Ontario Commission des 22nd Floor 22e étage
Securities valeurs mobilières 20 Queen Street West 20, rue queen ouest
Commission de l’Ontario Toronto ON M5H 3S8 Toronto ON M5H 3S8
March 25, 2021
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 GAGE GROWTH CORP. (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 the requirement under:
(a) Section 12.2 of National Instrument 41-101 General Prospectus Requirements (“NI 41-101”), relating to the use of restricted security terms, to the extent the Filer reclassifies its subordinate voting shares in the capital of the Filer (the “Subordinate Voting Shares”) into “common shares”, 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 Subordinate Voting Shares or the proportionate voting shares (the “Proportionate Voting Shares”) in the capital of the Filer (the “Prospectus Disclosure Exemption”) in connection with: (i) the Non-Offering Prospectus (as defined herein) and any amendments thereto; and (ii) any other prospectuses (“Other Prospectuses”) that may be filed by the Filer under NI 41-101 and 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 Subordinate Voting Shares or the Proportionate Voting 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 Subordinate Voting Shares or the Proportionate Voting Shares (the “CD Disclosure Exemption”) in connection with continuous disclosure documents (“Other 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 Subordinate Voting Shares or the Proportionate Voting 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 Subordinate Voting Shares or the Proportionate Voting 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):
1. the Ontario Securities Commission is the principal regulator for this Application, and
2. 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 British Columbia (other than with respect to the OSC Rule 56-501 Disclosure Exemption and the OSC Rule 56-501 Withdrawal Exemption) which, pursuant to Section 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 11-203, 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 Canada Business Corporations Act (“CBCA”) and is not a reporting issuer in any province or territory of Canada.
The registered and head office of the Filer is located at 77 King Street West, Suite 400, Toronto, Ontario M5K 0A1.
The Filer’s business is conducted through its operating subsidiary, Spartan Partners Holdings LLC (“Spartan”) and the subsidiaries of Spartan.
The Filer has filed a non-offering preliminary long form prospectus dated March 24, 2021 (the “Preliminary Prospectus”) with the securities regulatory authorities in Ontario and British Columbia. Upon obtaining a receipt for the non-offering long form (final) prospectus of the Filer (the “Non-Offering Prospectus”), the Filer intends to list its Subordinate Voting Shares on the Canadian Securities Exchange (“CSE”).
The Filer has authorized the following three classes of securities: (a) Subordinate Voting Shares; (b) the Proportionate Voting Shares; and (c) super voting shares (the “Super Voting Shares” and, together with the Subordinate Voting Shares and the Proportionate Voting Shares, the “Voting Shares”).
Spartan has issued exchangeable units of Spartan (the “Exchangeable Units”, and together with the Subordinate Voting Shares and the Proportionate Voting Shares, the “Equity Shares”), which are redeemable, at the discretion of the manager of Spartan, into 50 Subordinate Voting Shares or 1 Proportionate Voting Share, or a combination thereof (the “Exchangeable Unit Consideration”). Such Exchangeable Units are redeemable by Spartan on the occurrence of any of the following events (each, a “Call Event”): (i) the shareholders of the Filer (the “Shareholders”) approving: (A) an agreement for the sale of all or substantially all of the assets of the Filer; or (B) a transaction involving the acquisition of more than 50% of the voting power of the outstanding securities of the Filer, unless the Shareholders immediately prior to such transaction hold at least 50% of the voting power of the outstanding securities of the Filer of the resulting entity; (ii) any person or group of persons, acting jointly or in concert, acquiring, directly or indirectly, control of the Filer; (iii) the liquidation, dissolution or winding-up of Spartan, whether voluntary or involuntary, subject to certain exceptions; (iv) the day upon which U.S. tax legislation is amended such that all U.S. resident holders of Exchangeable Units may receive Proportionate Voting Shares and Super Voting Shares on a tax deferred basis for U.S. federal income tax purposes; and (iv) on or after March 11, 2021.
The Exchangeable Units do not entitle the holder thereof to notice of and to attend and vote at any meeting of Shareholders.
Upon the occurrence of a Call Event, Spartan shall have the right to redeem all but not less than all of the then outstanding Exchangeable Units held by each Exchangeable Unit Holder in exchange for the Exchangeable Unit Consideration.
On the redemption of all but not less than all of the outstanding Exchangeable Units by Spartan in exchange for the Exchangeable Unit Consideration, the Super Voting Shares may be redeemed by the Filer for an amount equal to the issue price per Super Voting Share of $0.0001 (the “Issue Price”).
The Filer issued 1,500,000 Exchangeable Units to two holders (the “Exchangeable Unit Holders”) in connection with the closing of certain acquisitions during the financial year ended 2019 (the “Acquisitions”). The Exchangeable Units were issued to the Exchangeable Unit Holders based on the fair market value of the underlying Subordinate Voting Shares at the time they were issued. Due to the Exchangeable Units being non-voting, the Filer also issued 1,500,000 Super Voting Shares to the Exchangeable Unit Holders in the same proportion as the Exchangeable Units held by such Exchangeable Unit Holders at the Issue Price per Super Voting Share to provide equivalent voting rights to the Exchangeable Unit Holders as if they were holders of the equivalent number of Subordinate Voting Shares. The board of directors of each of the Filer and Spartan, at the time of the issuance of the Exchangeable Units and the Super Voting Shares to the Exchangeable Unit Holders, acting in good faith, determined that the aggregate fair market value of the consideration received in connection with the Acquisitions was equal to or greater than the fair market value of the Exchangeable Units and the Super Voting Shares issued to such Exchangeable Unit Holders.
