Abacus Health Products, Inc.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Multilateral Instrument 61-101 -- Protection of Minority Security Holders in Special Transactions -- application for relief from requirement to obtain separate minority approval for each of filer's subordinate voting shares and proportionate voting share -- classes intended to be identical, but for proportionate rights -- no difference of interest between holders of each class of shares in connection with the proposed business combination transaction, different class are not affected in a differing -- safeguards include fairness opinion, approval of Court -- applicable corporate statue and filer's constating documents provide that shareholders will vote as a single class other than in certain circumstances which are not present in connection with proposed transaction.
Applicable Legislative Provisions
National Instrument 61-101 Protection of Minority Security Holders in Special Transactions, ss. 8.1(1), 9.1(2).
April 27, 2020
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the "Jurisdiction") AND IN THE MATER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF ABACUS HEALTH PRODUCTS, INC. (the "Filer")
DECISION
Background
The principal regulator in the Jurisdiction has received an application (the "Application") from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") exempting the Filer, pursuant to section 9.1 of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions ("MI 61-101"), from the requirement in subsection 8.1(1) of MI 61-101 to obtain minority approval for the Arrangement (as defined below) from the holders of every class of affected securities of the Filer voting separately as a class, and requiring instead that minority approval be obtained from all Disinterested Shareholders (as defined below) voting together as single class (the "Exemption Sought").
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) The Ontario Securities Commission is the principle regulator for this Application; and
(b) 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 Alberta, Saskatchewan, Manitoba and New Brunswick.
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
The Filer
1. The Filer is a corporation governed by the Business Corporations Act (Ontario) ("OBCA") and results from the amalgamation of 1194137 Ontario Inc. and Silver Circle Compact Disc Books Inc. on October 30, 1996, under the OBCA (named World Wide Interactive Discs Inc. following such amalgamation). The Filer changed its name to World Wide Co-Generation Inc. on February 13, 2004 and to World Wide Inc. on July 17, 2007. On January 29, 2019, the Filer completed a reverse takeover (the "RTO") involving the acquisition by the Filer of Abacus Health Products, Inc., a Delaware corporation. In connection with the RTO, the Filer changed its name to Abacus Health Products, Inc. on January 28, 2019.
2. The Filer's head and registered office is located at 10 Wanless Avenue, Suite 201, Toronto, Ontario, M4N 1V6.
3. The Filer is a reporting issuer in each of the provinces of Canada, excluding Québec, and is not in default of its obligations under the securities legislation in any of those provinces.
4. The Filer is engaged primarily in the development and commercialization of over-the-counter registered topical medications with active pharmaceutical ingredients and which contain organic and natural ingredients, including a cannabinoid-rich hemp extract containing cannabidiol from cannabis sativa plant.
5. The authorized share capital of the Filer consists of (i) an unlimited number of subordinate voting shares, carrying one (1) vote per share (the "Subordinate Voting Shares"), and (ii) an unlimited number of proportionate voting shares, carrying one hundred (100) votes per share (the "Proportionate Voting Shares").
6. As at April 13, 2020, the outstanding share capital of the Filer (the "Filer Shares") consists of 11,991,471 Subordinate Voting Shares and 95,873.66 Proportionate Voting Shares.
7. As at April 13, 2020, the issued and outstanding Subordinate Voting Shares and Proportionate Voting Shares represent approximately 55.57% and 44.43%, respectively, of the aggregate voting rights attached to the Filer Shares.
8. The Filer is a "Foreign Private Issuer" as defined in Rule 3b-4 under the United States Securities Exchange Act of 1934.
9. If, as of the last business day of its most recently completed second fiscal quarter, more than 50% of the outstanding voting securities of the Filer (as determined under Rule 3b-4 under the United States Securities Exchange Act of 1934) are directly or indirectly held of record by residents of the United States (the "Threshold"), the Filer would no longer meet the definition of a "Foreign Private Issuer", which would have adverse consequences with respect to the Filer's ability to raise capital in private placements or Canadian prospectus offerings.
10. In December 2016, the United States Securities and Exchange Commission (the "SEC") issued a Compliance and Disclosure Interpretation to clarify that issuers with multiple classes of voting stock carrying different voting rights may, for the purposes of calculating compliance with the Threshold, examine either (i) the combined voting power of its share classes, or (ii) the number of voting securities, in each case held of record by U.S. residents. Based on this interpretation, each issued and outstanding Proportionate Voting Share and each issued and outstanding Subordinate Voting Share is counted by the Filer as one voting security for the purposes of determining the Threshold.
11. As such, the Proportionate Voting Shares were created to help ensure that the Filer maintains its "Foreign Private Issuer" status under United States securities laws. The share structure of the Filer was approved on the basis of helping to ensure that the Filer would hold "Foreign Private Issuer" status by all shareholders of World Wide Inc. in conjunction with the RTO.
12. The holders of the Subordinate Voting Shares and Proportionate Voting Shares have the same rights and obligations, and no holder of Filer Shares is entitled to any privilege, priority or preference in relation to any other such holder, subject to the following:
Listing
(a) The Subordinate Voting Shares are listed on the Canadian Securities Exchange under the symbol "ABCS", are quoted on the OTCQB marketplace provided and operated by the OTC Markets Group under the symbol "ABAHF". The Proportionate Voting Shares are not listed or posted for trading on any stock exchange.
Amendments
(b) The two classes of Filer Shares are entitled to vote separately only when the Articles are altered or amended so as to prejudice, interfere or affect the rights of the respective classes in certain specific manners.
(c) So long as any Subordinate Voting Shares remain outstanding, the Filer will not, without the consent of the holders of Subordinate Voting Shares expressed by separate special resolution, alter or amend the Articles if the result of such alternation or amendment would (i) prejudice or interfere with any right or special right attached to the Subordinate Voting Share, or (ii) affect the rights or special rights of the holders of Subordinate Voting Shares and Proportionate Voting Shares on a per share basis which differs from the basis of one (1) per share in the case of the Subordinate Voting Shares, and one hundred (100) per share in the case of the Proportionate Voting Shares.
(d) So long as any Proportionate Voting Shares remain outstanding, the Filer will not, without the consent of the holders of Proportionate Voting Shares expressed by separate special resolution, alter or amend the Articles if the result of such alternation or amendment would (i) prejudice or interfere with any right or special right attached to the Proportionate Voting Share, or (ii) affect the rights or special rights of the holders of Subordinate Voting Shares and Proportionate Voting Shares on a per share basis which differs from the basis of one (1) per share in the case of the Subordinate Voting Shares, and one hundred (100) per share in the case of the Proportionate Voting Shares.
Dividends
(e) When declaring dividends, the Filer's board of directors (the "Board") has to declare dividends, whether in cash, property or stock dividend, at the same time on both classes of Filer Shares.
(f) The Board cannot declare a dividend payable in cash or property on the Subordinate Voting Shares unless it simultaneously declares a similar dividend payable on the Proportionate Voting Shares in an amount per Proportionate Voting Share equal to the amount of the dividend declared per Subordinate Voting Share, multiplied by one hundred (100).
(g) The Board cannot declare a dividend payable in cash or property on the Proportionate Voting Shares unless it simultaneously declares a similar dividend payable on the Subordinate Voting Shares in an amount per Subordinate Voting Share equal to the amount of the dividend declared per Proportionate Voting Share, divided by one hundred (100).
(h) The Board may declare a stock dividend payable in Subordinate Voting Shares on the Subordinate Voting Shares, but only if it simultaneously declares a stock dividend payable (i) in Proportionate Voting Shares on the Proportionate Voting Shares, in a number of shares per Proportionate Voting Share having a value equal to the amount of the dividend declared per Subordinate Voting Share, or (ii) Subordinate Voting Shares on the Proportionate Voting Shares, in a number of shares per Proportionate Voting Shares, in a number of shares per Proportionate voting Share equal to the amount of the dividend declared per Subordinate Voting Share, multiplied by one hundred (100).
(i) The Board may declare a stock dividend payable in Proportionate Voting Shares on the Proportionate Voting Shares, but only if it simultaneously declares a stock dividend payable in Subordinate Voting Shares on the Subordinate Voting Shares, in a number of shares per Subordinate Voting Share having a value equal to the amount of the dividend declared per Subordinate Voting Share.
(j) The directors may declare a stock dividend payable in Subordinate Voting Shares on the Proportionate Voting Shares, but only if the directors simultaneously declare a stock dividend payable in Subordinate Voting Shares on the Subordinate Voting Shares, in a number of shares per Subordinate Voting Share equal to the amount of the dividend declared per Proportionate Voting Share divided by one hundred (100).
Liquidation
(k) In the event of the liquidation, dissolution or winding-up of the Filer, whether voluntary or involuntary, or in the event of any other distribution of assets of the Filer to its shareholders for the purpose of winding up its affairs, the holders of the Proportionate Voting Shares shall be entitled to participate pari passu with the holders of the Subordinate Voting Shares, with the amount of such distribution per Proportionate Voting Share equal to the amount of such distribution per Subordinate Voting Share multiplied by one hundred (100), and each fraction of a Proportionate Voting Share will be entitled to the amount calculated by multiplying the fraction by the amount payable per whole Proportionate Voting Share.
