H&R Real Estate Investment Trust et al.
Headnote
National Policy 11-203 Process For Exemptive Relief Applications in Multiple Jurisdictions -- Application for exemptive relief to permit issuers and underwriter, acting as agent, to make "at-the-market" prospectus distributions (ATM distributions) to purchasers through facilities of Toronto Stock Exchange (TSX) -- issuer proposing to enter into equity distribution agreement with agent relating to ATM distributions through TSX -- ATM distributions to be made pursuant to shelf prospectus procedures in Part 9 of NI 44-102 Shelf Distributions -- issuers will issue a press release and file agreement on SEDAR -- issuers will file in connection with ATM distribution (i) a shelf prospectus in the jurisdictions, and (ii) a prospectus supplement describing terms of equity distribution agreement -- prospectus qualifies distribution of securities by issuers to purchasers who purchase securities from the issuers pursuant to an ATM distribution -- application for relief from prospectus delivery requirement in subsection 71(1) of the Securities Act (Ontario) (the Act) and relief from certain prospectus form requirements (including requirements which prescribe language describing purchasers' statutory rights) -- delivery of prospectus not practicable in circumstances of an ATM distribution as agent will generally be unaware of identity of purchasers -- ATM distribution model premised on concept of "constructive delivery" (access equals delivery) of prospectus to purchasers as a result of filing of prospectus on SEDAR -- relief from prospectus delivery requirement has effect of removing two-day right of withdrawal in subsection 71(2) of the Act and remedies of rescission or damages for non-delivery of the prospectus in 133 of the Act -- remedies a purchaser of securities may have against issuers or agent for rescission or damages if prospectus contains a misrepresentation remain unaffected by non-delivery of prospectus and the MRRS decision -- relief granted on certain terms and conditions including:
• number of securities sold on TSX pursuant to ATM distribution on any trading day may not exceed 25 per cent of the trading volume of the securities on the TSX on that day;
• prospectus certificate language modified to ensure that, at the time of each sale of securities pursuant to an ATM distribution, prospectus will contain full, true and plain disclosure of all material facts relating to the issuer and securities being distributed;
• agent is registered as an investment dealer in all jurisdictions and will sign prospectus certificate;
• issuer will file on SEDAR a report disclosing number and average price of securities distributed over TSX by issuer pursuant to the prospectus filed in connection with ATM distribution as well as gross proceeds, commission and net proceeds within seven calendar days after end of month with respect to sales during prior month;
• issuer will also disclose number and average price of securities sold under the ATM distribution as well as gross proceeds, commission and net proceeds in the ordinary course in its annual and interim financial statements and MD&A filed on SEDAR;
• prospectus will contain language clearly describing impact of decision on purchasers' statutory rights; and
• decision will terminate 25 months after the issuance of a receipt for the shelf prospectus.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 71(1), 71(2), 133, 147.
Applicable Ontario Rules
National Instrument 44-101 Short Form Prospectus Distributions, Part 8; and Item 20 of Form 44-101F1.
National Instrument 44-102 Shelf Distributions, Part 9; and s. 1.1 of Appendix A.
April 30, 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
H&R REAL ESTATE INVESTMENT TRUST
("H&R REIT") AND H&R FINANCE TRUST
("H&R Finance", together with H&R REIT, the "Issuers")
AND CANACCORD CAPITAL CORPORATION
("CCC" and, collectively with the Issuers, the "Filers")
DECISION
Background
The principal regulator in the Jurisdiction has received an application (the "Application") from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (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 and any amendment to the prospectus (the "Prospectus Delivery Requirement") does not apply to CCC or any other Toronto Stock Exchange ("TSX") participating organization acting as selling agent for CCC (such other TSX participating organization a "CCC Selling Agent") in connection with the at-the-market distribution (the "ATM Distribution") as defined in National Instrument 44-102 Shelf Distributions ("NI 44-102") to be made by the Issuers pursuant to the Equity Distribution Agreement (as defined below);
(b) that the requirement to include in a prospectus:
(i) a certificate of each Issuer (including a certificate of H&R REIT, as promoter) in the form specified in section 1.1 of Appendix A to NI 44-102; and
(ii) the statement respecting purchasers' statutory rights of withdrawal and remedies of rescission or damages in the form prescribed by item 20 of Form 44-101F1;
(the "Prospectus Form Requirements") do not apply to a prospectus filed in connection with the ATM Distribution; and
(c) that the Application and this decision (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 Equity Distribution Agreement; (ii) the date the Filers advise the principal regulator in the Jurisdiction 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.