As of the date of the Preliminary Prospectus, there are 136,789,199 Subordinate Voting Shares outstanding, no Proportionate Voting Shares outstanding, 1,500,000 Super Voting Shares and 1,500,000 Exchangeable Units.
Holders of the Voting Shares are entitled to notice of and to attend and vote at any meeting of the Shareholders, except a meeting of which only holders of another class or series of shares of the Filer have the right to vote. At each such meeting, holders of Subordinate Voting Shares are entitled to one vote in respect of each Subordinate Voting Share, holders of Proportionate Voting Shares are entitled to 50 votes in respect of each Proportionate Voting Share and holders of Super Voting Shares are entitled to 50 in respect of each Super Voting Share.
Holders of Equity Shares are entitled to receive, as and when declared by the directors of the Filer, dividends in cash or property of the Filer, without preference or distinction among or between the Equity Shares. Each Proportionate Voting Share and Exchangeable Unit shall be entitled to 50 times the amount paid or distributed per Subordinate Voting Share. Holders of Super Voting Shares are not entitled to receive dividends. Other than as described herein, there is no other dividend entitlement for the Exchangeable Units.
In the event of the liquidation, dissolution or winding-up of the Filer (including Spartan), whether voluntary or involuntary, or in the event of any other distribution of assets of the Filer (including Spartan) among the Shareholders for the purpose of winding up its affairs, the Exchangeable Units are redeemable for the Exchangeable Unit Consideration and the Super Voting Shares are redeemable for an amount equal to the Issue Price per Super Voting Share. Following such redemptions, the former holders of the Exchangeable Units will become holders of either Subordinate Voting Shares, Proportionate Voting Shares, or a combination thereof, and there will be no Super Voting Shares outstanding. Accordingly, the holders of Subordinate Voting Shares and the Proportionate Voting Shares are entitled to participate rateably in the liquidation, dissolution or winding-up along with all other holders of Subordinate Voting Shares and the Proportionate Voting Shares, provided that each Proportionate Voting Share shall be entitled to 50 times the amount paid or distributed per Subordinate Voting Share.
Each Proportionate Voting Share is convertible, at the option of the holder thereof, into such number of fully paid and non-assessable Subordinate Voting Shares as is determined by multiplying the number of Proportionate Voting Shares in respect of which the share conversion right is exercised by 50.
The Super Voting Shares are not convertible into Subordinate Voting Shares or Proportionate Voting Shares. However, the Super Voting Shares are redeemable by the Filer on the occurrence of a redemption of the Exchangeable Units for an amount equal to the Issue Price per Super Voting Share, payable in cash.
No subdivision or consolidation of the Voting Shares may be carried out unless, at the same time, the Voting 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 the Voting Shares. There is no basis for the Super Voting Shares or the Exchangeable Units to be adjusted in a manner that is different than the Subordinate Voting Shares,
On or prior to the filing of the Non-Offering Prospectus, the holders of all the outstanding Proportionate Voting Shares, Super Voting Shares and Exchangeable Units will enter into a coattail agreement with the Filer and a trustee (the “Coattail Agreement”). The Coattail Agreement will contain customary provisions designed to prevent transactions that otherwise would deprive the holders of the Subordinate Voting Shares of rights under applicable provincial take-over bid legislation to which they would have been otherwise entitled.
The rights, privileges, conditions and restrictions attaching to any Voting Shares may be modified if the amendment is authorized by not less than 662/3% of the votes cast at a meeting of Shareholders duly held for that purpose. However, if the holders of any class of Voting Shares are to be affected in a manner that prejudices or interferes with their rights, the amendment must, in addition, be authorized by not less than 662/3% of the votes cast at a meeting of the holders of such affected class of Voting Shares.
The Exchangeable Units (together with the Super Voting Shares) are proportional in all respects to the rights of the Subordinate Voting Shares, other than with respect to the return of the de minimis redemption value of the Super Voting Shares equal to the Issue Price per Super Voting Share. The holders of Exchangeable Units (together with the Super Voting Shares) are not entitled to any special privileges or payments relative to holders of the Subordinate Voting Shares, other than with respect to the return of the de minimis redemption value of the Super Voting Shares equal to the Issue Price per Super Voting Share. The aggregate redemption value of all of the Super Voting Shares outstanding is $150.
Each of the Proportionate Voting Shares and the Super Voting Shares are subject securities (as defined in NI 41-101, NI 51-102, and OSC 56-501). Each of the Subordinate Voting Shares and Proportionate Voting Shares are restricted securities (as defined in NI 41-101 and NI 51-102) and restricted shares (as defined in OSC 56-501).
