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Optometric Services (OPT) Inc.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -dual application filed by issuer for relief from the prospectus requirements in connection with the conversion of shares and the distribution of shares -- shareholders in connection with a buying group, subject to conditions.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 53 and 74.
October 26, 2020
[TRANSLATION]
IN THE MATTER OF THE SECURITIES LEGISLATION OF QUÉBEC AND ONTARIO (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF OPTOMETRIC SERVICES (OPT) INC. (the Filer)
DECISION
Background
The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Makers) have received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) for an exemption from the prospectus requirement in connection with:
• the conversion of:
• outstanding class A shares of the Filer (the Old Class A Shares) into class A ordinary shares of the Filer (the New Class A Ordinary Shares) and class A preferred shares of the Filer (the New Class A Preferred Shares);
• outstanding class E shares of the Filer (the Old Class E Shares) into class E ordinary shares of the Filer (the New Class E Ordinary Shares) and class E preferred shares of the Filer (the New Class E Preferred Shares);
• the issuance of class M ordinary shares of the Filer (the Class M Ordinary Shares) and class M preferred shares of the Filer (the Class M Preferred Shares) to Client-Shareholders (as defined hereinafter) (the Proposed Reorganization); and
• the issuance of class O preferred shares of the Filer (the Class O Preferred Shares) and class O ordinary shares of the Filer (the Class O Ordinary Shares) to Client-Shareholders (as defined hereinafter) (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
a) the Autorité des marchés financiers is the principal regulator for this application;
b) the Filer has provided notice that subsection 4.7(1) of Regulation 11-102 respecting Passport System, CQLR, c. V-1.1, r. 1 (Regulation 11-102) is intended to be relied upon in British Columbia, Alberta, Manitoba, Saskatchewan, New Brunswick, Prince Edward Island, Newfoundland and Labrador, Nova Scotia, Yukon, Northwest Territories and Nunavut (collectively, with Québec and Ontario, the Filing Jurisdictions );
c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Interpretation
Terms defined in Regulation 11-102, Regulation 14-101 respecting Definitions, CQLR, c. V-1.1, r. 3, Regulation 21-101 respecting Marketplace Operation, CQLR, c. V-1.1, r. 5 and Regulation 45-106 respecting Prospectus Exemptions, CQLR, c. V-1.1, r. 21 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. The Filer was incorporated on September 13, 1982 under the Canada Business Corporations Act. The Filer's head office is located in Québec.
2. The Filer is a Canada-wide multi-service organization servicing optometrists and clinics across Canada. The Filer seeks to foster independent optometric clinics by providing volume discounts for merchandises, mainly frames and lenses, and affordable management tools so that its Client-Shareholders (as defined below) can compete with chains, big box stores and online sellers. The main activities are negotiating with accredited vendors volume and cash discounts for the benefit of its Client-Shareholders and centralizing billing and payment processes between vendors and Client-Shareholders.
3. Following the Proposed Reorganization, all optometrists or partnerships of optometrists who take advantage of the goods and services offered by the Filer will be shareholders of the Filer (the Client-Shareholders, and together with the Former Client-Shareholders, as defined hereinafter, the Shareholders).
4. Client-Shareholders must be optometrists or a partnership of optometrists and must be in good standing with the provincial bodies regulating optometry where they practice or operate a clinic or clinics.
5. The authorized capital of the Filer consists of an unlimited number of Old Class A Shares, class B shares, class C shares, class D shares and Old Class E Shares.
6. As of December 31, 2019, 506,612 Old Class A Shares and 207,280 Old Class E Shares were issued and outstanding. No class B shares, class C shares or class D shares of the Filer were issued.
7. The Filer has only offered the Old Class A Shares to its Client-Shareholders.
8. The Filer has not issued any Old Class A Shares since December 31, 2015.
9. The Filer has only offered the Old Class E Shares to its Client-Shareholders having Old Class A Shares exceeding 2% of the issued and outstanding Old Class A Shares and to its Client-Shareholders who ceased to be a client of the Filer (the Former Client-Shareholders).
10. As of December 31, 2019, the Filer had 201 Shareholders. The geographical distribution of the Shareholders was as follows: 71 in Québec; 40 in Ontario; 32 in British Columbia; 12 in Alberta; 7 in Manitoba; 18 in Saskatchewan; 8 in New Brunswick; 2 in Prince Edward Island; 9 in Nova Scotia; and 2 in Newfoundland and Labrador.
11. There is no market for the Old Class A Shares and the Old Class E Shares and these shares are not traded on any marketplace.
12. The transfer of shares of the Filer is restricted pursuant to the Filer's constating documents.
13. The Filer provides the following ongoing disclosure to its Shareholders: (i) the notices of annual Shareholders' meetings, agendas, minutes from the previous annual Shareholders' meetings, proxy circulars and annual reports; (ii) the quarterly summaries of the intermediary financial statements; and (iii) the audited annual financial statements (collectively, the Ongoing Disclosure).
14. The Client-Shareholders are bound by a service contract with the Filer.
15. The Commission des valeurs mobilières du Québec and the Ontario Securities Commission have in the past granted the Filer discretionary exemptive relief from the prospectus and dealer registration requirements in respect of the issuance of Old Class A Shares.
The Proposed Reorganization
16. The Filer intends to implement the Proposed Reorganization in order to, among other things, help the Filer pursue its mission to foster independent optometry and stipulate that each client of the Filer will have to be a Client-Shareholder of the Filer.
17. The Filer obtained approval of its Shareholders to implement the Proposed Reorganization at the annual meeting of Shareholders held on April 27, 2019.
18. Pursuant to the Proposed Reorganization:
a) holders of Old Class A Shares will receive in exchange of each owned Old Class A Share, one New Class A Ordinary Share and one New Class A Preferred Share; and
b) holders of Old Class E Shares will receive in exchange of each owned Old Class E Share, one New Class E Ordinary Share and one New Class E Preferred Share.
19. Following the Proposed Reorganization, the Filer will provide prospective Client-Shareholders with copies of (i) the description of the share capital following the Proposed Reorganization; (ii) the service contract; and (iii) the share repurchase policy.
20. Following the date of execution of a service contract and annually thereafter, each Client-Shareholder will be required to subscribe to an equal number of Class M Preferred Shares and Class M Ordinary Shares (at a subscription price of $9.99 per Class M Preferred Shares and 0.01$ per Class M Ordinary Shares) for a total amount between $240 and $360 per year (the Annual Subscription), as determined by the board of directors of the Filer depending on the financial needs of the Filer. The payment of the Annual Subscription by the Client-Shareholder will be made in up to 12 equal monthly installments to the Filer. These Class M Preferred Shares and Class M Ordinary Shares will be issued on December 31st of each year.
21. A Client-Shareholder can terminate a service contract provided that it sends written notification of cancelation to the Filer at least six months, but no more than twelve months, prior to the request date of termination.
22. The Filer has not and will not adopt a share repurchase policy for the New Class A Ordinary Shares, New Class A Preferred Shares, New Class E Ordinary Shares and New Class E Preferred Shares. Following the Proposed Reorganization, no additional shares of these classes will be issued by the Filer, unless an issuance is made in accordance with available regulatory prospectus exemptions.
23. The board of directors of the Filer adopted in principle a share repurchase policy for the Class M Preferred Shares and Class O Preferred Shares (theClass M and O Share Repurchase Policy). Pursuant to the Class M and O Share Repurchase Policy, the Filer will repurchase the Class M Preferred Shares and Class O Preferred Shares of a Shareholder at a price equal to the paid-up capital if the Shareholder is either (i) no longer in good standing with the provincial bodies regulating optometry or (ii) no longer bound by the service contract.
24. The repurchase of the shares by the Filer will be made pursuant to the issuer bid exemption under 4.6(a) of Regulation 62-104 respecting Take-Over Bids and Issuer Bids, CQLR, c. V-1.1, r. 35.
25. Following the Proposed Reorganization, Shareholders cannot hold more than a total of 2% of the issued and outstanding voting shares of the Filer, namely the New Class A Preferred Shares and Class M Preferred Shares. If a Shareholder holds a number of voting shares exceeding 2% of the issued and outstanding voting shares, the exceeding Class A Preferred Shares will be automatically converted by the Filer into Class E Preferred Shares; and if all of the exceeding Class A Preferred Shares have been converted into Class E Preferred Shares and the Shareholder still holds a number of voting shares exceeding 2% of the issued and outstanding voting shares, the exceeding Class M Preferred Shares will be automatically converted by the Filer into Class O Preferred Shares.
26. Following the Proposed Reorganization, the Shareholders will continue to receive the Ongoing Disclosure.
27. There will be no market for the New Class A Ordinary Shares, New Class A Preferred Shares, New Class E Ordinary Shares, New Class E Preferred Shares, Class M Ordinary Shares, Class M Preferred Shares and Class O Ordinary Shares and Class O Preferred Shares and these shares will not be traded on any marketplace.
28. The Filer is not at present, and does not intend to become, a reporting issuer in any of the Filing Jurisdictions.
29. The Filer has considered whether, under Regulation 31-103 respecting Registration Requirements, Exemptions and Ongoing Registrant Obligations (Regulation 31-103) and the Legislation, it could be considered to be engaged in or holding itself out as engaging in the business of trading in securities and therefore required to register as a dealer, rely on another exemption from the dealer registration requirement or seek exemptive relief from the dealer registration requirement. In light of the particular facts and circumstances of the Filer, including the fact that the initial and Annual Subscription are incidental to the Filer's principal activities, it does not receive any fees or other income from engaging in trades or acts in furtherance of distributions, and its activities do not have the attributes typical of a person or company carrying on the business of a dealer, and having considered the guidance in section 1.3 of the Policy Statement to Regulation 31-103, the Filer has concluded that it should not be considered to be engaged in registrable activities and therefore does not require relief from the registration requirement of the Legislation.
Decision
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for it to make the decision.
The decision of the Decision Makers is that the Exemption Sought is granted provided that all trades of New Class A Ordinary Shares, New Class A Preferred Shares, New Class E Ordinary Shares, New Class E Preferred Shares, Class M Ordinary Shares, Class M Preferred Shares, Class O Ordinary Shares and Class O Preferred Shares will be an offering subject to the prospectus requirements of the Legislation unless the trade is made in accordance with the Filer's constating documents and by-laws.
Signed 19 October 2020
"Benoît Gascon"
Senior Director of Corporate Finance