Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- application for exemption from the requirement to obtain a formal valuation for a business combination in accordance with section 4.3 of Multilateral Instrument 61-101 -- Take-Over Bids and Special Transactions in respect of a second step business combination -- application for exemption from the requirement to obtain minority approval for the subsequent acquisition transaction, in accordance with section 4.5 of MI 61-101 -- filer cannot avail itself of the exemptions because the offer is not considered a bid for the purposes of MI 61-101 because the foreign take over bid exemption is applied pursuant to section 100.3 of the Securities Act (Ontario) -- since the offer is an exempt take-over bid, Part II of MI 61-101 does not apply -- relief granted whereby in the event the offer is commenced and completed and the transaction contains a subsequent acquisition transaction, the offer will constitute a bid for the purposes of ss. 4.4(1)(d) and 8.2 of MI 61-101.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., s. 100.3.

Multilateral Instrument 61-101 Take-Over Bids and Special Transactions, ss. 4.4(1)(d), 8.2.

October 28, 2009

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the "Jurisdiction")

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

THE OFFER TO ACQUIRE ALL THE ISSUED AND

OUTSTANDING COMMON SHARES OF

COREL CORPORATION

NOT ALREADY OWNED BY COREL HOLDINGS L.P.

(AND ITS AFFILIATES) (collectively, "Holdings")

A LIMITED PARTNERSHIP CONTROLLED BY

VCP II INTERNATIONAL, L.L.C. ("VCP II")

(Holdings and VCP II, the "Filers")

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filers in connection with an offer (the "Offer") to acquire all of the issued and outstanding common shares (the "Common Shares") of Corel Corporation ("Corel") not already owned by Holdings, for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") that:

1. the Filers shall be exempt from the requirement to obtain a formal valuation for a business combination in accordance with section 4.3 of Multilateral Instrument 61-101 -- Protection of Minority Security Holders in Special Transactions ("MI 61-101") in respect of a second step business combination (a "Subsequent Acquisition Transaction"), to the extent undertaken by Holdings following the expiry of the Offer (the "Formal Valuation Relief"); and

2. the Filers shall be exempt from the requirement to obtain minority approval for the Subsequent Acquisition Transaction in accordance with section 4.5 of MI 61-101, to the extent undertaken by Holdings following the expiry of the Offer; (the "Minority Approval Relief").

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this 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 the province of Quebec.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions and MI 11-102 have the same meaning in this decision unless they are defined in this decision.

Representations

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

3. Holdings is a Cayman Islands limited partnership. The business of Holdings is that of a private limited partnership, which was organized for the purpose of holding, directly or indirectly, securities of Corel. The sole general partner of Holdings is Vector Capital Partners II International, Ltd., which is wholly-owned by VCP II. Mr. Alexander Slusky is the sole director and managing member of VCP II. The principal employment of Mr. Slusky is as the Managing Partner of VCP II and other affiliated private investment funds (collectively, "Vector"). The address of Holdings is at One Market Street, Steuart Tower, 23rd Floor, San Francisco, California 94105.

4. As of October 1, 2009, Holdings and its controllers beneficially owned, directly or indirectly, 17,682,698 Common Shares, representing approximately 68.3% of the issued and outstanding Common Shares.

5. Holdings is not in default of applicable securities legislation in any jurisdiction.

6. Vector is a private investment company engaged in the business of managing a portfolio of funds, including Holdings and VCP II. Its primary investment strategy is to focus on public and private technology companies worldwide. The registered and head office of Vector is located at One Market Street, Steuart Tower, 23rd Floor, San Francisco, California 94105.

7. Vector is not in default of applicable securities legislation in any jurisdiction.

8. Corel is a corporation incorporated under the federal laws of Canada and a reporting issuer in each of the provinces of Canada. The registered and head office of Corel is located at 1600 Carling Avenue, Ottawa, Ontario.

9. The authorized share capital of Corel consists of an unlimited number of Common Shares. Based on Corel's interim financial statements for the quarter ended August 31, 2009, as of September 22, 2009, there were 25,905,422 Common Shares issued and outstanding.

10. The Common Shares are listed for trading on the Toronto Stock Exchange under the symbol "CRE" and on the Nasdaq Global Market under the symbol "CREL".

11. Security holders whose last address as shown on the books of Corel is in Canada will hold less than 10 per cent of the outstanding Common Shares at the commencement of the Offer.

12. Holdings reasonably believes that security holders in Canada will beneficially own less than 10 per cent of the outstanding Common Shares at the commencement of the Offer.

