Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Application for exemptive relief to permit issuer and underwriter, acting as agent for the issuer, to enter into equity distribution agreement to make "at the market" (ATM) distributions of trust units to investors through the facilities of the Toronto Stock Exchange (TSX) -- ATM distributions to be made pursuant to shelf prospectus procedures in Part 9 of NI 44-102 Shelf Distributions -- issuer will issue a press release and file agreement on SEDAR -- application for relief from prospectus delivery requirement -- delivery of prospectus not practicable in circumstances of an ATM distribution -- relief from prospectus delivery requirement has effect of removing two-day right of withdrawal and remedies of rescission or damages for non-delivery of the prospectus -- application for relief from certain prospectus form requirements -- standard certification by issuer does not work in an ATM distribution since no other supplement to be filed in connection with ATM distribution -- relief granted to permit modified forward-looking certificate language -- relief granted on terms and conditions set out in decision document -- 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.

February 18, 2010

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

CALLOWAY REAL ESTATE INVESTMENT TRUST

(the "Issuer")

AND

CANACCORD FINANCIAL LTD.

("Canaccord" and, collectively with the Issuer,

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 "Exemptive Relief"):

(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 Canaccord or any other Toronto Stock Exchange ("TSX") participating organization or marketplace participant acting as selling agent for Canaccord (such other TSX participating organization or marketplace participant a "Canaccord Selling Agent") in connection with at-the-market distributions (each, an "ATM Distribution") as defined in National Instrument 44-102 Shelf Distributions ("NI 44-102") to be made by the Issuer pursuant to the Equity Distribution Agreement (as defined below); and

(b) that the requirements to include in a prospectus supplement:

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

ii. the statement respecting purchasers' statutory rights of withdrawal and remedies of rescission or damages in substantially the form prescribed in item 20 of Form 44-101F1 Short Form Prospectus;

(collectively, the "Prospectus Form Requirements") do not apply to the prospectus supplement to the Shelf Prospectus (as defined below) of the Issuer to be filed in connection with ATM Distributions under the Equity Distribution Agreement (the "Prospectus Supplement"), provided that the alternative form of certificate and disclosure regarding a purchaser's statutory rights described below are included in the Prospectus Supplement.

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, 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 Issuer

1. The Issuer is an unincorporated open-ended real estate investment trust established under the laws of the Province of Alberta which owns a portfolio of income-producing rental properties in communities across Canada. The head office of the Issuer is located in Vaughan, Ontario.

2. The 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 of the securities legislation of each Reporting Jurisdiction.

3. The units ("Units"), 6.0% convertible debentures, 6.65% convertible debentures and 5.75% convertible debentures of the Issuer are listed and publicly traded on the TSX.

4. The Issuer has filed in the Reporting Jurisdictions a short form base shelf prospectus dated October 9, 2009 (the "Shelf Prospectus") providing for the distribution from time to time of Units, subscription receipts, warrants and debt securities in an aggregate initial offering amount of up to $2,000,000,000. The Shelf Prospectus contains a forward-looking issuer certificate contemplated by section 1.1 of Appendix A to NI 44-102. The Shelf Prospectus also contains a statement respecting purchasers' statutory rights of withdrawal and remedies of rescission or damages in the prescribed form.

Canaccord

5. Canaccord is registered as an investment dealer under the securities legislation in each of the Reporting Jurisdictions.

Proposed ATM Distributions

6. The Filers are contemplating entering into an equity distribution agreement (the "Equity Distribution Agreement") relating to ATM Distributions by the Issuer under the base shelf prospectus procedures prescribed by Part 9 of NI 44-102 and whereby the Issuer may from time to time issue and sell Units through Canaccord, as agent, as described below.

7. Prior to making any ATM Distributions, the Issuer will have filed the Prospectus Supplement in the Reporting Jurisdictions, which will describe the ATM Distributions, including the terms of the Equity Distribution Agreement.

8. The Issuer will issue a press release regarding entering into the Equity Distribution Agreement and will file a copy of 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.

9. Under the proposed Equity Distribution Agreement, the Issuer may issue and sell Units pursuant to any ATM Distribution thereunder 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 Issuer will sell Units in Canada through methods constituting an ATM Distribution, including sales made on the TSX or any other recognized Canadian "marketplace" as that term is defined in National Instrument 21-101 Marketplace Operation upon which the Units are listed or quoted or where the Units are traded ("Marketplace") through Canaccord, as agent, directly or through a Canaccord Selling Agent.

11. Canaccord will act as the sole agent on behalf of the Issuer in connection with the sale of the Units on the TSX or any other Marketplace and will be the sole entity paid an agency fee or commission by the Issuer in connection with such sales. Canaccord will sign an underwriter's certificate in the Prospectus Supplement. Canaccord will effect the ATM Distributions on the TSX or any other Marketplace either itself or through a Canaccord Selling Agent. If the sales are effected through a Canaccord Selling Agent, the Canaccord Selling Agent will be paid a seller's commission for effecting the trades on behalf of Canaccord. A purchaser's rights and remedies under the Legislation against Canaccord as underwriter of an ATM Distribution through the TSX or any other Marketplace will not be affected by a decision to effect the sale directly or through a Canaccord Selling Agent.

12. The number of Units sold on the TSX pursuant to an ATM Distribution on any trading day will not exceed 25% of the trading volume of the Units on the TSX that day.

13. The Equity Distribution Agreement will provide that, at the time of each sale of Units pursuant to an ATM Distribution, the Issuer will make a representation to Canaccord 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 Issuer and Units 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 Units.

14. If, after the Issuer delivers a sell notice to Canaccord, the sale of Units specified in the notice, taking into consideration prior sales, would constitute a material fact or material change, the Issuer would have to suspend sales under the Equity Distribution Agreement until either: (i) it had filed a material change report or amended the Prospectus; 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 Issuer 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 and any price or timing restrictions that the Issuer may propose with respect to the particular ATM Distribution; (ii) the percentage of the outstanding Units that number represents; (iii) trading volume and volatility of the Units; (iv) recent developments in the business, affairs and capital structure of the Issuer; and (v) prevailing market conditions generally.

16. Canaccord will monitor closely the market's reaction to trades made on the TSX or any other Marketplace pursuant to an ATM Distribution in order to evaluate the likely market impact of future trades. Canaccord has experience and expertise in managing sell orders to limit downward pressure on the Unit price. If Canaccord has concerns as to whether a particular sell order placed by the Issuer may have a significant effect on the market price of the Units, Canaccord will recommend against effecting the trade at that time. It is in the interest of both the Issuer and Canaccord to minimize the market impact of sales under an ATM Distribution.

17. The underwriter's certificate to be signed by Canaccord and 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 or any other Marketplace on behalf of the Issuer as part of an ATM Distribution is required to deliver a copy of the prospectus (including the applicable prospectus supplement(s) in the case of a base shelf prospectus) to all investors who purchase Units on the TSX or any other Marketplace.

19. The delivery of a prospectus is not practicable in the circumstances of an ATM Distribution as neither Canaccord nor a Canaccord Selling Agent effecting the trade will know the identity of the purchasers.

20. Although purchasers under an ATM Distribution would not physically receive a printed prospectus, the Shelf Prospectus and the Prospectus Supplement (together with all documents incorporated by reference) 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.

21. The liability of an issuer or an underwriter (and others) for 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 as to whether the purchaser relied on the misrepresentations and whether or not the purchaser in fact received a copy of the prospectus.

Withdrawal Right

22. 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").

23. The Withdrawal Right is not workable in the context of an ATM Distribution because a prospectus will not be delivered to purchasers.

Rights of Rescission or Damages for Non-Delivery

24. 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").

25. The Right of Action for Non-Delivery is not workable in the context of an ATM Distribution because a prospectus will not be delivered to purchasers.

Disclosure of Units Sold Pursuant to ATM Distributions

26. The Issuer will file on SEDAR a report disclosing the number and average price of Units distributed over the TSX or any other Marketplace by the Issuer pursuant to ATM Distributions under the Prospectus 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.

27. The Issuer will also disclose the number and average price of Units sold pursuant to ATM Distributions under the Prospectus 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

28. Exemptive relief from the Prospectus Form Requirements is required with respect to the Issuer's forward-looking certificate in the Prospectus Supplement to reflect that no pricing supplement will be filed subsequent to the Prospectus Supplement. Accordingly, the Issuer will file the Prospectus Supplement with the following forward-looking issuer certificate which will supersede and replace, solely as regards to ATM Distributions contemplated by the Prospectus Supplement, the forward-looking issuer certificate contained in the Shelf Prospectus:

This short form prospectus, as supplemented by the foregoing, together with the documents incorporated in this prospectus by reference as of the date of a particular distribution of securities offered by 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, as required by the securities legislation of each of the provinces of Canada.

29. Exemptive relief from the Prospectus Form Requirements is required to reflect the relief from the Prospectus Delivery Requirement. Accordingly, the Issuer will include the following language in the Prospectus Supplement in replacement of the language prescribed by the Prospectus Form Requirements:

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 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 an at-the-market distribution by the Issuer will not have the right to withdraw from an agreement to purchase the Units and will not have remedies for rescission or, in some jurisdictions, revision of the price, or damages for non-delivery, because the prospectus, prospectus supplements relating to securities purchased by a purchaser and any amendment will not be delivered as permitted under a decision dated •, 2010 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 securities purchased by a purchaser and any amendment contain a misrepresentation, provided that the remedies are executed by the purchaser within the time limit prescribed by securities legislation. Any remedies under securities legislation that a purchaser of Units under an at-the-market distribution by the Issuer may have against the Issuer or Canaccord for rescission or, in some jurisdictions, revision of the price, or damages if the prospectus, prospectus supplements relating to the Units 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 the applicable provisions of the securities legislation and the decision referred to above for the particulars of their rights or consult with a legal advisor.

30. The modified disclosure of purchasers' rights set forth in section 29 above will be explicitly 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.

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 Exemptive Relief is granted provided that:

(a) as it relates to the Prospectus Form Requirements, the disclosure described in sections 26, 28, 29 and 30 is made;

(b) as it relates to the Prospectus Delivery Requirement, the representations in sections 8, 10, 11, 12, 13, 14 and 16 are complied with; and

(c) this decision will terminate 25 months after the issuance of the receipt for the Shelf Prospectus by the Reporting Jurisdictions.

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 Issuer enters into an Equity Distribution Agreement with Canaccord; (b) the date the Filers advise the principal regulator that there is no longer any need for the application and this decision to remain confidential; and (c) the date that is 90 days after the date of this decision.

As to the Exemption Sought (other than from the Prospectus Form Requirements):

"Paulette Kennedy"
Commissioner
Ontario Securities Commission
 
"Mary Condon"
Commissioner
Ontario Securities Commission

As to the Exemption Sought from the Prospectus Form Requirements

"Michael Brown"
Assistant Manager, Corporate Finance
Ontario Securities Commission