a full revocation of the Cease Trade Order.

14. Dancy, a co-founder and former director of the Applicant until July 30, 2004, has possession of sufficient information to make an informed decision about the Transaction. There is no inequality of information between the Applicant and Dancy with respect to the Transaction.

15. Given that the Transaction involves the purchase of the Homes and the assumption of mortgage debt on the Homes, there is no reasonable means to allow public shareholders of the Applicant to participate in the Share Repurchase.

AND WHEREAS the Commission is satisfied that to do so would not be prejudicial to the public interest;

IT IS ORDERED, pursuant to clause 104(2)(c) of the Act, that the Applicant is exempt from the Issuer Bid Requirements in connection with the Share Repurchase.

October 8, 2004.