National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Dual application for exemptive relief -- Equity line of credit distribution -- Corporation to enter into an equity purchase agreement with a purchaser acting as an underwriter to distribute shares of the Corporation through the facilities of the TSX in the context of an equity line of credit distribution -- Corporation granted exemption from the Prospectus Disclosure Requirements, subject to conditions -- Purchaser granted exemption from the Dealer Registration Requirement and Prospectus Delivery Requirement, subject to conditions.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 25(1), 71, 74(1), 147.
National Instrument 44-101 Short Form Prospectus Distributions.
National Instrument 44-102 Shelf Distributions.
Citation: Alter NRG Corp., Re, 2011 ABASC 301
May 20, 2011
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ALBERTA AND ONTARIO
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
ALTER NRG CORP. (the Issuer),
HAVERSTOCK MASTER FUND, LTD. (the Purchaser)
AND HAVERSTOCK MANAGER, LLC
(the Manager, and together with the Issuer and
the Purchaser, the Filers)
The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Maker) has received an application from the Filers for a decision under the securities legislation of the Jurisdictions (collectively, the Legislation) that:
(a) the following prospectus disclosure requirements under the Legislation (the Prospectus Disclosure Requirements) do not fully apply to the Issuer in connection with the Distribution (as defined below):
(i) the statement in the Pricing Supplement (as defined below) respecting statutory rights of withdrawal and rescission or damages in the form prescribed by item 20 of Form 44-101F1 of National Instrument 44-101 Short Form Prospectus Distributions (NI 44-101); and
(ii) the statements in the Base Shelf Prospectus required by subsections 5.5(2) and (3) of National Instrument 44-102 Shelf Distributions (NI 44-102);
(b) the prohibition from acting as a dealer unless the person is registered as such (the Dealer Registration Requirement) does not apply to the Purchaser and the Manager in connection with the Distribution; and
(c) the requirement that a dealer send a copy of the Prospectus (as defined below) to a subscriber or purchaser in the context of a distribution (the Prospectus Delivery Requirement) does not apply to the Purchaser, the Manager or the dealer(s) through whom the Purchaser sells the Shares (as defined below) and, as a result, rights of withdrawal or rights of rescission, price revision or damages for non-delivery of the Prospectus do not apply in connection with the Distribution;
(collectively, the Exemptive Relief Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the Alberta Securities Commission is the principal regulator for this application;
(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, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador; and
(c) this decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Terms defined in National Instrument 14-101 Definitions or MI 11-102 have the same meaning if used in this decision, unless otherwise defined herein.
This decision is based on the following facts represented by the Filers:
1. The Issuer is incorporated under the Business Corporations Act (Alberta) and its head and registered office is located in Calgary, Alberta.
2. The Issuer is a reporting issuer under the securities legislation of each of the provinces of Canada other than Québec, and is not in default of the securities legislation of any jurisdiction in Canada.
3. The Issuer's authorized share capital consists of an unlimited number of common shares (the Shares), without par value, of which 61,809,867 were issued and outstanding as at February 11, 2011.
4. The Shares are listed for trading on the Toronto Stock Exchange (the TSX). Based on their closing price of $1.56 on February 11, 2011, the market capitalization of the Issuer was approximately $96 million.
5. The Issuer is qualified to file a short form prospectus under section 2.2 and 2.7 of NI 44-101 and is also qualified to file a base shelf prospectus under NI 44-102.
6. The Issuer intends to file with the securities regulator in each of the provinces of Canada, other than Québec, a base shelf prospectus pertaining to various securities of the Issuer, including the Shares (such base shelf prospectus and any amendment thereto, the Base Shelf Prospectus).
7. The statements required by subsections 5.5(2) and (3) of NI 44-102 contained in the Base Shelf Prospectus will be qualified by adding the following statement: ", except in cases where an exemption from such delivery requirements has been obtained.".
The Purchaser and the Manager
8. The Purchaser is a Cayman Islands exempt limited company and its head office is located in Roslyn, New York.
9. The Purchaser is managed by the Manager, a limited liability corporation incorporated under the laws of Delaware, having its head office in Roslyn, New York. The Manager is an affiliate of the Purchaser under applicable securities laws.
10. Neither the Purchaser nor the Manager is a reporting issuer or registered as a registered firm as defined in National Instrument 31-103 Registration Requirements and Exemptions (NI 31-103) in any jurisdiction of Canada. The Purchaser and the Manager are not in default of securities legislation in any jurisdiction in Canada.
The Distribution Agreement
11. The Issuer and the Purchaser propose to enter into a committed equity facility agreement (the Distribution Agreement) pursuant to which the Purchaser will agree to subscribe for, and the Issuer will have the right but not the obligation to issue and sell, up to $20 million of Shares (the Aggregate Commitment Amount) over a period of 24 months in a series of drawdowns.
12. The Distribution Agreement will provide the Issuer with the ability to raise capital as needed from time to time. The Purchaser regularly engages in such transactions. The Purchaser may, in certain circumstances, finance its commitment to subscribe for Shares on a drawdown through short-sales or resales out of existing holdings of the Issuer's securities.
13. Under the Distribution Agreement, the Issuer will have the sole ability to determine the timing and the amount of each drawdown, subject to certain conditions, including a maximum investment amount per drawdown and the Aggregate Commitment Amount.
14. The subscription price per Share and therefore the number of Shares to be issued to the Purchaser for each drawdown will be calculated based on a predetermined percentage discount from the average daily volume-weighted average price per Share on the TSX over a period of five consecutive trading days following notice of a drawdown sent by the Issuer (the Drawdown Pricing Period). Specifically, the Shares will be issued at a subscription price equal to the average daily volume-weighted average price per Share on the TSX during the Drawdown Pricing Period multiplied by 94%. The Issuer may fix in such drawdown notice a minimum subscription price below which it will not issue any Shares. Notwithstanding the foregoing, the subscription price per Share may not be lower than the volume-weighted average price per Share on the TSX over a period of five consecutive trading days immediately preceding the applicable drawdown notice, less the permitted discount under the private placement rules contained in the TSX Company Manual (the Floor Price).
15. On the second trading day following the date that the Issuer receives a receipt for the Pricing Supplement with respect to the Shares issuable pursuant to the applicable drawdown notice (each, a Settlement Date), the amount of the drawdown will be paid by the Purchaser in consideration for the relevant number of newly issued Shares.
16. The Distribution Agreement will provide that, at the time of each drawdown notice and at each Settlement Date, the Issuer will make a representation to the Purchaser that the Base Shelf Prospectus, as supplemented (the Prospectus), contains full, true and plain disclosure of all material facts relating to the Issuer and the Shares being distributed. The Issuer would therefore be unable to issue, or decide to issue, Shares when it is in possession of undisclosed information that would constitute a material fact or a material change.
17. On or after each Settlement Date, the Purchaser may seek to sell all or a portion of the Shares subscribed under the drawdown.
18. During the term of the Distribution Agreement, the Purchaser and its affiliates, associates or insiders, as a group, will not own at any time, directly or indirectly, Shares representing more than 19.9% of the issued and outstanding Shares.
19. The Purchaser and its affiliates, associates and insiders will not engage in any short sales in respect of the Shares during the term of the Distribution Agreement. However, the Purchaser may, after the receipt of a drawdown notice, seek to sell Shares to hedge its obligation to purchase Shares under a drawdown notice provided that:
(a) the Purchaser complies with applicable rules of the TSX, applicable securities laws and this decision document;
(b) the Purchaser and its affiliates, associates, and insiders will not during the Drawdown Pricing Period, directly or indirectly, sell that number of Shares which exceeds that number of Shares the Purchaser will be required to purchase under the applicable drawdown; and
(c) notwithstanding the foregoing, the purchaser and its affiliates, associates and insiders, will not directly or indirectly, sell Shares or grant any right to purchase or acquire any right to dispose of, nor otherwise dispose for value of, any Shares or any securities convertible into or exchangeable for Shares, between the time of delivery of a drawdown notice and the filing of the news release announcing the drawdown.
