North Halton Golf & Country Club -- s. 74(1)
Headnote
Paragraph 25(1)(a), section 53, and subsection 74(1) of the Act -- certain sales, transfers, and issuances of Class G Common Shares of issuer not subject to prospectus requirements of the Act, subject to conditions
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c.S.5, as am. ss. 25(1)(a), 53, and 74(1).
IN THE MATTER OF
THE SECURITIES ACT,
R.S.O 1990, CHAPTER S.5, AS AMENDED
(the Act)
AND
IN THE MATTER OF
NORTH HALTON GOLF & COUNTRY CLUB
ORDER
(Subsection 74(1))
UPON the application (the Application) of North Halton Golf & Country Club Limited (the Club) to the Ontario Securities Commission (the Commission) for an order pursuant to subsection 74(1) of the Act that the prospectus requirements of section 53 of the Act (the Prospectus Requirements) shall not apply to certain trades in securities of the Club, as described below;
AND UPON considering the Application and the recommendation of the Staff of the Commission;
AND UPON the Club having represented to the Commission as follows:
Background
1. The Club was incorporated as a corporation with share capital under the Corporations Act (Ontario) (the OCA) in 1954 and was continued as a corporation under the Canada Business Corporations Act (the CBCA) on June 6, 2008 (the Continuance). The Club amalgamated with NH Equity Corp. in 2011. The Club is not a "private company" within the meaning of the Act and is not a "private issuer" within the meaning of National Instrument 45-106 (NI 45-106). The Club is not, and does not intend to become, a reporting issuer under the Act or under the securities legislation of any other Canadian jurisdiction. The shares of the Club are not traded on any stock exchange. The Club is a "for profit" corporation.
2. On February 22, 2008, the Commission issued an Order under Section 74(1) of the Act exempting the Club from the Prospectus Requirements subject to certain conditions (the Current Order).
3. The Club wishes to amend its By-law to provide for, among other things, membership incentives including trial golf memberships and the ability to pay for Class G Shares over time. Certain of the proposed amendments to the By-law are inconsistent with the Current Order.
4. The Club has applied to revoke and replace the Current Order with this Order.
Capital
5. The authorized share capital of the Club currently consists of:
(a) 375 Class A Common Shares. The holders of Class A Common Shares are entitled to receive notice of and to attend all meetings of the shareholders of the Club and are entitled to one vote for each Class A Common Share held. On a winding up or liquidation of the Club, each Class A Common Share will be immediately converted into one Class G Common Share and 10 Class X Preference Shares. Class A Common Shares are not transferable. In order to transfer a Class A Common Share, the holder of a Class A Common Share will be required to exchange that Class A Common Share for one Class G Common Share and 10 Class X Preference Shares;
(b) 625 Class G Common Shares which rank pari passu with the Class A Common Shares as to the payment of dividends and the right to vote at meetings of the shareholders of the Club. The Class A Common Shares and the Class G Common Shares represent equity ownership of the Club and, upon conversion of all of the Class A Common Shares, the Class G Common Shares will represent the entire equity ownership of the Club;
(c) 3750 Class X Preference Shares which are non-voting and non-transferable, bear a 4% annual cumulative dividend and are redeemable by the Corporation and retractable by the holder at $1,000 per Share. The redemption right shall be exercisable immediately. The retraction right will be exercisable at any time after June 13, 2013.
The Club does not intend to create additional Class A Common Shares.
6. Each holder of a Class A common Share is entitled (but not required) to exchange (the Class A Exchange Right) that Class A Common Share for one Class G Common Share and 10 Class X Preference Shares. Upon such exchange, the Class A Common Share will be cancelled.
7. Under the Current Order new adult golf-playing members of the Club are required to purchase one Class G Common Share. Currently the consideration payable for each Class G Share is $22,000. Existing holders of Class G Common Shares who hold Class X Preference Shares who wish to purchase a Class G Common Share for a "Family Golf Member" (i.e., a spouse, a common law spouse, a child or a grandchild, including a spouse of the child or grandchild, that is or will become, upon issue of the Class G Common Share, a golf member that pays annual golf fees) (the Family Membership Subscription Credit) are entitled to surrender up to 10 of their Class X Preference Shares to the Club in partial consideration for such purchase and will receive a credit of up to $10,000 ($1,000 per Class X Preference Share surrendered) against the amount payable in respect of such Class G Common Share. Any Class X Preference Shares so surrendered will be cancelled.
8. Purchases of Class G Common Shares by new members may be made: (a) from the Club (Treasury Issue); or (b) from another member or non-member shareholder (the Inter-Shareholder Transfer), subject to the approval of the Board of Directors of the Club. The Board of Directors of the Club will establish policies and procedures governing the issue/transfer of Class G Common shares to new members. The first 150 Class G Common Shares sold to new members, following the continuance of the Club under the CBCA were issued by the Club.
Trading in securities of the Club
9. The Club has considered whether, under National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 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 Club, and having considered the guidance in section 1.3 of the Companion Policy to NI 31-103, the Club 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.
