Securities Law & Instruments

Headnote

Subsection 74(1) - Registration and prospectus relief granted in respect of trades inconnection with a merger transaction in which exchangeable shares are issued wherestatutory exemptions are unavailable for technical reasons - first trade of securities ofU.S. public company issued on the exchange of exchangeable shares subject tosection 72(5) and section 2.18(3) of Rule 45-501 unless such trade is made through thefacilities of a stock exchange outside of Ontario or on NASDAQ since U.S. publiccompany is a non-reporting issuer and Ontario shareholders have a de minimusposition.

Statutes Cited

Securities Act, R.S.O. 1990, c.S.5, as am., sections 25, 53, 74(1).

Rules Cited

Rule 45-501 - Exempt Distributions.


IN THE MATTER OF THE SECURITIES ACT,
R.S.O. 1990, CHAPTER S.5, AS AMENDED (the "Act")

AND

IN THE MATTER OF
ALTERA OTTAWA CO., ALTERA EXCHANGE CO., AND ALTERA CORPORATION

RULING
(Subsection 74(l))


UPON application by Altera Ottawa Co. (the "Company"), Altera Exchange Co.("Exchangeco") and Altera Corporation ("Altera") to the Ontario Securities Commission(the "Commission") for a ruling pursuant to subsection 74(1) of the Act exempting certaintrades in connection with the exercise of various exchange and retraction rights of theholders ("Exchangeable Shareholders") of non-voting exchangeable shares("Exchangeable Shares") and redemption and call rights in respect of the ExchangeableShares from the requirements of section 25 and 53 of the Act;

AND UPON considering the Application and the recommendation of staff of theCommission;

AND UPON the Company having represented to the Commission that:

1. DesignPRO Inc. ("DesignPRO") was incorporated under the laws of Ontario onSeptember 27, 1994 and continued as a Nova Scotia limited liability company underthe Nova Scotia Companies Act on April 11, 2000. DesignPRO was a "privatecompany" as defined in the Act, and was not a "reporting issuer" under the Act orunder the securities legislation of any other jurisdiction.

2. Immediately prior to the Acquisition (defined in paragraph 9 below), DesignPRO'sauthorized capital consisted of 10,000,000 common shares of each of three classesdesignated as Class "A", Class "B" and Class "C" common shares and 10,000,000Class "D" preferred shares, of which 2,772,748 Class "A" common shares, 100,000Class "B" common shares and 2,000,000 Class "C" common shares were issuedand outstanding (collectively, the "DesignPRO Shares").

3. Immediately prior to the Acquisition, all the outstanding DesignPRO Shares wereowned by Eric Dormer, Cheryl McJannet, the Dormer Family Trust, VTools Inc. andPeter Bain (collectively, the "Selling Shareholders"). Each of the SellingShareholders is resident in Ontario.

4. Altera was incorporated under the laws of the State of California in June 1983 andcontinued into Delaware in March 1997. It is not a "reporting issuer" under the Actor under any other Canadian securities legislation.

5. The authorized capital of Altera consists of 400,000,000 shares of common stockin the capital of Altera (the "Altera Common Stock"). As of April 14, 2000, therewere 199,417,175 shares of Altera Common Stock outstanding.

6. Altera is subject to the requirements of the United States Securities Exchange Actof 1934, as amended.

7. The shares of Altera Common Stock are quoted on the NASDAQ.

8. DesignPRO Acquisition Co. (the "Purchaser") was incorporated on April 13, 2000under the laws of the Province of Nova Scotia solely to effect the Acquisition. ThePurchaser is a wholly-owned subsidiary of Exchangeco, which is a wholly-ownedsubsidiary of Altera Holding Co. ("Holdco"), which is in turn an indirect, wholly-owned subsidiary of Altera.

9. Altera, the Purchaser, Holdco, Exchangeco, DesignPRO and the SellingShareholders entered into a share purchase agreement (the "PurchaseAgreement") pursuant to which Altera and the Purchaser agreed to purchase fromthe Selling Shareholders all the outstanding DesignPRO Shares in considerationfor cash and Exchangeable Shares to be issued by the Purchaser (the"Acquisition"). The Acquisition closed on April 19, 2000.

10. As a term of the Acquisition, a portion of the Exchangeable Shares (the "EscrowShares") issued in partial satisfaction of the purchase price paid to all but one ofthe Selling Shareholders are being held in escrow and will be released on the first,second, third and fourth anniversaries of the closing date of the Acquisition, subjectto certain conditions (the "Escrow Shares"). References herein to shares of"Altera Common Stock" and "Exchangeable Shares" issued to the SellingShareholders shall include, as applicable, the Escrow Shares.

11. Immediately following the Acquistion, the Purchaser and DesignPRO amalgamatedto form the Company, a Nova Scotia unlimited liability company which has the sameshare capital structure and other corporate attributes as the Purchaser.Accordingly, the term "Purchaser" includes the Company and the term"Exchangeable Shares" includes the exchangeable shares of the Company issuedupon the amalgamation in exchange for the exchangeable shares of DesignPROAcquisition Co.

12. The authorized capital of the Purchaser consists of 100,000,000 common shares("Common Shares") and 100,000,000 Exchangeable Shares. Upon the closingof the Acquisition, all the issued Common Shares of the Purchaser were owned byExchangeco and all the issued Exchangeable Shares were held by the SellingShareholders.

13. The Exchangeable Shares provide the Exchangeable Shareholders with a securityof a Canadian issuer which have economic attributes which are, as nearly aspracticable, equivalent to those of shares of Altera Common Stock.

14. Each Exchangeable Share is retractable at any time by, and at the option of, theholder thereof for one share of Altera Common Stock. The share provisionsgoverning the Exchangeable Shares contain anti-dilution provisions to ensure thatthe Exchangeable Shareholders' economic interests in Altera will not be adverselyaffected by the occurrence of events such as a subdivision, consolidation or otherchange in the capital of Altera affecting the shares of Altera Common Stock, adistribution of shares of Altera Common Stock to holders thereof by way of stockdividend, option, right or warrant, or any other distribution of securities, assets orindebtedness of Altera or its subsidiaries to holders of shares of Altera CommonStock.

15. The provisions of the Exchangeable Shares (the "Exchangeable ShareProvisions") provide, inter alia:

(a) except as required by applicable law, holders of Exchangeable Shares shallnot be entitled to receive notice of or vote at meetings of the shareholdersof the Purchaser;

(b) the Exchangeable Shares shall rank prior to the Common Shares and allshares of any other class ranking subordinate to the Exchangeable Shareswith respect to the distribution of assets in the event of a liquidation,dissolution or winding-up of the Purchaser;

(c) each Exchangeable Share shall entitle the holder thereof to receivedividends from the Purchaser at the same time as, and in an amountequivalent to, dividends paid by Altera on each share of Altera CommonStock on the declaration date;

(d) subject to compliance with applicable law, the Exchangeable Share shallentitle the holder thereof to retract such Exchangeable Share and to receivean amount equal to the market price of one share of Altera Common Stockon the retraction date, which shall be satisfied by the Purchaser deliveringone share of Altera Common Stock, together with an additional amountequal to the full amount of all declared and unpaid dividends on eachretracted Exchangeable Share (collectively, the "Retraction Price").Notwithstanding the foregoing, upon being notified by the Purchaser of aproposed retraction by an Exchangeable Shareholder, Exchangeco will havean overriding call right (the "Retraction Call Right") to purchase from suchExchangeable Shareholder each Exchangeable Share proposed to beretracted at the Retraction Price;

(e) subject to the Retraction Call Right, the Purchaser may redeem theoutstanding Exchangeable Shares on or after April 19, 2005 or earlier in theevent of a takeover offer for Altera, an extraordinary transaction involvingAltera or the Purchaser or the number of Exchangeable Shares having fallenbelow a de minimus threshold (the "Redemption Date"). Upon a redemptionby the Purchaser on the Redemption Date, each Exchangeable Share shallentitle the holder thereof to receive from the Purchaser for eachExchangeable Share redeemed an amount equal to the market price of oneshare of Altera Common Stock on the Redemption Date, which amount willbe satisfied by the Purchaser delivering to such Exchangeable Shareholderone share of Altera Common Stock, together with an additional amountequal to the full amount of all declared and unpaid dividends on eachExchangeable Share up to the Redemption Date (collectively, the"Redemption Price"). Notwithstanding the foregoing, Exchangeco will havean overriding call right (the "Redemption Call Right") to purchase on theRedemption Date for the Redemption Price each Exchangeable Shareproposed to be redeemed from such Exchangeable Shareholder; and

(f) upon the liquidation, dissolution or winding-up of the Purchaser, eachExchangeable Share shall entitle the holder thereof to receive an amountequal to the market price of one share of Altera Common Stock on theliquidation date, which will be satisfied by the Purchaser delivering to suchExchangeable Shareholder one share of Altera Common Stock, togetherwith an additional amount equal to the full amount of all declared and unpaiddividends on each Exchangeable Share (collectively, the "LiquidationPrice"). Notwithstanding the foregoing, upon any proposed liquidation,dissolution or winding-up of the Purchaser, Exchangeco will have anoverriding call right (the "Liquidation Call Right") to purchase for theLiquidation Price each Exchangeable Share to be redeemed from theExchangeable Shareholders.

16. At the closing of the Acquisition, the Purchaser, Exchangeco and Altera enteredinto a support agreement pursuant to which, inter alia, Altera will:

(a) ensure that the Purchaser (i) has sufficient assets available to paysimultaneous and equivalent dividends on the Exchangeable Shares, and(ii) simultaneously declares and pays such simultaneous and equivalentdividends on the Exchangeable Shares as are paid by Altera on the sharesof Altera Common Stock;

(b) ensure that the Purchaser is able to fulfil its obligations in respect of theredemption and retraction rights and the dissolution entitlements uponliquidation that are attributes of the Exchangeable Shares; and

(c) enable Exchangeco to fulfil its obligations in respect of its call rights.

17. In addition, at the closing of the Acquisition, Altera, Exchangeco, the Purchaser andthe Exchangeable Shareholders entered into an exchange agreement (the"Exchange Right Agreement") pursuant to which Altera granted to theExchangeable Shareholders an optional exchange right (the "Optional ExchangeRight"), that may be exercised upon the insolvency of the Purchaser or upon thefailure of the Purchaser to perform any of its obligations under the Exchange ShareProvisions. The Optional Exchange Right, when exercised, will require Altera topurchase from an Exchangeable Shareholder all or any part of the ExchangeableShares held by such Exchangeable Shareholder. The purchase price for eachExchangeable Share purchased by Altera under the Optional Exchange Right willbe an amount equal to the market price of one share of Altera Common Stock onthe trading day prior to the closing date of the purchase under the OptionalExchange Right. This purchase price will be satisfied by Altera delivering to anExchangeable Shareholder one share of Altera Common Stock for eachExchangeable Share held, together with an additional amount equal to the fullamount of all declared and unpaid dividends on each Exchangeable Shareexchanged for Altera Common Stock.

18. Under the Exchange Right Agreement, the Exchangeable Shares will beautomatically exchanged (the "Automatic Exchange Right") by Altera for sharesof Altera Common Stock in the event of a voluntary or involuntary liquidation,dissolution or winding-up of Altera (an "Automatic Exchange Event"). In the eventof an Automatic Exchange Event, each outstanding Exchangeable Share (exceptfor those held by Altera or any of its affiliates) will be automatically exchanged forshares of Altera Common Stock prior to the effective date of the AutomaticExchange Event. The purchase price for each Exchangeable Share purchased byAltera pursuant to the Automatic Exchange Right will be an amount equal to themarket price of one share of Altera Common Stock on the trading day prior to theclosing date of the purchase under the Automatic Exchange Right. This purchaseprice will be satisfied by Altera delivering to an Exchangeable Shareholder oneshare of Altera Common Stock for each Exchangeable Share held, together with anadditional amount equal to the full amount of all declared and unpaid dividends oneach Exchangeable Share.

19. Trades of the Exchangeable Shares by the Purchaser to the Selling Shareholders,the sale by the Selling Shareholders of DesignPRO Shares to the Purchaser inconsideration for Exchangeable Shares or shares of Altera Common Stock and thegranting of the Retraction Call Right, the Redemption Call Right, the LiquidationCall Right, the Optional Exchange Right and the Automatic Exchange Rightpursuant to the Exchange Right Agreement and certain other trades made inconnection with or pursuant to the Acquisition are exempt from s. 25 and 53 of theAct;

 

20. Listed below are future trades in connection with or pursuant to the Acquisition thatwould be subject to the registration and prospectus requirements of the Act unlessthe ruling sought is granted:

(a) the transfer of shares of Altera Common Stock to the ExchangeableShareholders by the Purchaser upon the retraction of the ExchangeableShares by an Exchangeable Shareholder;

(b) the issuance by Altera pursuant to the Support Agreement of shares ofAltera Common Stock from time to time to the Purchaser (and thecontemporaneous issuance of securities by the Purchaser to Altera for suchAltera Common Stock) to enable to the Purchaser to fulfil its obligationsunder the Exchangeable Share Provisions, including among others, upon theretraction or redemption of the Exchangeable Shares;

(c) the issuance by Altera pursuant to the Support Agreement of Altera CommonStock to Exchangeco from time to time (and the contemporaneous issuanceof securities by Exchangeco to Altera as consideration for such AlteraCommon Stock) to enable Exchangeco to deliver Altera Common Stock toExchangeable Shareholders in connection with the exercise by Exchangecoof the Retraction Call Right, Redemption Call Right and Liquidation CallRight;

(d) the trade by Exchangeco of shares of Altera Common Stock to theExchangeable Shareholders upon Exchangeco exercising the RetractionCall Right (instead of the retraction of Exchangeable Shares);

(e) the transfer of shares of Altera Common Stock to the ExchangeableShareholders by the Purchaser upon the redemption of ExchangeableShares by the Purchaser on the Redemption Date;

(f) the trade of shares of Altera Common Stock to the ExchangeableShareholders by Exchangeco on the Redemption Date upon Exchangecoexercising the Redemption Call Right (instead of the redemption of theExchangeable Shares on the Redemption Date);

(g) the trade of shares of Altera Common Stock to the ExchangeableShareholders by Exchangeco upon Exchangeco exercising the LiquidationCall Right in connection with the winding-up of the Purchaser;

 

(h) the transfer of Exchangeable Shares to Exchangeco by the ExchangeableShareholders upon the exercise by Exchangeco of the Retraction Call Right;

(i) the transfer of Exchangeable Shares to Exchangeco by the ExchangeableShareholders upon Exchangeco exercising the Redemption Call Right;

(j) the transfer of Exchangeable Shares to Exchangeco by the ExchangeableShareholders upon Exchangeco exercising the Liquidation Call Right;

(k) the transfer of Exchangeable Shares to Altera by the ExchangeableShareholders upon the exercise of the Optional Exchange Right; and

(l) the transfer of Exchangeable Shares to Altera by the ExchangeableShareholders pursuant to the Automatic Exchange Right.

21. Assuming that the Selling Shareholders acquire the maximum number of shares ofAltera Common Stock to which they are entitled under the Purchase Agreement andpursuant to the provisions of the Exchangeable Shares or the Exchange RightAgreement, Ontario residents who beneficially own Altera Common Stock would,immediately after the Acquisition, constitute less than 10% of the total number ofholders of shares of Altera Common Stock holding less than 10% of the total issuedand outstanding shares of Altera Common Stock.

22. Currently, there is no market for the shares of Altera Common Stock in Ontario andnone is expected to develop.

23. None of the Purchaser, Exchangeco or Altera is a reporting issuer under the Act.

24. All disclosure material furnished to holders of shares of Altera Common Stock in theUnited States will be provided to Exchangeable Shareholders and the holders ofshares of Altera Common Stock resident in Ontario.

25. So long as any outstanding Exchangeable Shares are held by any person otherthan Altera or its affiliates, Altera will remain the direct or indirect beneficial ownerof all the outstanding voting shares of the Purchaser and Exchangeco.

AND UPON the Commission being satisfied that to do so would not be prejudicialto the public interest;

IT IS RULED pursuant to subsection 74(l) of the Act that the trades of securitiesreferred to in paragraph 20 above are not subject to sections 25 or 53 of the Act providedthat the first trade of shares of Altera Common Stock acquired by an ExchangeableShareholder pursuant to this ruling shall be a distribution unless:

(i) such trade is made in compliance with section 72(5) of the Act andsection 2.18(3) of Ontario Securities Commission Rule 45-501 -Exempt Distributions as if the Altera Common Stock had beenacquired pursuant to an exemptions referred to in section 72(5) of theAct; or

(ii) such trade is executed through the facilities of a stock exchangeoutside of Ontario or on the NASDAQ and such trade is made inaccordance with the rules of the exchange on which the trade is madeor of NASDAQ, as applicable.

August 29th, 2000.

"J. A. Geller"      "Stephen N. Adams"