13. The published market on which the greatest dollar volume of trading in Common Shares occurred during the 12 months immediately preceding the commencement of the Offer will not be in Canada.

14. The Offer will be exempt from the "formal bid requirements" of the Securities Act (Ontario) (the "Act") pursuant to section 100.3 of the Act.

15. Notwithstanding the non-application of the formal bid requirements under the Act, the Offer will be regulated by, and conducted in compliance with, all applicable securities laws of the United States, including the tender offer rules and going private transaction rules promulgated under the United States Securities and Exchange Act of 1934.

16. In that regard, Holdings will file an Offer to Purchase and Schedule TO (Tender Offer Statement) and Schedule 13e-3 (collectively, the "Offer Materials") with the United States Securities and Exchange Commission (the "SEC") and with the Canadian securities regulatory authorities on SEDAR and it is expected that Corel will file a Schedule 14D-9 with the SEC and with the Canadian securities regulatory authorities on SEDAR. The Offer Materials and the Schedule 14D-9 will be delivered to all holders of Common Shares, including all registered and beneficial holders of Common Shares in Canada. In addition, all holders of Common Shares in Canada will be entitled to participate in the Offer on terms at least as favourable as the terms that apply to the general body of holders of Common Shares.

17. The Offer will be subject to customary conditions, including a minimum condition (the "Minimum Condition") to the effect that there will have been tendered to the Offer and not withdrawn a number of Common Shares which constitutes at least a majority of the aggregate number of outstanding Common Shares (on a fully-diluted basis) not currently owned by Holdings, Vector and their respective affiliates and the votes attaching to which shall be qualified to be included as votes in favour of any Subsequent Acquisition Transaction in determining whether minority approval (as construed under MI 61-101) has been obtained.

18. Because the Offer will be an exempt take-over bid, Part 2 of MI 61-101 will not apply to the Offer.

19. Because the Offer will be structured as an exempt take-over bid for purposes of applicable Ontario securities law and a tender offer for purposes of applicable U.S. securities law, Holdings' current intention is that if it satisfies the Minimum Condition and takes up and pays for Common Shares tendered to the Offer, it will enter into one or more transactions to enable it to acquire all Common Shares not acquired pursuant to the Offer.

20. Specifically, if, within 120 days after the date of the Offer, the Offer is accepted by holders of Common Shares holding not less than 90% of the Common Shares, other than Common Shares held at the date of the Offer by Holdings, Vector and their respective affiliates, Holdings currently intends to acquire the Common Shares not tendered to the Offer on the same terms as the Common Shares acquired under the Offer pursuant to section 206 of the Canada Business Corporations Act (a "Compulsory Acquisition").

21. If the Minimum Condition is satisfied and the right of Compulsory Acquisition is unavailable or Holdings elects not to pursue a Compulsory Acquisition, Holdings currently intends to cause a special meeting of shareholders to be called to consider an amalgamation, statutory arrangement, amendment to articles, consolidation, capital reorganization or other Subsequent Acquisition Transaction involving Corel and Holdings for the purpose of enabling Holdings to acquire all Common Shares not acquired pursuant to the Offer.

22. In these circumstances, a Subsequent Acquisition Transaction would be a "business combination" for the purposes of MI 61-101.

Decision

The principal regulator is satisfied that the decision meets the test contained in the Legislation for the principal regulator to make the decision.

Formal Valuation Relief

The decision of the principal regulator under the Legislation is that the Formal Valuation Relief is granted provided that:

(i) the Subsequent Acquisition Transaction is effected by Holdings and is in respect of the Common Shares that are not acquired in the Offer,

(ii) the Subsequent Acquisition Transaction is completed no later than 120 days after the date of expiry of the Offer,

(iii) the consideration per Common Share that the holders of Common Shares would be entitled to receive in the Subsequent Acquisition Transaction is at least equal in value to and is in the same form as the consideration that the tendering holders of Common Shares would be entitled to receive in the Offer,

(iv) the disclosure document for the Offer

(A) discloses that if Holdings acquires Common Shares under the Offer, Holdings intends to acquire the remainder of the Common Shares under a statutory right of acquisition or under a Subsequent Acquisition Transaction that would satisfy the conditions in subparagraphs (ii) and (iii),

(B) describes the expected tax consequences of both the Offer and the Subsequent Acquisition Transaction if, at the time the Offer is made, the tax consequences arising from the Subsequent Acquisition Transaction

(I) are reasonably foreseeable to Holdings, and

(II) are reasonably expected to be different from the tax consequences of tendering to the Offer, and

(C) discloses that the tax consequences of the Offer and the Subsequent Acquisition Transaction may be different if, at the time the Offer is made, Holdings can not reasonably foresee the tax consequences arising from the Subsequent Acquisition Transaction.