Conversion
(l) Each class of Filer Shares is convertible into the other class of Filer Shares subject to certain terms and restrictions.
(m) Pursuant to coattail provisions in the Articles, the Subordinate Voting Shares are convertible, on the basis of one hundred (100) Subordinate Voting Shares for one (1) Proportionate Voting Shares, in the event that a certain offer is made to purchase Proportionate Voting Shares. Subordinate Voting Shares are also convertible at the option of the shareholder into such number of Proportionate Voting Shares as is determined by dividing the number of Subordinate Voting Shares being converted by one hundred (100), provided that the Board consents to such conversion.
(n) Each Proportionate Voting Share is voluntarily convertible into one hundred (100) Subordinate Voting Shares, subject to certain conversion limitations designed to maintain the Filer's "Foreign Private Issuer" status in the United States. Each Proportionate Voting Share is also mandatorily convertible into one hundred (100) Subordinate Voting Shares whenever the Board determines that it is no longer in the best interest of the Filer that the Proportionate Voting Shares be maintained as a separate class of Filer Shares.
13. By their terms, the Proportionate Voting Shares and Subordinate Voting Shares were intended to be identical, but for the proportionate (a) voting, (b) dividend, (c) participation on liquidation, dissolution or winding-up rights, and (d) conversion privileges, as outlined in paragraph 12 above.
14. With regards to the accounting treatment of the Subordinate Voting Shares and the Proportionate Voting Shares, there is no distinction and the two classes are treated as if they were shares of one class only. All Filer Shares are treated as common share capital and presented in the aggregate in shareholders' equity as share capital on the Filer's consolidated statement of financial position.
Charlotte's Web Holdings, Inc.
15. Charlotte's Web Holdings, Inc. ("CWH") is a corporation governed by the Business Corporations Act (British Columbia).
16. CWH is a reporting issuer or the equivalent thereof in each of the provinces of Canada, excluding Québec, and its common shares are listed on the Toronto Stock Exchange under the symbol "CWEB".
17. The head office of CWH is located at 1600 Pearl Street, Suite 300, Boulder, Colorado, United States, 80302.
The Arrangement
18. On March 22, 2020, the Filer entered into an arrangement agreement (the "Arrangement Agreement") with CWH pursuant to which the Filer agreed to complete an arrangement under the OBCA, which will result in, among other things, subject to the terms and conditions of the Arrangement Agreement, CWH acquiring, following the conversion of all Proportionate Voting Shares into Subordinate Voting Shares in accordance with the terms of the Articles, all of the outstanding Subordinate Voting Shares (other than Filer Shares in respect of which dissent rights are validly exercised) and issuing to each holder of Subordinate Voting Shares 0.85 of a common share in the capital of CWH (each whole share, a "CWH Share") for each Subordinate Voting Share held (the "Arrangement").
19. The Arrangement is a "business combination" for purposes of MI 61-101 and is therefore subject to the applicable requirements of MI 61-101, on the basis that Perry Antelman, the Chief Executive Officer of the Filer, constitutes an "interested party" in accordance with MI 61-101 and is entitled to receive a "collateral benefit" as a consequence of the Arrangement, as such term is defined in MI 61-101. Such requirements include, among other things, obtaining approval for the Arrangement by a majority of votes cast by the holders of each class of Filer Shares, in each case voting separately as a class, excluding the votes attached to Filer Shares beneficially owned, or over which control or direction is exercised, by any party specified in subsection 8.1(2) of MI 61-101 (the "Disinterested Shareholders"), at a shareholder meeting to be held by the Filer. The Disinterested Shareholders include the holders of Subordinate Voting Shares and Proportionate Voting Shares, with the exception of (i) Perry Antelman, and (ii) Tamara Kesselman, the spouse of Perry Antelman. In aggregate, Perry Antelman and Tamara Kesselman hold approximately 18.94% of the Proportionate Voting Shares, or approximately 8.42% of the Subordinate Voting Shares assuming the conversion of all Proportionate Voting Shares into Subordinate Voting Shares.
20. MI 61-101 was adopted to ensure the fair treatment of all security holders and the perception of such in the context of insider bids, issuer bids, business combinations and related party transactions.
