Tilt Holdings Inc. (Nevada Holdco) and Santé Veritas Holdings Inc. (SVH), 2018 CanLII 98248

October 17, 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 TILT HOLDINGS INC. (NEVADA HOLDCO) AND SANTÉ VERITAS HOLDINGS INC. (SVH) (TOGETHER, THE FILER)

DECISION

Background

The regulator in the Jurisdiction has received a dual application from the Filer for:

(a) a decision under the securities legislation of the Jurisdiction of the regulator (the Legislation) that:

i) the requirements under 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 in the capital of the Resulting Issuer (as defined below) (the Common Shares) in connection with continuous disclosure documents (Continuous Disclosure Documents) that may be filed by the Resulting Issuer under NI 51-102 (the Continuous Disclosure Exemption);

ii) s. 12.2 and s. 12.3 of National Instrument 41-101 General Prospectus Requirements (NI 41-101) relating to the use of restricted security terms and eligibility to file a prospectus shall not apply to the Common Shares in connection with long form or short form prospectuses (including a prospectus filed under National Instrument 44-102 Shelf Distributions) that may be filed by the Resulting Issuer (the Prospectus Eligibility Exemption);

iii) the requirements under s. 1.13 and 10.6 of Form 41-101F1 Information Required in a Prospectus (Form 41-101F1) related to restricted security disclosure shall not apply to the Common Shares in connection with long form prospectuses that may be filed by the Resulting Issuer (the 41-101 Exemption); and

iii) the requirements under s. 1.12 and 7.7 of Form 44-101F1 Short Form Prospectus (Form 44-101F1) pursuant to s. 8.1 of National Instrument 44-101 Short Form Prospectus Distributions (NI 44-101) related to restricted security disclosure shall not apply to the Common Shares in connection with short form prospectuses (including a prospectus filed under National Instrument 44-102 Shelf Distributions) that may be filed by the Resulting Issuer (the 44-101 Exemption); and

(b) a decision under the securities legislation of Ontario that:

i) the requirements under Part 2 of Ontario Securities Commission Rule 56-501 Restricted Shares (Rule 56-501) relating to the use of restricted share terms and restricted share disclosure shall not apply to the Common Shares (the 56-501 Disclosure Exemption) in connection with dealer and adviser documentation, rights offering circulars and offering memoranda (Rule 56-501 Documents); and

ii) the requirements under Part 3 of Rule 56-501 relating to the withdrawal of prospectus exemptions for distributions of restricted shares shall not apply to stock distributions (as defined in Rule 56-501) related to securities of the Resulting Issuer (the 56-501 Withdrawal Exemption).

The Continuous Disclosure Exemption, Prospectus Eligibility Exemption, the 41-101 Exemption and the 44-101 Exemption, the 56-501 Disclosure Exemption and the 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 section 4.7(1)(c) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, the Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Quebec, Saskatchewan and the Yukon Territory (other than in respect of the 56-501 Disclosure Exemption and 56-501 Withdrawal Exemption).

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 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:

1. Nevada Holdco is a corporation existing under the laws of the State of Nevada and will be continued out of Nevada and into British Columbia and will exist under the Business Corporations Act (British Columbia) (BCBCA) prior to the effective date of the proposed arrangement (the Business Combination) of SVH with Nevada Holdco and TILT Holdings US, Inc., a corporation existing under the BCBCA, as a wholly-owned subsidiary of Nevada Holdco, pursuant to Section 288 of the BCBCA.

2. SVH is a corporation existing under the Canada Business Corporations Act, is a reporting issuer in British Columbia, Alberta and Ontario listed on the CSE under the symbol “SV”. In connection with the Business Combination, SVH will make an application to continue under the BCBCA.

3. SVH’s registered office is located at 2200 HSBC Building, 885 W. Georgia St., Vancouver, British Columbia, V6C 3E8. Following the completion of the Business Combination, the registered office of the resulting issuer (the Resulting Issuer) will be located at that same address.

4. Following completion of the Business Combination, the Resulting Issuer will be a corporation existing under the BCBCA and will be a reporting issuer in the Provinces of British Columbia, Alberta and Ontario. The Resulting Issuer is making an application to list the Common Shares on the CSE.