Minority Approval Relief

The further decision of the principal regulator under the Legislation is that the Minority Approval Relief is granted, provided that:

1. Corel obtains minority approval of the holders of the Common Shares;

2. in determining minority approval, Corel shall exclude the votes attached to Common Shares that, to the knowledge of Corel or any interested party or their respective directors or senior officers, after reasonable inquiry, are beneficially owned or over which control or direction is exercised by

(a) Corel,

(b) Holdings,

(c) a related party of Holdings, unless the related party meets that description solely in its capacity as a director or senior officer of one or more persons that are neither interested parties nor issuer insiders of the issuer, or

(d) a joint actor with a person referred to in paragraph (b) or (c) in respect of the transaction, and

3. the votes attached to the Common Shares acquired under the Offer may be included as votes in favour of a Subsequent Acquisition Transaction in determining whether minority approval has been obtained if:

(a) the holder of Common Shares that tenders the Common Shares to the Offer was not a joint actor with Holdings in respect of the Offer,

(b) the holder of Common Shares that tenders the Common Shares to the Offer was not

(i) a direct or indirect party to any connected transaction to the Offer, or

(ii) entitled to receive, directly or indirectly, in connection with the Offer

(A) consideration per Common Share that is not identical in amount and form to the entitlement of the general body of holders in Canada of Common Shares,

(B) a collateral benefit, or

(C) consideration for securities of a class of equity securities of the issuer if the issuer has more than one outstanding class of equity securities, unless that consideration is not greater than the entitlement of the general body of holders in Canada of every other class of equity securities of the issuer in relation to the voting and financial participating interests in the issuer represented by the respective securities,

(c) the Subsequent Acquisition Transaction is being effected by Holdings, or an affiliated entity of Holdings, and is in respect of the Common Shares that were not acquired in the Offer,

(d) the Subsequent Acquisition Transaction is completed no later than 120 days after the date of expiry of the Offer,

(e) the consideration per Common Share that the holders of Common Shares would be entitled to receive in the Subsequent Acquisition Transaction is at least equal in value to and is in the same form as the consideration that the tendering holders of Common Shares would be entitled to receive in the Offer, and

(f) the disclosure document for the Offer

(i) discloses that if Holdings acquires Common Shares under the Offer, Holdings intends to acquire the remainder of the Common Shares under a statutory right of acquisition or under a Subsequent Acquisition Transaction that would satisfy the conditions in paragraphs (d) and (e),

(ii) contains a summary of a formal valuation of the Common Shares in accordance with the applicable provisions of Part 6 of MI 61-101, or contains the valuation in its entirety, if Holdings in the Offer is subject to and not exempt from the requirement to obtain a formal valuation,

(iii) states that the Subsequent Acquisition Transaction would be subject to minority approval (in accordance with this decision),

(iv) discloses the number of votes attached to the Common Shares that, to the knowledge of Holdings after reasonable inquiry, would be required to be excluded in determining whether minority approval for the Subsequent Acquisition Transaction has been obtained,

(v) identifies the holders of Common Shares specified in subparagraph (iv) and sets out their individual holdings,

(vi) identifies the holders of Common Shares which would be entitled to vote separately as a class on the Subsequent Acquisition Transaction,

(vii) describes the expected tax consequences of both the Offer and the Subsequent Acquisition Transaction if, at the time the Offer is made, the tax consequences arising from the Subsequent Acquisition Transaction

(A) are reasonably foreseeable to Holdings, and

(B) are reasonably expected to be different from the tax consequences of tendering to the Offer, and

(viii) discloses that the tax consequences of the Offer and the Subsequent Acquisition Transaction may be different if, at the time the Offer is made, Holdings can not reasonably foresee the tax consequences arising from the Subsequent Acquisition Transaction.

Confidential Treatment

Furthermore, the decision of the principal regulator is that the application and this decision be kept confidential and not be made public until the earlier of: (a) the date on which the Filers publicly announce the proposed transaction; (b) the date on which the Filers mail the Offer Materials; (c) the date the Filers advise the principal regulator in writing that there is no longer any need for the application and this decision to remain confidential; and (d) the date that is 60 days after the date of this decision.

"Naizam Kanji"
Deputy Director
Mergers & Acquisitions, Corporate Finance