National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief from the formal take-over bid and issuer bid requirements of National Instrument 62-104 Take-Over Bids and Issuer Bids and the requirements related to insider bids and issuer bids in Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions in connection with acquisitions of shares of the filer from parties to the filer's unanimous shareholder agreement -- the filer is not a reporting issuer and there is no published market for the filer's shares -- if certain shareholders were treated as employees, the number of holders of each class of shares, exclusive of employees, would be fewer than 50 and the non-reporting issuer exemptions from the take-over bid and issuer bid requirements would be available -- such shareholders devote a substantial amount of time to the business of the filer and are akin to employees -- requested relief granted, subject to conditions consistent with the premise of the non-reporting issuer exemptions.
Applicable Legislative Provisions
National Instrument 62-104 Take-Over Bids and Issuer Bids, Part 2, s. 6.1.
Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, Parts 2-3, s. 9.1.
May 20, 2016
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF DENTAL CORPORATION OF CANADA HOLDINGS INC. (the Filer)
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation) that the take-over bid and issuer bid requirements set out in Part 2 of National Instrument 62-104 Take-Over Bids and Issuer Bids (NI 62-104) and the requirements related to insider bids and issuer bids set out in Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions do not apply to acquisitions (the Subject Transfers) of Class A common shares of the Filer (the Class A Shares) and Class C preferred shares of the Filer (the Class C Shares and collectively with the Class A Shares, the Shares) from parties to the Filer's unanimous shareholder agreement (the Shareholder Agreement, and such decision, the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application, and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in all provinces and territories of Canada other than Ontario.
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation amalgamated under the Business Corporations Act (Ontario) on July 22, 2014.
2. The registered office of the Filer is located at 21 St. Clair Avenue East, Suite 1420, Toronto, Ontario M4T 1L9.
3. The Filer is not, and has never been, a reporting issuer, or its equivalent, in any of the provinces or territories of Canada. The Filer is not in breach of any requirement of applicable securities laws.
4. The Filer's authorized share capital consists of an unlimited number of Class A Shares, an unlimited number of Class B common shares (Class B Shares) and an unlimited number of Class C Shares, of which 26,396,762 Class A Shares, 43,642,910 Class B Shares and 69,310,924 Class C Shares are issued and outstanding as of the date of this decision.
5. Class A Shares are primarily held by members of the Filer's management, employees and Dental Principals (as defined below). Class B Shares are held by the Filer's institutional investors. All of the holders of Class A Shares and Class B Shares hold Class C Shares as the terms of the Shareholder Agreement require that, subject to certain limited exceptions, any shareholder who acquires Class A Shares or Class B Shares is required to subscribe for a corresponding number of Class C Shares. The Shareholder Agreement requires that any shareholder who transfers a Class A Share or Class B Share is required, except in certain limited circumstances, to transfer an equivalent number of Class C Shares to the transferee.
6. Each Class A Share and Class B Share is entitled to one vote in respect of all matters voted on by the shareholders, except the election and removal of the directors of the Filer. Except under certain limited circumstances where the Class B Shares carry a liquidation preference, the Class A Shares and Class B Shares are provided with pro-rata participation rights in connection with a liquidation, dissolution or winding up of the Filer. The Class C Shares have a nominal liquidation preference, but otherwise do not have any economic rights and each Class C Share is entitled to one vote in respect of the election and removal of the directors of the Filer.
7. There are an aggregate of 97 holders of Class A Shares and an aggregate of 97 holders of Class C Shares as of the date of this decision.
8. Shares are typically issued to an individual dentist or their applicable holding entity (as defined in National Instrument 45-106 Prospectus Exemptions) (a Dental Principal) in connection with the Dental Principal's sale of an existing dental business and the acquisition by the Filer's affiliate of the institutional healthcare portion of that dental business (a Dental Healthcare Endeavour). For greater certainty, the Filer does not acquire the portion of the existing dental business that relates to the professional practice of dentistry (the Professional Dental Endeavour) which is at all times owned by registered dentists and operated independently and with full autonomy and control, free from any influence or interference whatsoever by the Filer or its affiliates.
9. At each Dental Healthcare Endeavour:
(a) the Filer or its affiliates provides:
(i) support for the business, management, human resources and administrative aspects of the business operation; and
(ii) institutional and non-regulated healthcare services that are typically provided at or in conjunction with the Professional Dental Endeavour (which, for greater certainty, are not professional dentistry services) (the Healthcare Services),
(collectively, the Business).