20. Disclosure of the activities of the Purchaser and its affiliates, associates or insiders, as well as the restrictions thereon, the whole as described in paragraphs 18 and 19 above, will be included in the Base Shelf Prospectus and Prospectus Supplement (as defined below). In addition, the Issuer will disclose in the Base Shelf Prospectus, as a risk factor, that the Purchaser may engage in short sales, resales or other hedging strategies to reduce investment risks associated with a drawdown, and the possibility that such transactions may result in significant dilution to existing shareholders and could have a significant effect on the price of the Shares.
21. No extraordinary commission or consideration will be paid by the Purchaser or the Manager to a person or company in respect of the disposition of Shares by the Purchaser to purchasers who purchase the same on the TSX through dealer(s) engaged by the Purchaser (the TSX Purchasers).
22. The Purchaser and the Manager will also agree, in effecting any disposition of Shares, not to engage in any sales, marketing or solicitation activities of the type undertaken by dealers in the context of a public offering. More specifically, each of the Purchaser and the Manager will not (a) advertise or otherwise hold itself out as a dealer, (b) in the ordinary course of business purchase or sell securities as principal from or to customers, (c) carry a dealer inventory in securities, (d) quote a market in securities, (e) with the exception of any bridge facility or convertible debt facility provided to the Issuer by the Purchaser, extend, or arrange for the extension of credit, in connection with transactions of securities of the Issuer, (f) run a book of repurchase and reverse repurchase agreements, (g) use a carrying broker for securities transactions, (h) lend securities for customers, (i) guarantee contract performance or indemnify the Issuer for any loss or liability from the failure of the transaction to be successfully consummated, or (j) participate in a selling group.
23. The Purchaser and the Manager will not solicit offers to purchase Shares in any jurisdiction of Canada and will sell the Shares to TSX Purchasers through one or more dealer(s) unaffiliated with the Purchaser, the Manager and the Issuer.
The Prospectus Supplements
24. The Issuer intends to file with the securities regulator in each of the provinces of Canada, other than Québec, a prospectus supplement to the Base Shelf Prospectus (a Prospectus Supplement) as soon as commercially reasonable following the date on which the Base Shelf Prospectus is receipted by the applicable securities regulators and intends to file in each of the provinces of Canada, other than Québec, a pricing supplement (each, a Pricing Supplement) within two trading days after the end of the Drawdown Pricing Period for each drawdown under the Distribution Agreement.
25. The Pricing Supplement will disclose (i) the number of Shares issued to the Purchaser, (ii) the price per Share paid by the Purchaser, (iii) the information required by NI 44-102, including the disclosure required by subsection 9.1(3) thereof, and (iv) the following statement (the Amended Statement of Rights):
• Securities legislation in certain of the provinces of Canada provides purchasers with the right to withdraw from an agreement to purchase securities. This right may be exercised within two business days after receipt or deemed receipt of a prospectus and any amendment. In several of the provinces, the securities legislation further provides a purchaser with remedies for rescission or, in some jurisdictions, revision of the price or damages if the prospectus and any amendment are not delivered to the purchaser, provided that the remedies for rescission, revision of the price or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser's province. However, such rights and remedies will not be available to purchasers of common shares distributed under this prospectus because the prospectus will not be delivered to purchasers, as permitted under a decision document issued by the Alberta Securities Commission on May [•], 2011.
• The securities legislation further provides a purchaser with remedies for rescission or, in some jurisdictions, revisions of the price or damages if the prospectus and any amendment contain a misrepresentation, provided that the remedies for rescission, revisions of the price or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser's province. Such remedies remain unaffected by the non-delivery of the prospectus permitted under the decision document referred to above.
• The purchaser should refer to any applicable provisions of the securities legislation of the purchaser's province for the particulars of these rights or consult with a legal adviser.
26. The Base Shelf Prospectus, as supplemented by the Prospectus Supplement and each Pricing Supplement, will qualify, inter alia, (a) the distribution of Shares to the Purchaser on the Settlement Date, and (b) the disposition of Shares to TSX Purchasers during the period that commences on the date of issuance of a drawdown notice and ends on the earlier of (i) the date on which the disposition of such Shares has been completed or (ii) the 40th day following the relevant Settlement Date (collectively, the Distribution).
