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
February 6, 2024
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
Akumin 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):
(1) The Ontario Securities Commission is the principal regulator for this application (the OSC or Principal Regulator), and
(2) the Filer has provided notice that subsection 4C.5(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the provinces and territories of Canada, other than Quebec (together with the Jurisdiction, collectively, the Reporting Jurisdictions),
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:
The Filer is a leading provider of outpatient radiology and oncology solutions to hospitals, health systems, and physician groups in the United States. All of the Filer’s assets and operations are in the United States.
The Filer was formed on August 12, 2015, through the amalgamation of Elite Imaging Inc. (Elite Imaging) with 2473241 Ontario Inc. (2473241). 2473241 was incorporated under the Business Corporation Act (Ontario) (the OBCA) on June 30, 2015. Elite Imaging was incorporated under the OBCA on September 23, 2013, as “Tristate Canadian Holdings Inc.” and changed its name to "Elite Imaging Inc." on September 17, 2014. Elite Imaging subsequently changed its name to "Akumin Inc." pursuant to articles of amendment filed with the Ontario registrar on March 22, 2017.
Effective September 30, 2022, the Filer completed a change of jurisdiction of incorporation from the Province of Ontario to the State of Delaware (the Domestication).
As a result of the Domestication, the Filer is now continued under and is governed by the General Corporation Law of the State of Delaware.
The Filer’s head office is located at 8300 W. Sunrise Blvd, Plantation, Florida, 33322.
The Filer’s registered office is located at 651 N. Broad St., Suite 201, Middletown, New Castle County, Delaware, 19709.
The Filer is a reporting issuer under the laws of each of the Reporting Jurisdictions and is not in default of its obligations under the securities laws of any of the Reporting Jurisdictions.
The Filer’s shares of Common Stock (the Common Shares) were registered under section 12 of the U.S. Securities Exchange Act of 1934, as amended (the U.S. Exchange Act) prior to the Common Shares’ deregistration on November 30, 2023.
The Filer’s Common Shares were previously listed for trading on the NASDAQ Stock Market LLC (Nasdaq) under the symbol “AKU”. The Common Shares were delisted from Nasdaq on November 30, 2023 and began trading on the OTC Pink Open Market under the symbol “AKUMQ”. The Common Shares were delisted from the OTC Pink Open Market on Effective Date (as defined below).
The Common Shares were listed for trading on the Toronto Stock Exchange (TSX) under the symbol “AKU”. The Common Shares were suspended from trading on the TSX between October 23, 2023 and November 2, 2023, and resumed trading on the opening of markets on November 3, 2023. The Common Shares were delisted from the TSX on the Effective Date.
The Filer is an “SEC issuer” pursuant to National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102).
On October 20, 2023, the Filer entered into a restructuring support agreement (the Restructuring Support Agreement) with, inter alios, (i) certain of its affiliates and subsidiaries, (ii) Stonepeak, as the holder of 100% of the Prepetition Series A Notes, (iii) certain noteholders holding approximately 69.6% of the 2025 Prepetition Notes, (iv) certain noteholders holding approximately 79.9% of the 2028 Prepetition Notes, (v) 100% of the lenders to Filer’s revolving credit facility, and (vi) certain shareholders holding approximately 34.2% of the Common Shares. As set forth in the Restructuring Support Agreement, the parties agreed to the principal terms of a financial restructuring of the Filer to be implemented pursuant to the prepackaged chapter 11 plan of reorganization (the Prepackaged Plan).
On October 22, 2023 (the Petition Date), the Filer and certain of its affiliates and subsidiaries (each a Debtor and collectively, the Debtors) filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code (the Bankruptcy Code) in the United States Bankruptcy Court for the Southern District of Texas (the Bankruptcy Court), thereby commencing chapter 11 cases for the Debtors.
On November 30, 2023, the Bankruptcy Court, confirmed the provisions of the Prepackaged Plan and authorized the Filer to perform its obligations under the Prepackaged Plan, including the restructuring transactions contemplated therein (the Restructuring Transactions). The Prepackaged Plan and Restructuring Transactions became effective on February 6, 2024 (the Effective Date).
Immediately prior to the Effective Date, the authorized capital of the Filer consisted of (i) 300,000,000 Common Shares, of which 91,173,491 Common Shares were issued and outstanding, and (ii) 50,000,000 shares of preferred stock (Preferred Shares), of which no Preferred Shares were issued and outstanding. The Filer’s transfer agent determined that the Filer’s issued and outstanding Common Shares were held by approximately 2,578 registered and beneficial shareholders immediately prior to the Effective Date.
Market data on each of the Nasdaq and TSX for the six months ended October 10, 2023 (the last full trading day prior to the Nasdaq suspension), indicated approximately 96.4% of the total trading value and 96.2% of the total trading volume of the Filer occurred on the Nasdaq, and approximately 3.6% of the total trading value and 3.8% of the total trading volume of the Filer occurred on the TSX.
Immediately prior to the Effective Date, the Filer had (i) 3,191,758 outstanding and unvested restricted share units (RSUs), (ii) 4,403,120 outstanding stock (Stock Options) and (iii) 17,114,093 outstanding common share purchase warrants (Warrants). All of the Warrants were held by Stonepeak Magnet Holdings LP (Stonepeak) which is not a resident of Canada.
Immediately prior to the Effective Date, the following issued notes of the Filer were outstanding:
(i) US$475,000,000 of 7.00% senior secured notes due 2025, plus any accrued and unpaid interest (the 2025 Prepetition Notes), under a trust indenture dated November 2, 2020;
(ii) US$375,000,000 of 7.50% senior secured notes due 2028, plus any accrued and unpaid interest (the 2028 Prepetition Notes, together with 2025 Prepetition Notes, the Prepetition Notes), under a trust indenture dated August 9, 2021; and
(iii) US$470,000,000 of unsecured PIK toggle series A notes due 2033, plus any accrued and unpaid interest, issued by Akumin Corp., a wholly-owned subsidiary of the Filer (the Prepetition Series A Notes), all of which were issued to and held by Stonepeak, which is not a resident of Canada.
None of the aforementioned notes were convertible into or exchangeable for Common Shares or any other securities of the Filer.
The 2025 Prepetition Notes, 2028 Prepetition Notes and Prepetition Series A Notes were not listed on any exchange or marketplace in Canada or elsewhere and their respective indentures did not contain any provision prohibiting the Filer from ceasing to be a reporting issuer in the Reporting Jurisdictions.
Pursuant to the Reorganization Transaction, on the Effective Date, among other things:
(i) The Filer was reorganized in accordance with the Prepackaged Plan;
(ii) 2025 Prepetition Notes were cancelled and exchanged for new senior secured notes due 2027 (the New 2027 Notes);
(iii) 2028 Prepetition Notes were cancelled and exchanged for new senior secured notes due 2028 (the New 2028 Notes, together with New 2027 Notes, the New Notes);
(iv) Prepetition Series A Notes were cancelled and converted into Common Shares (New Common Shares) of the Filer;
(v) Common Shares outstanding (the Existing Common Shares) were cancelled in exchange for each holder of Existing Common Shares receiving a pro rata share of (i) $25,000,000 in cash and (ii) subject to the CVR Receipt Requirements set forth below, potentially contingent value rights (CVRs) issued by the Filer or cash equal to the inherent value of CVRs as at the Effective Date in lieu of such CVRs; and
(vi) Stonepeak invested approximately $130 million in new money into the Filer as a capital contribution.
On the Effective Date, Stonepeak (a non-resident of Canada) became the sole shareholder of the Filer.
The CVRs represent uncertificated, non-transferrable (other than to certain limited permitted assigns as described in the following sentence) contractual value rights, governed by a CVR agreement entered into by the Filer and the CVR agent (the CVR Agreement). The limited circumstances under which CVRs may be transferred are (i) transfer by will or intestacy upon the death of the holder, (ii) transfer to an inter vivos or testamentary trust for the benefit of beneficiaries upon death of the trustee or to any trust for the benefit of the holder or an immediate family member of the holder, (iii) transfer to a beneficiary of the holder, including custodians or trustees of a trust, partnership or limited liability company for the benefit of the holder or an immediate family member of the holder, (iv) transfer to a family member or an entity owned entirely by or for the benefit of one or multiple family members of the holder in connection with holder’s estate, tax, retirement planning, (v) transfer to another CVR holder, (vi) transfer pursuant to a court order, and (vii) transfer by operation of law in connection with a merger, consolidation, dissolution or liquidation of the holder in compliance with applicable securities laws.
The CVRs provide the holder the right to receive contingent cash payments at a future date triggered upon a future liquidity event involving the Filer that results in any payment to Stonepeak on account of its ownership of Common Shares in the Filer or any successor equity interest (such transaction, a CVR Trigger Transaction), if and to the extent payable pursuant to the terms of the CVR Agreement. In respect of a CVR Trigger Transaction, Stonepeak will identify an independent accountant, which shall be a “big four” accounting firm, to certify the cash proceeds (if any) payable to holders of CVRs pursuant to such CVR Trigger Transaction (Independent Accountant Certification Process). As Stonepeak is the sole shareholder of the Filer, the decision to effect a CVR Trigger Transaction is solely at the discretion of Stonepeak. The CVRs do not have any voting, dividend or other residual rights common to equity stock nor are they convertible into other security of the Filer, and as such, CVR holders have no say whether or when to effect a CVR Trigger Transaction or with respect to any of the terms (economic or otherwise) thereof. CVR holders will be entitled to a cash payment only if (i) a CVR Trigger Transaction occurs, and (ii) the CVR Trigger Transaction results in aggregate proceeds that are in excess of a pay-out threshold as determined by the CVR Agreement. CVR holders will not be entitled to any cash payment if the aggregate proceeds from the CVR Trigger Transaction are less than the pay-out threshold.
No later than 14 days after the Effective Date, the Filer will mail a notice of potential right to receive one CVR per Existing Common Share (the CVR Notice) to all known registered and beneficial holders of Existing Common Shares immediately prior to the Effective Date (such holders, the Potential CVR Recipients). The CVR Notice will contain all relevant terms and conditions applicable to the CVRs.
In order to be eligible to receive CVRs, by no later than 90 days after service of the CVR Notice, Potential CVR Recipients shall be required to return a certification (the CVR Recipient Certification) that will provide for, among other things, (i) whether the Potential CVR Recipient is an accredited investor (as defined in Rule 501 promulgated under the United States Securities Act of 1933 (the U.S. Securities Act)), (ii) for any beneficial holders that hold their Existing Common Shares through a registered broker or agent, a certification as to the amount of shares beneficially owned by such holder as of the Effective Date (immediately prior to the cancellation thereof) and (iii) such other information reasonably requested by the Filer.
Any Potential CVR Recipient who does not submit the completed CVR Recipient Certification within 90 days of service (the CVR Submission Deadline) will not receive CVRs nor any cash payment in lieu of CVRs (the CVR Recipient Certification Requirement).
The Filer will distribute the CVRs (or cash in lieu thereof) to those that satisfy the CVR Recipient Certification Requirement; provided that the Filer, (i) is a privately held company (within the meaning of applicable US securities laws) whose securities are not required to be registered under the U.S. Exchange Act, and (ii) ceases to be a reporting issuer under Canadian securities laws, provided further that the CVRs shall not be distributed to more than 1,900 beneficial holders of Existing Common Shares, of which no more than 450 shall be non-Accredited Investors (as such term is defined in Rule 501 promulgated under the U.S. Securities Act) (the Maximum CVR Recipients).
If more Potential CVR Recipients than the Maximum CVR Recipients return a properly executed CVR Recipient Certification by the CVR Submission Deadline, then the Filer shall only distribute the CVRs pursuant to the Reorganization Transaction to the Potential CVR Recipients that hold the largest percentage of Existing Common Shares until the CVRs have been distributed to the Maximum CVR Recipients (the Maximum CVR Requirement and together with the CVR Recipient Certification Requirement, the CVR Receipt Requirements).
The Maximum CVR Requirement ensures that the Filer shall continue to be a privately held company (within the meaning of applicable US securities laws) following the Effective Date whose securities are not required to be registered under the U.S. Exchange Act.
For any Potential CVR Recipient that would have been eligible to receive the CVRs but for the Maximum CVR Requirement, the Filer shall, subject to the CVR Certification Requirement, pay cash in an amount equal to the inherent value of the CVR as at the Effective Date (to be determined by an independent valuator retained by the Filer) to a particular holder in lieu of distribution of a CVR to a holder.
The CVRs will not be listed on a public stock exchange or voluntarily subjected to any reporting requirements promulgated by the SEC or under Canadian securities laws.
In order to comply with Canadian securities laws, the Filer intends to rely on the exemption from prospectus requirements provided by Section 2.11(a) of National Instrument 45-106 Prospectus Exemptions in connection with the distribution of CVRs on the basis that the Bankruptcy Court’s approval of the Prepackaged Plan constitutes a reorganization under a statutory procedure.
The Filer made diligent enquiry with Broadridge Financial Solutions, Inc. and D.F. King & Co. Inc. and obtained information to ascertain the beneficial ownership of Common Shares, 2025 Prepetition Notes and 2028 Prepetition Notes (collectively, the Securityholder Reports).
Immediately prior to the Effective Date, the Securityholder Reports showed the following:
(i) Approximately 778 holders of the Filer’s outstanding Common Shares were Canadian residents, representing approximately 30.18% of aggregate number of holders of Common Shares;
(ii) Approximately 1,800 holders of the Filer’s outstanding Common Shares were worldwide holders, representing approximately 69.82% of the aggregate number of holders of Common Shares;
(iii) Of the 66 holders of outstanding 2025 Preparation Notes, only 1 holder was a Canadian resident, representing 1.52% of the 2025 Prepetition Note holders. The remaining 65 holders of the 2025 Prepetition Notes, representing 98.48% of the aggregate number of 2025 Prepetition Note holders, were worldwide holders; and
(iv) All 49 holders of the 2028 Prepetition Notes, representing 100% of the aggregate number of 2028 Prepetition Note holders, were worldwide holders.
If the Filer were to issue CVRs in proportion to the percentage of outstanding Common Shares immediately prior to the Effective Date, it would result in 573 Canadian resident holders of CVRs (30.18% of 1900 holders). However, of the 778 Canadian resident holders immediately prior to the Effective Date, only 27 held positions in the Filer equal to or greater than $10,000 such that it is expected that a significant number of Canadian resident holders may not satisfy the Maximum CVR Requirement. Consequently, the Filer believes that the actual number of Canadian resident holders that CVRs will be issued to will be significantly lower compared to the number of Canadian resident holders immediately prior to the Effective Date.
On the Effective Date, the Existing Common Shares were cancelled and converted into the right to receive cash and, subject to CVR Receipt Requirements, CVRs (or, in applicable circumstances described above, cash in lieu of CVRs).
On the Effective Date, the 2025 Prepetition Notes were cancelled and exchanged for New 2027 Notes, of which 1 New 2027 Note (i.e., 1.52% of 66 holders) was issued to a Canadian resident holder.
On the Effective Date, the 2028 Prepetition Notes were cancelled and exchanged for New 2028 Notes, none of which were issued to Canadian resident holders.
On the Effective Date, all of the Filer’s outstanding Options and Warrants were cancelled.
On the Effective Date, all of the Filer’s outstanding RSUs vested in accordance with the acceleration provisions of the Filer’s RSU plan and were treated as Existing Common Shares of the Filer. As such, on the Effective Date, all Existing Common Shares resulting from the acceleration of RSUs were cancelled and converted into the right to receive cash and, subject to CVR Receipt Requirements, CVRs (or, in applicable circumstances described above, cash in lieu of CVRs).
The New Notes are not voting nor equity securities and are not convertible into Common Shares (or any other equity securities) under their respective indentures (the New Note Indentures). The New Note Indentures do not require the Filer to maintain any ongoing public reporting obligations if the Filer is not subject to public reporting under applicable securities laws other than certain customary information required under the New Note Indentures or U.S. securities laws.
If the Filer were to issue CVRs to the Maximum CVR Recipients in proportion to the percentage of shareholdings immediately prior to the Effective Date, it would have a maximum of 2,015 securityholders worldwide with 574 securityholders in Canada (being 573 Canadian holders of CVRs plus 1 Canadian holder of New 2027 Notes), which equals a maximum of approximately 28.49% of the total number of securityholders worldwide.
The CVRs are uncertificated, non-transferrable (other than to certain limited permitted assigns described above) contractual value rights, governed by the CVR Agreement. The CVRs provide the holder the right to receive contingent cash payments at a future date upon a CVR Trigger Transaction following an Independent Accountant Certification Process, if and to the extent payable pursuant to the terms of the CVR Agreement. The CVRs do not have any voting, dividend or other residual rights common to equity stock nor are they convertible into other security of the Filer. The CVR Agreement does not require the Filer to maintain any ongoing public reporting obligations. As third-party transfers are not permitted, no market will develop in the CVRs and, as a result, there will be no CVR holders (or potential CVR holders) making investment decisions, nor any risk of imbalance of information as between market participants that an ongoing disclosure requirement would address or resolve.
The CVR Notice will contain all relevant terms and conditions applicable to the CVRs so as to provide holders of CVRs the necessary information they will need in respect of the CVRs.
The Bankruptcy Court’s order approving the Prepackaged Plan (including, among others, the issuance of the CVRs) constituted a finding that the Prepackaged Plan was: (i) in exchange for the good and valuable consideration provided by the Debtors; (ii) in the best interests of the Debtors and all holders of claims and interests; (iii) fair, equitable, and reasonable; and (iv) given and made after due notice and opportunity for hearing. The Prepackaged Plan and the Reorganization Transaction expressly require that the Filer will not be subject to any continuous disclosure obligations required by the SEC or Canadian securities laws.
Immediately prior to the Effective Date, the Filer benefited from the continuous disclosure exemptions contained in NI 51-102 because it met the definition of an “SEC Issuer”. Thus, the Filer satisfied its Canadian continuous disclosure obligations by using the US documentation it filed with the SEC. However, as of the Effective Date, the Filer is no longer subject to any continuous disclosure obligations required by the SEC.
The Filer is not required under any of the terms of CVRs and the New Notes to remain an SEC registrant required to file reports under the U.S. Exchange Act or to remain a reporting issuer in any Canadian jurisdiction.
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. The Filer has no current intention to distribute any securities to the public in Canada, nor does it intend to other than through the distribution of CVRs and New Notes pursuant to the Prepackaged Plan.
As of the Effective Date, the Filer is an unlisted, non-reporting privately-held company (within the meaning of applicable US securities laws) in the United States.
As of the Effective Date, the Filer has a very limited number (if any) of non-institutional Canadian securityholders. Such limited number of securityholders hold CVRs and New Notes of a private U.S. company (within the meaning of applicable US securities laws) and have no expectation of receiving Canadian continuous disclosure documents, since no disclosure documents are required under U.S. securities laws. The holders of CVRs have no expectation of receiving Canadian continuous disclosure documents given the inherent nature of the payment scheme and are afforded sufficient protection by the Independent Accountant Certification Process. Members of the public are not expected to acquire securities of the Filer (the New Notes are predominantly (if not all) held by institutional lenders and CVRs are non-transferable (other than to certain limited permitted assigns)). As such, Canadian continuous disclosure requirements outlined in NI 51-102 and other obligations under applicable Canadian securities laws applicable to the Filer would not be of material benefit to the public interest and in particular, of no benefit to the holders of the CVRs.
The Filer will only distribute the CVRs to the extent that (i) it is a privately held company (within the meaning of applicable US securities laws) whose securities are not required to be registered under the U.S. Exchange Act, and (ii) it ceases to be a reporting issuer under Canadian securities laws. Given the material difference in requirements under U.S. securities laws and Canadian securities laws to continue as a privately-held company, the Order Sought affords an equal opportunity for Canadian resident holders alongside with U.S. resident holders to participate and receive the consideration that it would otherwise be entitled to under the Reorganization Transaction.
The Filer has no current intention to seek public financing by way of a public offering of securities.
The Filer is not eligible to use the simplified procedure under Section 19 of National Policy 11-206 Process for Cease to be a Reporting Issuer Applications (NP 11-206) because the Filer has determined, based on the Securityholder Reports, that its outstanding securities, including debt securities, are beneficially owned, directly or indirectly, by more than 15 securityholders in a jurisdiction of Canada and by more than 51 securityholders in total worldwide.
The Filer is not eligible to use the modified procedure under Section 20 of NP 11-206 as the Filer estimates that residents of Canada, directly or indirectly, comprise more than 2% of the total number of securityholders of the Filer worldwide, and beneficially own more than 2% of a class or series of outstanding securities of the Filer, including debt securities, worldwide.
The Filer is applying for a decision that it has ceased to be a reporting issuer in all of the Reporting Jurisdictions as of the Effective Date.
The Filer acknowledges that, in granting the Order Sought, the Principal Regulator is not expressing any opinion or approval as to the terms of the Prepackaged Plan.
The Filer will promptly issue a news release upon the granting of the Order Sought specifying that the Filer is no longer a reporting issuer in the Reporting Jurisdictions.
Upon the granting of the Order Sought the Filer will no longer be a reporting issuer or the equivalent thereof in the Reporting Jurisdictions.
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.
“Marie-France Bourret”
Marie-France Bourret
Manager, Corporate Finance
Ontario Securities Commission
OSC File #: 2023/0579