June 27, 2018
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 MAV BEAUTY BRANDS INC. (the Filer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that:
a) Section 12.2 of National Instrument 41-101 General Prospectus Requirements (NI 41-101), relating to the use of restricted security terms, and sections 1.13 and 10.6 of Form 41-101F1 Information Required in a Prospectus (Form 41-101F1) and sections 1.12 and 7.7 of Form 44-101F1 Short Form Prospectus (Form 44-101F1) relating to restricted security disclosure shall not apply to the common shares in the capital of the Filer (the Common Shares) (the Prospectus Disclosure Exemption) in connection with: (i) a final long-form prospectus in connection with the Filer’s initial public offering (the Prospectus); and (ii) other prospectuses (Other Prospectuses) that may be filed by the Filer under NI 41-101 or National Instrument 44-101 Short Form Prospectus Distributions (NI 44-101), including a prospectus filed under National Instrument 44-102 Shelf Distributions;
b) Section 12.3 of NI 41-101 relating to prospectus filing eligibility for distributions of restricted securities shall not apply to distributions of Common Shares (the Prospectus Eligibility Exemption) in connection with Other Prospectuses;
c) Part 10 of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) relating to the use of restricted security terms and restricted security disclosure shall not apply to the Common Shares (the CD Disclosure Exemption) in connection with continuous disclosure documents (the CD Documents) that may be filed by the Filer under NI 51-102;
d) Part 2 of OSC Rule 56-501 Restricted Shares (OSC Rule 56-501) relating to the use of restricted share terms and restricted share disclosure shall not apply to the Common Shares (the OSC Rule 56-501 Disclosure Exemption) in connection with dealer and adviser documentation, rights offering circulars and offering memoranda (OSC Rule 56-501 Documents) of the Filer; and
e) Part 3 of OSC Rule 56-501 relating to the withdrawal of prospectus exemptions for distributions of restricted shares shall not apply to the distribution of the Common Shares (the OSC Rule 56-501 Withdrawal Exemption) in connection with stock distributions (as defined in OSC Rule 56-501) of the Filer.
The Prospectus Disclosure Exemption, the Prospectus Eligibility Exemption, the CD Disclosure Exemption, the OSC Rule 56-501 Disclosure Exemption and the OSC Rule 56-501 Withdrawal Exemption are collectively referred to as 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 subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland, the Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Quebec, Saskatchewan and the Yukon Territory (other than with respect to the OSC Rule 56-501 Disclosure Exemption and the OSC Rule 56-501 Withdrawal Exemption), which, pursuant to subsection 8.2(2) of National Policy 11-202 Process for Prospectus Reviews in Multiple Jurisdictions (NP 11-202) and subsection 5.2(6) of National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions (NP 11-203), also satisfies the notice requirement of Section 4.7(1)(c) of MI 11-102.
Interpretation
Terms defined in National Instrument 14-101 Definitions, MI 11-102, NP 11-202, NP 11-203, NI 41-101, NI 44-101, NI 51-102 and OSC Rule 56-501 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
The Filer is a corporation incorporated under the Business Corporations Act (British Columbia) and is not a reporting issuer in any province or territory of Canada.
The registered office of the Filer is located at 666 Burrard Street, Suite 1700, Vancouver, BC V6C 2X8 and its head office is located in Concord, Ontario.
The Filer filed a preliminary long form prospectus dated May 22, 2018 with the securities regulatory authorities in each of the provinces and territories in Canada in connection with its initial public offering (IPO). Upon completion of the IPO, the Common Shares will be listed on the Toronto Stock Exchange (TSX).
The Filer’s authorized share capital consists of an unlimited number of Common Shares, an unlimited number of proportionate voting shares (PV Shares) (together with the Common Shares, the Shares) and an unlimited number of preferred shares, issuable in series. Upon completion of the IPO, the Filer’s only issued and outstanding subject securities (as defined in NI 41-101, NI 51-102, and OSC Rule 56-501) will be the PV Shares.
The Common Shares may at any time, at the option of the holder thereof, be converted into PV Shares on the basis of one thousand (1,000) Common Shares for one PV Share.
The PV Shares may at any time, at the option of the holder thereof, be converted into Common Shares on the basis of one thousand (1,000) Common Shares for one PV Share.
Each PV Share is entitled to dividends if, as and when dividends are declared by the board of directors, on the following basis, and otherwise without preference or distinction among or between the Shares: each PV Share will be entitled to one thousand (1,000) times the amount paid or distributed per Common Share.
In the event of the liquidation, dissolution or winding-up of the Filer, the holders of Shares are entitled to participate in the distribution of the remaining property and assets of the Filer on the following basis, and otherwise without preference or distinction among or between the Shares: each PV Share will be entitled to one thousand (1,000) times the amount distributed per Common Share.