Subsection 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.
Subsection 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) restricted security reorganization received prior majority approval of 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 disclose that are inconsistent with the purpose of distribution.
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, 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.
Subsection 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 issuer, as well as in any other document that it sends to its securityholders.
Subsection 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 Canadian 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.
Subsection 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.
Subsection 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 subsection 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.
As each Proportionate Voting Share and Super Voting Share will entitle the holder thereof to 50 votes per share held, the Proportionate Voting Shares and the Super Voting Shares will technically represent classes of securities to which multiple votes are attached. Accordingly, absent the Exemption Sought, the Proportionate Voting Shares and Super Voting Shares will have the following consequences in respect of the technical status of the Subordinate Voting Shares: (i) the Filer would be required to provide the specific disclosure pursuant to sections 13 and 10.6 of Form 41-101F1 and sections 1.12 and 7.7 of Form 44-101F1 respect of the Subordinate Voting Shares because the Subordinate Voting Shares would represent “restricted securities” pursuant to paragraph (a) of the definition of that term in NI 41-101; (ii) restrictions would be placed on the Filer for distributions of Subordinate Voting Shares in connection with Other Prospectuses pursuant to section 12.3 of NI 41-101 because the Subordinate Voting Shares would represent “restricted securities” pursuant to paragraph (a) of the definition of that term in NI 41-101; (iii) the Filer would be required to provide the specific disclosure required by NI 51-102 in respect of the Subordinate Voting Shares because the Subordinate Voting Shares would represent “restricted securities” pursuant to paragraph (a) of the definition of that term in NI 51-102; and (iv) the Filer would be subject to the dealer and adviser documentary disclosure obligations, disclosure obligations in other disclosure documents and distribution restrictions of OSC Rule 56-501 in respect of the Subordinate Voting Shares because the Proportionate Voting Shares and Super Voting Shares represent securities to which are 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 Subordinate Voting Shares.
As the Super Voting Shares will entitle the holder thereof to the return of the Issue Price on a redemption or a liquidation in preference to the holders of other classes of securities, the Super Voting Shares will technically represent a class of security to which the holder is entitled to preferential participation in the earnings or assets of the issuer. Accordingly, absent the Exemption Sought, the Super Voting Shares will have the following consequences in respect of the technical status of the Subordinate Voting Shares and the Proportionate Voting Shares: (i) the Filer would be required to provide the specific disclosure pursuant to sections 13 and 10.6 of Form 41-101F1 and sections 1.12 and 7.7 of Form 44-101F1 respect of the Subordinate Voting Shares and the Proportionate Voting Shares because such shares would represent “restricted securities” pursuant to paragraph (c) of the definition of that term in NI 41-101; (ii) restrictions would be placed on the Filer for distributions of Subordinate Voting Shares and the Proportionate Voting Shares in connection with Other Prospectuses pursuant to section 12.3 of NI 41-101 because such shares would represent “restricted securities” pursuant to paragraph (c) of the definition of that term in NI 41-101; (iii) the Filer would be required to provide the specific disclosure required by NI 51-102 in respect of the Subordinate Voting Shares and the Proportionate Voting Shares because such shares would represent “restricted securities” pursuant to paragraph (c) of the definition of that term in NI 51-102; and (iv) the Filer would be subject to the dealer and adviser documentary disclosure obligations, disclosure obligations in other disclosure documents and distribution restrictions of OSC Rule 56-501 in respect of the Subordinate Voting Shares and the Proportionate Voting Shares because the Super Voting Shares represent securities that entitle the holder thereof to participate in the earnings and assets of the issuer to a greater extent, on a per share basis, than the rights attaching to the Subordinate Voting Shares and the Proportionate Voting Shares.
The Filer has submitted the necessary initial documents to the CSE including an initial application letter on Form 1A. In accordance with CSE policy, the Filer expects to receive conditional listing approval after submission to the CSE of a Form 2A and the final prospectus in respect of the IPO, subject to the satisfaction of customary conditions.
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 Non-Offering Prospectus, at the time the Filer relies on the Exemption Sought:
(i) representations 5-20 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 Subordinate Voting Shares and the Proportionate Voting Shares; and
(iii) the Non-Offering Prospectus includes disclosure consistent with representations 5-20, 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 5-20, 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 Subordinate Voting Shares and the Proportionate Voting Shares; and
(iii) the Other Prospectuses include disclosure consistent with representations 5-20 above.
(c) in connection with the CD Disclosure Exemption as it applies to the Other CD Documents, at the time the Filer relies on the Exemption Sought:
(i) representations 5-20, 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 Subordinate Voting Shares and the Proportionate Voting 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 5-20, 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 Subordinate Voting Shares and the Proportionate Voting Shares.
(e) in connection with the OSC Rule 56-501 Withdrawal Exemption, at the time the Filer relies on the Exemption Sought:
(i) representations 5-20, 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 Subordinate Voting Shares and the Proportionate Voting Shares.
“Michael Balter”
Michael Balter
Manager, Corporate Finance Branch
Ontario Securities Commission