21. The approval of the Arrangement is subject to a number of mechanisms to ensure that the collective interests of the holders of Filer Shares are protected, including the following:
(a) the Arrangement is structured as an arrangement to be carried out in accordance with section 182 of the OBCA and requires, among other things, (i) the approval of a special resolution in respect of the Arrangement by two-thirds of the votes cast by holders of Filer Shares, voting together as a single class, at a special meeting of shareholders of the Filer, and (ii) following receipt of such shareholder approval, the approval the Arrangement by the Ontario Superior Court of Justice (the "Court");
(b) an interim order of the Court pursuant to section 182(5) of the OBCA (the "Interim Order") providing for the manner in which the Filer will call, hold and conduct a special meeting of shareholders in respect of the Arrangement;
(c) the Filer will prepare and deliver to its shareholders an information circular (the "Information Circular") in accordance with applicable securities law requirements and the Interim Order that will provide shareholders with sufficient information to enable them to make an informed decision in respect of the Arrangement;
(d) the approval of the Arrangement by the majority of votes cast by the Disinterested Shareholders voting together as a single class (each Subordinate Voting Share carrying one (1) vote and each Proportionate Voting Share carrying one hundred (100) votes);
(e) the Board has obtained a fairness opinion from Greenhill & Co. Canada Ltd. stating that, as of the date of the opinion and subject to the assumptions, limitations, and qualifications on which such opinion is based, the consideration to be received by holders of Filer Shares pursuant to the Arrangement is fair, from a financial point of view, to the holders of the Filer Shares (the "Fairness Opinion");
(f) a right of dissent to the benefit of the holders of Filer Shares, including Disinterested Shareholders;
(g) the Board, following an in camera session during which the Board considered the Arrangement without management (including Perry Antelman) present, has unanimously determined that the Arrangement is in the best interests of the Filer and is fair and reasonable to holders of Filer Shares; and
(h) the Arrangement Agreement is the result of extensive arm's length negotiations among representatives of the Filer and CWH and their respective legal and financial advisors
(the measures described in paragraphs 21(a) through 21(h), together, the "Safeguard Measures").
22. The Board is of the view that the Safeguard Measures are the optimal mechanisms to ensure that the public interest is well protected and that holders of the Filer Shares are treated fairly and in accordance with their voting and economic entitlements under the Articles.
23. Under the OBCA, there is no entitlement to separate class votes with respect to the approval of the Arrangement.
24. In addition, the Filer has determined that under the Articles, there is no entitlement to separate class votes with respect to the approval of the Arrangement, and the holders of Proportionate Voting Shares are entitled to vote with the Subordinate Voting Shares as a single class in respect of the approval of the Arrangement. The Articles provide that (i) the holders of Subordinate Voting Shares are entitled to vote at all meetings of shareholders of the Filer except a meeting at which only the holders of another class or series of shares is entitled to vote, and (ii) the holders of Proportionate Voting Shares are entitled to vote at all meetings of shareholders of the Filer at which holders of Subordinate Voting Shares are entitled to vote. In the case of Subordinate Voting Shares and Proportionate Voting Shares, as the case may be, the Articles require a separate special resolution of the holders of Subordinate Voting Shares or Proportionate Voting Shares, as the case may be, only when the Articles are being altered or amended in a way that would either (i) prejudice or interfere with any right or special right attached to the Subordinate Voting Shares or the Proportionate Voting Shares, as the case may be, or (ii) affect the rights or special rights of the holders of Subordinate Voting Shares and Proportionate Voting Shares on a per share basis which differs from the basis of one (1) per share in the case of the Subordinate Voting Shares, and one hundred (100) per share in the case of the Proportionate Voting Shares.
25. Separate class votes by the holders of the Filer Shares would have the effect of granting disproportionate importance to one class of Filer Shares over another. Despite the fact that Disinterested Shareholders holding Proportionate Voting Shares would represent 39.3% of the total vote of Disinterested Shareholders on an aggregate basis, holders of Proportionate Voting Shares representing 19.7% of the total vote of Disinterested Shareholders could be afforded a veto right in respect of the Arrangement that could be exercised against all other Disinterested Shareholders. Such an outcome would not be in accordance with the reasonable expectations of the holders of Filer 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 the following mechanisms are implemented and remain in place:
1. a special meeting of the holders of Filer Shares is held in order for the Disinterested Shareholders of the Filer to consider and, if deemed advisable, approve the Arrangement, such approval to be obtained with the Disinterested Shareholders of the Filer voting together as a single class of the Filer;
2. the Information Circular is prepared and delivered by the Filer to its shareholders in accordance with applicable securities law requirements; and
3. the Fairness Opinion is included in its entirety in the Information Circular.