27. The Prospectus Delivery Requirement is not workable in the context of the Distribution because the TSX Purchasers will not be readily identifiable as the dealer(s) acting on behalf of the Purchaser may combine the sell orders made under the Prospectus with other sell orders and the dealer(s) acting on behalf of the TSX Purchasers may combine a number of purchase orders.
28. The Pricing Supplement will contain an underwriter's certificate in the form set out in section 2.2 of Appendix B to NI 44-102 signed by the Purchaser.
29. At least three business days prior to the filing of any Pricing Supplement, the Issuer will provide for comment to the Decision Makers a draft of such Pricing Supplement.
News Releases / Continuous Disclosure
30. Following the issuance of this decision document, the Issuer will:
(a) promptly issue and file on SEDAR a news release disclosing the material terms of the Distribution Agreement, including the Aggregate Commitment Amount; and
(b) within ten days after said issuance:
(i) file a copy of the Distribution Agreement on SEDAR; and
(ii) file a material change report on SEDAR disclosing the material terms of the Distribution Agreement including the Aggregate Commitment Amount.
31. Promptly upon the issuance of each drawdown notice, regardless of the size of the drawdown, the issuer will issue and file on SEDAR a news release disclosing the aggregate amount of the drawdown, the maximum number of Shares to be issued, the minimum price per Share, if any, the Floor Price and the availability on SEDAR of the Base Shelf Prospectus, Prospectus Supplement and Pricing Supplement and specifying how a copy of those documents can be obtained.
32. Promptly upon any amendment to the minimum price set forth in a drawdown notice, the Issuer will issue and file on SEDAR a news release disclosing the amended minimum price per Share and the maximum number of Shares to be issued.
33. The Issuer will:
(a) on or as soon as practicably possible after, the last day of each Drawdown Pricing Period, issue and file on SEDAR a news release disclosing:
(i) the number of Shares issued to, and the price per Share paid by, the Purchaser;
(ii) that the Base Shelf Prospectus, the Prospectus Supplement and the relevant Pricing Supplement will be available on SEDAR and specifying how a copy of these documents can be obtained; and
(iii) the Amended Statement of Rights; and
(b) file a material change report on SEDAR within ten days of each Settlement Date, if the relevant Distribution constitutes a material change under applicable securities legislation, disclosing at a minimum the information required in subparagraph (a) above.
34. The Issuer will also disclose in its financial statements and management's discussion and analysis filed on SEDAR under National Instrument 51-102 Continuous Disclosure Obligations, for each financial period, the number and price of Shares issued to the Purchaser pursuant to the Distribution Agreement.
Deliveries upon Request
35. The Issuer will deliver to the Decision Makers and to the TSX, upon request, a copy of each drawdown notice delivered by the Issuer to the Purchaser under the Distribution Agreement.
36. The Purchaser and the Manager will provide to the Decision Makers, upon request, full particulars of trading and hedging activities by the Purchaser or the Manager (and, if required, trading and hedging activities by their respective affiliates, associates or insiders) in relation to securities of the Issuer during the term of the Distribution Agreement.
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Makers to make the decision.
The decision of the Decision Makers under the Legislation is that the Exemptive Relief Sought is granted, provided that:
(a) as it relates to the Prospectus Disclosure Requirements:
(i) the Issuer comply with the representations in paragraphs 7, 20, 25, 26, 28 , 29, 30, 31, 32, 33, and 35; and
(ii) the number of Shares distributed by the Issuer under the Distribution Agreement does not exceed, in any 12 month period, 20% of the aggregate number of Shares outstanding calculated at the beginning of such period;
(b) as it relates to the Prospectus Delivery Requirement and the Dealer Registration Requirement, the Purchaser and/or the Manager, as the case may be, comply with the representations in paragraphs 19, 21, 22, 23, 28, and 36; and
(c) this decision will terminate 25 months after the execution of the Distribution Agreement.
For the Commission: