Constellation Software Inc. (Re), 2017 CanLII 67345

July 18, 2017

AND

Background

The securities regulatory authority or regulator in the Jurisdiction (the Decision Maker) has received an application (the Application) from the Filers for a decision under the securities legislation of the Jurisdiction (the Legislation) for the following relief (the Exemption Sought):

(a) that the requirement that a dealer, not acting as agent of the purchaser, who receives an order or subscription for a security offered in a distribution to which the prospectus requirement applies, deliver to the purchaser or its agent the latest prospectus (including the applicable prospectus supplement(s) in the case of a base shelf prospectus), and any amendment to the prospectus (the Prospectus Delivery Requirement) does not apply to the Issuer or Agents or other registered investment dealer acting on behalf of the Agents as a selling agent (each a Selling Agent) in connection with any "at-the-market distribution" (as defined in National Instrument 44-102 Shelf Distributions (NI 44-102)) of debentures (Debentures) of the Issuer pursuant to a debenture distribution agreement (the Distribution Agreement) to be entered into by the Issuer and the Agents (ATM Distribution);

(b) that the requirements to include the statements specified in subsections 5.5(2) and 5.5(3) of NI 44-102 in a base shelf prospectus, and the requirements to include in a prospectus supplement each of the following:

(i) a forward-looking issuer certificate in the form specified in section 2.1 of Appendix A to NI 44-102;

(ii) a forward-looking underwriter certificate in the form specified in section 2.2 of Appendix A to NI 44-102;

(iii) a statement respecting purchasers' statutory rights of withdrawal and remedies for rescission or damages in substantially the form prescribed by Item 20 of Form 44-101F1 Short Form Prospectus;

(collectively, the Prospectus Form Requirements)

do not apply to a prospectus of the Issuer (including the applicable prospectus supplement(s)) to be filed in respect of an ATM Distribution.

The Decision Maker has also received a request from the Filers for a decision that the Application and this decision (together, the Confidential Material) be kept confidential and not be made public until the earlier of: (i) the date on which the Filers enter into the Distribution Agreement; (ii) the date any of the Filers advise the Decision Maker that there is no longer any need for the Confidential Material to remain confidential; and (iii) the date that is 90 days after the date of this decision (the Confidentiality Relief).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:

(a) the Ontario Securities Commission is the principal regulator for the Application; and

(b) the Filers have 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, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, the Northwest Territories, Nunavut and the Yukon Territory.

Interpretation

Terms defined in National Instrument 14-101 Definitions or MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filers:

The Issuer

The Issuer is a corporation incorporated under the Business Corporations Act (Ontario). The head office of the Issuer is located in Toronto, Ontario.
The Issuer is a reporting issuer in all of the provinces and territories of Canada and is in compliance in all material respects with the requirements of securities legislation applicable therein.
The Issuer's common shares are listed on the TSX under the trading symbol "CSU" and the Debentures are listed on the TSX under the trading symbol "CSU.DB". The Debentures are not convertible into common shares of the Issuer.

The Agents

Each Agent is a corporation established under the laws of the Province of Ontario with its head office in Toronto, Ontario.
Each Agent is registered as an investment dealer under the securities legislation of each of the provinces and territories of Canada, is a member of the Investment Industry Regulatory Organization of Canada, and is a participating organization of the TSX.
Each Agent is not in default of securities legislation in any jurisdiction of Canada.

Proposed ATM Distribution

Subject to mutual agreement on terms and conditions, the Filers propose to enter into the Distribution Agreement for the purpose of ATM Distributions involving the periodic sale of Debentures by the Issuer through the Agents, as agents, under the base shelf prospectus procedures prescribed by subsections 9.1(2) and (3) of NI 44-102, read as if the term “equity securities” is substituted with “the Debentures”.
Prior to making an ATM Distribution, the Issuer will have filed in each province and territory of Canada: (i) a shelf prospectus providing for distribution from time to time of securities of the Issuer, including Debentures (the Shelf Prospectus); and (ii) a prospectus supplement describing the terms of the ATM Distribution, including the terms of the Distribution Agreement, and otherwise supplementing the disclosure in the Shelf Prospectus (the Prospectus Supplement).
Upon entering into the Distribution Agreement, the Issuer will:

(a) issue and file a news release indicating that the Shelf Prospectus and the Prospectus Supplement have been filed on SEDAR and disclosing where and how purchasers may obtain copies; and

(b) file the Distribution Agreement on SEDAR.