Changes to the By-law
10. The changes to the Club's existing by-law contemplated by the Amended By-law are as follows:
(a) Certain changes to the procedures for the election of directors, specifically:
i. to provide that of the three (of nine) directors elected for three year terms, the President or Past-President may be elected for up to a third three-year term (all other directors are limited to two three-year terms);
ii. to provide for the creation of a nominating committee comprised of the Chair of the Governance Committee and two non-director shareholders and to define the duties of such committee;
iii. to provide that any two shareholders may nominate another shareholder for any of the three year director positions;
(b) Certain changes to membership categories and rules, specifically;
i. elimination of the category of tennis membership;
ii. to provide for the creation of a category of "trial golf member" to allow prospective new golf members to have a trial membership at the Club for a period of up to 15 months by paying the annual financial obligations of an existing member and a premium assessed by the Board (the Trial Membership);
iii. a waiver or reduction of annual golf dues for a one year period for new shareholders who subscribe for a Class G Share and pay the subscription price in full at the time of subscription (so long as the total number of golf members is then below 575, or such number as may be adjusted from time to time by a Special Resolution of the Shareholders);
iv. to provide for spousal golf trial membership rights for a limited three year period for existing shareholders or new shareholders who subscribe for a Class G Share and pay the subscription price in full at the time of the subscription (so long as the total number of golf members is then below 575, or such number as may be adjusted from time to time by a Special Resolution of the Shareholders);
v. to provide for an increase in the "intermediate" age range from 19 to 36 years of age (as opposed to 19 to 29 years of age). This age range will also be adjusted from time to time as may be determined by a special resolution of the shareholders;
vi. to include a restriction that would preclude the sale of Class G Shares by current shareholders directly to prospective members who have enrolled as members on a trial basis;
vii. to implement a change in policy of sales of Class G Shares so that shares are issued to new members by the Club more frequently than they are transferred from other members than is presently the case. In particular, a Class G Share will be sold from treasury for every second share sold rather than every third share sold;
viii. to restrict the aggregate number of trial golf members and persons who have subscribed for a Class G Share of the Club that pay their subscription price for such share over a period of time;
ix. to provide that persons who have subscribed for a Class G Share of the corporation may arrange to pay the subscription price for such share over a period of time not to exceed seven years subject to such terms and conditions as may be established by the Board (the Subscription Plan). Class G Shares will not be issued to a subscriber until the subscription price is paid in full. However, such subscriber shall be entitled to play golf at the Club during the subscription period;
x. to provide that the Board, with the prior approval of 60% of the shareholders voting on the question, may provide incentives to new golf members, including waiver or reduction of golf dues for a one year period;
xi. to shorten the period within which membership arrears must be paid from 30 to 10 days after due notice in writing.
11. The Club believes that the requested relief is necessary as:
(a) (i) the trades outlined in paragraphs (a) through (c) below will not be made to "accredited" investors (as such term is defined in NI 45-106) in every case where such a trade is made; (ii) the Club is not entitled to rely on the exemption provided in Paragraph 2.38 of NI 45-106 and it does not appear that any of the other exemptions set forth in NI 45-106 will be available in respect of such trades;
(b) the ability of the Club to sell Class G Common Shares to new and existing golf members including sales pursuant to the Family Membership Subscription Credit and the Subscription Plan is essential to the continued existence of the Club;
(c) the ability of the Club to provide incentives to potential members in the form of the Trial Membership and the Subscription Plan is essential to attracting new members; and
(d) under the Current Order all amendments to the Articles or By-laws of the Club must be approved by the Director.
AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;
IT IS HEREBY ORDERED, pursuant to subsection 74(1) of the Act, that the Prospectus Requirements shall not apply to:
(a) the issue of Class G Common Shares by the Club to new golf-playing members of the Club (including Class G Common Shares issued pursuant to the Family Member Subscription Credit and the Subscription Plan); and;
(b) the sale or transfer of Class G Common Shares to new golf-playing members of the Club or to non-shareholder golf members;
for so long as,
(c) each purchaser or transferee of Class G Common Shares under paragraph (a) or (b) is provided with
i. the By-Laws and Articles of the Club, and all amendments thereto;
ii. the most recent annual audited financial statements of the Club, and a copy of any subsequent interim financial statements;
iii. a copy of this decision; and
iv. a written statement to the effect that certain protections, rights and remedies provided by the Act, including statutory rights of rescission and damages, will be unavailable to that purchaser or transferee and that there are restrictions imposed on the disposition or transfer of the Class G Common Shares;
(d) in respect of a sale, transfer or issue under paragraph (a) or (b):
i. the sale, transfer, or issue is approved by the Board of Directors of the Club;
ii. in respect of a sale or transfer under paragraph (b), the Board of Directors of the Club only gives its approval under subparagraph (i) if it has determined that it is appropriate to approve such a sale or transfer in lieu of issuing new Class G Common Shares from Treasury of the Club,
iii. in respect of a sale or transfer under paragraph (b), the Club charges the transferring member (other than a selling or transferring member who acquired the Class G Common Share being sold or transferred pursuant to the Class A Exchange Right under the Continuance) a "transfer fee" equal to 20% of the then current price at which Class G Common Shares are being issued by the Club from Treasury in respect of any such sale or transfer, and
iv. the restrictions in subparagraphs (i), (ii) and (iii) are, at the time of the sale, transfer, or issue, contained in the conditions attached to the Class G Common Shares which form part of the Articles of the Club,
(e) the Club has not issued any securities from Treasury since the Continuance other than Class G Common Shares and Class X Preference Shares;
(f) the By-laws or Articles of the Club require that a new adult golf member of the Club (i) own a Class A Common Share or a Class G Common Share; or (ii) have agreed to subscribe for a Class G Common Share pursuant to the terms of a subscription plan that has been approved by the Director; or (iii) be a participant in a trial membership program, the terms of which program have been approved by the Director;
(g) the By-laws and Articles of the Club are not amended without notice to, and the consent of, the Director (as defined in the Act);
(h) the first trade of any Class G Common Shares purchased or acquired pursuant to paragraph (a) or (b) will be a distribution; and
(i) the amendment of the By-law in the manner described in representation 10 hereof is approved by the required shareholder vote.
Dated at Toronto this 1st day of March, 2013.