5. The head office of the Resulting issuer will be located in West Palm Beach, Florida.

6. The Resulting Issuer's authorized share capital will consist of a fixed number of Resulting Issuer Compressed Shares (the Compressed Shares), the fixed number to be determined, an unlimited number of Resulting Issuer Class A Common Shares (the Class A Shares), an unlimited number of Resulting Issuer Class B Common Shares (the Class B Shares) and an unlimited number of Common Shares (together with the Compressed Shares, the Shares). Following completion of the Business Combination, including the conversion of all Class A Shares and Class B Shares into Compressed Shares, no Class A Shares or Class B Shares will be outstanding and no further Class A Shares or Class B Shares may be issued by the Resulting Issuer under its articles.

7. The Compressed Shares may, at any time, at the option of the holder thereof, be converted into Common Shares on the basis of one hundred (100) Common Shares for one Compressed Share, subject to certain limitations on conversion that maintain the Resulting Issuer’s status as a "foreign private issuer" as defined in Rule 405 of the United States Securities Act of 1933, as amended (the US Securities Act), and subject to adjustment in such ratio from time to time in accordance with the terms thereof in the event of certain corporate changes, recapitalizations or distributions involving the Common Shares in order to maintain relative equivalency between the Shares (the Conversion Ratio).

8. The Resulting Issuer shall not effect any conversion of Compressed Shares, and the holders of Compressed Shares shall not have the right to convert any portion of the Compressed Shares to the extent that after giving effect to such issuance after conversions, the aggregate number of Common Shares and Compressed Shares held of record, directly or indirectly, by residents of the United States (as determined in accordance with Rule 3b-4 under the United States Securities Exchange Act of 1934, as amended) would exceed forty percent (40%) of the aggregate number of Common Shares and Compressed Shares issued and outstanding.

9. Each Compressed Share shall automatically be converted without further action by the Compressed Shareholder or any other person into Common Shares at the applicable Conversion Ratio immediately upon the earliest of:

(i) (a) any voluntary or involuntary liquidation, dissolution or winding up of the Resulting Issuer; (b) the acquisition of the Resulting Issuer by or the combination, merger or consolidation of the Resulting Issuer with, another entity by means of any transaction or series of related transactions (including, without limitation, any sale, acquisition, reorganization, merger or consolidation but, excluding any transaction effected exclusively for the purpose of changing the domicile of the Resulting Issuer); (c) a sale of all or substantially all of the assets of the Company; unless, in the case of (b) or (c), the Company’s shareholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for the Company’s acquisition or sale or otherwise) hold at least 50% of the voting power of the surviving or acquiring entity (a Liquidation Event);

(ii) the date such automatic conversion is designated to occur by the unanimous written consent or affirmative vote of the holders of at least 66-2/3% of the then outstanding aggregate number of Compressed Shares, given in writing by all of the holders of Compressed Shares or by vote at a meeting, consenting or voting (as the case may be) separately as a class of the holders of Compressed Shares (a Compressed Super Majority Vote); or

(iii) a Mandatory Conversion (as defined below).

10. The Company may require (a Mandatory Conversion) each holder of Compressed Shares to, and each holder of Compressed Shares may, convert all, and not less than all, the Compressed Shares at the applicable Conversion Ratio if at any time all the following conditions are satisfied (or otherwise waived by the Compressed Super Majority Vote):

(i) the Common Shares issuable upon conversion of all the Compressed Shares are registered for resale and may be sold by the Compressed Shareholder pursuant to an effective registration statement and/or prospectus covering the Common Shares under the United States Securities Act of 1933, as amended;

(ii) the Company is subject to the reporting requirements of Section 13 or 15(d) of the United States Securities Exchange Act of 1934, as amended; and

(iii) the Common Shares are listed or quoted (and are not suspended from trading) on a national securities exchange in the United States.

11. Each Compressed Share is entitled to dividends if, as and when dividends are declared by the board of directors of the Resulting Issuer on the Common Shares, distributed among the holders of the Compressed Shares and the Common Shares, based on the number of Common Shares into which the Compressed Shares are converted at the applicable Conversion Ratio (disregarding any limitations on conversion as described above).

12. In the event of the liquidation, dissolution or winding-up of the Resulting Issuer, the assets of the Resulting Issuer, or other consideration payable or distributable as a result of the liquidation, dissolution or winding-up will be distributed among the holders of the Compressed Shares and the Common Shares, based on the number of Common Shares into which the Compressed Shares are converted at the applicable Conversion Ratio (disregarding any limitations on conversion as described above).