The Issuer will conduct ATM Distributions through the Agents, as agent, directly, or through a Selling Agent through the facilities of the TSX or other "marketplace" (as defined in National Instrument 21-101 Marketplace Operation) in Canada (Marketplace).
The Distribution Agreement will provide that the aggregate principal amount of Debentures distributed pursuant to any ATM Distribution will not exceed 10% of the aggregate principal amount of the Issuer’s outstanding Debentures, calculated as at the last trading day of the month before the month in which the first trade under the ATM Distribution is made.
The Agents will act as the sole underwriters on behalf of the Issuer in connection with each ATM Distribution, and will be the only persons or companies paid an underwriting fee or commission by the Issuer in connection with such sales. Each Agent will sign an underwriter's certificate in the Prospectus Supplement.
The Agents will effect each ATM Distribution on a Marketplace in Canada, either themselves or through a Selling Agent. If sales are effected through a Selling Agent, the Selling Agent will be paid a seller's commission for effecting the trades on behalf of the Agent. A purchaser's rights and remedies under the Legislation against the Agents, as underwriters of an ATM Distribution, will not be affected by a decision to effect the sale directly or through a Selling Agent.
The Distribution Agreement will provide that, at the time of each sale of Debentures pursuant to an ATM Distribution, the Issuer will represent to the Agents that the Shelf Prospectus, as supplemented by the Prospectus Supplement and any subsequent amendment or supplement to the Shelf Prospectus or the Prospectus Supplement (together, the Prospectus), contains full, true and plain disclosure of all material facts relating to the Debentures being distributed. The Issuer would, therefore, be unable to proceed with sales pursuant to an ATM Distribution when it is in possession of undisclosed information that would constitute a material fact or a material change in respect of the Debentures.
If, after the Issuer delivers a sell notice to the Agents directing the Agents to sell Debentures on the Issuer's behalf pursuant to the Distribution Agreement (a Sell Notice), the sale of Debentures specified in the notice, taking into consideration prior sales, would constitute a material fact or material change in respect of the Debentures, the Issuer would be required to suspend sales under the Distribution Agreement until either: (i) it has filed a material change report or amended the Prospectus; or (ii) circumstances have changed such that the sales would no longer constitute a material fact or material change.
In determining whether the sale of Debentures specified in a Sell Notice would constitute a material fact or material change, the Issuer will take into account multiple factors, including, without limitation, (i) whether the sale of the Debentures would affect any applicable rating(s) assigned to the Debentures (ii) recent developments in the business, affairs and capital structure of the Issuer; and (iii) prevailing market conditions generally.
The Agents will monitor closely the market's reaction to trades made on any Marketplace in Canada pursuant to the ATM Distribution in order to evaluate the likely market impact of future trades. Each Agent has experience and expertise in managing sell orders to limit downward pressure on trading prices. If the Agent has concerns as to whether a particular sell order placed by the Issuer may have a significant effect on the market price of the Debentures, the Agent will recommend against effecting the trade at that time. It is in the interest of both the Issuer and the Agents to minimize the market impact of sales under an ATM Distribution.
The Debentures have received a final rating of BBB- by Fitch Ratings as of January 6, 2016.
Fitch Ratings has confirmed to the Issuer that the Debentures to be issued pursuant to the ATM Distribution will receive the same rating as the Debentures previously issued by the Issuer.

Disclosure of Debentures Sold in ATM Distribution

For each month during which the Issuer conducts an ATM Distribution, the Issuer will within seven calendar days after the end of the month, file on SEDAR and make publicly available, as a notice of proceeds, a report disclosing the aggregate principal amount and average price of Debentures distributed pursuant to an ATM Distribution, as well as total gross proceeds, commissions and net proceeds.
The Issuer will also disclose in the annual and interim financial statements and management discussion and analysis filed on SEDAR in respect of that financial period, the aggregate principal amount and average price of Debentures sold pursuant to ATM Distributions during that annual or interim period, as well as total gross proceeds, commission and net proceeds.