(b) the Dental Principal undertakes, on behalf of the Filer or its affiliates, the delivery or supervision of Healthcare Services.
10. Currently, the Filer, through its affiliates, conducts the Business at Dental Healthcare Endeavours in Newfoundland and Labrador, Nova Scotia, Québec, Ontario, Manitoba, Alberta, British Columbia and the Yukon.
11. The relationship between each Dental Principal and the Filer in respect of a Dental Healthcare Endeavour is governed by the terms of a professional services agreement that is entered into between, inter alia, the Dental Principal and an affiliate of the Filer (a Professional Services Agreement).
12. Pursuant to the terms of the Professional Services Agreement:
(a) the Dental Principal:
(i) provides, or in the case of a delegated service, supervises, the provision of Healthcare Services, with a view to enhancing and improving the relationship between the Dental Healthcare Endeavour and its clients;
(ii) supports the interests of the Filer and its affiliates in the operation of the Business; and
(iii) ensures that the Dental Healthcare Endeavour operates in accordance with work place policies, practices and guidelines established by the Filer.
13. The Dental Principals devote a substantial amount of their time to the Business and the applicable Dental Healthcare Endeavour.
14. Pursuant to the terms of the Professional Services Agreement, the Dental Principal is allocated a percentage of the revenue derived from the Dental Healthcare Endeavour.
15. Due to certain legal requirements in respect of the professional practice of dentistry in Canada, the Dental Principals are not employees of the Filer and operate as independent contractors.
16. As of the date of this decision, the Filer has entered into a Professional Services Agreement with and issued Shares to an aggregate of 83 Dental Principals.
17. As a condition to acquiring any Shares, each Dental Principal is required to become a party to and agree to be subject to the terms and conditions of the Shareholder Agreement. The Shareholder Agreement provides each Dental Principal with the right to request that the Filer or certain other shareholders acquire their Shares. The Shareholder Agreement also includes certain rights in respect of the sale of the Business, including customary piggy-back and drag-along rights that restrict and govern the transfer of Shares. The terms and conditions of the Shareholder Agreement do not, in any way, govern the operation of the Business or any Dental Healthcare Endeavour.
18. Each Dental Principal:
(a) is provided with the Filer's annual financial statements and an annual report;
(b) has the right, under their Professional Services Agreement, to access the books and records of the applicable Dental Healthcare Endeavour; and
(c) is invited to attend an annual meeting of Dental Principals during which the Filer provides detailed information regarding the Business and the Filer's financial and operating results.
(collectively, the Information and Access Rights).
19. Sections 4.3 and 4.9 of NI 62-104 provide exemptions (the Exemptions) from the take-over bid requirements and the issuer bid requirements, respectively, of Part 2 of NI 62-104 if:
(a) the offeree issuer is not a reporting issuer;
(b) there is no published market for the securities that are the subject of the bid; and
(c) the number of security holders of that class of securities at the commencement of the bid is not more than 50, exclusive of holders who (i) are in the employment of the offeree issuer or an affiliate of the offeree issuer, or (ii) were formerly in the employment of the offeree issuer or in the employment of an entity that was an affiliate of the offeree issuer at the time of that employment, and who while in that employment were, and have continued after that employment to be, security holders of the offeree issuer.
20. As the Filer has more than 50 holders of each class of Shares (including 83 Dental Principals) that are not current or former employees of the Filer or an affiliate thereof, the Exemptions are not available in respect of the Subject Transfers.
21. Given that (a) the Filer is not a reporting issuer, or its equivalent, in any of the provinces or territories of Canada, and (b) there is no published market in respect of the Shares, if the Dental Principals were treated in the same manner as employees, the number of holders of each class of Shares, exclusive of current and former employees, would be fewer than 50, and the Subject Transfers would be exempt from the take-over bid and issuer bid requirements of Part 2 of NI 62-104.
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that, at the time of each Subject Transfer:
(a) the Filer is not a reporting issuer;
(b) there is no published market for the applicable class of Shares;
(c) the Information and Access Rights have been and are being fulfilled by the Filer; and
(d) the number of holders of the applicable class of Shares is not more than 50, exclusive of holders who:
(i) are in the employment of the Filer or an affiliate of the Filer or are Dental Principals;
(ii) were formerly in the employment of the Filer or in the employment of an entity that was an affiliate of the Filer at the time of that employment, and who while in that employment were, and have continued after that employment to be, security holders of the Filer; or
(iii) were formerly Dental Principals and have continued to be security holders of the Filer.
Dated at Toronto this 20th day of May, 2016.