The holders of the Common Shares and PV Shares are entitled to receive notice of, attend and vote at any meeting of shareholders of the Filer, except those meetings at which holders of a specific class of shares are entitled to vote separately as a class under the BCBCA.
The Common Shares carry one vote per share for all matters coming before the shareholders of the Filer and the PV Shares carry one thousand (1,000) votes per share for all matters coming before shareholders of the Filer.
The rights, privileges, conditions and restrictions attaching to the Shares may be modified if the amendment is authorized by not less than 662⁄3% of the votes cast at a meeting of holders of the Shares duly held for that purpose. However, if the holders of PV Shares, as a class, or the holders of Common Shares, as a class, are to be affected in a manner materially different from such other class of Shares, the amendment must, in addition, be authorized by not less than 662⁄3% of the votes cast at a meeting of the holders of the class of shares which is affected differently.
No subdivision or consolidation of the Common Shares or PV Shares may be carried out unless, at the same time, the Common Shares or PV Shares, as the case may be, are subdivided or consolidated in the same manner and on the same basis, so as to preserve the relative rights of the holders of each class of Shares.
In addition to the conversion rights described above, if an offer (the Offer) is being made for PV Shares where: (a) by reason of applicable securities legislation or stock exchange requirements, the offer must be made to all holders of the class of PV Shares; and (b) no equivalent offer is made for the Common Shares, the holders of Common Shares have the right, at their option, to convert their Common Shares into PV Shares for the purpose of allowing the holders of the Common Shares to tender to that offer.
In the event that holders of Common Shares are entitled to convert their Common Shares into PV Shares in connection with an Offer, holders of an aggregate of Common Shares of less than 1,000 (an Odd Lot) will be entitled to convert all but not less than all of such Odd Lot of Common Shares into a fraction of one PV Share, at a conversion ratio equivalent to 1,000 to 1, provided that such conversion into a fractional PV Share will be solely for the purpose of tendering the fractional PV Share to the offer in question and that any fraction of a PV Share that is tendered to the Offer but that is not, for any reason, taken up and paid for by the offeror will automatically be reconverted into the Common Shares that existed prior to such conversion.
The Filer has received relief from the TSX for a decision that the Common Shares are exempt from Section 624 – Restricted Securities of the TSX Company Manual and confirmation that it may refer to its Common Shares as common shares (the TSX Relief).
The Filer is seeking the Exemption Sought in respect of, among other things, references to the Common Shares in the Prospectus, Other Prospectuses and CD Documents.
Section 12.2 of NI 41-101 requires that an issuer must not refer to a security in a prospectus by a term or a defined term that includes the word “common” unless the security is an equity security to which are attached voting rights exercisable in all circumstances, irrespective of the number or percentage of securities owned, that are not less, per security, than the voting rights attached to any other outstanding security of the issuer.
Section 12.3 of NI 41-101 requires that an issuer must not file a prospectus under which restricted securities, subject securities or securities that are, directly or indirectly, convertible into, or exercisable or exchangeable for, restricted securities or subject securities, are distributed unless:
a. the distribution has received prior majority approval of the securityholders of the issuer in accordance with applicable law, including approval on a class basis if required and excluding any votes attaching at the time to securities held, directly or indirectly, by affiliates of the issuer or control persons of the issuer, or
b. at the time of any restricted security reorganization related to the securities to be distributed:
i. the restricted security reorganization received prior majority approval of the securityholders of the issuer in accordance with applicable law, including approval on a class basis if required and excluding any votes attaching at the time to securities held, directly or indirectly, by affiliates of the issuer or control persons of the issuer,
ii. the issuer was a reporting issuer in at least one jurisdiction, and
iii. no purposes or business reasons for the creation of restricted securities were disclosed that are inconsistent with the purpose of the distribution.
- Pursuant to NI 51-102, a “restricted security” means an equity security of a reporting issuer if any of the following apply:
a. there is another class of securities of the reporting issuer that, to a reasonable person, appears to carry a greater number of votes per security relative to the equity security,
b. the conditions of the class of equity securities, the conditions attached to another class of securities of the reporting issuer, or the reporting issuer’s constating documents have provisions that nullify or, to a reasonable person appear to significantly restrict the voting rights of the equity securities or
c. the reporting issuer has issued another class of equity securities that, to a reasonable person, appears to entitle the owners of securities of that other class to participate in the earnings or assets of the reporting issuer to a greater extent, on a per security basis, than the owners of the first class of equity securities.
Section 10.1 of NI 51-102 requires a reporting issuer that has outstanding restricted securities, or securities that are directly or indirectly convertible into or exercisable or exchangeable for restricted securities or securities that will, when issued, result in an existing class of outstanding securities being considered restricted securities, to provide specific disclosure with respect to such securities in its information circular, a document required by NI 51-102 to be delivered upon request by a reporting issuer to any of its securityholders, an annual information form prepared by the reporting issuer as well as any other documents that it sends to its securityholders.
Section 2.2 of OSC Rule 56-501 requires dealer and adviser documentation to include the appropriate restricted share term if restricted shares and the appropriate restricted share term or a code reference to restricted shares or the appropriate restricted share term are included in a trading record published by the Toronto Stock Exchange or other exchange listed in OSC Rule 56-501 or a trade reporting and quotation system operated by The Canadian Dealing Network Inc.
Section 2.3 of OSC Rule 56-501 requires that a rights offering circular or offering memorandum for a stock distribution prepared for a reporting issuer comply with certain requirements including, among others, the restricted shares may not be referred to by a term or a defined term that includes “common”, “preference” or “preferred” and that such shares shall be referred to using a term or a defined term that includes the appropriate restricted share term.
Section 3.2 of OSC Rule 56-501 provides that the prospectus exemptions under Ontario securities law are not available for a stock distribution of securities of a reporting issuer or an issuer if the issuer will become a reporting issuer as a result of the stock distribution unless either the stock distribution received minority approval of shareholders or all the conditions set out in subsection 3.2(2) are satisfied and the information circular relating to the shareholders’ meeting held to obtain such minority approval for the stock distribution included prescribed disclosure. Pursuant to section 4.2 of OSC Rule 56-501, the Director may determine that the Filer is exempt from Parts 2 and 3 of OSC Rule 56-501.
The multiple votes attaching to the PV Shares would, absent the Exemption Sought, have the following consequences in respect of the technical status of the Common Shares:
a. pursuant to subsection 12.2(1) of NI 41-101, the Filer would be unable to use the word “common” to refer to the Common Shares in a prospectus because the PV Shares would represent a security to which are attached voting rights exercisable in all circumstances, irrespective of the number or percentage of securities owned, that are more, per security, than the voting rights attached to the Common Shares,
b. the Common Shares could be considered “restricted securities” pursuant to para. (a) of the definition of the term in NI 51-102 and the Filer would be required to provide the specific disclosure required by NI 51-102 in respect of the Common Shares because the PV Shares would represent another class of securities of the Filer that, to a reasonable person, appears to carry a greater number of votes per security relative to the Common Shares, and
c. the Common Shares would be considered “restricted shares” pursuant to OSC Rule 56-501 and the Filer would be subject to the dealer and advisor documentary disclosure obligations and distribution restrictions of OSC Rule 56-501 because the PV Share would represent a security to which is attached voting rights exercisable in all circumstances, irrespective of the number of percentage of shares owned, that are more, on a per share basis, than the voting rights attaching to the Common Shares of the Filer.
- Following completion of the IPO, the Common Shares would be “restricted securities” as defined in NI 41-101 and NI 51-102, and “restricted shares” as defined in OSC Rule 56-501, solely as a result of the PV Shares.
Decision
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:
a) in connection with the Prospectus Disclosure Exemption as it applies to the Prospectus, at the time the Filer relies on the Exemption Sought:
(i) representations 4 to 15, above, continue to apply;
(ii) the Filer has no restricted securities (as defined in section 1.1 of NI 41-101) issued and outstanding other than the Common Shares; and
(iii) the Prospectus includes disclosure consistent with representations 4 to 15 above;
b) in connection with the Prospectus Disclosure Exemption and the Prospectus Eligibility Exemption as they apply to the Other Prospectuses, at the time the Filer relies on the Exemption Sought:
(i) representations 4 to 15, above, continue to apply;
(ii) the Filer has no restricted securities (as defined in section 1.1 of NI 41-101) issued and outstanding other than the Common Shares; and
(iii) the Other Prospectuses include disclosure consistent with representations 4 to 15 above;
c) in connection with the CD Disclosure Exemption as it applies to the CD Documents, at the time the Filer relies on the Exemption Sought:
(i) representations 4 to 15, above, continue to apply; and
(ii) the Filer has no restricted securities (as defined in subsection 1.1(1) of NI 51-102) issued and outstanding other than the Common Shares;
d) in connection with the OSC Rule 56-501 Disclosure Exemption as it applies to the OSC Rule 56-501 Documents, at the time the Filer relies on the Exemption Sought:
(i) representations 4 to 15, above, continue to apply; and
(ii) the Filer has no restricted shares (as defined in section 1.1 of OSC Rule 56-501) issued and outstanding other than the Common Shares;
e) in connection with the OSC Rule 56-501 Withdrawal Exemption, at the time the Filer relies on the Exemption Sought:
(i) representations 4 to 15, above, continue to apply; and
(ii) the Filer has no restricted shares (as defined in section 1.1 of OSC Rule 56-501) issued and outstanding other than the Common Shares.
“Jo-Anne Matear”
________________________ Jo-Anne Matear
Manager, Corporate Finance
Ontario Securities Commission