Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Existing and future investment funds granted relief from prospectus delivery requirement and certain prospectus form requirements, subject to conditions -- relief required to permit "at-the-market" distribution of securities under NI 44-102 Shelf Distributions -- funds to enter into equity distribution agreements with underwriters to distribute securities through the facilities of the TSX or other marketplace.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 71(1) and 147.

National Instrument 44-102 Shelf Distributions, ss. 6.7 and 11.1, and ss. 2.1 and 2.2 of Part 2 of Appendix A.

October 11, 2019

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 QUADRAVEST CAPITAL MANAGEMENT INC. (the Manager) AND IN THE MATTER OF NATIONAL BANK FINANCIAL INC. (the Agent, and together with the Manager, the Filers)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filers, and on behalf of existing and future investment funds that are or will be managed from time to time by the Manager or by an affiliate or successor of the Manager (the Funds), for a decision under the securities legislation of the Jurisdiction (the Legislation) for the following relief (the Exemption Sought):

1. 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, send or deliver to the purchaser or its agent the latest prospectus (including the applicable prospectus supplement) and any amendment to the prospectus (the Prospectus Delivery Requirement) does not apply to the Agent or any other registered investment dealer acting on behalf of the Agent as a selling agent (a Selling Agent) in connection with an at-the-market distribution as defined in National Instrument 44-102 Shelf Distributions (NI 44-102) made by a Fund pursuant to an equity distribution agreement to be entered into among the applicable Fund and the Filers (the Equity Distribution Agreement) (an ATM Distribution); and

2. that the requirements (collectively, the Prospectus Form Requirements) to include in a prospectus supplement:

A. a forward-looking issuer certificate of the Fund in the form specified in section 2.1 of Appendix A to NI 44-102; and

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

do not apply to a prospectus supplement (the Prospectus Supplement), to be filed in respect of the sale of Securities (as defined herein) of a Fund pursuant to ATM Distributions.

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 British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Newfoundland and Labrador and Prince Edward Island (collectively, with the Jurisdiction, the Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 Definitions, MI 11-102 or NI 44-102 have the same meanings if used in this decision, unless otherwise defined herein.

Representations

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

The Manager and the Funds

1. The head office of the Manager is located in Toronto, Ontario.

2. The Manager is registered as an investment fund manager in the following Jurisdictions: Newfoundland and Labrador, Ontario and Québec. The Manager is also registered as an exempt market dealer and portfolio manager in Ontario.

3. The Funds are, or will be, managed by the Manager or by an affiliate or successor of the Manager.

4. Each Fund is, or will be, an investment fund and is, or will be, a reporting issuer in one or more of the Jurisdictions.

5. The Funds are structured as either: (i) a corporation with a single class of publicly offered equity shares (Equity Shares), (ii) a trust with a single class of publicly offered units (Trust Units), or (iii) a split share corporation, which publicly offers one or more classes of preferred shares (Preferred Shares) and a class of equity shares designated as capital shares or class A shares (Class A Shares).

6. The Securities of each Fund are, or will be, listed on the Toronto Stock Exchange (TSX).

7. The Preferred Shares and Class A Shares of the Funds that are split share corporations are issued on the basis that an equal number of Preferred Shares and Class A Shares (each pair referred to as a Unit, and comprised of one Preferred Share and one Class A Share) will be issued and outstanding at all material times. Preferred Shares, Class A Shares, Units, Trust Units, and Equity Shares are collectively referred to herein as Securities.

8. Each Fund relying on the Exemption Sought has or will have filed a final base shelf prospectus (the Shelf Prospectus, and together with the Prospectus Supplement, the Prospectus).

9. Neither the Manager nor any of the existing Funds is in default of any of the requirements under applicable securities legislation in any jurisdiction of Canada.

The Agent

10. The Agent is a corporation incorporated under the laws of Québec.

11. The Agent is registered as an investment dealer under applicable securities legislation in each jurisdiction of Canada.

12. The Agent is not in default of any of the requirements under applicable securities legislation in any jurisdiction of Canada.

Proposed ATM Distribution

13. The Filers and the applicable Fund propose to enter into an Equity Distribution Agreement relating to an ATM Distribution by the Fund under the shelf prospectus procedures prescribed by Part 9 of NI 44-102.

14. Prior to making an ATM Distribution, the Fund will have filed the Prospectus Supplement in each of the provinces of Canada in connection with the ATM Distribution. The Prospectus Supplement will describe the terms of the ATM Distribution, including the terms of the Equity Distribution Agreement and otherwise supplement the disclosure in the Shelf Prospectus.

15. Upon entering into the Equity Distribution Agreement, the Fund will immediately:

(a) issue and file a news release pursuant to section 3.2 of NI 44-102 indicating that the Shelf Prospectus and the Prospectus Supplement have been filed on SEDAR and disclosing where and how purchasers may obtain a copy; and

(b) file the Equity Distribution Agreement on SEDAR.

16. The Equity Distribution Agreement will limit the number of Securities that the Fund may issue and sell pursuant to any ATM Distribution thereunder to an amount not to exceed 10% of the aggregate market value of the outstanding Securities (being the aggregate of the market value of the Securities) calculated in accordance with section 9.2 of NI 44-102.

17. The Fund will conduct ATM Distributions through the Agent, as underwriter, directly or through a Selling Agent, through the facilities of the TSX or any other "marketplace" (as defined in National Instrument 21-101 Marketplace Operation) in Canada (each a Canadian Marketplace).

18. The Agent will act as the sole underwriter on behalf of the Fund in connection with the sale of the Securities on the TSX or any other Canadian Marketplace directly by the Agent or through one or more Selling Agents and will be the sole entity paid an underwriting fee or commission by the Fund in connection with such sales. The Agent will sign an underwriter's certificate in the Prospectus Supplement.

19. The Agent will effect the ATM Distribution on a Canadian Marketplace either itself or through one or more Selling Agents. 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 Canadian securities legislation as against the Agent, as underwriter of an ATM Distribution, through a Canadian Marketplace will not be affected by a decision to effect the sale directly or through a Selling Agent.

20. The aggregate number of Securities sold on a Canadian Marketplace under an ATM Distribution on any trading day will not exceed 25% of the aggregate trading volume of the applicable Securities on all Canadian Marketplaces on that day.

21. The Equity Distribution Agreement will provide that, at the time of each sale of Securities pursuant to an ATM Distribution, the Manager on behalf of the Fund will represent to the Agent that the Prospectus contains full, true and plain disclosure of all material facts relating to the Fund and the Securities. The Fund would therefore be unable to initiate sales under 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 Securities or the Fund.

22. Each Prospectus Supplement will include disclosure stating that, in accordance with paragraph 9.3(2)(a) of National Instrument 81-102 Investment Funds, the issue price of a Security must not, (a) as far as reasonably practicable, be a price that causes dilution of the net asset value of the Fund's other outstanding securities at the time of issue, and (b) be a price that is less than the most recently calculated net asset value per Security.

23. Accordingly, the sell notice provided by the Manager of the Fund, on behalf of the Fund, to the Agent will indicate that the applicable price minimum for the sale of a Security must be a price that is greater than both the most recently calculated net asset value per Security and the estimated real time calculation of net asset value per Security (the Estimated Real Time NAVPS). The Estimated Real Time NAVPS will be computed by revaluing the most recently calculated and publicly disclosed net asset value per Security of the Fund by multiplying it by a market factor (such as an index) that the Filer believes is highly correlated with changes in the net asset value per Security of the Fund.

24. In addition, the Agent will monitor closely the market's reaction to trades made under an ATM Distribution in order to evaluate the likely market impact of future trades. The 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 a Fund may have a significant effect on the market price of the Securities, the Agent will recommend against effecting the trade at that time. It is in the interest of both the Fund and the Agent to minimize the market impact of sales under an ATM Distribution.

Disclosure of Sales in Monthly Report and Interim Report

25. Within seven calendar days after the end of each calendar month during which a Fund conducts an ATM Distribution, the Fund will disclose in a report filed on SEDAR the number and average selling price of the Securities distributed through a Canadian Marketplace under the ATM Distribution, and the commission and gross and net proceeds for such sales. Furthermore, for each financial period in which a Fund conducts an ATM Distribution, it will disclose in its annual and interim financial statements and related management reports of fund performance filed on SEDAR the number and average selling price of the Securities distributed pursuant to the ATM Distribution, and the commission and gross and net proceeds for such sales.

Prospectus Delivery Requirement

26. Under 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.

27. Delivery of a prospectus is not practicable in the circumstances of an ATM Distribution as the Agent or any Selling Agent, as applicable, effecting the trade will not know the identity of the purchasers.

28. The Prospectus (together with all documents incorporated by reference therein) will be filed and readily available electronically via SEDAR to all purchasers under ATM Distributions. As stated in paragraph 15 above, the Fund will issue a news release that specifies where and how copies of the Prospectus can be obtained.

29. 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 because 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 Rescission or Damages for Non-Delivery

30. Pursuant to the Legislation, an agreement to purchase securities 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).

31. Pursuant to the Legislation, a purchaser of securities to whom a prospectus was required to be sent or delivered in compliance with the Prospectus Delivery Requirement, but was not so sent or delivered, has a right of action for rescission or damages against a dealer who did not comply with the Prospectus Delivery Requirement (the Right of Action for Non-Delivery).

32. Neither the Withdrawal Right nor the Right of Action for Non-Delivery is workable in the context of an ATM Distribution because of the impracticability of delivering the Prospectus to a purchaser of Securities thereunder.

33. As the Funds are mutual funds as defined in the Securities Act (Ontario), to the extent the purchase of securities is in an amount that does not exceed $50,000, the purchaser will continue to have a rescission right under section 137 of the Securities Act (Ontario) for 48 hours after receipt from the dealer of the confirmation of trade relating to such purchase.

Prospectus Form Requirements

34. To reflect the fact that an ATM Distribution is a continuous distribution, the Prospectus Supplement will include the following issuer certificate:

"This 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 and this supplement, as required by the securities legislation of each of the provinces of Canada."

35. Also to reflect the fact that an ATM Distribution is a continuous distribution, the Prospectus Supplement will include the following underwriter certificate:

"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 and this supplement, as required by the securities legislation of each province of Canada."

36. A different statement of purchasers' rights than that required by the Legislation is necessary in order to allow the Prospectus to accurately reflect the relief granted from the Prospectus Delivery Requirement. Accordingly, the Prospectus Supplement will state the following, with the date reference completed:

"Securities legislation in certain of the provinces 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 the 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 the Securities under an at-the-market distribution will not have any right to withdraw from an agreement to purchase the Securities 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 Securities purchased by the purchaser and any amendment related to Securities purchased by such purchaser will not be delivered as permitted under a decision document dated [•] and granted pursuant to National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions.

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

Purchasers should refer to the applicable provisions of the securities legislation and the decision document referred to above for the particulars of their rights or consult with a legal advisor."

37. The Prospectus Supplement will disclose that, in respect of ATM Distributions under a Prospectus Supplement, the statement prescribed in paragraph 36 above supersedes the statement of purchasers' rights in the Shelf Prospectus.

38. A Fund will not make a public announcement of its intention to conduct ATM Distributions prior to the execution of an Equity Distribution Agreement.

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:

(a) each Fund makes the disclosures described in paragraphs 15, 22, 25, 34, 35, 36 and 37 hereof; and

(b) each Fund complies with the representations in paragraphs 17, 20, 21, 22 hereof, and the Agent complies with the representations in paragraphs 16, 18, 19, 20 and 24.

The Exemption Sought will terminate upon the coming into force in a Jurisdiction of new or amended securities legislation in the Jurisdiction that would allow investment funds to conduct ATM Distributions without obtaining exemptive relief.

As to the Exemption Sought in respect of the Prospectus Delivery Requirement:

"Lawrence Haber"
Commissioner
Ontario Securities Commission
"Heather Zordel"
Commissioner
Ontario Securities Commission

As to the Exemption Sought in respect of the Prospectus Delivery Requirement and the Prospectus Form Requirements:

"Darren McKall"
Manager,
Investment Funds and Structured Products Branch
Ontario Securities Commission