Prospectus Delivery Requirement

Pursuant to the Prospectus Delivery Requirement, a dealer effecting a trade of securities offered under a prospectus is required to deliver a copy of the prospectus (including the applicable prospectus supplement(s) in the case of a base shelf prospectus) to the purchaser within prescribed time limits.
However, the delivery of the Prospectus is not practicable in the circumstances of an ATM Distribution, as neither the Agents nor a Selling Agent effecting the trade will know the identity of the purchasers.
Although purchasers under an ATM Distribution would not physically receive a printed prospectus, the Prospectus (together with all documents incorporated by reference therein) will be filed and readily available to all purchasers electronically via SEDAR. Moreover, the Issuer will issue a news release that specifies where and how copies of the Shelf Prospectus and the Prospectus Supplement can be obtained.
The liability of an issuer or an underwriter (or others) for a misrepresentation in a prospectus pursuant to the civil liability provisions of the Legislation will not be affected by the grant of an exemption from the Prospectus Delivery Requirement, as purchasers of securities offered by a prospectus during the period of distribution have a right of action for damages or rescission, without regard to whether the purchaser relied on the misrepresentation or in fact received a copy of the prospectus.

Withdrawal Right and Right of Action for Non-Delivery

Pursuant to the Legislation, an agreement to purchase a security in respect of a distribution to which the prospectus requirement applies is not binding on the purchaser if a dealer receives, not later than midnight on the second day exclusive of Saturdays, Sundays and holidays, after receipt by the purchaser of the latest prospectus or any amendment to the prospectus, a notice in writing that the purchaser does not intend to be bound by the agreement of purchase (the Withdrawal Right).
Pursuant to the Legislation, a purchaser of a security to whom a prospectus was required to be sent or delivered in compliance with the Prospectus Delivery Requirements, but was not so sent or delivered, has a right of action for rescission or damages against the dealer who did not comply with the Prospectus Delivery Requirements (the Right of Action for Non-Delivery).
Neither the Withdrawal Right nor the Right of Action for Non-Delivery is workable in the context of an ATM Distribution, because the Prospectus will not be delivered to a purchaser of Debentures thereunder.

Prospectus Form Requirements

Exemptive relief from the Prospectus Form Requirements for the Issuer's forward-looking certificate in the Prospectus Supplement is required to reflect the fact that no pricing or other supplement will be filed subsequent to the Prospectus Supplement. Accordingly, the Issuer will file the Prospectus Supplement with the following certificate in substitution for the certificate prescribed by the Prospectus Form Requirements:

The short form prospectus, as supplemented by the foregoing, together with the documents incorporated in the prospectus by reference as of the date of a particular distribution of securities under the prospectus, will, as of that date, constitute full, true and plain disclosure of all material facts relating to the securities offered by the prospectus, as required by the securities legislation of each of the provinces and territories of Canada.

Exemptive relief from the Prospectus Form Requirements for the Agents’ forward-looking certificate in the Prospectus Supplement is required to reflect the fact that no pricing or other supplement will be filed subsequent to the Prospectus Supplement. Accordingly, the Issuer will file the Prospectus Supplement with the following certificate in substitution for the underwriter certificate prescribed by the Prospectus Form Requirements:

To the best of our knowledge, information and belief, the short form prospectus, as supplemented by the foregoing, together with the documents incorporated in the prospectus by reference as of the date of a particular distribution of securities offered by the prospectus, will, as of that date, constitute full, true and plain disclosure of all material facts relating to the securities offered by the prospectus, as required by the securities legislation of each of the provinces and territories of Canada.

Exemptive relief from the Prospectus Form Requirements is required to allow the Prospectus to accurately reflect the relief granted from the Prospectus Delivery Requirement. Accordingly, the Issuer will include the following language in the Prospectus Supplement in substitution for the language prescribed by the Prospectus Form Requirements:

Securities legislation in certain of the provinces and territories of Canada provides purchasers with the right to withdraw from an agreement to purchase securities and with remedies for rescission or, in some jurisdictions, revision of the price, or damages if the prospectus, prospectus supplements relating to securities purchased by a purchaser and any amendment are not delivered to the purchaser, provided that the remedies are exercised by the purchaser within the time limit prescribed by securities legislation. However, purchasers of Debentures under an at-the-market distribution by the Issuer will not have the right to withdraw from an agreement to purchase the Debentures and will not have remedies of rescission or, in some jurisdictions, revision of the price, or damages for non-delivery of the prospectus, because the prospectus, prospectus supplements relating to the Debentures purchased by the purchaser and any amendment relating to Debentures purchased by such purchaser will not be delivered as permitted under a decision dated ●, 2017 and granted pursuant to National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions.

Securities legislation in certain of the provinces and territories of Canada also provides purchasers with remedies for rescission or, in some jurisdictions, revision of the price or damages if the prospectus, prospectus supplements relating to securities purchased by a purchaser and any amendment contains a misrepresentation, provided that the remedies are exercised by the purchaser within the time limit prescribed by securities legislation. Any remedies under securities legislation that a purchaser of Debentures under an at-the-market distribution by the Issuer may have against the Issuer or the Agents for rescission or, in some jurisdictions, revision of the price, or damages if the prospectus, prospectus supplements relating to securities purchased by a purchaser and any amendment contain a misrepresentation remain unaffected by the non-delivery and the decision referred to above.

Purchasers should refer to applicable provisions of securities legislation and the decision referred to above for the particulars of these rights or consult with a legal adviser.

The modified disclosure of purchasers' rights set forth in paragraph 30 above will be disclosed in the Prospectus Supplement and, solely as regards to ATM Distributions contemplated by the Prospectus Supplement, supersede and replace the statement of purchasers' rights contained in the Shelf Prospectus.
The statements required by subsections 5.5(2) and (3) of NI 44-102 to be included in the Shelf Prospectus will be qualified by adding the following ", except in cases where an exemption from such delivery requirements has been obtained".

Decision

The Decision Maker is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.

The decision of the Decision Maker under the Legislation is that the Exemptive Relief is granted provided that:

(a) as it relates to the Prospectus Form Requirements, the disclosure described in sections 20, 21, 29, 30, 31 and 32 is made;

(b) as it relates to the Prospectus Delivery Requirements, the representations made in sections 9, 10, 12, 13, 14, 15, 17 and 33 are complied with;

(c) the total principal amount of Debentures that may be issued pursuant to ATM Distributions under the Shelf Prospectus will not exceed $100,000,000;

(d) the aggregate principal amount of Debentures distributed pursuant to any ATM Distribution does not exceed 10% of the aggregate principal amount of the Issuer’s outstanding Debentures, calculated as at the last trading day of the month before the month in which the first trade under the ATM Distribution is made;

(e) the Issuer will not purchase any Debentures (other than pursuant to any rights of redemption specified in the terms of the Debentures) unless, and until such time as, the Distribution Agreement has been terminated;

(f) upon a downgrade in any applicable rating(s) or a negative rating outlook assigned to the Debentures, the Issuer will, immediately following receipt of notice of such downgrade or negative rating outlook, advise the Agents to discontinue all distributions of Debentures pursuant to an ATM Distribution until the Issuer: (i) issues a press release announcing the downgrade; and (ii) files an amended and restated Prospectus Supplement disclosing the new rating(s); and

(g) this decision will terminate 25 months after the issuance of the receipt for the Shelf Prospectus.

The further decision of the Decision Maker is that the Confidentiality Relief is granted until the earlier of the following:

(a) the date on which the Filers enter into the Distribution Agreement;

(b) the date any of the Filers advise the Decision Maker that there is no longer any need for the Confidential Material to remain confidential; and

As to the Exemption Sought from the Prospectus Delivery Requirement for prospectuses and the Confidentiality Relief:

“Frances Kordyback” Commissioner Ontario Securities Commission

“Robert P. Hutchison” Commissioner Ontario Securities Commission

As to the Exemption Sought from the Prospectus Delivery Requirement for prospectus supplements, the Prospectus Form Requirements and the Confidentiality Relief:

“Jo-Anne Matear” Manager, Corporate Finance Ontario Securities Commission