Securities Law & Instruments

Headnote

 

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – National Policy 11-206 Process for Cease to be a Reporting Issuer Applications – issuer deemed to no longer be a reporting issuer under applicable securities legislation –– issuer has more than 15 securityholders in a Canadian jurisdiction, but fewer than 51 securityholders in Canada.

 

Applicable Legislative Provisions

 

Securities Act, R.S.O. 1990, c. S.5, as am., s. 1(10)(a)(ii).

 

January 30, 2018

 

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(THE JURISDICTION)

 

AND

 

IN THE MATTER OF

THE PROCESS FOR CEASE TO BE

A REPORTING ISSUER APPLICATIONS

 

AND

 

IN THE MATTER OF

EQUITY FINANCIAL HOLDINGS INC.

(THE FILER)

 

ORDER

 

Background

 

The principal regulator in the Jurisdiction has received an application from the Filer for an order under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that the Filer has ceased to be a reporting issuer in all jurisdictions of Canada in which it is a reporting issuer (the Order Sought).

 

Under the Process for Cease to be a Reporting Issuer Applications (for a passport application):

 

(a)           the Ontario Securities Commission is the principal regulator for this application, and

 

(b)           the Filer has provided notice that sub-section 4C.5(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta, British Columbia, Saskatchewan, Mani-toba, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador.


Interpretation

 

Terms defined in National Instrument 14-101 Definitions, and MI 11-102 have the same meaning if used in this order, unless otherwise defined.

 

Representations

 

This order is based on the following facts represented by the Filer:

 

1              The Filer is a corporation governed by the Canada Business Corporations Act (the CBCA) with its registered and head office located at 100 King Street West, Suite 4610, Toronto, Ontario, M5X 1E5;

 

2              The Filer is a reporting issuer in the Provinces of Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador (the Jurisdictions) and is not an OTC reporting issuer under Multilateral Instrument 51-105 Issuers Quoted in the U.S. Over-the-Counter Markets;

 

3              The Filer is not in default of any of its obligations under the securities legislation of the Jurisdictions;

 

4              The authorized capital of the Filer consists of an unlimited number of common shares (the Shares) and as of December 21, 2017, there were 9,543,508 Shares issued and outstanding;

 

5              In addition to the Shares, the Filer has (i) 847,312 options outstanding pursuant to its amended and restated stock option plan adopted on March 4, 2014, as amended from time to time and (ii) 206,481 deferred share units outstanding pursuant to its amended and restated deferred share unit plan adopted on November 25, 2014, as amended from time to time. The deferred share units are cash settled when the participant in the deferred share unit plan ceases to be eligible to participate in the deferred share unit plan (i.e when the participant ceases to be a director, officer, employee or consultant of the Filer);

 

6              The options are not exchange traded and are held by (i) the seven Canadian directors and officers of the Filer as set out on page 31 of the Filer’s Management Proxy Circular dated November 17, 2017 (the Circular) and (ii) six other Canadian employees of the Filer;

 

7              The deferred share units are held by (i) the 13 Canadian directors and officers of the Filer as set out on page 31 of the Circular and (ii) one other senior Canadian employee of the Filer;

 

8              The Filer has no securities issued and outstanding other than as set out in paragraph 4 and 5 above;

 

9              On December 21, 2017, the Filer completed a transaction pursuant to a plan of arrangement with Smoothwater Capital Corporation (Smoothwater) pursuant to section 192 of the CBCA (the Arrangement) whereby Smoothwater acquired, at a price of $10.25 per Share, all of the issued and outstanding Shares, other than those Shares already owned or controlled by Smoothwater, its officers, and by certain other shareholders (the Continuing Shareholders) who agreed to remain as continuing shareholders;

 

10           The Arrangement amended the articles of the Filer to include (i) in Schedule B thereof, standard private company restrictions on the transfer of the shares of the Filer and (ii) in Schedule E thereof, standard private company restrictions on the transfer of all other securities of the Filer (other than non-convertible debt securities) each of which are in a form contemplated by Section 2.4 of National Instrument 45-106 – Prospectus Exemptions and consistent with a company intending to cease to be a reporting issuer.

 

11           Securityholder approval of the Arrangement was obtained by the Filer at a special meeting of shareholders held on December 18, 2017 (the Meeting), whereby (i) holders of 94.89% of the Shares represented at the Meeting voted in favour of resolutions to approve the Arrangement and (ii) holders of 87.04% of the Shares represented at the Meeting whose votes may be included in determining if minority approval is obtained pursuant to Multilateral Instrument 61-101 Protection of Minority Securityholders in Special Transactions voted in favour of resolutions to approve the Arrangement. Shareholders holding an aggregate of 7,242,107 Shares, representing 75.89% of all issued and outstanding Shares, were present, in person or by proxy, at the Meeting;

 

12           The Filer obtained a final order for the Arrangement from the Ontario Superior Court of Justice (Commercial List) on December 20, 2017;

 

13           Promptly following closing of the Arrangement, Smoothwater sold 2,781,813 of the Shares it acquired under the Arrangement to certain of the Continuing Shareholders and certain new investors (the New Investors) who have agreed to take an active role in the Filer’s business (the Subsequent Sale);

 

14           The Continuing Shareholders are set out on page 30 of the Circular and more particularly described therein. The New Investors are generally com-prised of (i) Henset Investments Inc. (Henset) a private investment company located in Toronto, Ontario and (ii) family members (including cousins and siblings) of the sole shareholder of Smooth-water;

 

15           The Shares are beneficially held (either directly, through holding companies or through registered or similar accounts) by 30 shareholders (including Smoothwater and Henset), comprised of 23 Canadian shareholders (including 14 Continuing Shareholders and 9 New Investors who are not also Continuing Shareholders) holding approxi-mately 95.8% of the Shares outstanding, and approximately 7 non-Canadian shareholders (including 6 Continuing Shareholders and 1 New Investor who is not also a Continuing Shareholder) holding approximately 4.2% of the Shares outstanding;

 

16           Prior to the Arrangement, Smoothwater owned or exercised direction or control over approximately 34.6% of the outstanding Shares of the Filer and following the Arrangement and the Subsequent Sale Smoothwater owned or exercised direction or control over approximately 62.1% of the outstanding Shares of the Filer. Similarly, prior to the Arrangement, Henset did not own or exercise direction or control over any Shares of the Filer, and following the Arrangement and the Subsequent Sale, Henset owned or exercised direction or control over approximately 16.7% of the outstanding Shares of the Filer;

 

17           The Shares were delisted from trading on the Toronto Stock Exchange (TSX) effective at the close of trading on December 22, 2017. Consequently, no securities of the Filer, including debt securities, are traded in Canada or another country on a marketplace as defined in National Instrument 21-101 Marketplace Operation or any other facility for bringing together buyers and sellers of securities where trading data is publicly reported, and the Filer does not intend to have any of its securities listed, traded or quoted on such marketplace in Canada or any other jurisdiction;

 

18           The management information circular of the Filer dated November 27, 2017, as supplemented, provided to shareholders of the Filer in connection with the Meeting included disclosure that the Filer “will apply to cease to be a reporting issuer in all the provinces and territories of Canada in which it is a reporting issuer following the completion of the Arrangement”;

 

19           The Filer issued a news release on December 21, 2017 advising shareholders that the Filer has applied to have the Shares delisted from the TSX and that the Filer has also applied under applicable Canadian securities laws to cease to be a reporting issuer;

 

20           The Filer has no intention of distributing any securities to the public in Canada;

 

21           The Filer is not eligible to use the simplified procedure in National Instrument 11-206 – Process for Cease to be a Reporting Issuer Applications, as it has more than 15 security holders in a jurisdiction of Canada (but fewer than 51 securityholders in total worldwide); and

 

22           The Filer will not be a reporting issuer or the equivalent in any jurisdiction immediately following the granting of the Order Sought.

 

Order

 

The principal regulator is satisfied that the order meets the test set out in the Legislation for the principal regulator to make the order.

 

The decision of the principal regulator under the Legislation is that the Order Sought is granted.

 

“Deborah Leckman”

Ontario Securities Commission

 

“Robert Hutchison”

Ontario Securities Commission