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, Prince Edward Island and Newfoundland and Labrador (collectively, and together with the Jurisdiction, the "Reporting Jurisdictions").
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
This decision is based on the following facts represented by the Filers:
The Issuers
1. H&R REIT is an open-ended unincorporated real estate investment trust established under the laws of the Province of Ontario which owns a North American portfolio of office, industrial and retail properties. The head office of H&R REIT is located in Toronto, Ontario.
2. H&R Finance is an open-ended limited purpose unit trust established under the laws of the Province of Ontario which primarily invests in notes issued by a H&R REIT subsidiary. The head office of H&R Finance is located in Toronto, Ontario.
3. Each Issuer is a reporting issuer or the equivalent under the securities legislation of each Reporting Jurisdiction and is in compliance in all material respects with the applicable requirements the securities legislation of each Reporting Jurisdiction.
4. The units of H&R REIT trade together with the units of H&R Finance as stapled units (together, the "Units") on the TSX.
5. CCC is registered as an investment dealer under the securities legislation of each of the Reporting Jurisdictions.
Proposed ATM Distribution
6. The Filers are contemplating entering into an equity distribution agreement (the "Equity Distribution Agreement") relating to an ATM Distribution by the Issuers pursuant to the shelf prospectus procedures prescribed by Part 9 of NI 44-102 and whereby the Issuers may issue and sell Units as described below.
7. Prior to making an ATM Distribution, the Issuers will have filed in the Reporting Jurisdictions in connection with the ATM Distribution: (i) a shelf prospectus (the "Shelf Prospectus"); and (ii) a prospectus supplement describing the terms of the Equity Distribution Agreement (the "Prospectus Supplement").
8. The Issuers will issue a press release regarding entering into the Equity Distribution Agreement and will file the agreement on SEDAR. The press release will indicate that the Shelf Prospectus and Prospectus Supplement have been filed on SEDAR and specify where and how purchasers may obtain a copy. A copy of the press release will also be posted on the H&R REIT's website.
9. Under the proposed Equity Distribution Agreement, the Issuers may issue and sell Units in an amount not to exceed 10% of the aggregate market value of the outstanding Units calculated in accordance with Section 9.2 of NI 44-102.
10. The Issuers will sell Units in Canada through methods constituting an ATM Distribution, including sales made on the TSX through CCC, as underwriter, directly or through a CCC Selling Agent.
11. CCC will act as sole underwriter on behalf of the Issuers in connection with the sale of the Units on the TSX and will be the sole entity paid an underwriting fee or commission by the Issuers in connection with such sales. CCC will sign an underwriter's certificate in the Prospectus Supplement filed on SEDAR. CCC will effect the ATM Distributions on the TSX either itself or through a CCC Selling Agent. If the sales are effected through a CCC Selling Agent, the CCC Selling Agent will be paid a seller's commission for effecting the trades on behalf of CCC. A purchaser's rights and remedies under the Legislation against CCC as underwriter of an ATM Distribution through the TSX will not be affected by a decision to effect the sale directly or through a CCC Selling Agent.
12. The number of Units sold on the TSX pursuant to the ATM Distribution on any trading day will not exceed 25% of the trading volume of the Units on the TSX on that day.
13. The Equity Distribution Agreement will provide that, at the time of each sale of Units pursuant to an ATM Distribution, the Issuers will make a representation to CCC that the prospectus contains full, true and plain disclosure of all material facts relating to the Issuers and Units being distributed. The Issuers would therefore be unable to proceed with sales pursuant to an ATM Distribution when either of them is in possession of undisclosed information that would constitute a material fact or a material change in respect of the Units.
14. If, after the Issuers deliver a sell notice to CCC, the sale of Units specified in the notice, taking into consideration prior sales, would constitute a material fact or material change, the Issuers would have to suspend sales under the Equity Distribution Agreement until either: (i) they had filed a material change report or amended the Shelf Prospectus or Prospectus Supplement; or (ii) circumstances had changed so that the sales would no longer constitute a material fact or material change.
15. In determining whether the sale of the number of Units specified in the sell notice would constitute a material fact or material change, the Issuers will take into account a number of factors, including, without limitation: (i) the parameters of the sell notice including the number of Units proposed to be sold; (ii) the percentage of the outstanding Units of that class that number represents; (iii) trading volume and volatility of Units; (iv) recent developments in the business, affairs and capital structure of the Issuers; and (v) prevailing market conditions generally.