13. The holders of the Compressed Shares and Common Shares will be entitled to receive notice of, attend and vote at any meeting of shareholders of the Resulting Issuer, 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 will carry one vote per share for all matters coming before the shareholders of the Resulting Issuer and the Compressed Shares will carry one vote for each Common Share into which such Compressed Shares are convertible (disregarding any limitations on conversion as described above) for all matters coming before shareholders of the Resulting Issuer.

14. The rights, privileges, conditions and restrictions attaching to the Shares may be modified if the amendment is authorized by not less than 66 2/3% of the votes cast at a meeting of holders of the Shares duly held for that purpose.

15. In addition to any other rights provided by law, no amendment, alteration or repeal of the preferences, special rights or other powers of the Compressed Shares or any other provision of the Resulting Issuer’s Notice of Articles or Articles that would adversely affect the rights of the Compressed Shareholders, without a Compressed Super Majority Vote.

16. In addition to any other rights provided by law, the Resulting Issuer shall not amend, alter or repeal the preferences, special rights or other powers of the Common Shares or any other provision of the Company’s Notice of Articles or Articles that would adversely affect the rights of the holders of Common Share, without the unanimous written consent or affirmative vote of the holders of at least 66-2/3% of the then outstanding aggregate number of Common Shares, given in writing by all of the holders of Common Shares or by vote at a meeting, consenting or voting (as the case may be) separately as a class of the holders of Common Shares.

17. In order to maintain the relative rights of the holders of Shares, if the Resulting Issuer shall (i) effect a recapitalization of the Common Shares; (ii) issue Common Shares as a dividend or other distribution on outstanding Common Shares; (iii) subdivide the outstanding Common Shares into a greater number of Common Shares; (iv) consolidate the outstanding Common Shares into a smaller number of Common Shares; or (v) effect any similar transaction or action that does not itself also require adjustment to the Conversion Ratio (each, a Common Share Recapitalization), the Conversion Ratio shall be multiplied by a fraction of which the numerator shall be the number of Common Shares outstanding immediately after such event and of which the denominator shall be the number of Common Shares outstanding immediately before such event. If at any time or from time-to-time, the Company shall (i) effect a recapitalization of the Compressed Shares; (ii) issue Compressed Shares as a dividend or other distribution on outstanding Compressed Shares; (iii) subdivide the outstanding Compressed Shares into a greater number of Compressed Shares; (iv) consolidate the outstanding Compressed Shares into a smaller number of Compressed Shares; or (v) effect any similar transaction or action that does not itself also require adjustment to the Conversion Ratio (each, a Compressed Share Recapitalization), the Conversion Ratio shall be multiplied by a fraction of which the numerator shall be the number of Compressed Shares outstanding immediately before such event and of which the denominator shall be the number of Compressed Shares outstanding immediately after such event.

18. In the event that an offer is made to purchase Compressed Shares, and the offer is one which is required, pursuant to applicable securities legislation or the rules of a stock exchange, if any, on which the Common Shares are then listed, to be made to all or substantially all the holders of Compressed Shares in a province or territory of Canada to which the requirement applies, each Common Share shall become convertible at the option of the holder into Compressed Shares at the inverse of the Conversion Ratio then in effect, at any time while the offer is in effect until one day after the time prescribed by applicable securities legislation for the offeror to take up and pay for such shares as are to be acquired pursuant to the offer. The conversion right may only be exercised in respect of Common Shares for the purpose of depositing the resulting Compressed Shares under the offer, and for no other reason. In such event, the transfer agent for the Common Shares shall deposit under the offer the resulting Compressed Shares, on behalf of the holder.

19. In the event that holders of Common Shares are entitled to convert their Common Shares into Compressed Shares in connection with an offer, holders of an aggregate of Common Shares of less than 100 (an Odd Lot), subject to any adjustments to the initial Conversion Ratio pursuant to the adjustment provisions of the Shares designed to preserve their relative rights, will be entitled to convert all but not less than all of such Odd Lot of Common Shares into a fraction of one Compressed Share, at the inverse of the Conversion Ratio then in effect, provided that such conversion into a fractional Compressed Share will be solely for the purpose of tendering the fractional Compressed Share to the offer in question and that any fraction of a Compressed 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.

20. In the event that an offer is made to purchase Common Shares, and the offer is one which is required, pursuant to applicable securities legislation or the rules of a stock exchange, if any, on which the Common Shares are then listed, to be made to all or substantially all the holders of Common Shares in a province or territory of Canada to which the requirement applies, each Compressed Share shall become convertible at the option of the holder into Common Shares at the Conversion Ratio then in effect, at any time while the offer is in effect until one day after the time prescribed by applicable securities legislation for the offeror to take up and pay for such shares as are to be acquired pursuant to the offer. The conversion right in this section may only be exercised in respect of Compressed Shares for the purpose of depositing the resulting Common Shares under the offer, and for no other reason. In such event, the transfer agent for the Common Shares shall deposit under the offer the resulting Common Shares, on behalf of the holder.

21. The Compressed Shares are being issued in order for the Resulting Issuer to meet the definition of "foreign private issuer" as defined in Rule 405 of the United States Securities Act of 1933, as amended.

22. Pursuant to NI 51-102 and NI 41-101, 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 carries 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 significantly restrict the voting rights of the equity securities; (c) the reporting issuer has issued another class of equity securities that 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 or (d) as further required in NI 41-101, except in Ontario and British Columbia, the regulator determines the equity security is a restricted security.

23. Rule 56-501 imposes certain disclosure requirements on issuers distributing securities that are considered to be restricted shares (as such term is defined in Rule 56-601), prohibits the reference to a share that includes the word "common" if such share is not a "common share" as such term is defined in Rule 56-601, and, subject to available exemptions, removes the availability of prospectus exemptions under Ontario securities law for certain distributions of securities that are considered to be restricted shares, or securities that are directly or indirectly convertible into or exercisable or exchangeable for restricted shares (as such term is defined in Rule 56-601).

24. Pursuant to Rule 56-501, "common shares" means shares to which are attached voting rights exercisable in all circumstances, irrespective of the number or percentage of shares owned, that are not less, on a per share basis, than the voting rights attaching to any other shares of an outstanding class of shares of the issuer, unless the Director makes a determination under section 4.1 that the shares are restricted shares.

25. Part 10 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 as well as in any other document that it sends to its securityholders.

26. Sections 1.13 and 10.6 of Form 41-101F1 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 long form prospectus. Section 12.2 of NI 41-101 requires restricted securities to be referred to in a prospectus using a term or a defined term that includes the appropriate "restricted security term" (as defined in NI 41-101) and section 12.3 requires, subject to available exemptions, an issuer to obtain prior majority approval of issuer's securityholders in order to file a prospectus under which restricted securities are distributed.

27. Sections 1.12 and 7.7 of Form 44-101F1 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 short form prospectus.

28. As a result of the multiple votes attached to the Compressed Shares, the Common Shares would be restricted securities as defined in NI 41-101 and NI 51-102, and restricted shares as defined in Rule 56-501.

29. Absent the Exemption Sought, the above provisions described in paragraphs 22 to 27 above would apply to the Common Shares and securities convertible into Common 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 Continuous Disclosure Exemption as it applies to the Continuous Disclosure Documents, at the time the Resulting Issuer relies on the Exemption Sought:

(i) representations 6 to 20 above continue to apply; and

(ii) the Resulting Issuer has no restricted securities (as defined in section 1.1(1) of NI 51-102) issued and outstanding other than the Common Shares;

(b) in connection with the Prospectus Eligibility Exemption, 41-101 Exemption and 44-101 Exemption, at the time that the Resulting Issuer relies on the Exemption Sought:

(i) representations 6 to 20 above continue to apply;

(ii) the Resulting Issuer has no restricted securities (as defined in section 1.1 of NI 41-101) issued and outstanding other than the Common Shares; and

(iii) any prospectus includes disclosure consistent with representations 6 to 20 above;

(c) in connection with the 56-501 Disclosure Exemption as it applies to the 56-501 Documents and the 56-501 Withdrawal Exemption, at the time that the Resulting Issuer relies on the Exemption Sought:

(i) representations 6 to 20 above continue to apply; and

(ii) the Resulting Issuer has no restricted shares (as defined in section 1.1 of Rule 56-501 issued and outstanding other than the Common Shares.

“Winnie Sanjoto”

Winnie Sanjoto

Manager, Corporate Finance Branch

Ontario Securities Commission