16. CCC will monitor closely the market's reaction to trades made under the ATM Distribution in order to evaluate the likely market impact of future trades. CCC has experience and expertise in managing sell orders to limit downward pressure on the Unit price. If CCC has concerns as to whether a particular sell order placed by the Issuers may have a significant effect on the market price of the Units, CCC will recommend against effecting the trade at that time. It is in the interest of both the Issuers and CCC to minimize the market impact of sales under the ATM Distribution.
17. The underwriter's certificate signed by CCC included in the Prospectus Supplement will be in the form prescribed by section 2.2 of Appendix B to NI 44-102.
Prospectus Delivery Requirement
18. Pursuant to the Prospectus Delivery Requirement, a dealer effecting a trade of the Units on the TSX on behalf of the Issuers as part of an ATM Distribution is required to deliver a prospectus to all investors who purchase Units on the TSX.
19. The delivery of a prospectus is not practicable in the circumstances of an ATM Distribution as neither CCC nor a CCC Selling Agent effecting the trade will know the identity of the purchasers.
20. A purchaser is deemed to have relied upon a misrepresentation if it was a misrepresentation at the time of purchase.
Withdrawal Right
21. 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").
22. The Withdrawal Right is not workable in the context of an ATM Distribution because the prospectus will not be delivered.
Rights of Rescission or Damages for Non-Delivery
23. Pursuant to the Legislation, a purchaser of securities has a right of rescission or damages against a dealer for non-delivery of the prospectus (the "Right of Action for Non-Delivery").
24. The Right of Action for Non-Delivery is not workable in the context of an ATM Distribution because the prospectus will not be delivered.
Disclosure of Securities Sold in ATM Distribution
25. The Issuers will file on SEDAR a report disclosing the number and average price of Units distributed over the TSX by the Issuers pursuant to the Shelf Prospectus and Prospectus Supplement filed in connection with the ATM Distribution as well as gross proceeds, commission and net proceeds within seven calendar days after the end of the month with respect to sales during the prior month.
26. The Issuers will also disclose the number and average price of Units sold under the ATM Distribution as well as gross proceeds, commission and net proceeds in the ordinary course in its annual and interim financial statements and MD&A filed on SEDAR.
Prospectus Form Requirements
27. Exemptive relief from the Prospectus Form Requirements for the Issuers' forward-looking certificates (including the certificate of H&R REIT, as promoter) in the Shelf Prospectus is required to reflect that no pricing supplement will be filed subsequent to the Prospectus Supplement. Accordingly, the Issuers propose to file the Shelf Prospectus with the following certificate in substitution for the certificate prescribed by the Prospectus Form Requirements:
This short form prospectus, together with the documents incorporated in this prospectus by reference as of the date of a particular distribution of securities under this prospectus, will, as of that date, constitute full, true and plain disclosure of all material facts relating to the securities offered by this prospectus and the supplement(s) as required by the securities legislation of each Reporting Jurisdiction.
28. Exemptive relief from the Prospectus Form Requirements is required to reflect, if granted, the relief from the Prospectus Delivery Requirement. Accordingly, the Issuers propose that the language prescribed by the Prospectus Form Requirements be deleted and the following substituted therefore in the Prospectus Supplement:
Securities legislation in the Reporting Jurisdictions 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 Units under the Issuers' at-the-market distribution will not have any right to withdraw from an agreement to purchase the Units 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 relating to Units purchased by such purchaser will not be delivered as permitted under a decision document dated •, 2009 and granted pursuant to National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions.
Securities legislation in the Reporting Jurisdictions 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 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 Reporting Jurisdictions that a purchaser of Units under the Issuers' at-the-market distribution may have against the Issuers or CCC 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 of the Prospectus and the decision document 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 adviser.
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) as it relates to the Prospectus Form Requirements, the disclosure described in sections 25, 27 and 28 is made;
(b) as it relates to the Prospectus Delivery Requirement, the representations in sections 8, 10, 11 and 12 are complied with;
(c) the Confidential Material will be kept confidential and not be made public until the earlier of: (i) the date on which the Issuers enter into an Equity Distribution Agreement with CCC; (ii) the date the Filers advise the principal regulator 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; and
(d) this decision will terminate 25 months after the issuance of a receipt for the Shelf Prospectus by the Reporting Jurisdictions.
As to the Exemption Sought (other than from the Prospectus Form Requirements):
As to the Exemption Sought from the Prospectus Form Requirements: