Form F-7 - Registration statement for securities of certain Canadian issuers offered for cash upon the exercise of rights granted to existing security holders

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As filed with the Securities and Exchange Commission on August 7, 2023

Registration No. 333-          

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM F-7

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Constellation Software Inc.

(Exact name of Registrant as specified in its charter)

 

 

 

Ontario, Canada		7372		Not Applicable
(Province or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

20 Adelaide Street East - #1200, Toronto, Ontario, Canada M5C 2T6

[phone]

(Address and telephone number of Registrant’s principal executive offices)

 

 

CSI USA Inc.

5265 Rockwell Drive NE

Cedar Rapids, IA 52402

[phone]

(Name, address and telephone number of agent for service in the United States)

 

 

Copies to:

Wendi Locke McCarthy Tétrault LLP Suite 5300, TD Bank Tower Box 48, 66 Wellington Street West Toronto, Ontario Canada M5K 1E6 Tel: [phone]		Christopher J. Cummings Paul, Weiss, Rifkind, Wharton & Garrison LLP Suite 3100, 77 King Street West Toronto, Ontario Canada M5K 1J3 Tel: [phone]

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the filing of the next amendment to this registration statement.

This registration statement and any amendment thereto shall become effective upon filing with the Commission in accordance with Rule 467(a).

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to the home jurisdiction’s shelf prospectus offering procedures, check the following box:  ☐

 

 

CALCULATION OF REGISTRATION FEE(1)

 

Title of Each Class of Securities to be Registered		Amount to be Registered(2)		Proposed Maximum Offering Price per Unit		Proposed Maximum Aggregate Offering Price(2)		Amount of Registration Fee
Unsecured Subordinated Floating Rate Debentures, Series 1		US$526,680,000		100%		US$526,680,000		US$58,041

(1)	Calculation of Registration Fee is in accordance with General Instruction II.F of Form F-7.

(2)	Based on the daily exchange rate published by the Bank of Canada on August 1, 2023 of Cdn$1.00 = US$0.7524.

If, as a result of stock splits, stock dividends or similar transactions, the number of securities purported to be registered on this registration statement changes, the provisions of Rule 416 shall apply to this registration statement.

 

 

 

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PART I

INFORMATION REQUIRED TO BE SENT TO SHAREHOLDERS

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A copy of this preliminary short form prospectus has been filed with the securities regulatory authorities in each of the provinces and territories of Canada but has not yet become final for the purpose of the sale of securities. Information contained in this preliminary short form prospectus may not be complete and may have to be amended. The securities may not be sold until a receipt for the short form prospectus is obtained from the securities regulatory authorities.

This short form prospectus constitutes a public offering only in those jurisdictions where they may be lawfully offered for sale and therein only by persons permitted to sell such securities. No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise. See “Plan of Distribution”.

Information has been incorporated by reference in this prospectus from documents filed with securities commissions or similar authorities in Canada. Copies of the documents incorporated herein by reference may be obtained on request without charge from the Secretary of Constellation Software Inc. at 20 Adelaide Street East, Suite 1200, Toronto, Ontario, M5C 2T6, [e-mail] and are also available electronically at www.sedarplus.ca.

Preliminary Short Form Prospectus

 

Rights Offering		August 3, 2023

 

 

CONSTELLATION SOFTWARE INC.

C$700,000,000

Offering of Rights to Subscribe for

Unsecured Subordinated Floating Rate Debentures, Series 1

Due March 31, 2040

 

 

Price: C$● per Series 1 Debenture

 

 

This short form prospectus covers the issuance (the “Offering”) by Constellation Software Inc. (the “Company” or “CSI”) to the holders of its outstanding common shares (the “Common Shares”) of record (the “Shareholders”) on ●, 2023 (the “Record Date”) of one right (each, a “Right”) for each Common Share held. The Rights will be issued in satisfaction of the dividend (the “Rights Dividend”) declared by the Company on the Common Shares in the amount of one Right per Common Share. For every 3.03 Rights held, a holder of Rights is entitled to subscribe for C$100 principal amount of unsecured subordinated floating rate debentures, Series 1 of the Company (the “Series 1 Debentures”) at a price of C$● per C$100 principal amount of Series 1 Debentures purchased (plus any accrued interest on the Series 1 Debentures) prior to 4:30 p.m. (Toronto time) (the “Expiry Time”) on ●, 2023 (the “Expiry Date”).

The Series 1 Debentures will be issued as an additional tranche of, and under the Indenture (as defined below) will form a single series with, the C$68 million principal amount of Series 1 Debentures issued on October 1,

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2014, the C$28 million principal amount of Series 1 Debentures issued on November 19, 2014 and the C$186.2 million principal amount of Series 1 Debentures issued on September 30, 2015. The closing price of the Series 1 Debentures on the Toronto Stock Exchange (the “TSX”) on August 2, 2023 was C$140.00 per C$100.00 principal amount. From, and including, the date of issue of ●, 2023 to, but excluding, March 31, 2024, the Series 1 Debentures will bear interest at a rate of 13.3% per annum. From, and including, March 31, 2024 to, but excluding, the Maturity Date (as defined below), the interest rate applicable to the Series 1 Debentures will be reset on an annual basis on March 31 of each year, at a rate equal to the Cost of Living Adjustment (as defined below) (which amount may be positive or negative) plus 6.5%.

The Rights are fully divisible and fully transferable into and within Canada, and will be represented by rights certificates (the “Rights Certificates”). Rights not exercised prior to the Expiry Time on the Expiry Date will be void and of no further value.

 

		Subscription Price				Net Proceeds to the Company(1)
Per Series 1 Debenture		C$	●			C$	●
Total Offering(2)		C$	●			C$	●

 

(1)	Before deducting the expenses of the Offering, which are estimated to be approximately C$● and will be paid by the Company.

(2)	Assuming the exercise of all Rights.

Investing in the Series 1 Debentures involves significant risks. Prospective investors should carefully review the risks outlined in this short form prospectus and in the documents incorporated by reference herein before purchasing the Series 1 Debentures. See “Risk Factors”.

This prospectus qualifies for distribution under applicable Canadian securities laws the Rights and the Series 1 Debentures issuable on the exercise of the Rights (collectively, the “Offered Securities”) in each of the provinces and territories of Canada and also covers the offer and sale of the Series 1 Debentures issuable upon exercise of the Rights within the United States (together with each of the provinces and territories of Canada, the “Eligible Jurisdictions”) under the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”). However, notwithstanding registration under the U.S. Securities Act, the securities or blue sky laws of certain states may not permit or may limit the Company’s ability to offer Rights and/or Series 1 Debentures in such states, or to certain persons in those states. The Company will only offer such securities in states where, and to such persons to whom, it is legally permitted to do so.

None of the Offered Securities have been qualified under the securities laws of any jurisdiction outside the Eligible Jurisdictions (an “Ineligible Jurisdiction”) and, except under the circumstances described herein, the Rights may not be exercised by or on behalf of a holder of Rights resident in an Ineligible Jurisdiction (an “Ineligible Holder”). This prospectus is not, and under no circumstances is to be construed as, an offering of any of the Offered Securities for sale in any Ineligible Jurisdiction or a solicitation therein or thereto of an offer to buy any securities. Rights Certificates will not be sent to any Shareholder with an address of record in an Ineligible Jurisdiction. Instead, the Rights Certificates of such Ineligible Holders will be held by the Subscription Agent, who will hold such Rights as agent for the benefit of all such Ineligible Holders. See “Description of the Rights – Ineligible Holders”.

This offering is made by a Canadian issuer that is permitted, under a multijurisdictional disclosure system adopted by the United States and Canada, to prepare this prospectus in accordance with the disclosure requirements of Canada. Prospective purchasers of securities should be aware that such requirements are different from those of the United States. Financial statements included or incorporated herein have been prepared in accordance with International Financial Reporting Standards, and are subject to Canadian auditing and auditor independence standards, and thus may not be comparable to financial statements of United States companies.

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Prospective investors should be aware that the acquisition or disposition of the securities described in this prospectus may have tax consequences in Canada, the United States and the investor’s jurisdiction of residence. Such consequences for investors who are resident in, or citizens of, the United States may not be described fully herein. Prospective investors should review the sections herein entitled “Certain Canadian Federal Income Tax Considerations” and “Certain United States Federal Income Tax Considerations”, and should consult their own tax advisors.

The enforcement by investors of civil liabilities under United States federal securities laws may be affected adversely by the fact that the Company is incorporated under the laws of Ontario, that some or all of its officers and directors may be residents of a country other than the United States, that some or all of the experts named in the registration statement may be residents of Canada, and that all or a substantial portion of the assets of the Company and said persons may be located outside the United States.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE.

The Rights may be transferred only in transactions outside of the United States in accordance with Regulation S under the U.S. Securities Act (“Regulation S”).

There is currently no market through which the Rights may be sold. There can be no assurance that an active trading market will develop for the Rights or, if developed, that such a market will be sustained. To the extent that an active trading market for the Rights does not develop, the pricing of the Rights in the secondary market, the transparency and availability of trading prices and the liquidity of the Rights may be adversely affected. See “Risk Factors”.

The currently outstanding Common Shares are listed and posted for trading on the TSX under the symbol “CSU”. The currently outstanding Series 1 Debentures are listed and posted for trading on the TSX under the symbol “CSU.DB”. The closing of the Offering will be conditional on the listing of the Rights on the TSX.

No underwriter has been involved in the preparation of this prospectus or performed any review of the contents of this prospectus.

Computershare Investor Services Inc. (the “Subscription Agent”), at its principal offices in the City of Toronto (the “Subscription Offices”), is the subscription agent for this Offering. See “Description of the Rights – Subscription Agent”.

For Common Shares held in registered form, the Company will mail or cause to be mailed to each Shareholder a Rights Certificate evidencing the number of Rights issued to the holder thereof, together with a copy of this prospectus. In order to exercise the Rights represented by the Rights Certificate, a holder of Rights must complete and deliver Form 1 of the Rights Certificate to the Subscription Agent in the manner and upon the terms set out in this prospectus. See “Description of the Rights – Common Shares Held in Registered Form”.

For Common Shares held through a securities broker or dealer, bank or trust company or other participant (a “CDS Participant”) in the book-based system administered by CDS Clearing and Depository Services Inc. (“CDS”), a holder of Rights may exercise the Rights issued in respect of such Common Shares by (a) instructing the CDS Participant holding such Rights to exercise all or a specified number of such Rights and (b) forwarding to such CDS Participant the subscription price for each Series 1 Debenture that such Shareholder wishes to subscribe for in accordance with the terms of this Offering. Subscriptions for Series 1 Debentures made through a CDS Participant will be irrevocable and subscribers will be unable to withdraw their subscriptions for Series 1 Debentures once submitted. See “Description of the Rights – Common Shares Held Through CDS”.

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TABLE OF CONTENTS

 

GENERAL MATTERS			6
ELIGIBILITY FOR INVESTMENT			6
FORWARD-LOOKING STATEMENTS			6
EXCHANGE RATE INFORMATION			7
DOCUMENTS INCORPORATED BY REFERENCE			7
CONSTELLATION SOFTWARE INC.			8
DESCRIPTION OF THE RIGHTS			8
DESCRIPTION OF THE SERIES 1 DEBENTURES			13
CONSOLIDATED CAPITALIZATION			19
USE OF PROCEEDS			19
PLAN OF DISTRIBUTION			19
TRADING PRICE AND VOLUME OF SERIES 1 DEBENTURES			20
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS			21
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS			25
RISK FACTORS			34
EARNINGS COVERAGE RATIOS			37
LEGAL MATTERS			37
LEGAL PROCEEDINGS			38
AUDITORS, TRANSFER AGENT AND REGISTRAR			38
DOCUMENTS FILED AS PART OF THE REGISTRATION STATEMENT			38
ENFORCEMENT OF JUDGMENTS AGAINST FOREIGN PERSONS			38
ADDITIONAL INFORMATION			38

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GENERAL MATTERS

Unless otherwise noted or the context otherwise indicates, all references in this prospectus to “CSI”, the “Company”, “we”, “us”, “our” and “our company” refer to Constellation Software Inc. and its subsidiaries.

The Company prepares its consolidated financial statements in U.S. dollars and in conformity with International Financial Reporting Standards.

All references to US$ are to U.S. dollars and all references to C$ are to Canadian dollars.

ELIGIBILITY FOR INVESTMENT

In the opinion of McCarthy Tétrault LLP, Canadian counsel to the Company, based on the provisions of the Income Tax Act (Canada) and the regulations thereunder (collectively, the “Tax Act”) in force on the date hereof, provided the Rights and the Series 1 Debentures are each listed on a “designated stock exchange” (as such term is defined in the Tax Act and which currently includes the TSX), the Rights and Series 1 Debentures, if issued on the date hereof, would each be a “qualified investment” under the Tax Act for a trust governed by a registered retirement savings plan (“RRSP”), a registered retirement income fund (“RRIF”), a tax-free savings account (“TFSA”), a registered disability savings plan (“RDSP”), a registered education savings plan (“RESP”), a first home savings account (“FHSA”, and collectively with an RRSP, RRIF, TFSA, RDSP and RESP, a “Registered Plan”) and a deferred profit sharing plan, except, in the case of Series 1 Debentures, a deferred profit sharing plan to which the Company, or an employer that does not deal at arm’s length with the Company, has made a contribution (“DPSP”), each as defined in the Tax Act.

Notwithstanding the foregoing, if the Rights or Series 1 Debentures are “prohibited investments” (as defined in the Tax Act) for a Registered Plan, the holder or subscriber of, or annuitant under, as applicable, a Registered Plan (the “Controlling Individual”) will be subject to a penalty tax as set out in the Tax Act. The Rights and Series 1 Debentures will generally be a “prohibited investment” for a Registered Plan if the Controlling Individual does not deal at arm’s length with the Company for purposes of the Tax Act or has a “significant interest” (as defined in the Tax Act) in the Company.

Holders who intend to hold the Rights or Series 1 Debentures in a Registered Plan or DPSP are urged to consult their own tax advisors regarding their particular circumstances.

FORWARD-LOOKING STATEMENTS

Certain statements in this prospectus may contain “forward-looking” statements which involve risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company or industry to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this prospectus, words such as “may”, “will”, “expect”, “believe”, “plan”, “intend”, “should”, “anticipate” and other similar terminology are intended to identify forward-looking statements. These statements reflect current assumptions and expectations regarding future events and operating performance and speak only as of the date of this prospectus. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to vary significantly from the results discussed in the forward-looking statements, including, but not limited to, the factors discussed under “Risk Factors”. Although the forward-looking statements contained in this prospectus are based upon what management of the Company believes are reasonable assumptions, the Company cannot assure investors that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this prospectus, and the Company assumes no obligation to update or revise them to reflect new events or circumstances, except as required by applicable securities laws.

 

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EXCHANGE RATE INFORMATION

The following table sets out (i) the rate of exchange for one U.S. dollar in Canadian dollars in effect at the end of the period indicated, (ii) the high and low rate of exchange during that period and (iii) the average rate of exchange for that period, as published by the Bank of Canada.

 

		Six months ended June 30, 2023				Year ended December 31
						2022				2021
High			1.3807				1.3856				1.2942
Low			1.3151				1.2451				1.2040
End of period			1.3240				1.3544				1.2678
Average			1.3477				1.3013				1.2535

On August 2, 2023 the daily rate of exchange as published by the Bank of Canada was US$1.00 = C$1.3335.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents have been filed with the securities regulatory authorities in each of the provinces and territories of Canada and are specifically incorporated by reference into, and form an integral part of, this prospectus:

 

(a)	the Company’s condensed consolidated interim financial statements for the three months ended March 31, 2023 and March 31, 2022;

 

(b)	the Company’s management’s discussion and analysis of financial condition and results of operations for the three months ended March 31, 2023 (the “Q1 MD&A”);

 

(c)	the Company’s Annual Information Form dated March 29, 2023 (the “AIF”) (other than the section entitled “Credit Rating” therein);

 

(d)	the Company’s Management Information Circulars dated March 24, 2022 and March 27, 2023;

 

(e)	the Company’s consolidated financial statements for the years ended December 31, 2022 and December 31, 2021, together with the auditor’s report thereon; and

 

(f)	the Company’s management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2022.

Any documents of the type referred to in the preceding paragraph, or otherwise described in Section 11.1 of Form 44-101F1 – Short Form Prospectus (excluding confidential material change reports), filed by the Company with any securities regulatory authority in Canada after the date of this prospectus and prior to the completion or withdrawal of this Offering, are deemed to be incorporated by reference in this prospectus.

Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for the purposes of this prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. The modifying or superseding statement need not state that it has modified or superseded a prior statement or include any other information set forth in the document that it modifies or supersedes. The making of a modifying or superseding statement will not be deemed an admission for any purpose that the modified or superseded statement, when made, constituted a misrepresentation, an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus.

 

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CONSTELLATION SOFTWARE INC.

We acquire, manage and build vertical market software (“VMS”) businesses. Generally, these businesses provide mission critical software solutions that address the specific needs of our customers in particular vertical markets. Our focus on acquiring businesses with growth potential, managing them well and then building them has allowed us to generate significant cash flow and revenue growth. Using a combination of proprietary software and market expertise, we provide software solutions designed to meet certain mission critical requirements of our customers. We believe that our software solutions enable our customers to boost productivity, operate more cost effectively, increase sales and improve customer service and satisfaction. Our principal strategy is to acquire, manage and build VMS businesses. Most of the VMS businesses that we acquire have the potential to be leaders within their particular markets. We target the VMS sector because of the attractive economics that it provides and our belief that our management teams understand those economics better than many of our competitors.

We are a global provider of enterprise software solutions serving a variety of distinct vertical markets.

Our head and registered office is located at 20 Adelaide Street East, Suite 1200, Toronto, Ontario, M5C 2T6. The primary geographic markets in which we operate are North America, Continental Europe, UK and Australia.

DESCRIPTION OF THE RIGHTS

Rights and Rights Certificates

The Company is issuing to each Shareholder of record at the close of business (Toronto time) on the Record Date one Right for each Common Share held by such Shareholder. The Rights will be issued in satisfaction of the Rights Dividend declared by the Company on the Common Shares in the amount of one Right per Common Share. Every 3.03 Rights entitle the holder thereof to subscribe for C$100 principal amount of Series 1 Debentures at a price of C$● per C$100 principal amount of Series 1 Debentures purchased (plus any accrued interest on the Series 1 Debentures purchased).

The Rights are fully divisible and fully transferable into and within Canada by the holders thereof. The Rights may not be transferred to any person within the United States. Shareholders in the United States who receive Rights may resell them only outside the United States in accordance with Regulation S under the U.S. Securities Act. See “– Sale or Transfer of Rights”.

The Rights are evidenced by Rights Certificates registered in the name of the Shareholder entitled thereto. Each Shareholder, other than an Ineligible Holder, will receive a Rights Certificate evidencing the total number of Rights to which such Shareholder is entitled. Subject to certain exceptions, Rights Certificates may not be held directly by, and subscriptions for Series 1 Debentures will not be accepted from, Ineligible Holders. See “– Ineligible Holders”.

Shareholders that hold their Common Shares through a CDS Participant will not receive physical certificates evidencing their ownership of Rights. On the Record Date, a global certificate representing Rights held through CDS Participants will be issued in registered form to, and in the name of, CDS or its nominee. See “– Common Shares Held Through CDS”.

Subscription Privilege

Every 3.03 Rights entitle the holder thereof to subscribe for C$100 principal amount of Series 1 Debentures at a price of C$● per C$100 principal amount of Series 1 Debentures purchased (plus any accrued interest on the Series 1 Debentures purchased) prior to the Expiry Time on the Expiry Date. The Series 1 Debentures will be issued on or about ●, 2023 (the “Issue Date”).

 

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Rights not exercised by the Expiry Time on the Expiry Date will be void and of no further value. A holder of Rights that subscribes for some, but not all, of the Series 1 Debentures which such holder is entitled to subscribe for will be deemed to have elected to waive the unexercised balance of such Rights. For information on how to exercise the Subscription Privilege, see “– Common Shares Held in Registered Form – How to Complete the Rights Certificate”.

Fractional Series 1 Debentures will not be issued upon the exercise of Rights. Each holder of a Rights Certificate which evidences a number of Rights not evenly divisible by 3.03 will have the principal amount of Series 1 Debentures it is entitled to subscribe for rounded down to the next nearest multiple of C$100.

Subscription Agent

Computershare Investor Services Inc. (the “Subscription Agent”) has been appointed the agent of the Company to receive subscriptions and payments from holders of Rights and to perform certain services relating to the exercise and transfer of Rights. Subscriptions and payments under the Offering should be sent to the Subscription Agent at:

Computershare Investor Services Inc.

PO Box 7021

31 Adelaide St E

Toronto ON M5C 3H2

Attn: Corporate Actions

The Subscription Agent can be reached by telephone at 1-800-564-6253 or 1-514-982-7555 or by e-mail at [e-mail].

Common Shares Held Through CDS

For Common Shares held through a CDS Participant in the book-based system administered by CDS, a global certificate representing the aggregate number of Rights held through CDS Participants will be issued in registered form to CDS and will be deposited with CDS. Each Shareholder who holds Common Shares through a CDS Participant (a “Beneficial Shareholder”) will receive a confirmation of the number of Rights issued to such holder from its CDS Participant in accordance with the practices and procedures of that CDS Participant. CDS will be responsible for establishing and maintaining book-entry accounts for CDS Participants holding Rights.

In order to exercise Rights held through a CDS Participant, a Beneficial Shareholder must (a) instruct the CDS Participant holding such Rights to exercise all or a specified number of such Rights and (b) forward to such CDS Participant the Subscription Price for each Series 1 Debenture that such Beneficial Shareholder wishes to subscribe for. Subscriptions for Series 1 Debentures made through a CDS Participant will be irrevocable and subscribers will be unable to withdraw their subscriptions for Series 1 Debentures once submitted.

The Subscription Price for Rights held through a CDS Participant is payable in Canadian dollars by certified cheque, bank draft or money order payable to the CDS Participant by direct debit from the subscriber’s brokerage account or by electronic funds transfer or other similar payment mechanism. The entire Subscription Price for any Rights exercised must be paid at the time of subscription and must be received by the Subscription Agent at one of the Subscription Offices prior to 4:30 p.m. (Toronto time) on the Expiry Date. Accordingly, a holder of Rights held through a CDS Participant must deliver its payment and subscriptions sufficiently in advance of the Expiry Date to allow the CDS Participant through which such Rights are held to properly exercise such Rights.

Neither the Company nor the Subscription Agent will have any liability for: (a) the records maintained by CDS or CDS Participants relating to the Rights or the book-entry accounts maintained by them; (b) maintaining, supervising or reviewing any records relating to such Rights; or (c) any advice or representations made or given by CDS or CDS Participants with respect to the rules and regulations of CDS or any action to be taken by CDS or CDS Participants.

 

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The ability of a person having an interest in Rights held through a CDS Participant to pledge such interest or otherwise take action with respect to such interest (other than through a CDS Participant) may be limited due to the lack of a physical certificate. Beneficial Shareholders must arrange purchases or transfers of Rights through their CDS Participant.

Common Shares Held in Registered Form

Shareholders who hold Common Shares in registered form (“Registered Shareholders”) will be mailed a copy of this prospectus and a Rights Certificate representing the total number of Rights to which each such Shareholder is entitled to receive. In order to exercise Rights represented by the Rights Certificate, Registered Shareholders must complete and deliver the Rights Certificate in accordance with the instructions set out under “– Common Shares Held in Registered Form – How to Complete the Rights Certificate”.

Rights not exercised by 4:30 p.m. (Toronto time) on the Expiry Date will be void and of no value. The Subscription Price for Rights exercised by Registered Shareholders is payable in Canadian dollars by certified cheque, bank draft or money order payable to the Subscription Agent or by electronic funds transfer or other similar payment mechanism acceptable to the Subscription Agent.

How to Complete the Rights Certificate

 

1.

Form 1 – Subscription Privilege. Every 3.03 Rights entitle the holder thereof to subscribe for C$100 principal amount of Series 1 Debentures at a price of C$● per C$100 principal amount of Series 1 Debentures purchased (plus any accrued interest on the Series 1 Debentures purchased). The maximum number of Rights that may be exercised pursuant to the Subscription Privilege is shown in the box on the upper right hand corner of the face of the Rights Certificate. If Form 1 on the Rights Certificate is completed so as to exercise some but not all of the Rights represented by a Rights Certificate, the holder of such Rights Certificate will be deemed to have waived the unexercised balance of such Rights, unless the Subscription Agent is otherwise specifically advised by such holder at the time the Rights Certificate is surrendered that the Rights are to be transferred to a third party or are to be retained by the holder.

Only subscriptions for whole Series 1 Debentures will be accepted. Each holder of a Rights Certificate which evidences a number of Rights not evenly divisible by 3.03 will have the principal amount of Series 1 Debentures it is entitled to subscribe for rounded down to the next nearest multiple of C$100.

Completion of Form 1 on the Rights Certificate constitutes a representation by the holder thereof that the holder is not a resident or national of an Ineligible Jurisdiction and is not an Ineligible Holder or an agent of a person who is a national or resident of an Ineligible Jurisdiction or an Ineligible Holder.

 

2.

Form 2 – Transfer of Rights. Only a holder of Rights who wishes to transfer the Rights represented by a Rights Certificate should complete and sign Form 2 on the Rights Certificate. To complete a transfer, a holder of Rights must complete Form 2 on the Rights Certificate and have its signature guaranteed by a Schedule I bank, a major trust company in Canada, or a member of an acceptable Medallion Signature Guarantee Program (including STAMP, SEMP, and MSP). Members of STAMP are usually members of a recognized stock exchange in Canada or members of the Investment Industry Regulatory Organization of Canada. The guarantor must affix a stamp bearing the actual words “Signature Guaranteed”. It is not necessary for a transferee to obtain a new Rights Certificate to exercise the Rights, but the signature of the transferee on Form 1 must correspond in every particular with the name of the transferee (or the bearer if no transferee is specified) as the absolute owner of the Rights Certificate for all purposes. If Form 2 is completed, the Company and the Subscription Agent will treat the transferee as the absolute owner of the Rights Certificate for all purposes and will not be affected by notice to the contrary.

 

3.

The Rights may be transferred only in transactions outside of the United States in accordance with Regulation S under the U.S. Securities Act, which will permit the resale of the Rights to a person

 

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outside the United States where neither the seller nor any person acting on its behalf knows that the transaction has been prearranged with a buyer in the United States, and no “directed selling efforts”, as that term is defined in Regulation S, are conducted in the United States in connection with the resale. Certain additional conditions are applicable to the Company’s “affiliates”, as that term is defined under the U.S. Securities Act.

 

4.

Form 3 – Dividing or Combining. Only a holder of Rights who wishes to divide or combine the Rights represented by a Rights Certificate should complete and sign Form 3 on the Rights Certificate. Rights Certificates need not be endorsed if the new Rights Certificate(s) will be issued in the same name. The Subscription Agent will then issue a new Rights Certificate in such denominations (totalling the same number of Rights as represented by the Rights Certificate(s) being divided or combined) as are required by the Rights Certificate holder. Rights Certificates must be surrendered for division or combination in sufficient time prior to the Expiry Time to permit the new Rights Certificates to be issued to and used by the Rights Certificate holder.

 

5.

Payment. The Subscription Price of C$● per C$100 principal amount of Series 1 Debenture (plus any accrued interest on the Series 1 Debentures) is payable in Canadian funds by certified cheque, bank draft or money order payable to the order of “Computershare Investor Services Inc.” or by electronic funds transfer or other similar payment mechanism acceptable to the Subscription Agent.

 

6.

Delivery. Holders of Rights who exercise their right to subscribe for Series 1 Debentures must complete and mail the enclosed Rights Certificate to the Subscription Agent, together with payment of the Subscription Price (including any accrued interest on the Series 1 Debentures purchased), in the enclosed return envelope. The completed Rights Certificate and payment of the Subscription Price must be received by the Subscription Agent by no later than 4:30 p.m. (Toronto time) on the Expiry Date. If mailing, registered mail is recommended. Please allow sufficient time to avoid late delivery.

The signature of the holder of a Rights Certificate must correspond in every particular with the name that appears on the face of the Rights Certificate. Signatures by a trustee, executor, administrator, guardian, attorney, officer of a company or any person acting in a fiduciary or representative capacity should be accompanied by evidence of authority satisfactory to the Subscription Agent. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of any subscription will be determined by the Company in its sole discretion, and any determination by the Company will be final and binding on the Company and its securityholders. Upon delivery or mailing of the completed Rights Certificate to the Subscription Agent, the exercise of the Rights and the subscription for Series 1 Debentures is irrevocable. The Company reserves the right to reject any subscription if it is not in proper form or if the acceptance thereof or the issuance of Series 1 Debentures pursuant thereto could be unlawful. The Company also reserves the right to waive any defect in respect of any particular subscription. Neither the Company nor the Subscription Agent is under any duty to give any notice of any defect or irregularity in any subscription, nor will they be liable for the failure to give any such notice.

If a holder of a Right has any questions with respect to the proper exercise of Rights, such holder should contact the Subscription Agent at 1-800-564-6253 or 1-514-982-7555 or by e-mail at [e-mail].

Undeliverable Rights

Rights Certificates returned to the Subscription Agent as undeliverable will not be sold by the Subscription Agent and no proceeds of sale will be credited to such holders.

Sale or Transfer of Rights

A holder of Rights in registered form may sell or transfer some or all of such Rights to any person who is not an Ineligible Holder. A holder who wishes to transfer some or all of its Rights must complete Form 2 on the Rights Certificate and have its signature guaranteed by a Schedule I bank, a major trust company in Canada, or a

 

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member of an acceptable Medallion Signature Guarantee Program (including STAMP, SEMP, and MSP). See “– Common Shares Held in Registered Form – How to Complete the Rights Certificate”. Holders who hold their Rights through a CDS Participant must arrange exercises or transfers of Rights through their CDS Participant.

Dividing or Combining Rights Certificates

Rights Certificates may be divided or combined by completing Form 2 on the Rights Certificate and delivering the Rights Certificate to the Subscription Agent in sufficient time prior to the Expiry Time to permit the new Rights Certificates to be issued to and used by the Rights Certificate holder. See “– Common Shares Held in Registered Form – How to Complete the Rights Certificate”.

Ineligible Holders

This prospectus covers the distribution of the Offered Securities in the Eligible Jurisdictions only. However, notwithstanding registration under the U.S. Securities Act, the securities or blue sky laws of certain states may not permit or may limit the Company’s ability to offer Rights and/or Series 1 Debentures in such states, or to certain persons in those states. The Company will only offer Rights in states where, and to such persons to whom, it is legally permitted to do so. Rights Certificates will not be sent to any Shareholders with addresses of record in an Ineligible Jurisdiction and, except as described herein, Rights may not be exercised by or on behalf of any Shareholders with addresses of record in an Ineligible Jurisdiction. Instead, Ineligible Holders will be sent a copy of this prospectus together with a letter advising them that their Rights Certificates will be held by the Subscription Agent as agent for the benefit of all such Ineligible Holders. The letter will also set out the conditions required to be met, and procedures that must be followed, in order for Ineligible Holders to participate in the Offering.

Notwithstanding any of the foregoing, the Company may accept subscriptions from Ineligible Holders if the Company determines that the offering to and subscription by such person is lawful and in compliance with all securities and other laws applicable in the Ineligible Jurisdiction where such person is resident (each an “Approved Eligible Holder”). Shareholders who have not received Rights Certificates but are resident in an Eligible Jurisdiction or wish to be recognized as Approved Eligible Holders should contact the Subscription Agent at the earliest possible time. Rights of Shareholders with addresses of record in an Ineligible Jurisdiction will be held by the Subscription Agent until 4:30 p.m. (Toronto time) on ●, 2023 in order to provide such holders with the opportunity to satisfy the Company that (i) the holder is resident in an Eligible Jurisdiction or (ii) the exercise of their Rights will not be in violation of securities and other laws applicable in the Ineligible Jurisdiction where such person is resident. After such time, the Subscription Agent will attempt to sell the Rights of such registered Ineligible Holders on the open market on such date or dates and at such price or prices as the Subscription Agent will determine in its sole discretion.

No charge will be made for the sale of Rights on behalf of Ineligible Holders by the Subscription Agent except for a proportionate share of any brokerage commissions incurred by the Subscription Agent and the costs of or incurred by the Subscription Agent in connection with the sale of the Rights. The proceeds from the sale of Rights by the Subscription Agent (net of brokerage fees and selling expenses and, if applicable, costs incurred and Canadian withholding taxes) will be divided on a pro rata basis among registered Ineligible Holders and delivered to such Ineligible Holders as soon as reasonably practicable, provided that amounts of less than C$100 will not be remitted. The Subscription Agent will act in its capacity as agent of the registered Ineligible Holders on a best efforts basis only and the Company and the Subscription Agent do not accept responsibility for the price obtained on the sale of Rights or the inability of the Subscription Agent to sell the Rights. Neither the Company nor the Subscription Agent will be subject to any liability for or in connection with the sale of, or failure to sell, any Rights on behalf of Ineligible Holders. There is a risk that the proceeds received from the sale of Rights issued in respect of Common Shares held by Ineligible Holders will not exceed the costs of or incurred by the Subscription Agent in connection with the sale of such Rights, in which case no proceeds will be remitted to Ineligible Holders.

 

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Holders of Rights who are not resident in Canada should be aware that the acquisition and disposition of any of the Offered Securities may have tax consequences in Canada and in the jurisdiction in which they reside which are not described in this prospectus. U.S. Holders should refer to the section “Certain United States Federal Income Tax Considerations”. All such holders should consult their own tax advisors about the specific tax consequences of acquiring, holding and disposing of the Offered Securities and should refer to the section “Certain Canadian Federal Income Tax Considerations”.

Series 1 Debenture Certificates

Series 1 Debentures issued in connection with the Offering will be registered in the name of the person to whom the Rights Certificate was issued or to whom the Rights have been properly and duly transferred. The certificates representing such Series 1 Debentures will be delivered by mail to the address of the subscriber as it appears on the Rights Certificate, unless otherwise directed, or to the address of the transferee, if any, indicated on the appropriate form on the Rights Certificate as soon as practicable after the Expiry Date. Except as otherwise described under “– Ineligible Holders”, the Series 1 Debentures will not be issued to or on behalf of any holders of Rights with addresses of record in an Ineligible Jurisdiction.

Holders of Rights that hold their Rights through a CDS Participant will not receive physical certificates evidencing their ownership of Series 1 Debentures issued upon the exercise of Rights. Upon the closing of the Offering, a global certificate representing such Series 1 Debentures will be issued in registered form to, and in the name of, CDS or its nominee.

DESCRIPTION OF THE SERIES 1 DEBENTURES

The following description of the Series 1 Debentures is a brief summary of their material attributes and characteristics. The following summary uses words and terms which are defined in the trust indenture dated November 19, 2014 between the Company and Computershare Trust Company of Canada (the “Debenture Trustee”) in respect of the Series 1 Debentures, as supplemented by the first supplemental indenture dated September 30, 2015 between the Company and the Debenture Trustee, and as may be amended or further supplemented from time to time (the “Indenture”). This summary does not purport to be complete and is subject to, and is qualified in its entirety by, reference to the terms of the Indenture.

The Series 1 Debentures will be issued as an additional tranche of, and will be treated as a single series with, the C$68 million principal amount of Series 1 Debentures issued on October 1, 2014, the C$28 million principal amount of Series 1 Debentures issued on November 19, 2014 and the C$186.2 million principal amount of Series 1 Debentures issued on September 30, 2015. The Series 1 Debentures will be issued under and pursuant to the provisions of the Indenture and will have a maturity date of March 31, 2040 (the “Maturity Date”). The Company may, from time to time, without the consent of Series 1 Debentureholders, issue additional Series 1 Debentures or other debentures in addition to the Series 1 Debentures offered hereby.

The Series 1 Debentures will be issuable only in denominations of C$100 and integral multiples thereof.

The Series 1 Debentures will be direct obligations of CSI and will not be secured by any mortgage, pledge, hypothec or other charge and will be subordinated to all Senior Indebtedness of the Company as described under “Description of the Series 1 Debentures – Subordination”. The Indenture does not restrict CSI from incurring additional Senior Indebtedness at any time or from time to time or other indebtedness or otherwise mortgaging, pledging or charging its real or personal property or properties to secure any indebtedness or other financing. The Series 1 Debentures will rank pari passu with every other series of debentures that have been issued, or may hereafter be issued, under the Indenture.

 

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Interest Rate

From, and including, the Issue Date to, but excluding, March 31, 2024, the Series 1 Debentures will bear interest at a rate of 13.3% per annum (the “Current Rate”). From, and including, March 31, 2024 to, but excluding, the Maturity Date, the interest rate applicable to the Series 1 Debentures will be reset on an annual basis on March 31 of each year, at a rate equal to the Cost of Living Adjustment (as defined below) (which amount may be positive or negative) plus 6.5% (“Floating Interest”). Notwithstanding the foregoing, the interest rate applicable to the Series 1 Debentures will at no time be less than 0%. Interest, if any, will be payable quarterly in arrears in equal instalments on March 31, June 30, September 30 and December 31 in each year, commencing on ●, 2023. Holders of Series 1 Debentures at the close of business on the business day prior to an interest payment date will be entitled to receive the interest payment in respect of such quarter. The Current Rate will only apply to the Series 1 Debentures in respect of the interest payments on ●, 2023, December 31, 2023 and March 31, 2024, respectively. Effective March 31, 2024, the interest payable on the Series 1 Debentures will be based on the applicable Floating Interest rate.

For the purposes hereof:

“Cost of Living Adjustment” means, in any given year, the annual average percentage change in the CPI Index during the 12 month period ending on December 31 in the prior year. For the 12 month period ending on December 31, 2022, the Cost of Living Adjustment was 6.8%.

“CPI Index” means the index called the “All-items Consumer Price Index” published by Statistics Canada in its monthly publication, adjusted for base year 2002 (2002=100) and rebased from time to time, provided that if the Government of Canada determines not to publish such index, then the term “CPI Index” means whatever substitute index is used to determine the Government of Canada’s obligations under its real return bonds if any Government of Canada real return bonds are then outstanding, or if there is no such index or compilation, the term “CPI Index” means a similar measure determined by the Company, acting reasonably.

The principal and interest on the Series 1 Debentures will be payable in lawful money of Canada as specified in the Indenture.

About the CPI Index

The CPI Index is a measure of the average change in consumer prices over time for a fixed market basket of goods and services, including food, clothing and footwear, shelter, household operations, furnishings and equipment, recreation, education and reading, alcoholic beverages and tobacco products, fuels, transportation, health and personal care, and energy. In calculating the CPI Index, the prices of the various items included in the fixed market basket are averaged together with the weights that represent their importance in the spending of households in Canada. Statistics Canada periodically updates the contents of the market basket of goods and services and the weights assigned to the various items to take into account changes in the consumer expenditure patterns. Since the basket contains commodities of unchanging or equivalent quantity and quality, the index reflects only pure price movements. The CPI Index is expressed in relative terms in relation to a time base reference period for which the level was set to 100.0.

 

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Historical Performance of the CPI Index

The following chart shows the annual percentage changes to the CPI Index over the last 25 years. Historical performance of the CPI Index is not an indication of future performance and the future performance of the CPI Index may differ significantly from historical performance, either positively or negatively.

 

 

Redemption and Purchase at the Option of the Company

As described below, the Company will, on an annual basis, have a 15 day notice period within which to provide notice to holders of Series 1 Debentures of its intention to redeem some or all of such Series 1 Debentures on a date that is five years following the end of such notice period.

During the period beginning on March 16 and ending on March 31 of each year, the Company will have the right, at its option, to give notice to holders of Series 1 Debentures of its intention to redeem the Series 1 Debentures, in whole or in part, on March 31 in the year that is five years following the year in which notice is given, at a price equal to the principal amount thereof plus accrued and unpaid interest up to but excluding the date fixed for redemption. For example, if the Company chooses to exercise its right to redeem the Series 1 Debentures in March 2024, the Company would be required to deliver notice of such redemption to holders of Series 1 Debentures during the period beginning on March 16, 2024 and ending on March 31, 2024, and the effective date of redemption would be March 31, 2029. Given the foregoing, the first possible redemption date is March 31, 2029.In the event the Company exercises its right to redeem some or all of the outstanding Series 1 Debentures in a given year, the Company will send a reminder redemption notice to holders of Series 1 Debentures not less than 30 nor more than 60 days prior to each applicable redemption date.

The Company’s ability to redeem the Series 1 Debentures will be subject to compliance with the terms of the Senior Indebtedness at the time of redemption and may be restricted in certain circumstances. See “Description of the Series 1 Debentures – Subordination” and “Risk Factors – Prior Ranking Indebtedness”.

CSI will have the right to purchase Series 1 Debentures in the market, by tender or by private contract subject to regulatory requirements; provided, however, that if an Event of Default (as defined below) has occurred and is continuing, the Company will not have the right to purchase the Series 1 Debentures by private contract.

In the case of redemption of less than all of the Series 1 Debentures, the Series 1 Debentures to be redeemed will be selected by the Debenture Trustee on a pro rata basis or in such other manner as the Debenture Trustee deems equitable, subject to the consent of the TSX.

 

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Investor Put Rights

As described below, holders of Series 1 Debentures will, on an annual basis, have a 15 day notice period within which to provide notice to the Company of their intention to require the Company to repurchase some or all of such Series 1 Debentures on a date that is approximately five years following the end of such notice period.

During the period beginning on March 1 and ending on March 15 of each year, holders of Series 1 Debentures will have the right, at their option, to give notice to the Company of their intention to require the Company to repurchase (or to “put”) the Series 1 Debentures, in whole or in part, on March 31 in the year that is five years following the year in which notice is given, at a price equal to the principal amount thereof plus accrued and unpaid interest up to but excluding the date fixed for repurchase. For example, if a holder of Series 1 Debentures chooses to exercise its right to have the Company repurchase such holder’s Series 1 Debentures in March 2024, the holder would be required to deliver notice of such repurchase to the Company during the period beginning on March 1, 2024 and ending on March 15, 2024, and the effective date of repurchase would be March 31, 2029. Given the foregoing, the first possible repurchase date is March 31, 2029.

The Company’s ability to repurchase the Series 1 Debentures will be subject to compliance with the terms of the Senior Indebtedness at the time of repurchase and may be restricted in certain circumstances. See “Description of the Series 1 Debentures – Subordination” and “Risk Factors – Prior Ranking Indebtedness”. In addition, once a holder of Series 1 Debentures has exercised its put right in respect of some or all of the Series 1 Debentures held by such holder (the “Puttable Series 1 Debentures”), the Puttable Series 1 Debentures will be held in escrow by the Debenture Trustee and will no longer be transferable over the facilities of the TSX or otherwise. See “Risk Factors – Exercise of Put Rights”.

Holders of Series 1 Debentures who hold their Series 1 Debentures through a CDS Participant will, prior to exercising their right to have the Company repurchase such holder’s Series 1 Debentures, be required to withdraw their Series 1 Debentures from CDS and obtain a certificate for such Series 1 Debentures in registered form.

Failure to Pay Interest on an Interest Payment Date

Interest May Form Part of Principal Amount Outstanding. The Company may, subject to regulatory approval, applicable law and the terms of the Senior Indebtedness, elect (the “PIK Election”), in lieu of paying interest in cash, to satisfy all or any portion of its obligation to pay interest on the Series 1 Debentures, as and when the same becomes due (the “Series 1 Debentures Interest Obligation”) by issuing to Series 1 Debentureholders such principal amount of Series 1 Debentures (the “PIK Series 1 Debentures”) equal to the amount of the Series 1 Debentures Interest Obligation to be satisfied by the issuance of PIK Series 1 Debentures (less any tax required by law to be deducted, if any), which amount will be rounded down to the nearest multiple of C$100. No fractional PIK Series 1 Debentures shall be delivered to Series 1 Debentureholders in satisfaction of the Series 1 Debentures Interest Obligation; however holders will receive a cash payment in respect of any fractional interest in PIK Series 1 Debentures. The Company will make a PIK Election by delivering written notice (the “PIK Election Notice”) to the Debenture Trustee and the TSX at least ten business days prior to the applicable interest payment date. The PIK Election Notice will include the principal amount of PIK Series 1 Debentures to be issued and delivered to the Series 1 Debentureholders.

Common Share Dividend and Buyback Stopper. If, on any interest payment date, the Company fails to pay the interest on the Series 1 Debentures in full in cash, the Company will not (i) declare or pay dividends of any kind on the Common Shares, nor (ii) participate in any share buyback or redemption involving the Common Shares, until the Company first pays such interest (or the unpaid portion thereof) to holders of Series 1 Debentures; provided however that if the Company has issued PIK Series 1 Debentures in respect of all or a portion of the amount of interest owing on the Series 1 Debentures on one or more interest payment dates, the Company may resume declaring and paying dividends of any kind on the Common Shares and participating in share buybacks

 

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or redemptions involving the Common Shares beginning on the earlier of (i) the next interest payment date in respect of which the Company pays the amount of interest owing on the Series 1 Debentures in full in cash, and (ii) the date on which the Company repays all amounts owing under such PIK Series 1 Debentures.

Payment upon Redemption or Maturity

On redemption or at the Maturity Date, CSI will repay the indebtedness represented by the Series 1 Debentures by paying to the Debenture Trustee in lawful money of Canada an amount equal to the principal amount of the outstanding Series 1 Debentures, together with accrued and unpaid interest thereon.

Cancellation

All Series 1 Debentures redeemed or purchased as described herein will be cancelled and may not be reissued or resold.

Subordination

The payment of the principal of, and interest on, the Series 1 Debentures will be subordinated in right of payment, in the circumstances referred to below and also more particularly as set forth in the Indenture, to the prior payment in full of all Senior Indebtedness of the Company. “Senior Indebtedness” of the Company is defined in the Indenture as all indebtedness of the Company (whether outstanding as at the date of the Indenture or thereafter incurred) which, by the terms of the instrument creating or evidencing the indebtedness, is not expressed to be pari passu with, or subordinate in right of payment to, the Series 1 Debentures, which includes the Company’s existing credit facility with a syndicate of Canadian chartered banks and U.S. banks (the “Credit Facility”). The Credit Facility is a US$840 million revolving credit facility with a stated maturity date of November 5, 2026, which facility has been established by a syndicate of lenders for the Company’s general corporate purposes and to enable it to finance its acquisitions. The Credit Facility may be drawn in four currencies: Canadian dollars, U.S. dollars, Pound sterling and Euros. The advances made under the Credit Facility bear variable interest rates calculated at standard reference rates in the applicable currencies plus interest rate margins determined based on a leverage ratio table. The Credit Facility is currently guaranteed by certain of the Company’s material subsidiaries and secured by the majority of its assets and the assets of such material subsidiaries. The credit agreement establishing the Credit Facility contains terms and conditions that are customary for a credit facility of this nature, including representations and warranties, covenants and events of default with customary cure periods, where appropriate. In particular, the Company may make distributions to other persons (including its shareholders) so long as (i) there is no default or event of default and (ii) the amount of availability under the Credit Facility and unrestricted cash of the Company and its guarantor subsidiaries is greater than US$25 million, in each case, prior to or after the making of such distribution.

The Indenture does not limit the ability of the Company to incur additional indebtedness, including additional Senior Indebtedness at any time or from time to time or other indebtedness or otherwise mortgaging, pledging or charging its real or personal property or properties to secure any indebtedness or other financing.

The Indenture provides that in the event of any insolvency or bankruptcy proceedings, or any receivership, liquidation, reorganization or other similar proceedings relative to the Company, or to its property or assets, or in the event of any proceedings for voluntary liquidation, dissolution or other winding up of the Company, whether or not involving insolvency or bankruptcy, or any marshalling of the assets and liabilities of the Company, all creditors under any Senior Indebtedness will receive payment in full before the Series 1 Debentureholders will be entitled to receive any payment or distribution of any kind or character, including, without limitation, in cash, property or securities, which may be payable or deliverable in any such event in respect of any of the Series 1 Debentures or any unpaid interest accrued thereon.

The Indenture also provides that, subject to the requirements of the U.S. Trust Indenture Act of 1939, as amended, neither the Debenture Trustee nor the Series 1 Debentureholders shall be entitled to demand or

 

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otherwise attempt to enforce in any manner, institute proceedings for the collection of, or institute any proceedings against the Company including, without limitation, by way of any bankruptcy, insolvency or similar proceedings or any proceeding for the appointment of a receiver, liquidator, trustee or other similar official (it being understood and agreed that the Debenture Trustee and/or the Series 1 Debentureholders shall be permitted to take any steps necessary to preserve the claims of the Series 1 Debentureholders in any such proceeding and any steps necessary to prevent the extinguishment or other termination of a claim or potential claim as a result of the expiry of a limitation period provided that any such steps do not interfere with the enforcement by any holder of any Senior Indebtedness of its rights and remedies), or receive any payment or benefit in any manner whatsoever on account of indebtedness represented by the Series 1 Debentures (the “Series 1 Debentures Senior Indebtedness Postponement Provisions”) without the prior written consent of the lenders under the Senior Indebtedness.

In addition to the foregoing, pursuant to the terms of the Credit Facility: (a) the Company will only be permitted to make payment of interest in respect of the Series 1 Debentures, if either (i) both before and immediately after each such payment, no event of default (as defined under the Credit Facility) has occurred and is continuing, or (ii) the Company obtains the prior written consent of the applicable lenders under the Credit Facility; and (b) the Company will not, without the prior written consent of the applicable lenders under the Credit Facility, be permitted to make any payment of principal in respect of the Series 1 Debentures prior to the maturity date of the Credit Facility, being November 5, 2026.

Put Right upon a Change of Control

Upon the occurrence of a change of control of the Company involving the acquisition of voting control or direction of more than 50% of the votes represented by the issued and outstanding Common Shares by any person or group of persons acting jointly or in concert (a “Change of Control”), each holder of Series 1 Debentures may require the Company to purchase, on the date which is 30 days following the giving of notice of the Change of Control as set out below (the “Change of Control Put Date”), the whole or any part of such holder’s Series 1 Debentures at a price equal to 100% of the principal amount thereof (the “Change of Control Put Price”) plus accrued and unpaid interest up to, but excluding, the Change of Control Put Date.

If 90% or more of the aggregate principal amount of the Series 1 Debentures outstanding on the date of the giving of notice of the Change of Control have been tendered for purchase on the Change of Control Put Date, the Company will have the right to redeem all the remaining Series 1 Debentures on such date at the Change of Control Put Price, together with accrued and unpaid interest to such date. Notice of such redemption must be given to the Debenture Trustee prior to the Change of Control Put Date and, as soon as possible thereafter, by the Debenture Trustee to the holders of the Series 1 Debentures not tendered for purchase.

Modification

The rights of the holders of the Series 1 Debentures as well as any other series of debentures that may be issued under the Indenture may be modified in accordance with the terms of the Indenture. For that purpose, among others, the Indenture contains certain provisions which will make binding on all Series 1 Debentureholders resolutions passed at meetings of the holders of the debentures issued under the Indenture by votes cast thereat by holders of not less than 66^2/3% of the principal amount of the then outstanding debentures present at the meeting or represented by proxy, or rendered by instruments in writing signed by the holders of not less than 66^2/3% of the principal amount of the then outstanding debentures. In certain cases, the modification will, instead of or in addition to the foregoing, require assent by the holders of the required percentage of debentures of each particularly affected series. Under the Indenture, the Debenture Trustee will have the right to make certain amendments to the Indenture in its discretion, without the consent of the holders of Series 1 Debentures.

Events of Default

The Indenture provides that an event of default (“Event of Default”) in respect of the Series 1 Debentures will occur if certain events described in the Indenture occur, including if any one or more of the following described

 

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events has occurred and is continuing with respect to the Series 1 Debentures: (i) failure to pay principal or premium, if any, on the Series 1 Debentures, whether at the Maturity Date, upon redemption, by acceleration or otherwise; or (ii) certain events of bankruptcy, insolvency or reorganization of the Company under bankruptcy or insolvency laws. Subject to the Series 1 Debentures Senior Indebtedness Postponement Provisions, if an Event of Default has occurred and is continuing, the Debenture Trustee may, in its discretion, and shall, upon the request of holders of not less than 25% in principal amount of the then outstanding Series 1 Debentures, declare the principal of (and premium, if any) and accrued interest on all outstanding Series 1 Debentures to be immediately due and payable.

Governing Law

Each of the Indenture and the Series 1 Debentures are governed by, and construed in accordance with, the laws of the Province of Ontario applicable to contracts executed and to be performed entirely in such Province.

The foregoing is a summary only of the terms of the Series 1 Debentures and is qualified by the more detailed provisions of the Indenture. A copy of the Indenture is available on SEDAR+ at www.sedarplus.ca.

CONSOLIDATED CAPITALIZATION

There have been no material changes in the Company’s share or loan capital on a consolidated basis since March 31, 2023 to the date of this prospectus. After giving effect to the Offering, a maximum of C$982.2 million principal amount of the Series 1 Debentures will be outstanding. The net proceeds from the Offering are expected to be used by the Company to pay down indebtedness under the Credit Facility, with any remaining proceeds to be used for future acquisitions. See “Use of Proceeds”.

USE OF PROCEEDS

The estimated net proceeds to the Company from the Offering, after deducting the expenses of the Offering estimated to be approximately C$●, will be approximately C$●, assuming the exercise of all Rights. The net proceeds from the Offering are expected to be used by the Company to pay down indebtedness under the Credit Facility, with any remaining proceeds to be used for future acquisitions. The Credit Facility may be used by the Company for general corporate purposes, including acquisitions. The existing indebtedness under the Credit Facility, for which a portion of the proceeds are intended to be used, was incurred by the Company in the ordinary course of its operations, primarily as a short-term source of working capital and to fund acquisitions. For further information regarding the outstanding amounts owing under our Credit Facility, please refer to the Q1 MD&A, which is incorporated by reference in this prospectus.

The Company intends to spend the funds available to the Company as stated in this short form prospectus; however, there may be circumstances where, for sound business reasons, a reallocation of funds may be deemed prudent or necessary.

PLAN OF DISTRIBUTION

Each Shareholder of record on the Record Date will receive one Right for each Common Share held. This prospectus qualifies for distribution under applicable Canadian securities laws the Rights and the Series 1 Debentures issuable on the exercise of the Rights in each of the provinces and territories of Canada, and also covers the offer and sale of the Series 1 Debentures issuable upon exercise of the Rights within the United States under the U.S. Securities Act. However, notwithstanding registration under the U.S. Securities Act, the securities or blue sky laws of certain states may not permit or may limit the Company’s ability to offer Rights and/or Series 1 Debentures in such states, or to certain persons in those states. The Company will only offer Rights in states where, and to such persons to whom, it is legally permitted to do so.

 

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The Offered Securities have not been qualified under the securities laws of any jurisdiction other than the Eligible Jurisdictions. Except as described herein, Rights may not be exercised by or on behalf of an Ineligible Holder. This prospectus is not, and under no circumstances is to be construed as, an offering of any of the Offered Securities for sale in any Ineligible Jurisdiction or to Ineligible Holders or a solicitation therein or thereto of an offer to buy any securities. Rights Certificates will not be sent to any Shareholder with an address of record in an Ineligible Jurisdiction. Instead, such Ineligible Holders will be sent a letter advising them that their Rights Certificates will be held by the Subscription Agent, who will hold such Rights as agent for the benefit of all such Ineligible Holders. See “Details of the Offering – Ineligible Holders”.

There is currently no market through which the Rights may be sold. There can be no assurance that an active trading market will develop for the Rights or, if developed, that such a market will be sustained. To the extent that an active trading market for the Rights does not develop, the pricing of the Rights in the secondary market, the transparency and availability of trading prices and the liquidity of the Rights may be adversely affected. The closing of the Offering will be conditional on the listing of the Rights on the TSX.

TRADING PRICE AND VOLUME OF SERIES 1 DEBENTURES

The outstanding Series 1 Debentures are listed and posted for trading on the TSX under the trading symbol “CSU.DB”. The following table sets forth, for the period indicated, the high and low trading prices and the trading volumes of the Series 1 Debentures as reported by the TSX:

 

Period		High (C$)(1)				Low (C$)(1)				Volume
2023
August (August 1 to August 2)			141.00				139.50				74,000
July			143.49				139.5				347,000
June			141.55				139.1				503,300
May			141				139				64,100
April			141.5				137.01				870,000
March			141				137				3,170,000
February			139				135				6,312,330
January			141				136				4,715,474
2022
December			139.5				137				3,599,005
November			141				137				3,526,000
October			140				137.875				1,308,451
September			140				135				1,809,000
August			143				140.01				769,000
July			145.75				142				2,291,474
June			149.5				143.5				1,497,530
May			148				142				515,000
April			144.5				142				634,505
March			145				140.1				595,710
February			143				140.1				314,000
January			141				139				4,696,699
2021			141.74				128.5				10,574,511
2020			135				115.01				32,049,210
2019			139.99				117				16,163,319
2018			129				117.99				18,608,637
2017			125				113				45,920,766
2016			119.99				107				28,400,999
2015			125				108.5				17,797,228
2014			119.5				112				2,580,200

 

(1)	Trading prices include accrued interest.

 

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CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS

The following is a general summary, as of the date hereof, of the principal Canadian federal income tax considerations under the Tax Act applicable to a holder in respect of the receipt, exercise and disposition of Rights under the Offering and of acquiring, holding, exercising and disposing, of Series 1 Debentures received upon the exercise of Rights. This summary is only applicable to a holder of Rights who acquires such rights under this Offering and a holder who acquires, as beneficial owner, Series 1 Debentures pursuant to the exercise of Rights and who, for purposes of the Tax Act and at all relevant times, holds the Rights and Series 1 Debentures as capital property (a “Holder”). Generally, the Rights and Series 1 Debentures will be considered to be capital property to a Holder provided the Holder does not hold the Rights or Series 1 Debentures in the course of carrying on a business of trading or dealing in securities and has not acquired them in one or more transactions considered to be an adventure or concern in the nature of trade. In this section, a reference to a “Right” includes a fraction thereof.

This summary is not applicable to a Holder: (i) that is a “financial institution” (as defined in the Tax Act for purposes of the “mark-to-market rules”); (ii) an interest in which is a “tax shelter” or a “tax shelter investment” (each as defined in the Tax Act); (iii) that is a “specified financial institution” (as defined in the Tax Act); (iv) who makes or has made a “functional currency” reporting election under the Tax Act; or (v) that has entered or will enter into a “derivative forward agreement” (as defined in the Tax Act) with respect to the Rights and Series 1 Debentures. Any such Holder should consult its own tax advisor with respect to the income tax consequences associated with Rights and Series 1 Debentures.

This summary is based upon the facts set forth in this prospectus, the provisions of the Tax Act in force as of the date hereof, all specific proposals to amend the Tax Act that have been publicly and officially announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the “Tax Proposals”) and an understanding of the current administrative policies and assessing practices of the Canada Revenue Agency (“CRA”) published in writing by it prior to the date hereof. This summary assumes the Tax Proposals will be enacted in the form proposed. However, no assurance can be given that the Tax Proposals will be enacted in their current form, or at all. This summary is not exhaustive of all possible Canadian federal income tax considerations and, except for the Tax Proposals, does not take into account or anticipate any changes in the law, whether by legislative, governmental or judicial action or decision, or any changes in the CRA’s administrative policies or assessing practices, nor does it take into account any other federal or any provincial, territorial or foreign tax legislation or considerations, which may differ significantly from those discussed herein.

This summary is of a general nature only and is not exhaustive of all possible Canadian federal income tax considerations. This summary is not and should not be construed as legal or tax advice to any holder of Rights or any prospective purchaser or holder of Series 1 Debentures, and no representations with respect to the income tax consequences to any prospective purchaser or holder are made. Consequently, prospective purchasers or holders of Rights and Series 1 Debentures should consult their own tax advisors regarding the Canadian federal income tax consequences with respect to their particular circumstances, and any other consequences to them of such transactions under Canadian federal, provincial, local or foreign tax laws.

Holders Resident in Canada

The following portion of the summary is applicable to a Holder of Rights and Series 1 Debentures who, at all relevant times, is resident or deemed to be resident in Canada for purposes of the Tax Act and deals at arm’s length with, and is not affiliated with, the Company (a “Resident Holder”). Certain Resident Holders who might not otherwise be considered to hold their Series 1 Debentures as capital property may, in certain circumstances, be entitled to have their Series 1 Debentures and all other “Canadian securities” (as defined in the Tax Act) owned by such Resident Holder in the taxation year of the election and in all subsequent taxation years deemed to be capital property by making the irrevocable election permitted by subsection 39(4) of the Tax Act. This

 

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election does not apply to Rights. Resident Holders should consult their own tax advisors regarding their particular circumstances.

Rights Dividend and the Receipt of Rights

A Resident Holder that receives the Rights Dividend declared by the Company on its Common Shares will be required to include the amount of the Rights Dividend in computing such Resident Holder’s income for that taxation year. The amount of the Rights Dividend will be equal to the fair market value, at the time of receipt, of the Rights received by the Holder on account of such dividend.

In the case of an individual (other than certain trusts), such Rights Dividend will be subject to the gross-up and dividend tax credit rules normally applicable in respect of “taxable dividends” received from “taxable Canadian corporations” (each as defined in the Tax Act). An enhanced dividend tax credit will be available to individuals in respect of “eligible dividends” (as defined in the Tax Act) designated by the Company in accordance with the provisions of the Tax Act. The Company intends to designate the Rights Dividend as an eligible dividend in accordance with the Tax Act.

The Rights Dividend received by a corporation that is a Resident Holder of Common Shares must be included in computing its income for a taxation year but generally will be deductible in computing its taxable income for that taxation year. In certain circumstances, subsection 55(2) of the Tax Act will treat a taxable dividend received by a Resident Holder that is a corporation as proceeds of disposition or a capital gain. Resident Holders that are corporations should consult their own tax advisors in this regard.

A Resident Holder that is a “private corporation” or a “subject corporation” (as defined in the Tax Act) may be liable to pay a tax under Part IV of the Tax Act (refundable in certain circumstances) on dividends received on the Common Shares to the extent such dividends are deductible in computing the Resident Holder’s taxable income for the year.

The cost of the Rights received for purposes of the Tax Act will equal the fair market value, at the time of receipt, of such Rights. In determining the adjusted cost base to the Resident Holder of a Right, the cost of each Right held by a Resident Holder will be averaged with the adjusted cost base of each other identical Right (determined in accordance with the Tax Act) held by the Resident Holder for the purposes of determining the adjusted cost base to that Resident Holder of each Right so held.

Exercise of Rights

The exercise of Rights will not constitute a disposition of property for purposes of the Tax Act and, consequently, no gain or loss will be realized by a Resident Holder upon the exercise of Rights.

Series 1 Debentures acquired by a Resident Holder upon the exercise of Rights will have a cost to the Resident Holder equal to the aggregate of the subscription price paid by a Resident Holder plus the adjusted cost base to the Resident Holder of the exercised Rights.

In determining the adjusted cost base to the Resident Holder of a Series 1 Debenture, the cost of each Series 1 Debenture held by a Resident Holder will be averaged with the adjusted cost base of each other identical Series 1 Debenture (determined in accordance with the Tax Act) held by the Resident Holder.

Disposition of Rights

A Resident Holder who disposes of, or is deemed to dispose of, a Right (otherwise than by exercise of the Right) will generally realize a capital gain (or a capital loss) equal to the amount by which the proceeds of disposition, net of any reasonable costs of disposition, exceed (or are less than) the adjusted cost base of the Right to the Resident Holder. Such capital gain (or capital loss) will be subject to the tax treatment described below under “Capital Gains and Capital Losses”.

 

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Expiry of Rights

Generally, the expiry of an unexercised Right will result in a capital loss to a Resident Holder equal to the adjusted cost base, if any, of the Right immediately before its expiry. Any such capital loss will be subject to the tax treatment described below under “Capital Gains and Capital Losses”.

Interest on Series 1 Debentures

Series 1 Debentures are “indexed debt obligations” (as defined in the Tax Act). Accordingly, the normal rules which require certain taxpayers to include interest in income on an accrual basis will not apply. Rather, a Resident Holder of Series 1 Debentures will be required to include in its income for each taxation year in which the Resident Holder owned a Debenture any Current Rate interest and Floating Interest, as applicable, which has been received or become receivable by the Resident Holder in that taxation year, depending upon the method regularly followed by the Resident Holder in computing income, except to the extent that the Resident Holder included such amounts in income for a preceding year.

The particular rules in the Tax Act relating to indexed debt obligations are complex. Resident Holders are urged to consult their own tax advisors concerning the application of such rules.

Disposition of Series 1 Debentures

A disposition or deemed disposition of a Debenture by a Resident Holder (including upon redemption, or repayment on maturity) should generally result in the Resident Holder realizing a capital gain (or capital loss) equal to the amount by which the proceeds of disposition, net of any reasonable costs of disposition, exceed (or are less than) the Resident Holder’s adjusted cost base thereof. For this purpose, proceeds of disposition generally will not include amounts required to be included in income as interest. Such capital gain (or capital loss) will be subject to the tax treatment described below under “Capital Gains and Capital Losses”.

Upon a disposition or deemed disposition of a Debenture, interest (including amounts deemed to be interest) accrued thereon to the date of disposition will be included in computing the income of the Resident Holder as described above under “Interest on Series 1 Debentures”, and will be excluded in computing the Resident Holder’s proceeds of disposition of the Series 1 Debentures.

Series 1 Debentures Purchased at a Premium

The cost to a Resident Holder of Series 1 Debentures acquired on the exercise of Rights will exceed the principal amount of the Series 1 Debentures and that cost will be averaged in determining the adjusted cost base to a Resident Holder of a Series 1 Debenture (as described above under “Exercise of Rights”). Accordingly, a Resident Holder who disposes of Series 1 Debentures upon a redemption by the Company or upon maturity is generally expected to realize a capital loss. Capital losses may not be applied against interest income received by the Resident Holder on the Series 1 Debentures (refer to “Capital Gains and Capital Losses” below).

Capital Gains and Capital Losses

Generally, a Resident Holder will be required to include in computing income for a taxation year one-half of the amount of any capital gain (a “taxable capital gain”) realized in that year. Subject to and in accordance with the provisions of the Tax Act, a Resident Holder will be required to deduct one-half of the amount of any capital loss (an “allowable capital loss”) realized in the taxation year from taxable capital gains realized by the Resident Holder in such taxation year. Allowable capital losses in excess of taxable capital gains for the taxation year generally may be carried back and deducted in any of the three preceding taxation years or carried forward and deducted in any subsequent taxation year against net taxable capital gains realized in such years, to the extent and under the circumstances described in the Tax Act.

 

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Alternative Minimum Tax

Capital gains realized by a Resident Holder that is an individual or a trust, other than certain specified trusts, may give rise to liability for alternative minimum tax under the Tax Act. The Minister of Finance (Canada) announced proposed changes to the existing rules in the Tax Act relating to alternative minimum tax in the federal budget on March 28, 2023.

Additional Refundable Tax

A Resident Holder that is throughout the relevant taxation year a “Canadian-controlled private corporation” (as defined in the Tax Act) may be liable to pay an additional tax (refundable in certain circumstances) on its “aggregate investment income” for the year, which is defined in the Tax Act to include taxable capital gains and interest. Pursuant to certain Tax Proposals, such additional tax may also apply to a Resident Holder that is a “substantive CCPC” (as defined in the Tax Proposals).

Holders Not Resident in Canada

The following portion of the summary is applicable to a Holder of Rights and Series 1 Debentures who, at all relevant times: (i) is not and is not deemed to be, a resident of Canada for purposes of the Tax Act; (ii) deals at arm’s length with the Company for purposes of the Tax Act; (iii) does not use or hold and is not deemed to use or hold the Rights and Series 1 Debentures in the course of carrying on business in Canada; (iv) is not an insurer for purposes of the Tax Act; (v) deals at arm’s length with any person resident (or deemed to be resident) in Canada to whom the Holder disposes of a Debenture; (vi) is entitled to receive all payments made on the Series 1 Debentures; (vii) is not an entity in respect of which the Company is a “specified entity” (within the meaning of proposed subsection 18.4(1) of the Tax Act as contained in Tax Proposals released on April 29, 2022 (the “Hybrid Mismatch Proposals”)); and (viii) is not a “specified shareholder” (as defined in subsection 18(5) of the Tax Act) of the Company or a person who does not deal at arm’s length with such a specified shareholder (a “Non-Resident Holder”). This summary assumes that no amount paid or payable to a Non-Resident Holder will be the deduction component of a “hybrid mismatch arrangement” under which the payment arises within the meaning of proposed paragraph 18.4(3)(b) of the Tax Act as contained in the Hybrid Mismatch Proposals.

Rights Dividend and the Receipt of Rights

A Non-Resident Holder who receives the Rights Dividend declared by the Company on its Common Shares will be subject to Canadian withholding tax on such dividend. The amount of the Rights Dividend will be equal to the fair market value, at the time of receipt, of the Rights received by the Holder on account of such dividend.

A Non-Resident Holder will generally be subject to Canadian withholding tax at a rate of 25% on the gross amount of the dividend, unless such rate is reduced under the terms of an applicable income tax treaty or convention. For example, under the Canada-United States Tax Convention (1980), as amended (the “Canada-U.S. Treaty”), where a dividend is paid (or deemed to be paid) on the Common Shares to a resident of the United States for the purposes of the Canada-U.S. Treaty, who is the beneficial owner of the dividends, and who is entitled to all the benefits under the Canada-U.S. Treaty, the applicable rate of Canadian withholding tax generally is reduced to 15%.

A portion of the Rights otherwise to be delivered to a Non-Resident Holder may be sold by the Company on behalf of the Non-Resident Holder in order to fund the applicable withholding taxes.

Exercise of Rights

The exercise of Rights will not constitute a disposition of property for purposes of the Tax Act and, consequently, no gain or loss will be realized by a Non-Resident Holder upon the exercise of Rights.

 

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Disposition of Rights

A Non-Resident Holder who disposes of or is deemed to dispose of a Right (otherwise than by exercise of the Right) will not be subject to tax under the Tax Act in respect of any capital gain realized on such a disposition, unless the Right constitutes “taxable Canadian property” of the Non-Resident Holder and such holder is not entitled to relief under an applicable income tax treaty or convention. The Company believes the Rights will not be “taxable Canadian property”.

Expiry of Rights

The expiry of an unexercised Right will not result in any Canadian federal income tax consequences to a Non-Resident Holder provided the Right does not constitute “taxable Canadian property”.

Interest on Series 1 Debentures

Amounts paid or credited, or deemed to be paid or credited, as, on account or in lieu of payment of, or in satisfaction of the principal amount of the Series 1 Debentures or interest on the Series 1 Debentures by the Company to a Non-Resident Holder will be exempt from Canadian withholding tax.

Disposition of Series 1 Debentures

A Non-Resident Holder will not be subject to tax under the Tax Act in respect of any capital gain realized on a disposition of a Debenture provided the Debenture does not constitute “taxable Canadian property” of such holder. No other taxes on income will be payable under the Tax Act by a Non-Resident Holder in respect of the acquisition, ownership or disposition of the Series 1 Debentures.

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following is a general summary of material U.S. federal income tax consequences to U.S. Holders (as defined below) of Common Shares of (i) the receipt, ownership, exercise, expiration and disposition of the Rights issued pursuant to this Offering and (ii) the ownership and disposition of Series 1 Debentures received upon exercise of such Rights. This discussion is based on existing provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), final and temporary Treasury Regulations promulgated thereunder, administrative pronouncements or practice, judicial decisions, and interpretations of the foregoing, all as of the date hereof. Future legislative, judicial or administrative modifications, revocations or interpretations, which may or may not be retroactive, may result in U.S. federal income tax consequences significantly different from those discussed herein. This discussion is not binding on the U.S. Internal Revenue Service (the “IRS”). No ruling has been or will be sought or obtained from the IRS with respect to any of the U.S. federal income tax consequences discussed herein. There can be no assurance that the IRS will not challenge any of the conclusions described herein or that a U.S. court will not sustain such challenge.

As used herein, a “U.S. Holder” is a beneficial owner of Common Shares, Rights or Series 1 Debentures that is (i) a citizen or individual resident of the United States as determined for U.S. federal income tax purposes; (ii) a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States, any state thereof, or the District of Columbia; (iii) an estate the income of which is subject to any U.S. federal income taxation regardless of its source; and (iv) a trust if (a) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) the trust has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person. If a pass-through entity, including a partnership or other entity taxable as a partnership for U.S. federal income tax purposes, holds Common Shares, Rights or Series 1 Debentures, the U.S. federal income tax treatment of an owner or partner generally will depend

 

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upon the status of such owner or partner and upon the activities of the pass-through entity. A U.S. person that is an owner or partner of a pass-through entity holding Common Shares, Rights or Series 1 Debentures is urged to consult its own tax advisor.

This discussion does not address any U.S. federal alternative minimum tax, U.S. federal estate, gift, or other non-income tax; or state, local or non-U.S. tax consequences. In addition, this discussion does not address the U.S. federal income tax consequences to certain categories of U.S. Holders subject to special rules, including, without limitation, U.S. Holders that are (i) banks, financial institutions, thrifts or insurance companies; (ii) regulated investment companies or real estate investment trusts; (iii) brokers or dealers in securities or currencies or traders in securities that elect to use a mark-to-market method of accounting; (iv) tax-exempt organizations, qualified retirement plans, individual retirement accounts or other tax-deferred accounts; (v) holders that hold a Common Share, Right or Series 1 Debenture as part of a hedge, straddle, conversion transaction or a synthetic security or other integrated transaction; (vi) holders that have a “functional currency” other than the U.S. dollar; (vii) holders that own directly, indirectly or constructively 10 percent or more of the voting power of the Company; (viii) U.S. expatriates, (ix) persons required to accelerate the recognition of any item of gross income as a result of any item of gross income with respect to the Series 1 Debentures being taken into account in an applicable financial statement, (x) U.S. Holders that hold debentures through non-U.S. brokers or other non-U.S. intermediaries, and (xi) partnerships and other pass-through entities and investors in pass-through entities that hold the Series 1 Debentures.

This discussion assumes that the Rights and Series 1 Debentures are held as capital assets (generally, property held for investment), within the meaning of Section 1221 of the Code, in the hands of a U.S. Holder at all relevant times.

The treatment of the receipt, exercise, expiration and cancellation of the Rights for U.S. federal income tax purposes is not entirely clear. The uncertainty is attributable to a variety of factors, including the limited authorities that address such treatment and the ability of the Company to withdraw or cancel the rights offering if certain conditions are not met. The discussion below assumes that, for U.S. federal income tax purposes, the distribution of the Rights is treated as a distribution of Rights to acquire Series 1 Debentures occurring on the distribution date and such Rights are property. The discussion below also assumes that the Rights will have a fair market value for U.S. federal income tax purposes on the date of distribution.

A U.S. HOLDER OF COMMON SHARES, RIGHTS OR SERIES 1 DEBENTURES IS URGED TO CONSULT ITS OWN TAX ADVISOR REGARDING THE APPLICATION OF U.S. FEDERAL TAX LAWS TO ITS PARTICULAR SITUATION AND ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL, NON-U.S. OR OTHER TAXING JURISDICTION.

Taxation of Rights

Receipt of Rights

A U.S. Holder that receives a Right in respect of a Common Share should generally be treated as receiving a distribution equal to the fair market value of such Right on the date of its distribution from the Company. Such distribution will be treated as a dividend to the extent it is made from the Company’s current or accumulated earnings and profits (as determined under U.S. federal income tax principles). If such fair market value exceeds the Company’s current and accumulated earnings and profits, such excess generally should be treated first as a tax-free return of capital to the extent of the U.S. Holder’s tax basis in such Common Share, and then as capital gain. The Company anticipates that its current and accumulated earnings and profits will exceed the aggregate fair market value of the Rights on the date of their distribution.

Subject to applicable exceptions with respect to short-term and hedged positions, certain dividends received by a non-corporate U.S. Holder from a “qualified foreign corporation” may be eligible for reduced rates of taxation. A

 

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qualified corporation includes a foreign corporation that is eligible for the benefits of a comprehensive income tax treaty with the United States that the U.S. Treasury Department determines to be satisfactory for these purposes and that includes an exchange of information provision. The U.S. Treasury has determined that the Canada-U.S. Income Tax Convention (1980) meets these requirements, and the Company believes that it is eligible for the benefits of the Canada-U.S. Income Tax Convention. Dividends received by U.S. investors from a foreign corporation that was a passive foreign investment company (a “PFIC”) in either the taxable year of the distribution or the preceding taxable year will not constitute qualified dividends. The Company believes that it was not a PFIC in the preceding taxable year, and the Company does not expect it to become a PFIC in the current taxable year. However, the determination of PFIC status for any year is very fact specific, and there can be no assurance in this regard.

A U.S. Holder will be required to fund any tax required to be paid as a result of the distribution of a Right from other sources.

A U.S. Holder’s adjusted tax basis in a Right should generally equal its fair market value on the date of its distribution. A U.S. Holder’s holding period for a Right should begin on the day that such Right is received by such U.S. Holder.

Exercise of Rights

A U.S. Holder generally should not recognize any gain or loss upon the exercise of a Right and related receipt of Series 1 Debentures. A U.S. Holder’s initial tax basis in a Series 1 Debenture received upon the exercise of Rights should be equal to the sum of (a) such U.S. Holder’s adjusted tax basis in such Rights, plus (b) the Subscription Price paid by such U.S. Holder on the exercise of such Rights. A U.S. Holder’s holding period for a Series 1 Debenture received on the exercise of Rights will begin with and include the day that such Rights are exercised by such U.S. Holder. The U.S. dollar cost of a Series 1 Debenture purchased with a foreign currency will generally be the U.S. dollar value of the purchase price on the date of purchase or, in the case of Series 1 Debentures traded on an established securities market, as defined in the applicable U.S. Treasury Regulations, that are purchased by a cash basis U.S. Holder (or an accrual basis U.S. Holder that so elects), on the settlement date for the purchase.

Disposition of Rights

A U.S. Holder will recognize gain or loss on the sale or other taxable disposition of a Right in an amount equal to the difference, if any, between (a) the amount of cash plus the fair market value of any property received and (b) such U.S. Holder’s adjusted tax basis in the Right sold or otherwise disposed of. Any such gain or loss will generally be short-term capital gain or loss if the U.S. Holder held the Right for less than a year. The deductibility of capital losses is subject to various limitations.

If the consideration received on the sale of a Right is not in U.S. dollars, the amount realized generally will equal the U.S. dollar value of the payment received calculated at the spot rate on the date of the disposition. If the Rights are traded on an established securities market (as determined under the applicable Treasury Regulations), a cash basis U.S. Holder (and, if it so elects, an accrual basis U.S. Holder) will determine the U.S. dollar value of any foreign currency received by translating such amount at the spot rate on the settlement date, rather than on the date of execution. Any such election by any accrual basis U.S. Holder will apply to all debt instruments held by such U.S. Holder and cannot be changed without the consent of the IRS

Additionally, if a U.S. Holder receives any foreign currency on the sale of a Right, such U.S. Holder may recognize ordinary income or loss as a result of currency fluctuations between the date of the sale of the Right and the date the sale proceeds are converted into U.S. dollars.

 

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Expiration of Rights

If a Right expires without being exercised by a U.S. Holder, the U.S. Holder should generally recognize a short-term capital loss in an amount equal to such U.S. Holder’s adjusted tax basis in such right. Capital losses are generally available to offset only capital gain (except, to the extent of up to $3,000 of capital loss per year, in the case of a non-corporate U.S. Holder) and therefore generally cannot be used to offset any dividend income arising from the receipt of a Right or other income.

Cancellation of the Offering

There is no authority that specifically addresses the tax treatment of a U.S. Holder that receives, sells or exercises a Right if the Company subsequently cancels the Offering. Certain authorities suggest that a U.S. Holder that receives a Right and does not sell or otherwise dispose of such Right may not be taxed on the receipt or cancellation of such right if the receipt and cancellation occur in the same taxable year. However, the scope of those authorities is unclear and the Company and applicable withholding agents are likely to take the position, for information reporting and backup withholding purposes, that the treatment described above under “Receipt of Rights” and below under “Information Reporting and Backup Withholding” continue to apply to such a U.S. Holder.

If a U.S. Holder has dividend income upon the receipt of a Right, even though the Company subsequently cancels the Offering, the U.S. Holder should generally have a short-term capital loss upon the cancellation of the Right in an amount equal to such U.S. Holder’s adjusted tax basis in such Right.

Taxation of Series 1 Debentures received upon Exercise of Rights

Qualified Reopening

The issuance of additional Series 1 Debentures pursuant to the exercise of the Rights issued pursuant to this Offering (the “Additional Series 1 Debentures”) is a reopening of the issuance of the C$68 million principal amount of Series 1 Debentures issued on October 1, 2014, the C$28 million principal amount of Series 1 Debentures issued on November 19, 2014 and the C$186.2 million principal amount of Series 1 Debentures issued on September 30, 2015 (the “Existing Series 1 Debentures”). Additional debt instruments issued in a “qualified reopening” are treated as part of the same issue as the original debt instruments for U.S. federal income tax purposes. A qualified reopening includes, among other things, a reopening in which the additional debt instruments are issued for cash to persons unrelated to the issuer (as determined under section 267(b) or 707(b) of the Code) for an arm’s length price and, on the date on which the price of the additional debt instruments is established, the yield of the additional debt instruments (based on their fair market value or cash purchase price, whichever is applicable) is not more than 100% of the yield of the original debt instruments on their issue date.

As discussed below, the yield of the Existing Series 1 Debentures and the Additional Series 1 Debentures is determined under complex rules, the application of which is not free from doubt. It is not clear whether the Additional Series 1 Debentures will be eligible to be treated as issued in a qualified reopening because they may be treated as issued for cash and the Rights, rather than solely for cash, or because they may be treated as having been sold at less than an arm’s length price. Further, there is no authority directly on point regarding the application of the qualified reopening rules to a reopening of a debt instrument that pays a variable interest rate. Nonetheless, because the Company expects the yield of the Additional Series 1 Debentures on the date on which the price of the Additional Series 1 Debentures is established to satisfy the yield test described above, the Company intends to treat the issuance of the Additional Series 1 Debentures as a qualified reopening of the issuance of the Existing Series 1 Debentures. Accordingly, for U.S. federal income tax purposes, the Company currently intends to treat the Additional Series 1 Debentures as issued with original issue discount (“OID”) and as having the same adjusted issue price as the Existing Series 1 Debentures. If the issuance of the Additional Series 1 Debentures is not treated as a qualified reopening, whether because of changes in the yield of the Series 1 Debentures between the date of this prospectus and the date on which the price of the Additional Series 1

 

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Debentures is established, or because the IRS successfully challenges the treatment of the issuance as a qualified reopening, the Additional Series 1 Debentures would be treated as a separate issuance from the Existing Series 1 Debentures. As a result, the Additional Series 1 Debentures would have a different issue price and a different amount of OID from the Existing Series 1 Debentures, and would not be fungible with the Existing Series 1 Debentures.

Issue Price – Qualified Reopening of Existing Series 1 Debentures

As described above, the Company intends to treat the Additional Series 1 Debentures as having the same adjusted issue price as the Existing Series 1 Debentures. An Existing Series 1 Debenture’s “issue price” generally is:

 

a)

in the case of an Existing Series 1 Debenture issued for money, the first price at which a substantial amount of Series 1 Debentures included in the issue of which the Existing Series 1 Debenture is a part was sold to persons other than bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers;

 

b)

in the case of an Existing Series 1 Debenture that was not described in (a) and was part of an issue that was traded on an established market, the fair market value of the Existing Series 1 Debenture on the issue date;

 

c)

in the case of an Existing Series 1 Debenture that was not described in (a) or (b) and was issued for property that was traded on an established market, the fair market value of the property on the issue date;

 

d)

in the case of an Existing Series 1 Debenture that was not described in (a), (b) or (c), if section 1274 applied, the issue price determined under section 1274; and

 

e)

in the case of an Existing Series 1 Debenture that was not described in (a), (b), (c), or (d), the stated redemption price at maturity.

It is not clear whether the Existing Series 1 Debentures were issued for money, in which case the first rule applied, or for a combination of money and property (that is, the surrender of the Rights), in which case various rules may have applied. Under any of the definitions described above, the Company believes that the issue price of an Existing Series 1 Debenture equaled at least the original subscription price for an Existing Series 1 Debenture (being C$95.00 per C$100 principal amount of Existing Series 1 Debentures), because a U.S. Holder that acquired an Existing Series 1 Debenture by the exercise of Rights paid the subscription price in cash, but no more than the total of the original subscription price for an Existing Series 1 Debenture plus the fair market value of the Rights on the date of issue of the Existing Series 1 Debentures.

Issue Price – Separate Issuance of Additional Series 1 Debentures

If the issuance of the Additional Series 1 Debentures is not treated as a qualified reopening, the issue price of an Additional Series 1 Debenture will be determined without regard to the issue price of the Existing Series 1 Debentures, but in the manner described above under “Issue Price – Qualified Reopening of Existing Series 1 Debentures”. In such event, the Additional Series 1 Debentures would not be issued with the same issue price or amount of OID as the Existing Series 1 Debentures.

Variable Rate Debt Instrument

Complex rules apply to debt instruments treated as “contingent payment debt instruments.” However, a debt instrument that is treated as a “variable rate debt instrument” (a “VRDI”) will not be characterized as a contingent payment debt instrument. The definition of a VRDI includes a debt instrument that, among other things, does not provide for any stated interest other than stated interest (compounded or paid at least annually) at a current value of a single objective rate. A current value is the value of the rate on any day that is no earlier than

 

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3 months prior to the first day on which that value is in effect and no later than 1 year following that first day. An objective rate is in general a rate that is determined using a single fixed formula and that is based on objective financial or economic information. If interest on a debt instrument is stated at a fixed rate for an initial period of 1 year or less followed by a variable rate that is an objective rate for a subsequent period, and the value of the variable rate on the issue date is intended to approximate the fixed rate, the fixed rate and the variable rate together constitute a single objective rate. Although the conclusion is not free from doubt, the interest rate on a Series 1 Debenture should be an objective rate and a Series 1 Debenture should be treated as a VRDI under the rules described above. If the Series 1 Debentures were characterized as contingent payment debt instruments, a U.S. Holder might, among other things, be required to accrue interest income at a higher rate than the stated interest rate on the Series 1 Debentures and to treat any gain recognized on the sale or other disposition of a Series 1 Debenture as ordinary income rather than as capital gain.

Original Issue Discount

A debenture with a term that exceeds one year will constitute a discount debenture issued with OID if the stated redemption price at maturity of the debenture exceeds its issue price by more than the de minimis amount of ¹⁄₄ of 1 percent of the “stated redemption price at maturity” multiplied by the number of complete years from the issue date of the debenture to its maturity. The “stated redemption price at maturity” of a Series 1 Debenture is the total of all payments provided by the Series 1 Debenture that are not payments of qualified stated interest. Generally, an interest payment on a debenture is “qualified stated interest” if it is one of a series of stated interest payments on a debenture that are unconditionally payable at least annually at a single fixed rate, one or more qualified floating rates, or a single objective rate, with certain exceptions for lower rates paid during some periods, applied to the outstanding principal amount of the debenture. Interest is considered unconditionally payable only if reasonable legal remedies exist to compel timely payment or the debenture otherwise provides terms and conditions that make the likelihood of late payment (other than a late payment within a reasonable grace period) or non-payment a remote contingency.

Because failure to pay interest is not an Event of Default and the Company may make the PIK Election, stated interest on the Series 1 Debentures is not considered unconditionally payable for purposes of the definition of qualified stated interest. As a result, the Existing Series 1 Debentures were issued with OID, and the Additional Series 1 Debentures will be issued with OID (regardless of whether the issuance of Additional Series 1 Debentures is treated as a qualified reopening). Because the Series 1 Debentures have OID, a U.S. Holder will be required to include OID in gross income for U.S. federal income tax purposes as it accrues (regardless of such U.S. Holder’s method of accounting), which may be in advance of receipt of the cash attributable to that income. OID accrues under the constant-yield method, based on a compounded yield to maturity, as described below. The Company will provide certain information to the IRS and/or U.S. Holders that is relevant to determining the amount of OID in each accrual period. If the issuance of Additional Series 1 Debentures is not treated as a qualified reopening, the amount of OID with respect to the Additional Series 1 Debentures will vary from the amount of OID with respect to the Existing Series 1 Debentures.

The annual amounts of OID includible in income by a U.S. Holder will equal the sum of the “daily portions” of the OID with respect to a Series 1 Debenture for each day on which such U.S. Holder owns the Series 1 Debenture during the taxable year. Generally, a U.S. Holder determines the daily portions of OID by allocating to each day in an “accrual period” a pro rata portion of the OID that is allocable to that accrual period. The term “accrual period” means an interval of time with respect to which the accrual of OID is measured and which may vary in length over the term of a Series 1 Debenture provided that each accrual period is no longer than one year and each scheduled payment of principal or interest occurs on either the first or last day of an accrual period.

The amount of OID allocable to an accrual period will be the excess of:

 

a)

the product of the “adjusted issue price” of the Series 1 Debenture at the beginning of the accrual period and its “yield to maturity” over

 

b)

the aggregate amount of any qualified stated interest payments allocable to the accrual period.

 

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The adjusted issue price of a Series 1 Debenture at the beginning of the first accrual period is its issue price, and, on any day thereafter, it is the sum of the issue price and the amount of OID previously included in gross income, reduced by the amount of any payment (other than a payment of qualified stated interest) previously made on the Series 1 Debenture. If all accrual periods are of equal length except for a shorter initial and/or final accrual period, a U.S. Holder may compute the amount of OID allocable to the initial period using any reasonable method; however, the OID allocable to the final accrual period will always be the difference between the amount payable at maturity (other than a payment of qualified stated interest) and the adjusted issue price at the beginning of the final accrual period.

OID accrued on a Series 1 Debenture (and any amount withheld in respect of non-U.S. taxes) will be taxable to a U.S. Holder as foreign-source ordinary income.

Treatment of PIK Series 1 Debentures

If PIK Series 1 Debentures are issued to satisfy interest on the Series 1 Debentures, a newly distributed PIK Series 1 Debenture issued in respect of a Series 1 Debenture will be aggregated with the Series 1 Debenture and will be treated as part of the Series 1 Debenture with respect to which it was issued. Thus, the initial issue price of a newly distributed PIK Series 1 Debenture issued in respect of a Series 1 Debenture likely will be determined by allocating the adjusted issue price, at the time of distribution, of the underlying Series 1 Debenture between the newly distributed PIK Series 1 Debenture and the underlying Series 1 Debenture in proportion to their respective principal amounts. A portion of the basis of such Series 1 Debenture will be allocated to such PIK Series 1 Debenture and OID on such PIK Series 1 Debenture will accrue in the same manner as described above in the case of such Series 1 Debenture. A U.S. Holder’s holding period for any PIK Series 1 Debenture with respect to an original Series 1 Debenture will likely be identical to such U.S. Holder’s holding period for the original Series 1 Debenture. The same rules would apply to a PIK Series 1 Debenture received in lieu of cash interest on a PIK Series 1 Debenture.

Foreign Currency

If a U.S. Holder receives foreign currency as payments on a Series 1 Debenture, such U.S. Holder will accrue OID on the Series 1 Debenture in the foreign currency and translate the amount accrued into U.S. dollars based on:

 

a)

the average exchange rate in effect during the interest accrual period or, with respect to an accrual period that spans two taxable years, at the average rate for the partial period within the taxable year; or

 

b)

at the U.S. Holder’s election, at the spot rate of exchange on (1) the last day of the accrual period (and in the case of a partial accrual period, the spot rate on the last day of the taxable year) or (2) the date of receipt, if such date is within five business days of the last day of the accrual period.

Such election must be applied consistently by a U.S. Holder to all debt instruments from year to year and can be changed only with the consent of the IRS.

A U.S. Holder will recognize foreign currency gain or loss with respect to the OID income accrued on a Series 1 Debenture on the date cash is received in respect of such income (including, on the sale or other disposition of a Series 1 Debenture, the receipt of proceeds that include amounts attributable to OID previously included in income) if the spot rate of exchange on the date the cash is received differs from the rate applicable to a previous accrual of that income as determined above. For these purposes, all payments on a Series 1 Debenture will be treated first, as payments of previously accrued OID (to the extent thereof), with payments considered made for the earliest accrual period in which the OID has accrued and to which prior receipts or payments have not been attributable, and second, as the payment of principal. Such foreign currency gain or loss generally will be treated as ordinary income or loss, but generally will not be treated as an adjustment to OID accrued on the Series 1 Debentures. U.S. Holders should be aware that because cash payments in respect of accrued OID on a Series 1 Debenture may not be made until maturity or other disposition of the Series 1 Debenture, a greater possibility

 

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exists for the fluctuations in foreign currency exchange rates (and the required recognition of gain or loss) than is the case for foreign currency instruments issued without OID. U.S. Holders are urged to consult with their tax advisors regarding the interplay between the application of the OID and foreign currency exchange gain or loss rules.

Series 1 Debentures Purchased at a Premium

If the initial tax basis of a U.S. Holder in a Series 1 Debenture is less than or equal to the sum of all amounts payable on the Series 1 Debenture after the purchase date but is greater than the amount of the Series 1 Debenture’s adjusted issue price, as determined above under “—Issue Price,” the excess will be acquisition premium. In this case, unless a U.S. Holder elects to compute OID accruals by treating the purchase as a purchase at original issuance and applying the mechanics of the constant-yield method, a U.S. Holder must reduce the daily portions of OID by a fraction equal to:

 

a)

the excess of its adjusted basis in the Series 1 Debenture immediately after the purchase (generally, the cost of the Series 1 Debenture) over the adjusted issue price of the Series 1 Debenture, divided by

 

b)

the excess of the sum of all amounts payable on the Series 1 Debenture after the purchase date over the Series 1 Debenture’s adjusted issue price.

In the case of a debt instrument that is denominated in, or determined by reference to, a foreign currency, acquisition premium will be computed in units of foreign currency, and acquisition premium will reduce interest income in units of the foreign currency. At the time acquisition premium offsets interest income, exchange gain or loss (taxable as U.S. source ordinary income or loss) will be recognized as measured by the difference between exchange rates at that time and at the time of the acquisition of the Series 1 Debentures.

Purchase, Sale and Retirement of Series 1 Debentures

A U.S. Holder’s adjusted tax basis in a Series 1 Debenture will generally be its initial tax basis, as discussed above under “Taxation of Rights – Exercise of Rights”, increased by the amount of any OID included in the U.S. Holder’s income with respect to the Series 1 Debenture, and reduced by (i) the amount of any payments that are not qualified stated interest payments, and (ii) the amount of any amortizable bond premium applied to reduce interest on the Series 1 Debenture.

A U.S. Holder will generally recognize gain or loss on the sale or retirement of a Series 1 Debenture equal to the difference between the amount realized on the sale or retirement and the holder’s tax basis of the Series 1 Debenture. The amount realized on a sale or retirement for an amount in foreign currency will be the U.S. dollar value of this amount on the date of sale or retirement or, in the case of Series 1 Debentures traded on an established securities market, as defined in the applicable Treasury Regulations, sold by a cash basis U.S. Holder (or an accrual basis U.S. Holder that so elects), on the settlement date for the sale. Such an election by an accrual basis U.S. Holder must be applied consistently from year to year and cannot be revoked without the consent of the IRS. Except to the extent attributable to accrued but unpaid interest or changes in exchange rates, gain or loss recognized on the sale or retirement of a Series 1 Debenture will be capital gain or loss and will be long-term capital gain or loss if the U.S. Holder’s holding period in the Series 1 Debentures exceeds one year. Long-term capital gains of an individual taxpayer generally are taxed at preferential rates. The deductibility of capital losses is subject to limitations.

Gain or loss recognized by a U.S. Holder on the sale or retirement of a Series 1 Debenture that is attributable to changes in exchange rates will be treated as ordinary income or loss. However, exchange gain or loss is taken into account only to the extent of total gain or loss realized on the transaction. Gain or loss realized by a U.S. Holder on the sale or retirement of a Series 1 Debenture generally will be U.S. source.

Additionally, if a U.S. Holder receives any foreign currency on the sale of a Series 1 Debenture, such U.S. Holder may recognize ordinary income or loss as a result of currency fluctuations between the date of the sale of the Series 1 Debenture and the date the sale proceeds are converted into U.S. dollars.

 

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Foreign Tax Credit Considerations

For purposes of the U.S. foreign tax credit limitations, interest received by a U.S. Holder with respect to Series 1 Debentures will be foreign source income and generally will be “passive category income” but could, in the case of certain U.S. Holders, constitute “general category income.” In general, gain or loss realized upon sale or exchange of the Rights or Series 1 Debentures by a U.S. Holder will be U.S. source income or loss, as the case may be.

Subject to certain limitations, any Canadian tax withheld may be treated as foreign taxes eligible for credit against a U.S. Holder’s U.S. federal income tax liability. Alternatively, a U.S. Holder may, subject to applicable limitations, elect to deduct the otherwise creditable Canadian withholding taxes for U.S. federal income tax purposes. The rules governing the foreign tax credit are complex and their application depends on each taxpayer’s particular circumstances. Accordingly, U.S. Holders are urged to consult their own tax advisors regarding the availability of the foreign tax credit under their particular circumstances.

Additional Tax on Passive Income

U.S. Holders that are individuals, estates or trusts and whose income exceeds certain thresholds generally will be subject to a 3.8% additional tax on unearned income, including, among other things, interest on the Series 1 Debentures, and capital gains from the sale or other taxable disposition of, the Rights or Series 1 Debentures, subject to certain limitations and exceptions. U.S. Holders are urged to consult their own tax advisors regarding the possible implications of the additional tax on investment income described above.

Reportable Transactions

A U.S. taxpayer that participates in a “reportable transaction” will be required to disclose its participation to the IRS. The scope and application of these rules is not entirely clear. A U.S. Holder may be required to treat a foreign currency exchange loss from the Series 1 Debentures as a reportable transaction if the loss exceeds US$50,000 in a single taxable year, if the U.S. Holder is an individual or trust, or higher amounts for non-individual U.S. Holders. In the event the acquisition, holding or disposition of Series 1 Debentures constitutes participation in a “reportable transaction” for purposes of these rules, a U.S. Holder will be required to disclose its investment by filing Form 8886 with the IRS, and the Company and its advisers may also be required to disclose the transaction to the IRS. In addition, the Company and its advisers may be required to maintain a list of U.S. Holders, and to furnish this list and certain other information to the IRS upon written request. U.S. Holders are urged to consult their tax advisers regarding the application of these rules to the acquisition, holding or disposition of Series 1 Debentures.

U.S. Information Reporting and Backup Withholding

Under U.S. federal income tax law and regulations, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. Penalties for failure to file certain of these information returns are substantial. U.S. return disclosure obligations (and related penalties for failure to disclose) have also been imposed on U.S. individuals that hold certain specified foreign financial assets in excess of US$50,000. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also may include the Rights and Series 1 Debentures. U.S. Holders of Rights or Series 1 Debentures should consult with their own tax advisors regarding the application of the information reporting rules to the Series 1 Debentures.

Interest on Series 1 Debentures and proceeds from the sale or other disposition of Rights or Series 1 Debentures that are paid in the United States or by a U.S.-related financial intermediary will be subject to U.S. information reporting rules, unless a U.S. Holder is a corporation or other exempt recipient. In addition, payments that are subject to information reporting may be subject to backup withholding if a U.S. Holder fails to provide its

 

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taxpayer identification number, fails to certify that such number is correct, fails to certify that such U.S. Holder is not subject to backup withholding, or otherwise fails to comply with the applicable requirements of the backup withholding rules.

Backup withholding is not an additional tax. Amounts withheld under the backup withholding rules are available to be credited against a U.S. Holder’s U.S. federal income tax liability and may be refunded to the extent they exceed such liability, provided the required information is provided to the IRS in a timely manner.

RISK FACTORS

Before purchasing the Series 1 Debentures, subscribers should carefully consider the following risk factors as well as those set out in the AIF incorporated by reference into this prospectus in addition to the other information contained in this prospectus and incorporated by reference in this prospectus. See “Documents Incorporated by Reference”. Additional risks and uncertainties not presently known or that the Company currently considers immaterial also may impair the Company’s business and operations and cause the price of the Series 1 Debentures to decline. If any of the events contemplated in the risk factors described below or in the documents incorporated by reference actually occur, the Company’s business may be harmed and the financial condition and results of operation may suffer significantly. In that event, the trading price of the Series 1 Debentures could decline, and purchasers of the Series 1 Debentures may lose all or part of their investment.

In addition to the other information set forth elsewhere in this prospectus and in the documents incorporated by reference, prospective investors should carefully review the following risk factors:

Market for Securities. There is currently no market through which the Rights may be sold and there is no guarantee that an active trading market will develop. Accordingly, purchasers may not be able to sell the Rights distributed under this prospectus. This may affect the pricing of the Rights in the secondary market, the transparency and the availability of trading prices and the liquidity of the Rights. Although the closing of the Offering will be conditional on the listing of the Rights on the TSX, there can be no assurance that an active trading market will develop for the Rights after the Offering, or if developed, that such market will be sustained.

Market Conditions. The market price of the Series 1 Debentures will be based on a number of factors, including: (i) the prevailing interest rates being paid by companies similar to CSI, (ii) the overall condition of the financial and credit markets, (iii) interest rate volatility, (iv) fluctuations in the CPI Index, (v) the markets for similar securities, (vi) the financial condition, results of operation and prospects of CSI, (vii) changes in the industry in which CSI operates and competition affecting CSI, and (viii) general market and economic conditions. The price at which the Rights or Series 1 Debentures will trade cannot be accurately predicted.

Additional Indebtedness. The Indenture does not limit the ability of the Company to incur additional debt or liabilities (including Senior Indebtedness). In order to finance acquisitions from time-to-time, the Company expects to draw down additional indebtedness under its Credit Facility. The additional indebtedness will increase the interest payable by the Company from time-to-time until such amounts are repaid, which will represent an increase in the Company’s cost and a potential reduction in the Company’s income. In addition, the Company may need to find additional sources of financing to repay this amount when it becomes due. There can be no guarantee that the Company will be able to obtain financing on terms acceptable to it or at all at such time.

Prior Ranking Indebtedness. The Series 1 Debentures are unsecured and the payment of principal and interest thereon will be subordinate to all existing and future Senior Indebtedness of the Company. The Indenture does not limit the ability of the Company to incur additional debt or liabilities (including Senior Indebtedness). Interest will be payable on the Series 1 Debentures only if no event of default exists under the Senior Indebtedness immediately before or after such payment is due and any other terms of the Senior Indebtedness have been complied with. In addition, the Company will not, without the prior written consent of the applicable

 

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lenders under the Credit Facility, be permitted to make any payment of principal in respect of the Series 1 Debentures prior to the maturity date of the Credit Facility, being November 5, 2026. Following the maturity date of the Credit Facility, the Company may enter into a new credit facility with one or more lenders. The terms of any new credit facility may contain additional restrictions on the Company’s ability to redeem or repurchase the Series 1 Debentures, but the nature and extent of such restrictions is not currently known and cannot be predicted. Enforcement of the Series 1 Debentures, including the issuance of a bankruptcy petition, will require the consent of the lenders under the Senior Indebtedness.

Interest Rate will be Reset. The interest rate in respect of the Series 1 Debentures will reset on an annual basis beginning on March 31, 2024 and will be based on changes in the CPI Index over the prior calendar year. In each case, the new interest rate is unlikely to be the same as, and may be lower than, the interest rate for the applicable preceding period. As a result, the amount of interest payable on the Series 1 Debentures may rise or fall from one year to the next and such variations may be material during periods of significant changes in the CPI Index. In circumstances where the change in the Cost of Living Adjustment is negative from one year to another, the interest rate applicable to the Series 1 Debentures for the following period could be as low at 0%. The Current Rate will only apply to the Series 1 Debentures in respect of the interest payments on ●, 2023, December 31, 2023 and March 31, 2024, respectively. Effective March 31, 2024, the interest payable on the Series 1 Debentures will be based on the applicable Floating Interest rate.

Consumer Prices May Change Unpredictably, Affecting the Level of the CPI Index and the Market Value of the Series 1 Debentures. Market prices of the consumer items underlying the CPI Index may fluctuate based on numerous factors, including: changes in supply and demand relationships; weather; agriculture; trade; fiscal, monetary, and exchange control programs; domestic and foreign political and economic events and policies; disease; technological developments; and changes in interest rates. These factors may affect the level of the CPI Index and the market value of the Series 1 Debentures in varying ways, and different factors may cause the level of the CPI Index to move in inconsistent directions at inconsistent rates.

Ability to Defer Interest Payments or Issue PIK Series 1 Debentures. Any failure by the Company to pay the interest on the Series 1 Debentures in full on any interest payment date will not constitute an event of default under the Trust Indenture and holders of Series 1 Debentures will have no right to accelerate payment of the principal amount outstanding under such Series 1 Debentures. In addition, the Company may elect to satisfy all or any portion of the Series 1 Debentures Interest Obligation by issuing PIK Series 1 Debentures. Although the Company will not be permitted to declare dividends of any kind on the Common Shares and will not be permitted to participate in any share buyback or redemption involving the Common Shares until the Company first pays any outstanding interest (or the unpaid portion thereof) to holders of Series 1 Debentures or resumes making subsequent interest payments on the Series 1 Debentures in full in cash, holders of Series 1 Debentures will not have an immediate right to receive such outstanding interest in cash. Instead, any unpaid interest may form part of the principal amount of such Series 1 Debentures and may only become due and payable on the occurrence of an event giving rise to the obligation of the Company to pay or cause the payment of the redemption price, as the case may be, as part of such price and not prior thereto. In addition, if the Company issues PIK Series 1 Debentures in lieu of cash interest on an interest payment date, holders will be required to include in their income the principal amount of such PIK Series 1 Debentures issued despite not having received any cash payment from the Company in satisfaction of the applicable Series 1 Debentures Interest Obligation.

Redemption of Series 1 Debentures. The Series 1 Debentures are redeemable annually, upon no more than five years’ and 15 days’ and no less than five years’ notice, and upon a Change of Control. Although the Company does not currently intend to exercise such redemption right, such redemption right could still be exercised. In such circumstances, redemption could occur when prevailing interest rates are lower than the rate born by the Series 1 Debentures. If prevailing rates are lower at the time of redemption, a purchaser would not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the interest rate on the Series 1 Debentures being redeemed. The Company’s redemption right also may adversely impact a purchaser’s ability to sell Series 1 Debentures as the optional redemption date or period approaches.

 

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Exercise of Put Rights. A holder of Series 1 Debentures will have the right to require the Company to repurchase some or all of its Series 1 Debentures annually. However, in order to excise its put rights, a holder of Series 1 Debentures must provide the Company with no more than five years’ and 30 days’ and no less than five years’ and 15 days’ notice and must deposit its Puttable Series 1 Debentures with the Debenture Trustee during this 5 year period. During this time, the Puttable Series 1 Debentures will no longer be transferable over the facilities of the TSX or otherwise. In addition, holders of Series 1 Debentures who hold their Series 1 Debentures through a CDS Participant will, prior to exercising their right to have the Company repurchase such holder’s Series 1 Debentures, be required to withdraw their Series 1 Debentures from CDS and obtain a certificate for such Series 1 Debentures in registered form from the Subscription Agent.

Use of Proceeds of the Offering. As set out under “Use of Proceeds” in this prospectus, the Company intends to use the proceeds of the Offering to pay down indebtedness under the Credit Facility, with any remaining proceeds to be used for future acquisitions. There is no minimum Offering size, and there can be no assurance of the amount of proceeds raised in the Offering. There may be circumstances that are not known at this time where a reallocation of the net proceeds of the Offering may be advisable for business reasons that the board of directors and management believe are in the Company’s best interests.

Prevailing Yields on Similar Securities. Prevailing yields on similar securities will affect the market value of the Series 1 Debentures. Assuming all other factors remain unchanged, the market value of the Series 1 Debentures will decline as prevailing yields for similar securities rise, and will increase as prevailing yields for similar securities decline.

Series 1 Debentures are Subject to the Credit Risk of the Company. The obligation to make payments under the Series 1 Debentures is an obligation of the Company. The likelihood that holders of Series 1 Debentures will receive payments owing to them under the Series 1 Debentures will depend on the financial health and creditworthiness of the Company.

Senior Indebtedness Refinancing Risk. The Company’s Credit Facility expires on November 5, 2026. Although the Company may enter into a new credit facility with one or more lenders on or prior to the expiry of the Credit Facility, the terms of such credit facility cannot be predicted and may contain terms or conditions that are more onerous or restrictive than the Credit Facility. The Company’s ability to replace the Credit Facility on favourable terms will be dependent on, among other factors, the operating performance of the Company, future debt market conditions, the level of future interest rate spreads, and prospective lenders’ assessment of the Company’s credit risk at such time. If the Company is unable to obtain a new credit facility on favourable terms, the Company’s ability to complete acquisitions may be negatively impacted, which may have an adverse effect on the Company’s financial performance.

There may be Changes in Legislation or Administrative Practices that adversely affect Holders of Series 1 Debentures. There can be no assurance that income tax, securities and other laws or the administrative practices of any government agency will not be amended or changed in a manner which adversely affects Series 1 Debentureholders.

Subscription Rights May Not be Revoked. Subject to the Company’s right to terminate the Offering at any time, upon delivery or mailing of the completed Rights Certificate to the Subscription Agent, the exercise of the Rights and the subscription for the Series 1 Debentures is irrevocable.

The Company May Terminate the Offering. The Company may, in its sole discretion, decide not to continue with the Offering or to terminate the Offering at any time. This decision could be based on many factors, including market conditions. The Company currently has no intention to terminate the Offering, but reserves the right to do so. If the Company elects to cancel or terminate the Offering, nether the Company nor the Subscription Agent will have any obligation with respect to the subscription rights except to return, without interest, any subscription payments the Subscription Agent received.

 

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Inability of Company to Purchase Series 1 Debentures. Upon the occurrence of a Change of Control of the Company, each Series 1 Debentureholder may require the Company to purchase, on the date which is 30 days following the giving of notice of the Change of Control, the whole or any part of such holder’s Series 1 Debentures at a price equal to 100% of the principal amount plus accrued and unpaid interest up to, but excluding, the Change of Control Put Date. In addition, the Company may be required to redeem and/or repurchase Series 1 Debentures from Series 1 Debentureholders on a date which is approximately five years after the Company has exercised its right to redeem Series 1 Debentures and/or Series 1 Debentureholders have exercised their put rights. It is possible that upon a Change of Control, or upon a redemption or repurchase by the Company of some or all of the Series 1 Debentures, the Company will not have sufficient funds to make the required redemption or repurchase of Series 1 Debentures or that restrictions contained in other indebtedness will restrict those purchases. See “Description of the Series 1 Debentures – Put Right upon a Change of Control”.

EARNINGS COVERAGE RATIOS

The following earnings coverage ratios and pro forma earnings coverage ratios are calculated on a consolidated basis for the 12 month period ended December 31, 2022 and March 31, 2023, and are derived from the audited consolidated financial statements of the Company as at and for the year ended December 31, 2022 and the unaudited condensed consolidated interim financial statements of the Company for the three months ended March 31, 2023, after adjustment for new financial liabilities. The pro forma earnings coverage ratios have been prepared to give effect to the issuance of the Series 1 Debentures as if such issuance had occurred at the beginning of the pro forma calculation period but do not take into account the use of proceeds from such Series 1 Debentures.

The borrowing costs of the Company, after adjustment for new financial liabilities, for the twelve month period ended December 31, 2022 were approximately US$79 million and for the twelve month period ended March 31, 2023 were approximately US$93 million. The borrowing costs of the Company for the twelve month period ended December 31, 2022 and the twelve month period ended March 31, 2023, in each case after adjustment for new financial liabilities and after giving effect to the issuance of the Series 1 Debentures, were approximately US$143 million and US$153 million respectively. The profit attributable to owners of the Company before borrowing costs and taxes for the twelve month period ended December 31, 2022 was approximately US$804 million and for the twelve month period ended March 31, 2023 was approximately US$627 million, in each case after giving effect to the expenses of the Offering. This represents earnings coverage ratios of 10.23 for the twelve month period ended December 31, 2022 and 6.71 for the twelve month period ended March 31, 2023, in each case on a historical basis (after adjustment for new financial liabilities), and 5.63 for the twelve month period ended December 31, 2022 and 4.11 for the twelve month period ended March 31, 2023, in each case after giving effect to the issuance of the Series 1 Debentures.

The earnings coverage ratios noted above include a deduction for amortization of approximately US$676 million in the 12 month period ended December 31, 2022 and approximately US$723 million in the 12 month period ended March 31, 2023. If the earnings coverage ratios were adjusted to add back this non-cash deduction, the historical earnings coverage ratio (after adjustment for new financial liabilities) would be 18.83 for the 12 month period ended December 31, 2022 and 14.44 for the 12 month period ended March 31, 2023, and the earnings coverage ratio after giving effect to the issuance of the Series 1 Debentures would be 10.36 for the 12 month period ended December 31, 2022 and 8.85 for the 12 month period ended March 31, 2023.

LEGAL MATTERS

Certain legal matters relating to the issue and sale of Series 1 Debentures offered hereby will be passed upon on behalf of the Company by McCarthy Tétrault LLP, as Canadian counsel to the Company, and Paul, Weiss, Rifkind, Wharton & Garrison LLP, as United States counsel to the Company. As of the date of this prospectus, the partners and associates of McCarthy Tétrault LLP collectively own less than one percent of the Company’s issued and outstanding common shares.

 

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LEGAL PROCEEDINGS

We and our subsidiaries are engaged in legal actions from time to time, arising in the ordinary course of business. None of these actions, individually or in the aggregate, are expected to have a material adverse effect on our consolidated financial position or results of operations.

AUDITORS, TRANSFER AGENT AND REGISTRAR

The Company’s external auditors are KPMG LLP, located in 100 New Park Place, Suite 1400, Vaughan, ON Canada L4K 0J3. KPMG LLP has confirmed that they are independent of the Company within the meaning of the relevant rules and related interpretations prescribed by the relevant professional bodies in Canada and any applicable legislation or regulations.

The transfer agent and registrar for the Common Shares and the Series 1 Debentures is Computershare Trust Company of Canada at its principal transfer office in Toronto, Ontario.

DOCUMENTS FILED AS PART OF THE REGISTRATION STATEMENT

The following documents have been or will be filed with the SEC as part of the registration statement of which this prospectus forms a part: (i) the documents incorporated by reference herein; (ii) the consent of KPMG LLP; (iii) the consent of McCarthy Tétrault LLP; (iv) powers of attorney of our directors and officers; and (v) the Indenture.

ENFORCEMENT OF JUDGMENTS AGAINST FOREIGN PERSONS

The following individuals, as the Company’s directors, reside outside of Canada. The individuals named below have appointed the following agent for service of process:

 

Name of Person or Company		Name and Address of Agent
Robin van Poelje		Constellation Software Inc., 20 Adelaide Street East, Suite 1200, Toronto, Ontario, M5C 2T6
Susan Gayner		Constellation Software Inc., 20 Adelaide Street East, Suite 1200, Toronto, Ontario, M5C 2T6

Purchasers are advised that it may not be possible for investors to enforce judgements obtained in Canada against any person or company that is incorporated, continued or otherwise organized under the laws of a foreign jurisdiction or resides outside of Canada, even if the party has appointed an agent for service of process.

ADDITIONAL INFORMATION

Additional information relating to our Company may be found on the SEDAR+ website (www.sedarplus.ca).

 

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PART II

INFORMATION NOT REQUIRED TO BE SENT TO SHAREHOLDERS

EXHIBITS

 

Exhibit Number		Description
2.1		The Registrant’s annual information form for the year ended December 31, 2022, dated March 29, 2023.
2.2		The Registrant’s management information circular dated March 24, 2022.
2.3		The Registrant’s management information circular dated March 27, 2023.
2.4		The Registrant’s consolidated financial statements for the years ended December 31, 2022 and December 31, 2021, together with the auditor’s report thereon.
2.5		The Registrant’s management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2022.
2.6		The Registrant’s condensed consolidated interim financial statements for the three months ended March 31, 2023 and March 31, 2022.
2.7		The Registrant’s management’s discussion and analysis of financial condition and results of operations for the three months ended March 31, 2023.
3.1		Consent of KPMG LLP.
3.2		Consent of McCarthy Tétrault LLP.
4.1		Powers of Attorney (included on the signature page of this Registration Statement).
5.1		Indenture between the Registrant and Computershare Trust Company of Canada (incorporated by reference to Exhibit 5.1 to the Registrant’s Registration Statement on Form F-7, File No. 333-202951, filed with the Securities and Exchange Commission on March 24, 2015).

 

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-7 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Toronto, Ontario, Canada on August 7, 2023.

 

CONSTELLATION SOFTWARE INC.
By:		/s/ Jamal Baksh
Name:		Jamal Baksh
Title:		Chief Financial Officer

 

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POWERS OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Mark Leonard and Jamal Baksh, and each of them, either of whom may act without the joinder of the other, the true and lawful attorney-in-fact and agent of the undersigned, with full power of substitution and resubstitution, to execute in the name, place and stead of the undersigned, in any and all such capacities, any and all amendments (including post-effective amendments) to this Registration Statement , and all instruments necessary or in connection therewith, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the United States Securities and Exchange Commission, and hereby grants to each such attorney-in-fact and agent, each acting alone, full power and authority to do and perform in the name and on behalf of the undersigned each and every act and thing whatsoever necessary or advisable to be done, as fully and to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by or on behalf of the following persons in the capacities indicated, on August 7, 2023.

 

Signature		Title
/s/ Mark Leonard Mark Leonard		President and Director (Principal Executive Officer)
/s/ Jamal Baksh Jamal Baksh		Chief Financial Officer (Principal Financial and Principal Accounting Officer)
/s/ John Billowits John Billowits		Chairman of the Board
/s/ Laurie Schultz Laurie Schultz		Director
/s/ Lori O’Neill Lori O’Neill		Director
/s/ Claire Kennedy Claire Kennedy		Director
/s/ Donna Parr Donna Parr		Director
/s/ Andrew Pastor Andrew Pastor		Director
/s/ Robert Kittel Robert Kittel		Director
/s/ Barry Symons Barry Symons		Director

 

II-3

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Table of Contents

/s/ Mark Miller Mark Miller		Director and Chief Operating Officer
/s/ Jeff Bender Jeff Bender		Director
/s/ Susan Gayner Susan Gayner		Director
/s/ Robin Van Poelje Robin Van Poelje		Director

 

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Table of Contents

AUTHORIZED REPRESENTATIVE

Pursuant to the requirements of Section 6(a) of the Securities Act of 1933, as amended, the undersigned certifies that it is the duly authorized United States representative of the Registrant and has duly signed this Registration Statement on August 7, 2023.

 

CSI USA INC.
By:		/s/ Jamal Baksh
Name:		Jamal Baksh
Title:		Director

 

II-5

Exhibit 2.1

 

CONSTELLATION SOFTWARE INC.

Annual Information Form

March 29, 2023

 

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CONSTELLATION SOFTWARE INC.

ANNUAL INFORMATION FORM

TABLE OF CONTENTS

 

FORWARD-LOOKING STATEMENTS			1
CORPORATE STRUCTURE			2
NAME AND INCORPORATION			2
INTERCORPORATE RELATIONSHIPS			3
GENERAL DEVELOPMENT OF THE BUSINESS			8
OVERVIEW			8
ACQUISITIONS			9
RIGHTS OFFERINGS			12
DESCRIPTION OF THE BUSINESS			13
OVERVIEW			13
BUSINESS STRATEGY			13
OPERATING GROUPS			15
PRODUCTS			21
SALES AND DISTRIBUTION STRATEGY			21
RESEARCH AND DEVELOPMENT			22
INTELLECTUAL PROPERTY			22
FOREIGN OPERATIONS			22
COMPETITION			22
EMPLOYEES			22
RISK FACTORS			23
DIVIDENDS			35
DESCRIPTION OF CAPITAL STRUCTURE			37
MARKET FOR SECURITIES			41
ESCROWED SECURITIES AND SECURITIES SUBJECT TO CONTRACTUAL RESTRICTION ON TRANSFER			42
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY			43
BIOGRAPHIES			45
COMMITTEES OF THE BOARD			49
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS			51
LEGAL PROCEEDINGS			51
TRANSFER AGENT AND REGISTRAR			51
INTERESTS OF EXPERTS			51
CONFLICTS OF INTEREST			51
ADDITIONAL INFORMATION			51

 

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CONSTELLATION SOFTWARE INC.

ANNUAL INFORMATION FORM

All references in this Annual Information Form to ‘‘CSI’’, the ‘‘Company’’, ‘‘we’’, ‘‘us’’, ‘‘our’’ and ‘‘our company’’ refer to Constellation Software Inc. and its subsidiaries, unless the context requires otherwise. Unless otherwise indicated, all references to dollar amounts herein are to United States dollars.

All information contained herein is as at December 31, 2022 unless otherwise noted.

FORWARD-LOOKING STATEMENTS

Certain statements in this Annual Information Form may constitute “forward-looking” statements which involve risks (including those which may arise in the future), uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this Annual Information Form, such statements use such words as “may”, “will”, “expect”, “believe”, “plan”, “intend” and other similar terminology. These statements reflect current expectations regarding future events and operating performance and speak only as of the date of this Annual Information Form. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to, the factors discussed under “Risk Factors”. Although the forward-looking statements contained in this Annual Information Form are based upon what management of the Company believes are reasonable assumptions, the Company cannot assure investors that actual results will be consistent with these forward looking statements. These forward-looking statements are made as of the date of this Annual Information Form and, except as may be required by law, the Company assumes no obligation to update or revise them to reflect new events or circumstances.

 

1

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CORPORATE STRUCTURE

Name and Incorporation

The Company was incorporated under the Business Corporations Act (Ontario) on August 23, 1995. On March 7, 2000, the Company amalgamated with e2 Inc. and on June 29, 2000, the Company filed articles of arrangement, authorizing the transfer of all of the shares of Friedman Acquisition Corp., Creative Computer Solutions Inc. and Memory Lane Systems Inc., each a then wholly-owned subsidiary of the Company, to Constellation Software USA Inc. In connection with the arrangement, the Company issued 85,672 common shares in exchange for 259,595 common shares of N. Harris Computer Corporation and 667,013 common shares in exchange for 250,691 common shares of Trapeze Software Inc. The Company amalgamated with Constellation Justice Systems Inc. on March 1, 2002.

Concurrently with the closing of its Initial Public Offering on May 18, 2006, the Company’s share capital was reorganized to remove the previously existing series 1 and series 2 common shares, and to redesignate the previously existing series 3 common shares as Common Shares (the “Common Shares”).

On October 2, 2013, the Company’s shareholders (i) adopted a special resolution authorizing and approving an amendment to the articles of the Company in order to remove the Class A Non-Voting Shares, and (ii) adopted a special resolution authorizing and approving an amendment to the articles of the Company in order to create a new class of preferred shares designated as Class A Preferred Shares (“Preferred Shares”), to be issuable at any time and from time to time at the discretion of the Board of Directors of the Company (the “Board” or the “Board of Directors”) in one or more series. Articles of amendment reflecting these changes to the Company’s authorized capital were filed on March 28, 2014.

The Company’s head and registered office is located at 20 Adelaide Street East, Suite 1200, Toronto, Ontario, Canada, M5C 2T6, telephone: [phone], Web-site: www.csisoftware.com. The contents of the Company’s web-site are not incorporated by reference into this Annual Information Form.

 

2

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Intercorporate Relationships

The following list outlines, as at March 29, 2023, each of our material subsidiaries. Unless otherwise indicated, each material subsidiary is owned 100%, either directly or indirectly, by CSI.

 

Entity Name		Governing Jurisdiction
Head Office:
Constellation Netherlands Financing B.V.		Netherlands
Constellation Software Australia Pty Ltd		Australia
Constellation Canadian Holdings Inc.		Ontario
Constellation Software Cyprus Financing Ltd.		Cyprus
Constellation Hungary Financing Kft.		Hungary
Constellation Software UK Holdco Ltd.		England and Wales
CSI USA Inc.		Delaware
Constellation Software Japan Inc.*		Japan
Volaris Operating Group - Lumine Group Inc. and its subsidaries**
Advantage 360 Software, LLC		USA (California)
Aleyant Spain SL		Spain
Aleyant Systems, LLC		USA (Illinois)
A Metering AB		Sweden
COLLAB—SOLUÇÕES INFORMÁTICAS DE
COMUNICAÇyO E COLABORAÇyO, S.A.		Portugal
Flash Networks Ltd.		Israel
Flash Networks Inc		USA (Delaware)
Flash Networks BV		Netherlands
Flash Networks Singapore Private Limited		Singapore
Incognito Interactive Limited		Ireland
		Canada (British
Incognito Software Systems Inc.		Columbia)
Incognito USA Inc.		USA (Delaware)
Kansys Inc.		USA (Kansas)
Kansys International Limited		England and Wales
Lifecycle Software Limited		England and Wales
Lumine Group Inc.		Ontario
Lumine Group (Holdings) Inc.		Canada (Ontario)
Lumine Group UK Holdco Ltd.		England and Wales
Lumine Group US Holdco Inc.		USA (Delaware)
Lumine HoldCo EU A/S		Denmark
Lumine Holdings Group (Israel) Ltd		Israel
MDS CEM Holdings Limited		England and Wales
MDS Global Ltd		England and Wales
MACH Clearing Solutions India Private Limited		India
Mobixell Networks (Israel) Ltd.		Israel
Mobixell Networks (Europe) Ltd		England and Wales
Morse Holding, Inc.		USA (Delaware)
Morse Intermediate Holdings, Inc.		USA (Delaware)
Netadmin Systems i Sverige AB		Sweden
Netengage Ltd.		England and Wales
Neural Technologies Limited		England and Wales
Neural Technologies Incorporated		USA (Kansas)
Neural Technologies GmbH		Germany
Neural Technologies (S) Pte Ltd		Singapore
Neural Technologies (Hong Kong) Ltd(1)		Hong Kong
NT8 Integrated Solutions (Malaysia) Sdn Bhd		Malaysia
WideOrbit LLC		USA (Delaware)

Entity Name		Governing Jurisdiction
PT. Neural Technologies Integrated Solutions		Indonesia
Sicap France SAS		France
Sicap India Private Ltd(2)		India
SICAP Schweiz AG		Switzerland
Starhome Mach GmbH		Switzerland
Starhome Mach S.à r.l.		Luxembourg
Starhome S.à r.l.		Luxembourg
Starhome Ltd.		Israel
StarHome B.V.		Netherland
Symbrio AB		Sweden
Tarantula Asia Pacific Pte Ltd		Singapore
Tarantula Global Holdings Pte Ltd		Singapore
Tarantula.net India Private Limited		India
Tarantula.net Limited		England and Wales
Telarix Inc.		USA (Delaware)
Telarix Intermediate Holdings, Inc.		USA (Delaware)
Telarix Italy S.r.l		Italy
Telarix (M) SDN. BHD.		Malaysia
Telarix Singapore Pte. Ltd.		Singapore
Telepin Software Systems Inc.		Canada (Ontario)
Tomia Ltd		England and Wales
TransMedia Holdings Limited		England and Wales
TransMedia Dynamics Limited		England and Wales
TransMedia Dynamics (Asia) Sdn Bhd		Malaysia
TransMedia Dynamics Inc.		USA (Delaware)
Ubersmith Inc.		USA (Delaware)
Unipier Mobile Ltd.		Israel
Vas-X Australia Proprietary Limited		Australia
Vas-X Proprietary Limited		South Africa
WDS Mobile Limited		England and Wales
Velocix Solutions India LLP		India
Velocix Solutions Limited		England and Wales
Velocix Solutions Portugal Unipessoal Lda		Portugal
Velocix Solutions USA Inc.		USA (Delaware)
Wiztivi SAS		France
Oy Wiztivi Gaming Ltd.		Finland
WideOrbit Inc.		USA (Delaware)

 

 

*	Constellation Software, owns 60% of Constellation Software Japan Inc.

**	Constellation Software has an effective interest of 100% of the Super Voting Shares and 100% of the preferred shares of Lumine Group Inc.

 

3

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Entity Name		Governing Jurisdiction
Volaris Operating Group (excluding Lumine Group Inc. and its subsidiaries):
Volaris Group Inc.		Ontario
Apdata Do Brasil Software Ltda.		Brazil
Akuiteo SAS		France
SpecTec Group Holdings Limited		Cyprus
AEP Ticketing Solutions s.r.l.		Italy
WiFiSPARK Limited		England and Wales
Across Systems GmbH		Germany
Metafile Information Systems Inc.		Minnesota
EnvisionWare Inc.		Georgia
Decideware, Inc.		California
Advanced Management Systems Limited		New Zealand
Software Company AMIC Gmbh		Germany
Eureka Technology SAS		France
Volaris Brasil Tecnologia Ltda.		Brazil
Incadea GmbH		Germany
Baseplan North America, Inc.		Delaware
Baseplan Software Pty Ltd.		Australia
Criterions Software, Inc.		Delaware
incadea (Beijing) Information and Technology Co. Ltd.		China
Windward Software Systems Inc.		British Columbia
ASC Automotive Solutions Center Schweiz AG		Switzerland
Helm Operations Software Inc.		Ontario
Holocentric Pty Ltd.		Australia
Grosvenor Systems Limited		England and Wales
BBT Software AG		Switzerland
Catertrax Inc.		Delaware
SpecTec Group Holding Limited		Cyprus
SpecTec Spa		Italy
SpecTec Ltd.		England and Wales
Binary System S.r.l.		Italy
Trapeze Software ULC		Alberta
TTG Technology (Europe) Limited		England and Wales
Trapeze Germany GmbH		Germany
Trapeze Switzerland GmbH		Switzerland
Trapeze Software Group Inc.		Delaware
AssetWorks LLC		Delaware
Cultura Technologies LLC		Delaware
CourtView Justice Solutions Inc.		Delaware
Northpointe Inc.		Delaware
Wynne Systems Inc.		California
Intempo Software Inc.		Delaware
Trapeze Group (UK) Limited		England and Wales
Travis Software Inc.		Delaware
Portfolio+ Incorporated		Ontario
Policy Processing Systems Technology Corporation		Delaware
Unique Business Systems Corporation		California
FacilityForce, Inc.		Delaware
Routematch Software, LLC		Georgia
Intellicene Inc.		Delaware
Micros South Africa (Pty) Ltd.*		South Africa

 

Entity Name		Governing Jurisdiction
Gallery Systems Inc.		New York
SSP Holdings Limited		England and Wales
SSP Midco 2 Limited		England and Wales
Asset InterTech, Inc.		Texas
Aislelabs Inc.		Ontario
Four J’s Development Tools Inc.		Washington
Four J’S Development Tools Europe Limited		Ireland
Hospedia Limited		England and Wales
Incom SAS		France
Global Outsource Services, LLC		Florida
Datapro, Inc.		Florida
SSP Asia Pacific Pty Limited		Australia
Taranto Systems Limited		England and Wales
CPR Vision Management Pte Ltd.		Singapore
Trapeze-Elgeba GmbH		Germany
Trapeze Group Singapore Ltd		Singapore
Kinetic Solutions Limited		England and Wales
Cultura Technologies Ltd.		England and Wales
AdaptIT Holdings Limited*		South Africa
SpecTec Group Holdings Limited		Cyprus
Softlink Australia Pty Ltd.		Australia
PLANit Sweden AB		Sweden
Infogate AG		Switzerland
Tibersoft Technologies Inc.		Delaware
Trapeze Group Asia Pacific Pty Ltd.		Australia
Smartrak Australia Pty Ltd.		Australia
Smartrak Limited		New Zealand
Smartrak Systems Limited		New Zealand
Systemtechnik Gmbh		Germany
Shipnet USA, Inc.		Delaware
Shipnet Asia Pte Ltd.		Singapore
The Alpha School System Pty Ltd.		Australia
Wellington Computer Systems Limited		Northern Ireland
Intranote A/S		Denmark
Charity Dynamics, Inc.		Delaware
Imperial Civil Enforcement Solutions Limited		England and Wales
Saatmann Gmbh & Co. KG		Germany
Bibliocommons Corp.		Ontario
Tribute Inc.		Ohio
Motiondata Vector Software Gmbh		Austria
Motiondata Vector Deutschland Gmbh		Germany
Motiondata Vector Schweiz Gmbh		Switzerland
Medaptus Solutions Inc.		Delaware
Monteiro Braga Informatica Ltda.		Brazil
Software Solutions Partners Africa
(Propreitary) Limited		South Africa
Adapt IT (Pty) Ltd.*		South Africa
Pcentra Ltd		Israel
Sansio Inc.		Delaware
Bravura Security Inc.		Alberta

 

 

 

*	Constellation Software has an effective interest of 65.97% in Adapt IT.

 

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Entity Name		Governing Jurisdiction
Harris Operating Group:
N. Harris Computer Corporation		Ontario
PG Solutions Inc.		Canada
PG Govern Inc.		Canada
Medisolution (2009) Inc.		Canada
Cogsdale Corporation		Canada
Harris Systems USA Inc.		Delaware
Harris Local Government Solutions, Inc.		Delaware
Connecture, Inc.		Delaware
Computer Software Innovations, Inc.		Delaware
Manatron, Inc.		Delaware
Delta Computer Systems Inc.		Mississippi
Gateway Electronic Medical Management Systems Inc.		Delaware
Digichart, Inc.		Delaware
Mitchell & McCormick Inc.		Georgia
Acceo Solutions, LP.		Ontario
Acceo Solutions Inc.		Canada
Acceo Technologies Inc.		Canada
Acceo Solutions Limited		England and Wales
Onhand Schools, Inc.		Pennsylvania
Media-X Systems Inc.		Canada
JR3 Websmart, LLC		Texas
MEDfx Corporation		Rhode Island
Gtechna USA Corporation		Delaware
Accovia France S.A.R.L.		France
Creditron Canada, Inc.		Ontario
Morcare, LLC		Illinois
Systems & Software Inc.		Vermont
Harris (US) Computer LLC		Delaware
Quintessential School Systems		California
Prosoft Technologies Inc.		Pennsylvania
Iatric Systems, Inc.		Delaware
Picis Clinical Solutions Inc.		Delaware
SmartCOP Inc.		Florida
Capital Computer Associates Inc.		New York
QuadraMed Corporation		Delaware
QuadraMed Canada Corporation		Nova Scotia
Syscon Justice Systems Canada Inc.		British Columbia
TAC 10 Inc.		Iowa
Caretracker Inc.		Delaware
InterAct911 Corporation		Delaware
I.M.D Parent Ltd.		Israel
I.M.D Soft Ltd.		Israel
I.M.D Soft Inc.		Nevada
Harris Computer Germany Gmbh		Germany
Salar Inc.		Maryland
SIV Utility Service Gmbh		Germany
IMDSoft Gmbh		Germany
SIV- Service für Informationsverarbeitung Aktiengesellschaft		Germany
SIV BG EOOD		Bulgaria
First Pacific Corporation		Oregon
DestinationRx Inc.		Delaware
Everwin Holdings SAS		France
Everwin SAS		France
Everwin Groupe SAS		France
Dynatouch Corporation		Texas
Commerce Decisions Limited		England and Wales
K2 Medical Systems Holding Limited		England and Wales
K2 Medical Systems Limited		England and Wales
Clinical Computer Systems, Inc.		Illinois
CCSI, Global Inc.		Illinois
La Société Informatique de Gestion Maintenance Assistance
(S.I.G.M.A.)		France
Bizmatics, Inc.		California
Ingenious Med, Inc.		Georgia
Jobillico, Inc.		Quebec
Globys, Inc.		Delaware
New Ultimate Billing, LLC		New York
Infocon Corporation		Pennsylvania
Just Associates Inc.		Colorado
eScholar LLC		New York
Altera Digital Health Inc.		Delaware
Allscripts Healthcare (IT) UK Ld.		England and Wales
Allscripts (India) LLP		India
Allscripts Healthcare IT (Singapore) PTE Ltd.		Singapore
Allscripts Healthcare IT (Australia) PTY. LTD.		Australia
dbMotion Ltd.		Israel
AixConcept Gmbh		Germany
Mid America Computer Corporation		Nebraska
Capitol Appraisal Group, LLC		Texas

Entity Name		Governing Jurisdiction
Jonas Operating Group:
Gary Jonas Computing Ltd.		Canada
Jonas Software USA LLC		Delaware
Jonas Software NZ Limited		New Zealand
SMS Software Holdings LLC		Delaware
Diamond Touch Inc.		Texas
Greycon Limited		England and Wales
Greycon North America Inc.		Alabama
Happen Business Pty Ltd.		Australia
Jonas Computing (UK) Ltd.		England and Wales
Youbill, Inc.		Pennsylvania
Automatic Netware Limited		Ireland
London & Zurich Limited		England and Wales
97 Display LLC		North Carolina
CRB Solutions Limited		Scotland
Innosoft Canada Inc.		Ontario
Computrition Inc.		California
Gladstone Limited		England and Wales
EZ Facility Inc.		Delaware
Gladstone MRM Limited		England and Wales
Jonas Fitness Inc.		Delaware
Kestral Computing Pty Limited		Australia
Shortcuts Software Pty Limited		Australia
Magic Pulse Ltd.		New Zealand
Shortcuts Software (UK) Limited		England and Wales
Shortcuts Software Inc.		Delaware
Salon Software Solutions Limited		England and Wales
Kitomba Australia Pty Ltd.		Australia
MCR Systems Limited		England and Wales
Resolve Software Group Pty Ltd.		Australia
Cunningham Cash Registers Limited		England and Wales
Ineo Intermediate Holdings LLC		Delaware
Ineo LLC		Colarado
Ineo Management LLC		Florida
Ineo Financial Solutions, LLC		Colarado
Ineo Tax Services, LLC		Connecticut
Easit, AB		Sweden
Jonas Collection and Recovery Inc.		Delaware
Magalink S.A.		Uruguay
GXC S.A.		Uruguay
AMT-Sybex (Software) Limited		Ireland
AMT-Sybex Limited		England and Wales
Lean Software Services, Inc.		Ontario
Common Cents Solutions Inc.		Mississippi
XN Leisure Systems Limited		England and Wales
Bluestar Software Limited		England and Wales
InReach LLC		Delaware
Impos Solutions International Pty Ltd.		Australia
Uniware Systems Limited		England and Wales
Jonas Holdings LLC		Delaware

 

 

5

---

Entity Name		Governing Jurisdiction
Vela Operating Group:
Emphasys Computer Solutions, Inc		Michigan
acQuire Technology Solutions Pty Ltd		Australia
Aurum Software Ltda.		Brazil
Proenco AS		Norway
Metech Holding Pty Ltd.		Australia
Application Oriented Designs Inc.		Florida
Sympro Inc.		California
Friedman Corporation		Illinois
Friedman Software Canada Inc.		Ontario
Varsity Logistics Inc.		California
Vela Software International Inc.		Ontario
Vela Software Ireland Limited		Ireland
Markinson Business Solutions Pty Ltd.		Australia
Markinson Software Solutions Pty Ltd.		Australia
Markinson Services Pty Ltd.		Australia
Juniper Consulting, S.L.		Spain
ASA Automotive Systems Inc.		Delaware
A&W Software GmbH		Germany
Freestyle Software Inc		Delaware
Nedsense Nedgraphics B.V.		Netherlands
NedGraphics Inc.		Delaware
Megabus Software Pty Ltd.		Australia
Datamine Corporate Limited		England and Wales
Datamine International Limited		England and Wales
Datamine Africa (Pty) Limited		South Africa
CAE Datamine Peru S.A.		Peru
Computer Engineering Inc.		Missouri
IN2 d.o.o.		Croatia
IGEA d.o.o		Croatia
Optitex Ltd.		Israel
IN2data d.o.o.		Croatia
Datamine Australia Pty Ltd.		Australia
Petrosys Pty Ltd.		Australia
Juniper Technologies Corporation		Florida
Future Business Systems Pty. Ltd.		Australia
Tecplot Inc.		Washington
Halcom d.d.		Slovenia
Atex Pty Ltd.		Australia
Atex Media Limited		England and Wales
Polopoly AB		Sweden
Atex Global Media S.a.r.l.		France
Atex Media Command AB		Sweden
Privredno drustvo Halcom a.d.		Serbia
Novatech AS		Norway
Financial Risk Solutions Limited		Ireland
Apparel 21 Pty Ltd.		Australia
TPF Software Inc.		New Jersey
Icorp S.A.		Uruguay
Tensibur S.A.		Uruguay
ProShip Inc.		Delaware
FACTON Gmbh		Germany
FACTON Inc.		Delaware
Kurier Tecnologia Em Informacao S.A.		Brazil
Compusense Inc.		Ontario
CrescentOne, Inc.		Delaware
Reprise Software, Inc.		Delaware
Infinity Software Inc.		Delaware
RayenSalud SpA		Chile
Independent Solutions Pty Ltd.		Australia
Datamine Brasil Solucoes em Technologia Ltda.		Brazil
PT Datamine Software Indonesia		Indonesia
Vela Netherlands Holding B.V.		Netherlands
Ricardo Simulation Inc.		Michigan
Logan Systems, Inc.		North Carolina
ITS Computing Limited		England and Wales
Asesorias Computacionales NeoSoft SpA		Chile

Entity Name		Governing Jurisdiction
Perseus Operating Group:
Constellation Homebuilder Systems Inc.		Delaware
Perseus Group Software Corp.		Ontario
CAKE Software Inc.		Delaware
C Systems Software Inc.		Texas
G1440 Inc.		Delaware
Z57, Inc.		California
Clinical Computing Inc.		Ohio
Dealer Information Systems Corporation		Washington
Majiq Inc.		Delaware
POMS Corporation		Delaware
Ideal Computer Systems Inc.		Iowa
Constellation Web Solutions Inc.		Delaware
Quantitative Medical Systems, Inc.		California
IDS Software Inc.		North Carolina
Zurple, Inc.		Delaware
Ibcos Holding Limited		England and Wales
Constellation Enterprise Online Inc.		Delaware
Tune, Inc.		Delaware
Constellation Mortgage Solutions Inc.		Delaware
Charter Software Solutions Inc.		Delaware
Selectapension (2013) Limited		England and Wales
Selectapension Limited		England and Wales
Constellation R.O. Writer Inc.		Delaware
Contour Software (Private) Limited		Pakistan
Top Producer Software Corp.		Ontario
ReverseVision, Inc.		Delaware

 

 

6

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Entity Name		Governing Jurisdiction
Topicus.com Operating Group* :
Topicus.com Inc.**		Ontario
Topicus.com Cooperatief U.A.		Netherlands
Total Specific Solutions (TSS) B.V.		Netherlands
TSS Europe B.V.		Netherlands
TSS Management B.V.		Netherlands
ACA Groep Holdings B.V.		Netherlands
ACA Fashion Software B.V.		Netherlands
Notarissoftware Nederland B.V.		Netherlands
Baratz Servicios de Teledocumentacion S.A.		Spain
KZA B.V.		Netherlands
PharmaPartners B.V.		Netherlands
H.I. Systems B.V.		Netherlands
PinkRoccade Healthcare B.V.		Netherlands
PinkRoccade Healthcare Gezondheidszorg B.V.		Netherlands
PinkRoccade Local Government B.V.		Netherlands
Blueriq B.V.		Netherlands
Stadsbeheer B.V.		Netherlands
Kred’IT B.V.		Netherlands
Quantaris B.V.		Netherlands
Vicrea Solutions B.V.		Netherlands
NCCW B.V.		Netherlands
Itris B.V.		Netherlands
Magenta Multimedia Tools B.V.		Netherlands
Niveo B.V.		Netherlands
Prequest Nederlands B.V.		Netherlands
Accountancy Portal Solutions B.V.		Netherlands
Windex Bedrijfssoftware B.V.		Netherlands
Emergo Systems B.V.		Netherlands
Cosoluce SAS		France
Heliantis SAS		France
Infoflex Data AB		Sweden
Prohandel Gmbh		Germany
Forsikringens DataCenter A/S		Denmark
CCI Groep B.V.		Netherlands
Total System Development B.V.		Netherlands
KMO Solutions B.V.		Netherlands
Notubiz Nederland B.V.		Netherlands
Notuleerservice Nederland B.V.		Netherlands
NotuBiz Belgium bvba		Belgium
Hercules Social Housing B.V.		Netherlands
Divide B.V.		Netherlands
Mediamaestro Oy		Finland
Ergovia Gmbh		Germany
SpraakLab B.V.		Netherlands
Tri-ennium Software B.V.		Netherlands
Korton Software B.V.		Netherlands
Total Specific Solutions Germany GmbH		Germany
Civity B.V.		Netherlands
OneTrail B.V.		Netherlands
Onetrail UK Ltd.		England and Wales
Nostradamus ICT B.V.		Netherlands
Square Information Solutions B.V.		Netherlands
Microcash Retail B.V.		Netherlands
Vlot Systemen B.V.		Netherlands
Quality Positioning Services (Q.P.S.) B.V		Netherlands
QPS Canada Inc.		New Brunswick
Quality Positioning Services Inc.		Delaware
BCT Holding B.V.		Netherlands
Dynamic Software D.S. N.V.		Belgium
IDT Capture B.V.		Netherlands
BCT Deutschland Gmbh		Germany
BCT B.V.		Netherlands
Oravision B.V.		Netherlands
Pro/Future B.V.		Netherlands
BCT bv		Belgium
Alcuin Software SAS		France
Datamed SA		Switzerland
Ofimática TSS S.L.		Spain
RTS Remote Terminal System Srl		Italy
Espacio Information Technology S.A.		Spain
FDT-System AB		Sweden
TSS Denmark ApS		Denmark
SCH-lab ApS		Denmark
Helios Auto ApS		Denmark
Administrationsse Iskabet af 1. Oktober 2003 ApS		Denmark
Helios Auto AS		Norway
Schilling ApS		Denmark
Mediamaestro Holding B.V.		Netherlands
isp-insoft Gesellschaft für Entwicklung und Vertrieb individueller
Software GmbH		Germany
GeoSoftware C.V		Netherlands
GeoSoftware B.V.		Netherlands
Geosoftware LLC		Delaware
Algardata—Sistemas Informaticos, S.A.		Portugal
Unykvis, Lda.		Portugal
Airdesk Unipessoal Lda.		Portugal
Gesinf S.r.l.		Italy
Geoactive Ltd.		Scotland
RiskSpectrum AB		Sweden
Total Specific Solutions (TSS) , Unipessoal Lda.		Portugal
Ubika Holding SAS		France
UBIKA SAS		France
Convenient Online B.V.		Netherlands
Convenient Fastguide B.V.		Netherlands
Intramed B.V.		Netherlands
Transport en Automotive Network Systems (T.A.N.S.) B.V.		Netherlands
Scope Solutions AG		Switzerland
Sygnity S.A.***		Poland
Sygnity Business Solutions S.A.***		Poland
Geomar S.A. w Upadlosci***		Poland
PINK ZLC B.V.		Netherlands
TTE-Europe Gmbh		Germany
V-D-V Gmbh		Germany
Alfa Automatisering B.V.		Netherlands
Jungo B.V.		Netherlands

Entity Name		Governing Jurisdiction
Topicus.com Operating Group* :
Topicus.com Inc.** (continued)		Ontario
Topicus.com Cooperatief U.A. (continued)
TSS Nordic AB		Sweden
Ping Pong AB		Sweden
Evolution Commerce		Sweden
M.Soft, S.A.U.		Spain
Prek Service AB		Sweden
Felix Informatique SAS		France
TSS Finland Oy		Finland
Arter Oy		Finland
Futunio Oy		Finland
Metamicro SAS		France
Salvia Holding SAS		France
Salvia Développement SAS		France
SRCI SAS		France
Alteva SAS		France
Technidata SAS		France
Technidata France SAS		France
Services Technidata Canada Inc.		Quebec
Technidata Medical Software Engineering
GmbH		Germany
Technidata America Medical Software LLC		Arizona
Technidata UK Ltd.		England and Wales
Technidata Benelux B.V.		Netherlands
Technidata Italia Srl		Italy
Technidata Asia		Phillippines
Technidata Inc.		Phillippines
Technidata Ltd.		Hong Kong
wiko Business Academy GmbH		Germany
Wiko Bausoftware GmbH		Germany
Yonder Nederland B.V.		Netherlands
Yonder SRL		Romania
TPCS Holding B.V.		Netherlands
Topicus.com B.V.		Netherlands
Topicus Management B.V.		Netherlands
TSS France SAS		France
Biomedical Data Solutions Ltd.		England and Wales
Sanguin International Inc.		Connecticut
Spyro Software S.L.U		Spain
A.P. SYSTEM S.r.l.		Italy
Nextip S.r.l.		Italy
Tribofilm SAS		France
IQDoQ Gmbh		Germany
Dobrick + Wagner Softwarehouse Gmbh		Germany
Easysoft, Gmbh		Germany
TSS Deutschland Gmbh		Germany
TSS Blue Dynasty Holding ehg		Iceland
dk Hugbunaour ehf		Iceland
dkvistun ehf.		Iceland
Nextip Network Communications S.r.l.		Romania
Topicus Onderwijs Holding B.V.		Netherlands
NETiKA Real Estate Solutions N.V.		Belgium
DEDACT B.V.		Netherlands
Topicus Security B.V.		Netherlands
NETiKA Solutions Immobilieres SAS		France
TSS France Bidco SAS		France
Adapt Informatique SAS		France
Topicus Finance B.V.		Netherlands
Topicus Finance Holding B.V.		Netherlands
TSS Prime Oy		Finland
Passfield Data Systems Limited		England and Wales
TSS Blue Youth Holding sp.z o.o.		Poland
Simple S.A.		Poland
Topicus B.V.		Netherlands
Topicus Zorg Holding B.V.		Netherlands
Calculus Software B.V.		Netherlands
Proigia B.V.		Netherlands
Topicus Healthcare B.V.		Netherlands
Simple Invest sp.zo.o.		Poland
Medinet Systemy Informatyczne sp.zo.o		Poland
Topicus Overheid Holding B.V.		Netherlands
Topicus Overheid B.V.		Netherlands
Simple Locum Sp.zo.o.		Poland
Topicus Education B.V.		Netherlands
Fortion Holding B.V.		Netherlands
Topicus Ambulancezorg B.V.		Netherlands
Oil Creek Innovation Netherlands B.V.		Netherlands
GS Holding B.V.		Netherlands
Geosoftware Holdings Inc.		Ontario
Geosoftware LP		Ontario
GS GP Holdings Inc.		Ontario
Geosoftware Sdn. Bhd.		Malaysia
PT Geosoftware Indonesia		Indonesia
Geosoftware Technology Services (Beijing)
Co., Ltd.		China
Offmatica TSS S.L.		Spain
Total Specific Solutions Spain S.L.U.		Spain
Systeme Conseils Etudes Produits
Informatiques Appliques SAS		France
TSS Italy		Italy
Sicon Software Limited		England and Wales
Sicon Limited		England and Wales
Lusoinfo II Multimedia S.A.		Portugal
Waer Holdings Limited		England and Wales
Waer Systems Limited		England and Wales
Convenient B.V.		Netherlands
TSS France Bidco 1 SAS		France
Fashion ERP Europe B.V.		Netherlands
TANS Belgium bvba		Belgium
Enhandel sp.z o.o.***		Poland
Empire Top Holding B.V.		Netherlands
Empire Holding B.V.		Netherlands
Pantheon Automatisering		Netherlands
Dresden Informatik Gmbh		Germany
g.on experience Gmbh		Germany
Topicus Onderwijs Eduarte B.V.		Netherlands
PBTC (Powered by the Crowd) B.V.		Netherlands

 

 

*	Constellation Software, owns 100% of the Super Voting Shares, 48.13% of the subordinate voting shares of Topicus.com Inc, the parent company of the Topicus.com Operating Group.

**	Topicus.com Inc. owns 63.07% of the Ordinary Units of Topicus.com Cooperatief U.A.

***	Topicus.com Cooperatief has an effective ownership of 72.68% in Sygnity.

 

7

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GENERAL DEVELOPMENT OF THE BUSINESS

Overview

Constellation Software Inc. is a global provider of enterprise software solutions serving a variety of distinct vertical markets.

Effective in 2020, we have aggregated our six operating groups into one reportable segment, consistent with the objectives and basic principles of IFRS 8.

As at March 29, 2023, the vertical markets in which we participate include:

 

Public transit operators		Asset management		Municipal systems
Para transit operators		Fleet and facility management		School administration
School transportation		District attorney		Public safety
Non-emergency medical		Taxi dispatch		Healthcare
Ride share		Benefits administration		Rental
Local government		Insurance		Electric utilities
Agri-business		Collections management		Court
Marine asset management		Water utilities		School and special library
Communications		Credit unions		Drink distribution
Education		Financial services		Notaries
Fashion retail		Pharmacies		Long-term care
Home and community care		County systems		Research management
Retail management and distribution		Public housing authorities		Not-for-profit organizations
Automotive		Accountancy		Catering
Small and medium sized businesses		Property management		Food services
Creative agencies		Commercial printing		Horticulture
Event management		Distillery		Hospitality
Manufacturing plant performance		Advertising and marketing		Project management
Quality management		Real estate brokers and agents		Compliance
Private clubs and daily fee golf courses		Lease management		Window manufacturers
Construction		Winery management		Cabinet manufacturers
Aerospace		Buy here pay here dealers		Made-to-order manufacturers
Health clubs		RV and marine dealers		Window and other dealers
Moving and storage		Pulp and paper manufacturers		Multi-carrier shipping
Metal service centers		Agriculture equipment dealers		Supply chain optimization
Attractions		Outdoor equipment dealers		Multi-channel distribution
Leisure centers		Ombudsman		Wholesale distribution
Human resources and payroll		Healthcare electronic medical records		Homebuilders
Radiology and laboratory information systems		Pharmaceutical and biotech manufacturers		Third party logistics warehouse management systems
Product licensing		Marinas		Grocery
Tire distribution		Salons and spas		Association management
Housing finance agencies		Municipal treasury and debt systems		Mining
Tour operators		Auto clubs		Publishing
Design and welding		Textiles and apparel		Oil and gas
Legal		Logistics		Aviation
Industrial distribution		Public libraries		Speech recognition

 

8

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Trade unions		Computerized maintenance management systems		Defense
Customer loyalty		Human capital		Auctions
Call Centers		Church and religion		Cinema management and ticketing
Data management		Elevator		Engineering
Enterprise resource planning		Marketplace		Product development
Safety management		Sensory and research		Student information systems
Airport		Arts and culture		Automated explosives tracking
Convenience store distribution		Document management		Engineering and simulation
ESG		Information services		Membership and associations management
Project cost and performance management		Risk management		Software development
Speech recognition		Trucking		Veterinary

Acquisitions

During the year ended December 31, 2022, the Company completed a number of acquisitions for aggregate cash consideration of $1,633 million plus cash holdbacks of $189 million, and contingent consideration with an estimated fair value of $53 million, resulting in total consideration of $1,875 million.

Topicus.com Inc.:

On December 31, 2013, the Company acquired 100% of the shares of Netherlands based Total Specific Solutions (TSS) B.V. (“TSS”). TSS is one of the largest vertical market software (“VMS”) businesses based in the Netherlands, with offerings for the general practitioner, pharmacy, long term care, mental care, property tax and civil affairs markets. It also owns several non-VMS businesses, primarily involved in information technology services. Total consideration for the transaction was €240 million before adjusting for net tangible asset adjustments and claims under the representations and warranties of the purchase and sale agreement. The Company filed a business acquisition report on Form 51-102F4 in respect of the acquisition of TSS on March 6, 2014. On December 23, 2014, in accordance with the terms of the purchase and sale agreement for the TSS acquisition, the sellers of TSS along with certain members of TSS’ executive management team (collectively, the “Minority Owners” or the “Joday Group”) entered into a members agreement with CSI (the “Members Agreement”) pursuant to which the Minority Owners acquired 33.29% of the voting interests in Constellation Software Netherlands Holdings Cooperatief U.A. (the “Coop”). Proceeds from this transaction in the amount of €39.4 million (US$48.5 million) were utilized to repay, in part, a term loan facility obtained for the purpose of funding the TSS acquisition. In accordance with IFRS, 100% of the financial results for TSS are included in the consolidated financial results of the Company. Prior to January 5, 2021, each of the Minority Owners had the right, at any time, to exercise a put option to sell all or a portion of their interests in the Coop back to CSI for an amount calculated in accordance with a valuation methodology described within the Members Agreement. Accordingly, the Company classified the proceeds from the Members Agreement as a liability. The main valuation driver in such calculation is the maintenance and other recurring revenue of the Coop. Upon the exercise of a put option, Constellation would have been obligated to redeem up to 33.33% of the Minority Owners’ interests that were subject to the put, no later than 30 business days from the date the notice was received (classified as a current liability), and up to 33.33% on each of the first and second anniversaries of the date the first redemption payment was made. Commencing at any time after December 31, 2023, CSI was entitled to exercise a call option to purchase all of the Minority Owners’ interests in the Coop, for an amount calculated in accordance with a valuation methodology described within the Members Agreement. Upon exercise of the call option, the full purchase price would have been paid within 30 business days of the notice date, following which the Minority Owners’ membership in the Coop would be terminated. There was a valuation premium if the call option was exercised versus the put option.

 

9

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On January 4, 2021 (in anticipation of the acquisition of Topicus.com B.V. (“Topicus B.V.”) described further below), the Company’s subsidiary, the Coop, which principally held the TSS Operating Group, completed a corporate reorganization. In conjunction with the reorganization, the following steps were completed:

 

•

The Coop changed its name to Topicus.com Coöperatief U.A. (“Topicus Coop”).

 

•

The Company exchanged its existing equity interest in Topicus Coop for an equity interest in Topicus.com Inc. and Topicus.com Inc. became the new parent company of Topicus Coop. The Company received 39,412,385 preferred shares and 39,412,385 subordinate voting shares of Topicus.com Inc. The preferred shares are convertible into subordinate voting shares of Topicus.com Inc. at a rate of 1:1.

 

•

Topicus.com Inc. had 39,412,385 subordinate voting shares outstanding on January 4, 2021. The Company distributed 39,412,367 of the subordinate voting shares to its common shareholders pursuant to the dividend-in-kind and continues to hold 18 subordinate voting shares.

 

•

The Company holds 1 super voting share of Topicus.com Inc. The super voting share entitles the holder to that number of votes that equals 50.1% of the aggregate number of votes attached to all the outstanding super voting shares and subordinate voting shares of Topicus.com Inc. As a result, the Company controls Topicus.com Inc. and will consolidate its financial position and results of operations with Topicus.com Inc. The Company will reflect a non-controlling interest held by other parties.

On May 20, 2020, the Company entered into a binding agreement, subject to certain closing conditions, with IJssel B.V. (the “Seller”) to purchase 100% of the shares of Topicus B.V., a Netherlands-based diversified vertical market software provider. On January 5, 2021, the Company completed this transaction. Annual gross revenues of Topicus B.V. for 2019 were approximately €101 million and total tangible assets at December 31, 2019 were approximately €7 million. In connection with the acquisition the Company paid cash of €133.6 million. Furthermore, Topicus Coop issued 5,842,882 preferred units of Topicus Coop to the Seller for an initial subscription price of €83.8 million plus an additional subscription amount of €27.589 million which will be owed by the Seller to Topicus Coop and payable to Topicus Coop under certain conditions. Topicus Coop also issued 5,842,882 ordinary units of Topicus Coop to the Seller. The aggregate estimated total consideration is €217.400 million. Under certain conditions, the preferred units were retractable at the option of the holder for a retraction price of approximately €19.06 per unit and were classified as a liability on the balance sheet of Topicus.com Inc. and the Company. The preferred units were also convertible into ordinary units of Topicus Coop at a conversion ratio of 1:1 and the ordinary units are exchangeable for Topicus.com Inc. subordinate voting shares at a conversion ratio of 1:1. The preferred unit holders were also be entitled to a fixed annual cumulative dividend of 5% per annum. On February 1, 2022, the preferred units were converted to ordinary units of Topicus Coop.

On January 5, 2021, the parties to the Members Agreement agreed to terminate such Members Agreement, and it was replaced by an Investor Rights and Governance Agreement (“IRGA”).

 

10

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The IRGA contains special provisions between the Company and the Minority Owners, including put options and call options applicable to units of Topicus Coop that are held by the Minority Owners as of January 5, 2021 (and any units or shares into which such units or shares have been converted or exchanged). The Minority Owners include Joday Investments II B.V., an entity controlled by Robin van Poelje (a director of the Company and the Chairman of the board of directors of Topicus.com Inc.) and Tjitske Strikwerda. Commencing any time after January 5, 2021, each of the Minority Owners may (i) exercise a put option to sell all or a portion of their interests in Topicus Coop, (ii) in the event of a change of control of the Company, sell all or a portion of their interests in Topicus Coop, and (iii) in the event the Company reduces its economic interest in Topicus.com Inc., sell the corresponding amount of their interests in Topicus Coop, in each case, to the Company for an amount calculated in accordance with a valuation methodology described in the IRGA. At any time after December 31, 2023, CSI has the right, at its option, to buy all of the Topicus Coop units and Topicus shares held by certain members of the Joday Group (excluding Joday Investments II B.V.) at a cash price per Topicus Coop unit determined in accordance with the IRGA. After December 31, 2043, CSI has the same right to buy all of the Topicus Coop units held by the remaining members of the Joday Group, including Joday Investment II B.V. Similar to the Members Agreement, the main valuation driver in such calculation is the maintenance and other recurring revenue of Topicus Coop. This summary is qualified in its entirety by reference to the provisions of the IRGA, which is available at www.sedar.com on Topicus.com Inc.’s issuer profile.

Lumine Group Inc.:

On February 22 and 23, 2023 (as part of a series of transactions relating to the acquisition of WideOrbit Inc. (“WideOrbit”) described further below), the Company’s subsidiary, Lumine Group Inc. (“Lumine”), completed a corporate reorganization. After the reorganization was completed, the Company now owns 1 super voting share, 6 subordinate voting shares and 63,582,712 preferred shares of Lumine. Furthermore, the Company distributed 63,582,706 of the subordinate voting shares to its common shareholders pursuant to a dividend-in-kind on February 23, 2022. The steps performed in conjunction with the reorganization consisted of the following:

 

•

The Company exchanged its existing common shares and preferred shares in Lumine Group (Holdings) Inc. (“Lumine Group Holdings”) for 63,582,712 subordinate voting shares and 55,233,745 preferred shares of Lumine on February 22, 2023.

 

•

Lumine and Lumine Group Holdings amalgamated on February 22, 2023.

 

•

The Company subscribed for 8,348,967 preferred shares of Lumine on February 22, 2023. The preferred shares are convertible into subordinate voting shares of Lumine at a rate of 1:2.43.

 

•

Lumine had 63,582,712 subordinate voting shares outstanding on February 22, 2023. The Company distributed 63,582,706 of the subordinate voting shares to its common shareholders pursuant to a dividend-in-kind on February 23, 2022 and continues to hold 6 subordinate voting shares of Lumine.

 

•

Under certain conditions, the preferred shares are retractable at the option of the holder for a retraction price of approximately $21.74 per preferred share. The holders of the preferred shares are also entitled to a fixed annual cumulative dividend of 5% per annum.

 

•

The Company holds 1 super voting share of Lumine. The super voting share entitles the holder to that number of votes that equals 50.1% of the aggregate number of votes attached to all the outstanding super voting shares, subordinate voting shares and special shares of Lumine. As a result, the Company controls Lumine and will consolidate its financial position and results of operations with Lumine. The Company will reflect a non-controlling interest held by other parties.

 

11

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On February 23, 2023, the Company purchased 100% of the shares of WideOrbit, a US-based vertical market software provider. Annual gross revenues of WideOrbit for 2022 were approximately $169 million. The gross purchase price for the transaction was $490 million, subject to customary adjustments, as a result of, but not limited to, minimum cash requirements of $10 million, target net indebtedness of $86.7 million, and claims under the representations and warranties of the purchase agreement. The Company has the ability to reduce the cash portion of the purchase consideration by $10 million for net indebtedness up to $96.7 million. If net indebtedness is greater than $96.7 million, excess repayment would be funded by the Company and added to the gross purchase price. Furthermore, Lumine issued 10,204,294 special shares of Lumine to the sellers of WideOrbit for an initial subscription price of approximately $222 million which will be included in the purchase consideration. Under certain conditions, the special shares are retractable at the option of the holder for a retraction price of approximately $21.74 per special share plus one subordinate voting share of Lumine for each special share held and will be classified as a liability on the balance sheet of Lumine and the Company. The special shares are also convertible into subordinate voting shares of Lumine at a conversion ratio of 1:3.43 at any time. The holders of the special shares are also entitled to a fixed annual cumulative dividend of 5% per annum.

On December 12, 2022, the Company, Trapeze Software ULC and Eric Mathewson and certain investors affiliated therewith (collectively, the “Majority Rollover Shareholders”) entered a shareholders agreement (the “Shareholders Agreement”). Any Sellers who were not Majority Rollover Shareholders (collectively, the “Minority Rollover Shareholders”) became parties to the Shareholders Agreement pursuant to joinders entered into in connection with the issuance of special shares described above. The Shareholders Agreement includes a number of contractual provisions which impact the exercise by the Company, Trapeze Software ULC, the Majority Rollover Shareholders, Minority Rollover Shareholders and Lumine, as applicable, of certain rights and obligations. This summary is qualified in its entirety by reference to the provisions of the Shareholders Agreement, which is available at www.sedar.com on Lumine Group Inc.’s issuer profile.

Rights Offerings

In 2014, the Company completed a rights offering (the “2014 Rights Offering”) pursuant to which each holder of Common Shares was issued one right for each Common Share held. For every 21.192 rights held, holders of rights were entitled to subscribe for C$100 principal amount of unsecured subordinated floating rate debentures, Series 1 of the Company at a price of C$95 per C$100 of principal amount of Debentures purchased.

On October 1, 2014 and November 19, 2014, the Company issued two tranches of Debentures in connection with the 2014 Rights Offering, with a total principal amount of C$96.0 million for total proceeds to the Company of C$91.2 million. The proceeds were used by the Company to pay down $81.2 million of its existing bank indebtedness.

In 2015, the Company completed another rights offering (the “2015 Rights Offering”) pursuant to which each holder of Common Shares was issued one right for each Common Share held. For every 10.596 rights held, holders of rights were entitled to subscribe for C$100 principal amount of unsecured subordinated floating rate debentures, Series 1 of the Company at a price of C$115 per C$100 of principal amount of Debentures purchased.

On September 30, 2015, the Company issued one tranche of Debentures in connection with the 2015 Rights Offering with a total principal amount of C$186.2 million for total proceeds to the Company of C$214.1 million. The proceeds were used by the Company to pay down its existing bank indebtedness. The Debentures issued in connection with the 2015 Rights Offering were issued as an additional tranche of, and are treated as a single series with, the outstanding C$96.0 million aggregate principal amount of Debentures issued in connection with the 2014 Rights Offering.

 

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See “Description of Capital Structure – Debentures”.

DESCRIPTION OF THE BUSINESS

Overview

We acquire, manage and build VMS businesses. Generally, these businesses provide mission critical software solutions that address the specific needs of our customers in particular vertical markets. Our focus on acquiring businesses with growth potential, managing them well and then building them has allowed us to generate significant cash flow and revenue growth.

Using a combination of proprietary software and market expertise, we provide software solutions designed to enable our customers to boost productivity, operate more cost effectively, increase sales and improve customer service and satisfaction.

Many of the VMS businesses that we acquire have the potential to be leaders within their particular markets. We target the VMS sector because of the attractive economics that it provides and our belief that our management teams have a deep understanding of those economics.

Business Strategy

Given our extensive acquisition experience and successful track record, we believe that we are well positioned to identify, acquire, manage and build attractive VMS businesses in new markets. We seek acquisitions that provide software solutions to either the public or private sectors.

When one of our acquired VMS businesses is being operated efficiently, we encourage their management to build their business through a combination of organic growth and acquisitions of other VMS businesses in the same vertical market. We often enter new vertical markets through acquisitions of VMS businesses in markets in which we do not currently operate.

We believe that we will continue to expand our existing businesses through organic growth initiatives aimed at increasing our market share and product breadth. We will also continue to identify and complete acquisitions in our existing vertical markets. Our decentralized VMS management teams have extensive knowledge of their markets and deep customer relationships. This enables them to successfully identify, pursue, structure, acquire and then coach businesses post-acquisition.

We also seek to acquire attractive VMS businesses in new markets to deploy our free cash flow at attractive returns. Historically, we have retained the majority of the managers from the businesses that we have acquired, which has allowed us to retain the knowledge needed to manage and successfully build these businesses.

Our VMS businesses typically generate significant cash flows which we redeploy to build our existing VMS businesses and acquire new ones.

We prefer to acquire VMS businesses with the following characteristics: Growing business with a diversified customer base, high relative market share and capital constrained competitors. We sometimes acquire VMS businesses with declining revenue, concentrated customer bases, low relative market share and well-funded competitors. We do so when we believe that the correct combination of customer relationship management and market segmentation will lead to attractive returns.

 

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Our decentralized management structure is key to our continued revenue growth. We have experienced management teams operating in each VMS business, backed by infrastructure at the operating group level and a small corporate head office. The corporate head office provides financial and strategic expertise with respect to capital allocation, acquisitions, finance, tax, and compensation policy, and attempts to identify and share best practices.

We have six operating groups which currently service customers in more than 125 different vertical markets worldwide. There are many VMS business units within each of our operating groups. Each VMS business unit has a manager and separately tracked financial reporting. We monitor and measure each VMS business unit’s performance through operating ratios and metrics including profitability and growth. The majority of our senior managers’ incentive compensation is linked to these two performance metrics.

Each of our VMS business managers is motivated to administer their business in a highly-focused manner. They are encouraged to leverage their respective market knowledge in order to maximize the growth opportunities, profitability and return on invested capital within their business. Our corporate head office sets investment return objectives.

Our decentralized management structure allows us to have business unit management teams with strong customer relationships and deep market knowledge that are more focused and responsive than would be the case under a centralized management model. These teams provide our corporate head office and operating group managers with the ability to concentrate on issues such as capital allocation, identifying best practices, and helping recruit and coach high potential employees, while the VMS business managers concentrate on operating efficiency, and pursuing organic initiatives and acquisitions in our existing vertical markets.

We establish from time to time, what we consider to be an acceptable after-tax internal rate of return (“IRR”) as a hurdle rate for all of our new initiatives and acquisitions.

All of our operating group cash flow (excluding operating cash flows from those entities which have stand-alone debt without recourse to Constellation Software Inc.) is notionally available to our corporate head office. Capital is allocated amongst individual management teams based upon projected IRR which is influenced by the relative attractiveness of a market, the strategic position of the VMS business and the management team’s performance. Corporate head office approves all acquisitions that involve the investment of more than $20 million, unless certain criteria are met for acquisitions between $20 million and $50 million. In practice, the operating group cash flow is offset against their approved investments in acquisitions and internal investment initiatives and only the remainder is returned to head office.

The objective of our compensation plan is to reward employees for working towards our corporate goal of increasing shareholder value. We believe that shareholder value is created by managing two financial components over the long term: profitability and growth. As such, our bonus plan compensates employees at many levels of our organization based upon the profitability and revenue growth of their operating group or business unit, as applicable. The long-term focus is accomplished by mandating that at least 25% of the incentive compensation for the majority of our senior employees who earn in excess of $75,000 per annum and have bonuses in excess of $10,000 per annum be reinvested in shares of the Company that are subject to restrictions on resale for a period of three to ten years. At a minimum, these restrictions require employees to hold 100% of their shares for the first two years following acquisition, and then one third of such shares may be sold in each of years three, four and five. Senior executives are required to invest 75% of their bonus in shares of the Company that are subject to the same restrictions on resale for a period of three to ten years. Once every five years, employees may elect to receive 100% of their bonus in cash.

 

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Our bonus plan encourages employees to participate through share ownership in the value that they have created.

Operating Groups

The primary geographic markets that CSI operates in are North America, Continental Europe, UK, South America, Africa, and Australia (“Primary Geographic Markets”). The following table shows, as at March 29, 2023, our six operating groups, the Primary Geographic Markets, location of significant offices, and the primary vertical markets in which they operate:

 

Operating Group		Primary Geographic Markets		Location of Significant Offices		Primary Vertical Markets
Volaris Operating Group		North America, Continental Europe, UK, Australia, South America, Africa		Canada, United States, Italy, Germany, India, United Kingdom, Brazil, Switzerland, New Zealand, Austria, France, Israel, South Africa, Sweden		Accountancy Advertising and marketing Agribusiness Arts and culture Asset management Automotive Benefits administration Catering
						Clubs Collections management
						Commercial printing Communications Compliance Construction Court Creative agencies Credit unions Data management Distillery District attorney Document management Drink distribution Education Engineering Event management Financial services Fleet and facility management Food services Healthcare Higher education Hospitality

 

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Operating Group		Primary Geographic Markets		Location of Significant Offices		Primary Vertical Markets
						Human resources and payroll Industrial distribution Information management Insurance Legal Local government Marine asset management
						Non-emergency medical
						Not-for-profit organizations
						Paratransit operators
						Parking Product development Property management Public housing Public libraries Public transit operators Real estate brokers and agents Rental Research management Retail management and distribution Ride share School administration
						School and special library
						School transportation
						Security Software development Student information systems Taxi dispatch Utilities
Harris Operating Group		North America, UK, Continental Europe, Australia		Canada, United States, Germany, India, United Kingdom, Israel, Australia		Accountancy Asset management Collections management Communications Construction County Data management Defense Education Electric utilities
						Financial services Fleet and facility management Food services Healthcare

 

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Operating Group		Primary Geographic Markets		Location of Significant Offices		Primary Vertical Markets
						Higher education Human capital Information services
						Legal Local government Manufacturing design Marketplace Municipal Notaries Not-for-profit organizations Project management Property management Public safety Pulp and paper manufacturing Retail management and distribution School administration School and special library Small and medium sized businesses sector Trucking Water utilities
Topicus.com Operating Group		Continental Europe, UK, North America		Netherlands, Romania, Denmark, France, Germany, United Kingdom, Iceland, Spain, Poland, Portugal		Accountancy Agribusiness Asset management Association management Automated explosives tracking Automotive Call centres Church and religion Construction Computerized maintenance management systems Data management Education Fashion retail
						Financial services
						Healthcare
						Home & community care
						Horticulture Hospitality Human capital Insurance Local government Logistics

 

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Operating Group		Primary Geographic Markets		Location of Significant Offices		Primary Vertical Markets
						Long term care Manufacturing plant performance Marine asset management Notaries Oil and gas Pharmacies Project management Public housing authorities Public libraries Public transit operators Publishing Quality management Real estate brokers and agents Retail management and distribution Risk management Speech recognition Textiles and apparel Third party logistics and warehouse management systems Trade unions
Jonas Operating Group		North America, UK, Continental Europe, Australia		Canada, United States, United Kingdom, Australia, New Zealand		Advertising and marketing Agribusiness Asset management Attractions Auctions Cinema management and ticketing Construction Customer loyalty Education Enterprise resource planning Event management Field service Financial services Food services Healthcare Health clubs Higher education Hospitality Human capital Inspections and management Legal

 

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Operating Group		Primary Geographic Markets		Location of Significant Offices		Primary Vertical Markets
						Leisure centres Marinas Metal service centres Moving and storage Ombudsman Private clubs and daily fee golf courses Product licensing Public safety Pulp and paper manufacturers Radiology & laboratory information services Retail management and distribution Salons and spas Safety management Small and medium sized businesses Utilities Winery management Veterinary
Perseus Operating Group		North America, UK		Canada, United States, Pakistan		Advertising and marketing Agriculture equipment dealers Auto clubs Buy here pay here dealers Financial services Healthcare Healthcare electronic medical records Home & community care Homebuilders Lease management Long-term care Outdoor equipment dealers Pharmaceutical and biotech manufacturers Pulp and paper manufacturers Real estate brokers & agents RV and Marine Dealers Tire distribution

 

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Operating Group		Primary Geographic Markets		Location of Significant Offices		Primary Vertical Markets
Vela Operating Group		North America, UK, Continental Europe, Australia, South America		United States, Canada, Australia, Germany, Slovenia, Croatia, Spain, India, UK, Brazil		Accounting Aerospace Airport Asset management Association management Automotive Aviation Cabinet manufacturers Compliance Construction Convenience store distribution Data management Design and welding
						Document management Education Engineering and simulation software Enterprise resource planning ESG Financial services Food services Grocery Healthcare Higher education Homebuilders Housing finance agencies Human capital Insurance
						Legal Local government Logistics Made-to-order manufacturers Manufacturing design Manufacturing plant performance Membership and association management Mining Multi-carrier shipping Multi-channel distribution Municipal treasury & debt Notaries Oil and gas
						Project cost and performance management Public housing authorities Publishing

 

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Operating Group		Primary Geographic Markets		Location of Significant Offices		Primary Vertical Markets
						Real estate brokers and agents
						Research management Retail management and distribution
						Sensory and research Small and medium sized businesses sector Supply chain optimization
						Textiles and apparel Third party logistics warehouse management systems Tire distribution Tour operators and travel Wholesale distribution Window and other dealers Window manufacturers

Products

We have numerous software products that we sell, service, support and enhance. We have at least one software product in each of our vertical markets and often develop and support multiple product lines in a particular vertical market. In addition, and as a complement to our acquired and internally developed software products, we license certain technologies used in our software products from third parties, generally on a non-exclusive basis. Our products are typically designed to assist our customers in automating as many aspects of their business processes as is practical. While our strategy is to provide mission critical software solutions to all of our customers, the particular software products that we develop can vary substantially across vertical markets. For example, in the public transit market one of the mission critical aspects of the business that we help automate is the scheduling and routing of vehicles. In the private club market we focus on providing membership accounting and point of sale solutions. Our goal is to continue to focus our efforts on software products specialized for specific vertical markets.

Sales and Distribution Strategy

We use direct sales forces in most of our major markets as our primary distribution channel. We believe that direct sales teams increase our visibility and market penetration, encourage long-term customer contact and facilitate sales of additional products. Our sales and marketing teams work primarily within dedicated sales groups for each of the vertical markets that we currently serve. Our sales and marketing strategy is to provide relevant business expertise directly to target customers by using sales representatives with strong industry specific knowledge. We use a combination of field sales and inside sales where appropriate. Part of our ongoing revenue growth is achieved through selling complementary products and/or services to existing customers. We also support our sales efforts with marketing that creates awareness of our products through appearances at major trade shows, advertising in trade magazines, hosting users’ group meetings, and the creation of informative websites.

 

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Research and Development

Our product development strategy combines innovation and the introduction of new technologies, with a commitment to the long-term support of our customers’ current systems. Our research and development activities are focused on designing, developing, testing and integrating new add-on products which enhance the features and functionality of our existing software solutions. We also seek to offer streamlined upgrade and migration tools for our customers.

We rely primarily on our in-house capabilities to develop our software solutions using industry standard software development tools. However, when it is not strategic to our business and is more cost effective, we will license certain technology components from third party providers.

Intellectual Property

In accordance with industry practice, we rely on a combination of contractual provisions and patent, copyright, trademark and trade secret laws to protect our proprietary rights in our products. We generally license the use of our products to our customers rather than transferring title to them. These licenses contain terms and conditions prohibiting the unauthorized reproduction, disclosure, reverse engineering or transfer of our products. In addition, we attempt to protect our trade secrets and other proprietary information through agreements with suppliers, employees and consultants. All material components of our products have been developed by individuals most of whom have assigned all rights to us, except for commercially-available components.

Foreign Operations

For fiscal 2022, approximately 44% of our revenues were transacted in the United States, 10% in Canada, 33% in UK/Europe and 13% in the rest of the world. No single customer accounted for more than 2% of our total revenues in fiscal 2022. For more details, see the financial statement note entitled “Operating Segments” included in the consolidated financial statements for the year ended December 31, 2022, a copy of which is filed and is available on SEDAR at www.sedar.com.

Competition

Competition for the licensing of vertical market software is generally based upon several factors including product features, the availability of high-quality maintenance and support, price and the knowledge of the software vendor’s sales team. We operate in many different verticals and our competitive position varies depending on the specific vertical.

Our significant competitors include Oracle Corporation, Tyler Technologies, Inc., INFOR, Cisco Systems Inc, Nokia, Amdocs, Epic Systems Corporation, Temenos AG, Palantir Technologies, CGI Group Inc., Salesforce, Inc., Fiserv, Inc., Fidelity, Jack Henry and Associates Inc., Sage Software Inc., Accenture plc, Experian plc, Intuit, Roper Industries, Inc. and athenahealth Inc.

Employees

For fiscal 2022, we had an average of approximately 41,000 full-time employees globally. As at December 31, 2022, we had approximately 45,000 full-time employees. No union represents any of our employees in their employment relationship with us, although a number of our European businesses have workers’ councils.

 

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Risk Factors

The Company’s business is subject to a number of risk factors, including those risk factors set forth below. Additional risks and uncertainties not presently known to us or that we currently consider immaterial may also impair our business and operations and cause the price of our securities to decline. The Company’s external counsel advise us that securities regulations require that we provide a list of risk factors which might influence an investor’s decision to purchase CSI’s securities. As managers and directors, we do not believe that the next several pages of risk factors will add materially to your understanding of our business, but they are in form and substance, similar to what other companies like CSI provide. They do include quite a number of possible, though not necessarily probable, reasons for future setbacks.

We cannot assure you that we will sustain profitability in the future. If we do not maintain profits our share price may decline.

As we continue to grow our business, our operating expenses and capital expenditures may increase, and as a result, we will need to generate additional revenue to maintain profitability. If our revenues decline, we may not be able to sustain profitability because many of our expenses are fixed in the short term and cannot be easily or quickly reduced. A failure to maintain profitability could materially and adversely affect our business.

We periodically review the estimated value of acquired intangibles and goodwill to determine whether any impairment exists and we could write-down a portion of our intangible assets and goodwill as part of any such future review, which occurs when impairment indicators exist or, in the case of goodwill, at least once annually. We occasionally review opportunities to reorganize operations and may record restructuring charges in connection with any such reorganization. Any write-down of intangible assets or goodwill or restructuring charges in the future could affect our results of operations materially and adversely and as a result our share price may decline.

Our quarterly revenues and operating results may fluctuate.

Factors which may cause our revenues and operating results to fluctuate include:

 

•

the demand for our software products and the market conditions for technology spending;

 

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patterns of capital spending and changes in budgeting cycles by our customers;

 

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the timing of acquisitions and related costs;

 

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our ability to acquire or develop (independently or through strategic relationships with third parties), to introduce and to market new and enhanced versions of our software products on a timely basis;

 

•

the number, timing and significance of new software product announcements and releases by us or our competitors;

 

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the level of software product and price competition;

 

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the geographical mix of our sales, together with fluctuations in foreign currency exchange rates;

 

•

market acceptance of new and enhanced versions of our software products;

 

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changes in personnel and related costs;

 

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the amount and timing of operating costs and capital expenditures relating to the expansion of our business;

 

•

changes in the pricing and the mix of software solutions that we sell and that our customers demand;

 

•

seasonal variations in our sales cycles; and

 

•

order cancellations and shipment delays.

 

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In addition, we expect that a substantial portion of our revenue will continue to be derived from renewals of maintenance arrangements with our customers. These maintenance arrangements typically last from three months to 12 months, and the timing of cash collections of related revenues varies from quarter to quarter.

In addition, our new license revenue may fluctuate significantly on a quarterly and annual basis in the future, as a result of a number of factors, many of which are outside of our control. The sale of a new license generally requires a customer to make a purchase decision that involves a significant commitment of capital.

We may be unable to identify and complete suitable platform acquisitions and acquisitions in our existing vertical markets.

We cannot be certain that we will be able to identify suitable new acquisition candidates that are available for purchase at reasonable prices. Even if we are able to identify such candidates, we may be unable to consummate an acquisition on suitable terms. When evaluating an acquisition opportunity, we cannot assure you that we will correctly identify the risks and costs inherent in the business that we are acquiring. If we were to proceed with one or more significant future acquisitions in which the consideration consisted of cash, a substantial portion of our available cash resources may be used or we may have to seek additional financing to complete such acquisitions.

Any failure to manage our growth through acquisitions effectively or integrate other businesses we acquire may lead to a disruption in our operations and adversely affect our operating results.

Since our inception we have made hundreds of acquisitions and we plan to continue to make acquisitions in the future. Growth and expansion resulting from future acquisitions may place a significant demand on our management resources. Integration of our completed acquisitions and any future acquisitions involves a number of special risks, including the following:

 

•

failure to integrate successfully the personnel, information systems, technology, and operations of the acquired business;

 

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failure to maximize the potential financial and strategic benefits of the transaction;

 

•

failure to realize the expected synergies from acquired businesses;

 

•

possible impairment of relationships with employees and customers as a result of any integration of new businesses and management personnel;

 

•

possible losses from liabilities assumed in customer contracts;

 

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impairment of goodwill; and

 

•

reductions in future operating results from amortization of intangible assets.

Future acquisitions are accompanied by the risk that the obligations and liabilities of an acquired company may not be adequately reflected in the historical financial statements of such company and the risk that such historical financial statements may be based on assumptions, which are incorrect or inconsistent with our assumptions or approach to accounting policies. We may not be able to manage such expansion effectively and any failure to do so could lead to a disruption in our business, a loss of customers and revenue, and increased expenses.

 

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We may acquire contingent liabilities through acquisitions that could adversely affect our operating results.

We may acquire contingent liabilities in connection with acquisitions we have completed, which may be material. Although management uses its best efforts to estimate the risks associated with these contingent liabilities and the likelihood that they will materialize, their estimates could differ materially from the liabilities actually incurred.

Demand for our software solutions may fluctuate with market conditions which may reduce our profitability in the future.

We depend upon the capital spending budgets of our customers. World and regional economic conditions have, in the past, adversely affected our licensing and support revenue. If economic or other conditions reduce our customers’ capital spending levels, our business, results of operations and financial condition may be adversely affected. In addition, the purchase and implementation of our software solutions can constitute a major portion of our customers’ overall IT budget, and the amount customers are willing to invest in acquiring and implementing such software solutions has tended to vary in response to economic, financial or other business conditions. Challenging economic conditions may also impair the ability of our customers to pay for software solutions they have purchased. As a result, reserves for doubtful accounts may increase.

If our customers demand performance guarantees, the costs and risks associated with offering our software solutions may increase.

We and our competitors are sometimes requested to provide specific performance guarantees with respect to the functionality of certain aspects of our software solutions. Similarly, we have been requested to quote fixed-price bids for our software solutions. These requests present risks, because implementations of our software solutions are rarely identical, and therefore we cannot accurately predict precisely what will be required to meet these performance standards. If these guarantees and fixed price bids become more common, our profitability may be affected.

We face competition from other software solutions providers, which may reduce our market share or limit the prices we can charge for our software solutions.

Given that we serve numerous vertical markets, we face competition from a large number of competitors ranging in size from small private companies with annual revenues of less than $1 million per year to the larger enterprise resource planning vendors. As a result, in certain market segments, competition can be intense, and significant pricing pressure may exist. To maintain and improve our competitive position, we must continue to develop and to introduce, in a timely and cost-effective manner, new software solutions. In addition, we expect that a substantial portion of our revenue will continue to be derived from renewals of maintenance arrangements with our customers. Although we have experienced relatively stable and predictable attrition relating to these arrangements, increased competition could reduce the need for our maintenance services, as customers could decide to replace our software applications with a competitor’s applications or arrange for a third party to provide maintenance services.

We anticipate additional competition as other established and emerging companies enter the market for our software products and as new products and technologies are introduced. For example, companies that historically have not competed in one of our market segments could introduce new applications based on newer product architectures that could provide for functionality similar to or better than our software products. In addition, current and potential competitors may make strategic acquisitions or establish cooperative relationships among themselves or with third parties, thereby increasing the ability of their products to better address the needs of our prospective customers. This risk has increased as our industry trends toward consolidation. Accordingly, it is possible that new competitors or alliances among current and new competitors may emerge and rapidly gain significant market share. This competition could result in price reductions, fewer customer orders, reduced gross margins and loss of market share for our software products.

 

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Some of our competitors and potential competitors have greater financial, technical, marketing, and other resources, greater name recognition, and a larger installed base of customers than we do. The products of some of our competitors are based on more advanced product architectures or offer performance advantages compared with some of our more mature products. Our competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements or may devote greater resources to the development, promotion, and sale of their products than we do. Many competitive factors affect the market for our products and our ability to earn maintenance, professional services and new license revenue. Some of these factors are: vendor and product reputation; industry-specific expertise; cost of ownership; ease and speed of implementation; customer support; product architecture, quality, price and performance; product performance attributes, such as flexibility, scalability, compatibility, functionality and ease of use; and vendor financial stability.

If we cannot attract and retain qualified sales personnel, customer service personnel, and software developers, we may not be able to sell and to support our existing products or to develop new products.

We depend on key technical, sales, and senior management personnel. Many of these individuals would be difficult to replace if they were to leave our employment. In addition, our success is highly dependent on our continuing ability to identify, hire, train, assimilate, motivate, and retain highly qualified personnel, including recently hired officers and other employees. Any such new hire may require a significant transition period prior to making a meaningful contribution to the Company. Periodically, competition for qualified employees is intense in the technology industry, and we have in the past experienced difficulty recruiting qualified employees. Our failure to attract and to retain the necessary qualified personnel could seriously harm our operating results and financial condition.

Our future growth depends, in part, upon our ability to develop new products and to improve existing software products. Our ability to develop new software solutions and to enhance our existing software solutions will depend, in part, on our ability to recruit and to retain top quality software programmers. If we are unable to hire and to retain sufficient numbers of qualified programming personnel, we may not be able to develop new software solutions or to improve our existing software solutions in the time frame necessary to execute our business plan.

The loss of our rights to use software currently licensed to us by third parties could increase our operating expenses by forcing us to seek alternative technology and adversely affect our ability to compete.

We license certain technologies used in our products from third parties, generally on a non-exclusive basis. The termination of any of these licenses, or the failure of the licensors to adequately maintain or update their products, could delay our ability to ship our products while we seek to implement alternative technology offered by other sources and require significant unplanned investments on our part. In addition, alternative technology may not be available on commercially reasonable terms. In the future, it may be necessary or desirable to obtain other third-party technology licenses relating to one or more of our products or relating to current or future technologies to enhance our product offerings. There is a risk that we will not be able to obtain licensing rights to the needed technology on commercially reasonable terms, if at all.

 

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Several members of our senior management team are important to our business and if these individuals do not remain with us in the future it may have a negative impact on our financial condition and results of operations.

Our future success depends on the continued efforts and abilities of our senior management team. Their skills, experience and industry contacts significantly benefit us. Although we have employment and non-competition agreements with members of our senior management team, we cannot assure you that they or our other key employees will all choose to remain employed by us. If we lose the services of one or more of these individuals, or if one or more of them decide to join a competitor or otherwise compete directly or indirectly with us, our business, operating results, and financial condition could be harmed. We do not maintain key man life insurance on any of our employees.

We may experience customer attrition, which could affect our revenues more adversely than we expect, and we may be unable to adapt quickly to such attrition. Any significant reduction in revenues as a result of such attrition may have a material adverse effect on our business, results of operations or financial condition.

We expect that a substantial portion of our revenue will continue to be derived from renewals of quarterly and annual maintenance arrangements with our customers, and, to a lesser extent, from professional services engagements for these customers. Although we believe we have strong customer retention rates, attrition in our customer base does occur when existing customers elect not to renew their maintenance arrangements and cease purchasing professional services from us. Customer attrition occurs for a variety of reasons, including a customer’s decision to replace our software product with that of a competing vendor, to purchase maintenance or consulting services from a third-party service provider, or to forego maintenance services altogether. It can also occur when a customer is acquired or ceases operations.

Historically, we have been able to replace more than the revenue lost through attrition with new revenue from maintenance services as well as from price increases for maintenance services. However, any factors that adversely affect the ability of our software products to compete with those available from others, such as availability of competitors’ products offering more advanced product architecture, superior functionality or performance or lower prices, or factors that reduce demand for our maintenance services, such as intensifying price competition, could lead to increased rates of customer attrition.

Currency exchange rate fluctuations and other risks associated with our international operations may adversely affect our operating results.

We are subject to risks of doing business internationally, including fluctuations in currency exchange rates, increases in duty rates, difficulties in obtaining export licenses, difficulties in the enforcement of intellectual property rights and political uncertainties. Our most significant international operations are in the United States, United Kingdom, Continental Europe and Australia. We currently do not typically use derivative instruments to mitigate our exposure to those risks. Although most of our businesses are organized geographically so that many of our expenses are incurred in the same currency as our revenues thus mitigating some of our exposure to currency fluctuations, we are still subject to some foreign currency risk. We may choose to enter into forward foreign exchange contracts from time to time with the objective of mitigating volatility in profit or loss but there is no assurance that these hedging strategies will be effective.

 

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Revenues and expenses generated in foreign currencies are translated at exchange rates during the month in which the transaction occurs. We cannot predict the effect of foreign exchange losses in the future; however, if significant foreign exchange losses are experienced, they could have a material adverse effect on our business, results of operations, and financial condition. In addition, fluctuations in exchange rates could affect the pricing of our products and negatively influence customer demand.

Additional risks we face in conducting business internationally include longer payment cycles and difficulties in managing international operations. These include constraints associated with local laws regarding employment, difficulty in enforcing our agreements through foreign legal systems, complex international tax and financial reporting compliance requirements, and the adverse effects of tariffs, duties, price controls or other restrictions that impair trade.

We may have exposure to unforeseen tax liabilities.

We are subject to income taxes as well as non-income based taxes, in Canada, the United States and various foreign jurisdictions and our tax structure is subject to review by numerous taxation authorities. Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities. In the ordinary course of a global business, there are many inter-company transactions and calculations where the ultimate tax determination is uncertain. Although we strive to ensure that our tax estimates and filing positions are reasonable, we cannot assure you that the final determination of any tax audits and litigation will not be different from what is reflected in our historical income tax provisions and accruals, and any such differences may materially affect our operating results for the affected period or periods.

The Company is subject to income tax audits by various authorities in respect of prior periods that could result in additional tax expense in future periods. While the outcome of such outstanding audits and claims remains uncertain, it is expected that they will be resolved without a material impact to the Company’s financial position.

We also have exposure to additional non-income tax liabilities. We are subject to non-income taxes, such as payroll, sales, use, value-added, net worth, property and goods and services taxes, in Canada, the United States and various foreign jurisdictions.

Impact of geopolitical and other global or local events may have a significant effect on our operations.

Various events, including natural disasters, extreme weather conditions, labour disputes, civil unrest, war and political instability, terrorism, contagious illness outbreaks (including, most recently, the novel coronavirus (COVID-19)), and environmental disasters or the perceived threat or fear of these events, may cause a disruption of our normal operations, including staff shortages, mobility restrictions and other quarantine measures (including as a result of government regulation and prevention measures) and may disrupt the domestic and international travel of our sales and other personnel. The sales cycle for our products includes a period of education for potential customers on the use and benefits of our software solutions, as well as the integration of our software solutions with additional applications utilized by individual customers. Any disruption in the ability of our personnel to travel could have a material and adverse impact on our ability to complete this process and to service these customers or to negotiate new merger and acquisition transactions, which could, in turn, have a material adverse effect on our business, results of operations and financial condition. In addition, these events or the perceived threat or fear of these events may require us to reorganize our day-to-day operations to minimize the associated risks. Any expense related to the reorganization of our day-to-day operations, even on a short-term basis, could also have a material adverse effect on our business, results of operations and financial condition.

 

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The COVID-19 pandemic has had disruptive effects in countries in which we operate and has adversely impacted many of our business units’ operations to date, including through the cancellation by certain customers of their ongoing software maintenance contracts and the suspension or cancellation of new software purchases. The pandemic may also have an adverse impact on many of our customers, including their ability to satisfy ongoing payment obligations to the Company, which could increase our bad debt exposure. The future impacts of the pandemic and any resulting economic impact are largely unknown. It is possible that the COVID-19 pandemic, the measures taken by the governments of countries affected and the resulting economic impact may continue to adversely affect our results of operations, cash flows and financial position as well as its customers in future periods, and this impact could be material.

Potential divestitures of majority owned software businesses may reduce revenues in the short term and create uncertainty among our employees, customers and potential customers, which could harm our business.

Excluding spinouts, we have in the past divested one majority owned software business. Although we have not divested any material businesses in the last ten years, any divestitures could result in a short-term reduction in revenue and could harm our results of operations if we were not able to reduce expenses accordingly or to generate offsetting sources of revenue. To the extent that our consideration of these potential divestitures became known prior to their completion, we could face the risk, among others, that customers and potential customers of the VMS business in question might be reluctant to purchase our software solutions during this period. In addition, we face the risk that we may be unable to retain qualified personnel within the applicable VMS business during this period. Poor economic conditions and a lack of access to the credit markets may lead to difficulty in finding interested buyers for any proposed divestitures. These risks could prevent us from successfully completing on favourable terms, or at all, divestitures that would otherwise be beneficial to us, and may in the process weaken business divisions that we are considering for divestiture. Any of these events could result in a loss of customers, revenues, and employees and could harm our results of operations.

Some of the markets for our software products are characterized by periodic technological advances, and we must improve our software products to remain competitive.

Periodic technological change and associated new product introductions and enhancements characterize the software industry in general. Our current and potential customers increasingly require greater levels of functionality and more sophisticated product offerings. In addition, the life cycles of many of our software products are difficult to estimate. While we believe some of our software products may be nearing the end of their product life cycles, we cannot estimate the decline in demand from our customers for maintenance related to these software products. Accordingly, we believe that our future success depends upon our ability to enhance current software products and to develop and to introduce new products offering enhanced performance and functionality at competitive prices in a timely manner, and on our ability to enable our software products to work in conjunction with other products from other suppliers that our customers may utilize. Our failure to develop and to introduce or to enhance products in a timely manner could have a material adverse effect on our business, results of operations, and financial condition.

 

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We may be unable to respond on a timely basis to the changing needs of our customer base and the new applications we design for our customers may prove to be ineffective. Our ability to compete successfully will depend in large measure on our ability to bring to market effective new products or services, to maintain a technically competent research and development staff, and to adapt to technological changes and advances in the industry. Our software products must remain compatible with evolving computer hardware and software platforms and operating environments. We cannot assure you that we will be successful in these efforts. In addition, competitive or technological developments and new regulatory requirements may require us to make substantial, unanticipated investments in new products and technologies, and we may not have sufficient resources to make these investments. If we were required to expend substantial resources to respond to specific technological or product changes, our operating results would be adversely affected.

If we are unable to protect our proprietary technology and that of the VMS businesses that we acquire, our competitive position could be adversely affected.

We have relied, and expect to continue to rely, on a combination of copyright, trademark and trade-secret laws, confidentiality procedures, and contractual provisions to establish, maintain, and protect our proprietary rights. Although patents generally provide greater protection of software products than do trade secrets or copyrights, we currently possess only a limited number of patents. We typically enter into agreements with our employees, consultants, customers, partners and vendors in an effort to control ownership of our intellectual property and access to and distribution of our software, documentation and other proprietary information. Despite these precautions, there may be authors of some of the intellectual property that form parts of our software products who have not assigned their intellectual property rights to us and who have not waived their moral rights with respect thereto. The steps we take may not prevent misappropriation of our intellectual property, and the agreements we enter into may not be enforceable. Despite our efforts to protect our proprietary rights in our intellectual property and that of other businesses we may acquire, unauthorized parties may copy or otherwise obtain and use our proprietary technology or obtain information we regard as proprietary. Policing unauthorized use of our technology, if required, may be difficult, time-consuming, and costly. Our means of protecting our technology may be inadequate.

Third parties may apply for and obtain patent protection for products and services that are similar to our software solutions. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or services or to obtain and to use information that we regard as proprietary. Third parties may also independently develop similar or superior technology without violating our proprietary rights. In addition, the laws of some foreign countries do not protect proprietary rights to the same extent, as do the laws of Canada and the United States.

Trademark protection is an important factor in establishing product recognition. Our inability to protect our trademarks from infringement could result in injury to any goodwill which may be developed in our trademarks. Moreover, we may be unable to use one or more of our trademarks because of successful third-party claims.

Claims of infringement are becoming increasingly common as the software industry develops and legal protections, including patents, are applied to software products. Although we believe that our software products and technology do not infringe proprietary rights of others, litigation may be necessary to protect our proprietary technology and third parties may assert infringement claims against us with respect to their proprietary rights.

Any claims or litigation can be time consuming and expensive regardless of their merit. Infringement claims against us could cause product release delays, require us to redesign our products or to enter into royalty or license agreements that may not be available on terms acceptable to us, or at all.

 

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Software product development delays could harm our competitive position and reduce our revenues.

If we experience significant delays in releasing new or enhanced software products, our position in the market could be harmed and our revenue could be substantially reduced, which would adversely affect our operating results. We have experienced software product development delays in the past and may experience delays in the future. In particular, we may experience software product development delays associated with the integration of recently acquired software products and technologies. Delays may occur for many reasons, including the inability to hire a sufficient number of developers, discovery of bugs and errors, or the inability of our current or future software products to conform to customer and industry requirements.

Our software products may contain errors or defects that could result in lost revenue, delayed or limited market acceptance, or product liability claims with substantial litigation costs.

As a result of their complexity, software products may contain undetected errors or failures when entering the market. Despite testing performed by us and testing and use by current and potential customers, defects and errors may be found in new software products after commencement of commercial shipments or the offering of a network service using these software products. In these circumstances, we may be unable to successfully correct the errors in a timely manner or at all. The occurrence of errors and failures in our software products could result in negative publicity and a loss of, or delay in, market acceptance of those software products. Such publicity could reduce revenue from new licenses and lead to increased customer attrition. Alleviating these errors and failures could require significant expenditure of capital and other resources by us. The consequences of these errors and failures could have a material adverse effect on our business, results of operations, and financial condition.

Because many of our customers use our software products for business-critical applications, any errors, defects, or other performance problems could result in financial or other damage to our customers. Our customers or other third parties could seek to recover damages from us in the event of actual or alleged failures of our software solutions. We have in the past been, and may from time to time continue to be, subject to these kinds of claims. Although our license agreements with customers typically contain provisions designed to limit our exposure to potential claims, as well as any liabilities arising from these claims, the provisions may not effectively protect against these claims and the liability and associated costs. Accordingly, any such claim could have a material adverse effect upon our business, results of operations, and financial condition. In addition, defending this kind of claim, regardless of its merits, or otherwise satisfying affected customers, could entail substantial expense and require the devotion of significant time and attention by key management personnel.

The hosting services of some of our products are dependent on the uninterrupted operation of data centers. Any unexpected interruption in the operation of data centers used could result in customer dissatisfaction and a loss of revenues.

Some of our VMS businesses provide hosting services in respect of some of our software products. These hosting services depend upon the uninterrupted operation of data centers and the ability to protect computer equipment and information stored in these data centers against damage that may be caused by natural disaster, fire, power loss, telecommunications or internet failure, unauthorized intrusion, computer viruses and other similar damaging events. If any of the data centers we use were to become inoperable for an extended period, we might be unable to provide our customers with contracted services. Although we take what we believe to be reasonable precautions against such occurrences, we can give no assurance that damaging events such as these will not result in a prolonged interruption of our services, which could result in customer dissatisfaction, loss of revenue and damage to our business.

 

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As a provider of hosted services, we receive confidential information, including credit card and other financial and accounting data. There can be no assurance that this information will not be subject to loss, destruction, computer break-ins, theft, or other improper activity that could jeopardize the security of information for which we are responsible. Any such lapse in security could expose us to litigation, loss of customers, or otherwise harm our business. In addition, any person who is able to circumvent our security measures could misappropriate proprietary or confidential customer information or cause interruptions in our operations.

We are currently, and may in the future become, subject to civil litigation, which if decided against us, could require us to pay judgments, settlements or other penalties and could potentially result in the dilution of our Common Shares.

In addition to being subject to litigation in the ordinary course of business, we may become subject to class actions, securities litigation or other actions, including anti-trust and anti-competitive actions.

Any litigation may be time consuming, expensive and distracting from the conduct of our daily business. The adverse resolution of any specific lawsuit could have a material adverse effect on our financial condition and liquidity.

In addition, the resolution of those matters may require us to issue additional Common Shares, which could potentially result in the dilution of our Common Shares. Expenses incurred in connection with these matters (which include fees of lawyers and other professional advisors and potential obligations to indemnify officers and directors who may be parties to such actions) could adversely affect our cash position.

The market price of the Common Shares will fluctuate.

The market price of the Common Shares will fluctuate due to a number of factors, including:

 

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actual or anticipated changes in our results of operations;

 

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changes in estimates of our future results of operations by management or securities analysts;

 

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announcements of technological innovations or new software products by us or our competitors;

 

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general industry changes; or

 

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material acquisitions.

In addition, the financial markets have experienced significant price and value fluctuations that have particularly affected the market prices of equity securities of many software companies and that sometimes have been unrelated to the operating performance of these companies. Broad market fluctuations, as well as economic conditions generally and in the software industry specifically, may adversely affect the market price of the Common Shares.

Sales of substantial amounts of Common Shares by our existing shareholders, or the perception that these sales will occur, may cause the market price of the Common Shares to fall.

 

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Our dividend policy may change. We may not pay dividends in the future.

The Board adopted a policy to pay quarterly dividends commencing April 2, 2012. The Company may also pay special dividends from time to time. Although we have paid dividends in the past, there may be circumstances where we may change our position on paying dividends. There is no guarantee we will pay dividends in future years. The dividend policy will be reviewed from time to time by our Board of Directors in the context of our earnings, financial condition and other relevant factors, including the availability of acquisition opportunities and other sources of capital. As indicated in the Company’s March 6, 2014 and February 15, 2021 press releases, the Company will not hesitate to reduce or even eliminate the current quarterly dividend if, at any time, other attractive sources of capital are not readily available. In addition, if the Company fails to pay interest owing on the Debentures in full in cash on any interest payment date in respect of the Debentures, the Company will not be permitted to declare or pay dividends of any kind on the Common Shares until such time as the Company pays such interest to holders of Debentures. See “Description of Capital Structure – Debentures”.

No limit on indebtedness

The trust indenture dated November 19, 2014 between the Company and Computershare Trust Company of Canada, as supplemented by the first supplemental indenture dated September 30, 2015 between the Company and Computershare Trust Company of Canada (the “Indenture”) does not limit the ability of the Company to incur additional debt or liabilities (including senior indebtedness). In order to finance acquisitions from time-to-time, the Company expects to draw down additional indebtedness under its credit facility, enter new credit facilities without recourse to CSI, and may also issue additional Debentures at any time. The additional indebtedness will increase the interest payable by the Company from time-to-time until such amounts are repaid, which will represent an increase in the Company’s cost and a potential reduction in the Company’s income. In addition, the Company may need to find additional sources of financing to repay these amounts when they become due. There can be no guarantee that the Company will be able to obtain financing on terms acceptable to it or at all at any such time.

If our security measures for our products and services are compromised and as a result, our data, our customers’ data or our IT systems are accessed improperly, made unavailable, or improperly modified, our products and services may be perceived as vulnerable, our brand and reputation could be damaged, the IT services we provide to our customers could be disrupted, and customers may stop using our products and services, all of which could reduce our revenue and earnings, increase our expenses and expose us to legal claims and regulatory actions.

We are in the IT business, and certain of our products and services, store, retrieve, manipulate and manage our customers’ information and data, external data, as well as our own data.

At times, we encounter attempts by third parties (which may include nation states and individuals sponsored by them) to identify and exploit product and service vulnerabilities, penetrate or bypass our security measures, and gain unauthorized access to our or our customers’, partners’ and suppliers’ software, hardware and cloud offerings, networks and systems, any of which could lead to the compromise of personal information or the confidential information or data of Constellation or our customers. Computer hackers and others may be able to develop and deploy IT related viruses, worms, and other malicious software programs that could attack our networks, systems, products and services, exploit potential security vulnerabilities of our networks, systems, products and services, create system disruptions and cause shutdowns or denials of service. This is also true for third-party data, products or services incorporated into our own products and services. Data may also be accessed or modified improperly as a result of customer, partner, employee or supplier error or malfeasance and third parties may attempt to fraudulently induce customers, partners, employees or suppliers into disclosing sensitive information such as user names, passwords or other information in order to gain access to our data, our customers’, suppliers’ or partners’ data or the IT systems of Constellation, its customers, suppliers or partners.

 

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In Canada, the Personal Information Protection and Electronic Documents Act requires businesses to give notice of any breaches of security safeguards affecting personal information to the affected individuals and Privacy Commissioner where there is a real risk of significant harm to the affected individuals and impose the keeping of a register of such breaches. Failure to comply with the reporting and record keeping obligations may result in a fine. There is also proposed legislation in Canada at the federal level and in Quebec that could result in fines of up to 5% of a company’s annual revenue federally and 4% in Quebec, which fines could be issued in connection with a data breach. Neither the proposed federal nor the proposed Quebec legislation has passed as of the date of this Annual Information Form. In Europe, the General Data Protection Regulation provides obligations that apply internationally to entities that control or process the personal data of citizens in the territory of the European Union. This legislation also includes mandatory breach notification provisions as part of a comprehensive regime that governs the processing of personal information. Penalties for violations can be up to 4% of a company’s total annual revenue. In The United States, the Health Insurance Portability and Accountability Act of 1966, as amended by the Health Information Technology for Economic and Clinical Health Act and implementing regulations mandates, among other things, the adoption of uniform standards for the electronic exchange of information in common health care transactions (such as health care claims information and plan eligibility, referral certification and authorization, claims status, plan enrolment, coordination of benefits and related information), as well as standards relating to the privacy and security of individually identifiable health information, which govern the use and disclosure of such information and require the adoption of administrative, physical and technical safeguards to protect such information. In addition, many U.S. states, Canadian provinces and other countries have enacted similar laws addressing the privacy and security of health-related information. Failure to comply with laws addressing the privacy and security of health-related information could result in the imposition of significant fines and/or criminal penalties.

The consequences of security breaches, compliance with privacy and data protection laws and regulations and the potential liability associated with the failure to comply with these laws could have a material adverse effect on our business, results of operations, and financial condition.

 

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DIVIDENDS

Dividends

Since January 1, 2020, we have declared the following cash dividends on our Common Shares:

 

Class of Shares		Date of Payment		Amount of Dividend Per Share		Record Date for Payment
Common		April 14, 2023		US$1.00 (quarterly)		April 6, 2023
Common		January 11, 2023		US$1.00 (quarterly)		December 20, 2022
Common		October 11, 2022		US$1.00 (quarterly)		September 20, 2022
Common		July 11, 2022		US$1.00 (quarterly)		June 20, 2022
Common		April 12, 2022		US$1.00 (quarterly)		March 16, 2022
Common		January 11, 2022		US$1.00 (quarterly)		December 20, 2021
Common		October 8, 2021		US$1.00 (quarterly)		September 17, 2021
Common		July 10, 2021		US$1.00 (quarterly)		June 19, 2021
Common		April 9, 2021		US$1.00 (quarterly)		March 16, 2021
Common		January 11, 2021		US$1.00 (quarterly)		December 18, 2020
Common		October 9, 2020		US$1.00 (quarterly)		September 18, 2020
Common		July 10, 2020		US$1.00 (quarterly)		June 19, 2020
Common		April 7, 2020		US$1.00 (quarterly)		March 16, 2020

Effective January 2012, our policy is to pay quarterly dividends, subject to Board approval, based on our historical practice and may pay special dividends from time to time. The Board of Directors will determine if and when dividends should be declared and paid in the future based on all relevant circumstances, including the desirability of financing further growth of the Company and our financial position at the relevant time. There is no guarantee that dividends will continue to be paid in the future.

On December 18, 2020, the Company declared a special dividend pursuant to which all holders of Common Shares of record on December 28, 2020 were entitled to receive, by way of a dividend-in-kind, 1.859817814 subordinate voting shares of Topicus.com Inc. for each Common Share held. The dividend was distributed on January 4, 2021.

On February 6, 2023, the Company declared a special dividend pursuant to which all holders of Common Shares of record on February 16, 2023 were entitled to receive, by way of a dividend-in-kind, 3.0003833 subordinate voting shares of Lumine Group Inc. for each Common Share held. The dividend was distributed on February 23, 2023.

Dividend Reinvestment Plan

Effective May 16, 2013, the Company adopted a dividend reinvestment plan (the “DRIP”), under which all registered holders of Common Shares in Canada are eligible to participate. Non-registered holders of Common Shares may be able to participate through their financial institution, broker or other intermediary through which their Common Shares are held. Alternatively, non-registered holders of Common Shares may become registered holders of such shares in order to participate in the DRIP. Computershare Trust Company of Canada is the agent and administrator of the DRIP.

 

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Pursuant to the DRIP, eligible participants are permitted to increase their investment in the Company by choosing to automatically reinvest cash dividends received on the Common Shares held by them in additional Common Shares, which will be purchased by the Company (or a trustee, custodian or administrator on the Company’s behalf) on the open market, or at the Company’s discretion, issued from treasury. If the Common Shares issued pursuant to the DRIP are to be issued from treasury, such Common Shares will be issued at a price equal to the weighted average market price of the Common Shares on the TSX for the five trading days immediately preceding the applicable dividend payment date. To date, the Company has satisfied its obligation under the DRIP by purchasing shares on the open market.

 

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DESCRIPTION OF CAPITAL STRUCTURE

Share Capital

The authorized capital of the Company consists of an unlimited number of Common Shares and a number of Preferred Shares, issuable in series, limited to not more than 20% of the number of issued and outstanding Common Shares at the time of issuance of any Preferred Shares. As at March 29, 2023 there were 21,191,530 Common Shares outstanding and no Preferred Shares outstanding.    

Common Shares

The holders of the Common Shares are entitled to receive notice of and to attend all of our annual and special meetings of the shareholders and to one vote in respect of each Common Share held at all such meetings. The holders of the Common Shares are entitled, at the discretion of the Board, to receive out of any or all of our profits or surplus properly available for the payment of dividends, any dividend declared by the Board and payable on the Common Shares. The holders of the Common Shares will participate ratably in any distribution of assets, or liquidation, dissolution or winding-up or other distribution of our assets among shareholders for the purpose of winding up our affairs.

Preferred Shares

The Preferred Shares will be issuable in one or more series, where the Board will be authorized to fix the number of shares of each series, subject to the limitation on the number of Preferred Shares to be issued as described below, and to determine for each series, subject to the terms and conditions set out herein, the designation, rights, privileges, restrictions and conditions, including dividend rates, redemption prices, conversion rights and other matters.

Ranking and Priority

Each series of Preferred Shares will be entitled to priority over the Common Shares and any other shares of the Company ranking junior to the Preferred Shares with respect to priority in the payment of dividends and the distribution of assets in the event of the liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, and any other distribution of the assets of the Company among its shareholders for the purpose of winding-up its affairs. The Preferred Shares of any series may also be given such other preferences, not inconsistent with the provisions hereof, over the Common Shares and any other shares of the Company ranking junior to the Preferred Shares, as may be determined by the Board.

Parity Among Series

Each series of Preferred Shares will rank on a parity with every other series of Preferred Shares with respect to priority in the payment of dividends and the distribution of assets in the event of the liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, and any other distribution of the assets of the Company among its shareholders for the purpose of winding-up its affairs.

 

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Participation Upon Liquidation, Dissolution or Winding Up

In the event of the liquidation, dissolution or winding up of the Company or other distribution of assets of the Company among its shareholders for the purpose of winding up its affairs, the holders of the Preferred Shares will be entitled to receive from the assets of the Company any cumulative dividends, whether or not declared, or declared non-cumulative dividends or amounts payable on a return of capital which are not paid in full in respect of any Preferred Shares and any redemption price or other liquidation amount in accordance with the rights, terms and conditions of any particular series, before any amount is paid or any assets of the Company are distributed to the holders of any Common Shares or shares of any other class ranking junior to the Preferred Shares. After payment to the holders of the Preferred Shares of the amount so payable to them as above provided they will not be entitled to share in any further distribution of assets of the Company among its shareholders for the purpose of winding up its affairs.

Dividends

The holders of each series of Preferred Shares will be entitled to receive dividends (which may be cumulative or non-cumulative and variable or fixed) as and when declared by the Board.

Conversion

No series of Preferred Shares will be convertible into any other class of shares but they may be convertible into another series of Preferred Shares.

Redemption

Each series of Preferred Shares may be redeemable by the Company on such terms as may be determined by the Board.

Voting

Holders of any series of Preferred Shares will not be entitled (except as otherwise provided by law and except for meetings of the holders of Preferred Shares or a series thereof) to receive notice of, attend at, or vote at any meeting of shareholders of the Company, unless the Board determines otherwise, in which case voting rights will only be provided in circumstances where the Company has failed to pay a certain number of dividends on such series of Preferred Shares, which determination and number of dividends and any other terms in respect of such voting rights, will be determined by the Board and set out in the designations, rights, privileges, restrictions and conditions of such series of Preferred Shares.

Debentures

In connection with the 2014 Rights Offering, on October 1, 2014 and November 19, 2014, the Company issued two tranches of Debentures with an aggregate principal amount of C$96.0 million for total proceeds of C$91.2 million to the Company. In connection with the 2015 Rights Offering, on September 30, 2015, the Company issued another tranche of Debentures with a total principal amount of C$186.2 million for total proceeds of C$214.1 million. The Debentures have a maturity date of March 31, 2040 (the “Maturity Date”). The interest rate from and including March 31, 2022 to but excluding March 31, 2023 is 9.9%. The interest rate from and including March 31, 2023 to but excluding March 31, 2024 will be 13.3%. From and including March 31, 2024 to but excluding the Maturity Date, the interest rate applicable to the Debentures will be reset on an annual basis on March 31 of each year, at a rate equal to the annual average percentage change in the All-items Consumer Price Index during the 12 month period ending on December 31 in the prior year (which amount may be positive or negative) plus 6.5%. Notwithstanding the foregoing, the interest rate applicable to the debentures will not be less than 0%. The Company may, subject to certain approvals, elect to make payment in kind (a “PIK Election”), in lieu of paying interest in cash, to satisfy all or any portion of its interest obligation payable on an interest payment date by issuing to each Debenture holder Debentures equal to the amount of the interest obligation to be satisfied (“PIK Debentures”). The PIK Debentures will have the same terms and conditions as the Debentures and will form part of the principal amount of the Debentures. If, on any interest payment date, the Company fails to pay the amount of interest owing on the Debentures in full in cash, the Company will not (A) declare or pay dividends of any kind on the Common Shares, nor (B) participate in any share buyback or redemption involving the Common Shares, until the date on which the Company pays such interest (or the unpaid portion thereof) in cash to holders of the Debentures; however, if the Company has issued PIK Debentures in respect of all or a portion of the amount of interest owing on the Debentures on one or more interest payment dates, the Company may resume declaring or paying dividends of any kind on the Common Shares and participating in any share buyback or redemption involving the Common Shares beginning on the earlier of (i) the next interest payment date in respect of which the Company pays the amount of interest owing on the Debentures in full in cash and (ii) the date on which the Company repays all amounts owing under the PIK Debentures. All payments in respect of the Debentures will be subordinated in right of payment to the prior payment in full of all senior indebtedness of the Company.

 

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The Debentures will be redeemable in certain circumstances at the option of the Company or the holder. During the period beginning on March 16 and ending on March 31 of each year, the Company will have the right, at its option, to give notice to holders of Debentures of its intention to redeem the Debentures, in whole or in part, on March 31 in the year that is five years following the year in which notice is given, at a price equal to the principal amount thereof plus accrued and unpaid interest up to but excluding the date fixed for redemption. During the period beginning on March 1 and ending on March 15 of each year, holders of Debentures will have the right, at their option, to give notice to the Company of their intention to require the Company to repurchase (or to “put”) the Debentures, in whole or in part, on March 31 in the year that is five years following the year in which notice is given, at a price equal to the principal amount thereof plus accrued and unpaid interest up to but excluding the date fixed for repurchase.

Upon the occurrence of a change of control of the Company involving the acquisition of voting control or direction of more than 50% of the votes represented by the issued and outstanding Common Shares by any person or group of persons acting jointly or in concert (a “Change of Control”), each holder of Debentures may require the Company to purchase, on the date which is 30 days following the giving of notice of the Change of Control as set out below (the “Change of Control Put Date”), the whole or any part of such holder’s Debentures at a price equal to 100% of the principal amount thereof (the “Change of Control Put Price”) plus accrued and unpaid interest up to, but excluding, the Change of Control Put Date. If 90% or more of the aggregate principal amount of the Debentures outstanding on the date of the giving of notice of the Change of Control have been tendered for purchase on the Change of Control Put Date, the Company will have the right to redeem all the remaining Debentures on such date at the Change of Control Put Price, together with accrued and unpaid interest to such date. Notice of such redemption must be given to the debenture trustee prior to the Change of Control Put Date and, as soon as possible thereafter, by the debenture trustee to the holders of the Debentures not tendered for purchase.

The rights of the holders of the Debentures as well as any other series of debentures that may be issued under the Indenture may be modified in accordance with the terms of the Indenture. For that purpose, among others, the Indenture contains certain provisions which will make binding on all Debenture holders resolutions passed at meetings of the holders of the debentures issued under the Indenture by votes cast thereat by holders of not less than 66^2/3% of the principal amount of the then outstanding debentures present at the meeting or represented by proxy, or rendered by instruments in writing signed by the holders of not less than 66^2/3% of the principal amount of the then outstanding debentures. In certain cases, the modification will, instead of or in addition to the foregoing, require assent by the holders of the required percentage of debentures of each particularly affected series. Under the Indenture, the debenture trustee will have the right to make certain amendments to the Indenture in its discretion, without the consent of the holders of Debentures.

 

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The Indenture provides that an event of default (“Event of Default”) in respect of the Debentures will occur if certain events described in the Indenture occur, including if any one or more of the following described events has occurred and is continuing with respect to the Debentures: (i) failure to pay principal or premium, if any, on the Debentures, whether at the maturity date, upon redemption, by acceleration or otherwise; or (ii) certain events of bankruptcy, insolvency or reorganization of the Company under bankruptcy or insolvency laws. Subject to the senior indebtedness postponement provisions, if an Event of Default has occurred and is continuing, the debenture trustee may, in its discretion, and shall, upon the request of holders of not less than 25% in principal amount of the then outstanding Debentures, declare the principal of (and premium, if any) and accrued interest on all outstanding Debentures to be immediately due and payable.

As at March 29, 2023, the total principal amount of the debentures outstanding was C$282 million.

 

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MARKET FOR SECURITIES

The Common Shares are listed on the Toronto Stock Exchange (“TSX”) under the symbol “CSU”. The monthly price ranges and total monthly trading volumes for the Common Shares on the TSX during the most recently completed fiscal year were as follows:

 

Month		Share Price (C$ per share)								Total Monthly Volumes (# of Shares)
		High				Low
January 2022			2,380.99				1,995.04				810,200
February 2022			2,274.41				1,995.02				767,600
March 2022			2,230.03				2,017.74				910,300
April 2022			2,294.99				2,000.24				623,200
May 2022			2,072.37				1,840.83				752,900
June 2022			2,032.63				1,793.93				736,000
July 2022			2,184.25				1,884.03				593,600
August 2022			2,221.92				1,973.38				661,000
September 2022			2,069.99				1,879.30				696,200
October 2022			2,060.05				1,783.98				570,100
November 2022			2,177.98				1,827.33				683,200
December 2022			2,209.97				2,065.73				590,800
Total											8,395,100

 

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The Debentures are listed on the TSX under the symbol “CSU.DB”. The monthly price ranges and total monthly trading volumes for the Debentures on the TSX during the most recently completed fiscal year were as follows (trading prices include accrued interest):

 

Month		Debenture Price (C$ per $100 of principal)								Total Monthly Volume (per $100 principal amount)
		High				Low
January 2022			141.00				139.00				46,967
February 2022			143.00				140.10				3,140
March 2022			145.00				140.10				5,957
April 2022			144.50				142.00				6,345
May 2022			148.00				142.00				5,150
June 2022			149.50				143.50				14,975
July 2022			145.75				142.00				22,915
August 2022			143.00				140.01				7,690
September 2022			140.00				135.00				18,090
October 2022			140.00				137.88				13,085
November 2022			141.00				137.00				35,260
December 2022			139.50				137.00				35,990
Total											215,564

ESCROWED SECURITIES AND SECURITIES SUBJECT TO CONTRACTUAL RESTRICTION ON TRANSFER

 

Designation of Class		Number of Securities Held in Escrow or Subject to a Contractual Restriction on Transfer				Percentage of Class
Common Shares			117,166				0.55	%

Computershare Trust Company of Canada is acting as escrow agent for all of the above securities pursuant to the terms of our employee bonus plan and employee share ownership plan. Generally, one third of the Common Shares acquired pursuant to the plan will be released from escrow on the first business day in January in each of the third, fourth and fifth year after the date of acquisition.

 

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DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The following table sets out, for each of our directors and executive officers as of March 29, 2023, the person’s name, municipality of residence, position(s) with CSI, principal occupation and, if a director, the year in which the person became a director. Our directors are elected annually and, unless re-elected, retire from office at the end of the next annual general meeting of shareholders. As of March 29, 2023, our directors and executive officers (as a group) owned, or exerted direction or control over, a total of (i) 1,404,114 Common Shares representing 6.6% of our total outstanding Common Shares, (ii) a total of 1,825,564 of the outstanding subordinate voting shares of Topicus.com Inc., a subsidiary of CSI, representing 2.2% of such subordinate voting shares, (iii) a total of 36,958,920 of the outstanding ordinary units of Topicus Coop, a subsidiary of CSI, representing 28.5% of such outstanding ordinary units, and (iv) a total of 2,929,901 of the outstanding subordinate voting shares of Lumine Group Inc., a subsidiary of CSI, representing 4.6% of such subordinate voting shares

 

Name and Place of Residence		Positions with CSI		Principal Occupation		Director Since		Common Shares of CSI Beneficially Held or Over Which Control is Exercised
LAWRENCE CUNNINGHAM New York, NY, USA		Director and Vice-Chairman of the Board		Special Counsel and Emeritus Professor		2017			1,178
MARK LEONARD Toronto, Ontario, Canada		President		President of CSI		1995			430,282	(4)
LORI O’NEILL (1) (3) Ottawa, Ontario, Canada		Director		Consultant		2018			163
DONNA PARR Toronto, Ontario, Canada		Director		President, Crimson Capital		2020			46
ROBERT KITTEL(1) (2) Toronto, Ontario, Canada		Director		Chief Operating Officer of The Westaim Corporation		2013			1,117
CLAIRE KENNEDY Toronto, Ontario, Canada		Director		Senior Advisor, Bennett Jones LLP		2022			157
LAURIE SCHULTZ Vancouver, British Columbia, Canada		Director		Consultant		2021			132
BERNARD ANZAROUTH Montreal, Quebec, Canada		Chief Investment Officer		Chief Investment Officer		N/A			148,562
DANIEL ZINMAN Toronto, Ontario, Canada		President, Perseus Operating Group		President, Perseus Operating Group		N/A			10,177
JAMAL BAKSH Toronto, Ontario, Canada		Chief Financial Officer		Chief Financial Officer		N/A			2,345

 

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Name and Place of Residence		Positions with CSI		Principal Occupation		Director Since		Common Shares of CSI Beneficially Held or Over Which Control is Exercised
JEFF BENDER Ottawa, Ontario, Canada		Director and Chief Executive Officer, Harris Operating Group		Chief Executive Officer, Harris Operating Group		2013			78,179
JOHN BILLOWITS Toronto, Ontario, Canada		Director and Chairman of the Board		Consultant		2020			37,697
MARK DENNISON Toronto, Ontario, Canada		General Counsel and Secretary		General Counsel and Secretary of CSI		N/A			3,179
MARK MILLER Oakville, Ontario, Canada		Director and Chief Operating Officer of CSI, Chief Executive Officer, Volaris Operating Group, Director and Chairman of Lumine Group Inc.		Chief Operating Officer of CSI and Chief Executive Officer, Volaris Operating Group		2013			280,551
DEXTER SALNA Toronto, Ontario, Canada		Director and Chairman, Perseus Operating Group		Chairman, Perseus Operating Group		2019			251,978
BARRY SYMONS Toronto, Ontario, Canada		Director and Chief Executive Officer, Jonas Operating Group		Chief Executive Officer, Jonas Operating Group		2020			153,310
ROBIN VAN POELJE Blaricum, The Netherlands		Director, Chief Executive Officer and Chairman, Topicus.com Inc., Director, Lumine Group Inc.		Director, Chief Executive Officer, and Chairman, Topicus.com Inc.		2018			3,161
SUSAN GAYNER(1) Richmond, VA, USA		Director		Consultant		2019			116

 

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Name and Place of Residence		Positions with CSI		Principal Occupation		Director Since		Common Shares of CSI Beneficially Held or Over Which Control is Exercised
ANDREW PASTOR (2) Toronto, Ontario, Canada		Director		Partner, EdgePoint		2020			47
DAMIAN MCKAY Templestowe, Australia		Chief Executive Officer, Vela Software Group		Chief Executive Officer, Vela Software Group		NA			1,737

 

(1)	Member of Audit Committee.

(2)	Member of Compensation, Nominating and Human Resources Committee.

(3)

Ms. O’Neill was a director of DragonWave Inc. from June 13, 2013 to July 31, 2017. Following Ms. O’Neill’s resignation on July 31, 2017, the Ontario Superior Court of Justice appointed a receiver over the business and assets of DragonWave Inc., following an application of Comerica Bank as Agent for DragonWave Inc.’s senior lenders, pursuant to the Bankruptcy and Insolvency Act (Canada). On July 20, 2017, the shares of DragonWave Inc. were halted from trading on the TSX by the Investment Industry Regulatory Organization of Canada. The shares of DragonWave Inc. were delisted from the TSX and the NASDAQ on August 30, 2017 and August 2, 2017, respectively.

(4)

On August 5, 2015, the Company announced that L6 Holdings Inc. (formerly known as 1388369 Ontario Inc.), an Ontario corporation (“L6”) which as of August 5, 2015 owned 1,000,000 Common Shares (representing approximately 4.7% of the issued and outstanding Common Shares of CSI) and which was previously controlled by Mr. Leonard, President and Chairman of the Board, is now controlled exclusively by the adult children of Mr. Leonard.

Biographies

The following are brief profiles of our executive officers and directors, including a description of each individual’s principal occupation within the past five years.

Lawrence Cunningham — Director and Vice-Chairman of the Board

Mr. Cunningham joined the Board in August 2017. Mr. Cunningham is the Founder of the Quality Shareholders Group, Special Counsel of Mayer Brown LLP, and Professor Emeritus at George Washington University.    He has served on numerous public and private boards, including currently as a director of Kelly Partners Group Holdings (Australian Stock Exchange). He is a Trustee of the Museum of American Finance; on the Advisory Board of the Ben Graham Centre for Value Investing, Ivey Business School, University of Western Ontario; and a member of the Dean’s Council of Lerner College of Business of the University of Delaware. Previous positions include practicing corporate law with Cravath, Swaine & Moore; Academic Dean of Boston College Law School; and Director of the Heyman Center on Corporate Governance at Cardozo Law School. In 2018, he received the B. Kenneth West Lifetime Achievement Award from the National Association of Corporate Directors (NACD). Prof. Cunningham holds a bachelor’s degree in economics (with honors) from the University of Delaware and a juris doctor (law) degree from Cardozo (magna cum laude).

Mark Leonard — President

Mr. Leonard founded CSI in 1995. Prior to founding CSI, Mr. Leonard worked in the venture capital business for eleven years. Mr. Leonard holds a BSc. from the University of Guelph, and a MBA from the University of Western Ontario. Mr. Leonard is currently a director of Topicus.com Inc.

Lori O’Neill — Director

Ms. O’Neill joined the Board in March 2018. Ms. O’Neill is a FCPA, FCA, corporate director and independent financial consultant to growth companies, after serving over 24 years with Deloitte LLP.

 

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As a partner at Deloitte LLP with various national and industry leadership roles, she focused on advising growth companies from start-up to multinationals, supporting complex transactions, private and public equity offerings, mergers and acquisitions in Canada and the U.S. She was previously the chair of the audit committee for Sierra Wireless, Inc. and has served boards of numerous public and private technology companies, non-profit organizations and crown corporations. Ms. O’Neill graduated from Carleton University with a Bachelor of Commerce Highest Honors in 1988, achieved her CPA, CA designation in 1990, her U.S. CPA designation in 2003, and completed the ICD Director Education Program attaining the ICD.D.

Donna Parr – Director

Ms. Parr has significant experience in venture and private equity investing and corporate finance working for Canadian Medical Discoveries Fund, Ontario Municipal Employees Retirement System, Canada Pension Plan, and several other institutional investors. Ms. Parr has served on 35 boards of private companies primarily on behalf of institutional investors and several as an Independent Corporate Director, including a term as a director of CSI from 1995 to 2003. Ms. Parr is currently a Managing Partner at Cross-Border Impact Ventures, the President of Crimson Capital and has been with Crimson Capital since 2009. Ms. Parr holds an MBA from York University and Masters and Honours degrees from the University of Toronto in International Relations. Ms. Parr is currently a director of Topicus.com Inc.

Robert Kittel — Director

Mr. Kittel joined our Board in 2013. Mr. Kittel has been the Chief Operating Officer of The Westaim Corporation since January 2013. The Westaim Corporation is a Canadian-based publicly traded financial and investment holding company. Previously he was a Partner and Portfolio Manager at Goodwood Inc., an investment management firm that he joined in 2002. From 2000 through 2002, he was Vice President and Analyst of a Canadian-based hedge fund investment firm. From 1997 through 2000, Mr. Kittel was employed by the Cadillac Fairview Corporation, a commercial real estate development company in the investments area. Prior to 1997, Mr. Kittel was a staff accountant at KPMG LLP. Mr. Kittel has served as a director on several public boards, both in Canada and the United States. Mr. Kittel holds a BBA Honours (Gold Medalist) from Wilfrid Laurier University and is a Chartered Professional Accountant and a Chartered Financial Analyst.

Claire Kennedy — Director

Ms. Kennedy joined our Board in 2022. Ms. Kennedy is a Senior Advisor, Clients & Industries at Bennett Jones LLP, a role she has held since 2019, prior to which she was a partner of the firm from 2009. Ms. Kennedy received her BASc in Chemical Engineering & Applied Chemistry from the University of Toronto in 1989 and her LL.B from Queen’s University in 1994. Called to the bar in Ontario in 1996, Ms. Kennedy was law clerk to the late Honourable Mr. Justice Charles D. Gonthier of the Supreme Court of Canada. Ms. Kennedy currently serves as Lead Director of the Bank of Canada, Chair of the Audit Committee of Alamos Gold Inc. and Chair of the Board at Neo Performance Materials Inc. Ms. Kennedy is past Chair of the University of Toronto’s Governing Council and she is a member of the Dean’s Advisory Board at the Rotman School of Management.

Laurie Schultz — Director

Ms. Schultz joined our Board in 2021. Ms. Schultz has over thirty years of experience in the software and technology sectors, including leadership of several multi-million-dollar software businesses spanning the personal finance, small business accounting, SaaS, mid-market ERP, and GRC categories. Ms. Schultz served as the President and CEO of Galvanize from 2011 until it was sold in 2021. Starting in 2004 she held several executive positions at Sage including serving as VP and GM at Sage’s Mid-Market ERP business group from 2007 until 2011. Ms. Schultz was a Senior Manager at KPMG from 1996 until 1999 and was a Senior Manager at Telus Communications from 1989 until 1996. Ms. Schultz holds a Bachelor of Commerce and an MBA from the University of Alberta.

 

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Daniel Zinman — President, Perseus Operating Group

Mr. Zinman joined CSI in 2005. Before his appointment to President of the Perseus Operating Group in January 2023, Mr. Zinman was a Portfolio Manager at Perseus where he sourced, led and managed several investments. Prior to joining CSI, Mr. Zinman held positions in consulting with Bain & Company, Private Equity with Kilmer Capital Partners, and Business Development with Somerset Entertainment. Mr. Zinman holds a B.A. (honours) from McGill University and MBA from the Rothman School of Management at the University of Toronto.

Bernard Anzarouth — Chief Investment Officer

Mr. Anzarouth joined CSI in 1995. He works closely with our operating groups to identify and pursue opportunities for platform acquisitions and acquisitions in our existing vertical markets on a global basis. Before joining CSI, Mr. Anzarouth was AVP Business Development for Ascom Inc., a Swiss-based technology corporation from 1993 to 1994. Prior to that Mr. Anzarouth held various positions with IBM. Mr. Anzarouth holds a B.Eng. in Electrical/Computer Engineering from McGill University and an MBA from the European Institute of Business Administration (INSEAD). Mr. Anzarouth is currently a director of Topicus.com Inc.

Jamal Baksh – Chief Financial Officer

Mr. Baksh has been with CSI since 2003 when he joined as Controller of the Jonas Operating Group. Mr. Baksh is currently the Chief Financial Officer of CSI. Prior to assuming this role, he has served in a number of senior executive roles within Jonas and CSI including Vice President of Finance for CSI reporting to the Chief Financial Officer. Mr. Baksh is a Certified Management Accountant and holds an Honours Bachelor of Mathematics degree from the University of Waterloo. Mr. Baksh is currently a director of and the Chief Financial Officer of Topicus.com Inc.

Jeff Bender — Director and Chief Executive Officer, Harris Operating Group

Mr. Bender joined CSI in 1999 after spending 7 years at Deloitte LLP. Mr. Bender has been the Chief Executive Officer for Constellation’s Harris Operating Group since 2002 and was appointed to the Board of CSI in 2013. Mr. Bender is a Chartered Professional Accountant and holds a BCom from Carleton University. Mr. Bender also serves on the Board of Directors of Aptean, a privately held vertical market software company and Topicus.com Inc.

John Billowits – Director and Chairman of the Board

Mr. Billowits was previously employed by CSI from 2003 until 2020, most recently as the Chief Executive Officer of the Vela Operating Group. Prior to being CEO of the Vela Operating Group, he was the Chief Financial Officer of CSI and was the President of Jonas Club division. Prior to joining CSI, Mr. Billowits held a number of roles with Bain & Company, Dell Computers and PwC. Mr. Billowits is a Chartered Professional Accountant, holds an MBA with Distinction from the London Business School and Honours BBA with Distinction from Wilfrid Laurier University. Mr. Billowits also serves on the Board of Directors of Togetherwork, a privately held vertical market software company, Computer Modelling Group Ltd. and Topicus.com Inc.

Mark Dennison — General Counsel and Secretary, CSI

Mr. Dennison joined CSI in 2001, initially working within the Volaris Operating Group and moving to CSI head office in 2007. Prior to joining Constellation, Mr. Dennison worked in the law department at Bombardier Aerospace. Mr. Dennison was called to the Bar of Ontario in 1999. He has received an LL.B. from the University of Toronto and a B.A. from the University of Windsor.

 

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Mark Miller — Director, Chief Executive Officer, Volaris Operating Group, Chief Operating Officer, Constellation Software, Chairman of Lumine Group Inc. Board of Directors

Mark Miller has worked with CSI, Volaris Operating Group and its subsidiaries for more than 20 years. He spends the majority of his time as the Chief Executive Officer of Volaris Operating Group and serves as Director and Chief Operating Officer of CSI, as well as Chairman of the Board of Lumine. Mark also currently serves on the board of ventureLAB, Computer Modeling Group, and IOVIA. Previously, he served on the boards of pVelocity, Medgate (now known as Cority), and EISI. He also holds a BS in Statistics and Mathematics from McMaster University in Hamilton, Ontario.

Dexter Salna — Director and Chairman, Perseus Operating Group

Mr. Salna joined CSI in 1995. Dexter is currently the Chairman of the Perseus Operating Group and served as the President of the Perseus Operating Group until the end of 2022. Prior to his involvement with the Perseus Operating Group, Mr. Salna held various senior executive positions with our Volaris Operating Group. From January 2000 to March 2001, Mr. Salna took a leave of absence from Volaris to pursue other business opportunities. Mr. Salna received a B.A.Sc. in Civil Engineering from the University of Toronto, an M.S. in Construction Management and Engineering from Stanford University and an M.B.A. from Harvard Business School.

Barry Symons — Director, Chief Executive Officer, Jonas Operating Group

Mr. Symons joined CSI in 1997. During his tenure with CSI, Mr. Symons has held various senior financial and operational management positions within CSI and our subsidiaries. In August 2007 Mr. Symons was appointed to the role of Chief Executive Officer of our Jonas Operating Group. Prior to this appointment he was the Chief Financial Officer of CSI from 2004 to 2007. Before joining CSI, Mr. Symons was with a major international accounting firm in varying roles of increasing responsibility. Mr. Symons holds a Chartered Accountancy designation and a BBA (Honours) degree from Wilfrid Laurier University both of which were received with distinction.

Robin Van Poelje — Director, Chairman and Chief Executive Officer, Topicus.com Inc.

Mr. Van Poelje has been with CSI since January 2014 when CSI acquired TSS. From January 2010 to 2020, Mr. Van Poelje had been the Chief Executive Officer of TSS, based in the Netherlands. Mr. Van Poelje is the Chairman and Chief Executive Officer of Topicus.com Inc. Mr. Van Poelje is also a Director of Lumine Group Inc. Mr. Van Poelje holds a Msc. in Economics from the University of Groningen, the Netherlands and is a post graduate in Marketing and Strategy from École Supérieure de Commerce de Montpellier, France.

Susan Gayner — Director

Ms. Gayner joined our Board in 2019. Ms. Gayner recently retired as President and CEO of ParkLand Ventures, Inc., an owner-operator of multifamily housing communities in the US, where she had been since 2008. She is a Chemical Engineer by training and prior to her tenure with ParkLand served in various capacities with both the DuPont Company and Hercules, Inc. She previously served on the board of directors of Synalloy Corporation. She holds a BA (Chemistry) and an ME (Chemical Engineering), both from the University of Virginia.

Andrew Pastor – Director

Mr. Pastor is currently a Partner at EdgePoint and has been with EdgePoint since 2013. Mr. Pastor was an equity research analyst at Sionna Investment Managers from 2010 to 2012 and previously spent four years at BMO Harris Investment Management. From 2016 to 2020 (prior to his formal appointment to the Board), Mr. Pastor had been engaged as an unpaid Board observer to Constellation’s Board of Directors. Mr. Pastor has a BA from the University of Western Ontario and is a CFA charterholder.

 

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Damian McKay, Chief Executive Officer, Vela Software Group

Mr. McKay is currently the CEO of Vela Software. Mr. McKay has been with Constellation Software (CSI) since 2015 when he joined with CSI’s acquisition of Datamine where he was the CEO. Prior to joining CSI, Mr. McKay held a number of roles with GE and two electric utilities. Mr. McKay holds a Bachelor of Business from RMIT and Graduate Diploma in Applied Finance & Investment from the Securities Institute of Australia.

Committees of the Board

The Board of Directors has an audit committee and a compensation, nominating and human resources committee.

Audit Committee

The audit committee assists the Board in fulfilling its responsibilities for oversight and supervision of financial and accounting matters. The committee supervises the adequacy of internal accounting controls and financial reporting practices and procedures and the quality and integrity of audited and unaudited financial statements, which includes discussions with external auditors. The committee monitors the management of financial risk throughout our organization.

Audit Committee Charter

Our audit committee operates under a written charter that sets out its responsibilities and composition requirements. A copy of this charter is attached as Appendix “A” to this Annual Information Form.

Relevant Education and Experience

All members of the audit committee meet the independence criteria set out in Multilateral Instrument 52-110 – Audit Committees (“MI 52-110”). The following sets out the relevant education and experience of each director relevant to the performance of his duties as a member of the audit committee:

Mr. Kittel is the Chief Operating Officer of The Westaim Corporation. He also served as a director on several public boards, both in Canada and the United States. Mr. Kittel holds a BBA Honours (Gold Medalist) from Wilfrid Laurier University and is a Chartered Professional Accountant and a Chartered Financial Analyst.

Ms. O’Neill was an audit partner at Deloitte LLP from 1996 to 2012. She also serves as a director on several boards previously including Sierra Wireless. Ms. O’Neill is a Chartered Professional Accountant.

Ms. Gayner recently retired as President and CEO of ParkLand Ventures, Inc., an owner-operator of multifamily housing communities in the US, where she had been since 2008. She is a Chemical Engineer by training and prior to her tenure with ParkLand served in various capacities with both the DuPont Company and Hercules, Inc. She previously served on the board of directors of Synalloy Corporation. She holds a BA (Chemistry) and an ME (Chemical Engineering), both from the University of Virginia.

Based on the above information provided by each director, we believe that all members of the audit committee are “financially literate” as that term is defined in MI 52-110.

 

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Pre-Approval Policies and Procedures

The audit committee reviews and approves all audit and non-audit services performed by our auditors in advance of services being performed.

Auditor Fee Disclosure

The following table sets forth the fees billed or accrued for various services provided by KPMG LLP and its affiliates to the Company during the Company’s last two fiscal years:

 

Services		Fees Accrued During the Year Ended (C$)
		December 31, 2022				December 31, 2021
Audit Fees			2,286,433				1,575,854
Statutory Audit Fees Audit-Related Fees			5,259,692 431,191				2,313,944 408,633
Tax Compliance Fees			6,416,260				3,746,044
Other Tax Fees Other Fees			30,916 92,706				412,037 91,818
Total			14,517,198				8,548,330

Audit Fees relate to professional services rendered for audits of the Company’s annual consolidated financial statements, reviews of our interim consolidated financial statements for the first three quarters of the year. Statutory Audit Fees relate to statutory and stand-alone audits of certain of our subsidiaries. Audit-Related Fees relate to certification/attestation services. Tax Compliance Fees relate principally to fees associated with assistance in respect of tax compliance requirements in various jurisdictions and investment tax credit filings. Other Tax Fees relate to tax due diligence and tax structuring advisory services in support of mergers and acquisitions, divestiture and financing transactions. The Company regularly solicits bids from multiple service providers for tax compliance work and other tax services, and makes decisions based on factors such as expertise, capabilities and price. The time and effort required by service providers to understand the multitude of businesses owned by the Company is fairly extensive, thus developing long term relationships results in process efficiencies. Other Fees primarily relate to merger and acquisition advisory and due diligence services, cyber security detection and response assessments, and assistance with preparation and language translation of statutory and/or stand-alone financial statements of certain of our subsidiaries. The amounts indicated above are exclusive of related taxes.

Compensation, Nominating and Human Resources Committee (“CNHR”)

The CNHR committee ensures that we have a high caliber executive management team in place and a total compensation plan that is competitive, motivating and rewarding for participants. The committee also advises the Board in filling vacancies on the Board. The committee reviews and makes recommendations to the Board regarding the appointment of executive officers, and the establishment of, and any material changes to, executive compensation programs, including that of the President. This committee also reviews management succession plans and is responsible for overseeing employee compensation. A copy of the CNHR committee’s charter is attached to the Company’s most recently filed Management Information Circular.

 

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INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

Except as disclosed above under the heading “General Development of the Business – Acquisitions”, in the last three years, there were no material transactions in which any director, executive officer or person that beneficially owns or controls or directs more than 10% of the Common Shares or any affiliate thereof had an interest.

LEGAL PROCEEDINGS

We and our subsidiaries are engaged in legal proceedings from time to time, arising in the ordinary course of business. None of these actions, individually or in the aggregate, are expected to have a material adverse effect on our consolidated financial position or results of operations.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Shares is Computershare Trust Company of Canada at its principal transfer office in Toronto, Ontario.

INTERESTS OF EXPERTS

Names of Experts

The consolidated financial statements of the Company for the years ended December 31, 2022 and 2021 have been audited by KPMG LLP.

Interests of Experts

KPMG LLP are the external auditors of the Company and have confirmed that they are independent with respect to the Company within the meaning of the relevant rules and related interpretations prescribed by the relevant professional bodies in Canada and any applicable legislation or regulations.

CONFLICTS OF INTEREST

From time to time, the Company may invest in shares or other securities of publicly traded companies in which certain of our executive officers or directors may also own securities. While the Company is acquiring and holding securities of any such issuer, the Company’s executive officers and directors are prohibited from acquiring or selling securities of such issuer.

ADDITIONAL INFORMATION

Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of the Company’s securities, and securities authorized for issuance under equity compensation plans, where applicable, are contained in our Management Information Circular for our most recent annual meeting of shareholders that involved the election of directors, and additional financial information is provided in the Company’s comparative financial statements and management discussion and analysis for our most recently completed financial year.

 

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Additional information about the Company is available on SEDAR at www.sedar.com.

 

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APPENDIX A

CONSTELLATION SOFTWARE INC.

AUDIT COMMITTEE MANDATE

Responsibilities

Reporting to the Board of Directors, the Audit Committee shall be responsible for assisting in the Board of Directors’ oversight of the reliability and integrity of the accounting principles and practices, financial statements and other financial reporting, and disclosure practices followed by management of the Corporation and its subsidiaries. The Audit Committee shall also have oversight responsibility for

 

(i)

the qualifications, independence and performance of the independent auditors,

 

(ii)

the establishment by management of an adequate system of internal controls and

 

(iii)

the preparation by management of quarterly and annual financial statements and

 

(iv)

the maintenance by management of practices and processes to assure compliance with applicable laws.

Composition

The Committee shall be composed of not less than three Directors of the Corporation, all of whom are not officers or employees of the Corporation or any of its affiliates. Each member of the Committee shall be financially literate¹ or must become financially literate within a reasonable period of time after his or her appointment to the Committee.

Meetings

The committee shall meet in regular sessions at least four times each year; to review and recommend to the board approval of the financial statements for the first three quarters as well as the annual financial statements. Special meetings of the Committee may be called by the Chairman of the Board, any member of the Committee, or by the independent auditors. The independent auditors shall receive notice of every meeting of the Committee and the independent auditors are entitled to attend and participate in such meetings. Minutes of Committee meetings shall be prepared and be made available to the Board of Directors.

Nomination of Independent Auditors

The Board of Directors, after consideration of the recommendation of the Committee, shall nominate the independent auditors for appointment by the shareholders of the Corporation in accordance with applicable law. The independent auditors are ultimately accountable to the Committee and the Board of Directors as representatives of shareholders.

Specific Oversight Duties

In carrying out its responsibilities, the Committee shall have the following specific oversight duties:

 

I)	INDEPENDENT AUDITORS

 

a)

review, at least annually, the performance of the independent auditors, and annually recommend to the Board of Directors, for approval by the shareholders, the appointment of the independent auditors of the Corporation in accordance with the Act;

 

1	“Financially literate” shall mean that the Director is able to critically read and understand a balance sheet, an income statement, a cash flow statement and the notes attached thereto.

 

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b)

engage in an active dialogue with the independent auditors on their independence from the Corporation, and where it is determined that independence no longer exists recommend that the Board of Directors take appropriate action;

 

c)

review and recommend to the Board of Directors for approval the terms of any annual audit engagement of the independent auditors, including the appropriateness of the proposed audit fees with respect to the engagement of the independent auditors for any audit related services;

 

d)

approve any non-audit services to be provided by the firm of the independent auditors;

 

e)

review and approve annually the overall scope of the independent auditors’ annual audit plan;

 

II)	INTERNAL CONTROLS

 

f)

periodically review the status and findings of the independent auditors’ audit plan and the adequacy of internal controls established by management and, where appropriate, make recommendations or reports thereon to the Board of Directors;

 

g)

understand the scope of internal and external auditors’ review of internal control over financial reporting, and obtain reports on significant findings and recommendations, together with management’s responses;

 

h)

annually, and at any time in response to a specific request by management or the independent auditors, meet separately with the relevant parties with respect to such matters as the effectiveness of the system of internal controls established by management, the adequacy of the financial reporting process, the quality and integrity of the financial statements, the evaluation of the performance of the independent auditor and any other matter that may be appropriate;

 

III)	FINANCIAL STATEMENTS

 

i)

review significant accounting and reporting issues, including complex or unusual transactions and highly judgmental areas, and recent professional and regulatory pronouncements, and understand their impact on the financial statements;

 

j)

review the quarterly and annual financial statements, and consider whether they are complete, consistent with information known to committee members, and reflect appropriate accounting principles;

 

k)

review significant changes in the accounting principles to be observed in the preparation of the accounts of the Corporation and its subsidiaries, or in their application, and in financial statement presentation;

 

l)

review and, following discussion with the independent auditors (following their review of the financial statements) and management, recommend to the Board of Directors, approval of unaudited quarterly and audited annual consolidated financial statements of the Corporation;

 

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IV)	COMPLIANCE WITH APPLICABLE LAWS

 

m)

review and monitor practices and procedures adopted by management to assure compliance with applicable laws, and, where appropriate, make recommendations or reports thereon to the Board of Directors;

Specific Issue Examinations

In discharging its duties and responsibilities, the Committee may direct that the independent auditors examine or consider a specific matter or area and report to the Committee on the findings of such examination. The Committee may direct the independent auditors or other party to perform supplemental reviews or audits as the Committee deems desirable.

Authority

The audit committee has authority to conduct or authorize investigations into any matters within its scope of responsibility. It is empowered to:

 

•

Retain outside counsel, accountants or others to advise the committee or assist in the conduct of an investigation

 

•

Seek any information it requires from employees – all of whom are directed to cooperate with the committee’s request – or external parties

 

•

Meet with company officers, external auditors or outside counsel as necessary

Mandate Review

The Committee shall review and assess the adequacy of the Committee mandate annually, and recommend any proposed changes to the Board of Directors for approval.

Limitation of Responsibilities

While the Committee has the responsibilities and powers set forth in this mandate, it is not the duty of the Committee to plan or conduct audits, to determine that the Corporation’s financial statements are complete and accurate and are in accordance with International Financial Reporting Standards, or to design or implement an effective system of internal controls. Such matters are the responsibility of management and the independent auditors, as the case may be. Nor is it the duty of the Committee to conduct investigations, to resolve disagreements, if any, between management and the independent auditors or to assure compliance with applicable accounting standards, laws and regulations.

 

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Exhibit 2.2

Constellation Software Inc.

Notice of Annual and Special Meeting of Shareholders

To Be Held On May 5, 2022

Notice is hereby given that the annual and special meeting (the “Meeting”) of the holders of common shares (“Common Shares”) of Constellation Software Inc. (“CSI” or the “Corporation”) will be conducted as a virtual meeting to be held via live audio webcast online at: https://meetnow.global/MGG5DGF on May 5, 2022 at 9:00 a.m. (Eastern Time) for the following purposes:

 

(a)

to receive the financial statements for the year ended December 31, 2021 and the auditors’ report thereon;

 

(b)

to elect directors;

 

(c)

to re-appoint KPMG LLP as auditors for the ensuing year and to authorize the directors to fix their remuneration;

 

(d)

to consider, and if thought advisable, to pass a special resolution (the full text of which is reproduced in Schedule “A”) authorizing the Corporation to amend its articles to increase the maximum number of directors from fifteen to twenty

 

(e)

to consider the shareholder proposal set out in Schedule “B” to the accompanying management information circular;

 

(f)

to consider and vote on an advisory resolution on CSI’s approach to executive compensation, and;

 

(g)

to transact such other business as may properly come before the meeting or any adjournment thereof.

The management information circular (the “Circular”) describes the business to be conducted at the Meeting and also describes the Corporation’s governance practices. A holder of Common Shares of record at the close of business on March 24, 2022 will be entitled to vote at the Meeting.

 

To mitigate risks related to the global COVID-19 (coronavirus) public health emergency to the Corporation’s shareholders, employees, communities and other stakeholders and based on government recommendations to avoid large gatherings, the Meeting will be conducted in a virtual only format, which will be conducted via live audio webcast. The live audio webcast will allow shareholders to have an equal opportunity to participate at the Meeting regardless of their geographic location or particular circumstances they may be facing as a result of COVID-19. Shareholders will not be able to attend the Meeting in person. A summary of the information shareholders will need to attend the Meeting online is provided in the Circular.

Registered shareholders and duly appointed proxyholders will be able to attend the Meeting, ask questions and vote, all in real time, provided they are connected to the Internet and comply with all of the requirements set out in the Circular. Non-registered shareholders who have not duly appointed themselves as a proxyholder will be able to attend the Meeting as guests and ask questions, but guests will not be able to vote at the Meeting.

 

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A shareholder who wishes to appoint a person other than the management nominees identified on the form of proxy or voting instruction form (including a non-registered shareholder who wishes to appoint themselves to attend) must carefully follow the instructions in the Circular and on their form of proxy or voting instruction form. These instructions include the additional step of registering such proxyholder with our transfer agent, Computershare Investor Services Inc., after submitting their form of proxy or voting instruction form. Failure to register the proxyholder with our transfer agent will result in the proxyholder not receiving an invite code to vote in the Meeting and only being able to attend as a guest.

If unable to attend the Meeting, a registered shareholder may submit his or her proxy by mail, by facsimile, by telephone or over the Internet in accordance with the instructions below.

A non-registered shareholder should follow the instructions included on the voting instruction form provided by his or her Intermediary.

Voting by Mail Before the Meeting. A registered shareholder may submit his or her proxy by mail by completing, dating and signing the enclosed form of proxy and returning it using the envelope provided or otherwise to the attention of the Proxy Department of Computershare Investor Services Inc. at 100 University Avenue, 8th Floor, North Tower, Toronto, Ontario, M5J 2Y1.

Voting by Facsimile Before the Meeting. A registered shareholder may submit his or her proxy by facsimile by completing, dating and signing the enclosed form of proxy and returning it by facsimile to Computershare Investor Services Inc. at [phone] or toll free (within North America) at [phone].

Voting by Telephone Before the Meeting. A registered shareholder may vote by telephone by calling toll free 1-866-732-VOTE (8683) or from outside of North America by calling [phone] and following the instructions provided. Shareholders will require the 15 digit control number (located on the front of the proxy) to identify themselves to the system.

Voting by Internet Before the Meeting. A registered shareholder may vote over the Internet by going to www.investorvote.com and following the instructions. Such shareholder will require the 15 digit control number (located on the front of the proxy) to identify themselves to the system.

To be effective, a proxy must be received by Computershare Investor Services Inc. no later than 9:00 a.m. (Eastern Time) on May 3, 2022 or, if the Meeting is adjourned, 48 hours (Saturdays, Sundays and holidays excepted) prior to the time of holding the Meeting.

The Corporation has elected to use the notice-and-access provisions under National Instrument 54-101 – Communication with Beneficial Owners of Securities of a Reporting Issuer (“NI 54-101”) and National Instrument 51-102 – Continuous Disclosure Obligations (“NI 51-102” and together with NI 54-101, the “Notice-and-Access Provisions”) for the Meeting. The Notice-and-Access Provisions are a set of rules developed by the Canadian Securities Administrators that allow issuers to post electronic versions of proxy-related materials on-line, via the System for Electronic Document Analysis and Retrieval (“SEDAR”) and one other website, rather than mailing paper copies of such materials to securityholders.

 

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Electronic copies of this Notice of Annual and Special Meeting of Shareholders, the Circular, the Corporation’s management’s discussion and analysis of the results of operations and financial condition of the Corporation for the year ended December 31, 2021 and the audited consolidated financial statements of the Corporation and accompanying notes for the year ended December 31, 2021 together with the auditor’s report thereon (the “2021 MD&A and Financials”) may be found on SEDAR at www.sedar.com and also on the Corporation’s website at www.csisoftware.com.

Shareholders are reminded to review the Circular before voting.

Shareholders will receive paper copies of a notice package (the “Notice Package”) via pre-paid mail containing a notice with information prescribed by NI 54-101 and a form of proxy (if you are a registered shareholder) or a voting instruction form (if you are a non-registered shareholder).

The Corporation will not use procedures known as ‘stratification’ in relation to the use of Notice-and-Access Provisions. Stratification occurs when an issuer using Notice-and-Access Provisions sends a paper copy of the Circular to some securityholders with a Notice Package.

Shareholders may obtain paper copies of the Circular and the 2021 MD&A and Financials free of charge by calling the following numbers and using the control number that appears on the form of proxy or voting instructions form.

For holders with a 15 digit control number: Request materials by calling Toll Free, within North America - 1-866-962-0498 or direct, from Outside of North America – 1-514-982-8716 and entering your control number as indicated on your proxy or voting instruction form.

For holders with a 16 digit control number: Request materials by calling Toll Free, within North America - 1-877-907-7643 or outside of North America - 1-303-562-9305.

Any shareholder wishing to obtain a paper copy of the meeting materials should submit their request no later than April 21, 2022 in order to receive paper copies of the meeting materials in time to vote before the Meeting. Shareholders may contact Computershare Toll Free at 1-866-964-0492 or www.computershare.com/noticeandaccess to obtain more information about the Notice-and-Access Provisions. Under the Notice-and-Access Provisions, meeting materials will be available for viewing on the Corporation’s website for one year from the date of posting.

 

DATED March 24, 2022		By Order of the Board
		John Billowits Chairman

 

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CONSTELLATION SOFTWARE INC.

MANAGEMENT INFORMATION CIRCULAR FOR THE ANNUAL AND SPECIAL

MEETING OF SHAREHOLDERS TO BE HELD ON MAY 5, 2022

SOLICITATION OF PROXIES

This management information circular (the “Circular”) dated as of March 24, 2022 and accompanying form of proxy are furnished in connection with the solicitation, by management of Constellation Software Inc. (“CSI” or the “Corporation”), of proxies to be used at the annual and special meeting of shareholders of the Corporation (the “Meeting”) referred to in the accompanying Notice of the Annual and Special Meeting of Shareholders (the “Notice”) to be held on May 5, 2022, at the time and place and for the purposes set forth in the Notice. The solicitation will be made primarily by mail, subject to the use of Notice-and-Access Provisions (as defined below) in relation to delivery of the meeting materials, but proxies may also be solicited personally or by telephone by directors and/or officers of the Corporation, or by the Corporation’s transfer agent, Computershare Investor Services Inc. (“Computershare”), at nominal cost. The cost of solicitation by management will be borne by the Corporation. Pursuant to National Instrument 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer (“NI 54-101”), arrangements have been made with clearing agencies, brokerage houses and other financial intermediaries to forward proxy solicitation material to the beneficial owners of the common shares of the Corporation (“Common Shares”). The cost of any such solicitation will be borne by the Corporation.

MEETING INFORMATION

 

To mitigate risks related to the global COVID-19 (coronavirus) public health emergency to the Corporation’s shareholders, employees, communities and other stakeholders and based on government recommendations to avoid large gatherings, the Meeting will be conducted in a virtual only format, which will be conducted via live audio webcast. The live audio webcast will allow shareholders to have an equal opportunity to participate at the Meeting regardless of their geographic location or particular circumstances they may be facing as a result of COVID-19. Shareholders will not be able to attend the Meeting in person. A summary of the information shareholders will need to attend the Meeting online is provided below. See “Voting at the Meeting” below.

The Meeting will be held on May 5, 2022 at 9:00 a.m. (Eastern Time) virtually via live audio webcast online at: https://meetnow.global/MGG5DGF.

Registered shareholders and duly appointed proxyholders who participate at the Meeting online will be able to listen to the Meeting, ask questions and vote, all in real time, provided they are connected to the Internet and comply with all of the requirements set out below under “Voting at the Meeting”. Non-registered holders who have not duly appointed themselves as proxyholders may still attend the Meeting as guests. Guests will be able to listen to the Meeting and ask questions but will not be able to vote at the Meeting. See “Voting at the Meeting” below.

 

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VOTING BEFORE THE MEETING

Appointment and Revocation of Proxies

The persons named in the form of proxy are directors and/or officers of the Corporation. Each shareholder has the right to appoint a person, who need not be a shareholder of the Corporation, other than the persons named in the form of proxy, to represent such shareholder at the Meeting or any adjournment thereof. Such right may be exercised by inserting such person’s name in the blank space provided in the form of proxy or by completing another proper form of proxy. The additional registration step outlined below under “Voting at the Meeting – Appointment of a Third Party as Proxy” must also be followed. All proxies must be executed by the shareholder or his or her attorney duly authorized in writing or, if the shareholder is a corporation, by an officer or attorney thereof duly authorized. A registered shareholder may submit his or her proxy by mail, by facsimile, by telephone or over the Internet in accordance with the instructions below.

A non-registered shareholder should follow the instructions included on the voting instruction form provided by his or her Intermediary (as defined below).

Voting by Mail Before the Meeting. A registered shareholder may submit his or her proxy by mail by completing, dating and signing the form of proxy and returning it using the envelope provided or otherwise to the attention of the Proxy Department of Computershare Investor Services Inc. at 100 University Avenue, 8th Floor, North Tower, Toronto, Ontario, M5J 2Y1.

Voting by Facsimile Before the Meeting. A registered shareholder may submit his or her proxy by facsimile by completing, dating and signing the form of proxy and returning it by facsimile to Computershare Investor Services Inc. at [phone] or toll free (within North America) at [phone].

Voting by Telephone Before the Meeting. A registered shareholder may vote by telephone by calling toll free 1-866-732-VOTE (8683) or from outside of North America by calling [phone] and following the instructions provided (located on the front of the proxy) to identify themselves to the system.

Voting by Internet Before the Meeting. A registered shareholder may vote over the Internet by going to www.investorvote.com and following the instructions. Such shareholder will require a control number (located on the front of the proxy) to identify themselves to the system.

To be effective, a proxy must be received by Computershare no later than 9:00 a.m. (Eastern Time) on May 3, 2022 or, if the Meeting is adjourned, 48 hours (Saturdays, Sundays and holidays excepted) prior to the time of holding the Meeting.

A shareholder who has given a proxy has the power to revoke it as to any matter on which a vote has not already been cast pursuant to the authority conferred by such proxy and may do so either: (1) by delivering another properly executed form of proxy bearing a later date and depositing it as described above; (2) by depositing an instrument in writing revoking the proxy executed by the shareholder with Computershare at any time up to and including 9:00 a.m. (Eastern Time) on the second last business day preceding the day of the Meeting, or any adjournment thereof, at which the proxy is to be used; or (3) in any other manner permitted by law.

 

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If you are using a 15-digit control number to login to the Meeting and you accept the terms and conditions, and you vote again at the Meeting, you will be revoking any and all previously submitted proxies. If you DO NOT wish to revoke all previously submitted proxies, do not vote again at the Meeting or only enter the Meeting as a guest.

Notice-and-Access

The Corporation has elected to use the notice-and-access provisions under NI 54-101 and National Instrument 51-102 – Continuous Disclosure Obligations (“NI 51-102” and together with NI 54-101, the “Notice-and-Access Provisions”) for the Meeting. The Notice-and-Access Provisions are a set of rules developed by the Canadian Securities Administrators that allow issuers to post electronic versions of proxy-related materials on-line, via the System for Electronic Document Analysis and Retrieval (“SEDAR”) and one other website, rather than mailing paper copies of such materials to securityholders.

Electronic copies of this Notice of Annual and Special Meeting of Shareholders, the Circular, the Corporation’s management’s discussion and analysis of the results of operations and financial condition of the Corporation for the year ended December 31, 2021 and the audited consolidated financial statements of the Corporation and accompanying notes for the year ended December 31, 2021 together with the auditor’s report thereon (the “2021 MD&A and Financials”) may be found on SEDAR at www.sedar.com and also on the Corporation’s website at www.csisoftware.com.

Shareholders will receive paper copies of a notice package (the “Notice Package”) via pre-paid mail containing a notice with information prescribed by NI 54-101 and a form of proxy (if you are a registered shareholder) or a voting instruction form (if you are a Non-Registered Holder (as defined below)).

The Corporation will not use procedures known as ‘stratification’ in relation to the use of Notice-and-Access Provisions. Stratification occurs when an issuer using Notice-and-Access Provisions sends a paper copy of the Circular to some securityholders with a Notice Package.

Shareholders may obtain paper copies of the Circular and the 2021 MD&A and Financials free of charge by calling the following numbers and using the control number that appears on the form of proxy or voting instructions form.

For holders with a 15 digit control number: Request materials by calling Toll Free, within North America - 1-866-962-0498 or direct, from Outside of North America – 1-514-982-8716 and entering your control number as indicated on your proxy or voting instruction form.

For holders with a 16 digit control number: Request materials by calling Toll Free, within North America - 1-877-907-7643 or outside of North America - 1-303-562-9305.

Any shareholder wishing to obtain a paper copy of the meeting materials should submit their request no later than April 21, 2022 in order to receive paper copies of the meeting materials in time to vote before the Meeting. Shareholders may contact Computershare Toll Free at 1-866-964-0492 or www.computershare.com/noticeandaccess to obtain more information about the Notice-and-Access Provisions. Under the Notice-and-Access Provisions, meeting materials will be available for viewing on the Corporation’s website for one year from the date of posting.

 

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Non-Registered Holders

Only registered holders of Common Shares, or the persons they appoint as their proxies, are permitted to attend and vote at the Meeting. However, in many cases, Common Shares beneficially owned by a holder (a “Non-Registered Holder”) are registered either:

 

(A)

in the name of an intermediary (an “Intermediary”) that the Non-Registered Holder deals with in respect of the Common Shares, such as, among others, banks, trust companies, securities dealers or brokers and trustees or administrators of self-administered registered savings plans, registered retirement income funds, registered education savings plans and similar plans; or

 

(B)

in the name of a clearing agency (such as CDS Clearing and Depository Services Inc. (“CDS”)) of which the Intermediary is a participant.

Common Shares held in the name of an Intermediary or clearing agency can only be voted upon the instructions of the Non-Registered Holder. Without specific instructions, the Intermediary is prohibited from voting the Common Shares. Therefore, each Non-Registered Holder should ensure that voting instructions are communicated to the appropriate person well in advance of the Meeting.

Applicable Canadian regulatory policy requires Intermediaries to seek voting instructions from Non-Registered Holders in advance of shareholders’ meetings. In Canada, many Intermediaries delegate responsibility for obtaining instructions from clients to Broadridge Financial Solutions Inc.

Generally, a Non-Registered Holder will receive either a voting instruction form or, less frequently, a form of proxy. The purpose of these forms is to permit Non-Registered Holders to direct the voting of the Common Shares they beneficially own. Non-Registered Holders should follow the procedures set out below, in addition, if applicable, to the procedures set out below under “Voting at the Meeting – Appointment of a Third Party as Proxy”, depending on the type of form they receive:

 

1)

Voting Instruction Form. In most cases, a Non-Registered Holder will receive, as part of the meeting materials, a voting instruction form. If the Non-Registered Holder does not wish to attend and vote at the Meeting (or have another person attend and vote on the holder’s behalf), but wishes to direct the voting of the Common Shares they beneficially own, the voting instruction form must be submitted by mail, telephone or over the Internet in accordance with the directions on the form. If a Non-Registered Holder wishes to attend and vote at the Meeting (or have another person attend and vote on the Non-Registered Holder’s behalf), the Non-Registered Holder must complete, sign and return the voting instruction form in accordance with the directions provided; or

 

2)

Form of Proxy. Less frequently, a Non-Registered Holder will receive, as part of the meeting materials, a form of proxy that has already been signed by the Intermediary (typically by facsimile, stamped signature) which is restricted as to the number of Common Shares beneficially owned by the Non-Registered Holder but which is otherwise uncompleted. If the Non-Registered Holder does not wish to attend and vote at the Meeting (or have another person attend and vote on the Non-Registered Holder’s behalf), but wishes to direct the voting of the Common Shares they beneficially own, the Non-Registered Holder must complete the form of proxy and submit it to Computershare as described above. If a Non-Registered Holder wishes to attend and vote at the Meeting (or have another person attend and vote on the holder’s behalf), the Non-Registered Holder must strike out the persons named in the proxy and insert the Non-Registered Holder (or such other person’s) name in the blank space provided and submit it to Computershare as described above.

 

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In either case, Non-Registered Holders should carefully follow the instructions of their Intermediaries, including those regarding when and where the proxy or the voting instruction form is to be delivered. In addition, if applicable, Non-Registered Holders should follow the procedures set out below under “Voting at the Meeting – Appointment of a Third Party as Proxy”.

A Non-Registered Holder may revoke a voting instruction form or a waiver of the right to receive meeting materials and to vote given to an Intermediary at any time by written notice to the Intermediary, except that an Intermediary is not required to act on a revocation of a voting instruction form or of a waiver of the right to receive materials and to vote that is not received by the Intermediary at least seven days prior to the Meeting.

Exercise of Discretion by Proxies

Common Shares represented by properly executed proxies in favour of the persons named in the form of proxy will be voted on any ballot that may be called for and, where the person whose proxy is solicited specifies a choice with respect to the matters identified in the proxy, the shares will be voted or withheld from voting in accordance with the specifications so made. Where shareholders have properly executed proxies in favour of the persons named in the form of proxy and have not specified in the form of proxy the manner in which the named proxies are required to vote the shares represented thereby, such shares will be voted in favour of the passing of the matters set forth in the Notice other than the shareholder proposal set out in Schedule “B”, for which such shares will be voted against. The form of proxy confers discretionary authority with respect to amendments or variations to the matters identified in the Notice and with respect to other matters that may properly come before the Meeting. At the date hereof, management of the Corporation knows of no such amendments, variations or other matters to come before the Meeting. However, if any other matters which at present are not known to management of the Corporation should properly come before the Meeting, the proxy will be voted on such matters in accordance with the best judgment of the named proxies.

VOTING AT THE MEETING

General

Registered shareholders may vote at the Meeting by completing a ballot online during the Meeting, as further described below under “How do I Attend and Participate at the Meeting?”.

Non-Registered Holders who have not duly appointed themselves as proxyholder will not be able to vote at the Meeting but will be able to participate as a guest and ask questions. This is because the Corporation and Computershare, do not have a record of the Non-Registered Holders, and, as a result, will have no knowledge of your shareholdings or entitlement to vote unless you appoint yourself as proxyholder.

If you are a Non-Registered Holder and wish to vote at the Meeting, you have to appoint yourself as proxyholder by inserting your own name in the space provided on the voting instruction form sent to you and you must follow all of the applicable instructions, including the deadline, provided by your Intermediary. See “Appointment of a Third Party as Proxy” and “How do I Attend and Participate at the Meeting?” below.

 

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If you are a U.S. beneficial shareholder, to attend and vote at the Meeting, you must first obtain a valid legal proxy from your broker, bank or other agent and then register in advance to attend the Meeting. Follow the instructions from your broker or bank included with these proxy materials, or contact your broker or bank to request a legal proxy form. After first obtaining a valid legal proxy from your broker, bank or other agent, to then register to attend the Meeting, you must submit a copy of your legal proxy to Computershare. Requests for registration should be directed by mail to the attention of the Proxy Department of Computershare Investor Services Inc. at 100 University Avenue, 8th Floor, North Tower, Toronto, Ontario, M5J 2Y1 or by email at [e-mail]. Requests for registration must be labeled as “Legal Proxy” and be received no later than May 3, 2022 by 9:00 a.m. (Eastern Time). You will receive a confirmation of your registration by email after Computershare receives your registration materials. Please note that you MUST also register your appointment at http://www.computershare.com/Constellation.

Appointment of a Third Party as Proxy

The following applies to shareholders who wish to appoint someone as their proxyholder other than the management nominees named in the form of proxy or voting instruction form. This includes Non-Registered Holders who wish to appoint themselves as proxyholder to attend, participate or vote at the Meeting.

Shareholders who wish to appoint someone other than the management nominees as their proxyholder to attend and participate at the Meeting as their proxy and vote their Common Shares MUST submit their form of proxy or voting instruction form, as applicable, appointing that person as proxyholder AND register that proxyholder online, as described below. Registering your proxyholder is an additional step to be completed AFTER you have submitted your form of proxy or voting instruction form. Failure to register the proxyholder will result in the proxyholder not receiving an invite code to vote in the Meeting and only being able to attend as a guest.

Step 1: Submit your form of proxy or voting instruction form: To appoint someone other than the management nominees as proxyholder, insert that person’s name in the blank space provided in the form of proxy or voting instruction form (if permitted) and follow the instructions for submitting such form of proxy or voting instruction form. This must be completed before registering such proxyholder, which is an additional step to be completed once you have submitted your form of proxy or voting instruction form.

If you are a Non-Registered Holder and wish to vote at the Meeting, you have to insert your own name in the space provided on the voting instruction form sent to you by your Intermediary, follow all of the applicable instructions provided by your Intermediary AND register yourself as your proxyholder, as described below. By doing so, you are instructing your Intermediary to appoint you as proxyholder. It is important that you comply with the signature and return instructions provided by your Intermediary. Please also see further instructions below under the heading “How do I Attend and Participate at the Meeting?”.

Step 2: Register your proxyholder: To register a third party proxyholder, shareholders must visit http://www.computershare.com/Constellation by 9:00 a.m. (Eastern Time) on May 3, 2022 and provide Computershare with the required proxyholder contact information so that Computershare may provide the proxyholder with an invite code via email to participate in the Meeting. Without an invite code, proxyholders will not be able to vote at the Meeting but will be able to participate as a guest.

 

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How do I Attend and Participate at the Meeting?

The Corporation is holding the Meeting in a virtual only format, which will be conducted via live audio webcast. Shareholders will not be able to attend the Meeting in person.

Attending the Meeting online enables registered shareholders and duly appointed proxyholders, including Non-Registered Holders who have duly appointed themselves as proxyholder, to vote at the Meeting and ask questions at the appropriate times during the Meeting, all in real time.

Guests, including Non-Registered Holders who have not duly appointed themselves as proxyholder, can login to the Meeting as set out below. Guests can listen to the Meeting and ask questions but are not able to vote.

Log in online at: https://meetnow.global/MGG5DGF on your smartphone, tablet or computer. You will need the latest version of Chrome, Safari, Edge or Firefox. We recommend that you log in at least one hour before the Meeting starts.

If you are a registered shareholder click “Shareholder” and then enter your 15-digit control number, which is the control number located on your form of proxy or in the email notification you received from Computershare.

OR

If you are a duly appointed proxyholder click “Invitation” and then enter the invite code that was provided to you by Computershare after the voting deadline passed. In order to be a duly appointed proxyholder the proxyholder must be registered as described in “Appointment of a Third Party as Proxy” above.

OR

If you are a Non-Registered Holder that has not appointed yourself as a proxyholder click “Guest” and then complete the online form.

If you attend the Meeting online, it is important that you are connected to the internet at all times during the Meeting in order to vote when balloting commences. It is your responsibility to ensure connectivity for the duration of the Meeting. You should allow ample time to check into the Meeting online and complete the related procedures outlined above.

If you are using a 15-digit control number to login to the Meeting and you accept the terms and conditions, and you vote again at the Meeting, you will be revoking any and all previously submitted proxies. If you DO NOT wish to revoke all previously submitted proxies, do not vote again at the Meeting or only enter the Meeting as a guest.

 

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INTERPRETATION

Unless otherwise indicated, all dollar amounts are expressed in U.S. dollars. All references to “$” are to U.S. dollars and all references to “C$” are to Canadian dollars. The information contained herein is provided as of March 24, 2022, unless indicated otherwise.

VOTING SHARES AND PRINCIPAL HOLDERS THEREOF

The Corporation has fixed March 24, 2022 as the record date (the “Record Date”) for the persons entitled to receive notice of the Meeting. The Corporation shall prepare a list of all persons who are registered holders of Common Shares on the Record Date and the number of Common Shares registered in the name of each holder on such date. Each holder of Common Shares is entitled to be present at the Meeting and to one vote for each Common Share registered in the name of such holder in respect of each matter to be voted upon at the Meeting. As at March 24, 2022, there were 21,191,530 Common Shares outstanding.

A quorum for the transaction of business at the Meeting is the presence of two shareholders of the Corporation holding Common Shares, present in person or by telephonic or electronic means and holding or representing by proxy not less than 15% of the votes entitled to be cast at the Meeting.

To the knowledge of the directors and officers of the Corporation, no person beneficially owns, or exercises control or direction over, directly or indirectly more than 10% of the outstanding Common Shares.

COMPENSATION OF EXECUTIVE OFFICERS

COMPENSATION DISCUSSION AND ANALYSIS

Objectives of the Corporation’s Executive Compensation Program

The primary objective of the Corporation’s executive compensation program is to attract and retain highly skilled executives required for the success of the Corporation and to reward and retain executives who create long-term value for our shareholders. The Compensation, Nominating and Human Resources (“CNHR”) Committee is responsible for making recommendations to the Board of Directors of the Corporation (the “Board” or the “Board of Directors”) with respect to the establishment of a compensation plan for the Corporation’s executive officers, including the Named Executive Officers (as defined below).

The Corporation’s executive compensation program consists of base salary and annual incentive compensation. The annual incentive compensation is paid by way of a cash bonus, although a portion of the bonus is usually required to be used to purchase Common Shares.

Total compensation for each executive officer is designed to be competitive. The compensation for the executives is determined based on the experience of the CNHR members and an internal comparison across the Corporation’s business units giving consideration to the size of the business unit and the performance metrics which are important to CSI, namely return on invested capital and revenue growth.

Certain CSI executives voluntarily waived portions of their salary and bonus entitlements in 2021 and in previous years.

 

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Base Salary

Providing a market competitive base salary is necessary to attract new talent as required, and it assists in retaining skilled executive talent. Base salaries for the Operating Group Managers and other Named Executive Officers are set by the CNHR Committee taking into account the executive’s responsibilities, skills, and in the case of the Operating Group Managers, the size of the Operating Group in which they are employed. All executive salaries are reviewed annually by the CNHR Committee on the basis of the above criteria and adjusted accordingly.

Annual Incentive Bonus

The objective of our annual incentive bonus is to reward employees for working towards our goal of increasing shareholder value. We believe that shareholder value is created by managing two financial components over the long term: profitability and growth. As such, our corporate bonus plan, which compensates employees at all levels of our organization, is based upon return on invested capital (“ROIC”) and net revenue growth (ROIC is calculated by dividing net income for bonus purposes for the year by the Average Invested Equity Capital for the period.). “Average Invested Equity Capital” represents the average equity capital of CSI, and is based on the Corporation’s estimate of the amount of money that our common shareholders have invested in CSI. Subsequent to that estimate, the Corporation keeps a running tally and adds net income for bonus purposes, subtracting any dividends, adding any amounts related to share issuances and makes some minor adjustments, including adjustments relating to our use of certain incentive programs and the impairment of intangible assets. Neither net income for bonus purposes nor Average Invested Equity Capital are measures defined by International Financial Reporting Standards. Net income for bonus purposes is calculated by making a number of adjustments to net income per the annual consolidated financial statements. The principal adjustments to net income include adjustment for the impact of deferred income taxes, unrealized foreign exchange gains/losses, bargain purchase gains, contingent consideration expense, redeemable preferred securities expense, reductions due to ownership interests in subsidiaries and amortization of intangibles.

An individual’s annual incentive bonus is calculated as follows:

Base salary x Company performance factor x Individual factor

Individual factors for the Operating Group Managers and other Named Executive Officers are set by the CNHR Committee taking into account the executive’s responsibilities, skills, and in the case of the Operating Group Managers, the size of the Operating Group in which they are employed.

The company performance factor for Operating Group Managers is based upon the performance of their respective Operating Group. The President, CFO, and other head office employees’ company performance factor is based upon the performance of the Corporation as a whole.

The company performance factor is determined by reference to net revenue growth and ROIC. ROIC is calculated by dividing net income for bonus purposes for the year by the Average Invested Equity Capital for the period. A ‘risk free’ rate of return established by the board (currently 5%) is netted from the ROIC. If the ROIC does not exceed the risk-free rate of return, then the manager of the business receives no bonus. The Corporation measures growth by looking at the year-over-year increase in net revenues for the particular Operating Group. Net Revenue is not a measure defined by International Financial Reporting Standards. It is calculated based on revenue as reported in the Corporation’s consolidated financial statements prepared in accordance with International Financial Reporting Standards less any third party and flow-through expenses.

 

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In considering the implications of the risks associated with the Corporation’s annual incentive bonus structure, the CNHR Committee was satisfied that the counterbalance between ROIC (calculated by dividing net income for bonus purposes for the year by the Average Invested Equity Capital for the period) and net revenue growth and the requirement to invest 75% of their after-tax incentive bonus into Common Shares mitigates the risk that a Named Executive Officer would take inappropriate or excessive risks in respect of the Corporation’s operations.

Although the Board may, at its discretion, increase or decrease the amount of annual incentive bonus awarded to a Named Executive Officer in a given year, it did not exercise such discretion in respect of the most recently completed fiscal year.

Investment of Annual Incentive Bonus in Constellation shares

Executive officers are required to invest 75% of their after-tax incentive bonus into Common Shares (or in the case of executive officers of Topicus.com Inc, subordinate voting shares of Topicus.com Inc). The shares are held in escrow for a minimum average period of four years. Once in every five-year period, executive officers may choose to receive their bonus entirely in cash. As of the date hereof, the Corporation does not have a formal policy that restricts the purchase by its Named Executive Officers, directors or other employees of financial instruments (including prepaid variable forward contracts, equity swaps, collars or units of exchange funds) that are designed to hedge or offset a decrease in the market value of equity securities granted as compensation or held, directly or indirectly, by the Named Executive Officer, director or employee.

Mark Leonard’s Compensation

Mr. Leonard’s compensation for acting as President of the Corporation during fiscal 2021 was determined by the CNHR Committee. The President’s performance is reviewed on an annual basis, and changes to his base salary and/or the basis used for calculating incentive compensation in the coming year are made at that time. Mr. Leonard’s and head office employees’ incentive bonus entitlement is calculated in the same manner as the other executive officers as described above. In 2019, 2020 and 2021, Mr. Leonard voluntarily waived his entitlement to receive a salary and a bonus. Additional information regarding Mr. Leonard’s compensation was included in a Letter to Shareholders filed on SEDAR on April 6, 2015.

Share Performance Graph

The following graph compares the total cumulative shareholder return over the five most recently completed financial years for C$100 invested in Common Shares on such date with the total cumulative return of the S&P/TSX Composite Index on an annual basis.

 

		Dec 31/16		Dec 31/17		Dec 31/18		Dec 31/19		Dec 31/20		Dec 31/21
Constellation Software Inc. (CSU: TSX)		100		126		145		215		305		434
S&P/TSX Composite Index		100		109		99		122		129		161

 

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The Corporation’s total shareholder return increased by 334% since December 31, 2016, while the S&P/TSX composite index increased by 61% over the same period. Named Executive Officer compensation from 2016 to 2021, increased by 36%, compared to the 334% increase in cumulative shareholder return over the same period. The CNHR Committee believes that the increase in compensation since December 31, 2016 reflects the improvement in the overall performance of the Corporation as net revenue and net income used for bonus purposes grew by 143% and 150%, respectively, since December 31, 2016. The bonuses of the Named Executive Officers, except for the President and Chief Financial Officer of the Corporation, are tied to the returns on invested capital of the Operating Group for which they are directly responsible, rather than the returns on the capital of the Corporation as a whole.

Summary Compensation Table

The following table provides a summary of the compensation earned during 2019, 2020 and 2021 by the President, the Chief Financial Officer and the Corporation’s other three most highly compensated executive officers based on total compensation for the fiscal year ended December 31, 2021 (collectively, the “Named Executive Officers”).

 

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										Annual Compensation (presented in United States Dollars) (1)
										Annual Incentive Plan Compensation ($)(2)
Name and Principal Position		Fiscal Year				Salary ($)				Portion of Bonus Withheld at Source for Tax Purposes ($)				Portion of Bonus Paid in Cash ($)				Portion of Bonus to be Used to Purchase Common Shares ($)				Total Bonus ($)				Other Annual Compensation ($)				Total Compensation ($)
Mark Leonard President			2021 2020 2019				— — —	(3)     (3)    (3)			—   —   —				—   —   —				—   —   —				— — —	(3)    (3)    (3)			NIL NIL NIL				—   —   —
Jamal Baksh Chief Financial Officer(4)			2021 2020 2019				239,229 219,704 222,075				407,240 237,854 233,869				96,818 65,097 58,053				391,775 257,380 207,460				895,833 560,331 499,382				NIL NIL NIL				1,135,062 780,035 721,457
Jeff Bender Chief Executive Officer, Harris Operating Group			2021 2020 2019				450,149 270,381 409,947				690,974 536,682 447,130				177,702 146,808 122,311				659,940 580,180 483,371				1,528,616 1,263,670 1,052,812				NIL NIL NIL				1,978,765 1,534,051 1,462,759
Robin Van Poelje President, Chief Executive Officer and Chairman, Topicus.com Inc. (4)			2021 2020 2019				420,953 405,652 367,137				968,991 853,530 609,165				247,142 171,091 155,367				741,424 513,272 466,103				1,957,557 1,537,893 1,230,635				NIL NIL NIL				2,378,510 1,943,545 1,597,772
Damian McKay Chief Executive Officer, Vela Operating Group			2021 2020 2019				409,807 309,744 269,135				942,443 603,082 392,921				265,688 170,018 110,770				797,066 510,053 332,311				2,005,197 1,283,153 836,002				NIL NIL NIL				2,415,004 1,592,897 1,105,137

Notes:

 

(1)

The compensation data presented for Robin Van Poelje was paid in euros. The compensation data presented for Damian McKay was paid in Australian dollars. The compensation data presented for the remaining individuals was paid in Canadian dollars. Euro salary amounts have been converted to U.S. dollars using the average annual exchange rate of $1.1824 for 2021 (2020—$1.1394; 2019—$1.1193). 2021 euro bonus amounts have been converted to U.S. dollars using the exchange rate prevailing at December 31, 2021 of $1.1342 (2020—$1.2264; 2019—$1.1215). Australian dollar salary amounts have been converted to U.S. dollars using the average annual exchange rate of $0.7506 for 2021 (2020- $0.6878; 2019—$0.6951). 2021 Australian dollar bonus amounts have been converted to U.S. dollars using the exchange rate prevailing at December 31, 2021 of $0.7261 (2020—$0.7707; 2019- $0.7013). Canadian dollar salary amounts have been converted to U.S. dollars using the average annual exchange rate of $0.7974 for 2021 (2020- $0.7455; 2019—$0.7536). 2021 Canadian dollar bonus amounts have been converted to U.S. dollars using the exchange rate prevailing at December 31, 2021 of $0.7874 (2020—$0.7847; 2019- $0.7682).

(2)	Annual incentive compensation is paid by way of a cash bonus, although a portion of such bonus is required to be used to purchase Common Shares on the open market. See “Compensation Discussion and Analysis” for a description of the annual incentive bonus.

(3)	Mr. Leonard voluntarily waived his entitlement to receive a salary or a bonus in 2019, 2020 and 2021.

(4)	Mr. Van Poelje was required to invest the entire after-tax portion of his bonus for 2021 and 2020 in subordinate voting shares of Topicus.com Inc. Mr. Baksh was required to invest the after-tax portion of $28,976 of his bonus for 2021 in subordinate voting shares of Topicus.com Inc.

 

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Employment Agreements

Each of the Named Executive Officers has an employment contract which provides for, among other things, certain covenants in favour of the Corporation or, in respect of a Named Executive Officer employed by one of our subsidiaries, that subsidiary. Each employment agreement provides that the Named Executive Officer will not, during the period of his employment or for a period of at least one year thereafter, be involved in any business that develops or markets competitive software or consulting, maintenance, support or training services in any jurisdiction where we market our products or services. The Named Executive Officer will not, without the prior written approval of the board of directors of his employer, employ any employee or consultant of CSI, in the case of the President and Chief Financial Officer, and, in the case of the other Named Executive Officers, of the applicable operating group each is responsible for, in each case for a period of at least 12 months after the termination of his employment. Each Named Executive Officer will not, during his employment or for a period of at least 12 months thereafter, contract or solicit any clients (including persons who become clients within six months of the termination of his employment) for the purposes of the selling or supplying software products or services competitive to those offered by the Corporation, in the case of the President and the Chief Financial Officer, and, in the case of the other Named Executive Officers, those offered by the applicable Operating Group he is responsible for. If terminated for other than just cause, Mr. Bender is entitled to either 12 months prior written notice or payment in an amount equal to 12 months’ salary at the rate in effect at the time of his termination. If Mr. Leonard is terminated for other than just cause, he is entitled to an amount equal to 12 months’ salary, less required deductions. Mr. Baksh is not entitled to any termination payments or prior notice pursuant to the terms of his employment contract. Mr. van Poelje is entitled to two months’ prior notice of any termination and is not entitled to any termination payments pursuant to the terms of his employment contract. If Mr. McKay is terminated for other than just cause, he is entitled to six months’ prior notice of any termination or six months basic salary at the rate in effect at termination.

Compensation of Non-Employee Directors

The following table provides a summary of the compensation received by each of the non-employee directors during the fiscal year ended December 31, 2021. Non-employee directors are paid $60,000 per annum, plus $20,000 per annum for each committee of the Board (“Committee”) of which they are a member. The Vice-Chairman of the Board is paid an additional $40,000. The fees are payable in cash; however, the after-tax portion of such fees must be used by the non-employee directors to purchase Common Shares on the open market. The Common Shares are required to be held in escrow for a minimum average period of four years. The non-employee directors will also be reimbursed for all out-of-pocket expenses incurred in their capacities as members of the Board. During the fiscal year ended December 31, 2021, the non-employee directors rendered no additional professional services, directly or indirectly, to the Corporation.

 

Name		Annual Compensation
		Fees Earned ($)												All Other Compensation ($)				Total Compensation ($)
		Fees paid in cash ($)				Fees used to purchase common shares ($)				Total fees earned ($)
Lori O’Neill			20,324				59,676				80,000				NIL				80,000
Stephen R. Scotchmer (1)			16,052				50,615				66,667				NIL				66,667
Robert Kittel			24,583				75,417				100,000				NIL				100,000
Lawrence Cunningham			30,000				70,000				100,000				NIL				100,000
Paul McFeeters			19,262				60,738				80,000				NIL				80,000
Susan Gayner			18,000				42,000				60,000				NIL				60,000
Donna Parr			17,405				42,595				60,000				NIL				60,000
Andrew Pastor			15,718				44,282				60,000				NIL				60,000
John Billowits			15,718				44,282				60,000				NIL				60,000
Laurie Schultz(2)			2,621				7,379				10,000				NIL				10,000

Notes:

 

(1)	Mr. Scotchmer is also a director of Manitou Capital Corporation, a shareholder of the Corporation. Mr. Scotchmer resigned from the Board of Directors in November 2021.

 

(2)	Ms. Schultz was appointed to the Board of Directors on November 22, 2021.

 

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Directors’ and Officers’ Liability Insurance

We currently maintain directors’ and officers’ liability insurance coverage with a C$25 million per occurrence limit and a C$25 million limit in aggregate. Coverage includes errors, omissions or breach of fiduciary duty by the directors and officers during the discharge of their legal duties. C$20 million of this insurance includes coverage to reimburse the Corporation for its indemnity obligations to the directors and officers and for securities claims made against the Corporation. The remaining C$5 million is dedicated to the directors and officers where they are not indemnified by the Corporation. The annual premium paid by the Corporation for this coverage is C$487,700.

STATEMENT OF CORPORATE GOVERNANCE PRACTICES

Our Board of Directors is responsible for developing our approach to corporate governance issues and is committed to ensuring that a healthy governance culture exists at the Corporation. The directors periodically review the size, composition and compensation of the Board of Directors, the effectiveness of the Board and its individual members, and appropriate committee structures, mandates, composition, membership and effectiveness. To the extent that a conflict of interest arises from time to time, a conflicted director is required to recuse himself or herself from the applicable portion of any meeting at which such matter is to be discussed or decided.

In accordance with National Instrument 58-101 Disclosure of Corporate Governance Practices (“NI 58-101”), the Corporation is required to disclose on an annual basis its approach to corporate governance. The Corporation’s approach to significant issues of corporate governance is designed to ensure that the business and affairs of the Corporation are effectively managed to enhance shareholder value. The Corporation’s corporate governance practices have been and continue to be in compliance with applicable Canadian requirements. Where the Corporation does not comply with recommended guidelines, it believes non-compliance is justifiable and its reasoning is provided. The Board has approved the description of the Corporation’s approach to corporate governance as outlined in Schedule “C” to this Circular. Corporate governance guidelines change from time to time. The Board monitors pending regulatory initiatives and developments in the corporate governance area and will address them as appropriate.

 

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INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS

As of March 24, 2022, no current or former directors, executive officers or employees of the Corporation, or any of its subsidiaries, has any indebtedness to the Corporation or any of its subsidiaries.

INTERESTS OF INFORMED PERSONS IN MATERIAL TRANSACTIONS

Since January 1, 2020, the only transaction involving informed persons of the Corporation was the spin-out of the Corporation’s Total Specific Solutions Operating Group into a new publicly traded company, Topicus.com Inc., and the subsequent acquisition of Topicus B.V. (as defined below).

On January 4, 2021 (in anticipation of the acquisition of Topicus.com B.V. (“Topicus B.V.”) described further below), the Corporation’s subsidiary, Constellation Software Netherlands Holdings Cooperatief U.A. (the “Coop”), which principally held the Total Specific Solutions Operating Group, completed a corporate reorganization. In conjunction with the reorganization, the following steps were completed:

 

•

The Coop changed its name to Topicus.com Coöperatief U.A. (“Topicus Coop”).

 

•

The Corporation exchanged its existing equity interest in Topicus Coop for an equity interest in Topicus.com Inc. and Topicus.com Inc. became the new parent company of Topicus Coop. The Corporation received 39,412,385 preferred shares and 39,412,385 subordinate voting shares of Topicus.com Inc. The preferred shares are convertible into subordinate voting shares of Topicus.com Inc. at a rate of 1:1.

 

•

Topicus.com Inc. had 39,412,385 subordinate voting shares outstanding on January 4, 2021. The Corporation distributed 39,412,367 of the subordinate voting shares to its common shareholders pursuant to the dividend-in-kind and continues to hold 18 subordinate voting shares.

 

•

The Corporation holds 1 super voting share of Topicus.com Inc. The super voting share entitles the holder to that number of votes that equals 50.1% of the aggregate number of votes attached to all the outstanding super voting shares and subordinate voting shares of Topicus.com Inc. As a result, the Corporation controls Topicus.com Inc. and will consolidate its financial position and results of operations with Topicus.com Inc. The Corporation will reflect a non-controlling interest held by other parties.

On May 20, 2020, the Corporation entered into a binding agreement, subject to certain closing conditions, with IJssel B.V. (the “Seller”) to purchase 100% of the shares of Topicus B.V., a Netherlands-based diversified vertical market software provider. On January 5, 2021, the Corporation completed this transaction. Annual gross revenues of Topicus B.V. for 2019 were approximately €101 million and total tangible assets at December 31, 2019 were approximately €7 million. In connection with the acquisition the Corporation paid cash of €133.6 million. Furthermore, Topicus Coop issued 5,842,882 preferred units of Topicus Coop to the Seller for an initial subscription price of €83.8 million plus an additional subscription amount of €27.589 million which will be owed by the Seller to Topicus Coop and payable to Topicus Coop under certain conditions. Topicus Coop also issued 5,842,882 ordinary units of Topicus Coop to the Seller. The aggregate estimated total consideration is €217.400 million. Under certain circumstances, the preferred units were retractable at the option of the holder for a retraction price of approximately €19.06 per unit and were classified as a liability on the balance sheet of Topicus.com Inc. and the Corporation. The preferred units were also convertible into ordinary units of Topicus Coop at a conversion ratio of 1:1 and the ordinary units are exchangeable for Topicus.com Inc. subordinate voting shares at a conversion ratio of 1:1. The preferred unit holders were also entitled to a fixed annual cumulative dividend of 5% per annum. On February 1, 2022, all of the preferred shares of Topicus.com Inc. and preferred units of Topicus Coop were converted into subordinate voting shares of Topicus.com Inc. and ordinary units of Topicus Coop, respectively.

 

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On January 5, 2021, parties to the existing members agreement (the “Members Agreement”) between the Corporation and the sellers of Total Specific Solutions (TSS) B.V. (“TSS”) along with certain members of TSS’ executive management team (collectively, the “Minority Owners” or the “Joday Group”) agreed to terminate such Members Agreement, and it was replaced by an Investor Rights and Governance Agreement (“IRGA”). The Minority Owners include Joday Investments II B.V., an entity controlled by Robin van Poelje (a director of the Corporation and the Chairman of the board of directors of Topicus.com Inc.) and Tjitske Strikwerda.

The IRGA contains special provisions between the Corporation and the Minority Owners, including put options and call options applicable to units of Topicus Coop that are held by the Minority Owners as of January 5, 2021 (and any units or shares into which such units or shares have been converted or exchanged). Commencing any time after January 5, 2021, each of the Minority Owners may (i) exercise a put option to sell all or a portion of their interests in Topicus Coop, (ii) in the event of a change of control of the Corporation, sell all or a portion of their interests in Topicus Coop, and (iii) in the event the Corporation reduces its economic interest in Topicus.com Inc., sell the corresponding amount of their interests in Topicus Coop, in each case, to the Corporation for an amount calculated in accordance with a valuation methodology described in the IRGA. At any time after December 31, 2023, the Corporation has the right, at its option, to buy all of the Topicus Coop units and Topicus shares held by certain members of the Joday Group (excluding Joday Investments II B.V.) at a cash price per Topicus Coop unit determined in accordance with the IRGA. After December 31, 2043, the Corporation has the same right to buy all of the Topicus Coop units held by the remaining members of the Joday Group, including Joday Investments II B.V.. Similar to the Members Agreement, the main valuation driver in such calculation is the maintenance and other recurring revenue of Topicus Coop. This summary is qualified in its entirety by reference to the provisions of the IRGA, which is available at www.sedar.com on Topicus.com Inc.’s issuer profile.

 

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PARTICULARS OF MATTERS TO BE ACTED UPON AT THE MEETING

1. Appointment of Auditors

At the Meeting, shareholders will be requested to re-appoint KPMG LLP as auditors of the Corporation, to hold office until the next annual meeting of shareholders, and to authorize the Board of Directors to fix the auditors’ remuneration. KPMG LLP have been the auditors of the Corporation since the fiscal year ended December 31, 1995.

Unless the shareholder directs that his or her Common Shares are to be withheld from voting in connection with the appointment of auditors, the persons named in the form of proxy intend to vote for the reappointment of KPMG LLP as auditors of the Corporation until the next annual meeting of shareholders and to authorize the directors to fix their remuneration.

2. Election of Directors

The number of directors to be elected at the Meeting is fifteen. Directors of the Corporation are elected annually and, unless re-elected, retire from office at the end of the next annual general meeting of shareholders.

Majority Director Election Policy

In 2009, the Board of Directors adopted a majority director election policy (the “Policy”). The Policy requires that the form of proxy for the vote at a shareholder meeting where directors are to be elected will provide for separate voting for each director nominee. The Policy requires that any nominee for director who receives a greater number of votes “withheld” than votes “for” his or her election must immediately resign from the Board following the shareholders meeting.

The Board of Directors will consider relevant circumstances surrounding a nominee’s failure to obtain a majority vote and will, in the absence of compelling circumstances, accept the resignation as soon as appropriate, consistent with an orderly transition. The Board will disclose the decision, via press release, announcing the resignation of the director or explaining the reasons justifying the decision not to accept the resignation. It is expected any resignation will be accepted by the Board within 90 days of the meeting at which such director was found not to have the confidence of the shareholders. Subject to applicable law, if a resignation is accepted, the Board may (i) leave the vacancy unfilled until the next annual general meeting of shareholders; (ii) fill the vacancy through the appointment of a new director whom the Board considers to merit the confidence of shareholders; (iii) call a special meeting of shareholders at which there will be presented a management slate to fill the vacant position or positions; or (iv) reduce the size of the Board.

Unless the shareholder directs that his or her Common Shares be otherwise voted or withheld from voting in connection with the election of directors, the persons named in the form of proxy will vote for the election of the fifteen (15) nominees whose names are set forth below. Management does not contemplate that any of the nominees will be unable to serve as a director but if that should occur for any reason prior to the Meeting or any adjournment thereof, it is intended that discretionary authority shall be exercised by the persons named in the form of proxy to vote the proxy for the election of any other person or persons in place of any nominee or nominees unable to serve. Each director elected will hold office until the close of business of the first annual meeting of shareholders of the Corporation following his or her election unless his or her office is earlier vacated in accordance with the Corporation’s by-laws, the Policy, and the Business Corporations Act (Ontario) (“OBCA”). The Board may from time to time appoint a Vice Chairman.

 

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The following table sets out, for each person proposed to be nominated for election as a director, the person’s name, municipality of residence, position(s) with CSI, principal occupation, the year in which the person became a director, and the approximate number of (i) Common Shares of CSI, (ii) subordinate voting shares of Topicus.com Inc., a subsidiary of CSI and (iii) ordinary units of Topicus Coop, a subsidiary of CSI that each has advised are beneficially owned or subject to his or her control or direction, either directly or indirectly as of March 24, 2022.

 

Name and Place of Residence		Position(s) with CSI		Principal Occupation		Director Since		Common Shares of CSI Beneficially Held or Over Which Control is Exercised		Subordinate Voting Shares of Topicus.com Inc. Beneficially Held or Over Which Control is Exercised		Ordinary Units of Topicus Coop Beneficially Held or Over Which Control is Exercised
Claire Kennedy Toronto, Ontario, Canada		—		Senior Advisor, Bennett Jones LLP		—		170		316		—
Lawrence Cunningham(2) New York, NY, USA		Director and Vice-Chairman of the Board		Professor		2017		1,035		636		—
Jeff Bender Ottawa, Ontario, Canada		Director and Chief Executive Officer, Harris Operating Group		Chief Executive Officer, Harris Operating Group		2013		78,179		143,839		—
Mark Leonard Toronto, Ontario, Canada		President		President of CSI		1995		430,332(4)		9,153		—
Lori O’Neill(1)(3) Ottawa, Ontario, Canada		Director		Consultant		2018		163		236		—
John Billowits Toronto, Ontario, Canada		Director and Chairman of the Board		Consultant		2020		37,690		72,481		—

 

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Name and Place of Residence		Position(s) with CSI		Principal Occupation		Director Since		Common Shares of CSI Beneficially Held or Over Which Control is Exercised		Subordinate Voting Shares of Topicus.com Inc. Beneficially Held or Over Which Control is Exercised		Ordinary Units of Topicus Coop Beneficially Held or Over Which Control is Exercised
Andrew Pastor Toronto, Ontario, Canada		Director		Partner, EdgePoint		2020		47		—		—
Donna Parr Toronto, Ontario, Canada		Director		President, Crimson Capital		2020		46		610		—
Barry Symons Toronto, Ontario, Canada		Director and Chief Executive Officer, Jonas Operating Group		Chief Executive Officer, Jonas Operating Group		2020		153,300		284,249		—
Mark Miller Oakville, Ontario, Canada		Director and Chief Operating Officer, CSI and Chief Executive Officer, Volaris Operating Group		Chief Operating Officer, CSI and Chief Executive Officer, Volaris Operating Group		2013		279,508		519,272		—
Laurie Schultz Vancouver, British Columbia, Canada		Director		Consultant		2021		4		—		—
Dexter Salna Toronto, Ontario, Canada		Director and President, Perseus Operating Group		President, Perseus Operating Group		2019		251,936		467,112		—
Robert Kittel(1) (2) Toronto, Ontario, Canada		Director and Lead Independent Director		Chief Operating Officer of The Westaim Corporation		2013		1,118		1,884		—

 

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Name and Place of Residence

Position(s) with CSI

Principal Occupation

Director Since

Common Shares of CSI Beneficially Held or Over Which Control is Exercised

Subordinate Voting Shares of Topicus.com Inc. Beneficially Held or Over Which Control is Exercised

Ordinary Units of Topicus Coop Beneficially Held or Over Which Control is Exercised

Robin Van Poelje Blaricum, The Netherlands

Director and Chief Executive Officer and Chairman, Topicus.com Inc.

Director and Chief Executive Officer and Chairman, Topicus.com Inc.

2018

3,156

26,066

36,958,920

Susan Gayner(1) Richmond, VA, USA

Director

President and CEO of ParkLand Ventures, Inc.

2019

116

92

—

Notes:

 

(1)	Member of Audit Committee.

(2)	Member of Compensation, Nominating and Human Resources Committee.

(3)

Ms. O’Neill was a director of DragonWave Inc. from June 13, 2013 to July 31, 2017. Following Ms. O’Neill’s resignation on July 31, 2017, the Ontario Superior Court of Justice appointed a receiver over the business and assets of DragonWave Inc., following an application of Comerica Bank as Agent for DragonWave Inc.’s senior lenders, pursuant to the Bankruptcy and Insolvency Act (Canada). On July 20, 2017, the shares of DragonWave Inc. were halted from trading on the TSX by the Investment Industry Regulatory Organization of Canada. The shares of DragonWave Inc. were delisted from the TSX and the NASDAQ on August 30, 2017 and August 2, 2017, respectively.

(4)

On August 5, 2015, the Corporation announced that L6 Holdings Inc. (formerly known as 1388369 Ontario Inc.), an Ontario corporation (“L6”) which as of August 5, 2015 owned 1,000,000 Common Shares (representing approximately 4.7% of the issued and outstanding Common Shares of CSI) and which was previously controlled by Mr. Leonard, President and Chairman of the Board, is now controlled exclusively by the adult children of Mr. Leonard.

The following are brief profiles of each person proposed to be nominated for election as a director, including a description of each individual’s principal occupation within the past five years.

Claire Kennedy

Ms. Kennedy is a Senior Advisor, Clients & Industries at Bennett Jones LLP, a role she has held since 2019, prior to which she was a partner of the firm from 2009. Ms. Kennedy received her BASc in Chemical Engineering & Applied Chemistry from the University of Toronto in 1989 and her LL.B from Queen’s University in 1994. Called to the bar in Ontario in 1996, Ms. Kennedy was law clerk to the late Honourable Mr. Justice Charles D. Gonthier of the Supreme Court of Canada. Ms. Kennedy currently serves as Lead Director of the Bank of Canada, Chair of the Audit Committee of Alamos Gold Inc. and Chair of the Board at Neo Performance Materials Inc. Ms. Kennedy is past Chair of the University of Toronto’s Governing Council and she is a member of the Dean’s Advisory Board at the Rotman School of Management.

Lawrence Cunningham —Director and Vice Chairman of the Board

Mr. Cunningham joined the Board in August 2017. Mr. Cunningham is the Tucker Professor at The George Washington University. He has served on numerous public and private boards. He is a Trustee of the Museum of American Finance and a member of the Dean’s Council of Lerner College of Business of the University of Delaware. Previous positions include practicing corporate law with Cravath, Swaine & Moore; Academic Dean of Boston College Law School; and Director of the Heyman Center on Corporate Governance at Cardozo Law School. Prof. Cunningham holds a bachelor’s degree in economics (with honors) from the University of Delaware and a juris doctor (law) degree from Cardozo (magna cum laude).

 

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Jeff Bender — Director and Chief Executive Officer, Harris Operating Group

Mr. Bender joined CSI in 1999 after spending 7 years at Deloitte LLP. Mr. Bender has been the Chief Executive Officer for Constellation’s Harris Operating Group since 2002. Mr. Bender is a Chartered Professional Accountant and holds a BCom from Carleton University. Mr. Bender also serves on the Board of Directors of Aptean, a privately held vertical market software company and Topicus.com Inc.

Dexter Salna — Director and President, Perseus Operating Group

Mr. Salna joined CSI in 1995 and is currently the President of Perseus Operating Group. Prior to his current role, Mr. Salna held various senior executive positions with our Volaris Operating Group since 1995. From January 2000 to March 2001, Mr. Salna took a leave of absence from Volaris to pursue other business opportunities. Mr. Salna received a B.A.Sc. in Civil Engineering from the University of Toronto, an M.S. in Construction Management and Engineering from Stanford University and an M.B.A. from Harvard Business School.

Robert Kittel – Director and Lead Independent Director

Mr. Kittel joined the Board in 2013. Mr. Kittel has been the Chief Operating Officer of The Westaim Corporation since January 2013. The Westaim Corporation is a Canadian-based publicly traded financial and investment holding company. Previously he was a Partner and Portfolio Manager at Goodwood Inc., an investment management firm that he joined in 2002. From 2000 through 2002, he was Vice President and Analyst of a Canadian-based hedge fund investment firm. From 1997 through 2000, Mr. Kittel was employed by the Cadillac Fairview Corporation, a commercial real estate development company in the investments area. Prior to 1997, Mr. Kittel was a staff accountant at KPMG LLP. Mr. Kittel has served as a director on several public boards, both in Canada and the United States. Mr. Kittel holds a BBA Honours (Gold Medalist) from Wilfrid Laurier University and is a Chartered Professional Accountant and a Chartered Financial Analyst.

Mark Leonard — President

Mr. Leonard founded CSI in 1995. Prior to founding CSI, Mr. Leonard worked in the venture capital business for eleven years. Mr. Leonard holds a BSc. from the University of Guelph, and a MBA from the University of Western Ontario. Mr. Leonard is currently a director of Topicus.com Inc.

Lori O’Neill — Director

Ms. O’Neill joined the Board in March 2018. Ms. O’Neill is a FCPA, FCA, corporate director and independent financial consultant to growth companies, after serving over 24 years with Deloitte LLP. As a partner at Deloitte LLP with various national and industry leadership roles, she focused on advising growth companies from start-up to multinationals, supporting complex transactions, private and public equity offerings, mergers and acquisitions in Canada and the U.S. She currently serves as chair of the audit committee for Sierra Wireless, Inc. and has served on boards of numerous public and private technology companies, non-profit organizations and crown corporations. Ms. O’Neill graduated from Carleton University with a Bachelor of Commerce Highest Honors in 1988, achieved her CPA, CA designation in 1990, her U.S. CPA designation in 2003, and completed the ICD Director Education Program attaining the ICD.D.

John Billowits – Director and Chairman of the Board

Mr. Billowits was previously employed by CSI from 2003 until 2020, most recently as the Chief Executive Officer of the Vela Operating Group. Prior to being CEO of the Vela Operating Group, he was the Chief Financial Officer of CSI and was the President of Jonas Club division. Prior to joining CSI, Mr. Billowits held a number of roles with Bain & Company, Dell Computers and PwC. Mr. Billowits is a Chartered Professional Accountant, holds an MBA with Distinction from the London Business School and Honours BBA with Distinction from Wilfrid Laurier University. Mr. Billowits also serves on the Board of Directors of Togetherwork, a privately held vertical market software company, Topicus.com Inc., a European provider of vertical market software and vertical market platforms to clients in public and private sector markets, and Computer Modelling Group Ltd.

 

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Andrew Pastor – Director

Mr. Pastor is currently a Partner at EdgePoint and has been with EdgePoint since 2013. Mr. Pastor was an equity research analyst at Sionna Investment Managers from 2010 to 2012 and previously spent four years at BMO Harris Investment Management. From 2016 to 2020 (prior to his formal appointment to the Board), Mr. Pastor had been engaged as an unpaid Board observer to CSI’s Board of Directors. Mr. Pastor has a BA from the University of Western Ontario and is a CFA charterholder.

Donna Parr – Director

Ms. Parr has significant experience in venture and private equity investing and corporate finance working for Canadian Medical Discoveries Fund, Ontario Municipal Employees Retirement System, Canada Pension Plan, and several other institutional investors. Ms. Parr has served on 35 boards of private companies primarily on behalf of institutional investors and several as an Independent Corporate Director, including a term as a director of CSI from 1995 to 2003. Ms. Parr is currently a Managing Partner at Cross-Border Impact Ventures, the President of Crimson Capital and has been with Crimson Capital since 2009. Ms. Parr holds an MBA from York University and Masters and Honours degrees from the University of Toronto in International Relations. Ms. Parr is currently a director of Topicus.com Inc.

Barry Symons — Director and Chief Executive Officer, Jonas Operating Group

Mr. Symons joined CSI in 1997. During his tenure with CSI, Mr. Symons has held various senior financial and operational management positions within CSI and our subsidiaries. In August 2007 Mr. Symons was appointed to the role of Chief Executive Officer of our Jonas Operating Group. Prior to this appointment he was the Chief Financial Officer of CSI from 2004 to 2007. Before joining CSI, Mr. Symons was with a major international accounting firm in varying roles of increasing responsibility. Mr. Symons holds a Chartered Accountancy designation and a BBA (Honours) degree from Wilfrid Laurier University both of which were received with distinction.

Mark Miller – Director, Chief Operating Officer, CSI and Chief Executive Officer, Volaris Operating Group

Mr. Miller has been with CSI, holding positions with us and our subsidiaries for well over 20 years. Mr. Miller currently spends the majority of his time as the Chief Executive Officer of Volaris Operating Group and Trapeze Operating Group, but also acts as our Chief Operating Officer. Mr. Miller received a B.Sc. in Statistics and a B.Sc. in Mathematics from McMaster University in Hamilton, Ontario. In addition, Mr. Miller has attended the Executive Marketing Program at the Ivey Business School at the University of Western Ontario. Mr. Miller is also on the Board of Directors of Medgate Inc. and pVelocity Inc., two private software companies both headquartered in Toronto, Ontario. Mr. Miller is also on the board of Computer Modelling Group Ltd.

 

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Laurie Schultz — Director

Ms. Schultz has been a member of the Board since 2021. Ms. Schultz has over thirty years of experience in the software and technology sectors, including leadership of several multi-million dollar software businesses spanning the personal finance, small business accounting, SaaS, mid-market ERP, and GRC categories. Ms. Schultz served as the President and CEO of Galvanize from 2011 until it was sold in 2021. Starting in 2004 she held several executive positions at Sage including serving as VP and GM at Sage’s Mid-Market ERP business group from 2007 until 2011. Ms. Schultz was a Senior Manager at KPMG from 1996 until 1999 and was a Senior Manager at Telus Communications from 1989 until 1996. Ms. Schultz holds a Bachelor of Commerce and an MBA from the University of Alberta.

Robin Van Poelje — Director and Chairman and Chief Executive Officer, Topicus.com Inc.

Mr. Van Poelje has been with CSI since January 2014 when CSI acquired TSS. From January 2010 to 2020, Mr. Van Poelje had been the Chief Executive Officer of TSS, based in the Netherlands. Mr. Van Poelje is now the Chairman and Chief Executive Officer of Topicus.com Inc. Mr. Van Poelje holds a Msc. in Economics from the University of Groningen, the Netherlands and is a post graduate in Marketing and Strategy from École Supérieure de Commerce de Montpellier, France.

Susan Gayner — Director

Ms. Gayner joined our Board in 2019. Ms. Gayner is President and CEO of ParkLand Ventures, Inc., an owner-operator of multifamily housing communities in the US. She is a Chemical Engineer by training and prior to her tenure with ParkLand served in various capacities with both the DuPont Company and Hercules, Inc. She previously served on the board of directors of Synalloy Corporation. She holds a BA (Chemistry) and an ME (Chemical Engineering), both from the University of Virginia.

3. Increase to the Maximum Number of Directors

Shareholders are being asked to consider and, if thought advisable, adopt a special resolution authorizing the Corporation to amend its articles to increase the maximum number of directors from fifteen to twenty.

As noted above, management intends to nominate fifteen persons for election as directors at the Meeting. It is the view of management that the maximum of fifteen directors currently contained in the articles of the Corporation is unduly restrictive given the size of the Corporation. The Corporation wishes to be in a position to attract qualified and diverse persons to sit on the Board from time to time, and by increasing the maximum allowable number of directors, it will have greater flexibility to do so. The Board of Directors is empowered to determine the number of directors to be elected, which may vary from time to time, within the stated minimum and maximum.

The text of the special resolution authorizing the amendment to the Corporation’s articles as described above is attached to this Circular as Schedule “A”. This proposed amendment to the articles will become effective upon the filing of Articles of Amendment reflecting the amendment pursuant to the OBCA.

This proposed amendment must be passed by a special resolution of at least two thirds of the votes cast by shareholders of the Corporation entitled to vote in person or by proxy on the resolution at the Meeting. The Board recommends that shareholders vote IN FAVOUR of the special resolution. Unless the shareholder directs that his or her Common Shares be otherwise voted or withheld from voting in connection with the special resolution, the persons named in the form of proxy will vote for the special resolution.

 

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4.    Approach to Executive Compensation

The primary objective of the Corporation’s executive compensation program is to attract and retain highly skilled executives required for the success of the Corporation and to reward and retain executives who create long-term value for our shareholders. See “Compensation Discussion and Analysis” for detailed disclosure of CSI’s executive compensation program. The Board has adopted a policy to hold a non-binding advisory vote on the approach to executive compensation as disclosed in the management information circular at each annual meeting. At the Meeting, shareholders will have an opportunity to vote on CSI’s approach to executive compensation through consideration of the following advisory resolution:

Be it resolved, on an advisory basis and not to diminish the role and responsibilities of the board of directors of CSI, that the approach to executive compensation disclosed in the management information circular of CSI dated March 24, 2022 is accepted.

As the vote is advisory, it will not be binding upon the Board; however, the CNHR Committee will take into account the results of the vote when considering future executive compensation arrangements.

The Board recommends that shareholders vote IN FAVOUR of the above resolution.

5.    Shareholder Proposal

Attached to this Circular as Schedule “B” is a shareholder proposal which has been submitted for consideration at the Meeting and the explanation of the Board of its reasons for opposing the proposal. If the proposal is put forward at the meeting, unless otherwise specified, those persons designated in the form of proxy intend to vote AGAINST the proposal.

 

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OTHER MATTERS WHICH MAY COME BEFORE THE MEETING

Management knows of no matters to come before the Meeting other than the matters referred to in the Notice of the Meeting. However, if any other matters which are not now known to management should properly come before the Meeting, the proxy solicited hereby will be voted on such matters in accordance with the best judgment of the persons voting the proxy.

ADDITIONAL INFORMATION

Additional information relating to the Corporation is available on SEDAR at www.sedar.com and also on the Corporation’s website at www.csisoftware.com. A comprehensive description of the Corporation and its business as well as a summary of the risk factors applicable to the Corporation are set out in the Corporation’s Annual Information Form (“AIF”). Financial information is provided in the 2021 MD&A and Financials, which are available at www.sedar.com. Copies of the Corporation’s AIF, together with any documents incorporated by reference therein; the Corporation’s most recently filed annual consolidated financial statements, together with the accompanying report of the independent auditor, and any of the Corporation’s condensed consolidated interim financial statements that have been filed for any period after the end of the Corporation’s most recently completed financial year; annual and interim management’s discussion and analysis and this Circular are available without charge to shareholders of the Corporation, upon request, from the Corporation at:

Constellation Software Inc.

20 Adelaide Street East

Suite 1200

Toronto, Ontario

M5C 2T6

Telephone: [phone]

Facsimile: [phone]

Email: [e-mail]

For certain information with respect to the Corporation’s Audit Committee, including its charter and composition, the relevant education and experience of its members, and services fees paid to the Corporation’s external auditors, please refer to the section entitled “Committees of the Board of Directors” in the Corporation’s AIF dated March 25, 2022.

 

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DIRECTORS’ APPROVAL

The contents of this Circular and the delivery thereof to the shareholders of the Corporation has been approved by the Board of Directors.

DATED the 24^th day of March, 2022.

 

ON BEHALF OF THE BOARD OF DIRECTORS

John Billowits

Chairman

 

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SCHEDULE “A”

SPECIAL RESOLUTION AUTHORIZING AN AMENDMENT TO THE CORPORATION’S ARTICLES TO INCREASE THE MAXIMUM NUMBER OF DIRECTORS

BE IT RESOLVED THAT:

 

1.	the articles of Constellation Software Inc. (the “Corporation”) be amended to increase the maximum number of directors from fifteen to twenty; and

 

2.

any officer or director of the Corporation be, and is hereby authorized, for and on behalf of the Corporation, to execute and deliver such documents and instruments and to take such other actions as such officer or director may determine to be necessary or advisable to implement this resolution and the matters authorized hereby including, without limitation, the execution and filing of articles of amendment under the Business Corporations Act (Ontario), such determination to be conclusively evidenced by the execution and delivery of such documents or instruments and the taking of any such action.

 

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SCHEDULE “B”

SHAREHOLDER PROPOSAL

The following proposal has been made by Shareholder Association for Research & Education (“SHARE”), on behalf of the Pension Plan of The United Church of Canada, beneficial owners of 100 Common Shares, for consideration at the Meeting. The Board opposes this proposal for the reasons set out below.

Proposal:

The Board prepare a report, at reasonable expense and omitting proprietary information, on the Corporation’s plans to identify, address, mitigate, and dismantle racial disparities within its workforce. At a minimum the report should include:

 

•

Relevant details about the Corporation’s strategy, programs, and policies planned or in place related to racial diversity, equity and inclusion; and

 

•

An assessment of the program’s effectiveness, through the disclosure of any relevant goals, metrics, and trends related to racialized employees.

Shareholder’s Statement:

Information and Communications Technology Council (“ICTC”) estimates that the Canadian digital economy will see a significant demand for digitally-skilled workers by 2023. Despite this demand, the Canadian technology sector is falling short in efforts to improve and advance racial diversity, equity, and inclusion (“DEI”) in the workplace. For example, research shows that the technology sector continues to under-employ skilled immigrants. A 2019 report found that racialized technology workers in Canada, particularly Black and Latine workers, face significant barriers in the workplace. This report also found that there is a significant racial pay gap between racialized technology workers and non-racialized technology workers—and pay disparities are starker for racialized women and Indigenous technology workers.

According to McKinsey, companies that effectively advance DEI in their operations “are better able to win top talent and improve their customer orientation, employee satisfaction, and decision making, and all that leads to a virtuous cycle of increasing returns.” As Canada’s technology sector continues to be a key driver of economic growth, DEI can be an important and competitive differentiator for better overall performance. ICTC says that “incorporating accessible technology and diverse and inclusive hiring practices in the workplace will not only soften the transition to an increasingly digital future, but will also assist in creating a welcoming environment for underutilized talent streams.”

In contrast, a company that fails to properly address systemic racial inequities in its operations can face significant material, legal, operational, and reputational risks. Constellation Software Inc. has not provided any disclosure on its strategy, programs, and policies to attract, retain, and advance diverse talents. It has not established related responsibilities to its leadership team and there is no apparent board oversight on these issues.

Poor transparency practices are concerning because it indicates that the Company may lack a meaningful plan to address DEI issues in the workplace and it prevents investors from assessing the effectiveness of its related programs. A growing number of Canadian companies have already committed to robust initiatives and disclosure practices to address racial justice issues. CSI’s failure to align with leading practices could put it at odds with its peers.

 

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By disclosing CSI’s plans to identify and address any DEI disparities in its operations, and disclosing related goals and metrics, the Corporation will establish a more transparent system of accountability, enabling shareholders to perform their due diligence in accordance with their fiduciary duty.

We urge shareholders to support this proposal.

Corporation’s Response to the Proposal:

The Corporation shares the objective to dismantle any racial disparities in the workforce, and indeed to prevent such disparities from arising in the first place. The Corporation believes that the best way for it to do so is to continue to follow its longstanding decentralized structure and culture of autonomy rather than change to a centralized approach with policy directives emanating from the Board or corporate headquarters. Accordingly, the Board respectfully recommends voting against the proposal.

The Corporation is highly decentralized, operating through six separate operating groups containing some 1,000 separate business units. The vast majority of these business units are small, employing fewer than 50 people. They operate in 125 different vertical markets through offices across the world, including in Africa, Australia, Europe, North America and South America. The Corporation also regularly acquires additional business units through its operating groups, adding as many as a dozen per month.

Within this structure, the Corporation attempts to devolve as much operating decision power as possible to each business unit, including in matters of employee hiring, pay and promotion. The operating groups, in turn, develop ways for the business units to share best practices and learnings about those methods, which include a wide variety of activities promoting diversity, equity and inclusion that such small businesses otherwise may not have an opportunity to learn about or adopt.

The Corporation believes that this organizational structure and related culture of autonomy are substantial competitive advantages that have conferred considerable value on the Corporation and all its constituents, including shareholders and employees alike, for decades. The Board believes that the value of such advantages would be substantially eroded by Board level or headquarter level attempts to measure, aggregate, report, and summarize the vast and diverse data concerning these matters.

The Corporation believes that a diverse, equitable and inclusive workforce is likely to be the most productive one for the Corporation and its shareholders as well as its employees. The Corporation believes that the Corporation’s interests, as well as the interests of racial diversity, equity and inclusion, are best served by its existing organizational structure and approach. Such interests would be degraded by the approach suggested in this proposal.

THE BOARD OF DIRECTORS RECOMMENDS VOTING AGAINST THE PROPOSAL FOR THE REASONS MENTIONED ABOVE.

 

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SCHEDULE “C”

NATIONAL INSTRUMENT 58-101

DISCLOSURE OF CORPORATE GOVERNANCE PRACTICES

1. Board of Directors

The board of directors of the Corporation (the “Board of Directors” or the “Board”) is currently composed of fifteen members. All Board members, with the exception of Mark Leonard, Jeff Bender, Dexter Salna, Barry Symons, Robin Van Poelje, Mark Miller and John Billowits are independent according to the definition of “independence” set out in NI 58-101 as it applies to the Board of Directors. Mark Leonard, Jeff Bender, Dexter Salna, Barry Symons, Robin Van Poelje and Mark Miller are not independent because they are executive officers of the Corporation. John Billowits is not independent because he was an executive officer of the Corporation within the last three years. As eight of the fifteen existing directors are independent, the Corporation has deemed the majority of the Board to be independent.

The following directors are currently directors of other issuers that are reporting issuers (or the equivalent) in a jurisdiction of Canada or a foreign jurisdiction:

 

Name		Director of Other Issuer
Lori O’Neill		Sierra Wireless, Inc. Flow Beverage Corp
Paul McFeeters*		Lightspeed POS Inc.
Mark Miller		Computer Modelling Group Ltd.
John Billowits		Computer Modelling Group Ltd., Topicus.com Inc.
Robin van Poelje		Topicus.com Inc.
Mark Leonard		Topicus.com Inc.
Donna Parr		Topicus.com Inc.
Barry Symons		Optiva Inc.
Jeff Bender		Topicus.com Inc.
Claire Kennedy**		Alamos Gold Inc. Neo Performance Materials Inc.

 

*	Mr. McFeeters is not standing for re-election to the Board.

**	Ms. Kennedy is standing for election to the Board.

At regularly scheduled meetings of the Board of Directors, the independent directors hold in camera sessions while members of management are not in attendance. The Board held four in camera sessions during fiscal 2021. The Audit Committee holds in camera sessions with only the external auditors present. The Compensation, Nominating and Human Resources (“CNHR”) Committee consists only of independent directors with management attending only by invitation.

Meetings of the Board of Directors are currently chaired by John Billowits, Chairman of the Board of Directors, who is not an independent director because he was an executive officer of the Corporation within the last three years. The Board of Directors believes that Mr. Billowits is best suited to establish the agenda and ensure that relevant information is made available to the Board of Directors due to his intimate knowledge of the Corporation and its operating businesses. The Board’s non-management or outside directors have unrestricted and direct access to management and the external auditors of the Corporation and meet independently with the auditors at least four times a year through the in-camera sessions as noted above. The Board of Directors has appointed Robert Kittel, an independent director, as a lead director. As lead director, his role is to chair the in camera sessions held without management in attendance, and communicate the results of those sessions to management.

 

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Since the beginning of the fiscal year ended December 31, 2021, the Board of Directors held twelve meetings. The attendance of the individual directors was as follows:

 

Director		Number of Meetings Attended
Mark Leonard		12/12
Paul McFeeters		12/12
Stephen R. Scotchmer*		10/10
Robert Kittel		12/12
Jeff Bender		12/12
Mark Miller		12/12
Lawrence Cunningham		12/12
Robin Van Poelje		12/12
Lori O’Neill		12/12
Dexter Salna		11/12
Susan Gayner		12/12
John Billowits		12/12
Barry Symons		12/12
Donna Parr		12/12
Andrew Pastor		12/12
Laurie Schultz**		2/2

 

*	Mr. Scotchmer resigned from the Board of Directors in November 2021.

**	Laurie Schultz was appointed to the Board of Directors on November 22, 2021.

Since the beginning of the fiscal year ended December 31, 2021, the Audit Committee held four meetings. The attendance of the individual directors was as follows:

 

Director		Number of Meetings Attended
Paul McFeeters		4/4
Lori O’Neill		4/4
Robert Kittel		4/4

Since the beginning of the fiscal year ended December 31, 2021, the CNHR Committee held seven meetings. The attendance of the individual directors was as follows:

 

Director		Number of Meetings Attended
Stephen R. Scotchmer*		7/7
Robert Kittel		7/7
*Mr. Scotchmer resigned from the Board of Directors in November 2021.

 

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2. Board Mandate

The Board of Directors is responsible for the stewardship of the Corporation, ensuring that long-term value is being created for its shareholders. The Board has adopted a written charter to formalize their responsibilities, a copy of which is attached as Annex I hereto.

3. Position Descriptions

There are no specific written position descriptions for the Chairman of the Board, the Chairs of the various Board Committees or the President. The Board and each Committee has a written mandate pursuant to which its members and Chairs can be assessed. The President’s role and responsibilities are assessed periodically by the Board. The role of the Chairman of the Board is to set agendas, ensure that the Board functions effectively, act as a liaison between management and the Board, and coordinate the activities of the committees with the work of the Board. The role of the chair of each committee is to set agendas, ensure that the committee functions effectively and report to the Board on committee business.

4. Orientation and Continuing Education

While the Corporation does not have a formal orientation program for new members of the Board, the President and other members of senior management are and will continue to be available to Board members to discuss the Corporation’s business and assist in the orientation and education of Board members as required. As part of the orientation process, new Board members are provided with copies of the Corporation’s relevant financial data and have the opportunity to attend management meetings.

The Board does not formally provide continuing education to its directors; however, the directors are experienced members, the majority of whom are or have been directors on boards of other companies. The Board of Directors relies on professional assistance when considered necessary in order to be educated or updated on a particular topic.

5. Ethical Business Conduct

The Corporation has not adopted a written code of conduct and ethics. The Board’s mandate requires that business be conducted ethically and in compliance with applicable laws and regulations. In addition, most employees and officers of the Corporation have signed employment contracts that require that ethical and lawful behaviour must be exhibited at all times. In addition, most of the subsidiaries of the Corporation have codes of conduct in place and available to their employees which further outline what behaviour is/is not tolerated. Lastly, the Corporation has established a whistleblower policy which outlines the procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting control or auditing matters as well as other issues.

Under the OBCA, to which the Corporation is subject, a director or officer of the Corporation must disclose to the Corporation, the nature and extent of any interest that he or she has in a material contract or material transaction, whether made or proposed, with the Corporation, if the director or officer: (a) is a party to the contract or transaction; (b) is a director or an officer, or an individual acting in a similar capacity, of a party to the contract or transaction; or (c) has a material interest in a party to the contract or transaction. Subject to limited exceptions set out in the OBCA, the director cannot vote on any resolution to approve the contract or transaction and must recuse himself or herself from the decision-making process pertaining to a contract or transaction in which he or she has an interest.

 

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6. Nomination of Directors

The Board of Directors has delegated to the CNHR Committee the responsibility for identifying new candidates for Board nomination and proposing such nominees to the Board. Board members or management may suggest candidates for consideration by the Committee. Prospective candidates are interviewed by the President and by other Board members on an ad hoc basis.

All of the members of the CNHR Committee are independent according to the definition of “independence” set out in NI 58-101. The powers and responsibilities of the CNHR Committee are set out in the CNHR Committee’s written mandate, a copy of which is attached as Annex II hereto.

7. Compensation

The Board periodically reviews the remuneration of directors and makes adjustments where considered necessary. The CNHR Committee considers responsibilities, skills and competitive compensation in determining remuneration. With respect to the compensation of the Corporation’s officers, see “Compensation Discussion and Analysis” above.

The Board of Directors has established the CNHR Committee whose primary role and responsibility concerns human resources and compensation policies and processes, including:

 

•

Ensuring that the Corporation’s compensation programs balance the needs of shareholders and employees;

 

•

Reviewing and approving total remuneration of the President and other senior executives and the total allowance for increases to other employees;

 

•

Monitoring the Corporation’s succession plans; and

 

•

As required, recommending candidates for the Corporation’s Board of Directors.

The following sets out the relevant education and experience of each director relevant to the performance of his duties as a member of the CNHR Committee:

Mr. Kittel is the Chief Operating Officer of The Westaim Corporation since January 2013. He also served as a director on several public boards, both in Canada and the United States. Mr. Kittel holds a BBA Honours (Gold Medalist) from Wilfrid Laurier University and is a Chartered Professional Accountant and a Chartered Financial Analyst.

Mr. Cunningham is the Tucker Professor at The George Washington University. He has served on numerous public and private boards. He is a Trustee of the Museum of American Finance and a member of the Dean’s Council of Lerner College of Business of the University of Delaware. Previous positions include practicing corporate law with Cravath, Swaine & Moore; Academic Dean of Boston College Law School; and Director of the Heyman Center on Corporate Governance at Cardozo Law School. Prof. Cunningham holds a bachelor’s degree in economics (with honors) from the University of Delaware and a juris doctor (law) degree from Cardozo (magna cum laude).

Corporate objectives are established periodically by the Board of Directors. Executive performance is assessed at least annually by the CNHR Committee against those objectives. No compensation consultant or advisor was retained by the Corporation during the fiscal year ended December 31, 2021.

 

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8. Other Board Committees

Other than the Audit Committee and CNHR Committee, the Board does not have any other committees in place.

9. Assessments

Each Committee reviews and assesses the adequacy of its Committee mandate on a periodic basis and recommends any proposed changes to the Board for approval. The Board in conjunction with the President periodically reviews and assesses the effectiveness of the Board as a whole, the membership of the Board committees, the mandates and activities of each committee and the contribution of individual directors. Feedback is obtained from members of the Board and the various Committees on an informal basis, which the Board believes is sufficient to address any changes that may be necessary or desirable.

10. Term Limits

CSI does not have term limits for directors. While there is benefit to adding new perspectives to the Board from time to time, there are also benefits to be achieved by continuity and directors having in-depth knowledge of CSI’s businesses. CSI’s Board believes that the key to effective leadership is to choose directors and officers that, having regard to a wide array of factors, possess the range of necessary skills, experience, commitment and qualifications that are best suited to fostering effective leadership and decision-making at the Corporation.

11. Representation of Women on the Board and in Executive Officer Positions

CSI currently has four female directors (26% of total), Laurie Schultz, Lori O’Neill, Donna Parr and Susan Gayner, on the Board and no women (0%) in executive officer (as defined in National Instrument 58-101) positions. Subsequent to the Meeting, assuming Claire Kennedy is successfully appointed to the Board, and taking into account that Paul McFeeters is not standing for re-election to the Board, CSI is expected to have five female directors (33%). CSI does not have a formal written policy on the representation of women on the Board or in senior management and has not adopted any targets with respect to such representation, as the Board does not believe that quotas or strict rules result in the identification or selection of the best candidates.    The CNHR Committee will, as required, recommend candidates for the Board of Directors, based on, among other things, their wisdom, long-term orientation, shareholder alignment, belief in the motivational power of autonomy and decentralisation, experience with successful capital allocation, diversity, age, and track record of exercising sound judgment.

 

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ANNEX I

BOARD MANDATE

CONSTELLATION SOFTWARE INC.

CORPORATE GOVERNANCE

BOARD OF DIRECTORS

MANDATE

The Board of Directors is responsible for the stewardship of the Corporation, ensuring that long-term value is being created for its shareholders.

BOARD COMPOSITION

The Board of Directors of the Corporation is currently comprised of fifteen Directors and is comprised of a majority of independent Directors.

The number of Directors may be set from time to time by the Board within the minimum and maximum numbers approved by the shareholders.

The Directors shall be elected by the shareholders, except as permitted by the Ontario Business Corporations Act. Where a vacancy arises the Compensation, Nominating and Human Resources (“CNHR”) Committee will recommend an appropriate person to fill such vacancy, at the Board’s discretion, or the Board may decide to reduce the size of the Board. The Board will appoint a Chairman and a Corporate Secretary. The Chairman shall be designated from among the members of the Board. A lead Director will be chosen each year to act as Chairman in instances when the Board meets without the Chairman being present. The Board may from time to time appoint a Vice Chairman.

MEETINGS AND BOARD PROCESS

The Board shall meet at least five times per year, once after each quarter, and once when the drafts of the Annual Information Circular, Annual Report, and Proxy have been prepared. The Board will meet more frequently if circumstances dictate.

Board meetings will allow for input from all Board members. Any Director may request that the lead Director co-ordinate a meeting of the non-management members of the Board. Board and Board Committee liaison with the Corporation will be principally through the President. The Board may, from time to time, assign specific duties and tasks to individuals or committees.

Audit and CNHR Committees have been established. Each of the Committees shall operate under a written Mandate document approved by the Board. The two standing Committees of the Board shall be comprised entirely of non-management Directors. The Board receives regular reports from the Committees.

Periodically, the Board will evaluate the effectiveness of the Board as a whole and ensure that appropriate succession plans are in place. This may include: Reviewing the process for nominating, orienting, and remunerating Board members, determining the committees required, and changing the mandates for the committees.

 

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The Board has the authority to conduct any investigation appropriate to fulfilling its responsibilities, and has direct access to the books, records, facilities and personnel of the organization. The Board has the ability to retain, at the Corporation’s expense, special legal, accounting or other consultants or experts it deems necessary in the performance of its duties.

RESPONSIBILITIES

The Board members shall ensure that:

 

•

All Board members understand the business of the Corporation;

 

•

Processes are in place to effectively plan, monitor and manage the long-term viability of the Corporation;

 

•

There is a balance between long and short-term goals and risks;

 

•

Management’s performance is adequate and that an adequate management succession plan is in place;

 

•

Communication with shareholders and other stakeholders is timely and effective;

 

•

Business is conducted ethically and in compliance with applicable laws and regulations; and

 

•

All matters requiring shareholder approval are referred to them.

OPERATIONAL MATTERS

In the process of executing its responsibilities the Board will:

 

•

Review corporate performance on a quarterly basis;

 

•

Periodically adjust hurdle rates used to assess acquisitions;

 

•

Review and approve all business acquisitions over certain thresholds (the Board of Directors may change the threshold requiring approval);

 

•

Review and approve divestitures;

 

•

Review and approve dividend payments;

 

•

Ensure that management compensation is appropriate;

 

•

Review and approve company banking and borrowing resolutions;

 

•

Review and approve any changes in the issued shares;

 

•

Review accounting policies, internal control and audit procedures;

 

•

Review and approve the annual information circular and proxy for the annual meeting of shareholders;

 

•

Review and approve the annual financial statements and the interim consolidated quarterly results;

 

•

Recommend to the shareholders the appointment of auditors and their remuneration; and

 

•

Provide advice to management.

 

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ANNEX II

COMPENSATION, NOMINATION AND HUMAN RESOURCE (“CNHR”)

COMMITTEE MANDATE

The purpose of the CNHR Committee is to assist, and where appropriate, make recommendations to the Board of Directors and President concerning matters relating to the Corporation’s employees and directors.

The Committee exists at the pleasure of the Board, and its Mandate may be changed by the Board at any time.

Responsibilities

The CNHR Committee’s duties and responsibilities are to:

 

•

Ensure the Corporation’s compensation programs balance the needs of shareholders and employees;

 

•

Review and approve total remuneration of the President and other senior executives;

 

•

Review the Corporation’s succession plans;

 

•

Develop a pool of potential director candidates for consideration in the event of a vacancy on the Board, and as part of such development efforts, identify highly qualified women and highly qualified individuals from minority groups to include in the pool of candidates;

 

•

As required, recommend candidates for the Corporation’s Board of Directors, based on, among other things, their wisdom, long-term orientation, shareholder alignment, belief in the motivational power of autonomy and decentralisation, experience with successful capital allocation, diversity, age, and track record of exercising sound judgment; and

 

•

Consider matters of corporate governance and periodically review the Corporation’s corporate governance policies and guidelines and recommend to the Board modifications to such polices and guidelines as appropriate.

Composition

The CNHR Committee shall be comprised of two or more directors, at least two of whom will be independent, as determined and appointed by the Board.

The Committee may elect its own chairman and secretary. The secretary to the Committee need not be a member of the Committee.

Meetings

The Committee shall meet at least twice per year and more frequently if circumstances dictate. The Chairman shall report on the Committee’s activities and make recommendations to the Board for approval.

Committee liaison with the Corporation will be principally through the President.

The Committee has the authority to conduct any investigation appropriate to fulfilling its responsibilities, and has direct access to the books, records, facilities and personnel of the organization. The CNHR Committee has the ability to retain, at the Corporation’s expense, special legal, accounting or other consultants or experts it deems necessary in the performance of its duties.

 

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Exhibit 2.3

Constellation Software Inc.

Notice of Annual Meeting of Shareholders

To Be Held On May 8, 2023

Notice is hereby given that the annual meeting (the “Meeting”) of the holders of common shares (“Common Shares”) of Constellation Software Inc. (“CSI” or the “Corporation”) will be conducted as a virtual meeting to be held via live video webcast online at: https://meetnow.global/MHPYKDQ on May 8, 2023 at 9:00 a.m. (Eastern Time) for the following purposes:

(a) to receive the financial statements for the year ended December 31, 2022 and the auditors’ report thereon;

(b) to elect directors;

(c) to re-appoint KPMG LLP as auditors for the ensuing year and to authorize the directors to fix their remuneration;

(d) to consider and vote on an advisory resolution on CSI’s approach to executive compensation, and;

(e) to transact such other business as may properly come before the meeting or any adjournment thereof.

The management information circular (the “Circular”) describes the business to be conducted at the Meeting and also describes the Corporation’s governance practices. A holder of Common Shares of record at the close of business on March 27, 2023 will be entitled to vote at the Meeting.

 

The Meeting will be conducted in a virtual only format, which will be conducted via live video webcast. The live video webcast will allow shareholders to have an equal opportunity to participate at the Meeting regardless of their geographic location. Shareholders will not be able to attend the Meeting in person. A summary of the information shareholders will need to attend the Meeting online is provided in the Circular. See “Voting at the Meeting” in the Circular.

Registered shareholders and duly appointed proxyholders will be able to attend the Meeting, ask questions and vote, all in real time, provided they are connected to the Internet and comply with all of the requirements set out in the Circular. Non-registered shareholders who have not duly appointed themselves as a proxyholder will be able to attend the Meeting as guests and ask questions, but guests will not be able to vote at the Meeting.

A shareholder who wishes to appoint a person other than the management nominees identified on the form of proxy or voting instruction form (including a non-registered shareholder who wishes to appoint themselves to attend) must carefully follow the instructions in the Circular and on their form of proxy or voting instruction form. These instructions include the additional step of registering such proxyholder with our transfer agent, Computershare Investor Services Inc., after submitting their form of proxy or voting instruction form. Failure to register the proxyholder with our transfer agent will result in the proxyholder not receiving an invite code to vote in the Meeting and only being able to attend as a guest.

 

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If unable to attend the Meeting, a registered shareholder may submit his or her proxy by mail, by facsimile, by telephone or over the Internet in accordance with the instructions below.

A non-registered shareholder should follow the instructions included on the voting instruction form provided by his or her Intermediary.

Voting by Mail Before the Meeting. A registered shareholder may submit his or her proxy by mail by completing, dating and signing the enclosed form of proxy and returning it using the envelope provided or otherwise to the attention of the Proxy Department of Computershare Investor Services Inc. at 100 University Avenue, 8th Floor, North Tower, Toronto, Ontario, M5J 2Y1.

Voting by Facsimile Before the Meeting. A registered shareholder may submit his or her proxy by facsimile by completing, dating and signing the enclosed form of proxy and returning it by facsimile to Computershare Investor Services Inc. at [phone] or toll free (within North America) at [phone].

Voting by Telephone Before the Meeting. A registered shareholder may vote by telephone by calling toll free 1-866-732-VOTE (8683) or from outside of North America by calling [phone] and following the instructions provided. Shareholders will require the 15 digit control number (located on the front of the proxy) to identify themselves to the system.

Voting by Internet Before the Meeting. A registered shareholder may vote over the Internet by going to www.investorvote.com and following the instructions. Such shareholder will require the 15 digit control number (located on the front of the proxy) to identify themselves to the system.

To be effective, a proxy must be received by Computershare Investor Services Inc. no later than 9:00 a.m. (Eastern Time) on May 4, 2023 or, if the Meeting is adjourned, 48 hours (Saturdays, Sundays and holidays excepted) prior to the time of holding the Meeting.

The Corporation has elected to use the notice-and-access provisions under National Instrument 54-101 – Communication with Beneficial Owners of Securities of a Reporting Issuer (“NI 54-101”) and National Instrument 51-102 – Continuous Disclosure Obligations (“NI 51-102” and together with NI 54-101, the “Notice-and-Access Provisions”) for the Meeting. The Notice-and-Access Provisions are a set of rules developed by the Canadian Securities Administrators that allow issuers to post electronic versions of proxy-related materials on-line, via the System for Electronic Document Analysis and Retrieval (“SEDAR”) and one other website, rather than mailing paper copies of such materials to securityholders.

Electronic copies of this Notice of Annual Meeting of Shareholders, the Circular, the Corporation’s management’s discussion and analysis of the results of operations and financial condition of the Corporation for the year ended December 31, 2022 and the audited consolidated financial statements of the Corporation and accompanying notes for the year ended December 31, 2022 together with the auditor’s report thereon (the “2022 MD&A and Financials”) may be found on SEDAR at www.sedar.com and also on the Corporation’s website at www.csisoftware.com.

Shareholders are reminded to review the Circular before voting.

Shareholders will receive paper copies of a notice package (the “Notice Package”) via pre-paid mail containing a notice with information prescribed by NI 54-101 and a form of proxy (if you are a registered shareholder) or a voting instruction form (if you are a non-registered shareholder).

 

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The Corporation will not use procedures known as ‘stratification’ in relation to the use of Notice-and-Access Provisions. Stratification occurs when an issuer using Notice-and-Access Provisions sends a paper copy of the Circular to some securityholders with a Notice Package.

Shareholders may obtain paper copies of the Circular and the 2022 MD&A and Financials free of charge by calling the following numbers and using the control number that appears on the form of proxy or voting instructions form.

For holders with a 15 digit control number: Request materials by calling Toll Free, within North America—1-866-962-0498 or direct, from Outside of North America – 1-514-982-8716 and entering your control number as indicated on your proxy or voting instruction form.

For holders with a 16 digit control number: Request materials by calling Toll Free, within North America—1-877-907-7643 or outside of North America - 1-303-562-9305.

Any shareholder wishing to obtain a paper copy of the meeting materials should submit their request no later than April 24, 2023 in order to receive paper copies of the meeting materials in time to vote before the Meeting. Shareholders may contact Computershare Toll Free at 1-866-964-0492 or www.computershare.com/noticeandaccess to obtain more information about the Notice-and-Access Provisions. Under the Notice-and-Access Provisions, meeting materials will be available for viewing on the Corporation’s website for one year from the date of posting.

 

DATED March 27, 2023		By Order of the Board
		John Billowits Chairman

 

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CONSTELLATION SOFTWARE INC.

MANAGEMENT INFORMATION CIRCULAR FOR THE ANNUAL

MEETING OF SHAREHOLDERS TO BE HELD ON MAY 8, 2023

SOLICITATION OF PROXIES

This management information circular (the “Circular”) dated as of March 27, 2023 and accompanying form of proxy are furnished in connection with the solicitation, by management of Constellation Software Inc. (“CSI” or the “Corporation”), of proxies to be used at the annual meeting of shareholders of the Corporation (the “Meeting”) referred to in the accompanying Notice of the Annual Meeting of Shareholders (the “Notice”) to be held on May 8, 2023, at the time and place and for the purposes set forth in the Notice. The solicitation will be made primarily by mail, subject to the use of Notice-and-Access Provisions (as defined below) in relation to delivery of the meeting materials, but proxies may also be solicited personally or by telephone by directors and/or officers of the Corporation, or by the Corporation’s transfer agent, Computershare Investor Services Inc. (“Computershare”), at nominal cost. The cost of solicitation by management will be borne by the Corporation. Pursuant to National Instrument 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer (“NI 54-101”), arrangements have been made with clearing agencies, brokerage houses and other financial intermediaries to forward proxy solicitation material to the beneficial owners of the common shares of the Corporation (“Common Shares”). The cost of any such solicitation will be borne by the Corporation.

MEETING INFORMATION

 

The Meeting will be conducted in a virtual only format, which will be conducted via live video webcast. The live video webcast will allow shareholders to have an equal opportunity to participate at the Meeting regardless of their geographic location. Shareholders will not be able to attend the Meeting in person. A summary of the information shareholders will need to attend the Meeting online is provided below. See “Voting at the Meeting” below.

The Meeting will be held on May 8, 2023 at 9:00 a.m. (Eastern Time) virtually via live video webcast online at: https://meetnow.global/MHPYKDQ.

Registered shareholders and duly appointed proxyholders who participate at the Meeting online will be able to listen to the Meeting, ask questions and vote, all in real time, provided they are connected to the Internet and comply with all of the requirements set out below under “Voting at the Meeting”. Non-registered holders who have not duly appointed themselves as proxyholders may still attend the Meeting as guests. Guests will be able to listen to the Meeting and ask questions but will not be able to vote at the Meeting. See “Voting at the Meeting” below.

 

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VOTING BEFORE THE MEETING

Appointment and Revocation of Proxies

The persons named in the form of proxy are directors and/or officers of the Corporation. Each shareholder has the right to appoint a person, who need not be a shareholder of the Corporation, other than the persons named in the form of proxy, to represent such shareholder at the Meeting or any adjournment thereof. Such right may be exercised by inserting such person’s name in the blank space provided in the form of proxy or by completing another proper form of proxy. The additional registration step outlined below under “Voting at the Meeting – Appointment of a Third Party as Proxy” must also be followed. All proxies must be executed by the shareholder or his or her attorney duly authorized in writing or, if the shareholder is a corporation, by an officer or attorney thereof duly authorized. A registered shareholder may submit his or her proxy by mail, by facsimile, by telephone or over the Internet in accordance with the instructions below.

A non-registered shareholder should follow the instructions included on the voting instruction form provided by his or her Intermediary (as defined below).

Voting by Mail Before the Meeting. A registered shareholder may submit his or her proxy by mail by completing, dating and signing the form of proxy and returning it using the envelope provided or otherwise to the attention of the Proxy Department of Computershare Investor Services Inc. at 100 University Avenue, 8th Floor, North Tower, Toronto, Ontario, M5J 2Y1.

Voting by Facsimile Before the Meeting. A registered shareholder may submit his or her proxy by facsimile by completing, dating and signing the form of proxy and returning it by facsimile to Computershare Investor Services Inc. at [phone] or toll free (within North America) at [phone].

Voting by Telephone Before the Meeting. A registered shareholder may vote by telephone by calling toll free 1-866-732-VOTE (8683) or from outside of North America by calling [phone] and following the instructions provided (located on the front of the proxy) to identify themselves to the system.

Voting by Internet Before the Meeting. A registered shareholder may vote over the Internet by going to www.investorvote.com and following the instructions. Such shareholder will require a control number (located on the front of the proxy) to identify themselves to the system.

To be effective, a proxy must be received by Computershare no later than 9:00 a.m. (Eastern Time) on May 4, 2023 or, if the Meeting is adjourned, 48 hours (Saturdays, Sundays and holidays excepted) prior to the time of holding the Meeting.

A shareholder who has given a proxy has the power to revoke it as to any matter on which a vote has not already been cast pursuant to the authority conferred by such proxy and may do so either: (1) by delivering another properly executed form of proxy bearing a later date and depositing it as described above; (2) by depositing an instrument in writing revoking the proxy executed by the shareholder with Computershare at any time up to and including 9:00 a.m. (Eastern Time) on the second last business day preceding the day of the Meeting, or any adjournment thereof, at which the proxy is to be used; or (3) in any other manner permitted by law.

 

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If you are using a 15-digit control number to login to the Meeting and you accept the terms and conditions, and you vote again at the Meeting, you will be revoking any and all previously submitted proxies. If you DO NOT wish to revoke all previously submitted proxies, do not vote again at the Meeting or only enter the Meeting as a guest.

Notice-and-Access

The Corporation has elected to use the notice-and-access provisions under NI 54-101 and National Instrument 51-102 – Continuous Disclosure Obligations (“NI 51-102” and together with NI 54-101, the “Notice-and-Access Provisions”) for the Meeting. The Notice-and-Access Provisions are a set of rules developed by the Canadian Securities Administrators that allow issuers to post electronic versions of proxy-related materials on-line, via the System for Electronic Document Analysis and Retrieval (“SEDAR”) and one other website, rather than mailing paper copies of such materials to securityholders.

Electronic copies of this Notice of Annual Meeting of Shareholders, the Circular, the Corporation’s management’s discussion and analysis of the results of operations and financial condition of the Corporation for the year ended December 31, 2022 and the audited consolidated financial statements of the Corporation and accompanying notes for the year ended December 31, 2022 together with the auditor’s report thereon (the “2022 MD&A and Financials”) may be found on SEDAR at www.sedar.com and also on the Corporation’s website at www.csisoftware.com.

Shareholders will receive paper copies of a notice package (the “Notice Package”) via pre-paid mail containing a notice with information prescribed by NI 54-101 and a form of proxy (if you are a registered shareholder) or a voting instruction form (if you are a Non-Registered Holder (as defined below)).

The Corporation will not use procedures known as ‘stratification’ in relation to the use of Notice-and-Access Provisions. Stratification occurs when an issuer using Notice-and-Access Provisions sends a paper copy of the Circular to some securityholders with a Notice Package.

Shareholders may obtain paper copies of the Circular and the 2022 MD&A and Financials free of charge by calling the following numbers and using the control number that appears on the form of proxy or voting instructions form.

For holders with a 15 digit control number: Request materials by calling Toll Free, within North America - 1-866-962-0498 or direct, from Outside of North America – 1-514-982-8716 and entering your control number as indicated on your proxy or voting instruction form.

For holders with a 16 digit control number: Request materials by calling Toll Free, within North America - 1-877-907-7643 or outside of North America - 1-303-562-9305.

Any shareholder wishing to obtain a paper copy of the meeting materials should submit their request no later than April 24, 2023 in order to receive paper copies of the meeting materials in time to vote before the Meeting. Shareholders may contact Computershare Toll Free at 1-866-964-0492 or www.computershare.com/noticeandaccess to obtain more information about the Notice-and-Access Provisions. Under the Notice-and-Access Provisions, meeting materials will be available for viewing on the Corporation’s website for one year from the date of posting.

 

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Non-Registered Holders

Only registered holders of Common Shares, or the persons they appoint as their proxies, are permitted to attend and vote at the Meeting. However, in many cases, Common Shares beneficially owned by a holder (a “Non-Registered Holder”) are registered either:

 

(A)

in the name of an intermediary (an “Intermediary”) that the Non-Registered Holder deals with in respect of the Common Shares, such as, among others, banks, trust companies, securities dealers or brokers and trustees or administrators of self-administered registered savings plans, registered retirement income funds, registered education savings plans and similar plans; or

 

(B)

in the name of a clearing agency (such as CDS Clearing and Depository Services Inc. (“CDS”)) of which the Intermediary is a participant.

Common Shares held in the name of an Intermediary or clearing agency can only be voted upon the instructions of the Non-Registered Holder. Without specific instructions, the Intermediary is prohibited from voting the Common Shares. Therefore, each Non-Registered Holder should ensure that voting instructions are communicated to the appropriate person well in advance of the Meeting.

Applicable Canadian regulatory policy requires Intermediaries to seek voting instructions from Non-Registered Holders in advance of shareholders’ meetings. In Canada, many Intermediaries delegate responsibility for obtaining instructions from clients to Broadridge Financial Solutions Inc.

Generally, a Non-Registered Holder will receive either a voting instruction form or, less frequently, a form of proxy. The purpose of these forms is to permit Non-Registered Holders to direct the voting of the Common Shares they beneficially own. Non-Registered Holders should follow the procedures set out below, in addition, if applicable, to the procedures set out below under “Voting at the Meeting – Appointment of a Third Party as Proxy”, depending on the type of form they receive:

 

1)

Voting Instruction Form. In most cases, a Non-Registered Holder will receive, as part of the meeting materials, a voting instruction form. If the Non-Registered Holder does not wish to attend and vote at the Meeting (or have another person attend and vote on the holder’s behalf), but wishes to direct the voting of the Common Shares they beneficially own, the voting instruction form must be submitted by mail, telephone or over the Internet in accordance with the directions on the form. If a Non-Registered Holder wishes to attend and vote at the Meeting (or have another person attend and vote on the Non-Registered Holder’s behalf), the Non-Registered Holder must complete, sign and return the voting instruction form in accordance with the directions provided; or

 

2)

Form of Proxy. Less frequently, a Non-Registered Holder will receive, as part of the meeting materials, a form of proxy that has already been signed by the Intermediary (typically by facsimile, stamped signature) which is restricted as to the number of Common Shares beneficially owned by the Non-Registered Holder but which is otherwise uncompleted. If the Non-Registered Holder does not wish to attend and vote at the Meeting (or have another person attend and vote on the Non-Registered Holder’s behalf), but wishes to direct the voting of the Common Shares they beneficially own, the Non-Registered Holder must complete the form of proxy and submit it to Computershare as described above. If a Non-Registered Holder wishes to attend and vote at the Meeting (or have another person attend and vote on the holder’s behalf), the Non-Registered Holder must strike out the persons named in the proxy and insert the Non-Registered Holder (or such other person’s) name in the blank space provided and submit it to Computershare as described above.

 

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In either case, Non-Registered Holders should carefully follow the instructions of their Intermediaries, including those regarding when and where the proxy or the voting instruction form is to be delivered. In addition, if applicable, Non-Registered Holders should follow the procedures set out below under “Voting at the Meeting – Appointment of a Third Party as Proxy”.

A Non-Registered Holder may revoke a voting instruction form or a waiver of the right to receive meeting materials and to vote given to an Intermediary at any time by written notice to the Intermediary, except that an Intermediary is not required to act on a revocation of a voting instruction form or of a waiver of the right to receive materials and to vote that is not received by the Intermediary at least seven days prior to the Meeting.

Exercise of Discretion by Proxies

Common Shares represented by properly executed proxies in favour of the persons named in the form of proxy will be voted on any ballot that may be called for and, where the person whose proxy is solicited specifies a choice with respect to the matters identified in the proxy, the shares will be voted or withheld from voting in accordance with the specifications so made. Where shareholders have properly executed proxies in favour of the persons named in the form of proxy and have not specified in the form of proxy the manner in which the named proxies are required to vote the shares represented thereby, such shares will be voted in favour of the passing of the matters set forth in the Notice. The form of proxy confers discretionary authority with respect to amendments or variations to the matters identified in the Notice and with respect to other matters that may properly come before the Meeting. At the date hereof, management of the Corporation knows of no such amendments, variations or other matters to come before the Meeting. However, if any other matters which at present are not known to management of the Corporation should properly come before the Meeting, the proxy will be voted on such matters in accordance with the best judgment of the named proxies.

VOTING AT THE MEETING

General

Registered shareholders may vote at the Meeting by completing a ballot online during the Meeting, as further described below under “How do I Attend and Participate at the Meeting?”.

Non-Registered Holders who have not duly appointed themselves as proxyholder will not be able to vote at the Meeting but will be able to participate as a guest and ask questions. This is because the Corporation and Computershare, do not have a record of the Non-Registered Holders, and, as a result, will have no knowledge of your shareholdings or entitlement to vote unless you appoint yourself as proxyholder.

If you are a Non-Registered Holder and wish to vote at the Meeting, you have to appoint yourself as proxyholder by inserting your own name in the space provided on the voting instruction form sent to you and you must follow all of the applicable instructions, including the deadline, provided by your Intermediary. See “Appointment of a Third Party as Proxy” and “How do I Attend and Participate at the Meeting?” below.

 

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If you are a U.S. beneficial shareholder, to attend and vote at the Meeting, you must first obtain a valid legal proxy from your broker, bank or other agent and then register in advance to attend the Meeting. Follow the instructions from your broker or bank included with these proxy materials, or contact your broker or bank to request a legal proxy form. After first obtaining a valid legal proxy from your broker, bank or other agent, to then register to attend the Meeting, you must submit a copy of your legal proxy to Computershare. Requests for registration should be directed by mail to the attention of the Proxy Department of Computershare Investor Services Inc. at 100 University Avenue, 8th Floor, North Tower, Toronto, Ontario, M5J 2Y1 or by email at [e-mail]. Requests for registration must be labeled as “Legal Proxy” and be received no later than May 4, 2023 by 9:00 a.m. (Eastern Time). You will receive a confirmation of your registration by email after Computershare receives your registration materials. Please note that you MUST also register your appointment at http://www.computershare.com/Constellation.

Appointment of a Third Party as Proxy

The following applies to shareholders who wish to appoint someone as their proxyholder other than the management nominees named in the form of proxy or voting instruction form. This includes Non-Registered Holders who wish to appoint themselves as proxyholder to attend, participate or vote at the Meeting.

Shareholders who wish to appoint someone other than the management nominees as their proxyholder to attend and participate at the Meeting as their proxy and vote their Common Shares MUST submit their form of proxy or voting instruction form, as applicable, appointing that person as proxyholder AND register that proxyholder online, as described below. Registering your proxyholder is an additional step to be completed AFTER you have submitted your form of proxy or voting instruction form. Failure to register the proxyholder will result in the proxyholder not receiving an invite code to vote in the Meeting and only being able to attend as a guest.

Step 1: Submit your form of proxy or voting instruction form: To appoint someone other than the management nominees as proxyholder, insert that person’s name in the blank space provided in the form of proxy or voting instruction form (if permitted) and follow the instructions for submitting such form of proxy or voting instruction form. This must be completed before registering such proxyholder, which is an additional step to be completed once you have submitted your form of proxy or voting instruction form.

If you are a Non-Registered Holder and wish to vote at the Meeting, you have to insert your own name in the space provided on the voting instruction form sent to you by your Intermediary, follow all of the applicable instructions provided by your Intermediary AND register yourself as your proxyholder, as described below. By doing so, you are instructing your Intermediary to appoint you as proxyholder. It is important that you comply with the signature and return instructions provided by your Intermediary. Please also see further instructions below under the heading “How do I Attend and Participate at the Meeting?”.

Step 2: Register your proxyholder: To register a third party proxyholder, shareholders must visit http://www.computershare.com/Constellation by 9:00 a.m. (Eastern Time) on May 4, 2023 and provide Computershare with the required proxyholder contact information so that Computershare may provide the proxyholder with an invite code via email to participate in the Meeting. Without an invite code, proxyholders will not be able to vote at the Meeting but will be able to participate as a guest.

 

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How do I Attend and Participate at the Meeting?

The Corporation is holding the Meeting in a virtual only format, which will be conducted via live video webcast. Shareholders will not be able to attend the Meeting in person.

Attending the Meeting online enables registered shareholders and duly appointed proxyholders, including Non-Registered Holders who have duly appointed themselves as proxyholder, to vote at the Meeting and ask questions at the appropriate times during the Meeting, all in real time.

Guests, including Non-Registered Holders who have not duly appointed themselves as proxyholder, can login to the Meeting as set out below. Guests can listen to the Meeting and ask questions but are not able to vote.

Log in online at: https://meetnow.global/MHPYKDQ on your smartphone, tablet or computer. You will need the latest version of Chrome, Safari, Edge or Firefox. We recommend that you log in at least one hour before the Meeting starts.

If you are a registered shareholder click “Shareholder” and then enter your 15-digit control number, which is the control number located on your form of proxy or in the email notification you received from Computershare.

OR

If you are a duly appointed proxyholder click “Invitation” and then enter the invite code that was provided to you by Computershare after the voting deadline passed. In order to be a duly appointed proxyholder the proxyholder must be registered as described in “Appointment of a Third Party as Proxy” above.

OR

If you are a Non-Registered Holder that has not appointed yourself as a proxyholder click “Guest” and then complete the online form.

If you attend the Meeting online, it is important that you are connected to the internet at all times during the Meeting in order to vote when balloting commences. It is your responsibility to ensure connectivity for the duration of the Meeting. You should allow ample time to check into the Meeting online and complete the related procedures outlined above.

If you are using a 15-digit control number to login to the Meeting and you accept the terms and conditions, and you vote again at the Meeting, you will be revoking any and all previously submitted proxies. If you DO NOT wish to revoke all previously submitted proxies, do not vote again at the Meeting or only enter the Meeting as a guest.

INTERPRETATION

Unless otherwise indicated, all dollar amounts are expressed in U.S. dollars. All references to “$” are to U.S. dollars and all references to “C$” are to Canadian dollars. The information contained herein is provided as of March 27, 2023, unless indicated otherwise.

 

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VOTING SHARES AND PRINCIPAL HOLDERS THEREOF

The Corporation has fixed March 27, 2023 as the record date (the “Record Date”) for the persons entitled to receive notice of the Meeting. The Corporation shall prepare a list of all persons who are registered holders of Common Shares on the Record Date and the number of Common Shares registered in the name of each holder on such date. Each holder of Common Shares is entitled to be present at the Meeting and to one vote for each Common Share registered in the name of such holder in respect of each matter to be voted upon at the Meeting. As at March 27, 2023, there were 21,191,530 Common Shares outstanding.

A quorum for the transaction of business at the Meeting is the presence of two shareholders of the Corporation holding Common Shares, present in person or by telephonic or electronic means and holding or representing by proxy not less than 15% of the votes entitled to be cast at the Meeting.

To the knowledge of the directors and officers of the Corporation, no person beneficially owns, or exercises control or direction over, directly or indirectly more than 10% of the outstanding Common Shares.

COMPENSATION OF EXECUTIVE OFFICERS

COMPENSATION DISCUSSION AND ANALYSIS

Objectives of the Corporation’s Executive Compensation Program

The primary objective of the Corporation’s executive compensation program is to attract and retain highly skilled executives required for the success of the Corporation and to reward and retain executives who create long-term value for our shareholders. The Compensation, Nominating and Human Resources (“CNHR”) Committee is responsible for making recommendations to the Board of Directors of the Corporation (the “Board” or the “Board of Directors”) with respect to the establishment of a compensation plan for the Corporation’s executive officers, including the Named Executive Officers (as defined below).

The Corporation’s executive compensation program consists of base salary and annual incentive compensation. The annual incentive compensation is paid by way of a cash bonus, although a portion of the bonus is usually required to be used to purchase Common Shares.

Total compensation for each executive officer is designed to be competitive. The compensation for the executives is determined based on the experience of the CNHR members and an internal comparison across the Corporation’s business units giving consideration to the size of the business unit and the performance metrics which are important to CSI, namely return on invested capital and revenue growth.

Certain CSI executives voluntarily waived portions of their salary and bonus entitlements in 2022 and in previous years.

Base Salary

Providing a market competitive base salary is necessary to attract new talent as required, and it assists in retaining skilled executive talent. Base salaries for the Operating Group Managers and other Named Executive Officers are set by the CNHR Committee taking into account the executive’s responsibilities, skills, and in the case of the Operating Group Managers, the size of the Operating Group in which they are employed. All executive salaries are reviewed annually by the CNHR Committee on the basis of the above criteria and adjusted accordingly.

 

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Annual Incentive Bonus

The objective of our annual incentive bonus is to reward employees for working towards our goal of increasing shareholder value. We believe that shareholder value is created by managing two financial components over the long term: profitability and growth. As such, our corporate bonus plan, which compensates employees at all levels of our organization, is based upon return on invested capital (“ROIC”) and net revenue growth (ROIC is calculated by dividing net income for bonus purposes for the year by the Average Invested Equity Capital for the period.). “Average Invested Equity Capital” represents the average equity capital of CSI, and is based on the Corporation’s estimate of the amount of money that our common shareholders have invested in CSI. Subsequent to that estimate, the Corporation keeps a running tally and adds net income for bonus purposes, subtracting any dividends, adding any amounts related to share issuances and makes some minor adjustments, including adjustments relating to our use of certain incentive programs and the impairment of intangible assets. Neither net income for bonus purposes nor Average Invested Equity Capital are measures defined by International Financial Reporting Standards. Net income for bonus purposes is calculated by making a number of adjustments to net income per the annual consolidated financial statements. The principal adjustments to net income include adjustment for the impact of deferred income taxes, unrealized foreign exchange gains/losses, bargain purchase gains, contingent consideration expense, redeemable preferred securities expense, reductions due to ownership interests in subsidiaries and amortization and impairments of intangibles.

An individual’s annual incentive bonus is calculated as follows:

Base salary x Company performance factor x Individual factor

Individual factors for the Operating Group Managers and other Named Executive Officers are set by the CNHR Committee taking into account the executive’s responsibilities, skills, and in the case of the Operating Group Managers, the size of the Operating Group in which they are employed.

The company performance factor for Operating Group Managers is based upon the performance of their respective Operating Group. The President, CFO, and other head office employees’ company performance factor is based upon the performance of the Corporation as a whole.

The company performance factor is determined by reference to net revenue growth and ROIC. ROIC is calculated by dividing net income for bonus purposes for the year by the Average Invested Equity Capital for the period. A ‘risk free’ rate of return established by the board (currently 5%) is netted from the ROIC. If the ROIC does not exceed the risk-free rate of return, then the manager of the business receives no bonus. The Corporation measures growth by looking at the year-over-year increase in net revenues for the particular Operating Group. Net Revenue is not a measure defined by International Financial Reporting Standards. It is calculated based on revenue as reported in the Corporation’s consolidated financial statements prepared in accordance with International Financial Reporting Standards less any third party and flow-through expenses.

 

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In considering the implications of the risks associated with the Corporation’s annual incentive bonus structure, the CNHR Committee was satisfied that the counterbalance between ROIC (calculated by dividing net income for bonus purposes for the year by the Average Invested Equity Capital for the period) and net revenue growth and the requirement to invest 75% of their after-tax incentive bonus into Common Shares mitigates the risk that a Named Executive Officer would take inappropriate or excessive risks in respect of the Corporation’s operations.

Although the Board may, at its discretion, increase or decrease the amount of annual incentive bonus awarded to a Named Executive Officer in a given year, it did not exercise such discretion in respect of the most recently completed fiscal year.

Investment of Annual Incentive Bonus in Constellation shares

Executive officers are required to invest 75% of their after-tax incentive bonus into Common Shares (or in the case of executive officers of Topicus.com Inc., subordinate voting shares of Topicus.com Inc.). The shares are held in escrow for a minimum average period of four years. Once in every five-year period, executive officers may choose to receive their bonus entirely in cash. As of the date hereof, the Corporation does not have a formal policy that restricts the purchase by its Named Executive Officers, directors or other employees of financial instruments (including prepaid variable forward contracts, equity swaps, collars or units of exchange funds) that are designed to hedge or offset a decrease in the market value of equity securities granted as compensation or held, directly or indirectly, by the Named Executive Officer, director or employee.

Mark Leonard’s Compensation

Mr. Leonard’s compensation for acting as President of the Corporation during fiscal 2022 was determined by the CNHR Committee. The President’s performance is reviewed on an annual basis, and changes to his base salary and/or the basis used for calculating incentive compensation in the coming year are made at that time. Mr. Leonard’s and head office employees’ incentive bonus entitlement is calculated in the same manner as the other executive officers as described above. In 2020, 2021 and 2022, Mr. Leonard voluntarily waived his entitlement to receive a salary and a bonus. Additional information regarding Mr. Leonard’s compensation was included in a Letter to Shareholders filed on SEDAR on April 6, 2015.    

Share Performance Graph

The following graph compares the total cumulative shareholder return over the five most recently completed financial years for C$100 invested in Common Shares on such date with the total cumulative return of the S&P/TSX Composite Index on an annual basis.

 

		Dec 31/17				Dec 31/18				Dec 31/19				Dec 31/20				Dec 31/21				Dec 31/22
Constellation Software Inc. (CSU: TSX)			100				115				171				242				345				311
S&P/TSX Composite Index			100				91				112				118				148				139

 

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The Corporation’s total shareholder return increased by 211% since December 31, 2017, while the S&P/TSX composite index increased by 39% over the same period. Named Executive Officer compensation from 2017 to 2022, increased by 30%, compared to the 211% increase in cumulative shareholder return over the same period. The CNHR Committee believes that the increase in compensation since December 31, 2017 reflects the improvement in the overall performance of the Corporation as net revenue and net income used for bonus purposes grew by 166% and 112%, respectively, since December 31, 2017. The bonuses of the Named Executive Officers, except for the President and Chief Financial Officer of the Corporation, are tied to the returns on invested capital of the Operating Group for which they are directly responsible, rather than the returns on the capital of the Corporation as a whole.

Summary Compensation Table

The following table provides a summary of the compensation earned during 2020, 2021 and 2022 by the President, the Chief Financial Officer and the Corporation’s other three most highly compensated executive officers based on total compensation for the fiscal year ended December 31, 2022 (collectively, the “Named Executive Officers”).

 

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						Annual Compensation (presented in United States Dollars) (1)
										Annual Incentive Plan Compensation ($)(2)
Name and Principal Position		Fiscal Year				Salary ($)				Portion of Bonus Withheld at Source for Tax Purposes ($)				Portion of Bonus Paid in Cash ($)				Portion of Bonus to be Used to Purchase Common Shares ($)				Total Bonus ($)				Other Annual Compensation ($)		Total Compensation ($)
Mark Leonard President			2022 2021 2020				—   —   —	(3)  (3)  (3)			—   —   —				—   —   —				—   —   —				—   —   —	(3)  (3)  (3)		NIL NIL NIL			—   —   —
Jamal Baksh Chief Financial Officer(4)			2022 2021 2020				230,480 239,229 219,704				351,609 407,240 237,854				277,893 96,818 65,097				27,159 391,775 257,380				656,661 895,833 560,331			NIL NIL NIL			887,141 1,135,062 780,035
Jeff Bender Chief Executive Officer, Harris Operating Group			2022 2021 2020				451,994 450,149 270,381				1,080,850 690,974 536,682				277,968 177,702 146,808				1,032,306 659,940 580,180				2,391,124 1,528,616 1,263,670			NIL NIL NIL			2,843,118 1,978,765 1,534,051
Robin Van Poelje President, Chief Executive Officer and Chairman, Topicus.com Inc. (4)			2022 2021 2020				374,402 420,953 405,652				656,255 968,991 853,530				167,378 247,142 171,091				502,134 741,424 513,272				1,325,767 1,957,557 1,537,893			NIL NIL NIL			1,700,169 2,378,510 1,943,545
Damian McKay Chief Executive Officer, Vela Operating Group			2022 2021 2020				378,613 409,807 309,744				732,987 942,443 603,082				206,640 265,688 170,018				619,920 797,066 510,053				1,559,548 2,005,197 1,283,153			NIL NIL NIL			1,938,161 2,415,004 1,592,897

Notes:

 

(1)

The compensation data presented for Robin Van Poelje was paid in euros. The compensation data presented for Damian McKay was paid in Australian dollars. The compensation data presented for the remaining individuals was paid in Canadian dollars. Euro salary amounts have been converted to U.S. dollars using the average annual exchange rate of $1.0517 for 2022 (2021 - $1.1824; 2020 - $1.1394). 2022 euro bonus amounts have been converted to U.S. dollars using the exchange rate prevailing at December 31, 2022 of $1.0699 (2021 - $1.1342; 2020 - $1.2264). Australian dollar salary amounts have been converted to U.S. dollars using the average annual exchange rate of $0.6934 for 2022 (2021—$0.7506; 2020- $0.6878). 2022 Australian dollar bonus amounts have been converted to U.S. dollars using the exchange rate prevailing at December 31, 2022 of $0.6816 (2021 - $0.7261; 2020—$0.7707). Canadian dollar salary amounts have been converted to U.S. dollars using the average annual exchange rate of $0.7683 for 2022 (2021—$0.7974; 2020- $0.7455). 2022 Canadian dollar bonus amounts have been converted to U.S. dollars using the exchange rate prevailing at December 31, 2022 of $0.7380 (2021 - $0.7874; 2020 - $0.7847).

(2)	Annual incentive compensation is paid by way of a cash bonus, although a portion of such bonus is required to be used to purchase Common Shares on the open market. See “Compensation Discussion and Analysis” for a description of the annual incentive bonus.

(3)	Mr. Leonard voluntarily waived his entitlement to receive a salary or a bonus in 2020, 2021 and 2022.

(4)	Mr. Van Poelje was required to invest the entire after-tax portion of his bonus in subordinate voting shares of Topicus.com Inc. Mr. Baksh was required to invest the after-tax portion of $27,159 (2021 - $28,976) of his bonus for 2022 in subordinate voting shares of Topicus.com Inc.

 

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Employment Agreements

Each of the Named Executive Officers has an employment contract which provides for, among other things, certain covenants in favour of the Corporation or, in respect of a Named Executive Officer employed by one of our subsidiaries, that subsidiary. Each employment agreement provides that the Named Executive Officer will not, during the period of his employment or for a period of at least one year thereafter, be involved in any business that develops or markets competitive software or consulting, maintenance, support or training services in any jurisdiction where we market our products or services. The Named Executive Officer will not, without the prior written approval of the board of directors of his employer, employ any employee or consultant of CSI, in the case of the President and Chief Financial Officer, and, in the case of the other Named Executive Officers, of the applicable operating group each is responsible for, in each case for a period of at least 12 months after the termination of his employment. Each Named Executive Officer will not, during his employment or for a period of at least 12 months thereafter, contract or solicit any clients (including persons who become clients within six months of the termination of his employment) for the purposes of the selling or supplying software products or services competitive to those offered by the Corporation, in the case of the President and the Chief Financial Officer, and, in the case of the other Named Executive Officers, those offered by the applicable Operating Group he is responsible for. If terminated for other than just cause, Mr. Bender is entitled to either 12 months prior written notice or payment in an amount equal to 12 months’ salary at the rate in effect at the time of his termination. If Mr. Leonard is terminated for other than just cause, he is entitled to an amount equal to 12 months’ salary, less required deductions. Mr. Baksh is not entitled to any termination payments or prior notice pursuant to the terms of his employment contract. Mr. Van Poelje is entitled to two months’ prior notice of any termination and is not entitled to any termination payments pursuant to the terms of his employment contract. If Mr. McKay is terminated for other than just cause, he is entitled to six months’ prior notice of any termination or six months basic salary at the rate in effect at termination.

Compensation of Non-Employee Directors

The following table provides a summary of the compensation received by each of the non-employee directors during the fiscal year ended December 31, 2022. Non-employee directors are paid $60,000 per annum, plus $20,000 per annum for each committee of the Board (“Committee”) of which they are a member. The Vice-Chairman of the Board is paid an additional $40,000. The fees are payable in cash; however, the after-tax portion of such fees must be used by the non-employee directors to purchase Common Shares on the open market. The Common Shares are required to be held in escrow for a minimum average period of four years. The non-employee directors will also be reimbursed for all out-of-pocket expenses incurred in their capacities as members of the Board. During the fiscal year ended December 31, 2022, no non-employee directors other than Lawrence Cunningham rendered additional professional services, directly or indirectly, to the Corporation.

 

Name		Annual Compensation
		Fees Earned ($)												All Other Compensation ($)		Total Compensation ($)
		Fees paid in cash ($)				Fees used to purchase common shares ($)				Total fees earned ($)
Lori O’Neill			20,000				60,000				80,000			NIL			80,000
Robert Kittel			25,000				75,000				100,000			NIL			100,000
Paul McFeeters (1)			5,625				16,875				22,500			NIL			22,500
Lawrence Cunningham (2)			35,250				82,250				117,500			408,204			525,704
Claire Kennedy (3)			10,000				30,000				40,000			NIL			40,000
Susan Gayner			23,250				54,250				77,500			NIL			77,500
Donna Parr			15,000				45,000				60,000			NIL			60,000
Andrew Pastor			15,000				45,000				60,000			NIL			60,000
John Billowits			15,000				45,000				60,000			NIL			60,000
Laurie Schultz			15,000				45,000				60,000			NIL			60,000

Notes:

 

(1)	Mr. McFeeters did not stand for re-election to the Board of Directors on May 5, 2022.

 

(2)	Mr. Cunningham received $408,204 in compensation for professional consulting services provided to the Volaris Operating Group in 2022.

 

(3)	Ms. Kennedy was elected to the Board of Directors on May 5, 2022.

 

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Directors’ and Officers’ Liability Insurance

We currently maintain directors’ and officers’ liability insurance coverage with a C$25 million per occurrence limit and a C$25 million limit in aggregate. Coverage includes errors, omissions or breach of fiduciary duty by the directors and officers during the discharge of their legal duties. C$20 million of this insurance includes coverage to reimburse the Corporation for its indemnity obligations to the directors and officers and for securities claims made against the Corporation. The remaining C$5 million is dedicated to the directors and officers where they are not indemnified by the Corporation. The annual premium paid by the Corporation for this coverage is C$535,995.

STATEMENT OF CORPORATE GOVERNANCE PRACTICES

Our Board of Directors is responsible for developing our approach to corporate governance issues and is committed to ensuring that a healthy governance culture exists at the Corporation. The directors periodically review the size, composition and compensation of the Board of Directors, the effectiveness of the Board and its individual members, and appropriate committee structures, mandates, composition, membership and effectiveness. To the extent that a conflict of interest arises from time to time, a conflicted director is required to recuse himself or herself from the applicable portion of any meeting at which such matter is to be discussed or decided.

In accordance with National Instrument 58-101 Disclosure of Corporate Governance Practices (“NI 58-101”), the Corporation is required to disclose on an annual basis its approach to corporate governance. The Corporation’s approach to significant issues of corporate governance is designed to ensure that the business and affairs of the Corporation are effectively managed to enhance shareholder value. The Corporation’s corporate governance practices have been and continue to be in compliance with applicable Canadian requirements. Where the Corporation does not comply with recommended guidelines, it believes non-compliance is justifiable and its reasoning is provided. The Board has approved the description of the Corporation’s approach to corporate governance as outlined in Schedule “A” to this Circular. Corporate governance guidelines change from time to time. The Board monitors pending regulatory initiatives and developments in the corporate governance area and will address them as appropriate.

 

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INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS

As of March 27, 2023, no current or former directors, executive officers or employees of the Corporation, or any of its subsidiaries, has any indebtedness to the Corporation or any of its subsidiaries.

INTERESTS OF INFORMED PERSONS IN MATERIAL TRANSACTIONS

Since January 1, 2021, the only transactions involving informed persons of the Corporation were the spin-out of the Corporation’s Total Specific Solutions Operating Group into a new publicly traded company, Topicus.com Inc., and the subsequent acquisition of Topicus B.V. (as defined below) and the spin-out of the Corporation’s Lumine portfolio into a new publicly traded company, Lumine Group Inc., and the subsequent acquisition of Wide Orbit (as defined below).

On January 4, 2021 (in anticipation of the acquisition of Topicus.com B.V. (“Topicus B.V.”) described further below), the Corporation’s subsidiary, Constellation Software Netherlands Holdings Cooperatief U.A. (the “Coop”), which principally held the Total Specific Solutions Operating Group, completed a corporate reorganization. In conjunction with the reorganization, the following steps were completed:

 

•

The Coop changed its name to Topicus.com Coöperatief U.A. (“Topicus Coop”).

 

•

The Corporation exchanged its existing equity interest in Topicus Coop for an equity interest in Topicus.com Inc. and Topicus.com Inc. became the new parent company of Topicus Coop. The Corporation received 39,412,385 preferred shares and 39,412,385 subordinate voting shares of Topicus.com Inc. The preferred shares are convertible into subordinate voting shares of Topicus.com Inc. at a rate of 1:1.

 

•

Topicus.com Inc. had 39,412,385 subordinate voting shares outstanding on January 4, 2021. The Corporation distributed 39,412,367 of the subordinate voting shares to its common shareholders pursuant to a dividend-in-kind and continues to hold 18 subordinate voting shares.

 

•

The Corporation holds 1 super voting share of Topicus.com Inc. The super voting share entitles the holder to that number of votes that equals 50.1% of the aggregate number of votes attached to all the outstanding super voting shares and subordinate voting shares of Topicus.com Inc. As a result, the Corporation controls Topicus.com Inc. and will consolidate its financial position and results of operations with Topicus.com Inc. The Corporation will reflect a non-controlling interest held by other parties.

On May 20, 2020, the Corporation entered into a binding agreement, subject to certain closing conditions, with IJssel B.V. (the “Seller”) to purchase 100% of the shares of Topicus B.V., a Netherlands-based diversified vertical market software provider. On January 5, 2021, the Corporation completed this transaction. Annual gross revenues of Topicus B.V. for 2019 were approximately €101 million and total tangible assets at December 31, 2019 were approximately €7 million. In connection with the acquisition the Corporation paid cash of €133.6 million. Furthermore, Topicus Coop issued 5,842,882 preferred units of Topicus Coop to the Seller for an initial subscription price of €83.8 million plus an additional subscription amount of €27.589 million which will be owed by the Seller to Topicus Coop and payable to Topicus Coop under certain conditions. Topicus Coop also issued 5,842,882 ordinary units of Topicus Coop to the Seller. The aggregate estimated total consideration is €217.400 million. Under certain circumstances, the preferred units were retractable at the option of the holder for a retraction price of approximately €19.06 per unit and were classified as a liability on the balance sheet of Topicus.com Inc. and the Corporation. The preferred units were also convertible into ordinary units of Topicus Coop at a conversion ratio of 1:1 and the ordinary units are exchangeable for Topicus.com Inc. subordinate voting shares at a conversion ratio of 1:1. The preferred unit holders were also entitled to a fixed annual cumulative dividend of 5% per annum. On February 1, 2022, all of the preferred shares of Topicus.com Inc. and preferred units of Topicus Coop were converted into subordinate voting shares of Topicus.com Inc. and ordinary units of Topicus Coop, respectively.

 

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On January 5, 2021, parties to the existing members agreement (the “Members Agreement”) between the Corporation and the sellers of Total Specific Solutions (TSS) B.V. (“TSS”) along with certain members of TSS’ executive management team (collectively, the “Minority Owners” or the “Joday Group”) agreed to terminate such Members Agreement, and it was replaced by an Investor Rights and Governance Agreement (“IRGA”). The Minority Owners include Joday Investments II B.V., an entity controlled by Robin van Poelje (a director of the Corporation and the Chairman of the board of directors of Topicus.com Inc.) and Tjitske Strikwerda.

The IRGA contains special provisions between the Corporation and the Minority Owners, including put options and call options applicable to units of Topicus Coop that are held by the Minority Owners as of January 5, 2021 (and any units or shares into which such units or shares have been converted or exchanged). Commencing any time after January 5, 2021, each of the Minority Owners may (i) exercise a put option to sell all or a portion of their interests in Topicus Coop, (ii) in the event of a change of control of the Corporation, sell all or a portion of their interests in Topicus Coop, and (iii) in the event the Corporation reduces its economic interest in Topicus.com Inc., sell the corresponding amount of their interests in Topicus Coop, in each case, to the Corporation for an amount calculated in accordance with a valuation methodology described in the IRGA. At any time after December 31, 2023, the Corporation has the right, at its option, to buy all of the Topicus Coop units and Topicus shares held by certain members of the Joday Group (excluding Joday Investments II B.V.) at a cash price per Topicus Coop unit determined in accordance with the IRGA. After December 31, 2043, the Corporation has the same right to buy all of the Topicus Coop units held by the remaining members of the Joday Group, including Joday Investments II B.V.. Similar to the Members Agreement, the main valuation driver in such calculation is the maintenance and other recurring revenue of Topicus Coop. This summary is qualified in its entirety by reference to the provisions of the IRGA, which is available at www.sedar.com on Topicus.com Inc.’s issuer profile.

On February 22 and 23, 2023 (as part of a series of transactions relating to the acquisition of WideOrbit Inc. (“WideOrbit”) described further below), the Corporation’s subsidiary, Lumine Group Inc. (“Lumine”), completed a corporate reorganization. After the reorganization was completed, the Corporation now indirectly owns 1 super voting share, 6 subordinate voting shares and 63,582,712 preferred shares of Lumine. Furthermore, the Corporation distributed 63,582,706 of the subordinate voting shares to its common shareholders pursuant to a dividend-in-kind on February 23, 2022. The steps performed in conjunction with the reorganization consisted of the following:

 

•

The Corporation exchanged its existing common shares and preferred shares in Lumine Group (Holdings) Inc. (“Lumine Group Holdings”) for 63,582,712 subordinate voting shares and 55,233,745 preferred shares of Lumine on February 22, 2023.

 

•

Lumine and Lumine Group Holdings amalgamated on February 22, 2023.

 

•

The Corporation subscribed for 8,348,967 preferred shares of Lumine on February 22, 2023. The preferred shares are convertible into subordinate voting shares of Lumine at a rate of 1:2.43.

 

•

Lumine had 63,582,712 subordinate voting shares outstanding on February 22, 2023. The Corporation distributed 63,582,706 of the subordinate voting shares to its common shareholders pursuant to a dividend-in-kind on February 23, 2022 and continues to hold 6 subordinate voting shares of Lumine.

 

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•

Under certain conditions, the preferred shares are retractable at the option of the holder for a retraction price of approximately $21.74 per preferred share. The holders of the preferred shares are also entitled to a fixed annual cumulative dividend of 5% per annum.

 

•

The Corporation holds 1 super voting share of Lumine. The super voting share entitles the holder to that number of votes that equals 50.1% of the aggregate number of votes attached to all the outstanding super voting shares, subordinate voting shares and special shares of Lumine Group. As a result, the Corporation controls Lumine Group and will consolidate its financial position and results of operations with Lumine Group. The Corporation will reflect a non-controlling interest held by other parties.

On February 22, 2023, the Corporation purchased 100% of the shares of WideOrbit, a US-based vertical market software provider. Annual gross revenues of WideOrbit for 2022 were approximately $169 million. The gross purchase price for the transaction was $490 million, subject to customary adjustments, as a result of, but not limited to, minimum cash requirements of $10 million, target net indebtedness of $86.7 million, and claims under the representations and warranties of the purchase agreement. The Corporation has the ability to reduce the cash portion of the purchase consideration by $10 million for net indebtedness up to $96.7 million. If net indebtedness is greater than $96.7 million, excess repayment would be funded by the Corporation and added to the gross purchase price. In connection with the transaction, Lumine issued 10,204,294 special shares of Lumine to the sellers of WideOrbit (the “Sellers”) for an initial subscription price of approximately $222 million which will be included in the purchase consideration. Under certain conditions, the special shares are retractable at the option of the holder for a retraction price of approximately $21.74 per special share plus one subordinate voting share of Lumine for each special share held and will be classified as a liability on the balance sheet of Lumine and the Corporation. The special shares are also convertible into subordinate voting shares of Lumine at a conversion ratio of 1:3.43 at any time. The holders of the special share are also entitled to a fixed annual cumulative dividend of 5% per annum.

On December 12, 2022, the Corporation, Trapeze Software ULC and Eric Mathewson and certain investors affiliated therewith (collectively, the “Majority Rollover Shareholders”) entered a shareholders agreement (the “Shareholders Agreement”). Any Sellers who were not Majority Rollover Shareholders (collectively, the “Minority Rollover Shareholders”) became parties to the Shareholders Agreement pursuant to joinders entered into in connection with the issuance of special shares described above. The Shareholders Agreement includes a number of contractual provisions which impact the exercise by the Corporation, Trapeze Software ULC, the Majority Rollover Shareholders, Minority Rollover Shareholders and Lumine, as applicable, of certain rights and obligations. This summary is qualified in its entirety by reference to the provisions of the Shareholders Agreement, which is available at www.sedar.com on Lumine Group Inc.’s issuer profile.

 

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PARTICULARS OF MATTERS TO BE ACTED UPON AT THE MEETING

1. Appointment of Auditors

At the Meeting, shareholders will be requested to re-appoint KPMG LLP as auditors of the Corporation, to hold office until the next annual meeting of shareholders, and to authorize the Board of Directors to fix the auditors’ remuneration. KPMG LLP have been the auditors of the Corporation since the fiscal year ended December 31, 1995.

Unless the shareholder directs that his or her Common Shares are to be withheld from voting in connection with the appointment of auditors, the persons named in the form of proxy intend to vote for the reappointment of KPMG LLP as auditors of the Corporation until the next annual meeting of shareholders and to authorize the directors to fix their remuneration.

2. Election of Directors

The number of directors to be elected at the Meeting is thirteen. Directors of the Corporation are elected annually and, unless re-elected, retire from office at the end of the next annual general meeting of shareholders.

Majority Director Election Policy

In 2009, the Board of Directors adopted a majority director election policy (the “Policy”). The Policy requires that the form of proxy for the vote at a shareholder meeting where directors are to be elected will provide for separate voting for each director nominee. The Policy requires that any nominee for director who receives a greater number of votes “withheld” than votes “for” his or her election must immediately resign from the Board following the shareholders meeting.

The Board of Directors will consider relevant circumstances surrounding a nominee’s failure to obtain a majority vote and will, in the absence of compelling circumstances, accept the resignation as soon as appropriate, consistent with an orderly transition. The Board will disclose the decision, via press release, announcing the resignation of the director or explaining the reasons justifying the decision not to accept the resignation. It is expected any resignation will be accepted by the Board within 90 days of the meeting at which such director was found not to have the confidence of the shareholders. Subject to applicable law, if a resignation is accepted, the Board may (i) leave the vacancy unfilled until the next annual general meeting of shareholders; (ii) fill the vacancy through the appointment of a new director whom the Board considers to merit the confidence of shareholders; (iii) call a special meeting of shareholders at which there will be presented a management slate to fill the vacant position or positions; or (iv) reduce the size of the Board.    

Unless the shareholder directs that his or her Common Shares be otherwise voted or withheld from voting in connection with the election of directors, the persons named in the form of proxy will vote for the election of the thirteen (13) nominees whose names are set forth below. Management does not contemplate that any of the nominees will be unable to serve as a director but if that should occur for any reason prior to the Meeting or any adjournment thereof, it is intended that discretionary authority shall be exercised by the persons named in the form of proxy to vote the proxy for the election of any other person or persons in place of any nominee or nominees unable to serve. Each director elected will hold office until the close of business of the first annual meeting of shareholders of the Corporation following his or her election unless his or her office is earlier vacated in accordance with the Corporation’s by-laws, the Policy, and the Business Corporations Act (Ontario) (“OBCA”). The Board may from time to time appoint a Vice Chairman.

 

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The following table sets out, for each person proposed to be nominated for election as a director, the person’s name, municipality of residence, position(s) with CSI, principal occupation, the year in which the person became a director, and the approximate number of (i) Common Shares of CSI, (ii) subordinate voting shares of Topicus.com Inc., a subsidiary of CSI (iii) ordinary units of Topicus Coop, a subsidiary of CSI, and (iv) subordinate voting shares of Lumine Group Inc., a subsidiary of CSI that each has advised are beneficially owned or subject to his or her control or direction, either directly or indirectly as of March 27, 2023.

 

Name and Place of Residence		Position(s) with CSI		Principal Occupation		Director Since		Common Shares of CSI Beneficially Held or Over Which Control is Exercised				Subordinate Voting Shares of Topicus.com Inc. Beneficially Held or Over Which Control is Exercised				Ordinary Units of Topicus Coop Beneficially Held or Over Which Control is Exercised				Subordinate Voting Shares of Lumine Group Inc. Beneficially Held or Over Which Control is Exercised
Claire Kennedy Toronto, Ontario, Canada		—		Senior Advisor, Bennett Jones LLP		—			157				316				—				471
Jeff Bender Ottawa, Ontario, Canada		Director and Chief Executive Officer, Harris Operating Group		Chief Executive Officer, Harris Operating Group		2013			78,179				143,879				—				234,564
Mark Leonard Toronto, Ontario, Canada		President		President of CSI		1995			430,282	(4)			9,153				—				8,146
Lori O’Neill(1)(3) Ottawa, Ontario, Canada		Director		Consultant		2018			163				236				—				489
John Billowits Toronto, Ontario, Canada		Director and Chairman of the Board		Consultant		2020			37,697				72,921				—				113,105
Andrew Pastor(2) Toronto, Ontario, Canada		Director		Partner, EdgePoint		2020			47				—				—				141

 

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Name and Place of Residence		Position(s) with CSI		Principal Occupation		Director Since		Common Shares of CSI Beneficially Held or Over Which Control is Exercised				Subordinate Voting Shares of Topicus.com Inc. Beneficially Held or Over Which Control is Exercised				Ordinary Units of Topicus Coop Beneficially Held or Over Which Control is Exercised				Subordinate Voting Shares of Lumine Group Inc. Beneficially Held or Over Which Control is Exercised
Donna Parr Toronto, Ontario, Canada		Director		President, Crimson Capital		2020			46				1,051				—				138
Barry Symons Toronto, Ontario, Canada		Director and Chief Executive Officer, Jonas Operating Group		Chief Executive Officer, Jonas Operating Group		2020			153,310				284,242				—				459,985
Mark Miller Oakville, Ontario, Canada		Director and Chief Operating Officer, CSI and Chief Executive Officer, Volaris Operating Group, Director and Chairman of Lumine Group Inc.		Chief Operating Officer, CSI and Chief Executive Officer, Volaris Operating Group		2013			280,551				521,202				—				841,653
Laurie Schultz Vancouver, British Columbia, Canada		Director		Consultant		2021			132				—				—				396
Robert Kittel(1) (2) Toronto, Ontario, Canada		Director and Lead Independent Director		Chief Operating Officer of The Westaim Corporation		2013			1,117				1,884				—				3,352

 

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Name and Place of Residence		Position(s) with CSI		Principal Occupation		Director Since		Common Shares of CSI Beneficially Held or Over Which Control is Exercised				Subordinate Voting Shares of Topicus.com Inc. Beneficially Held or Over Which Control is Exercised				Ordinary Units of Topicus Coop Beneficially Held or Over Which Control is Exercised				Subordinate Voting Shares of Lumine Group Inc. Beneficially Held or Over Which Control is Exercised
Robin Van Poelje Blaricum, The Netherlands		Director and Chief Executive Officer and Chairman, Topicus.com Inc., Director of Lumine Group Inc.		Director and Chief Executive Officer and Chairman, Topicus.com Inc.		2018			3,161				33,778				36,958,920				9,488
Susan Gayner(1) Richmond, VA, USA		Director		Consultant		2019			116				110				—				348

Notes:

 

(1)	Member of Audit Committee.

(2)	Member of Compensation, Nominating and Human Resources Committee.

(3)

Ms. O’Neill was a director of DragonWave Inc. from June 13, 2013 to July 31, 2017. Following Ms. O’Neill’s resignation on July 31, 2017, the Ontario Superior Court of Justice appointed a receiver over the business and assets of DragonWave Inc., following an application of Comerica Bank as Agent for DragonWave Inc.’s senior lenders, pursuant to the Bankruptcy and Insolvency Act (Canada). On July 20, 2017, the shares of DragonWave Inc. were halted from trading on the TSX by the Investment Industry Regulatory Organization of Canada. The shares of DragonWave Inc. were delisted from the TSX and the NASDAQ on August 30, 2017 and August 2, 2017, respectively.

(4)

On August 5, 2015, the Corporation announced that L6 Holdings Inc. (formerly known as 1388369 Ontario Inc.), an Ontario corporation (“L6”) which as of August 5, 2015 owned 1,000,000 Common Shares (representing approximately 4.7% of the issued and outstanding Common Shares of CSI) and which was previously controlled by Mr. Leonard, President and Chairman of the Board, is now controlled exclusively by the adult children of Mr. Leonard.

The following are brief profiles of each person proposed to be nominated for election as a director, including a description of each individual’s principal occupation within the past five years.

Claire Kennedy

Ms. Kennedy is a Senior Advisor, Clients & Industries at Bennett Jones LLP, a role she has held since 2019, prior to which she was a partner of the firm from 2009. Ms. Kennedy received her BASc in Chemical Engineering & Applied Chemistry from the University of Toronto in 1989 and her LL.B from Queen’s University in 1994. Called to the bar in Ontario in 1996, Ms. Kennedy was law clerk to the late Honourable Mr. Justice Charles D. Gonthier of the Supreme Court of Canada. Ms. Kennedy currently serves as Lead Director of the Bank of Canada, Chair of the Audit Committee of Alamos Gold Inc. and Chair of the Board at Neo Performance Materials Inc. Ms. Kennedy is past Chair of the University of Toronto’s Governing Council and she is a member of the Dean’s Advisory Board at the Rotman School of Management.

Jeff Bender — Director and Chief Executive Officer, Harris Operating Group

Mr. Bender joined CSI in 1999 after spending 7 years at Deloitte LLP. Mr. Bender has been the Chief Executive Officer for Constellation’s Harris Operating Group since 2002. Mr. Bender is a Chartered Professional Accountant and holds a BCom from Carleton University. Mr. Bender also serves on the Board of Directors of Aptean, a privately held vertical market software company and Topicus.com Inc.

 

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Robert Kittel – Director and Lead Independent Director

Mr. Kittel joined the Board in 2013. Mr. Kittel has been the Chief Operating Officer of The Westaim Corporation since January 2013. The Westaim Corporation is a Canadian-based publicly traded financial and investment holding company. Previously he was a Partner and Portfolio Manager at Goodwood Inc., an investment management firm that he joined in 2002. From 2000 through 2002, he was Vice President and Analyst of a Canadian-based hedge fund investment firm. From 1997 through 2000, Mr. Kittel was employed by the Cadillac Fairview Corporation, a commercial real estate development company in the investments area. Prior to 1997, Mr. Kittel was a staff accountant at KPMG LLP. Mr. Kittel has served as a director on several public boards, both in Canada and the United States. Mr. Kittel holds a BBA Honours (Gold Medalist) from Wilfrid Laurier University and is a Chartered Professional Accountant and a Chartered Financial Analyst.

Mark Leonard — President

Mr. Leonard founded CSI in 1995. Prior to founding CSI, Mr. Leonard worked in the venture capital business for eleven years. Mr. Leonard holds a BSc. from the University of Guelph, and a MBA from the University of Western Ontario. Mr. Leonard is currently a director of Topicus.com Inc.

Lori O’Neill — Director

Ms. O’Neill joined the Board in March 2018. Ms. O’Neill is a FCPA, FCA, corporate director and independent financial consultant to growth companies, after serving over 24 years with Deloitte LLP. As a partner at Deloitte LLP with various national and industry leadership roles, she focused on advising growth companies from start-up to multinationals, supporting complex transactions, private and public equity offerings, mergers and acquisitions in Canada and the U.S. She was previously the chair of the audit committee for Sierra Wireless, Inc. and has served on boards of numerous public and private technology companies, non-profit organizations and crown corporations. Ms. O’Neill graduated from Carleton University with a Bachelor of Commerce Highest Honors in 1988, achieved her CPA, CA designation in 1990, her U.S. CPA designation in 2003, and completed the ICD Director Education Program attaining the ICD.D.

John Billowits – Director and Chairman of the Board

Mr. Billowits was previously employed by CSI from 2003 until 2020, most recently as the Chief Executive Officer of the Vela Operating Group. Prior to being CEO of the Vela Operating Group, he was the Chief Financial Officer of CSI and was the President of Jonas Club division. Prior to joining CSI, Mr. Billowits held a number of roles with Bain & Company, Dell Computers and PwC. Mr. Billowits is a Chartered Professional Accountant, holds an MBA with Distinction from the London Business School and Honours BBA with Distinction from Wilfrid Laurier University. Mr. Billowits also serves on the Board of Directors of Togetherwork, a privately held vertical market software company, Topicus.com Inc., a European provider of vertical market software and vertical market platforms to clients in public and private sector markets, and Computer Modelling Group Ltd.

Andrew Pastor – Director

Mr. Pastor is currently a Partner at EdgePoint and has been with EdgePoint since 2013. Mr. Pastor was an equity research analyst at Sionna Investment Managers from 2010 to 2012 and previously spent four years at BMO Harris Investment Management. From 2016 to 2020 (prior to his formal appointment to the Board), Mr. Pastor had been engaged as an unpaid Board observer to CSI’s Board of Directors. Mr. Pastor has a BA from the University of Western Ontario and is a CFA charterholder.

Donna Parr – Director

Ms. Parr has significant experience in venture and private equity investing and corporate finance working for Canadian Medical Discoveries Fund, Ontario Municipal Employees Retirement System, Canada Pension Plan, and several other institutional investors. Ms. Parr has served on 35 boards of private companies primarily on behalf of institutional investors and several as an Independent Corporate Director, including a term as a director of CSI from 1995 to 2003. Ms. Parr is currently a Managing Partner at Cross-Border Impact Ventures, the President of Crimson Capital and has been with Crimson Capital since 2009. Ms. Parr holds an MBA from York University and Masters and Honours degrees from the University of Toronto in International Relations. Ms. Parr is currently a director of Topicus.com Inc.

 

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Barry Symons — Director and Chief Executive Officer, Jonas Operating Group

Mr. Symons joined CSI in 1997. During his tenure with CSI, Mr. Symons has held various senior financial and operational management positions within CSI and our subsidiaries. In August 2007 Mr. Symons was appointed to the role of Chief Executive Officer of our Jonas Operating Group. Prior to this appointment he was the Chief Financial Officer of CSI from 2004 to 2007. Before joining CSI, Mr. Symons was with a major international accounting firm in varying roles of increasing responsibility. Mr. Symons holds a Chartered Accountancy designation and a BBA (Honours) degree from Wilfrid Laurier University both of which were received with distinction.

Mark Miller – Director, Chief Executive Officer, Volaris Operating Group, Chief Operating Officer, Constellation Software, Chairman of Lumine Group Inc. Board of Directors

Mark Miller has worked with CSI, Volaris Operating Group and its subsidiaries for more than 20 years. He spends the majority of his time as the Chief Executive Officer of Volaris Operating Group and serves as Director and Chief Operating Officer of CSI, as well as Chairman of the Board of Lumine. Mark also currently serves on the board of ventureLAB, Computer Modeling Group, and IOVIA. Previously, he served on the boards of pVelocity, Medgate (now known as Cority), and EISI. He also holds a BS in Statistics and Mathematics from McMaster University in Hamilton, Ontario.

Laurie Schultz — Director

Ms. Schultz has been a member of the Board since 2021. Ms. Schultz has over thirty years of experience in the software and technology sectors, including leadership of several multi-million dollar software businesses spanning the personal finance, small business accounting, SaaS, mid-market ERP, and GRC categories. Ms. Schultz served as the President and CEO of Galvanize from 2011 until it was sold in 2021. Starting in 2004 she held several executive positions at Sage including serving as VP and GM at Sage’s Mid-Market ERP business group from 2007 until 2011. Ms. Schultz was a Senior Manager at KPMG from 1996 until 1999 and was a Senior Manager at Telus Communications from 1989 until 1996. Ms. Schultz holds a Bachelor of Commerce and an MBA from the University of Alberta.

Robin Van Poelje — Director and Chairman and Chief Executive Officer, Topicus.com Inc.

Mr. Van Poelje has been with CSI since January 2014 when CSI acquired TSS. From January 2010 to 2020, Mr. Van Poelje had been the Chief Executive Officer of TSS, based in the Netherlands. Mr. Van Poelje is the Chairman and Chief Executive Officer of Topicus.com Inc. Mr. Van Poelje is also a Director of Lumine Group Inc. Mr. Van Poelje holds a Msc. in Economics from the University of Groningen, the Netherlands and is a post graduate in Marketing and Strategy from École Supérieure de Commerce de Montpellier, France.

Susan Gayner — Director

Ms. Gayner joined our Board in 2019. Ms. Gayner recently retired as President and CEO of ParkLand Ventures, Inc., an owner-operator of multifamily housing communities in the US, where she had been since 2008. She is a Chemical Engineer by training and prior to her tenure with ParkLand served in various capacities with both the DuPont Company and Hercules, Inc. She previously served on the board of directors of Synalloy Corporation. She holds a BA (Chemistry) and an ME (Chemical Engineering), both from the University of Virginia.

 

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3. Approach to Executive Compensation

The primary objective of the Corporation’s executive compensation program is to attract and retain highly skilled executives required for the success of the Corporation and to reward and retain executives who create long-term value for our shareholders. See “Compensation Discussion and Analysis” for detailed disclosure of CSI’s executive compensation program. The Board has adopted a policy to hold a non-binding advisory vote on the approach to executive compensation as disclosed in the management information circular at each annual meeting. At the Meeting, shareholders will have an opportunity to vote on CSI’s approach to executive compensation through consideration of the following advisory resolution:

Be it resolved, on an advisory basis and not to diminish the role and responsibilities of the board of directors of CSI, that the approach to executive compensation disclosed in the management information circular of CSI dated March 27, 2023 is accepted.

As the vote is advisory, it will not be binding upon the Board; however, the CNHR Committee will take into account the results of the vote when considering future executive compensation arrangements.

The Board recommends that shareholders vote IN FAVOUR of the above resolution.

 

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OTHER MATTERS WHICH MAY COME BEFORE THE MEETING

Management knows of no matters to come before the Meeting other than the matters referred to in the Notice of the Meeting. However, if any other matters which are not now known to management should properly come before the Meeting, the proxy solicited hereby will be voted on such matters in accordance with the best judgment of the persons voting the proxy.

ADDITIONAL INFORMATION

Additional information relating to the Corporation is available on SEDAR at www.sedar.com and also on the Corporation’s website at www.csisoftware.com. A comprehensive description of the Corporation and its business as well as a summary of the risk factors applicable to the Corporation are set out in the Corporation’s Annual Information Form (“AIF”). Financial information is provided in the 2022 MD&A and Financials, which are available at www.sedar.com. Copies of the Corporation’s AIF, together with any documents incorporated by reference therein; the Corporation’s most recently filed annual consolidated financial statements, together with the accompanying report of the independent auditor, and any of the Corporation’s condensed consolidated interim financial statements that have been filed for any period after the end of the Corporation’s most recently completed financial year; annual and interim management’s discussion and analysis and this Circular are available without charge to shareholders of the Corporation, upon request, from the Corporation at:

Constellation Software Inc.

20 Adelaide Street East

Suite 1200

Toronto, Ontario

M5C 2T6

Telephone: [phone]

Facsimile: [phone]

Email: [e-mail]

For certain information with respect to the Corporation’s Audit Committee, including its charter and composition, the relevant education and experience of its members, and services fees paid to the Corporation’s external auditors, please refer to the section entitled “Committees of the Board of Directors” in the Corporation’s AIF.

 

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DIRECTORS’ APPROVAL

The contents of this Circular and the delivery thereof to the shareholders of the Corporation has been approved by the Board of Directors.

DATED the 27^th day of March, 2023.

 

ON BEHALF OF THE BOARD OF DIRECTORS

John Billowits

Chairman

 

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SCHEDULE “A”

NATIONAL INSTRUMENT 58-101

DISCLOSURE OF CORPORATE GOVERNANCE PRACTICES

1. Board of Directors

The board of directors of the Corporation (the “Board of Directors” or the “Board”) is currently composed of fifteen members. All Board members, with the exception of Mark Leonard, Jeff Bender, Dexter Salna, Barry Symons, Robin Van Poelje, Mark Miller, Lawrence Cunningham and John Billowits are independent according to the definition of “independence” set out in NI 58-101 as it applies to the Board of Directors. Mark Leonard, Jeff Bender, Dexter Salna, Barry Symons, Robin Van Poelje and Mark Miller are not independent because they are executive officers of the Corporation. John Billowits is not independent because he was an executive officer of the Corporation within the last three years. Lawrence Cunningham is not considered independent because he received more than $75,000 in compensation for consulting services rendered to the Volaris Operating Group in 2022. While the Board of Directors does not believe the receipt of these consulting fees by Lawrence Cunningham interferes with his ability to act independently in his capacity as a Director, he does not currently satisfy the definition of “independence” in NI 58-101, and on that basis the majority of the current Board is non-independent.

Following the Meeting, the Board will be composed of thirteen members as Lawrence Cunningham and Dexter Salna are not standing for re-election. Assuming each of the members proposed for re-election are re-elected as directors at the Meeting, seven of the thirteen board members will be independent.

The following directors are currently directors of other issuers that are reporting issuers (or the equivalent) in a jurisdiction of Canada or a foreign jurisdiction:

 

Name		Director of Other Issuer
Lori O’Neill		Calian Group Ltd.
Mark Miller		Computer Modelling Group Ltd. Lumine Group Inc.
John Billowits		Computer Modelling Group Ltd., Topicus.com Inc.
Robin van Poelje		Topicus.com Inc. Lumine Group Inc.
Mark Leonard		Topicus.com Inc.
Donna Parr		Topicus.com Inc.
Barry Symons		Optiva Inc.
Jeff Bender		Topicus.com Inc.
Claire Kennedy		Alamos Gold Inc. Neo Performance Materials Inc.
Robert Kittel		Skyward Specialty Insurance Group, Inc.
Lawrence Cunningham*		Kelly Partners Group Holdings

 

*	Mr. Cunningham is not standing for re-election to the Board.

At regularly scheduled meetings of the Board of Directors, the independent directors hold in camera sessions while members of management are not in attendance. The Board held four in camera sessions during fiscal 2022. The Audit Committee holds in camera sessions with only the external auditors present. The Compensation, Nominating and Human Resources (“CNHR”) Committee consists only of independent directors with management attending only by invitation.

 

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Meetings of the Board of Directors are currently chaired by John Billowits, Chairman of the Board of Directors, who is not an independent director because he was an executive officer of the Corporation within the last three years. The Board of Directors believes that Mr. Billowits is best suited to establish the agenda and ensure that relevant information is made available to the Board of Directors due to his intimate knowledge of the Corporation and its operating businesses. The Board’s non-management or outside directors have unrestricted and direct access to management and the external auditors of the Corporation and meet independently with the auditors at least four times a year through the in-camera sessions as noted above. The Board of Directors has appointed Robert Kittel, an independent director, as a lead director. As lead director, his role is to chair the in camera sessions held without management in attendance, and communicate the results of those sessions to management.

Since the beginning of the fiscal year ended December 31, 2022, the Board of Directors held nine meetings. The attendance of the individual directors was as follows:

 

Director		Number of Meetings Attended
Mark Leonard		9/9
Robert Kittel		9/9
Jeff Bender		9/9
Mark Miller		9/9
Lawrence Cunningham**		9/9
Robin Van Poelje		9/9
Lori O’Neill		9/9
Dexter Salna**		9/9
Susan Gayner		9/9
John Billowits		9/9
Barry Symons		9/9
Donna Parr		8/9
Andrew Pastor		9/9
Claire Kennedy*		4/4
Laurie Schultz		9/9

 

*	Ms. Kennedy was first elected to the Board on May 5, 2022.

**	Mr. Cunningham and Mr. Salna are not standing for re-election to the Board.

Since the beginning of the fiscal year ended December 31, 2022, the Audit Committee held four meetings. The attendance of the individual directors was as follows:

 

Director		Number of Meetings Attended
Susan Gayner*		3/3
Lori O’Neill		4/4
Robert Kittel		4/4
Paul McFeeters**		1/1

 

*	Ms. Gayner joined the Audit Committee in February 2022.

**	Mr. McFeeters ceased to be a member of the Audit Committee in February 2022 and did not stand for re-election to the Board in 2022.

 

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Since the beginning of the fiscal year ended December 31, 2022, the CNHR Committee held seven meetings. The attendance of the individual directors was as follows:

 

Director		Number of Meetings Attended
Robert Kittel		7/7
Lawrence Cunningham*		7/7
Andrew Pastor**		0/0

 

*	Mr. Cunningham is not standing for re-election to the Board.

**	Mr. Pastor joined the CNHR Committee in February 2023.

2. Board Mandate

The Board of Directors is responsible for the stewardship of the Corporation, ensuring that long-term value is being created for its shareholders. The Board has adopted a written charter to formalize their responsibilities, a copy of which is attached as Annex I hereto.

3. Position Descriptions

There are no specific written position descriptions for the Chairman of the Board, the Chairs of the various Board Committees or the President. The Board and each Committee has a written mandate pursuant to which its members and Chairs can be assessed. The President’s role and responsibilities are assessed periodically by the Board. The role of the Chairman of the Board is to set agendas, ensure that the Board functions effectively, act as a liaison between management and the Board, and coordinate the activities of the committees with the work of the Board. The role of the chair of each committee is to set agendas, ensure that the committee functions effectively and report to the Board on committee business.

4. Orientation and Continuing Education

While the Corporation does not have a formal orientation program for new members of the Board, the President and other members of senior management are and will continue to be available to Board members to discuss the Corporation’s business and assist in the orientation and education of Board members as required. As part of the orientation process, new Board members are provided with copies of the Corporation’s relevant financial data and have the opportunity to attend management meetings.

The Board does not formally provide continuing education to its directors; however, the directors are experienced members, the majority of whom are or have been directors on boards of other companies. The Board of Directors relies on professional assistance when considered necessary in order to be educated or updated on a particular topic.

5. Ethical Business Conduct

The Corporation has not adopted a written code of conduct and ethics. The Board’s mandate requires that business be conducted ethically and in compliance with applicable laws and regulations. In addition, most employees and officers of the Corporation have signed employment contracts that require that ethical and lawful behaviour must be exhibited at all times. In addition, most of the subsidiaries of the Corporation have codes of conduct in place and available to their employees which further outline what behaviour is/is not tolerated. Lastly, the Corporation has established a whistleblower policy which outlines the procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting control or auditing matters as well as other issues.

 

32

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Under the OBCA, to which the Corporation is subject, a director or officer of the Corporation must disclose to the Corporation, the nature and extent of any interest that he or she has in a material contract or material transaction, whether made or proposed, with the Corporation, if the director or officer: (a) is a party to the contract or transaction; (b) is a director or an officer, or an individual acting in a similar capacity, of a party to the contract or transaction; or (c) has a material interest in a party to the contract or transaction. Subject to limited exceptions set out in the OBCA, the director cannot vote on any resolution to approve the contract or transaction and must recuse himself or herself from the decision-making process pertaining to a contract or transaction in which he or she has an interest.

6. Nomination of Directors

The Board of Directors has delegated to the CNHR Committee the responsibility for identifying new candidates for Board nomination and proposing such nominees to the Board. Board members or management may suggest candidates for consideration by the Committee. Prospective candidates are interviewed by the President and by other Board members on an ad hoc basis.

All of the members of the CNHR Committee are independent according to the definition of “independence” set out in NI 58-101. The powers and responsibilities of the CNHR Committee are set out in the CNHR Committee’s written mandate, a copy of which is attached as Annex II hereto.

7. Compensation

The Board periodically reviews the remuneration of directors and makes adjustments where considered necessary. The CNHR Committee considers responsibilities, skills and competitive compensation in determining remuneration. With respect to the compensation of the Corporation’s officers, see “Compensation Discussion and Analysis” above.

The Board of Directors has established the CNHR Committee whose primary role and responsibility concerns human resources and compensation policies and processes, including:

 

•

Ensuring that the Corporation’s compensation programs balance the needs of shareholders and employees;

 

•

Reviewing and approving total remuneration of the President and other senior executives and the total allowance for increases to other employees;

 

•

Monitoring the Corporation’s succession plans; and

 

•

As required, recommending candidates for the Corporation’s Board of Directors.

The following sets out the relevant education and experience of each director relevant to the performance of his duties as a member of the CNHR Committee:

Mr. Kittel is the Chief Operating Officer of The Westaim Corporation since January 2013. He also served as a director on several public boards, both in Canada and the United States. Mr. Kittel holds a BBA Honours (Gold Medalist) from Wilfrid Laurier University and is a Chartered Professional Accountant and a Chartered Financial Analyst.

 

33

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Mr. Pastor is currently a Partner at EdgePoint and has been with EdgePoint since 2013. Mr. Pastor was an equity research analyst at Sionna Investment Managers from 2010 to 2012 and previously spent four years at BMO Harris Investment Management. From 2016 to 2020 (prior to his formal appointment to the Board), Mr. Pastor had been engaged as an unpaid Board observer to CSI’s Board of Directors. Mr. Pastor has a BA from the University of Western Ontario and is a CFA charterholder.

Corporate objectives are established periodically by the Board of Directors. Executive performance is assessed at least annually by the CNHR Committee against those objectives. No compensation consultant or advisor was retained by the Corporation during the fiscal year ended December 31, 2022.

8. Other Board Committees

Other than the Audit Committee and CNHR Committee, the Board does not have any other committees in place.

9. Assessments

Each Committee reviews and assesses the adequacy of its Committee mandate on a periodic basis and recommends any proposed changes to the Board for approval. The Board in conjunction with the President periodically reviews and assesses the effectiveness of the Board as a whole, the membership of the Board committees, the mandates and activities of each committee and the contribution of individual directors. Feedback is obtained from members of the Board and the various Committees on an informal basis, which the Board believes is sufficient to address any changes that may be necessary or desirable.

10. Term Limits

CSI does not have term limits for directors. While there is benefit to adding new perspectives to the Board from time to time, there are also benefits to be achieved by continuity and directors having in-depth knowledge of CSI’s businesses. CSI’s Board believes that the key to effective leadership is to choose directors and officers that, having regard to a wide array of factors, possess the range of necessary skills, experience, commitment and qualifications that are best suited to fostering effective leadership and decision-making at the Corporation.

11. Representation of Women on the Board and in Executive Officer Positions

CSI currently has five female directors (33% of the existing total and 38.5% of the total directors proposed for re-election), Claire Kennedy, Laurie Schultz, Lori O’Neill, Donna Parr and Susan Gayner, on the Board and no women (0%) in executive officer (as defined in National Instrument 58-101) positions. CSI does not have a formal written policy on the representation of women on the Board or in senior management and has not adopted any targets with respect to such representation, as the Board does not believe that quotas or strict rules result in the identification or selection of the best candidates. The CNHR Committee will, as required, recommend candidates for the Board of Directors, based on, among other things, their wisdom, long-term orientation, shareholder alignment, belief in the motivational power of autonomy and decentralisation, experience with successful capital allocation, diversity, age, and track record of exercising sound judgment.

 

34

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ANNEX I

BOARD MANDATE

CONSTELLATION SOFTWARE INC.

CORPORATE GOVERNANCE

BOARD OF DIRECTORS

MANDATE

The Board of Directors is responsible for the stewardship of the Corporation, ensuring that long-term value is being created for its shareholders.

BOARD COMPOSITION

The Board of Directors shall be comprised of a majority of independent Directors. The number of Directors may be set from time to time by the Board within the minimum and maximum numbers approved by the shareholders.

The Directors shall be elected by the shareholders, except as permitted by the Ontario Business Corporations Act. Where a vacancy arises the Compensation, Nominating and Human Resources (“CNHR”) Committee will recommend an appropriate person to fill such vacancy, at the Board’s discretion, or the Board may decide to reduce the size of the Board. The Board will appoint a Chairman and a Corporate Secretary. The Chairman shall be designated from among the members of the Board. A lead Director will be chosen each year to act as Chairman in instances when the Board meets without the Chairman being present. The Board may from time to time appoint a Vice Chairman.

MEETINGS AND BOARD PROCESS

The Board shall meet at least five times per year, once after each quarter, and once when the drafts of the Annual Information Circular, Annual Report, and Proxy have been prepared. The Board will meet more frequently if circumstances dictate.

Board meetings will allow for input from all Board members. Any Director may request that the lead Director co-ordinate a meeting of the non-management members of the Board. Board and Board Committee liaison with the Corporation will be principally through the President. The Board may, from time to time, assign specific duties and tasks to individuals or committees.

Audit and CNHR Committees have been established. Each of the Committees shall operate under a written Mandate document approved by the Board. The two standing Committees of the Board shall be comprised entirely of non-management Directors. The Board receives regular reports from the Committees.

Periodically, the Board will evaluate the effectiveness of the Board as a whole and ensure that appropriate succession plans are in place. This may include: Reviewing the process for nominating, orienting, and remunerating Board members, determining the committees required, and changing the mandates for the committees.

 

35

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The Board has the authority to conduct any investigation appropriate to fulfilling its responsibilities, and has direct access to the books, records, facilities and personnel of the organization. The Board has the ability to retain, at the Corporation’s expense, special legal, accounting or other consultants or experts it deems necessary in the performance of its duties.

RESPONSIBILITIES

The Board members shall ensure that:

 

•

All Board members understand the business of the Corporation;

 

•

Processes are in place to effectively plan, monitor and manage the long-term viability of the Corporation;

 

•

There is a balance between long and short-term goals and risks;

 

•

Management’s performance is adequate and that an adequate management succession plan is in place;

 

•

Communication with shareholders and other stakeholders is timely and effective;

 

•

Business is conducted ethically and in compliance with applicable laws and regulations; and

 

•

All matters requiring shareholder approval are referred to them.

OPERATIONAL MATTERS

In the process of executing its responsibilities the Board will:

 

•

Review corporate performance on a quarterly basis;

 

•

Periodically adjust hurdle rates used to assess acquisitions;

 

•

Review and approve all business acquisitions over certain thresholds (the Board of Directors may change the threshold requiring approval);

 

•

Review and approve divestitures;

 

•

Review and approve dividend payments;

 

•

Ensure that management compensation is appropriate;

 

•

Review and approve company banking and borrowing resolutions;

 

•

Review and approve any changes in the issued shares;

 

•

Review accounting policies, internal control and audit procedures;

 

•

Review and approve the annual information circular and proxy for the annual meeting of shareholders;

 

•

Review and approve the annual financial statements and the interim consolidated quarterly results;

 

•

Recommend to the shareholders the appointment of auditors and their remuneration; and

 

•

Provide advice to management.

 

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ANNEX II

COMPENSATION, NOMINATION AND HUMAN RESOURCE (“CNHR”)

COMMITTEE MANDATE

The purpose of the CNHR Committee is to assist, and where appropriate, make recommendations to the Board of Directors and President concerning matters relating to the Corporation’s employees and directors.

The Committee exists at the pleasure of the Board, and its Mandate may be changed by the Board at any time.

Responsibilities

The CNHR Committee’s duties and responsibilities are to:

 

•

Ensure the Corporation’s compensation programs balance the needs of shareholders and employees;

 

•

Review and approve total remuneration of the President and other senior executives;

 

•

Review the Corporation’s succession plans;

 

•

Develop a pool of potential director candidates for consideration in the event of a vacancy on the Board, and as part of such development efforts, identify highly qualified women and highly qualified individuals from minority groups to include in the pool of candidates;

 

•

As required, recommend candidates for the Corporation’s Board of Directors, based on, among other things, their wisdom, long-term orientation, shareholder alignment, belief in the motivational power of autonomy and decentralisation, experience with successful capital allocation, diversity, age, and track record of exercising sound judgment; and

 

•

Consider matters of corporate governance and periodically review the Corporation’s corporate governance policies and guidelines and recommend to the Board modifications to such polices and guidelines as appropriate.

Composition

The CNHR Committee shall be comprised of two or more directors, at least two of whom will be independent, as determined and appointed by the Board.

The Committee may elect its own chairman and secretary. The secretary to the Committee need not be a member of the Committee.

Meetings

The Committee shall meet at least twice per year and more frequently if circumstances dictate. The Chairman shall report on the Committee’s activities and make recommendations to the Board for approval.

Committee liaison with the Corporation will be principally through the President.

The Committee has the authority to conduct any investigation appropriate to fulfilling its responsibilities, and has direct access to the books, records, facilities and personnel of the organization. The CNHR Committee has the ability to retain, at the Corporation’s expense, special legal, accounting or other consultants or experts it deems necessary in the performance of its duties.

 

37

Exhibit 2.4

Consolidated Financial Statements

(In U.S. dollars)

CONSTELLATION

SOFTWARE INC.

For the year ended December 31, 2022 and 2021

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KPMG LLP

Vaughan Metropolitan Centre

100 New Park Place

Suite 1400

Vaughan, ON Canada L4K 0J3

Telephone [phone]

Fax [phone]

www.kpmg.ca

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of Constellation Software Inc.

Opinion

We have audited the consolidated financial statements of Constellation Software Inc. (“the Entity”), which comprise:

 

•

the consolidated statements of financial position as at December 31, 2022 and December 31, 2021

 

•

the consolidated statements of income (loss) for the years then ended

 

•

the consolidated statements of comprehensive income (loss) for the years then ended

 

•

the consolidated statements of changes in equity for the years then ended

 

•

the consolidated statements of cash flows for the years then ended

 

•

and notes to the consolidated financial statements, including a summary of significant accounting policies

(Hereinafter referred to as the “financial statements”).

In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Entity as at December 31, 2022 and December 31, 2021, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRS).

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the “Auditor’s Responsibilities for the Audit of the Financial Statements” section of our auditor’s report.

We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent

member firms affiliated with KPMG International Limited, a private English company limited by guarantee.

KPMG Canada provides services to KPMG LLP.

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Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended December 31, 2022. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

We have determined the matters described below to be the key audit matters to be communicated in our auditor’s report.

Determination of distinct professional services performance obligation in customer contracts containing multiple performance obligations and estimation of hours to complete for certain percentage-of-completion (POC) arrangements

Description of the matter

We draw attention to Notes 2(d) and 3(k) to the financial statements. The Entity has recognized revenue of $6,622 million. A portion of revenue is associated with customer contracts that contain multiple products and services such as software licenses, maintenance and other recurring services, professional services, and hardware. The Entity uses significant judgment to assess whether professional services sold in a customer contract are considered distinct and should be accounted for as separate performance obligations. Revenue from the license of software that involves complex implementation or customization that is not distinct, and/or includes sales of hardware that is not distinct, is recognized as a combined performance obligation using the percentage-of-completion method based primarily on labour hours. The Entity applies significant judgment to determine the estimated hours to completion which affects the timing of revenue recognized for professional services and non-distinct license and/or hardware.

Why the matter is the key audit matter

We identified the determination of distinct professional services performance obligations in customer contracts containing multiple performance obligations and the estimation of hours to complete for certain POC arrangements, being contracts where revenue recognition is based on estimated hours to completion, as a key audit matter. Significant auditor judgment was required to evaluate the Entity’s significant judgments of whether professional services are distinct or non-distinct and the estimated hours to completion for arrangements that are completed over an extended period. There was significant auditor effort, involving more senior professionals, required to address this matter.

How the matter was addressed in the audit

The primary procedures we performed to address this key audit matter included the following:

We evaluated the design, and tested the operating effectiveness of certain controls over revenue recognition including controls related to the Entity’s process to identify distinct professional services performance obligations in certain customer contracts and controls over the estimation of hours to complete for POC arrangements, inclusive of executed contract amendments and change orders.

For a selection of new customer contracts, we assessed the Entity’s determination of distinct/non-distinct professional services performance obligations, if any, by examining the contract source documents, comparing to the Entity’s past assessments for similar contracts, and practices observed in the Entity’s industry.

For a selection of POC arrangements where revenue recognition is based on the estimated hours to completion, we interviewed operational personnel responsible for the contract. We obtained an understanding of the original estimated hours to completion and any increase or decrease to the estimated hours to completion as the contract progresses and inspected correspondence such as project planning documents and change requests, if any, between the Entity and its customers.

 

2

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In addition, we assessed the Entity’s historical ability to accurately estimate hours to completion by performing an analysis of a selection of completed contracts to compare actual hours incurred upon completion to the initial estimated hours to completion.

Evaluation of acquisition-date fair value of intangible assets acquired in the Altera business combination

Description of the matter

We draw attention to Note 2(d), Note 3(d) and Note 4(a) to the financial statements. On May 2, 2022, the Entity completed an agreement with Allscripts Healthcare Solutions (“Allscripts”) to acquire 100% of the net assets (including the shares of certain subsidiaries) of Allscripts Hospitals and Large Physician Practices business segment (“Altera”). The Entity paid cash of $731 million less a cash holdback receivable of $4 million for aggregate consideration of $727 million. In connection with this transaction, the Entity recorded technology assets and customer assets (collectively, the “intangible assets”). The Entity uses discounted cash flow methodology to determine the fair value of the intangible assets. The acquisition date fair value for the intangible assets was $619 million. In determining the fair value of the intangible assets at the acquisition date, the Entity’s significant assumptions include forecasted cash flows, forecasted annual customer attrition rate, royalty rate, migration rate and the discount rates applied.

Why the matter is a key audit matter

We identified the evaluation of acquisition-date fair value of intangible assets acquired in the Altera business combination as a key audit matter. This matter represented a significant risk of material misstatement due to the magnitude of the balances and the high degree of estimation uncertainty in determining the fair value of intangible assets. In addition, significant auditor judgment and involvement of those with specialized skills and knowledge were required in performing and evaluating the results of our procedures due to the sensitivity of the fair value of the intangible assets to minor changes in certain significant estimates.

How the matter was addressed in the audit

The primary procedures we performed to address this key audit matter included the following:

We evaluated the appropriateness of the forecasted cash flows, annual customer attrition rate, royalty rate and migration rate assumptions by considering past performance, industry data and publicly available market data for comparable entities.

We involved valuations professionals with specialized skills and knowledge, who assisted in assessing the discount rates embedded in the valuation model by comparing the transaction internal rate of return (“IRR”), weighted-average return on assets and the perceived risk inherent in each intangible asset relative to the risk of the overall Entity. We assessed the IRR and compared it to an independently calculated weighted-average cost of capital based on market inputs.

Other Information

Management is responsible for the other information. Other information comprises:

 

•

Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions.

Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit and remain alert for indications that the other information appears to be materially misstated.

 

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We obtained the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions as at the date of this auditor’s report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in the auditor’s report.

We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Entity’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Entity’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit.

We also:

 

•

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.

The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 

4

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•

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity’s internal control.

 

•

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

 

•

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Entity to cease to continue as a going concern.

 

•

Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

•

Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

 

•

Provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

 

•

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Entity to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

 

•

Determine, from the matters communicated with those charged with governance, those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our auditor’s report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

 

Chartered Professional Accountants, Licensed Public Accountants

The engagement partner on the audit resulting in this auditor’s report is Anuj Madan.

Vaughan, Canada

March 29, 2023

 

5

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CONSTELLATION SOFTWARE INC.

Consolidated Statements of Financial Position

(In millions of U.S. dollars, except per share amounts. Due to rounding, numbers presented may not foot.)

 

		December 31, 2022				December 31, 2021
Assets
Current assets:
Cash		$	811			$	763
Accounts receivable (note 21)			876				600
Unbilled revenue (note 22)			230				140
Inventories (note 5)			48				35
Other assets (note 6)			496				296
			2,461				1,835
Non-current assets:
Property and equipment (note 7)			128				93
Right of use assets (note 8)			283				245
Deferred income taxes (note 16)			160				66
Other assets (note 6)			172				99
Intangible assets (note 9)			4,679				3,428
			5,422				3,931
Total assets		$	7,882			$	5,766
Liabilities and Shareholders’ Equity
Current liabilities:
Debt with recourse to Constellation Software Inc. (note 10)		$	505			$	143
Debt without recourse to Constellation Software Inc. (note 11)			316				60
Redeemable preferred securities (note 12)			—				7
Accounts payable and accrued liabilities			1,080				832
Dividends payable (note 17)			21				22
Deferred revenue (note 22)			1,484				1,158
Provisions (note 13)			11				11
Acquisition holdback payables			159				94
Lease obligations (note 14)			96				79
Income taxes payable (note 15)			97				56
			3,768				2,461
Non-current liabilities:
Debt with recourse to Constellation Software Inc. (note 10)			567				561
Debt without recourse to Constellation Software Inc. (note 11)			586				354
Deferred income taxes (note 16)			471				436
Acquisition holdback payables			77				68
Lease obligations (note 14)			217				190
Other liabilities (note 6)			262				175
			2,181				1,784
Total liabilities			5,949				4,245
Shareholders’ equity (note 17):
Capital stock			99				99
Other equity			—				(179	)
Accumulated other comprehensive income (loss)			(150	)			(66	)
Retained earnings			1,763				1,206
Non-controlling interests (notes 1, 12 and 28)			221				460
			1,933				1,521
Subsequent events (notes 10, 17 and 29)
Total liabilities and shareholders’ equity		$	7,882			$	5,766

See accompanying notes to the consolidated financial statements.

 

6

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CONSTELLATION SOFTWARE INC.

Consolidated Statements of Income (Loss)

(In millions of U.S. dollars, except per share amounts. Due to rounding, numbers presented may not foot.)

 

		Year ended December 31,
		2022				2021
Revenue
License		$	320			$	287
Professional services			1,381				1,033
Hardware and other			233				176
Maintenance and other recurring			4,688				3,611
			6,622				5,106
Expenses
Staff			3,539				2,695
Hardware			134				99
Third party license, maintenance and professional services			626				433
Occupancy			49				40
Travel, telecommunications, supplies, software and equipment			307				186
Professional fees			114				79
Other, net			154				62
Depreciation (note 7 and 8)			143				121
Amortization of intangible assets (note 9)			676				518
			5,740				4,233
Foreign exchange loss (gain)			(56	)			1
IRGA/TSS Membership liability revaluation charge (note 10)			112				132
Finance and other expense (income) (note 18)			0				(7	)
Bargain purchase gain (note 4)			(16	)			(2	)
Impairment of intangible and other non-financial assets (note 9)			7				12
Redeemable preferred securities expense (income) (note 12)			—				295
Finance costs (note 18)			110				68
			156				499
Income (loss) before income taxes			725				374
Current income tax expense (recovery) (note 15)			403				257
Deferred income tax expense (recovery) (note 15)			(228	)			(51	)
Income tax expense (recovery)			175				206
Net income (loss)			551				169
Net income (loss) attributable to:
Common shareholders of Constellation Software Inc. (notes 1 and 28)			512				310
Non-controlling interests (notes 1 and 28)			38				(142	)
Net income (loss)			551				169
Earnings per common share of Constellation Software Inc.
Basic and diluted (note 19)		$	24.18			$	14.65

See accompanying notes to the consolidated financial statements.

 

7

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CONSTELLATION SOFTWARE INC.

Consolidated Statements of Comprehensive Income (Loss)

(In millions of U.S. dollars, except per share amounts. Due to rounding, numbers presented may not foot.)

 

		Year ended December 31,
		2022				2021
Net income (loss)		$	551			$	169
Items that are or may be reclassified subsequently to net income (loss):
Foreign currency translation differences from foreign operations and other, net of tax			(90	)			(41	)
Other comprehensive income (loss) for the year, net of income tax			(90	)			(41	)
Total comprehensive income (loss) for the year		$	460			$	128
Total other comprehensive income (loss) attributable to:
Common shareholders of Constellation Software Inc. (notes 1 and 18)			(79	)			(16	)
Non-controlling interests (notes 1 and 28)			(12	)			(25	)
Total other comprehensive income (loss)		$	(90	)		$	(41	)
Total comprehensive income (loss) attributable to:
Common shareholders of Constellation Software Inc. (notes 1 and 28)			433				294
Non-controlling interests (notes 1 and 28)			27				(167	)
Total comprehensive income (loss)		$	460			$	128

See accompanying notes to the consolidated financial statements.

 

8

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CONSTELLATION SOFTWARE INC.

Consolidated Statement of Changes in Equity

(In millions of U.S. dollars, except per share amounts. Due to rounding, numbers presented may not foot.)

 

Year ended December 31, 2022
		Equity Attributable to Common Shareholders of CSI
		Capital stock				Other equity				Accumulated				Retained earnings				Total				Non-controlling				Total equity
										other												interests
										comprehensive
										income (loss)
Balance at January 1, 2022		$	99			$	(179	)		$	(66	)		$	1,206			$	1,061				460			$	1,521
Total comprehensive income (loss) for the year:
Net income (loss)			—				—				—				512				512				38				551
Other comprehensive income (loss)
Foreign currency translation differences from foreign operations and other, net of tax			—				—				(79	)			—				(79	)			(12	)			(90	)
Total other comprehensive income (loss) for the year			—				—				(79	)			—				(79	)			(12	)			(90	)
Total comprehensive income (loss) for the year			—				—				(79	)			512				433				27				460
Transactions with owners, recorded directly in equity
Conversion of redeemable preferred securities to subordinate voting shares of Topicus.com Inc. and ordinary units of Topicus Coop (note 1 and 12) and other related movements			—				305				(5	)			—				301				(301	)			—
Non-controlling interests arising from business combinations (note 4)			—				—				—				—				—				41				41
Other movements in non-controlling interests			—				—				—				2				2				(6	)			(4	)
Dividends to shareholders of the Company (note 17)			—				—				—				(85	)			(85	)			—				(85	)
Reclassification of other equity to retained earnings			—				(127	)			—				127				—				—				—
Balance at December 31, 2022		$	99			$	—			$	(150	)		$	1,763			$	1,713			$	221			$	1,933

 

 

See accompanying notes to the consolidated financial statements.

 

9

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CONSTELLATION SOFTWARE INC.

Consolidated Statement of Changes in Equity

(In millions of U.S. dollars, except per share amounts. Due to rounding, numbers presented may not foot.)

 

Year ended December 31, 2021
		Equity Attributable to Common Shareholders of CSI
		Capital stock				Other equity				Accumulated				Retained earnings				Total				Non-controlling				Total equity
										other												interests
										comprehensive
										income (loss)
Balance at January 1, 2021		$	99			$	—			$	(31	)		$	980			$	1,048			$	—			$	1,048
Total comprehensive income (loss) for the year:
Net income (loss)			—				—				—				310				310				(142	)			169
Other comprehensive income (loss)
Foreign currency translation differences from foreign operations and other, net of tax			—				—				(16	)			—				(16	)			(25	)			(41	)
Total other comprehensive income (loss) for the year			—				—				(16	)			—				(16	)			(25	)			(41	)
Total comprehensive income (loss) for the year			—				—				(16	)			310				294				(167	)			128
Transactions with owners, recorded directly in equity
Special dividend of Topicus Subordinated Voting Shares (note 1 and 28)			—				(141	)			(16	)			—				(157	)			157				—
Issuance of Topicus Coop Ordinary Units to non-controlling interests (note 4)			—				(21	)			(2	)			—				(23	)			23				—
Net acquisition of non-controlling interest associated with acquisitions and other movements			—				(16	)			(0	)			0				(16	)			17				1
Dividends to shareholders of the Company (note 17)			—				—				—				(85	)			(85	)			—				(85	)
Reclassification of Redeemable preferred securities of Topicus Coop from liabilities to non-controlling interest			—				—				—				—				—				434				434
Accrued dividends to preference unit holders of Topicus Coop (note 12)			—				—				—				—				—				(5	)			(5	)
Balance at December 31, 2021		$	99			$	(179	)		$	(66	)		$	1,206			$	1,061			$	460			$	1,521

See accompanying notes to the consolidated financial statements.

 

10

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CONSTELLATION SOFTWARE INC.

Consolidated Statements of Cash Flows

(In millions of U.S. dollars, except per share amounts. Due to rounding, numbers presented may not foot.)

 

		Year ended December 31,
		2022				2021
Cash flows from (used in) operating activities:
Net income (loss)		$	551			$	169
Adjustments for:
Depreciation			143				121
Amortization of intangible assets			676				518
IRGA/TSS Membership liability revaluation charge			112				132
Finance and other expense (income)			0				(7	)
Bargain purchase (gain)			(16	)			(2	)
Impairment of intangible and other non-financial assets			7				12
Redeemable preferred securities expense (income) (note 12)			—				295
Finance costs			110				68
Income tax expense (recovery)			175				206
Foreign exchange loss (gain)			(56	)			1
Change in non-cash operating assets and liabilities exclusive of effects of business combinations (note 26)			(60	)			45
Income taxes paid			(343	)			(257	)
Net cash flows from (used in) operating activities			1,297				1,300
Cash flows from (used in) financing activities:
Interest paid on lease obligations			(11	)			(9	)
Interest paid on debt			(74	)			(40	)
Increase (decrease) in CSI facility (note 10)			322				—
Increase (decrease) in Topicus revolving credit debt facility without recourse to CSI			91				30
Proceeds from issuance of debt facilities without recourse to CSI			476				176
Repayments of debt facilities without recourse to CSI			(102	)			(6	)
Other financing activities			(3	)			3
Credit facility transaction costs			(7	)			(6	)
Payments of lease obligations			(94	)			(83	)
Distribution to the Joday Group (note 10)			(23	)			(22	)
Dividends paid to redeemable preferred security holders			(7	)			—
Dividends paid to common shareholders of the Company			(85	)			(85	)
Net cash flows from (used in) in financing activities			483				(41	)
Cash flows from (used in) investing activities:
Acquisition of businesses (note 4)			(1,633	)			(1,224	)
Cash obtained with acquired businesses (note 4)			216				153
Post-acquisition settlement payments, net of receipts			(149	)			(145	)
Receipt of additional subscription amount from the sellers of Topicus.com B.V.			—				33
Purchases of other investments			(97	)			(44	)
Proceeds from sales of other investments			6				13
Interest, dividends and other proceeds received			5				5
Property and equipment purchased			(41	)			(29	)
Net cash flows from (used in) investing activities			(1,694	)			(1,238	)
Effect of foreign currency on cash			(39	)			(16	)
Increase (decrease) in cash			48				5
Cash, beginning of period		$	763			$	758
Cash, end of period		$	811			$	763

See accompanying notes to the consolidated financial statements.

 

11

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CONSTELLATION SOFTWARE INC.

Notes

to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

Notes to the consolidated financial statements

 

1.	Reporting entity

 

2.	Basis of presentation

 

3.	Significant accounting policies

 

4.	Business acquisitions

 

5.	Inventories

 

6.	Other assets and liabilities

 

7.	Property and equipment

 

8.	Right of use assets

 

9.	Intangible assets and goodwill

 

10.	Debt with recourse to CSI

 

11.	Debt without recourse to CSI

 

12.	Redeemable preferred securities

 

13.	Provisions

 

14.	Lease obligations

 

15.	Income taxes

16.	Deferred tax assets and liabilities

 

17.	Capital and other components of equity

 

18.	Finance and other expense (income) and finance costs

 

19.	Earnings per share

 

20.	Capital risk management

 

21.	Financial risk management and financial instruments

 

22.

Revenue

 

23.	Operating segments

 

24.	Contingencies

 

25.	Guarantees

 

26.	Changes in non-cash operating working capital

 

27.	Related parties

 

28.	Non-controlling interests

 

29.	Subsequent events

 

 

12

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

1.	Reporting entity

Constellation Software Inc. is a company domiciled in Canada. The address of Constellation Software Inc.’s registered office is 20 Adelaide Street East, Suite 1200, Toronto, Ontario, Canada. The consolidated financial statements of Constellation Software Inc. for the years ended December 31, 2022 and 2021 comprise Constellation Software Inc. and its subsidiaries (together referred to as “Constellation”, “CSI”, or the “Company”) and the Company’s interest in associates. The Company is engaged principally in the development, installation and customization of software as well as in the provisioning of related professional services and support for customers globally across over 100 diverse markets.

Preferred Share Investment in Topicus.com Inc. (“Topicus”)

At the beginning of 2022, the Company owned 39,412,385 Topicus Preferred Shares. The Topicus Preferred Shares were non-voting and under certain conditions, prior to the Notification of Conversion, were redeemable at the option of CSI for a redemption price of approximately EUR 19.06 per share. The redemption price was either to be settled in cash or through the issuance of a variable number of Topicus Subordinate Voting Shares based on the terms of the Topicus Preferred Shares, or any combination thereof. The Topicus Preferred Shares were also convertible into Topicus Subordinate Voting Shares at a conversion ratio of 1:1. The Topicus Preferred Shares entitled CSI to a fixed annual cumulative dividend of 5% per annum on the initial Topicus Preferred Share value of approximately EUR 19.06 per share.

On February 1, 2022, the Topicus Preferred Shares were converted to Topicus Subordinate Voting Shares. Subsequent to the conversion, CSI continues to consolidate Topicus and now reflects an equity interest of 60.65% (December 31, 2021 – 30.3%) in Topicus and a non-controlling interest of 39.35% (December 31, 2021 – 69.7%).

 

2.	Basis of presentation

(a) Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), issued and outstanding as of March 29, 2023, the date the Board of Directors approved such financial statements.

(b) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except for certain assets and liabilities initially recognized in connection with business combinations, and certain financial instruments and derivative financial instruments, which are measured at fair value.

(c) Functional and presentation currency

The consolidated financial statements are presented in U.S. dollars, which is Constellation Software Inc.’s functional currency.

 

13

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

(d) Use of estimates and judgements

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Estimates are based on historical experience and other assumptions that are considered reasonable in the circumstances. The actual amount or values may vary in certain instances from the assumptions and estimates made. Changes will be recorded, with corresponding effect in profit or loss, when, and if, better information is obtained.

Information about assumptions and estimation uncertainties that have a risk of resulting in a material adjustment within the next financial year are included in the following notes:

Note 3(k) - Revenue recognition

Note 3(a)(i) - Business combinations

Note 3(m) - Income taxes

Note 3(d) - Intangible assets

Note 24 - Contingencies

Critical judgements that the Company has made in the process of applying accounting policies disclosed herein and that have a significant effect on the amounts recognized in the consolidated financial statements relate to the (i) determination of functional currencies for Constellation’s subsidiaries and, most notably, in respect of businesses acquired during the period; (ii) allocating the purchase price to the fair value of acquired net assets (iii) assessment as to whether professional services in multiple-performance obligation arrangements are distinct of other performance obligations and determination of the estimated hours to complete customer contracts accounted for using the percentage of completion method; (iv) recognition of deferred tax assets; and (v) recognition of provisions and contingent consideration liabilities.

 

•

Functional currency - the Company applies judgement in situations where primary and secondary indicators are mixed. Primary indicators such as the currency that mainly influence sales prices are given priority before considering secondary indicators.

 

•

Business Combinations - Estimates and judgments are used when allocating the purchase price to the fair value of acquired net assets (specifically to the acquired technology assets and customer relationship assets) in business combinations. The Company estimates the fair value of technology and customer relationships acquired in a business combination based on the income approach. The income approach is a valuation technique that calculates the fair value of an intangible asset based on the present value of future cash flows that the asset can be expected to generate over its remaining useful life. For significant business combinations, significant estimates and judgments include forecasted cashflows, forecasted annual customer attrition rate, royalty rates, migration rate and the discount rates used to estimate the fair value of the acquired intangible assets. Changes in these estimates and judgments could result in significant changes to the valuation of the intangible assets.

 

•

Revenue Recognition - The Company uses significant judgment to assess whether professional services sold in a customer contract are considered distinct and should be accounted for as separate performance obligations. Non-distinct professional services are combined with other goods or services to form a single performance obligation. The Company also applies significant judgment to determine the estimated hours to completion which affects the timing of revenue recognized for professional services and non-distinct license and hardware. Estimated hours to completion are continually and routinely revised based on changes in the progress of customer contracts.

 

14

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

•

Deferred tax assets - the recognition of deferred tax assets is based on forecasts of future taxable profit. The measurement of future taxable profit for the purposes of determining whether or not to recognize deferred tax assets depends on many factors, including the Company’s ability to generate such profits and the implementation of effective tax planning strategies. The occurrence or non-occurrence of such events in the future may lead to significant changes in the measurement of deferred tax assets.

 

•

Contingent consideration liablities - contingent consideration liabilities are initially recorded on the date of a business combination and are payable on the achievement of certain financial targets in the post- acquisition periods. The obligation for contingent consideration is recorded at its estimated fair value at the various acquisition dates and is recorded at fair value at the end of each reporting period. The estimated fair value of the applicable contingent consideration is calculated using the estimated financial outcome and resulting expected contingent consideration to be paid and inclusion of a discount rate as appropriate.

The Company is closely monitoring the impact of COVID-19 on all aspects of its business. COVID-19 was declared a global pandemic by the World Health Organization on March 11, 2020. The COVID-19 pandemic has had disruptive effects in countries in which the Company operates and has adversely impacted many of its business units’ operations to date, including through the cancellation by certain customers of their ongoing software maintenance contracts and the suspension or cancellation of new software purchases. The pandemic may also have an adverse impact on many of the Company’s customers, including their ability to satisfy ongoing payment obligations to the Company, which could increase the Company’s bad debt exposure. The future impacts of the pandemic and any resulting economic impact are largely unknown and rapidly evolving. It is possible that the COVID-19 pandemic, the measures taken by the governments of countries affected and the resulting economic impact may continue to adversely affect the Company’s results of operations, cash flows and financial position as well as its customers in future periods, and this impact could be material. During the year ended December 31, 2022, the Company recorded income of $2 (December 31, 2021—$17) relating to government grants from various government authorities relating to the pandemic within “Other, net” expenses in the consolidated statements of income (loss).

 

3.	Significant accounting policies

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements unless otherwise indicated.

The significant accounting policies have been applied consistently by the Company’s subsidiaries.

(a) Basis of consolidation

(i) Business combinations

Acquisitions have been accounted for using the acquisition method required by IFRS 3 Business Combinations. Goodwill arising on acquisitions is measured as the fair value of the consideration transferred including the recognized amount of any non-controlling interest in the acquiree, if any, less the net recognized amount of the estimated fair value of identifiable assets acquired and liabilities assumed (subject to certain exemptions to fair value measurement principles such as deferred tax assets or liabilities), all measured as of the acquisition date. When the consideration transferred is less than the estimated fair value of assets acquired and liabilities assumed, a bargain purchase gain is recognized immediately in the consolidated statements of income (loss). Transaction costs that the Company incurs in connection with a business combination are expensed as incurred.

 

15

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

The Company uses its best estimates and assumptions to reasonably value assets and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, and these estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with a corresponding offset to goodwill. Upon conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to profit or loss. For a given acquisition, the Company may identify certain pre-acquisition contingencies as of the acquisition date and may extend its review and evaluation of these pre-acquisition contingencies throughout the measurement period in order to obtain sufficient information to assess these contingencies as part of acquisition accounting, as applicable.

(ii) Consolidation methods

Entities over which the Company has control are consolidated from the date that control commences until the date that control ceases. Entities over which the Company has significant influence (investments in “associates”) are accounted for under the equity method. Significant influence is assumed when the Company’s interests are 20% or more, unless qualitative factors overcome this assumption.

Associates are those entities in which the Company has significant influence, but not control, over the financial and operating policies. Investments in associates are recognized initially at cost, inclusive of transaction costs. The Company’s investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Company’s share of the income and expenses and equity changes of equity accounted investees, from the date that significant influence commences until the date that significant influence ceases.

(iii) Transactions eliminated on consolidation

Intra-company balances and transactions, and any unrealized income and expenses arising from intra-company transactions, are eliminated in preparing the consolidated financial statements.

(b) Foreign currency translation

(i) Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of subsidiaries of the Company at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are re-measured to the functional currency at the exchange rate at that date. Foreign currency differences arising on re-measurement are recognized through profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments, which are recognized in other comprehensive income (loss). Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Foreign currency gains and losses are reported in profit and loss on a net basis. The effect of currency translation adjustments on cash and cash equivalents is presented separately in the statements of cash flows and separated from operating, investing and financing activities when deemed significant.

 

16

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

(ii) Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to U.S. dollars at exchange rates at the reporting date. The income and expenses of foreign operations are translated to U.S. dollars using average exchange rates for the month during which the transactions occurred. Foreign currency differences are recognized in other comprehensive income (loss) in the cumulative translation account; however, if the operation is a non-wholly owned subsidiary, then the relevant proportionate share of the translation difference is allocated to the non-controlling interest when applicable.

Foreign exchange gains or losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely to occur in the foreseeable future and which its substance is considered to form part of the net investment in the foreign operation, are recognized in other comprehensive income (loss) in the cumulative amount of foreign currency translation differences. If, and when, settlement plans change or deemed likely to occur, then the accounting process in (b)(i) above is applied. When a foreign operation payable or receivable classified as a net investment is partially or fully disposed, the proportionate share of the cumulative amount in the translation reserve related to that foreign operation is transferred to profit or loss as part of the profit or loss on disposal. The Company has elected not to treat repayments of monetary items receivable or payable to a foreign operation as a disposition.

(c) Financial Instruments

The Company’s financial instruments primarily comprise cash, accounts receivable, Debt with recourse to CSI, Debt without recourse to CSI, Redeemable Preferred Securities, accounts payable and accrued liabilities, dividends payable, and holdback assets or liabilities on acquisitions.

Financial assets are recognized in the consolidated statement of financial position if we have a contractual right to receive cash or other financial assets from another entity. Financial assets, including accounts receivable, are derecognized when the rights to receive cash flows from the investments have expired or were transferred to another party and the Company has transferred substantially all risks and rewards of ownership. Equity securities held for trading are recorded at fair value.

Financial liabilities include the Debt with recourse to CSI, Debt without recourse to CSI, Redeemable Preferred Securities, accounts payable and accrued liabilities, dividends payable, and holdbacks on acquisitions. Financial liabilities are generally recognized initially at fair value, typically being transaction price, plus any directly attributable transaction costs and subsequently measured at amortized cost using the effective interest method. The Company derecognizes a financial liability when its contractual obligations are discharged, cancelled, or expired.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares are recognized as a deduction from equity, net of tax.

The Company’s derivatives are carried at fair value and are reported as assets when they have a positive fair value and as liabilities when they have a negative fair value.

 

17

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

Changes in the fair values of derivative financial instruments are reported in the consolidated statements of income (loss), except for cash flow hedges that meet the conditions for hedge accounting. The portion of the gain or loss on the hedging instruments that are determined to be an effective hedge are recognized directly in other comprehensive income (loss), and the ineffective portion in the consolidated statements of income (loss). The gains or losses deferred in other comprehensive income (loss) in this way are subsequently recognized in the consolidated statements of income (loss) in the same period in which the hedged underlying transaction or firm commitment is recognized in the statement of income (loss). In order to qualify for hedge accounting, the Company is required to document in advance the relationship between the item being hedged and the hedging instrument. The Company is also required to document and demonstrate an assessment of the relationship between the hedged item and the hedging instrument, which shows that the hedge will be highly effective on an ongoing basis. This effectiveness testing is re-performed at the end of each reporting period to ensure that the hedge remains highly effective.

(d) Intangible assets

(i) Goodwill

Goodwill that arises upon the acquisition of subsidiaries is included in intangible assets. After initial recognition, goodwill is measured at cost less any accumulated impairment losses, with the carrying value being reviewed for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value may be impaired. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment.

The impairment test methodology is based on a comparison between the higher of fair value less costs to sell and value-in-use of each of the Company’s cash generating units (“CGU”) and the net asset carrying values (including goodwill). Within the Company’s reporting structure, business units generally reflect the CGU and are one level below the six operating segments (Volaris, Harris, Topicus, Jonas, Perseus, and Vela Operating Groups). In determining the recoverable amount, the Company applies an estimated market valuation multiple to the business unit’s most recent annual recurring revenues, which are generally derived from post-contract customer support revenues, transactional revenues, and hosted products revenues. Valuation multiples applied by the Company for this purpose reflect current market conditions specific to the business unit and are assessed for reasonability by comparison to the Company’s current and past acquisition experience involving ranges of revenue-based multiples required to acquire representative software companies and the Company’s overall revenue based-trading multiple. In addition, in certain instances, the recoverable amount is determined using a value-in-use approach which follows the same valuation process that is undertaken for the Company’s business acquisitions. An impairment is recognized if the carrying amount of a CGU exceeds its estimated recoverable amount. The recoverable amount of goodwill is estimated annually on December 31 of each year or whenever events or changes in circumstances indicate that the carrying value may be impaired.

(ii) Acquired intangible assets

The Company uses the income approach to value acquired technology and customer relationship intangible assets. The income approach is a valuation technique that calculates the estimated fair value of an intangible asset based on the estimated future cash flows that the asset can be expected to generate over its remaining useful life.

The Company utilizes the discounted cash flow (“DCF”) methodology which is a form of the income approach that begins with a forecast of the annual cash flows that a market participant would expect the subject intangible asset to generate over a discrete projection period. The forecasted cash flows for each of the years in the discrete projection period are then converted to their present value equivalent using a rate of return appropriate for the risk of achieving the intangible assets’ projected cash flows, again, from a market participant perspective. The present value of the forecasted cash flows are then added to the present value of the residual value of the intangible asset (if any) at the end of the discrete projection period to arrive at a conclusion with respect to the estimated fair value of the subject intangible assets.

 

18

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

Specifically, the Company relies on the relief-from-royalty method to value the acquired technology and the multiple-period excess earnings (“MEEM”) method to value customer relationship assets.

The underlying premise of the relief-from-royalty method is that the fair value of the technology is equal to the cost savings (or the “royalty avoided”) resulting from the ownership of the asset by the avoidance of paying royalties to license the use of the technology from another owner. Accordingly the income forecast reflects an estimate of a fair royalty that a licensee would pay, on a percentage of revenue basis, to obtain a license to utilize the technology.

The MEEM method isolates the cash flows attributable to the subject asset by utilizing a forecast of expected cash flows less the returns attributable to other enabling assets, both tangible and intangible.

Other intangible assets that are acquired by the Company and have finite useful lives are measured at cost, being reflective of fair value, less accumulated amortization and impairment losses. Subsequent expenditures are capitalized only when it increases the future economic benefits that form part of the specific asset to which it relates and other criteria have been met. Otherwise all other expenditures are recognized in profit or loss as incurred.

Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are acquired and available for use, since this most closely reflects the expected usage and pattern of consumption of the future economic benefits embodied in the asset. To determine the useful life of the technology assets, the Company considers the length of time over which it expects to earn or recover the majority of the present value of the forecasted cash flows of the related intangible assets. The estimated useful lives for the current and comparative periods are as follows:

 

Technology assets		2 to 12 years
Customer assets		5 to 20 years
Trademarks		20 years
Backlog		Up to 1 year
Non-compete agreements		Term of agreement

Amortization methods, useful lives and the residual values are reviewed at least annually (or when there has been an indication of impairment) and are adjusted as appropriate.

(iii) Research and development

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in profit or loss as an expense as incurred.

Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalized only if the product or process is technically and commercially feasible, if development costs can be measured reliably, if future economic benefits are probable, if the Company intends to use or sell the asset and the Company intends and has sufficient resources to complete development. To date, no material development expenditures have been capitalized.

 

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

For the year ended December 31, 2022, $970 (2021 – $737) of research and development costs have been expensed in profit or loss. These costs are net of estimated investment tax credits, recognized as part of other, net expenses through profit or loss of $40 for the year ended December 31, 2022 (2021 – $33).

(e) Property and equipment

(i) Recognition and measurement

Property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes initial and subsequent expenditures that are directly attributable to the acquisition of the related asset. When component parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment, where applicable.

(ii) Depreciation

Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property and equipment.

The estimated useful lives for the current and comparative periods are as follows:

 

Asset		Rate
Computer hardware		3-5 years
Computer software		1 year
Furniture and equipment		5 years
Leasehold improvements		Shorter of the estimated useful life and the term of the lease
Building		50 years

Depreciation methods, useful lives and residual values are reviewed at each financial year end or more frequently as deemed relevant, and adjusted where appropriate.

(f) Inventories

Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the first-in first-out principle, and includes expenditures incurred in acquiring the inventories, production and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

(g) Unbilled revenue

Unbilled revenue represents the gross unbilled amount expected to be collected from customers for contract work performed to date. It is measured at cost plus profit recognized to date less progress billings and recognized losses, if any.

Unbilled revenue is presented in the statement of financial position for all contracts in which costs incurred plus recognized profits exceed progress billings. If progress billings exceed costs incurred plus recognized profits, then the excess is presented as deferred revenue in the statement of financial position.

 

20

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

(h) Other non-current liabilities

Other non-current liabilities consists principally of certain acquired contract liabilities, deferred revenue, provisions and contingent consideration recognized in connection with business acquisitions to be settled in cash, which are discounted for measurement purposes.

(i) Impairment

(i) Financial assets (including receivables)

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

Objective evidence that financial assets are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Company on terms that the Company would not consider otherwise, or indications that a debtor or issuer will enter bankruptcy.

The Company considers evidence of impairment for receivables at both a specific and collective level. All individually significant receivables are assessed for specific impairment. All individually significant receivables found not to be specifically impaired, together with receivables that are not individually significant are collectively assessed for impairment by grouping together receivables with similar risk characteristics.

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognized in profit or loss and reflected in an allowance account against receivables. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

(ii) Non-financial assets

The carrying amounts of the Company’s non-financial assets, other than inventories (which is addressed in note 3(f)) and deferred tax assets (which is addressed in note 3(m)), are reviewed at each reporting date (or more frequently if required) to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill, the recoverable amount is estimated annually on December 31 of each fiscal year or whenever required.

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing the value in use, the Company uses discounted cash flows which are determined using a pre-tax discount rate specific to the asset or CGU. The discount rate used reflects current market conditions including risks specific to the assets. Estimates within the cash flows include recurring revenue growth rates and operating expenses. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets, which for the Company’s purposes is typically representative of the business unit level within the corporate and management structure. For the purposes of goodwill impairment testing, goodwill acquired in a business combination is allocated to the CGU, or the group of CGUs, that is expected to benefit from the synergies of the combination.

 

21

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets (such as intangible assets and property and equipment) in the CGU (group of units) on a pro rata basis.

Goodwill that forms part of the carrying amount of an investment in an associate is not recognized separately and, therefore, is not tested for impairment separately. Instead, the entire amount of the investment in an associate is tested for impairment as a single asset when there is objective evidence that the investment in an associate may be impaired.

An impairment loss in respect of goodwill is not reversed. In respect of other non-financial assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been previously recognized.

(j) Provisions

A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are measured at the estimated future cash flows required to settle the present obligation, based on the most reliable evidence available at the reporting date. The estimated cash flows are discounted at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The amortization of the discount is recognized as part of finance costs.

(k) Revenue recognition

Revenue represents the amount the Company expects to receive for products and services in its contracts with customers, net of discounts and sales taxes. The Company reports revenue under four revenue categories being, License, Hardware and other, Professional services, and Maintenance and other recurring revenue. Software license revenue is comprised of non-recurring license fees charged for the use of software products licensed under multiple-year or perpetual arrangements. Professional service revenue consists of fees charged for implementation services, custom programming, product training, certain managed services, and consulting. Hardware and other revenue includes the resale of third party hardware as part of customized solutions, as well as sales of hardware assembled internally and the reimbursement of travel costs. Maintenance and other recurring revenue primarily consists of fees charged for customer support on software products post-delivery and also includes recurring fees derived from combined software/support contracts, transaction revenues, managed services associated with CSI software that has been sold to the customer, and hosted software-as-a-service products.

Contracts with multiple products or services

Typically, the Company enters into contracts that contain multiple products and services such as software licenses, hosted software-as-a-service, maintenance, professional services, and hardware. The Company evaluates these arrangements to determine the appropriate unit of accounting (performance obligation) for revenue recognition purposes based on whether the product or service is distinct from some or all of the other products or services in the arrangement. A product or service is distinct if the customer can benefit from it on its own or together with other readily available resources and Constellation’s promise to transfer the good or service is separately identifiable from other promises in the contractual arrangement with the customer. Non-distinct products and services are combined with other goods or services until they are distinct as a bundle and therefore form a single performance obligation.

 

22

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

Where a contract consists of more than one performance obligation, revenue is allocated to each based on their estimated standalone selling price.

Nature of products and services

The Company sells on-premise software licenses on both a perpetual and specified-term basis. Revenue from the license of distinct software is recognized at the time that both the right-to-use the software has commenced and the software has been made available to the customer. Certain of the Company’s contracts with customers contain provisions that require the customer to renew optional support and maintenance in order to maintain the active right to use a perpetual or term license. The renewal payments after the initial bundled support and maintenance term in these cases apply to both the continued right-to-use the license and the support and maintenance renewal. Where the fees payable for the initial term are incremental to the fees for the renewal terms, the excess is treated as a prepayment for expected renewals and allocated (amortized) evenly over the expected customer renewals, up to the estimated life of the software that is typically 4-6 years.

Revenue from the license of software that involves complex implementation or customization that is not distinct, and/or includes sales of hardware that is not distinct, is recognized as a combined performance obligation using the percentage-of-completion method based primarily on labour hours. The percentage-of-completion method based on labour hours requires the Company to make significant judgments to determine the estimated hours to completion which affects the timing of revenue recognized.

A portion of the Company’s sales, categorized as hardware and other revenue, are accounted for as product revenue. Product revenue is recognized when control of the product has transferred under the terms of an enforceable contract.

Revenue related to the customer reimbursement of travel related expenses incurred during a project implementation where the Company is the principal in the arrangement is included in the hardware and other revenue category. Revenue is recognized as costs are incurred which is consistent with the period in which the costs are invoiced. Reimbursable travel expenses incurred for which an invoice has not been issued, are recorded as part of unbilled revenue on the statement of financial position.

Maintenance and other recurring revenue primarily consists of fees charged for customer support on software products post-delivery and also includes, to a lesser extent, recurring fees derived from software licenses that are not distinct from maintenance, transaction revenues, managed services associated with CSI software, and hosted products.

Revenue from software-as-a-service (SaaS) arrangements, which allows customers to use hosted software over a term without taking possession of the software, are provided on a subscription basis. Revenue from the SaaS subscription, which includes the hosted software and maintenance is recognized rateably over the term of the subscription. Significant incremental payments for SaaS in an initial term are recognized rateably over the expected renewal periods, up to the estimated life of the software.

Professional services revenue including installation, implementation, training and customization of software is recognized by the stage of completion of the performance obligation determined using the percentage of completion method noted above or as such services are performed as appropriate in the circumstances. Professional services revenue also includes managed services not associated with CSI software. The revenue and profit of fixed price contracts is recognized on a percentage of completion basis when the outcome of a contract can be estimated reliably. When the outcome of the contract cannot be estimated reliably but the Company expects to recover its costs, the amount of expected costs is treated as variable consideration and the transaction price is updated as more information becomes known.

 

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

The timing of revenue recognition often differs from contract payment schedules, resulting in revenue that has been earned but not billed. These amounts are included in unbilled revenue. Amounts billed in accordance with customer contracts, but not yet earned, are recorded and presented as part of deferred revenue.

Costs to Obtain a Contract

The Company allocates incremental costs to obtain a contract (which principally consists of commissions) to the various performance obligations to which they relate using the expected-based allocation (relative expected margins) for bundled costs. For those performance obligations that are expected to be renewed at the end of the initial period without a further commission (such as post-contract customer support), the Company has considered expected renewals over the life of the intellectual property when determining the expected margins from the arrangement. For performance obligations not delivered upfront, the allocated commissions are deferred and amortized over the pattern of transfer of the related performance obligation. For commissions allocated to term-based license arrangements and post-contract customer support, the amortization period is expected to be approximately 4-6 years. Capitalized costs to obtain a contract are included in other non-current assets on the consolidated balance sheet.

(l) Finance income and finance costs

Finance income comprises interest income, gains on the disposal of available-for-sale financial assets, and changes in the fair value of financial assets carried at fair value through profit or loss. Interest income is recognized as it accrues through profit or loss, using the effective interest method.

Finance costs comprise interest expense on borrowings, interest expense associated with lease obligations, amortization of the discount on provisions, and impairment losses recognized on financial assets other than trade receivables. Transaction costs attributable to the Company’s bank indebtedness are recognized in finance costs using the effective interest method.

(m) Income taxes

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income (loss).

Current tax is the expected taxes payable or receivable on the taxable income or loss for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to taxes payable in respect of previous years.

Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for temporary differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill.

 

24

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

Deferred tax is measured at tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but we intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

A deferred tax asset is recognized for unused tax losses, tax credits, difference in tax bases in the purchaser’s tax jurisdiction and its cost as reported in the consolidated financial statements as a result of an intra-group transfer of assets and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

(n) Investment tax credits

The Company is entitled to both non-refundable and refundable investment tax credits for qualifying research and development activities. Investment tax credits are included within “Other, net” for items of a period expense nature or as a reduction of property and equipment for items of a capital nature when the amount is reliably estimable and the Company has reasonable assurance regarding compliance with the relevant objective conditions and that the credit will be realized.

(o) Segment reporting

An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company’s other components. The operating results of all operating segments are reviewed regularly by the Company’s President to make decisions about resources to be allocated to the segment and assessing their performance.

The Company consists of six operating segments being, Volaris, Harris, Topicus, Vela, Jonas and Perseus. Each of the Company’s operating segments operate essentially as mini Constellations, conglomerates of small vertical market software companies with similar economic characteristics. Each operating segment CEO is focused on investing capital that generates returns at or above the investment hurdle rates set by CSI’s head office (primarily the President) and the Board of Directors, irrespective of whether the acquired business operates primarily in the public or private sector. The Company aggregates the six operating segments into one reportable segment, consistent with the objective and basic principles of IFRS 8.

(p) Earnings per share

The Company presents basic and diluted earnings per share data for its ordinary shares, being common shares. Basic earnings per share is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for treasury shares held. Diluted earnings per share is determined by dividing the profit or loss attributable to shareholders of ordinary shares by the weighted average number of shares outstanding, adjusted for the effects of all dilutive potential ordinary shares.

 

25

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

(q) Short-term employee benefits

Short-term employee benefit obligations, including wages, benefits, incentive compensation, and compensated absences are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid and settled under the Company’s employee incentive compensation plan if the Company has legal or constructive obligation to pay this amount at the time bonuses are paid as a result of past service provided by the employee, and the obligation can be estimated reliably.

(r) Leases

At inception of a contract, the Company assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured based on the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The assets are depreciated to the earlier of the end of the useful life of the right-of-use asset or the lease term using the straight-line method as this most closely reflects the expected pattern of consumption of the future economic benefits. The lease term includes periods covered by an option to extend if the Company is reasonably certain to exercise that option. In addition, the right-of-use asset can be periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate.

The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, or if the Company changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. The Company has elected to apply the practical expedient not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low value assets. The lease payments associated with these leases is recognized as an expense on a straight-line basis over the lease term.

 

4.	Business acquisitions

(a) On May 2, 2022, the Company completed an agreement with Allscripts Healthcare Solutions (“Allscripts) to acquire 100% of the net assets (including the shares of certain subsidiaries) of Allscripts’ Hospitals and Large Physician Practices business segment (“Altera”). The Company paid cash of $731 less a cash holdback receivable of $4 for aggregate consideration of $727. Contingent consideration of up to $30 could be payable based on performance of the business during the two years following transaction closing.

Altera is a software provider based in the United States and primarily operates in the healthcare market and is a software business similar to existing businesses operated by the Company. The acquisition has been accounted for using the acquisition method with the results of operations included in these consolidated financial statements from the date of the acquisition.

 

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

The goodwill recognized in connection with this acquisition is primarily attributable to the application of the Company’s best practices to improve the operations of Altera, synergies with existing businesses of the Company, and other intangible assets that do not qualify for separate recognition including assembled workforce. The goodwill is not expected to be deductible for income tax purposes.

The gross contractual amount of acquired receivables was $170; however, the Company has recorded an allowance of $65 as part of the acquisition accounting to reflect contractual cash flows that are not expected to be collected.

Due to the complexity of the acquisition, the Company is in the process of determining and finalizing the estimated fair value of the net assets acquired as part of the Altera acquisition. The amounts determined on a provisional basis generally relate to net asset assessments and measurement of the assumed liabilities. The provisional purchase price allocations may differ from the final purchase price allocations, and these differences may be material. Revisions to the allocations will occur as additional information about the fair value of assets and liabilities becomes available.

The impact of acquisition accounting applied on a provisional basis in connection with the acquisition of Altera is as follows:

 

Assets acquired:
Cash		$	61
Accounts receivable			105
Other current assets			103
Property and equipment			25
Right of use assets			27
Other non-current assets			30
Deferred income taxes			25
Technology assets			224
Customer assets			395
			994
Liabilities assumed:
Current liabilities			102
Deferred revenue			169
Deferred income taxes			12
Long-term lease obligations			26
Other non-current liabilities			47
			355
Goodwill			88
Total consideration		$	727

 

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

The acquisition of Altera contributed revenue of $556 for the year ended December 31, 2022 and net income of $0 for the year ended December 31, 2022. If this acquisition had occurred on January 1, 2022, the Company estimates that pro-forma consolidated revenue and pro-forma consolidated net income (loss) would have been $6,912 and $552 compared to the actual amounts reported in the consolidated statement of income (loss) for the actual period for the year ended December 31, 2022.

(b) During the year ended December 31, 2022, the Company completed a number of additional acquisitions for aggregate cash consideration of $902 plus cash holdbacks of $194 and contingent consideration with an estimated acquisition date fair value of $53. The total consideration resulting from the additional acquisitions in the year ended December 31, 2022 was $1,148. The contingent consideration is payable on the achievement of certain financial targets in the post-acquisition periods. The obligation for contingent consideration for acquisitions during the year ended December 31, 2022 has been recorded at its estimated fair value at the various acquisition dates. The estimated fair value of the applicable contingent consideration is calculated using the estimated financial outcome and resulting expected contingent consideration to be paid and inclusion of a discount rate as appropriate. For these arrangements, which include both maximum, or capped, and unlimited contingent consideration amounts, the estimated increase to the initial consideration is not expected to exceed $156. As of December 31, 2022, aggregate contingent consideration of $157 (December 31, 2021 - $104) has been reported in the consolidated statement of financial position at its estimated fair value relating to applicable acquisitions completed in the current and prior periods. Changes made to the estimated fair value of contingent consideration are included in other, net in the consolidated statements of income (loss). An expense of $42 has been recorded for the year ended December 31, 2022, as a result of such changes (expense of $14 for the year ended December 31, 2021).

Other than Altera, no other acquisitions were deemed to be individually significant. The majority of the businesses acquired during the period were acquisitions of shares and the remainder were asset acquisitions. The cash holdbacks are generally payable over a two-year period and are adjusted, as necessary, for such items as working capital or net tangible asset assessments, as defined in the agreements, and claims under the respective representations and warranties of the purchase and sale agreements.

On January 3, 2022, the Company acquired a controlling interest of 63.51% in Adapt IT Holdings Limited (“Adapt IT”), a Company based in South Africa. The remaining 36.49% represents non-controlling interest. The total current assets of Adapt IT on the acquisition date and recorded on the opening balance sheet were $30, the total long-lived assets were $114, the total current liabilities were $23 and the total long-term liabilities were $59. Total revenue recorded during the year ended December 31, 2022 was $103 and net income for year ended December 31, 2022 was $3.

On May 16, 2022, Topicus acquired a controlling interest of 72.68% in Sygnity S.A. (“Sygnity”), a Company based in Poland. The remaining 27.32% represents non-controlling interest. The total current assets of Sygnity on the acquisition date and recorded on the opening balance sheet were $19, the total long-lived assets were $78, the total current liabilities were $18 and the total long-term liabilities were $18. The total revenue recorded during the year ended December 31, 2022 was $32 and the net loss for the year ended December 31, 2022 was $0.

The additional acquisitions during the year ended December 31, 2022 include software companies catering to the following markets: accounting, automotive, communications, financial services, education, data management, fitness, fleet and facility management, healthcare, homebuilders, horticulture, legal, logistics, mining, oil and gas, moving and storage, notaries, pulp and paper manufacturers, real estate brokers and agents, retail management and distribution, speech recognition, third party logistics warehouse management systems, transit, agribusiness, airport, auctions, compliance, construction, data management, human capital, information services, public libraries, local government, manufacturing, not for profit organizations, public housing, public safety, publishing, software development, property management, hospitality, document management, performance management, trucking, schools, small and medium sized businesses, engineering, travel, automated explosive tracking, risk management, textiles and apparel, asset management, public safety, project management, arts and culture, club, convenience store distribution, ESG, public sector, security, veterinary, and utilities all of which are software businesses similar to existing businesses operated by the Company. The acquisitions have been accounted for using the acquisition method with the results of operations included in these consolidated financial statements from the date of each acquisition.

 

28

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

The goodwill recognized in connection with these additional acquisitions is primarily attributable to the application of Constellation’s best practices to improve the operations of the companies acquired, synergies with existing businesses of Constellation, and other intangible assets that do not qualify for separate recognition including assembled workforce. Goodwill in the amount of $22 is expected to be deductible for income tax purposes.

The gross contractual amounts of acquired receivables from the additional acquisitions was $134; however, the Company has recorded an allowance of $10 as part of the acquisition accounting to reflect contractual cash flows that are not expected to be collected.

Due to the complexity and timing of certain acquisitions made, the Company is in the process of determining and finalizing the estimated fair value of the net assets acquired as part of the acquisitions closed during 2022. The amounts determined on a provisional basis generally relate to net asset assessments and measurement of the assumed liabilities, including acquired contract liabilities. The provisional purchase price allocations may differ from the final purchase price allocations, and these differences may be material. Revisions to the allocations will occur as additional information about the fair value of assets and liabilities becomes available. The cash consideration associated with these provisional estimates totals $902.

The aggregate impact of acquisition accounting applied in connection with the aggregate of business acquisitions that are not individually significant in the year ended December 31, 2022 is as follows:

 

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

Assets acquired:
Cash		$	155
Accounts receivable			124
Other current assets			77
Property and equipment			26
Right of use assets			62
Other non-current assets			7
Deferred income taxes			30
Trademarks			0
Technology assets			599
Customer assets			625
			1,705
Liabilities assumed:
Current liabilities			176
Deferred revenue			155
Deferred income taxes			221
Long-term debt			23
Long-term lease obligations			47
Other non-current liabilities			26
			647
Non-controlling interest			41
Goodwill			147
Bargain purchase gain			(16	)
Total consideration		$	1,148

The 2022 additional business acquisitions did not have a material impact to either the consolidated revenue or the consolidated net income (loss) for the year ended December 31, 2022. The materiality threshold is reviewed on a regular basis taking into account the quantitative (contribution to revenue and net income (loss)) and qualitative (size and comparability with other Constellation businesses) factors of current period acquisitions on both an individual and aggregate basis.

 

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

5.	Inventories

 

		December 31, 2022				December 31, 2021
Raw materials		$	13			$	14
Work in progress			5				2
Finished goods			30				19
Total		$	48			$	35

No inventories were carried at fair value less cost to sell, and the carrying amount of inventories subject to retention of title clauses was $nil as at December 31, 2022 and 2021.

Raw materials (which consists primarily of hardware components) and changes in finished goods and work in progress recognized as hardware expenses in the consolidated statements of income (loss) amounted to $122 (2021: $90). The write-downs of inventories to net realizable value amounted to $5 (2021: $2). The reversals of write-downs amounted to $2 (2021: $3). Write-downs and reversals of write-downs are based on the Company’s projected sales. The write-downs and reversals are included in hardware expenses.

 

6.	Other assets and liabilities

(a) Other assets

 

		December 31, 2022				December 31, 2021
Prepaid expenses and other current assets		$	222			$	155
Investment tax credits recoverable			39				27
Sales tax receivable			26				25
Equity securities held for trading			115				39
Other receivables			93				50
Total other current assets			496			$	296
Investment tax credits recoverable		$	18			$	11
Costs to obtain a contract			55				46
Non-current trade and other receivables and other assets			96				39
Equity accounted investees			3				2
Total other non-current assets		$	172			$	99

(b) Other liabilities

 

		December 31, 2022				December 31, 2021
Contingent consideration		$	109			$	72
Deferred revenue			100				52
Other non-current liabilities			53				51
Total other non-current liabilities		$	262			$	175

 

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

7.	Property and equipment

 

						Computer				Furniture and				Leasehold				Building and
		Computer hardware				software				equipment				improvements				land				Total
Cost
Balance at January 1, 2021		$	96			$	36			$	46			$	43			$	8			$	229
Additions			20				3				4				2				0				29
Acquisitions through business combinations			11				2				7				5				3				27
Disposals / retirements			(5	)			(1	)			(3	)			(5	)			(3	)			(18	)
Effect of movements in foreign exchange and other			(3	)			1				(4	)			2				(0	)			(4	)
Balance at December 31, 2021		$	119			$	40			$	49			$	47			$	7			$	263
Balance at January 1, 2022		$	119			$	40			$	49			$	47			$	7			$	263
Additions			28				3				6				4				0				41
Acquisitions through business combinations			29				5				8				9				—				51
Disposals / retirements			(9	)			(2	)			(5	)			(1	)			(0	)			(17	)
Effect of movements in foreign exchange and other			(6	)			(1	)			(2	)			(3	)			(0	)			(14	)
Balance at December 31, 2022		$	162			$	45			$	55			$	56			$	7			$	325
Depreciation and impairment losses
Balance at January 1, 2021		$	63			$	33			$	27			$	20			$	1			$	143
Depreciation charge for the year			21				3				7				7				0				38
Disposals / retirements			(4	)			(1	)			(2	)			(2	)			(1	)			(11	)
Effect of movements in foreign exchange and other			(2	)			1				(0	)			(1	)			1				(0	)
Balance at December 31, 2021		$	77			$	36			$	31			$	24			$	1			$	170
Balance at January 1, 2022		$	77			$	36			$	31			$	24			$	1			$	170
Depreciation charge for the year			27				6				8				8				1				50
Disposals / retirements			(8	)			(2	)			(4	)			(1	)			(1	)			(16	)
Effect of movements in foreign exchange and other			(4	)			(1	)			(1	)			(2	)			0				(8	)
Balance at December 31, 2022		$	93			$	38			$	34			$	29			$	2			$	197
Carrying amounts:
At January 1, 2021		$	33			$	4			$	19			$	23			$	7			$	86
At December 31, 2021		$	42			$	4			$	18			$	23			$	6			$	93
At January 1, 2022		$	42			$	4			$	18			$	23			$	6			$	93
At December 31, 2022		$	69			$	6			$	21			$	27			$	5			$	128

 

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

8.	Right of use assets

The following table presents the right-of-use assets for the Company:

 

		Computer								Furniture and
		hardware				Vehicles				equipment				Building				Other				Total
Cost
Balance at January 1, 2021		$	19			$	27			$	4			$	315			$	4			$	369
Additions			9				8				1				34				0				52
Acquisitions through business combinations			1				3				0				49				1				54
Disposals / retirements			(3	)			(5	)			(1	)			(31	)			(0	)			(40	)
Effect of movements in foreign exchange and other			(1	)			(2	)			(0	)			(12	)			(0	)			(16	)
Balance at December 31, 2021		$	25			$	31			$	5			$	355			$	4			$	419
Balance at January 1, 2022		$	25			$	31			$	5			$	355			$	4			$	419
Additions			6				6				0				56				0				69
Acquisitions through business combinations			0				2				0				86				1				90
Disposals / retirements			(5	)			(5	)			(0	)			(32	)			(1	)			(44	)
Effect of movements in foreign exchange and other			(1	)			(2	)			(0	)			(19	)			(0	)			(22	)
Balance at December 31, 2022		$	26			$	33			$	5			$	445			$	4			$	512
Depreciation and impairment losses
Balance at January 1, 2021		$	9			$	11			$	2			$	94			$	1			$	117
Depreciation charge for the year			6				9				1				66				1				83
Disposals / retirements			(3	)			(3	)			(0	)			(14	)			(0	)			(20	)
Effect of movements in foreign exchange and other			(0	)			(1	)			(0	)			(4	)			(0	)			(6	)
Balance at December 31, 2021			12				15				2				143				2				174
Balance at January 1, 2022			12				15				2				143				2				174
Depreciation charge for the year			5				8				1				78				1				93
Disposals / retirements			(4	)			(4	)			(0	)			(20	)			(1	)			(29	)
Effect of movements in foreign exchange and other			(0	)			(1	)			(0	)			(7	)			(0	)			(8	)
Balance at December 31, 2022			13				18				3				193				2				229
Carrying amounts:
At January 1, 2021		$	10			$	16			$	3			$	221			$	2			$	251
At December 31, 2021		$	13			$	16			$	2			$	212			$	2			$	245
At January 1, 2022		$	13			$	16			$	2			$	212			$	2			$	245
At December 31, 2022		$	13			$	15			$	2			$	252			$	2			$	283

 

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

9.	Intangible assets and goodwill

 

		Technology				Customer								Non-compete
		Assets				Assets				Backlog				agreements				Trademarks				Goodwill				Total
Cost
Balance at January 1, 2021		$	2,568			$	1,640			$	17			$	3			$	8			$	435			$	4,671
Acquisitions through business combinations			728				780				—				—				25				199				1,732
Effect of movements in foreign exchange			(70	)			(64	)			0				(0	)			(2	)			(21	)			(158	)
Balance at December 31, 2021		$	3,226			$	2,356			$	17			$	3			$	30			$	614			$	6,245
Balance at January 1, 2022		$	3,226			$	2,356			$	17			$	3			$	30			$	614			$	6,245
Acquisitions through business combinations			816				1,019				0				—				0				231				2,066
Effect of movements in foreign exchange and other			(105	)			(81	)			1				(0	)			(2	)			(28	)			(216	)
Balance at December 31, 2022		$	3,937			$	3,294			$	17			$	2			$	29			$	816			$	8,095
Accumulated amortization and impairment losses
Balance at January 1, 2021		$	1,662			$	659			$	17			$	3			$	3			$	4			$	2,346
Amortization for the period			313				203				0				0				1				—				518
Impairment charge			3				6				—				—				—				0				10
Effect of movements in foreign exchange			(38	)			(19	)			0				(0	)			0				—				(57	)
Balance at December 31, 2021		$	1,941			$	849			$	17			$	2			$	4			$	4			$	2,817
Balance at January 1, 2022		$	1,941			$	849			$	17			$	2			$	4			$	4			$	2,817
Amortization for the period			394				280				0				0				2				—				676
Impairment charge			1				0				—				—				—				5				7
Effect of movements in foreign exchange			(56	)			(27	)			0				(0	)			—				—				(83	)
Balance at December 31, 2022		$	2,280			$	1,103			$	17			$	2			$	6			$	9			$	3,416
Carrying amounts
At January 1, 2021		$	907			$	981			$	(0	)		$	0			$	5			$	432			$	2,325
At December 31, 2021		$	1,285			$	1,507			$	0			$	0			$	26			$	610			$	3,428
At January 1, 2022		$	1,285			$	1,507			$	0			$	0			$	26			$	610			$	3,428
At December 31, 2022		$	1,657			$	2,191			$	0			$	(0	)		$	23			$	808			$	4,679

Impairment testing for cash-generating units containing goodwill

The annual impairment test of goodwill was performed as of December 31, 2022 and 2021. During the year ended December 31, 2022, goodwill in the amount of $5 was impaired and expensed in the consolidated statement of income (loss) (2021—$0). For the purpose of impairment testing, goodwill is allocated to the Company’s business units included in each operating segment, which represent the lowest level within the Company at which goodwill is monitored for internal purposes. There was no goodwill reallocated to the Company’s CGUs that was deemed to be significant in comparison to the carrying amount of goodwill as at December 31, 2022.

 

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

In determining the recoverable amount, the Company applied an estimated market valuation multiple to the business unit’s most recent annual recurring revenues, which are derived from combined software/support contracts, transaction revenues, and hosted products. Valuation multiples, which are Level 3 inputs, applied by the Company for this purpose reflect current market conditions specific to the business unit and are assessed for reasonability by comparison to the Company’s current and past acquisition experience involving ranges of revenue-based multiples required to acquire representative software companies. During 2022, the estimated market valuation multiple ranged from 1.5X to 6.5X of recurring revenue. The Company has nine CGUs whereby the total goodwill allocated is significant in comparison to the Company’s total carrying amount of goodwill. The total goodwill allocated to each of these CGUs as at December 31, 2022 is $88, $25, $22, $26, $24, $21, $25, $21 and $23.

 

10.	Debt with recourse to CSI

 

						Liability of CSI under
		CSI Facility				the IRGA				Debentures				Term Loan				Total
Principal outstanding at December 31, 2022 (and, except for debentures, equal to fair value)		$	322			$	465			$	208			$	79			$	1,074
Deduct: Carrying value of transaction costs included in debt balance			(1	)			—				—				(0	)			(2	)
Carrying value at December 31, 2022			321				465				208				78				1,072
Current portion			321				184				—				—				505
Non-current portion			—				281				208				78				567

CSI Facility

On November 5, 2021, Constellation completed an amendment and restatement of its revolving credit facility agreement (the “CSI Facility”), with a syndicate of Canadian chartered banks and U.S. banks in the amount of $700, extending its maturity date to November 2026. In March 2023, the total amount on the revolver was increased from $700 to $840. The CSI Facility bears a variable interest rate with no fixed repayments required over the term to maturity. Interest rates are calculated at standard U.S. and Canadian reference rates plus interest rate spreads based on a leverage table. The CSI Facility is collateralized by the majority of the Company’s assets including the assets of certain material subsidiaries. The CSI Facility contains standard events of default which if not remedied within a cure period would trigger the repayment of any outstanding balance. As at December 31, 2022, $322 (December 31, 2021 – $nil) had been drawn from this credit facility, and letters of credit totaling $12 (December 31, 2021—$79) were issued, which limits the borrowing capacity on a dollar-for-dollar basis. Transaction costs associated with the CSI Facility are being amortized through profit or loss using the effective interest rate method. As at December 31, 2022, the carrying amount of such costs is $1 (December 31, 2021—$2).

Liability of CSI under the terms of the IRGA/TSS Members Agreement

On December 23, 2014, in accordance with the terms of the purchase and sale agreement for the initial acquisition of TSS by CSI, and on the basis of the term sheets attached thereto, Constellation and the Joday Group, among others, entered into a Members Agreement (the “TSS Members Agreement”) pursuant to which the Joday Group acquired 33.29% of the voting interests in Constellation Software Netherlands Holding Coöperatief U.A. (which was renamed to Topicus.com Coöperatief U.A., (“Topicus Coop)), a subsidiary of Constellation and the indirect owner of 100% of TSS at the time of the acquisition. Total proceeds from this transaction was EUR 39.

 

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

On January 5, 2021, the TSS Members Agreement was terminated in conjunction with the acquisition of Topicus.com B.V., the reorganization of Topicus Coop and the execution of the Investors Rights and Governance Agreement (“IRGA”). The IRGA was established to create certain contractual obligations of the parties in respect of the governance of Topicus and Topicus Coop. The Joday Group’s interest in Topicus Coop comprises 39,331,284 Topicus Coop Ordinary Units resulting in an interest of 30.29% in Topicus Coop. The IRGA provides for transfer restrictions in respect of the Topicus Coop Units.

Any time after January 5, 2021, any member of the Joday Group has the right, at their option, to sell any number of its Topicus Coop Units to CSI at a cash price per Topicus Coop Unit determined in accordance with the IRGA. Upon the exercise of such option by a member of the Joday Group, CSI will be obligated to purchase 33.33% of such Topicus Coop Units within 30 days, and an additional 33.33% on each of the first and the second anniversary of such initial purchase. Notwithstanding the foregoing, CSI can offer Topicus the right to purchase such Topicus Coop Units in lieu of CSI.

In the event of a change of control of CSI, any member of the Joday Group has the right, at their option, to sell all of its Topicus Coop Units to CSI at a cash price per Topicus Coop Unit determined in accordance with the IRGA. Upon the exercise of such option by a member of the Joday Group, CSI will be obligated to purchase all such Topicus Coop Units. Notwithstanding the foregoing, CSI can offer Topicus the right to purchase such Topicus Coop Units in lieu of CSI.

If CSI reduces its economic interest in Topicus by a sale or transfer of its economic interest (and not due to any additional issuance of any shares or equity by Topicus) by more than one-third (calculated on a fully converted basis in accordance with the IRGA), any member of the Joday Group has the right, at their option, to sell to CSI one-third of its Topicus Coop Units at a cash price per Topicus Coop Unit determined in accordance with the IRGA. Upon the exercise of such put option by a member of the Joday Group, CSI will be obligated to purchase all such put Topicus Coop Units. Notwithstanding the foregoing, CSI can offer Topicus the right to purchase such Topicus Coop Units in lieu of CSI. Any member of the Joday Group has a similar right to sell one-half or all of its remaining Topicus Coop Units, respectively, at its option, if CSI further reduces its remaining fully-diluted economic interest in Topicus by a sale or transfer of its economic interest by one-half and again if CSI sells its entire remaining economic interest in Topicus.

All of the Topicus Coop Ordinary Units held by the Joday Group and Ijssel B.V. (collectively, the “Topicus Coop Exchangeable Units”) are exchangeable, directly or indirectly, for Topicus Subordinate Voting Shares. All of the above rights of members of the Joday Group apply to any Topicus Subordinate Voting Shares issued on an exchange of Topicus Coop Exchangeable Units.

At any time after December 31, 2023, CSI has the right, at its option, to buy all of the Topicus Coop Units and shares of Topicus held by certain members of the Joday Group (excluding Joday) at a cash price per Topicus Coop Unit (or share of Topicus, as applicable) determined in accordance with the IRGA. After December 31, 2043, CSI has the same right to buy all of the Topicus Coop Units and shares of Topicus held by the remaining members of the Joday Group, including Joday.

In addition, if certain individuals affiliated with Joday are terminated from their employment with Topicus Coop or an affiliate thereof for urgent cause (as defined in the Dutch Civil Code), CSI has the right, at its option, to buy all of Topicus Coop Units held by such individuals at a cash price per Topicus Coop Unit determined in accordance with the IRGA.

The Company has continued to classify the above obligations of CSI under the terms of the IRGA as a liability. The main valuation driver in such calculation is the maintenance and other recurring revenue of Topicus. Maintenance and recurring revenue of Topicus for the trailing twelve months on a pro-forma basis determined at the end of the current reporting period was used as the basis for valuing the interests at each redemption date. Any increase or decrease in the value of such liability is recorded as an expense or income in the consolidated statements of income (loss) for the period.

 

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

During the periods ended December 31, 2022 and December 31, 2021, no options were exercised. During the year December 31, 2022, a distribution in the amount of $23 (December 31, 2021—$22) was paid to the Joday Group.

Debentures

On October 1, 2014 and November 19, 2014, the Company issued debentures with a total principal value of C$96 for total proceeds of C$91. On September 30, 2015, the Company issued another tranche of debentures (collectively with the 2014 issuances called the “Debentures”) with a total principal value of C$186 for total proceeds of C$214.

The Debentures have a maturity date of March 31, 2040 (the “Maturity Date”).

The interest rate from and including:

 

•

March 31, 2020 but excluding March 31, 2021 was 8.4%

 

•

March 31, 2021 but excluding March 31, 2022 was 7.2%

 

•

March 31, 2022 but excluding March 31, 2023 is 9.9%

 

•

March 31, 2023 but excluding March 31, 2024 is 13.3%

Subsequent from and including March 31, 2024 to but excluding the Maturity Date, the interest rate applicable to the Debentures will be reset on an annual basis on March 31 of each year, at a rate equal to the annual average percentage change in the All-items Consumer Price Index during the 12-month period ending on December 31 in the prior year (which amount may be positive or negative) plus 6.5%. Notwithstanding the foregoing, the interest rate applicable to the debentures will not be less than 0%. The Company may, subject to certain approvals, elect the Payment in Kind election (“PIK Election”), in lieu of paying interest in cash, to satisfy all or any portion of its interest obligation payable on an interest payment date by issuing to each Debenture holder PIK Debentures equal to the amount of the interest obligation to be satisfied. The PIK Debentures will have the same terms and conditions as the Debentures and will form part of the principal amount of the Debentures. If, on any interest payment date, the Company fails to pay the amount of interest owing on the Debentures in full in cash, the Company will not (A) declare or pay dividends of any kind on the Common Shares, nor (B) participate in any share buyback or redemption involving the Common Shares, until the date on which the Company pays such interest (or the unpaid portion thereof) in cash to holders of the Debentures; however, where the Company has issued PIK Debentures in respect of all or a portion of the amount of interest owing on the Debentures on an interest payment date, the Company may resume declaring or paying dividends of any kind on the Common Shares and participating in any share buyback or redemption involving the Common Shares beginning on the next earlier of (i) the interest payment date of which the Company pays the amount of interest owing on the Debentures in full in cash and (ii) the date on which the Company repays all amounts owing under the PIK Debenture. All payments in respect of the Debentures will be subordinated in right of payment to the prior payment in full of all senior indebtedness of the Company.

The Debentures will be redeemable in certain circumstances at the option of the Company or the holder. During the period beginning on March 16 and ending on March 31 of each year, the Company will have the right, at its option, to give notice to holders of Debentures of its intention to redeem the Debentures, in whole or in part, on March 31 in the year that is five years following the year in which notice is given, at a price equal to the principal amount thereof plus accrued and unpaid interest up to but excluding the date fixed for redemption. During the period beginning on March 1 and ending on March 15 of each year, holders of Debentures will also have the right, at their option, to give notice to the Company of their intention to require the Company to repurchase (or to “put”) the Debentures, in whole or in part, on March 31 in the year that is five years following the year in which notice is given, at a price equal to the principal amount thereof plus accrued and unpaid interest up to but excluding the date fixed for repurchase.

 

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

During the periods ended December 31, 2022 and December 31, 2021, no notices for redemption of the Debentures were received or given by the Company.

The fair value of the debentures as at December 31, 2022 was $287 (December 31, 2021—$308).

Term Loan

One of CSI’s subsidiaries has entered into a GBP 65 term debt facility with a financial institution for which CSI has guaranteed the debt. The facility bears a fixed rate of interest. The term loan contains events of default that, if not remedied, allow the loan note holder to require repayment of the loan principal and interest. The loan is due in 2028.

 

11.	Debt without recourse to CSI

Certain of CSI’s subsidiaries have entered into term debt facilities and revolving credit facilities with various financial institutions. CSI does not guarantee the debt of these subsidiaries, nor are there any cross-guarantees between subsidiaries. The credit facilities are collateralized by substantially all of the assets of the borrowing entity and its subsidiaries. The credit facilities typically bear interest at a rate calculated using an interest rate index plus a margin. The financing arrangements for each subsidiary typically contain certain restrictive covenants, which may include limitations or prohibitions on additional indebtedness, payment of cash dividends, redemption of capital, capital spending, making of acquisitions and sales of assets. In addition, certain financial covenants must be met by those subsidiaries that have outstanding debt.

As a result of an amendment to the Topicus Revolving Credit Facility, the Company is required to repay a EUR 60 Term loan in 2023 which was originally due in 2028. The loan has been classified as a current liability as of December 31, 2022.

During the 2022, the Company breached its debt covenants associated with four Term loans in its subsidiaries. The aggregate value of the loans at December 31, 2022 is $56 and these loans have been classified as a current liability. The breaches related to non-recurring items and are expected to be resolved in 2023.

Debt without recourse to CSI comprises the following:

 

		Topicus Revolving Credit
		Facility				Debt Facilities				Total
Principal outstanding at December 31, 2022 (and equal to fair value)			139			$	773				912
Deduct: Carrying value of transaction costs included in debt balance			(3	)			(8	)			(11	)
Carrying value at December 31, 2022			136				766				902
Current portion			136				180				316
Non-current portion			—				586				586

 

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

The expected annual minimum repayment requirements for the debt facilities without recourse to CSI (excluding the Topicus revolving credit facility) are as follows:

 

Year		Debt Facilities
2023			179
2024			47
2025			183
2026			84
2027			278
2028			1
2029			1
2030			0
			773

 

12.	Redeemable Preferred Securities

In conjunction with the acquisition of Topicus.com B.V. in 2021, Topicus Coop issued 5,842,882 Topicus Coop Preference Units to Ijssel B.V. The Topicus Coop Preference Units were non-voting and prior to the Notification of Conversion were redeemable at the option of the holder for a redemption price of approximately EUR 19.06 per unit. The redemption price would have either been settled in cash or through the issuance of a variable number of Topicus Coop Ordinary Units. The number of Topicus Coop Ordinary Units would have been determined based on the terms of the Topicus Coop Preference Units. The Topicus Coop Preference Units were convertible into Topicus Coop Ordinary Units (note 18) at a conversion ratio of 1:1. The Topicus Coop Preference Unit holders were entitled to a fixed annual cumulative dividend of 5% per annum on the initial Topicus Coop Preference Unit value of approximately EUR 19.06 per unit.

On February 1, 2022, the Topicus Coop Preference Units were converted to Topicus Coop Ordinary Units.

 

13.	Provisions

 

At January 1, 2022		$	21
Reversal			(1	)
Provisions recorded during the period			17
Provisions used during the period			(15	)
Effect of movements in foreign exchange and other			(1	)
At December 31, 2022		$	21
Provisions classified as current liabilities			11
Provisions classified as other non-current liabilities			10

 

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

The provisions balance is comprised of various individual provisions for severance costs and other estimated liabilities of the Company of uncertain timing or amount.

 

14.	Lease obligations

The following table presents the expected maturity of the undiscounted cash flows for lease obligations as at December 31, 2022:

 

		December 31, 2022
Less than 1 year		$	101
Between 1 and 5 years			196
More than 5 years			42
Total		$	339
Less: Impact of discounting			(26	)
Leases obligation recorded on balance sheet		$	313

The expense relating to variable lease payments not included in the measurement of lease obligations was $8 (2021 - $6). This consists primarily of variable lease payments for property taxes. Expenses relating to short-term leases were $9 (2021 - $7), expenses relating to leases of low value assets were $1 (2021 - $1) and sublease income was $2 (2021 - $1). Total cash outflow for leases was $124 (2021 - $106).

 

40

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

15.	Income taxes

(a) Tax recognized in profit or loss

 

		2022				2021
Income tax recognized in profit or loss
Current income tax expense (recovery)
Current year			399				253
Adjustment for prior years			3				3
			403				257
Deferred income tax expense (recovery)
Origination and reversal of temporary differences			(216	)			(46	)
Effect of change in future tax rates			(4	)			9
Change in recognized temporary differences and unrecognized tax losses			(1	)			(18	)
Adjustment for prior years			(8	)			4
			(228	)			(51	)
Income tax expense (recovery)			175				206

(b) Reconciliation of effective tax rate

 

		2022				2021
Net income for the year			551				169
Income tax expense			175				206
Income before income taxes			725				374
Income tax expense using the Company’s statutory tax rate of 26.5% (2021—26.5%)			192				99
Impact on taxes from:
Foreign tax rate differential			(20	)			(19	)
Other, including non-deductible expenses and non-taxable income			12				50
Redeemable preferred securities expense which is not deductible for tax purposes			—				78
Change in recognized temporary differences and unrecognized tax losses			(1	)			(18	)
Effect of change in future tax rates			(4	)			9
Adjustment for prior years			(4	)			7
			175				206

Constellation is subject to tax audits in the countries in which the Company does business globally. These tax audits could result in additional tax expense in future periods relating to historical filings. Reviews by tax authorities generally focus on, but are not limited to, the validity of the Company’s inter-company transactions, including financing and transfer pricing policies which generally involve subjective areas of taxation and a significant degree of judgment. If any of these tax authorities are successful with their challenges, the Company’s income tax expense may be adversely affected and Constellation could also be subject to interest and penalty charges.

 

41

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

16.	Deferred tax assets and liabilities

(a) Unrecognized deferred tax liabilities

The aggregate amount of temporary differences associated with investments in subsidiaries for which we have not recognized deferred tax liabilities is $1,226 (2021: $878) as the Company ultimately controls whether the liability will be incurred and it is satisfied that it will not be incurred in the foreseeable future. The temporary differences relate to undistributed earnings of the Company’s subsidiaries. Dividends declared would be subject to withholding tax in the range of 0-15% depending on the jurisdiction of the subsidiary.

(b) Unrecognized deferred tax assets

 

		2022				2021
Deductible temporary differences, including capital losses		$	163			$	230
Non-capital tax losses		$	475			$	427

Non-capital tax losses of $288 expire between 2023 and 2042 and $187 can be carried forward indefinitely. Included in the non-capital tax losses expiring between 2023 and 2042 is $141 of losses that are not expected to be used to offset future taxable profit as a result of legislative restrictions in the jurisdiction where those losses exist. The deductible temporary differences and capital losses do not expire under current tax legislation. Deferred tax assets have not been recognized in respect of those items because it is not probable that future taxable profit will be available in those jurisdictions against which the Company can utilize these benefits.

(c) Recognized deferred tax assets and liabilities

 

		Assets								Liabilities								Net
		2022				2021				2022				2021				2022				2021
Property, plant and equipment			7				6				(9	)			(3	)			(2	)			3
Intangible assets			123				116				(674	)			(539	)			(551	)			(423	)
Reserves			50				25				(5	)			(5	)			46				20
Non-capital loss carryforwards			81				53				—				—				81				53
Research and development expenditures			108				1				—				(0	)			108				1
Deferred revenue			31				20				(2	)			(0	)			28				20
Foreign and other tax credits			7				0				(6	)			(4	)			1				(4	)
Other, including capital losses, withholding tax and foreign exchange			12				7				(35	)			(46	)			(23	)			(39	)
Tax assets (liabilities)			419				228				(730	)			(598	)			(312	)			(370	)
Reclassification			(259	)			(162	)			259				162				—				—
Net tax assets (liabilities)			160				66				(471	)			(436	)			(312	)			(370	)

This reclassification relates to the offsetting of deferred tax assets and deferred tax liabilities to the extent that they relate to the same taxing authorities and there is a legally enforceable right to do so.

 

42

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

(d) Movement in deferred tax balances during the year

 

		Balance January 1, 2022				Recognized in profit or loss				Recognized in other comprehensive income				Acquired in business combinations				Other				Balance December 31, 2022
Property, plant and equipment			3				1				—				(6	)			—				(2	)
Intangible assets			(423	)			135				—				(282	)			17				(551	)
Reserves			20				19				—				8				—				46
Non-capital loss carryforwards			53				—				—				27				—				81
Research and development expenditures			1				98				—				10				—				108
Deferred revenue			20				(45	)			—				54				—				28
Tax credits			(4	)			8				—				(3	)			—				1
Other, including capital losses and withholding tax			(39	)			12				—				6				(2	)			(23	)
			(370	)			228				—				(186	)			15				(312	)

 

		Balance January 1, 2021				Recognized in profit or loss				Recognized in other comprehensive income				Acquired in business combinations				Other				Balance December 31, 2021
Property, plant and equipment			2				1				—				(0	)			—				3
Intangible assets			(261	)			38				—				(214	)			14				(423	)
Reserves			18				1				—				1				—				20
Non-capital loss carryforwards			32				9				—				12				—				53
Research and development expenditures			(8	)			9				—				0				—				1
Deferred revenue			16				3				—				0				—				20
Tax credits			(5	)			1				—				(0	)			—				(4	)
Other, including capital losses, withholding tax and foreign exchange			(27	)			(11	)			—				0				—				(39	)
			(233	)			51				—				(201	)			14				(370	)

 

17.	Capital and other components of equity

Capital Stock

At December 31, 2022 and December 31, 2021, the authorized share capital of Constellation consisted of an unlimited number of voting common shares and a limited number of non-voting preferred shares (there are no preferred shares outstanding).

 

		Common Shares
		Number				Amount
December 31, 2022			21,191,530			$	99
December 31, 2021			21,191,530			$	99

 

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income (loss) is comprised of the following separate components of equity:

Cumulative translation account

The cumulative translation account comprises all foreign currency differences arising from the translation of the financial statements of foreign operations, as well as foreign exchange gains and losses arising from monetary items that form part of the net investment in the foreign operation.

Amounts related to derivatives designated as hedges

The portion of the gain or loss on derivatives designated as hedges that are determined to be an effective hedge are recognized directly in other comprehensive income (loss), and the ineffective portion in the statement of income (loss). The gains or losses deferred in other comprehensive income (loss) in this way are subsequently recognized in the statement of income (loss) in the same period in which the hedged underlying transaction or firm commitment is recognized in the statement of income (loss).

Dividends

During the three months ended March 31, 2021, the Company declared a $1.00 per share dividend to all common shareholders of record at close of business on March 16, 2021. The dividend declared in the quarter ended March 31, 2021 representing $21 was paid and settled on April 9, 2021. During the three months ended June 30, 2021, the Company declared a $1.00 per share dividend to all common shareholders of record at close of business on June 19, 2021. The dividend declared in the quarter ended June 30, 2021 representing $21 was paid and settled on July 10, 2021. During the three months ended September 30, 2021, the Company declared a $1.00 per share dividend to all common shareholders of record at close of business on September 17, 2021. The dividend declared in the quarter ended September 30, 2021 representing $21 was paid and settled on October 8, 2021. On November 4, 2021 the Company declared a $1.00 per share dividend to all common shareholders of record at close of business on December 20, 2021. The dividend declared in the quarter ended December 31, 2021 representing $21 was paid and settled on January 11, 2022.

During the three months ended March 31, 2022, the Company declared a $1.00 per share dividend to all common shareholders of record at close of business on March 16, 2022. The dividend declared in the quarter ended March 31, 2022 representing $21 was paid and settled on April 12, 2022. During the three months ended June 30, 2022, the Company declared a $1.00 per share dividend to all common shareholders of record at close of business on June 20, 2022. The dividend declared in the quarter ended June 30, 2022 representing $21 was paid and settled on July 11, 2022. During the three months ended September 30, 2022, the Company declared a $1.00 per share dividend to all common shareholders of record at close of business on September 20, 2022. The dividend declared in the quarter ended September 30, 2022 representing $21 was paid and settled on October 11, 2022. During the three months ended December 31, 2022, the Company declared a $1.00 per share dividend to all common shareholders of record at close of business on December 20, 2022. The dividend declared in the quarter ended December 31, 2022 representing $21 was paid and settled on January 11, 2023.

On December 18, 2020, the Company declared a special dividend pursuant to which all common shareholders of record on December 28, 2020 of the Company were entitled to receive, by way of a dividend-in-kind, 1.859817814 Topicus Subordinate Voting Shares for each Constellation Software Inc. share held. The dividend was distributed on January 4, 2021.

 

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

18.	Finance and other expense (income) and finance costs

 

		Year ended December 31,
		2022				2021
Interest income on cash		$	(1	)		$	(2	)
(Increase) decrease in the fair value of equity securities held for trading			16				(2	)
Share in net (income) loss of equity investee			0				(1	)
Finance and other income			(15	)			(2	)
Finance and other expense (income)		$	0			$	(7	)
Interest expense on debt and debentures		$	78			$	44
Interest expense on lease obligations			10				9
Amortization of debt related transaction costs			5				2
Amortization of debenture discount (premium) and associated rights offering, net			—				(1	)
Other finance costs			17				13
Finance costs		$	110			$	68

 

19.	Earnings per share

Basic and diluted earnings per share

 

		Year ended December 31,
		2022				2021
Numerator:
Net income (loss) attributable to common shareholders of CSI		$	512			$	310
Denominator:
Basic and diluted shares outstanding			21,191,530				21,191,530
Earnings per share
Basic and diluted		$	24.18			$	14.65

 

20.	Capital risk management

The Company’s objectives in managing capital are to ensure sufficient liquidity to pursue its strategy of organic growth combined with strategic acquisitions and to provide returns to its shareholders. The Company manages its capital with the objective of ensuring that there are adequate capital resources while maximizing the return to shareholders through the optimization of the debt and equity balance. The capital structure of the Company consists of cash, Debt with recourse to CSI, Debt without recourse to CSI, and components of shareholders’ equity including retained earnings and capital stock.

 

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

The Company is subject to certain covenants on its CSI facility. The covenants include a leverage ratio and an interest coverage ratio. The Debt without recourse to CSI is also subject to certain covenants. The Company monitors the ratios on a quarterly basis. As at December 31, 2022 and 2021, other than disclosed in note 11, the Company is in compliance with its debt covenants. Other than the covenants required for the CSI facility and the Debt without recourse to CSI, the Company is not subject to any externally imposed capital requirements.

The Board of Directors determine if and when dividends should be declared and paid based on all relevant circumstances, including the desirability of financing further growth of the Company and its financial position at the relevant time. The Board of Directors has adopted a policy to pay quarterly dividends, which commenced in 2012. Constellation intends to declare a regular quarterly dividend to allow shareholders to participate in its free cash flow, while retaining sufficient capital to invest in acquisitions and organic growth. There is no guarantee that dividends will continue to be declared and paid in the future.

The Company makes adjustments to its capital structure in light of general economic conditions, the risk characteristics of the underlying assets and the Company’s working capital requirements. In order to maintain or adjust its capital structure, the Company, upon approval from its Board of Directors, may increase or decrease dividends, increase or decrease the line of credit or undertake other activities as deemed appropriate under the specific circumstances. The Board of Directors reviews and approves any material transactions not in the ordinary course of business, as well as significant acquisitions and other major investments above pre-determined quantitative thresholds.

 

21.	Financial risk management and financial instruments

Overview

The Company is exposed to risks of varying degrees of significance which could affect its ability to achieve its strategic objectives for growth. The main objectives of the Company’s risk management process are to ensure that risks are properly identified and that the capital base is adequate in relation to those risks. The principal financial risks to which the Company is exposed are described below.

Market risk

Market risk is the risk that changes in market prices, such as fluctuations in foreign exchange rates and interest rates, will affect the Company’s income or the value of its financial instruments.

The Company is exposed to interest rate risk on the utilized portion of its CSI facility and its Debentures and does not currently hold any financial instruments that mitigate this risk. If there was a 1% increase in the interest rate on the Debentures, there would be a corresponding decrease in income before tax of $2. There would be an equal and opposite impact if there was a 1% decrease in the interest rate. If there was a 1% increase in the interest rate on the utilized portion of the CSI Facility, there would be a corresponding decrease in income before tax of $3. There would be an equal and opposite impact if there was a 1% decrease in the interest rate.

The Company is also exposed to interest rate risk on the utilized portion of the Debt without recourse to CSI. If there was a 1% increase in the interest rate on the Debt without recourse to CSI, there would be a corresponding decrease in income before tax of $9. There would be an equal and opposite impact if there was a 1% decrease in the interest rate.

 

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

The Company operates internationally, giving rise to exposure to market risks from changes in foreign exchange rates which impact sales and purchases that are denominated in a currency other than the respective functional currencies of certain of its subsidiaries. The Company currently does not typically use derivative instruments to hedge its exposure to those risks. Most of the Company’s businesses are organized geographically so that many of its expenses are incurred in the same currency as its revenues thus mitigating some of its exposure to currency fluctuations.

Foreign currency sensitivity analysis:

Foreign currency risk arises on financial instruments that are denominated in a currency other than the functional currency in which they are measured. The Company’s primary exposure with respect to foreign currencies is through the Canadian dollar denominated Debentures (note 10) and the Euro denominated IRGA Liability (note 10). The carrying value of the Debentures at December 31, 2022 is $208 (C$282) (December 31, 2021 - $222 (C$282)). If there was a 1% strengthening of the Canadian dollar against the U.S. dollar, there would be a corresponding decrease in income before income taxes of $2. There would be an equal and opposite impact if there was a 1% weakening of the Canadian dollar against the U.S. dollar. The carrying value of the IRGA Liability as at December 31, 2022 is $465 (EUR 435). If there was a 1% strengthening of the EUR against the U.S. dollar, there would be a corresponding decrease in income before income taxes of $5. There would be an equal and opposite impact if there was a 1% weakening of the EUR dollar against the U.S. dollar.

Liquidity risk

Liquidity risk is the risk that the Company is not able to meet its financial obligations as they fall due or can do so only at excessive cost. The Company manages liquidity risk through the management of its capital structure and financial leverage, as outlined in note 20 to the consolidated financial statements. The Company’s growth is financed through a combination of cash flows from operations and borrowing under the Debt with recourse to CSI and Debt without recourse to CSI. One of the Company’s primary goals is to maintain an optimal level of liquidity through the active management of the assets and liabilities as well as the cash flows from operations. The details of the Company’s Debt with recourse to CSI and Debt without recourse to CSI are disclosed in note 10 and note 11 to the consolidated financial statements. As at December 31, 2022, available credit in respect of the Company’s CSI facility was $366.

The majority of the Company’s financial liabilities recorded in accounts payable and accrued liabilities are due within 60 days. The Company also has payment processing liabilities which are settled within a few days of year-end. Included in cash is an equivalent cash balance of $25 (December 31, 2021 - $15) that is held to settle these payment processing liabilities as they become due. Holdbacks payable related to business acquisitions are generally payable within six months to two years.

Given the Company’s available liquid resources and credit capacity as compared to the timing of the payments of liabilities, the Company assesses its liquidity risk to be low.

Credit risk

Credit risk represents the financial loss that the Company would experience if a counterparty to a financial instrument, in which the Company has an amount owing from the counterparty failed to meet its obligations in accordance with the terms and conditions of its contracts with the Company. The carrying amount of the Company’s financial assets, including receivables from customers, represents the Company’s maximum credit exposure.

 

47

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

The majority of the accounts receivable balance relates to maintenance invoices to customers that have a history of payment. In addition, a large proportion of the Company’s accounts receivable are with public sector government agencies where the credit risk has historically been assessed to be low.

The maximum exposure to credit risk for accounts receivable at the reporting date by geographic region was:

 

		December 31, 2022				December 31, 2021
United States		$	442			$	228
Canada			65				56
United Kingdom			89				73
Europe			187				192
Other			93				50
		$	876			$	600

The aging of accounts receivables at the reporting date was:

 

		December 31, 2022				December 31, 2021
Current
Gross		$	724			$	516
Impairment			(5	)			(3	)
Net			720				513
90-180 days
Gross			112				64
Impairment			(8	)			(1	)
Net			105				63
More than 180 days
Gross			122				53
Impairment			(70	)			(28	)
Net			52				25
Total accounts receivable
Gross		$	958			$	632
Impairment			(82	)			(32	)
Net			876				600

 

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

An allowance account for accounts receivable is used to record impairment losses unless the Company is satisfied that no recovery of the amount owing is possible; at which point the amounts are considered to be uncollectible and are written off against the specific accounts receivable amount attributable to a customer. The number of days outstanding of an individual receivable balance is the key indicator for determining whether an account is at risk of being impaired.

The movement in the allowance for impairment in respect of accounts receivable during the year ended:

 

		2022				2021
Aggregate balance at January 1		$	32			$	34
Increase from business acquisitions			75				10
Impairment loss recognized			27				19
Impairment loss reversed			(14	)			(18	)
Amounts written off			(39	)			(12	)
Other movements			1				(1	)
Aggregate balance at December 31		$	82			$	32
Allowance for doubtful accounts arising from business combinations		$	48			$	11

There is no concentration of credit risk because of the Company’s diverse and disparate number of customers with individual receivables that are not significant to the Company on a consolidated basis. In addition, the Company typically requires up front deposits from customers to protect against credit risk.

The Company manages credit risk related to cash by maintaining the majority of the Company’s bank accounts with Schedule 1 banks.

In the ordinary course of business, the Company and its subsidiaries have provided performance bonds and other guarantees for the completion of certain customer contracts. The Company has not experienced a loss to date and future losses are not anticipated; therefore, no liability has been recorded in the consolidated statements of financial position related to these types of indemnifications or guarantees at December 31, 2022.

Fair values versus carrying amounts

The carrying values of cash, accounts receivable, accounts payable, accrued liabilities, dividends payable, the majority of acquisition holdbacks, and the CSI Facility, approximate their fair values due to the short-term nature of these instruments. The carrying value of the debt without recourse to CSI approximate their fair values as the debt is subject to market interest rates. The carrying value of the IRGA liability and the Term Loan with recourse to CSI approximates fair value.

 

49

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

Reconciliation of cash flows from financing activities

The following table reconciles the changes in cash flows from financing activities for certain liabilities that are outstanding as at December 31:

 

		Debt with recourse to CSI				Debt without recorse to CSI				Lease liability				Dividends
Balance at January 1, 2022		$	704			$	414			$	270			$	22
Reclassification of deferred financing fees from other assets			(2	)			—				—				—
Increase (decrease) in Topicus revolving credit debt facility without recourse to CSI			—				91				—				—
Proceeds from issuance of debt under facilities without recourse to CSI			—				476				—				—
Repayments of debt under facilities without recourse to CSI			—				(102	)			—				—
Increase (decrease) in the CSI facility			322				—				—				—
Payments of lease obligations			—				—				(94	)			—
Other financing activities			—				2				—
Dividends paid			—				—				—				(85	)
Distribution to the Joday Group			(23	)			—				—				—
Credit facility transaction costs			—				(7	)			—				—
Total financing cash flow activities			299				460				(94	)			(85	)
Liabilities assumed in acquisitions			—				42				—				—
Amortization of debt related transaction costs			0				5				—				—
IRGA liability revaluation charge			112				—				—				—
New leases, net of terminations and modifications			—				—				156				—
Dividends declared			—				—				—				85
Foreign exchange loss (gain) and other movements			(33	)			0				(3	)			(0	)
Foreign currency translation differences from foreign operations			(9	)			(19	)			(14	)			—
Total financing non-cash activities			70				28				138				85
Balance at December 31, 2022		$	1,072			$	902			$	313			$	21

 

50

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

		Debt with recourse to CSI				Debt without recorse to CSI				Lease liability				Dividends
Balance at January 1, 2021		$	534			$	227			$	275			$	21
Reclassification of deferred financing fees from other assets			1				—				—				—
Increase (decrease) in revolving credit under debt facilities without recourse to CSI			—				30				—				—
Proceeds from issuance of term debt under facilities without recourse to CSI			—				176				—				—
Repayments of term debt under facilities without recourse to CSI			—				(6	)			—				—
Increase (decrease) in the CSI facility			—				—				—				—
Payments of lease obligations			—				—				(83	)			—
Dividends paid			—				—				—				(85	)
Distribution to the Joday Group			(22	)			—				—				—
Credit facility transaction costs			(1	)			(5	)			—				—
Total financing cash flow activities			(23	)			196				(83	)			(85	)
Amortization of debt discounts and premiums			(1	)			—				—				—
Liabilities assumed in acquisitions			90				1				—				—
Amortization of debt related transaction costs			—				2				—				—
IRGA liability revaluation charge			132				—				—				—
New leases, net of terminations and modifications			—				—				87				—
Dividends declared			—				—				—				85
Foreign exchange loss (gain)			(24	)			—				(0	)			0
Foreign currency translation differences from foreign operations			(5	)			(12	)			(10	)			—
Total financing non-cash activities			193				(9	)			77				85
Balance at December 31, 2021		$	704			$	414			$	270			$	22

Fair value hierarchy

The table below analyzes financial instruments carried at fair value, by valuation method.

 

•

level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;

 

•

level 2 inputs are inputs other than quoted prices included in level 1 that are observable for the asset or liability either directly (i.e. prices) or indirectly (i.e. derived from prices); and

 

•

level 3 inputs are inputs for the asset or liability that are not based on observable market data (i.e. unobservable inputs).

In the table below, the Company has segregated all financial assets and liabilities that are measured at fair value into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date.

Financial assets and financial liabilities measured at fair value as at December 31, 2022 and December 31, 2021 in the financial statements are summarized below. The Company has no additional financial liabilities measured at fair value initially other than those recognized in connection with business combinations.

 

51

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

						December 31, 2022																December 31, 2021
		Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
Assets:
Equity securities held for trading		$	115			$	—			$	—			$	115			$	39			$	—			$	—			$	39
			115				—				—				115				39				—				—				39
Liabilities:
Redeemable preferred securities		$	—			$	—			$	—			$	—			$	—			$	—			$	7			$	7
Contingent consideration			—				—				157				157				—				—				104				104
			—				—				157				157				—				—				110				110

There were no transfers of fair value measurements between level 1, 2 and level 3 of the fair value hierarchy in the years ended December 31, 2022 and 2021.

The following table shows a reconciliation from the beginning balances to the ending balances for fair value measurements in Level 3 of the fair value hierarchy.

Contingent Consideration

 

Balance at January 1, 2022			104
Increase from business acquisitions			53
Cash recoveries (payments)			(44	)
Charges through profit or loss			45
Foreign exchange and other movements			(1	)
Balance at December 31, 2022			157
Contingent consideration classified as current liabilities			48
Contingent consideration classified as other non-current liabilities			109

Estimates of the fair value of contingent consideration is performed by the Company on a quarterly basis. Key unobservable inputs include revenue growth rates and the discount rates applied (7% to 11%). The estimated fair value increases as the annual growth rate increases and as the discount rate decreases and vice versa.

 

52

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

Redeemable Preferred Securities

 

Balance at January 1, 2022		$	7
Foreign exchange and other movements			(0	)
Payments			(7	)
Balance at December 31, 2022			—

Estimates of the fair value of the Redeemable Preferred Securities were performed by the Company on a quarterly basis up to the Notification of Conversion date. Key unobservable inputs include expected volatility and credit spread of the Topicus Preferred Shares. The estimated fair value increases as the expected volatility increases. The estimated fair value decreases as the credit spread increases. The key observable input is the subordinated voting share price of Topicus.com Inc. As the Topicus.com Inc. subordinate voting share price increases, the fair value of the Redeemable Preferred Securities increases. Subsequent to the Notification of Conversion, the principal portion of the redeemable preferred securities has been reclassified to equity (non-controlling interest).

 

22.

Revenue

The following tables provides information about unbilled revenue (contract asset) and deferred revenue (contract liability).

Unbilled Revenue:

 

		2022				2021
At January 1		$	150			$	102
Increase from business acquisitions			102				34
Decrease from transfers to accounts receivable			(888	)			(409	)
Increase from changes as a result of the measure of progress			916				427
Foreign exchange and other movements			(5	)			(3	)
At December 31		$	275			$	150
Unbilled revenue classified as a current asset		$	230			$	140
Unbilled revenue classified as a other non-current asset			44				10

 

53

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

Deferred Revenue:

 

		2022				2021
At January 1		$	1,209			$	1,005
Increase from business acquisitions			366				165
Decrease from revenue recognized that was included in the deferred revenue balance at the beginning of the period			(1,073	)			(889	)
Decrease from revenue recognized that arose from acquired deferred revenue balances in the current year			(345	)			(97	)
Increase due to cash received, excluding amounts recognized as revenue during the period			1,474				1,043
Foreign exchange and other movements			(48	)			(18	)
At December 31		$	1,584			$	1,209
Deferred revenue classified as a current liability			1,484				1,158
Deferred revenue classified as a other non-current liability			100				52

The amount of revenue recognized in the year ended December 31, 2022 from performance obligations satisfied in previous periods was $13 (December 31, 2021 - $6).

Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized (“contracted not yet recognized”) and includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods. Contracted not yet recognized revenue was approximately $3,400 as of December 31, 2022, of which we expect to recognize an estimated 72% of the revenue over the next 12 months and the remainder thereafter.

Costs to obtain a contract with a customer:

The Company has capitalized and amortized incremental commission costs on a systematic basis, consistent with the pattern of transfer of the good(s) or service(s) to which the commission relates as the Company believes these costs are recoverable. The total capitalized commission costs as of December 31, 2022 is $127 (December 31, 2021 - $112). The amount of amortization expense for the year ended December 31, 2022 was $18 (December 31, 2021 - $16) and there was no impairment loss in relation to the costs capitalized.

 

23.	Operating segments

An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company’s other components. The operating results of all operating segments are reviewed regularly by the Company’s President to make decisions about resources to be allocated to the segment and assessing their performance.

 

54

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

The Company consists of six operating segments being, Volaris, Harris, Topicus, Vela, Jonas and Perseus. Each of the Company’s operating segments operate essentially as mini Constellations, conglomerates of small vertical market software companies with similar economic characteristics. Each operating segment CEO is focused on investing capital that generates returns at or above the investment hurdle rates set by CSI’s head office (primarily the President) and the Board of Directors, irrespective of whether the acquired business operates primarily in the public or private sector. The Company aggregates the six operating segments into one reportable segment, consistent with the objective and basic principles of IFRS 8.

Geographical information

The Company is managed on a worldwide basis, but operates in three principal geographical areas, Canada, USA, and UK/Europe.

In presenting the geographical information, revenue is based on the region in which the revenue is transacted, and intellectual property is located. Assets are based on the geographic locations of the assets.

 

Year ended December 31, 2022		Canada				USA				UK/Europe				Other				Total
Revenue		$	661			$	2,923			$	2,161			$	876			$	6,622
Non-current assets			609				2,043				1,992				778				5,422

 

Year ended December 31, 2021		Canada				USA				UK/Europe				Other				Total
Revenue		$	578			$	2,037			$	1,945			$	546			$	5,106
Non-current assets			584				1,284				1,688				375				3,931

Major customers

No customer represents revenue in excess of 5% of total revenue in both the years ended December 31, 2022 and 2021.

 

24.	Contingencies

In the normal course of operations, the Company is subject to litigation and claims from time to time. The Company may also be subject to lawsuits, investigations and other claims, including environmental, labour, income and sales tax, product, customer disputes and other matters. The Company believes that adequate provisions have been recorded in the accounts where required. Although it is not always possible to estimate the extent of potential costs, if any, the Company believes that the ultimate resolution of such contingencies will not have a material adverse impact on the results of operations, financial position or liquidity of the Company.

 

55

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

25.	Guarantees

 

(a)

In the ordinary course of business the Company and its subsidiaries have provided performance bonds, letters of credit issued that do not limit the borrowing capacity of the CSI Facility, and other guarantees for the completion of certain customer contracts and other contracts in the normal course of operations. The total obligations of the Company pursuant to such bonds and related contingencies total $97 (2021 - $80). No liability has been recorded in the consolidated financial statements.

 

(b)

As at December 31, 2022, in the normal course of business, the Company has outstanding letters of credit under the CSI Facility totalling $12 (2021 - $79) which limits the borrowing capacity of the CSI Facility on a dollar-for-dollar basis.

 

(c)

In the normal course of business, some of the Company’s subsidiaries entered into lease agreements for facilities. As the joint lessees, the subsidiaries agree to indemnify the lessor for liabilities that may arise from the use of the leased facility. The maximum amount potentially payable under the foregoing indemnity cannot be reasonably estimated. The subsidiaries have liability insurance that relates to the indemnifications.

 

(d)

The Company and its subsidiaries have provided routine indemnifications to some of its customers against liability if the Company’s product infringes on a third party’s intellectual property rights. The maximum exposure from the indemnifications cannot be reasonably estimated.

 

26.	Changes in non-cash operating working capital

 

		Year ended December 31,
		2022				2021
Decrease (increase) in current accounts receivable		$	(84	)		$	(22	)
Decrease (increase) in current unbilled revenue			(23	)			(13	)
Decrease (increase) in other current assets			(43	)			(39	)
Decrease (increase) in inventories			(9	)			1
Decrease (increase) in other non-current assets			(35	)			(16	)
Increase (decrease) in other non-current liabilities			(5	)			(0	)
Increase (decrease) in current accounts payable and accrued liabilities, excluding holdbacks from acquisitions			73				80
Increase (decrease) in current deferred revenue			66				55
Increase (decrease) in current provisions			(1	)			(1	)
Change in non-cash operating working capital		$	(60	)		$	45

 

56

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

27.	Related parties

Transactions with companies associated with key management personnel

The Company has entered into certain agreements primarily for the provision of hosting services with companies that are affiliated with Robin van Poelje, the CEO of the Topicus Operating Group. For the year ended December 31, 2022, the Company expensed $2 (December 31, 2021 - $1) relating to these agreements, included primarily included within “Third party license, maintenance and professional services” expenses. The payable as at December 31, 2022 relating to these amounts was $0 (included within “Accounts payable and accrued liabilities”) (December 31, 2021 - $0).

Key management personnel compensation

The key management personnel of the Company, inclusive of the operating segments, are the members of the Company’s executive management team at the Company’s operating segments and head office and Board of Directors.

 

		Years ended December 31,
		2022				2021
Salaries, bonus and employee benefits		$	12			$	16
Total		$	12			$	16

There were no significant post-employment benefits, other long-term benefits, or share-based payments attributed to the key management personnel in 2022 and 2021.

 

28.	Non-controlling interests

The Company’s significant non-controlling interests at December 31, 2022 were associated with Topicus, a company whose operations are based in the Netherlands. Constellation’s equity interest in Topicus is 60.65% (39.35% being non-controlling interest) as at December 31, 2022. On May 16, 2022, Topicus also acquired a controlling interest of 72.68% in Sygnity S.A. (“Sygnity”), a Company based in Poland. The remaining 27.32% represents non-controlling interest. The acquisition of Sygnity is outlined in note 4.

 

57

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

The following tables summarize the information relating to the Company’s non-controlling interests in Topicus before and after intercompany eliminations:

 

						Intra-Group
		As at December 31, 2022				Eliminations				Total
Non-controlling interest			39.35	%
Current assets			331
Non-current assets			1,054
Total assets			1,385
Current liabilities			610
Non-current liabilities			275
Total liabilities			885
Less: Non-controlling interest of Topicus Coop subsidaries, including interests held by CSI			49
Net assets after allocation of non-controlling interests (including interests held by CSI)			452				15				467
Net assets allocated to the non-controlling interests of Topicus											184
Add: Non-controlling interest of Topicus Coop subsidaries not owned by CSI											18
Total non-controlling interest											201
						Intra-Group
		As at December 31, 2021				Eliminations				Total
Non-controlling interest			69.7	%
Current assets			228
Non-current assets			938
Total assets			1,166
Current liabilities			452
Non-current liabilities			311
Total liabilities			763
Less: Non-controlling interest of Topicus subsidaries, including interests held by CSI			24
Less: Preference units of Topicus Coop classified as non-controlling interest			432
Net assets			(53	)			90				37
Net assets allocated to the non-controlling interests of Topicus											26
Add: Non-controlling interest of Topicus Coop subsidaries not owned by CSI											2
Add: Preference units of Topicus Coop classified as non-controlling interest											432
Total non-controlling interest											460
		Year ended				Intra-Group
		December 31, 2022				Eliminations				Total
Revenue			963
Expenses			853
Income (loss) before income taxes			110
Income tax expense			18
Net income (loss) prior to non-controlling interest allocation			92
Less: Non-controlling interest of Topicus Coop subsidaries, including interests held by CSI			0
Less: Income allocated to Preference Units of Topicus Coop classified as non-controlling interest			1
Net income (loss) after allocation of non-controlling interest of Topicus Coop subsidaries			91				(4	)			87
Net income (loss) attributable to non-controlling interests of Topicus											38
Add: Non-controlling interest of Topicus Coop subsidaries not owned by CSI											(0	)
Add: Income allocated to Preference Units of Topicus Coop classified as non-controlling interest											1
Total non-controlling interest											38

 

58

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

		Year ended				Intra-Group
		December 31, 2021				Eliminations				Total
Revenue			877
Expenses			758
Redeemable preferred securities expense (income) (notes 1 and 12)			2,737
Income (loss) before income taxes			(2,617	)
Income tax expense			25
Net income (loss) prior to non-controlling interest allocation			(2,643	)
Less: Non-controlling interest of Topicus subsidaries, including interests held by CSI			2
Less: Income allocated to Preference Units of Topicus Coop classified as non-controlling interest			4
Net income (loss) after allocation of non-controlling interest of Topicus subsidaries and Preference Units			(2,648	)			2,439				(209	)
Net income (loss) attributable to non-controlling interests of Topicus											(146	)
Add: Non-controlling interest of Topicus Coop subsidaries not owned by CSI											0
Add: Income allocated to Preference Units of Topicus Coop classified as non-controlling interest											4
Total non-controlling interest											(142	)

Financial information on the statement of cash flows for Topicus is as follows:

 

		Year ended
		December 31, 2022
Cash flows from (used in) operating activities			227
Cash flows from (used in) financing activities			(13	)
Cash flows from (used in) investing activities			(140	)
		Year ended
		December 31, 2021
Cash flows from (used in) operating activities			212
Cash flows from (used in) in financing activities			66
Cash flows from (used in) investing activities			(254	)

On January 3, 2022, the Company also acquired a controlling interest of in Adapt IT Holdings Limited (“Adapt IT”), a Company based in South Africa. The acquisition of Adapt IT is outlined in note 4. As of December 31, 2022, the Company has an interest of 65.97% and the remaining 34.03% represents non-controlling interest in Adapt IT.

 

29.	Subsequent events

On March 29, 2023, the Company declared a $1.00 per share dividend payable on April 14, 2023 to all common shareholders of record at close of business on April 6, 2023.

Excluding the Wide Orbit acquisition outlined below, subsequent to December 31, 2022, the Company completed or entered into agreements to acquire a number of businesses for aggregate cash consideration of $316 on closing plus cash holdbacks of $32 and contingent consideration with an estimated fair value of $20 for total consideration of $367. The business acquisitions include companies catering primarily to the marketing, financial services, education, communications, field service, insurance, healthcare, daycare, metals, mining, forestry, construction, logistics, and legal verticals and are all software companies similar to the existing business of the Company.

 

59

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CONSTELLATION SOFTWARE INC.

Notes to Consolidated Financial Statements

(In millions of U.S. dollars or specified currency, except per share amounts and as otherwise indicated.)

(Due to rounding, numbers presented may not foot.)

Years ended December 31, 2022 and 2021

 

On February 22 and 23, 2023 (as part of a series of transactions relating to the acquisition of WideOrbit Inc. (“WideOrbit”) described further below), the Company’s subsidiary, Lumine Group Inc. (“Lumine”), completed a corporate reorganization. After the reorganization was completed, the Company now owns 1 super voting share, 6 subordinate voting shares and 63,582,712 preferred shares of Lumine. Furthermore, the Company distributed 63,582,706 of the subordinate voting shares to its common shareholders pursuant to a dividend-in-kind on February 23, 2022. The steps performed in conjunction with the reorganization consisted of the following:

 

•

The Company exchanged its existing common shares and preferred shares in Lumine Group (Holdings) Inc. (“Lumine Group Holdings”) for 63,582,712 subordinate voting shares and 55,233,745 preferred shares of Lumine on February 22, 2023.

 

•

Lumine and Lumine Group Holdings amalgamated on February 22, 2023.

 

•

The Company subscribed for 8,348,967 preferred shares of Lumine on February 22, 2023. The preferred shares are convertible into subordinate voting shares of Lumine at a rate of 1:2.43.

 

•

Lumine had 63,582,712 subordinate voting shares outstanding on February 22, 2023. The Company distributed 63,582,706 of the subordinate voting shares to its common shareholders pursuant to a dividend-in-kind on February 23, 2022 and continues to hold 6 subordinate voting shares of Lumine.

 

•

Under certain conditions, the preferred shares are retractable at the option of the holder for a retraction price of approximately $21.74 per preferred share. The holders of the preferred shares are also entitled to a fixed annual cumulative dividend of 5% per annum.

 

•

The Company holds 1 super voting share of Lumine. The super voting share entitles the holder to that number of votes that equals 50.1% of the aggregate number of votes attached to all the outstanding super voting shares, subordinate voting shares and special shares of Lumine. As a result, the Company controls Lumine and will consolidate its financial position and results of operations with Lumine. The Company will reflect a non-controlling interest held by other parties.

On February 23, 2023, the Company purchased 100% of the shares of WideOrbit, a US-based vertical market software provider. Annual gross revenues of WideOrbit for 2022 were approximately $169. The gross purchase price for the transaction was $490, subject to customary adjustments, as a result of, but not limited to, minimum cash requirements of $10, target net indebtedness of $87, and claims under the representations and warranties of the purchase agreement. The Company has the ability to reduce the cash portion of the purchase consideration by $10 for net indebtedness up to $97. If net indebtedness is greater than $97, excess repayment would be funded by the Company and added to the gross purchase price. Furthermore, Lumine issued 10,204,294 special shares of Lumine to the sellers of WideOrbit for an initial subscription price of approximately $222 which will be included in the purchase consideration. Under certain conditions, the special shares are retractable at the option of the holder for a retraction price of approximately $21.74 per special share plus one subordinate voting share of Lumine for each special share held and will be classified as a liability on the balance sheet of Lumine and the Company. The special shares are also convertible into subordinate voting shares of Lumine at a conversion ratio of 1:3.43 at any time. The holders of the special shares are also entitled to a fixed annual cumulative dividend of 5% per annum.

 

60

Exhibit 2.5

CONSTELLATION SOFTWARE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS (“MD&A”)

The following discussion and analysis should be read in conjunction with the Annual Consolidated Financial Statements for the year ended December 31, 2022, which we prepared in accordance with International Financial Reporting Standards (“IFRS”). Certain information included herein is forward-looking and based upon assumptions and anticipated results that are subject to uncertainties. Should one or more of these uncertainties materialize or should the underlying assumptions prove incorrect, actual results may vary significantly from those expected. See “Forward-Looking Statements” and “Risks and Uncertainties”.

Unless otherwise indicated, all dollar amounts are expressed in U.S. dollars. All references to “$” are to U.S. dollars and all references to “C$” are to Canadian dollars. Due to rounding, certain totals and subtotals may not foot and certain percentages may not reconcile.

Additional information about Constellation Software Inc. (the “Company” or “Constellation”), including our most recently filed Annual Information Form (“AIF”), is available on SEDAR at www.sedar.com.

Forward Looking Statements

Certain statements in this report may contain “forward looking” statements that involve risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company or industry to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Words such as “may”, “will”, “expect”, “believe”, “plan”, “intend”, “should”, “anticipate” and other similar terminology are intended to identify forward looking statements. These statements reflect current assumptions and expectations regarding future events and operating performance as of the date of this MD&A March 29, 2023. Forward looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to vary significantly from the results discussed in the forward looking statements, including, but not limited to, the factors discussed under “Risks and Uncertainties”. Although the forward looking statements contained in this MD&A are based upon what management of the Company believes are reasonable assumptions, the Company cannot assure investors that actual results will be consistent with these forward looking statements. These forward looking statements are made as of the date of this MD&A and the Company assumes no obligation, except as required by law, to update any forward looking statements to reflect new events or circumstances. This report should be viewed in conjunction with the Company’s other publicly available filings, copies of which can be obtained electronically on SEDAR at www.sedar.com.

Non-IFRS Measures

This MD&A includes certain measures which have not been prepared in accordance with IFRS such as Free cash flow available to shareholders.

Free cash flow available to shareholders ‘‘FCFA2S’’ refers to net cash flows from operating activities less interest paid on lease obligations, interest paid on other facilities, credit facility transaction costs, repayments of lease obligations, the IRGA / TSS membership liability revaluation charge, and property and equipment purchased, and includes interest and dividends received. The portion of this amount applicable to non-controlling interests is then deducted. We believe that FCFA2S is useful supplemental information as it provides an indication of the uncommitted cash flow that is available to shareholders if we do not make any acquisitions, or investments, and do not repay any debts. While we could use the FCFA2S to pay dividends or repurchase shares, our objective is to invest all of our FCFA2S in acquisitions which meet our hurdle rate.

 

1

---

FCFA2S is not a recognized measure under IFRS and may not be comparable to similar financial measures disclosed by other issuers. Accordingly, readers are cautioned that FCFA2S should not be construed as an alternative to net cash flows from operating activities. See ‘‘Results of Operations —Free cash flow available to shareholders” for a reconciliation of FCFA2S to net cash flows from operating activities.

Corporate Reorganization

On January 4, 2021 (in anticipation of the acquisition of Topicus.com B.V.), the Company’s subsidiary, Constellation Software Netherlands Holding Coöperatief U.A. (“CSNH”), which principally holds the Total Specific Solutions Operating Group (“TSS”), completed a corporate reorganization. In conjunction with the reorganization, the following steps were completed on January 4, 2021:

 

•

CSNH changed its name to Topicus.com Coöperatief U.A. (“Topicus Coop”).

 

•

The Company engaged in a series of transactions the result of which was that its then existing equity interest in Topicus Coop became an equity interest in Topicus.com Inc. (“Topicus”) and Topicus became the new parent company of Topicus Coop. Topicus issued and Constellation received 39,412,385 preferred shares of Topicus (the “Topicus Preferred Shares”) and 39,412,385 subordinate voting shares of Topicus (the “Topicus Subordinate Voting Shares”). CSI distributed 39,412,367 of the Topicus Subordinate Voting Shares to its common shareholders pursuant a dividend-in-kind and continues to hold 18 Topicus Subordinate Voting Shares of Topicus.

 

•

Constellation also holds 1 super voting share of Topicus (the “Topicus Super Voting Share”). The Topicus Super Voting Share entitles Constellation to that number of votes that equals 50.1% of the aggregate number of votes attached to all the outstanding Topicus Super Voting Shares and Topicus Subordinate Voting Shares. As a result, Constellation Software Inc. controls Topicus.

 

•

Topicus Coop issued 19,665,642 Preference Units and 19,665,642 Ordinary Units to Joday Investments II B.V. (“Joday”) and certain individual investors affiliated therewith (being the previous minority owners of CSNH) (collectively known as the “Joday Group”).

On February 1, 2022, the Topicus Preferred Shares and Topicus Coop Preference Units were converted to Topicus Subordinate Voting Shares and Topicus Coop Ordinary Units respectively. Subsequent to the conversion, CSI will continue to consolidate Topicus and reflect an equity interest of 60.65% in Topicus and a non-controlling interest of 39.35%. The equity interest of 60.65% that the Company reflects in Topicus principally comprises the Company’s Subordinate Voting Shares and the ordinary units of Topicus Coop (“Topicus Coop Ordinary Units”) that are currently owned by the Joday Group and subject to the terms of the investor rights and governance agreement entered into by CSI, the Joday Group, Ijssel B.V., Topicus and Topicus Coop on January 5, 2021 (the “IRGA”).

Overview

We acquire, manage and build vertical market software (“VMS”) businesses. Generally, these businesses provide mission critical software solutions that address the specific needs of our customers in particular markets. Our focus on acquiring businesses with growth potential, managing them well and then building them, has allowed us to generate significant cash flows and revenue growth during the past several years.

 

2

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Our revenue consists primarily of software license fees, maintenance and other recurring fees, professional service fees and hardware sales. Software license revenue is comprised of non-recurring license fees charged for the use of software products licensed under multiple-year or perpetual arrangements. Maintenance and other recurring revenue primarily consists of fees charged for customer support on software products post-delivery and also includes recurring fees derived from combined software/support contracts, transaction revenues, managed services associated with CSI software that has been sold to the customer, and hosted software-as-a-service products. Professional service revenue consists of fees charged for implementation services, custom programming, product training, certain managed services, and consulting. Hardware and other revenue includes the resale of third party hardware as part of customized solutions, as well as sales of hardware assembled internally and the reimbursement of travel costs. Our customers typically purchase a combination of software, maintenance, professional services and hardware, although the type, mix and quantity of each vary by customer and by product.

Expenses consist primarily of staff costs, the cost of hardware, third party licenses, maintenance and professional services to fulfill our customer arrangements, travel and occupancy costs, depreciation, and other general operating expenses.

 

3

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Results of Operations

(In millions of dollars, except percentages and per share amounts)

Unaudited

 

		Three months ended December 31,								Period-Over- Period Change								Year ended December 31,								Period-Over-Period Change
		2022				2021				$				%				2022				2021				$				%
Revenue			1,847				1,383				465				34	%			6,622				5,106				1,515				30	%
Expenses			1,388				1,004				384				38	%			5,065				3,716				1,349				36	%
Amortization of intangible assets			185				142				43				30	%			676				518				158				30	%
Foreign exchange (gain) loss			42				4				38				969	%			(56	)			1				(57	)			NM
IRGA / TSS membership liability revaluation charge			23				25				(3	)			-10	%			112				132				(20	)			-15	%
Finance and other expense (income)			(23	)			2				(25	)			NM				0				(7	)			7				NM
Bargain purchase gain			(13	)			(1	)			(12	)			NM				(16	)			(2	)			(15	)			738	%
Impairment of intangible and other non-financial assets			5				5				0				5	%			7				12				(5	)			-44	%
Redeemable preferred securities expense (income)			—				—				—				NM				—				295				(295	)			-100	%
Finance costs			37				18				19				107	%			110				68				42				63	%
Income before income taxes			204				184				20				11	%			725				374				351				94	%
Income tax expense (recovery)
Current income tax expense (recovery)			80				48				33				69	%			403				257				146				57	%
Deferred income tax expense (recovery)			(39	)			(8	)			(31	)			381	%			(228	)			(51	)			(177	)			347	%
Income tax expense (recovery)			41				40				2				5	%			175				206				(31	)			-15	%
Net income (loss) attributable to:
Common shareholders of CSI			152				124				28				23	%			512				310				202				65	%
Non-controlling interests			10				21				(11	)			-51	%			38				(142	)			180				NM
Net income (loss)			163				145				18				12	%			551				169				382				226	%
Net cash flows from operating activities			400				341				59				17	%			1,297				1,300				(2	)			0	%
Free cash flow available to shareholders			290				244				46				19	%			853				883				(30	)			-3	%
Weighted average number of shares outstanding
Basic and diluted			21.2				21.2												21.2				21.2
Net income (loss) per share
Basic and diluted		$	7.19			$	5.86			$	1.33				23	%		$	24.18			$	14.65			$	9.54				65	%
Net cash flows from operating activities per share
Basic and diluted		$	18.88			$	16.09			$	2.79				17	%		$	61.23			$	61.33			$	(0.11	)			0	%
Free cash flow available to shareholders per share
Basic and diluted		$	13.68			$	11.50			$	2.18				19	%		$	40.25			$	41.69			$	(1.44	)			-3	%
Cash dividends declared per share
Basic and diluted		$	1.00			$	1.00			$	—				0	%		$	4.00			$	4.00			$	—				0	%
Total assets																			7,882				5,766				2,116				37	%
Total long-term liabilities																			2,181				1,784				397				22	%

NM - Not meaningful

Due to rounding, certain totals may not foot and certain percentages may not reconcile.

 

4

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Comparison of the three and twelve month periods ended December 31, 2022 and 2021

Revenue:

Total revenue for the quarter ended December 31, 2022 was $1,847 million, an increase of 34%, or $465 million, compared to $1,383 million for the comparable period in 2021. For the year ended December 31, 2022 total revenues were $6,622 million, an increase of 30%, or $1,515 million, compared to $5,106 million for the comparable period in 2021. The increase for both the three and twelve month periods compared to the same periods in the prior year is primarily attributable to growth from acquisitions as the Company experienced organic growth of negative 1% in both periods, positive 4% and 3% respectively after adjusting for the impact of changes in the valuation of the US dollar against most major currencies in which the Company transacts business. For acquired companies, organic growth is calculated as the difference between actual revenues achieved by each company in the financial period following acquisition compared to the estimated revenues they achieved in the corresponding financial period preceding the date of acquisition by Constellation. Organic growth is not a standardized financial measure and might not be comparable to measures disclosed by other issuers.

The following table displays the breakdown of our revenue according to revenue type:

 

		Three months ended December 31,								Period-Over- Period Change								Q421 Proforma Adj. (Note 1)				Organic Growth				Year ended December 31,								Period-Over- Period Change								Q421 Proforma Adj. (Note 2)				Organic Growth
		2022				2021				$				%				$				%				2022				2021				$				%				$				%
		($ in millions, except percentages)																								($ in millions, except percentages)
Licenses			100				81				19				23	%			26				-7	%			320				287				33				11	%			85				-14	%
Professional services			396				286				110				39	%			152				-10	%			1,381				1,033				348				34	%			462				-8	%
Hardware and other			82				49				33				69	%			12				36	%			233				176				57				33	%			48				4	%
Maintenance and other recurring			1,270				967				303				31	%			292				1	%			4,688				3,611				1,078				30	%			1,019				1	%
			1,847				1,383				465				34	%			481				-1	%			6,622				5,106				1,515				30	%			1,614				-1	%

$M - Millions of dollars

Due to rounding, certain totals may not foot and certain percentages may not reconcile.

Note 1: Estimated pre-acquisition revenues for the three months ended December 31, 2021 from companies acquired after September 30, 2021. (Obtained from unaudited vendor financial information.)

Note 2: Estimated pre-acquisition revenues for the twelve months ended December 31, 2021 from companies acquired after December 31, 2020. (Obtained from unaudited vendor financial information.)

For comparative purposes the table below shows the quarterly organic growth as compared to the same period in the prior year by revenue type since Q4 2020. Note that the estimated revenues achieved by acquired companies in the corresponding financial period preceding the date of acquisition by Constellation may be updated in the quarter following the quarter they were acquired resulting in slight variances to previously reported figures.

 

		Quarter Ended
		Dec. 31 2020				Mar. 31 2021				Jun. 30 2021				Sep. 30 2021				Dec. 31 2021				Mar. 31 2022				Jun. 30 2022				Sep. 30 2022				Dec. 31 2022
Licenses			-6	%			-4	%			18	%			3	%			4	%			-13	%			-21	%			-16	%			-7	%
Professional services			-4	%			6	%			17	%			8	%			6	%			-5	%			-8	%			-7	%			-10	%
Hardware and other			-13	%			-12	%			15	%			-12	%			-12	%			-5	%			-8	%			-7	%			36	%
Maintenance and other recurring			4	%			7	%			12	%			8	%			5	%			4	%			1	%			-1	%			1	%
Revenue			1	%			6	%			14	%			7	%			4	%			1	%			-2	%			-3	%			-1	%

 

5

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The following table shows the same information adjusting for the impact of foreign exchange movements.

 

		Quarter Ended
		Dec. 31 2020				Mar. 31 2021				Jun. 30 2021				Sep. 30 2021				Dec. 31 2021				Mar. 31 2022				Jun. 30 2022				Sep. 30 2022				Dec. 31 2022
Licenses			-7	%			-8	%			12	%			2	%			5	%			-11	%			-17	%			-11	%			-2	%
Professional services			-6	%			1	%			10	%			6	%			7	%			-2	%			-3	%			-2	%			-5	%
Hardware and other			-15	%			-16	%			9	%			-13	%			-11	%			-3	%			-4	%			1	%			44	%
Maintenance and other recurring			2	%			3	%			7	%			6	%			6	%			7	%			6	%			5	%			6	%
Revenue			-1	%			1	%			8	%			5	%			5	%			4	%			2	%			2	%			4	%

Expenses:

The following table displays the breakdown of our expenses:

 

		Three months ended December 31,								Period-Over- Period Change								Year ended December 31,								Period-Over- Period Change
		2022				2021				$				%				2022				2021				$				%
		($ in millions, except percentages)																($ in millions, except percentages)
Expenses
Staff			958				714				244				34	%			3,539				2,695				844				31	%
Hardware			46				28				19				66	%			134				99				35				36	%
Third party license, maintenance and professional services			183				116				67				58	%			626				433				193				44	%
Occupancy			14				10				3				32	%			49				40				9				22	%
Travel, Telecommunications, Supplies
& Software and equipment			91				57				35				61	%			307				186				121				65	%
Professional fees			36				26				10				39	%			114				79				35				44	%
Other, net			22				22				(0	)			-1	%			154				62				91				146	%
Depreciation			37				31				6				20	%			143				121				22				18	%
			1,388				1,004				384				38	%			5,065				3,716				1,349				36	%

Due to rounding, certain totals may not foot and certain percentages may not reconcile.

Overall expenses for the quarter ended December 31, 2022 increased 38%, or $384 million to $1,388 million, compared to $1,004 million during the same period in 2021. As a percentage of total revenue, expenses equalled 75% for the quarter ended December 31, 2022 and 73% for the same period in 2021. During the twelve months ended December 31, 2022, expenses increased 36%, or $1,349 million to $5,065 million, compared to $3,716 million during the same period in 2021. As a percentage of total revenue, expenses equalled 76% for the twelve months ended December 31, 2022 and 73% for the same period in 2021. For the three and twelve months ended December 31, 2022 the change in valuation of the US dollar against most major currencies in which the Company transacts business resulted in an approximate 5% decrease in expenses for both periods compared to the comparable periods of 2021.

Staff expense – Staff expenses increased 34% or $244 million for the quarter ended December 31, 2022 and 31% or $844 million for the twelve months ended December 31, 2022 over the same periods in 2021. Staff expense can be broken down into five key operating departments: Professional Services, Maintenance, Research and Development, Sales and Marketing, and General and Administrative. Included within staff expenses for each of the above five departments are personnel and related costs associated with providing the necessary services. The table below compares the period over period variances.

 

6

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		Three months ended December 31,								Period-Over- Period Change								Year ended December 31,								Period- Over- Period Change
		2022				2021				$				%				2022				2021				$				%
		($ in millions, except percentages)																($ in millions, except percentages)
Professional services			239				148				91				62	%			837				558				278				50	%
Maintenance			182				144				38				26	%			675				539				136				25	%
Research and development			259				193				66				34	%			948				732				216				29	%
Sales and marketing			122				101				21				21	%			453				369				84				23	%
General and administrative			157				128				29				22	%			627				497				129				26	%
			958				714				244				34	%			3,539				2,695				844				31	%

Due to rounding, certain totals may not foot and certain percentages may not reconcile.

The increase in staff expenses for the three and twelve months ended December 31, 2022 was primarily due to the growth in the number of employees compared to the same periods in 2021 primarily due to acquisitions.

Hardware expenses – Hardware expenses increased 66% or $19 million for the quarter ended December 31, 2022 and 36% or $35 million for the twelve months ended December 31, 2022 over the same periods in 2021 as compared with the 69% and 33% increases in hardware and other revenue for the three and twelve month periods ending December 31, 2022 respectively over the comparable periods in 2021. Hardware margins for the three and twelve months ended December 31, 2022 were 43% and 42% respectively as compared to 42% and 44% for the comparable periods in 2021.

Third party license, maintenance and professional services expenses – Third party license, maintenance and professional services expenses increased 58% or $67 million for the quarter ended December 31, 2022 and 44% or $193 million for the twelve months ended December 31, 2022 over the same periods in 2021. The increase is primarily due to third party license, maintenance and professional services expenses of acquired businesses.

Occupancy expenses – Occupancy expenses increased 32% or $3 million for the quarter ended December 31, 2022 and 22% or $9 million for the twelve months ended December 31, 2022 over the same periods in 2021. The increase is primarily due to the occupancy expenses of acquired businesses.

Travel, Telecommunications, Supplies & Software and equipment expenses – Travel, Telecommunications, Supplies & Software and equipment expenses increased 61% or $35 million for the quarter ended December 31, 2022 and 65% or $121 million for the twelve months ended December 31, 2022 over the same periods in 2021. The increase in these expenses is primarily due to expenses incurred by acquired businesses. In addition employee travel is increasing as restrictions imposed as a result of COVID-19 are gradually being lifted.

Professional fees – Professional fees increased 39% or $10 million for the quarter ended December 31, 2022 and 44% or $35 million for the twelve months ended December 31, 2022 over the same periods in 2021. There are no individually material reasons contributing to this variance.

Other, net – Other expenses decreased 1% to $22 million for the quarter ended December 31, 2022 and increased 146% or $91 million for the twelve months ended December 31, 2022 over the same periods in 2021. The following table provides a further breakdown of expenses within this category.

 

7

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		Three months ended December 31,								Period-Over-Period Change								Year ended December 31,								Period-Over-Period Change
		2022				2021				$				%				2022				2021				$				%
		($ in millions, except percentages)																($ in millions, except percentages)
Advertising and promotion			23				17				6				38	%			86				54				32				59	%
Recruitment and training			9				7				3				40	%			36				22				14				62	%
Bad debt expense			2				(0	)			2				NM				7				2				5				281	%
R&D tax credits			(17	)			(13	)			(4	)			32	%			(40	)			(33	)			(7	)			21	%
Contingent consideration			(4	)			6				(9	)			NM				42				14				27				193	%
Government assistance			(1	)			(1	)			1				-43	%			(2	)			(17	)			15				-87	%
Other expense, net			9				7				2				21	%			25				20				5				25	%
			22				22				(0	)			-1	%			154				62				91				146	%

Due to rounding, certain totals may not foot and certain percentages may not reconcile.

In 2020 and 2021 the governments of various jurisdictions in which we have operations had approved legislation and took administrative actions intended to aid businesses that had been adversely impacted by COVID-19, including making grants or credits available to eligible entities to subsidize or offset qualifying expenses, including employee wages, or to lower payroll taxes or required social insurance programs (in certain countries), in each case subject to limits and other specified criteria. During the twelve months ended December 31, 2021, we determined that we qualified for an estimated aggregate amount of $17 million of grants from various government authorities, including the Canada Emergency Wage Subsidy (CEWS) announced by the Government of Canada in April 2020, and recognized such amounts as a reduction in expenses during the period. During 2022, programs have either been canceled or we have determined that we no longer qualify. During the twelve months ended December 31, 2022 we recognized $2 million as a reduction in expenses from programs that are still applicable.

The contingent consideration expense amounts recorded for the three and twelve months ended December 31, 2022 related to an increase (decrease) in anticipated acquisition earnout payment accruals primarily as a result of increases (decreases) to revenue forecasts for the associated acquisitions. Revenue forecasts are updated on a quarterly basis and the related anticipated acquisition earnout payment accruals are updated accordingly. The advertising and promotion increase is primarily related to spending by acquired businesses and a gradual return to pre-COVID-19 levels of spending on trade shows and other marketing activities. Recruitment and training expenses have increased as many businesses that had a freeze on hiring as a result of COVID-19 are now hiring.

There are no individually material reasons contributing to the remaining variances.

Depreciation – Depreciation of property and equipment increased 20% or $6 million for the quarter ended December 31, 2022 and 18% or $22 million for the twelve months ended December 31, 2022 over the same periods in 2021. The increases are primarily due to the depreciation expense associated with acquired businesses.

 

8

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Other Income and Expenses:

The following table displays the breakdown of our other income and expenses:

 

		Three months ended December 31,								Period-Over- Period Change								Year ended December 31,								Period-Over- Period Change
		2022				2021				$				%				2022				2021				$				%
		($ in millions, except percentages)																($ in millions, except percentages)
Amortization of intangible assets			185				142				43				30	%			676				518				158				30	%
Foreign exchange (gain) loss			42				4				38				969	%			(56	)			1				(57	)			NM
IRGA / TSS membership liability revaluation charge			23				25				(3	)			-10	%			112				132				(20	)			-15	%
Finance and other expense (income)			(23	)			2				(25	)			NM				0				(7	)			7				NM
Bargain purchase gain			(13	)			(1	)			(12	)			NM				(16	)			(2	)			(15	)			738	%
Impairment of intangible and other non-financial assets			5				5				0				5	%			7				12				(5	)			-44	%
Redeemable preferred securities expense (income)			—				—				—				NM				—				295				(295	)			-100	%
Finance costs			37				18				19				107	%			110				68				42				63	%
Income tax expense (recovery)			42				40				2				5	%			175				206				(31	)			-15	%
			297				234				63				27	%			1,007				1,222				(216	)			-18	%

NM—Not meaningful

Due to rounding, certain totals may not foot and certain percentages may not reconcile.

Amortization of intangible assets – Amortization of intangible assets increased 30% or $43 million for the quarter ended December 31, 2022 and 30% or $158 million for the twelve months ended December 31, 2022 over the same periods in 2021. The increase in amortization expense for the three and twelve months ended December 31, 2022 is primarily attributable to an increase in the carrying amount of our intangible asset balance over the twelve-month period ended December 31, 2022 as a result of acquisitions completed during this twelve-month period.

Foreign exchange – Most of our businesses are organized geographically so many of our expenses are incurred in the same currency as our revenues, which mitigates some of our exposure to currency fluctuations. For the three and twelve months ended December 31, 2022, we realized a foreign exchange loss of $42 million and a foreign exchange gain of $56 million respectively compared to losses of $4 million and $1 million for the same periods in 2021. The following table provides a breakdown of these amounts.

 

		Three months ended December 31,								Period-Over-Period Change								Year ended December 31,								Period-Over-Period Change
		2022				2021				$				%				2022				2021				$				%
		($ in millions, except percentages)																($ in millions, except percentages)
Unrealized foreign exchange (gain) loss related to:
-  revaluation of intercompany loans between entities with differing functional currencies (1)			3				9				(6	)			-69	%			(22	)			20				(42	)			NM
-  revaulation of the Company’s unsecured subordinated floating rate debentures as a result of the appreciation (depreciation) of the Canadian dollar against the US dollar.			3				0				3				NM				(14	)			1				(15	)			NM
-  revaluation of the liability associated with the IRGA (Euro denominated liability)			38				(8	)			45				NM				(19	)			(24	)			5				-22	%
Remaining foreign exchange (gain) loss			(1	)			3				(4	)			NM				(1	)			4				(6	)			NM
			42				4				38				969	%			(56	)			1				(57	)			NM

NM—Not meaningful

Due to rounding, certain totals may not foot and certain percentages may not reconcile.

 

9

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The remaining foreign exchange gains and losses per the table above are primarily related to the unrealized foreign exchange translation gains and losses of certain non-US dollar denominated working capital balances to US dollars as a result of the depreciation or appreciation of the US dollar.

IRGA / TSS membership liability revaluation charge – On December 23, 2014, in accordance with the terms of the purchase and sale agreement for the initial acquisition of TSS (as defined below) by CSI, and on the basis of the term sheets attached thereto, Constellation and the Joday Group, among others, entered into a Members Agreement (the “Members Agreement”) pursuant to which the Joday Group acquired 33.29% of the voting interests in Constellation Software Netherlands Holding Coöperatief U.A. (which was renamed to Topicus.com Coöperatief U.A.), a subsidiary of Constellation and the indirect owner of 100% of TSS at the time of the acquisition. Total proceeds from this transaction was €39 million ($49 million).

On January 5, 2021, the Members Agreement was terminated in conjunction with the acquisition of Topicus.com B.V., the reorganization of Topicus Coop and the execution of the IRGA. The IRGA was established to create certain contractual obligations of the parties in respect of the governance of Topicus and Topicus Coop. The Joday Group’s interest in Topicus Coop now comprises 39,331,284 Topicus Coop Ordinary Units (“Topicus Coop Units”) resulting in an interest of 30.29% in Topicus Coop as of September 30, 2022. The IRGA provides for transfer restrictions in respect of the Topicus Coop Units. See “Liability of CSI under the terms of the IRGA” below for further details.

The valuation of the IRGA liability (previously the TSS membership liability) increased by approximately 6% or $23 million from Q3 2022, and approximately 28% or $112 million from Q4 2021. The increases are primarily the result of the growth in TSS’ trailing twelve month maintenance revenue on a pro-forma basis (primarily due to acquisitions). Maintenance revenue and net tangible assets are the two main drivers in the calculation of the liability. The liability recorded on the balance sheet increased by 18% or $70 million over the twelve month period ended December 31, 2022 from $395 million to $465 million as a result of the revaluation charge of $112 million offset by a distribution to the Joday Group of $23 million and a $19 million foreign exchange gain. The IRGA / TSS membership liability is denominated in Euros and the Euro depreciated 4% versus the US dollar during the year ended December 31, 2022.

Finance and other expense (income) – Finance and other income for the three and twelve months ended December 31, 2022 was $23 million and nil respectively, compared to an expense of $2 million and income of $7 million respectively for the same periods in 2021. The increase in fair value of equity securities held for trading for the three months ended December 31, 2022 was $22 million and the decrease for the twelve months ended December 31, 2022 was $16 million. A decrease of $1 million and an increase of $2 million was recorded for the three and twelve months ended December 31, 2021 respectively. Interest earned on cash balances for the three and twelve months ended December 31, 2022 was $0.1 million and $1 million respectively, compared to $0.4 million and $2 million respectively for the same periods in 2021.

Bargain purchase gain – Bargain purchase gains totalling $13 million and $16 million were recorded in the three and twelve month periods ended December 31, 2022 relating to acquisitions made in the period. Bargain purchase gains totalling $1 million and $2 million were recorded in the three and twelve month periods ended December 31, 2021 relating to acquisitions made in the period. The gains in all periods resulted from the fact that the fair value of the separately identifiable assets and liabilities acquired exceeded the total consideration paid, principally due to the acquisition of certain assets that will benefit the Company that had limited value to the sellers.

Impairment of intangible and other non-financial assets – Impairment expenses of $5 million and $7 million were recorded in the three and twelve month periods ended December 31, 2022 compared to $5 million and $12 million for the same periods in 2021. The expense for the three months ended December 31, 2022 primarily relates to the write down of goodwill associated with a business acquired in 2004. The majority of the customers from the business have been transitioned to another business owned by the Company that operates in the same vertical. The remaining expenses primarily relate to acquired businesses that have been unable to achieve the goals established in their associated investment thesis.

 

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Redeemable preferred securities expense (income) – The redeemable preferred securities expense for the twelve months ended December 31, 2021 was $295 million, with no similar expense recorded in 2022. In conjunction with the acquisition of Topicus.com B.V., Topicus Coop issued 5,842,882 Topicus Coop Preference Units (the “Preferred Securities”) to Ijssel B.V. The Preferred Securities were non-voting and were redeemable at the option of the holder for a redemption price of approximately €19.06 ($23.28) per security. The redemption price was either to be settled in cash or through the issuance of a variable number of Topicus Coop Ordinary Units of equal value. The Preferred Securities were convertible into Topicus Coop Ordinary Units at a conversion ratio of 1:1, and the Topicus Coop Ordinary Units are convertible into Subordinate Voting Shares of Topicus also at a conversion ratio of 1:1. The Preferred Securities holders were also entitled to a fixed annual cumulative dividend of 5% per annum on the initial Preferred Securities value of approximately €19.06 ($23.28) per security.

The Preferred Securities were recorded at fair value at the end of each reporting period until the Notification of Conversion (as described in note 12 to the Annual Consolidated Financial Statements for the year ended December 31, 2021). The change in fair value of the Preferred Securities was recorded as redeemable preferred securities expense (income) in the consolidated statements of income. Based on the Preferred Securities conversion right, the value of the Preferred Securities was primarily dependent on the price movement of Topicus’ Subordinate Voting Shares. The Notification of Conversion was received from the Preferred Securities holders on May 17, 2021. The closing market price of Topicus’ Subordinate Voting Shares on that date was C$89.87 or approximately $74.28. The increase in value from $23.28 to $74.28 multiplied by the 5.8 million Preferred Securities outstanding equalled approximately $298 million. The difference between the increase of $298 million and the fair value adjustment of $295 million for the twelve months ended December 31, 2021 primarily relates to the accrued dividend of $3 million for the period.

On February 1, 2022, all outstanding Topicus Coop Preference Securities were converted into Topicus Coop Ordinary Units.

Finance costs – Finance costs for the quarter ended December 31, 2022 increased $19 million to $37 million, compared to $18 million for the same period in 2021. During the twelve months ended December 31, 2022, finance costs increased $42 million to $110 million, from $68 million for the same period in 2021. The increases are primarily a result of an increase in the average debt outstanding in 2022 as compared to 2021.

Income taxes – We operate globally and we calculate our tax provision in each of the jurisdictions in which we conduct business. Our effective tax rate on a consolidated basis is, therefore, affected by the realization and anticipated relative profitability of our operations in those various jurisdictions, as well as different tax rates that apply and our ability to utilize tax losses and other credits. For the quarter ended December 31, 2022, income tax expense increased $2 million to $41 million compared to $40 million for the same period in 2021. During the twelve months ended December 31, 2022, income tax expense decreased $31 million to $175 million compared to $206 million for the same period in 2021. Current tax expense has historically approximated our cash tax rate however the quarterly expense can sometimes fall outside of the annual range due to out of period adjustments. Current tax expense reflects gross taxes before the application of R&D tax credits which are classified as part of “other, net” expenses in the statement of income (loss). The Company’s consolidated effective tax rate in respect of continuing operations for the year ended December 31, 2022 was 24% (55% for the year ended December 31, 2021). The 2021 effective tax rate is impacted by the redeemable preferred securities expense, which is not deductible for tax purposes.

Effective for 2022, research and experimentation (R&E) expenditures are no longer allowed to be deducted as incurred for tax purposes by US entities. The Tax Cuts and Jobs Act (TCJA) mandates that, for tax years beginning after December 31, 2021, R&E expenditures be deferred and amortized. US-based expenditures will be amortized over a 5 year period, and non-US-based expenditures over a 15 year period. The total impact to current income tax expense is $105 million for the 2022 fiscal year. Negative $12 million and positive $105 million was accrued and expensed in the three and twelve month periods ended December 31, 2022 respectively. An offsetting amount has been booked to deferred income tax expense so there is no impact on net tax expense or the effective tax rate.

 

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Constellation is subject to tax audits in the countries in which the Company carries on business globally. These tax audits could result in additional tax expense in future periods relating to historical filings. Reviews by tax authorities generally focus on, but are not limited to, the validity of the Company’s inter-company transactions, including financing and transfer pricing policies which generally involve subjective areas of taxation and a significant degree of judgment. If any of these tax authorities are successful with their challenges, the Company’s income tax expense may be adversely affected and Constellation could also be subject to interest and penalty charges.

Net Income and Earnings per Share:

Net income attributable to common shareholders of CSI for the quarter ended December 31, 2022 was $152 million compared to $124 million for the same period in 2021. On a per share basis this translated into a net income per diluted share of $7.19 in the quarter ended December 31, 2022 compared to net income per diluted share of $5.86 for the same period in 2021. For the twelve months ended December 31, 2022, net income attributable to common shareholders of CSI was $512 million or $24.18 per diluted share compared to $310 million or $14.65 per diluted share for the same period in 2021. There was no change in the number of shares outstanding.

Net cash flows from operating activities (“CFO”):

For the quarter ended December 31, 2022, CFO increased $59 million to $400 million compared to $341 million for the same period in 2021 representing an increase of 17%. For the twelve months ended December 31, 2022, CFO decreased $2 million to $1,297 million compared to $1,300 million for the same period in 2021. The primary reasons for the decline in CFO for the twelve months ended December 31, 2022 is that CFO includes the impact of changes in non-cash operating assets and liabilities exclusive of effects of business combinations or, changes in non-cash operating working capital (“NCOWC”), and income taxes paid. For the twelve months ended December 31, 2022 there was $60 million of cash used in NCOWC compared to $45 million of cash generated from NCOWC for the same period in 2021. There are many reasons contributing to the NCOWC variance for the Company, none of which are indicative of an underlying concern with the overall NCOWC balance. Specifically, there are no concerns with accounts receivable or unbilled revenue aging. Income taxes paid increased 33% or $86 million for the twelve months ended December 31, 2022 over the same periods in 2021. Approximately $100 million in cash tax payments were made in the twelve month period ending December 31, 2022 relating to the deferral of R&E expenses associated with the TCJA. (See “Income taxes” above.)

Free cash flow available to shareholders (“FCFA2S”):

For the quarter ended December 31, 2022, FCFA2S increased $46 million to $290 million compared to $244 million for the same period in 2021 representing an increase of 19%. For the twelve months ended December 31, 2022, FCFA2S decreased $30 million to $853 million compared to $883 million for the same period in 2021 representing a decrease of 3%. The items negatively impacting CFO summarized above are the same items negatively impacting FCFA2S. In addition interest payments on debt facilities for the twelve months ended December 31, 2022 increased $34 million or 88% compared to the same period in 2021. On February 1, 2022, the Topicus Preferred Shares and Topicus Coop Preference Units were converted to Topicus Subordinate Voting Shares and Topicus Coop Ordinary Units respectively. As a result of this conversion the non-controlling interest in Topicus.com Inc. decreased from approximately 70% to 39%.

The controlling / non-Controlling interest (“NCI”) percentage is based on the Topicus Subordinate Voting Shares and Topicus Coop Ordinary Units (“Common Shares”). The controlling interest that the Company reflects in Topicus includes the Common Shares that are currently owned by the Joday Group and subject to the terms of the IRGA.

 

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Common Share Holdings:

 

		Jan 31, 2022								Feb 1, 2022								Dec 31, 2022
Public shareholders of TOI			40,512,360				62.4	%			40,512,360				31.2	%			42,477,360				32.7	%
Ijssel Group			4,742,889				7.3	%			10,585,771				8.2	%			8,620,771				6.6	%
Joday Group			19,665,642				30.3	%			39,331,284				30.3	%			39,331,284				30.3	%
CSI			19				0.0	%			39,412,404				30.4	%			39,412,404				30.4	%
			64,920,910								129,841,819								129,841,819
NCI			69.7	%							39.4	%							39.4	%

The following table reconciles FCFA2S to net cash flows from operating activities:

 

		Three months ended December 31,								Year ended December 31,
		2022				2021				2022				2021
		($ in millions)								($ in millions)
Net cash flows from operating activities			400				341				1,297				1,300
Adjusted for:
Interest paid on lease obligations			(3	)			(2	)			(11	)			(9	)
Interest paid on other facilities			(26	)			(10	)			(74	)			(40	)
Credit facility transaction costs			(4	)			(2	)			(7	)			(6	)
Payments of lease obligations			(25	)			(22	)			(94	)			(83	)
IRGA / TSS membership liability revaluation charge			(23	)			(25	)			(112	)			(132	)
Property and equipment purchased			(14	)			(10	)			(41	)			(29	)
Interest and dividends received			0				0				1				2
			306				271				958				1,003
Less amount attributable to Non-controlling interests			(16	)			(27	)			(105	)			(120	)
Free cash flow available to shareholders			290				244				853				883

Due to rounding, certain totals may not foot.

Quarterly Results

 

		Quarter Ended
		Dec. 31 2020				Mar. 31 2021				Jun. 30 2021				Sep. 30 2021				Dec. 31 2021				Mar. 31 2022				Jun. 30 2022				Sep. 30 2022				Dec. 31 2022
Revenue			1,091				1,176				1,249				1,299				1,383				1,431				1,618				1,725				1,847
Net income (loss) *			149				(9	)			88				107				124				98				126				136				152
CFO			355				495				171				292				341				498				78				321				400
FCFA2S			307				269				145				226				244				324				12				229				290
Net income per share *
Basic & diluted			7.02				-0.41				4.16				5.04				5.86				4.63				5.94				6.42				7.19
CFO per share
Basic & diluted			16.73				23.38				8.07				13.78				16.09				23.51				3.66				15.17				18.89
FCFA2S per share
Basic & diluted			14.47				12.67				6.84				10.68				11.50				15.27				0.56				10.82				13.68

 

*	Attributable to common shareholders of CSI

 

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We experience seasonality in our operating results in that CFO and FCFA2S in the first quarter of every year is typically the highest and CFO and FCFA2S in the second quarter of every year is the lowest. The key driver impacting this seasonality is the timing of annual maintenance contract renewals. Our quarterly results may also fluctuate as a result of the various acquisitions which may be completed by the Company in any given quarter. We may experience variations in our net income on a quarterly basis depending upon the timing of certain expenses or gains, which may include changes in provisions, acquired contract liabilities, foreign exchange gains and losses, bargain purchase gains, and gains or losses on the sale of financial and other assets.

Supplemental Financial Information

We are no longer including the non-IFRS and IFRS tables that were historically included in the annual letter to shareholders. However, the Average Invested Capital figure will be provided for purposes of calculating a return on invested capital metric. It will be left to the discretion of shareholders to determine what profitability metric to include in the numerator of such a calculation. The Average Invested Capital for 2022 was $4,641 million.

“Average Invested Capital” represents the average equity capital of Constellation, and is based on the Company’s estimate of the amount of money that its common shareholders had invested in Constellation. Subsequent to that estimate, each period the Company has kept a running tally, adding a proxy for cash earnings, subtracting any dividends, adding any amounts related to share issuances and making some minor adjustments, including adjustments relating to our use of certain incentive programs and the amortization of impaired intangibles. The Company believes that Average Invested Capital is a useful measure as it approximates the retained earnings of the Company prior to taking into consideration amortization of intangible assets, deferred income taxes, and certain other non-cash expenses (income) incurred or recognized by the Company from time to time.

Spin-Out of Topicus.com Inc.

Constellation (TSX:CSU) and Topicus (TSXV:TOI) announced on January 5, 2021 that Constellation, acting through its Total Specific Solutions (“TSS”) operating group and its subsidiary TPCS Holding B.V., completed the purchase of 100% of the shares of Topicus.com B.V., a Netherlands-based diversified vertical market software provider, from IJssel B.V. and that in connection with the closing of the acquisition, TSS has been spun out of Constellation and now operates, together with Topicus.com B.V., as a separate public company, Topicus.com Inc. (collectively, the “Spin-Out Transactions”).

In connection with the completion of the Spin-Out Transactions, on January 4, 2021, all of Constellation’s common shareholders of record on December 28, 2020 received, by way of a dividend-in-kind, 1.859817814 subordinate voting shares of Topicus.com (the “Spin-Out Shares”) for each common share of Constellation held.

Constellation’s equity interest in TSS prior to the Spin-Out Transactions was 66.7%. Constellation’s equity interest in Topicus after completion of the Spin-Out Transactions on a fully diluted basis was approximately 30.4%. In addition, Constellation as the holder of the Topicus Super Voting Share is entitled to that number of votes that equals 50.1% of the aggregate number of votes attached to all of the outstanding voting shares at such time. As a result of the Topicus Super Voting Share Constellation consolidated the financial results of Topicus with its financial results.

The tables below provide certain supplemental balance sheet, statement of income, and net operating cash flow information of Topicus for the three and twelve months ended December 31, 2022. Topicus is not considered a reportable operating segment of Constellation, however, management has chosen to provide certain supplemental financial information to provide greater clarity into the operating performance and cash flow from operations of Topicus considering Constellation’s equity ownership.

 

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Selected Balance Sheet Information As at December 31, 2022
(Unaudited)		Constellation Software Inc. (excluding Topicus)				Topicus				Consolidated
Cash			664				146				811
Bank debt and debentures			1,250				259				1,509

 

Statement of Income (Excluding intercompany activity)
		For the three months ended December 31, 2022												For the year ended December 31, 2022
(Unaudited)		Constellation Software Inc. (excluding Topicus)				Topicus				Consolidated				Constellation Software Inc. (excluding Topicus)				Topicus				Consolidated
Revenue			1,580				268				1,847				5,666				956				6,622
Expenses			1,185				203				1,388				4,338				727				5,065
Amortization of intangible assets			155				30				185				563				112				676
Foreign exchange (gain) loss			42				(0	)			42				(57	)			0				(56	)
IRGA / Membership liability revaluation charge			23				—				23				112				—				112
Finance and other income			(22	)			(1	)			(23	)			9				(9	)			0
Bargain purchase gain			(13	)			—				(13	)			(16	)			—				(16	)
Impairment of intangible and other non-financial assets			5				—				5				7				—				7
Redeemable preferred securities expense (income)			—				—				—				—				—				—
Finance costs			30				7				37				92				18				110
Income before income taxes			175				29				204				617				108				725
Income tax expense (recovery)
Current income tax expense (recovery)			71				10				80				357				46				403
Deferred income tax expense (recovery)			(29	)			(10	)			(39	)			(200	)			(28	)			(228	)
Income tax expense (recovery)			42				(0	)			41				157				18				175
Net income			133				29				163				461				90				551
Net cash flows from operating activities			348				52				400				1,070				227				1,297
Foreign Exchange Adjusted Organic Revenue Growth (Excluding intercompany activity)
		For the three months ended December 31, 2022												For the year ended December 31, 2022
		Constellation Software Inc. (excluding Topicus)				Topicus				Consolidated				Constellation Software Inc. (excluding Topicus)				Topicus				Consolidated
Licenses			-3	%			-2	%			-2	%			-9	%			-16	%			-10	%
Professional services			-7	%			7	%			-5	%			-4	%			2	%			-3	%
Hardware and other			46	%			8	%			44	%			10	%			7	%			10	%
Maintenance and other recurring			6	%			6	%			6	%			6	%			6	%			6	%
Revenue			4	%			6	%			4	%			3	%			4	%			3	%

 

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Acquisition of business segment from Allscripts Healthcare Solutions

On May 2, 2022, Constellation, through its wholly-owned subsidiary, N. Harris Computer Corporation, completed the purchase from Allscripts Healthcare Solutions (“Allscripts”) of Allscripts’ Hospitals and Large Physician Practices business segment. This business segment now operates under the name Altera.

The tables below provide certain supplemental balance sheet, statement of income, and net operating cash flow information of Altera for the three and twelve months ended December 31, 2022. Altera is not considered a reportable operating segment of Constellation, however, management has chosen to provide certain supplemental financial information to provide greater clarity into the operating performance and cash flow from operations of Altera considering the size of the business and its impact on the results of Constellation.

 

Selected Balance Sheet Information As at December 31, 2022
(Unaudited)		Constellation Software Inc. (excluding Altera)				Altera				Consolidated
Cash			697				114				811
Bank debt and debentures			1,203				306				1,509

 

Statement of Income (Excluding intercompany activity)
		For the three months ended December 31, 2022												For the year ended December 31, 2022
(Unaudited)		Constellation Software Inc. (excluding Altera)				Altera				Consolidated				Constellation Software Inc. (excluding Altera)				Altera				Consolidated
Revenue			1,650				197				1,847				6,066				556				6,622
Expenses			1,208				180				1,388				4,573				491				5,065
Amortization of intangible assets			168				17				185				629				47				676
Foreign exchange (gain) loss			44				(2	)			42				(54	)			(2	)			(56	)
IRGA / Membership liability revaluation charge			23				—				23				112				—				112
Finance and other income			(23	)			0				(23	)			1				(0	)			0
Bargain purchase gain			(13	)			—				(13	)			(16	)			—				(16	)
Impairment of intangible and other non-financial assets			5				—				5				7				—				7
Redeemable preferred securities expense (income)			—				—				—				—				—				—
Finance costs			31				5				37				97				13				110
Income before income taxes			208				(4	)			204				718				8				725
Income tax expense (recovery)
Current income tax expense (recovery)			67				13				80				396				6				403
Deferred income tax expense (recovery)			(25	)			(14	)			(39	)			(224	)			(4	)			(228	)
Income tax expense (recovery)			43				(1	)			41				172				3				175
Net income			166				(3	)			163				546				5				551
Net cash flows from operating activities			332				69				400				1,201				96				1,297
Free cash flow available to shareholders			230				60				290				782				71				853

 

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Foreign Exchange Adjusted Organic Revenue Growth (Excluding intercompany activity)
		For the three months ended December 31, 2022												For the year ended December 31, 2022
		Constellation Software Inc. (excluding Altera)				Altera				Consolidated				Constellation Software Inc. (excluding Altera)				Altera				Consolidated
Licenses			0	%			-30	%			-2	%			-8	%			-46	%			-10	%
Professional services			0	%			-25	%			-5	%			-2	%			-10	%			-3	%
Hardware and other			38	%			286	%			44	%			8	%			90	%			10	%
Maintenance and other recurring			7	%			-7	%			6	%			7	%			-5	%			6	%
Revenue			6	%			-13	%			4	%			4	%			-8	%			3	%

Liquidity

Our net debt position (bank indebtedness excluding capitalized transaction costs less cash) increased by $754 million to $502 million in the twelve months ended December 31, 2022 resulting from the net capital deployed on acquisitions plus dividends exceeding cash flows from operations. Cash increased by $48 million to $811 million at December 31, 2022 compared to $763 million at December 31, 2021 and bank indebtedness increased by $802 million to $1,313 million at December 31, 2022 compared to $511 million at December 31, 2021.

Total assets increased $2,116 million, from $5,766 million at December 31, 2021 to $7,882 million at December 31, 2022. The increase is primarily due to a $1,250 million increase in intangible assets, an increase in accounts receivable of $276 million, and a $200 million increase in other assets. At December 31, 2022 ten subsidiaries holding cash totalling $303 million maintained debt facilities, which are without recourse to Constellation. As explained in the “Capital Resources and Commitments” section below, there are limitations on the ability of these subsidiaries to distribute funds to Constellation.

Current liabilities increased $1,307 million, from $2,461 million at December 31, 2021 to $3,768 million at December 31, 2022. The increase is primarily due to an increase in deferred revenue of $326 million mainly due to acquisitions made since December 31, 2021 and the timing of maintenance and other billings versus performance and delivery under those customer arrangements, an increase in bank indebtedness of $618 million, and an increase in accounts payable and accrued liabilities of $248 million.

 

Net Changes in Cash Flows ($ in millions)		Year ended December 31, 2022				Year ended December 31, 2021
Net cash provided by operating activities			1,297				1,300
Net cash from (used in) financing activities			483				(41	)
Cash used in the acquisition of businesses			(1,782	)			(1,337	)
Cash obtained with acquired businesses			216				153
Net cash from (used in) other investing activities			(127	)			(55	)
Net cash from (used in) investing activities			(1,694	)			(1,238	)
Effect of foreign currency			(39	)			(16	)
Net increase (decrease) in cash and cash equivalents			48				5

 

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The net cash flows from operating activities were $1,297 million for the year ended December 31, 2022. The $1,297 million provided by operating activities resulted from net income of $551 million plus $1,149 million of non-cash adjustments to net income, offset by $343 million in taxes paid and $60 million used towards non-cash operating working capital.

The net cash flows from financing activities for the year ended December 31, 2022 were $483 million, which is mainly a result of $786 million from the net increase in bank indebtedness offset by dividends paid to common shareholders of $85 million, a distribution to the Joday Group of $23 million, lease obligation payments of $94 million, and interest payments of $85 million.

The net cash flows used in investing activities for the twelve months ended December 31, 2022 were $1,694 million. The cash used in investing activities was primarily due to acquisitions for an aggregate of $1,782 million (including payments for holdbacks relating to prior acquisitions), and $97 million in purchases of other investments, offset by $216 million of acquired cash.

We believe we have sufficient cash and available credit capacity to continue to operate for the foreseeable future. Generally our VMS businesses operate with negative working capital as a result of the collection of maintenance payments and other revenues in advance of the performance of the related services. As such, management anticipates that it can continue to grow the business organically without any additional funding. If we continue to acquire VMS businesses we may need additional external funding depending upon the size and timing of the potential acquisitions.

Capital Resources and Commitments

CSI Facility

On November 5, 2021, Constellation completed an amendment and restatement of its revolving credit facility agreement (the “CSI Facility”), with a syndicate of Canadian chartered banks and U.S. banks in the amount of $700 million, extending its maturity date to November 2026. The CSI Facility bears a variable interest rate with no fixed repayments required over the term to maturity. Interest rates are calculated at standard U.S. and Canadian reference rates plus interest rate spreads based on a leverage table. The CSI Facility is currently collateralized by the majority of the Company’s assets including the assets of certain material subsidiaries. The CSI Facility contains standard events of default which if not remedied within a cure period would trigger the repayment of any outstanding balance. As at December 31, 2022, $322 million had been drawn from this credit facility, and letters of credit totaling $12 million were issued, which limits the borrowing capacity on a dollar-for-dollar basis.

On March 3, 2022, Constellation completed a further amendment to the CSI Facility that increased the revolving credit facility limit to $840 million.

Guarantees

One of CSI’s subsidiaries has entered into a $79 million (£65 million) term debt facility with a financial institution for which CSI has guaranteed the debt. The facility bears a fixed rate of interest. The term loan contains events of default that, if not remedied, allow the loan note holder to require repayment of the loan principal and interest. The loan is due in 2028.

Debt without recourse to CSI

Certain of CSI’s subsidiaries have entered into term debt facilities and revolving credit facilities with various financial institutions. Except as noted above, CSI does not guarantee the debt of its subsidiaries, nor are there any cross-guarantees between subsidiaries. The credit facilities are collateralized by substantially all of the assets of the borrowing entity and its subsidiaries. The credit facilities typically bear interest at a rate calculated using an interest rate index plus a margin. The financing arrangements for each subsidiary typically contain certain restrictive covenants, which may include limitations or prohibitions on additional indebtedness, payment of cash dividends, redemption of capital, capital spending, making of acquisitions and sales of assets. In addition, certain financial covenants must be met by those subsidiaries that have outstanding debt.

 

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Debt without recourse to CSI comprises the following ($ in millions):

 

		Topicus Revolving Credit Facility				Debt Facilities				Total
Principal outstanding at December 31, 2022 (and equal to fair value)		$	139			$	773				912
Deduct: Carrying value of transaction costs included in debt balance			(3	)			(8	)			(11	)
Carrying value at December 31, 2022			136				766				902
Current portion			136				180				316
Non-current portion			—				586				586

Debentures

On October 1, 2014 and November 19, 2014, the Company issued unsecured subordinated debentures (the “Debentures”) with a total principal value of C$96 million for total proceeds of C$91 million. The proceeds were used by the Company to pay down $81 million of outstanding bank indebtedness.

On September 30, 2015, the Company issued an additional tranche of Debentures with a total principal value of C$186 million for total proceeds of C$214 million. The proceeds were used by the Company to pay down $130 million of outstanding bank indebtedness. The September 30, 2015 issuance formed a single series with the outstanding C$96 million aggregate principal amount of Debentures, Series 1 of the Company. The Debentures have a maturity date of March 31, 2040.

Liability of CSI under the terms of the IRGA / TSS Membership Agreement

On December 23, 2014, in accordance with the terms of the purchase and sale agreement for the initial acquisition of TSS by CSI, and on the basis of the term sheets attached thereto, Constellation and the Joday Group, among others, entered into a Members Agreement (the “Members Agreement”) pursuant to which the Joday Group acquired 33.29% of the voting interests in Constellation Software Netherlands Holding Coöperatief U.A. (which was renamed to Topicus.com Coöperatief U.A.), a subsidiary of Constellation and the indirect owner of 100% of TSS at the time of the acquisition. Total proceeds from this transaction was €39 million ($49 million).

On January 5, 2021, the Members Agreement was terminated in conjunction with the acquisition of Topicus.com B.V., the reorganization of Topicus Coop and the execution of the IRGA. The IRGA was established to create certain contractual obligations of the parties in respect of the governance of Topicus and Topicus Coop. The Joday Group’s interest in Topicus Coop now comprises 39,331,284 Topicus Coop Ordinary Units resulting in an interest of 30.29% in Topicus Coop as of December 31, 2022. The IRGA provides for transfer restrictions in respect of the Topicus Coop Units.

Any time after January 5, 2021, any member of the Joday Group has the right, at his or its option, to sell any number of its Topicus Coop Units to CSI at a cash price per Topicus Coop Unit determined in accordance with the IRGA. Upon the exercise of such option by a member of the Joday Group, CSI will be obligated to purchase 33.33% of such Topicus Coop Units within 30 days, and an additional 33.33% on each of the first and the second anniversary of such initial purchase. Notwithstanding the foregoing, CSI can offer Topicus the right to purchase such Topicus Coop Units in lieu of CSI.

 

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In the event of a change of control of CSI, any member of the Joday Group has the right, at his or its option, to sell all of its Topicus Coop Units to CSI at a cash price per Topicus Coop Unit determined in accordance with the IRGA. Upon the exercise of such option by a member of the Joday Group, CSI will be obligated to purchase all such Topicus Coop Units. Notwithstanding the foregoing, CSI can offer Topicus the right to purchase such Topicus Coop Units in lieu of CSI.

If CSI reduces its economic interest in Topicus by a sale or transfer of its economic interest (and not due to any additional issuance of any shares or equity by Topicus) by more than one-third (calculated on a fully converted basis in accordance with the IRGA), any member of the Joday Group has the right, at his or its option, to sell to CSI one-third of its Topicus Coop Units at a cash price per Topicus Coop Unit determined in accordance with the IRGA. Upon the exercise of such put option by a member of the Joday Group, CSI will be obligated to purchase all such put Topicus Coop Units. Notwithstanding the foregoing, CSI can offer Topicus the right to purchase such Topicus Coop Units in lieu of CSI. Any member of the Joday Group has a similar right to sell one-half or all of its remaining Topicus Coop Units, respectively, at its option, if CSI further reduces its remaining fully-diluted economic interest in Topicus by a sale or transfer of its economic interest by one-half and again if CSI sells its entire remaining economic interest in Topicus.

All of the Topicus Coop Ordinary Units and Topicus Coop Preference Units held by the Joday Group and Ijssel B.V. (collectively, the “Topicus Coop Exchangeable Units”) are exchangeable, directly or indirectly, for Topicus Subordinate Voting Shares. All of the above rights of members of the Joday Group apply to any Topicus Subordinate Voting Shares issued on an exchange of Topicus Coop Exchangeable Units.

At any time after December 31, 2023, CSI has the right, at its option, to buy all of the Topicus Coop Units and shares of Topicus held by certain members of the Joday Group (excluding Joday) at a cash price per Topicus Coop Unit (or share of Topicus, as applicable) determined in accordance with the IRGA. After December 31, 2043, CSI has the same right to buy all of the Topicus Coop Units and shares of Topicus held by the remaining members of the Joday Group, including Joday.

In addition, if certain individuals affiliated with Joday are terminated from their employment with Topicus Coop or an affiliate thereof for urgent cause (as defined in the Dutch Civil Code), CSI has the right, at its option, to buy all of Topicus Coop Units held by such individuals at a cash price per Topicus Coop Unit determined in accordance with the IRGA.

The Company classified the above obligations of CSI under the terms of the IRGA as a liability consistent with the classification of similar obligations under the Members Agreement. The main valuation driver in the calculation of the liability is the maintenance and other recurring revenue of Topicus. Maintenance and recurring revenue of Topicus for the trailing twelve months on a pro-forma basis determined at the end of the current reporting period was used as the basis for valuing the interests at each purchase date. Any increase or decrease in the value of such liability is recorded as an expense or income in the consolidated statement of income for the period. In conjunction with the termination of the Members Agreement and the execution of the IRGA, the Company recognized an expense of $19 million as the formula associated with the calculation of the obligation has changed from the use of actual trailing twelve months maintenance and other recurring revenue of Topicus to a calculation which includes the revenue increase from acquired companies on a pro-forma basis.

During the periods ended December 31, 2022 and December 31, 2021, no options were exercised. During the twelve months ended December 31, 2022, a distribution in the amount of $23 million was paid to the Joday Group relating to their Topicus Preferred Securities.

Redeemable Preferred Securities

In conjunction with the acquisition of Topicus.com B.V., Topicus Coop issued 5,842,882 Topicus Coop Preference Units (the “Preferred Securities”) to Ijssel B.V. The Preferred Securities were non-voting and prior to the Notification of Conversion were redeemable at the option of the holder for a redemption price of approximately €19.06 per unit. The redemption price would have been either settled in cash or through the issuance of a variable number of Topicus Coop Ordinary Units of equal value. The Preferred Securities are convertible into Topicus Coop Ordinary Units at a conversion ratio of 1:1. The Preferred Securities holders were entitled to a fixed annual cumulative dividend of 5% per annum on the initial Preferred Securities value of approximately €19.06 per unit.

 

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On February 1, 2022, the Preferred Securities were converted to Topicus Coop Ordinary Units.

Other commitments

Commitments include operating leases for office equipment and facilities, letters of credit and performance bonds issued on our behalf by financial institutions in connection with facility leases and contracts with public sector customers. Also, occasionally we structure some of our acquisitions with contingent consideration based on the future performance of the acquired business. The fair value of contingent consideration recorded in our statement of financial position was $157 million at December 31, 2022. Aside from the aforementioned, we do not have any other business arrangements, derivative financial instruments, or any equity interests in non-consolidated entities that would have a significant effect on our assets and liabilities as at December 31, 2022.

The IRGA liability commitment assumes that the Joday Group has exercised their put option to sell 100% of their interests back to Constellation. This option however has not been exercised as at March 29, 2023. See note 10 to the Annual Consolidated Financial Statements for the year ended December 31, 2022 for a discussion on the valuation methodology utilized.

Foreign Currency Exposure

We operate internationally and have foreign currency risks related to our revenue, operating expenses, assets and liabilities denominated in currencies other than the U.S. dollar. Consequently, we believe movements in the foreign currencies in which we transact will impact future revenue and net income. The impact to organic revenue growth for the three and twelve months ended December 31, 2022 was approximately negative 5% and negative 4% respectively. We cannot predict the effect of foreign exchange gains or losses in the future; however, if significant foreign exchange losses are experienced, they could have a material adverse effect on our business, revenues, results of operations, and financial condition. The Company enters into forward foreign exchange contracts from time to time with the objective of mitigating volatility in profit or loss in respect of financial liabilities. In entering into these forward exchange contracts, the Company is exposed to the credit risk of the counterparties to such contracts and the possibility that the counterparties will default on their payment obligations under these contracts. However, given that the counterparties are Schedule 1 banks or affiliates thereof, the Company believes these risks are not material. During the twelve months ended December 31, 2022, the Company did not purchase any contracts of this nature.

 

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The following table provides an approximate breakdown of our revenue and expenses by currency, expressed as a percentage of total revenue and expenses, as applicable, for the three and twelve months ended December 31, 2022:

 

		Three Months Ended December 31, 2022								Year Ended December 31, 2022
Currencies		% of Revenue				% of Expenses				% of Revenue				% of Expenses
USD			54	%			50	%			52	%			47	%
EUR			18	%			18	%			18	%			18	%
GBP			7	%			7	%			8	%			8	%
CAD			5	%			8	%			6	%			9	%
AUD			4	%			4	%			4	%			4	%
BRL			2	%			2	%			2	%			2	%
CHF			1	%			2	%			1	%			2	%
SEK			1	%			1	%			1	%			1	%
Others			8	%			9	%			8	%			10	%
Total			100	%			100	%			100	%			100	%

Due to rounding, certain totals may not foot.

Off-Balance Sheet Arrangements

As a general practice, we have not entered into off-balance sheet financing arrangements. Except for insignificant and short-term operating leases and letters of credit, all of our liabilities and commitments are reflected as part of our statement of financial position.

Proposed Transactions

We seek potential acquisition targets on an ongoing basis and may complete several acquisitions in any given fiscal year.

Critical Accounting Estimates

General

The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Our ongoing evaluation of these estimates forms the basis for making judgments about the carrying values of assets and liabilities and the reported amount of revenues and expenses, in cases where they are not readily ascertainable from other sources. Actual amounts may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are fully described in Note 3 to our annual consolidated financial statements which are available on SEDAR (www.sedar.com). Certain accounting policies are particularly important to the reporting of our financial position and results of operations, and require the application of significant judgment by our management. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different, estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could have a material impact on the financial statements. Management believes the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of our consolidated financial statements. We believe that there have been no significant changes in our critical accounting estimates for the years presented in our consolidated financial statements.

 

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Revenue Recognition

Revenue represents the amount the Company expects to receive for products and services in its contracts with customers, net of discounts and sales taxes. The Company reports revenue under four revenue categories being, License, Hardware and other, Professional services, and Maintenance and other recurring revenue. Software license revenue is comprised of non-recurring license fees charged for the use of software products licensed under multiple-year or perpetual arrangements. Professional service revenue consists of fees charged for implementation services, custom programming, product training, certain managed services, and consulting. Hardware and other revenue includes the resale of third party hardware as part of customized solutions, as well as sales of hardware assembled internally and the reimbursement of travel costs. Maintenance and other recurring revenue primarily consists of fees charged for customer support on software products post-delivery and also includes recurring fees derived from combined software/support contracts, transaction revenues, managed services associated with CSI software that has been sold to the customer, and hosted software-as-a-service products.

Contracts with multiple products or services

Typically, the Company enters into contracts that contain multiple products and services such as software licenses, hosted software-as-a-service, maintenance, professional services, and hardware. The Company evaluates these arrangements to determine the appropriate unit of accounting (performance obligation) for revenue recognition purposes based on whether the product or service is distinct from some or all of the other products or services in the arrangement. A product or service is distinct if the customer can benefit from it on its own or together with other readily available resources and Constellation’s promise to transfer the good or service is separately identifiable from other promises in the contractual arrangement with the customer. Non-distinct products and services are combined with other goods or services until they are distinct as a bundle and therefore form a single performance obligation.

Where a contract consists of more than one performance obligation, revenue is allocated to each based on their estimated standalone selling price.

Nature of products and services

The Company sells on-premise software licenses on both a perpetual and specified-term basis. Revenue from the license of distinct software is recognized at the time that both the right-to-use the software has commenced and the software has been made available to the customer. Certain of the Company’s contracts with customers contain provisions that require the customer to renew optional support and maintenance in order to maintain the active right to use a perpetual or term license. The renewal payments after the initial bundled support and maintenance term in these cases apply to both the continued right-to-use the license and the support and maintenance renewal. Where the fees payable for the initial term are incremental to the fees for the renewal terms, the excess is treated as a prepayment for expected renewals and allocated (amortized) evenly over the expected customer renewals, up to the estimated life of the software that is typically 4-6 years.

Revenue from the license of software that involves complex implementation or customization that is not distinct, and/or includes sales of hardware that is not distinct, is recognized as a combined performance obligation using the percentage-of-completion method based primarily on labour hours. The percentage-of-completion method based on labour hours requires the Company to make significant judgments to determine the estimated hours to completion which affects the timing of revenue recognized.

A portion of the Company’s sales, categorized as hardware and other revenue, are accounted for as product revenue. Product revenue is recognized when control of the product has transferred under the terms of an enforceable contract.

Revenue related to the customer reimbursement of travel related expenses incurred during a project implementation where the Company is the principal in the arrangement is included in the hardware and other revenue category. Revenue is recognized as costs are incurred which is consistent with the period in which the costs are invoiced. Reimbursable travel expenses incurred for which an invoice has not been issued, are recorded as part of unbilled revenue on the statement of financial position.

 

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Maintenance and other recurring revenue primarily consists of fees charged for customer support on software products post-delivery and also includes, to a lesser extent, recurring fees derived from software licenses that are not distinct from maintenance, transaction revenues, managed services, and hosted products.

Revenue from software-as-a-service (SaaS) arrangements, which allows customers to use hosted software over a term without taking possession of the software, are provided on a subscription basis. Revenue from the SaaS subscription, which includes the hosted software and maintenance is recognized rateably over the term of the subscription. Significant incremental payments for SaaS in an initial term are recognized rateably over the expected renewal periods, up to the estimated life of the software.

Professional services revenue including installation, implementation, training and customization of software is recognized by the stage of completion of the performance obligation determined using the percentage of completion method noted above or as such services are performed as appropriate in the circumstances. Professional services revenue also includes managed services not associated with CSI software. The revenue and profit of fixed price contracts is recognized on a percentage of completion basis when the outcome of a contract can be estimated reliably. When the outcome of the contract cannot be estimated reliably but the Company expects to recover its costs, the amount of expected costs is treated as variable consideration and the transaction price is updated as more information becomes known.

The timing of revenue recognition often differs from contract payment schedules, resulting in revenue that has been earned but not billed. These amounts are included in unbilled revenue. Amounts billed in accordance with customer contracts, but not yet earned, are recorded and presented as part of deferred revenue.

Valuation of Identifiable Goodwill and Other Intangible Assets

Acquisitions have been accounted for using the acquisition method required by IFRS 3. Goodwill arising on acquisitions is measured as the fair value of the consideration transferred including the recognized amount of any non-controlling interest in the acquiree, if any, less the net recognized amount of the estimated fair value of identifiable assets acquired and liabilities assumed (subject to certain exemptions to fair value measurement principles such as deferred tax assets or liabilities), all measured as of the acquisition date. When the excess of the consideration transferred less the assets and liabilities acquired is negative, a bargain purchase gain is recognized immediately in profit or loss. Transaction costs that the Company incurs in connection with a business combination are expensed as incurred.

We use the income approach to value acquired technology and customer related intangible assets, which are the two material intangible asset categories reported in our financial statements.

The income approach is a valuation technique that calculates the fair value of an intangible asset based on the cash flows that the asset can be expected to generate over its remaining useful life. We utilize the discounted cash flow (“DCF”) methodology which is a form of the income approach that begins with a forecast of the annual cash flows a market participant would expect the subject intangible asset to generate over a discrete projection period. The forecasted cash flows for each of the years in the discrete projection period are then converted to their present value equivalent using a rate of return appropriate for the risk of achieving the intangible assets’ projected cash flows, again, from a market participant perspective. The present value of the forecasted cash flows are then added to the present value of the residual value of the intangible asset (if any) at the end of the discrete projection period to arrive at a conclusion with respect to the estimated fair value of the subject intangible asset.

Specifically, we rely on the relief-from-royalty method to value the acquired technology and the multiple-period excess earnings method (“MEEM”) to value customer relationship assets.

The underlying premise of the relief-from-royalty method is that the fair value of the technology is equal to the costs savings (or the “royalty avoided”) resulting from the ownership of the asset by the avoidance of paying royalties to license the use of the technology from another owner. Accordingly the income forecast reflects an estimate of a fair royalty that a licensee would pay, on a percentage of revenue basis, to obtain a license to utilize the technology.

 

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The MEEM method isolates the cash flows attributable to the subject asset by utilizing a forecast of expected cash flows less the returns attributable to other enabling assets, both tangible and intangible.

Goodwill is initially recorded when the purchase price paid for an acquisition exceeds the fair value assigned to the net identifiable tangible and intangible assets acquired. Goodwill is not amortized but rather it is periodically assessed for impairment.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses, with the carrying value being reviewed for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value may be impaired. We perform an annual review in the fourth quarter of each fiscal year, or more frequently if indicators of potential impairment exist, to determine if the recorded goodwill is impaired. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment, and an impairment loss on such an investment is not allocated to any asset, including goodwill, that forms part of the carrying amount of the equity accounted investee. No such losses have been recognized during the year.

The impairment test methodology is based on a comparison between the higher of fair value less costs to sell and value-in-use of each of the Company’s cash generating units (“CGU”) and the net asset carrying values (including goodwill). Within the Company’s reporting structure, business units generally reflect the CGU and are one level below the six operating groups (Volaris, Harris, Topicus, Jonas, Perseus, and Vela Operating Groups). In determining the recoverable amount, the Company applies an estimated market valuation multiple to the business unit’s most recent annual recurring revenues, which are generally derived from post-contract customer support revenues, transactional revenues, and hosted products revenues. Valuation multiples applied by the Company for this purpose reflect current market conditions specific to the business unit and are assessed for reasonability by comparison to the Company’s current and past acquisition experience involving ranges of revenue-based multiples required to acquire representative software companies and the Company’s overall revenue based-trading multiple. In addition, in certain instances, the recoverable amount is determined using a value-in-use approach which follows the same valuation process that is undertaken for the Company’s business acquisitions. An impairment is recognized if the carrying amount of a CGU exceeds its estimated recoverable amount. The recoverable amount of goodwill is estimated annually on December 31 of each year or whenever events or changes in circumstances indicate that the carrying value may be impaired.

We also review the carrying value of amortizable intangible assets for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. Any change in estimate which causes the undiscounted expected future cash flows to be less than the carrying value, would result in an impairment loss being recognized equal to the amount by which the carrying value of the asset exceeds the fair value of the asset.

Accounting for Income Taxes

Significant management judgment is required in determining our provision for income taxes, our income tax assets and liabilities, and any valuation allowance recorded against our net income tax assets. We operate in multiple geographic jurisdictions, and to the extent that we have profits in each jurisdiction, these profits are taxed pursuant to the tax laws of their jurisdiction. Our effective tax rate may be affected by changes in, or interpretations of, tax laws in any given jurisdiction, the level of profitability, utilization of net operating losses and tax credit carry forwards, changes in geographical mix of income and expense, and changes in management’s assessment of matters, such as the ability to realize future tax assets. As a result of these considerations, we must estimate our income taxes in each of the jurisdictions in which we operate on a quarterly basis. This process involves estimating our actual current tax exposures, together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in future tax assets and liabilities, which are included in our consolidated balance sheet.

 

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Current tax is the expected taxes payable or receivable on the taxable income or loss for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to taxes payable in respect of previous years.

Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for temporary differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill.

Deferred tax is measured at tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but we intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

A deferred tax asset is recognized for unused tax losses, tax credits, difference in tax bases in the purchaser’s tax jurisdiction and its cost as reported in the consolidated financial statements as a result of an intra-group transfer of assets and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

We are subject to income tax audits by various authorities in respect of prior periods that could result in additional tax expense in future periods. While the outcome of current outstanding actions and claims remains uncertain, it is expected that they will be resolved without a material impact to our financial position. However, there can be no assurances as to the final resolution of these matters and, if the final outcome is adverse to us, the amounts we will be required to pay and the loss of certain future tax deductions could be material to our financial statements.

Accounts Receivable

We evaluate the collectability of our trade receivables at both a specific and collective level. All individually significant receivables are assessed for specific impairment. All individually significant receivables found not to be specifically impaired, together with receivables that are not individually significant are collectively assessed for impairment by grouping together receivables with similar risk characteristics.

Work In Progress

For revenue arrangements that are accounted for under the percentage of completion method as well as other arrangements and contracts which limit our ability to invoice at certain milestones that do not match the timing of the actual provision of the services, we record such revenue and the related unbilled receivable in work in process. Similar to accounts receivable, we constantly have to evaluate our ability to bill and subsequently collect any amounts contained in the work in progress accounts. We review these balances on a periodic basis to ensure customer balances are prudent based upon a variety of factors, such as the financial health of the customer, macroeconomic considerations and historical experience. If circumstances related to specific customers change, our estimates of the recoverability of work in progress may be further adjusted.

 

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Provisions

A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are measured at the estimated future cash flows required to settle the present obligation, based on the most reliable evidence available at the reporting date. The estimated cash flows are discounted at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The amortization of the discount is recognized as part of finance costs.

We are currently involved in various claims and legal proceedings. Quarterly, we review the status of each significant matter and assess our potential financial exposure. Because of the uncertainties related to these matters, provisions are based only on the best information available at the time. As additional information becomes available, we reassess the potential liability related to our pending claims and litigation and, if necessary, revise our provisions. Such revisions in the estimates of the potential liabilities could have a material impact on our results of operations and financial position.

Share Capital

As at March 29 2023, there were 21,191,530 common shares outstanding.

Risks and Uncertainties

The Company’s business is subject to a number of risk factors which are described in our most recently filed AIF. Additional risks and uncertainties not presently known to us or that we currently consider immaterial also may impair our business and operations and cause the price of the common shares to decline. If any of the noted risks actually occur, our business may be harmed and the financial condition and results of operations may suffer significantly. In that event, the trading price of the common shares could decline, and shareholders may lose all or part of their investment.

The Company is closely monitoring the impact of COVID-19 on all aspects of its business. COVID-19 was declared a global pandemic by the World Health Organization on March 11, 2020. The COVID-19 pandemic has had disruptive effects in countries in which the Company operates and has adversely impacted many of its business units’ operations to date, including through the cancellation by certain customers of their ongoing software maintenance contracts and the suspension or cancellation of new software purchases. The pandemic may also have an adverse impact on many of the Company’s customers, including their ability to satisfy ongoing payment obligations to the Company, which could increase the Company’s bad debt exposure. The future impacts of the pandemic and any resulting economic impact are largely unknown. It is possible that the COVID-19 pandemic, the measures taken by the governments of countries affected and the resulting economic impact may continue to adversely affect the Company’s results of operations, cash flows and financial position as well as its customers in future periods, and this impact could be material.

Controls and Procedures

Evaluation of disclosure controls and procedures:

Management is responsible for establishing and maintaining disclosure controls and procedures as defined under National Instrument 52-109. At December 31, 2022, the President and Chief Financial Officer, based on the investigation and advice of those under their supervision, have concluded that the design and operation of these disclosure controls and procedures were effective and that material information relating to the Company, including its subsidiaries, was made known to them and was recorded, processed, summarized and reported within the time periods specified under applicable securities legislation.

 

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Internal controls over financial reporting:

The President and Chief Financial Officer have designed or caused to be designed by those under their supervision, disclosure controls and procedures which provide reasonable assurance that material information regarding the Company is accumulated and communicated to the Company’s management, including its President and Chief Financial Officer in a timely manner.

In addition, the President and Chief Financial Officer have designed or caused it to be designed under their supervision internal controls over financial reporting (“ICFR”) to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements. The President and Chief Financial Officer have been advised that the control framework the President and the Chief Financial Officer used to design the Company’s ICFR is recognized by the Committee of Sponsoring Organizations of the Treadway Commission.

The President and the Chief Financial Officer have evaluated, or caused to be evaluated by those under their supervision, whether or not there were changes to its ICFR during the period ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect the Company’s ICFR. No such changes were identified through their evaluation.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that its objectives are met. Due to inherent limitations in all such systems, no evaluations of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Accordingly, our disclosure controls and procedures and our internal controls over financial reporting are effective in providing reasonable, not absolute, assurance that the objectives of our control systems have been met.

Limitation on scope of design

Management has limited the scope of the design of internal controls over financial reporting and disclosure controls and procedures to exclude the controls, policies and procedures of Altera. (See “Acquisition of business segment from Allscripts Healthcare Solutions” above.) The scope limitation is in accordance with Section 3.3 of National Instrument 52-109, Certification of Disclosure in Issuer’s Annual and Interim Filings, which allows an issuer to limit its design of internal controls over financial reporting and disclosure controls and procedures to exclude the controls, policies and procedures of a company acquired not more than 365 days before the end of the financial period to which the certificate relates. The table below shows additional summary financial information for Altera which is included in the December 31, 2022 audited annual consolidated financial statements of Constellation.

 

As at December 31, 2022
($ in millions)
		Altera
Current Assets			338
Non-current assets			742
Current liabilities			332
Non-current liabilities			346

 

28

---

Subsequent Events

On February 22 and 23, 2023 (as part of a series of transactions relating to the acquisition of WideOrbit Inc. (“WideOrbit”) described further below), the Company’s subsidiary, Lumine Group Inc. (“Lumine”), completed a corporate reorganization. After the reorganization was completed, the Company now owns 1 super voting share, 6 subordinate voting shares and 63,582,712 preferred shares of Lumine. Furthermore, the Company distributed 63,582,706 of the subordinate voting shares to its common shareholders pursuant to a dividend-in-kind on February 23, 2022. The steps performed in conjunction with the reorganization consisted of the following:

 

•

The Company exchanged its existing common shares and preferred shares in Lumine Group (Holdings) Inc. (“Lumine Group Holdings”) for 63,582,712 subordinate voting shares and 55,233,745 preferred shares of Lumine on February 22, 2023.

 

•

Lumine and Lumine Group Holdings amalgamated on February 22, 2023.

 

•

The Company subscribed for 8,348,967 preferred shares of Lumine on February 22, 2023. The preferred shares are convertible into subordinate voting shares of Lumine at a rate of 1:2.43.

 

•

Lumine had 63,582,712 subordinate voting shares outstanding on February 22, 2023. The Company distributed 63,582,706 of the subordinate voting shares to its common shareholders pursuant to a dividend-in-kind on February 23, 2022 and continues to hold 6 subordinate voting shares of Lumine.

 

•

Under certain conditions, the preferred shares are retractable at the option of the holder for a retraction price of approximately $21.74 per preferred share. The holders of the preferred shares are also entitled to a fixed annual cumulative dividend of 5% per annum.

 

•

The Company holds 1 super voting share of Lumine. The super voting share entitles the holder to that number of votes that equals 50.1% of the aggregate number of votes attached to all the outstanding super voting shares, subordinate voting shares and special shares of Lumine. As a result, the Company controls Lumine and will consolidate its financial position and results of operations with Lumine. The Company will reflect a non-controlling interest held by other parties.

On February 23, 2023, the Company purchased 100% of the shares of WideOrbit, a US-based vertical market software provider. Annual gross revenues of WideOrbit for 2022 were approximately $169 million. The gross purchase price for the transaction was $490 million, subject to customary adjustments, as a result of, but not limited to, minimum cash requirements of $10 million, target net indebtedness of $87 million, and claims under the representations and warranties of the purchase agreement. The Company has the ability to reduce the cash portion of the purchase consideration by $10 million for net indebtedness up to $97 million. If net indebtedness is greater than $97 million, excess repayment would be funded by the Company and added to the gross purchase price. Furthermore, Lumine issued 10,204,294 special shares of Lumine to the sellers of WideOrbit for an initial subscription price of approximately $222 million which will be included in the purchase consideration. Under certain conditions, the special shares are retractable at the option of the holder for a retraction price of approximately $21.74 per special share plus one subordinate voting share of Lumine for each special share held and will be classified as a liability on the balance sheet of Lumine and the Company. The special shares are also convertible into subordinate voting shares of Lumine at a conversion ratio of 1:3.43 at any time. The holders of the special shares are also entitled to a fixed annual cumulative dividend of 5% per annum.

 

29

Exhibit 2.6

Condensed Consolidated Interim Financial Statements

(In U.S. dollars)

CONSTELLATION

SOFTWARE INC.

For the three months ended March 31, 2023 and 2022

Unaudited

---

CONSTELLATION SOFTWARE INC.

Condensed Consolidated Interim Statements of Financial Position

(In millions of U.S. dollars, except per share amounts. Due to rounding, numbers presented may not foot.)

Unaudited

 

		March 31, 2023				December 31, 2022				March 31, 2022
Assets
Current assets:
Cash		$	1,010			$	811			$	996
Accounts receivable			1,014				880				660
Unbilled revenue			287				231				164
Inventories			50				48				41
Other assets (note 5)			448				497				443
			2,808				2,467				2,305
Non-current assets:
Property and equipment			129				128				98
Right of use assets			285				283				278
Deferred income taxes			106				160				66
Other assets (note 5)			182				172				107
Intangible assets (note 6)			5,354				4,673				3,644
			6,056				5,416				4,193
Total assets		$	8,864			$	7,883			$	6,499
Liabilities and Shareholders’ Equity
Current liabilities:
Debt with recourse to Constellation Software Inc. (note 7)		$	480			$	505			$	142
Debt without recourse to Constellation Software Inc. (note 8)			199				316				124
Redeemable preferred securities (note 9)			409				—				—
Accounts payable and accrued liabilities			1,117				1,083				772
Dividends payable (note 12)			21				21				21
Deferred revenue			1,994				1,485				1,536
Provisions (note 10)			9				11				12
Acquisition holdback payables			140				161				119
Lease obligations			98				96				85
Income taxes payable (note 11)			118				104				119
			4,584				3,781				2,931
Non-current liabilities:
Debt with recourse to Constellation Software Inc. (note 7)			590				567				560
Debt without recourse to Constellation Software Inc. (note 8)			793				586				443
Deferred income taxes			529				466				448
Acquisition holdback payables			68				76				60
Lease obligations			217				217				218
Other liabilities (note 5)			237				257				200
			2,434				2,170				1,930
Total liabilities			7,018				5,950				4,860
Shareholders’ equity (note 12):
Capital stock			99				99				99
Accumulated other comprehensive income (loss)			(128	)			(150	)			(62	)
Retained earnings			1,454				1,763				1,410
Non-controlling interests (notes 1, 9 and 18)			419				221				191
			1,845				1,933				1,638
Subsequent events (notes 12 and 19)
Total liabilities and shareholders’ equity		$	8,864			$	7,883			$	6,499

See accompanying notes to the condensed consolidated interim financial statements.

 

1

---

CONSTELLATION SOFTWARE INC.

Condensed Consolidated Interim Statements of Income (loss)

(In millions of U.S. dollars, except per share amounts. Due to rounding, numbers presented may not foot.)

Unaudited

 

		Three months ended March 31,
		2023				2022
Revenue
License		$	81			$	69
Professional services			411				270
Hardware and other			57				47
Maintenance and other recurring			1,369				1,045
			1,919				1,431
Expenses
Staff			1,068				783
Hardware			35				27
Third party license, maintenance and professional services			185				122
Occupancy			13				11
Travel, telecommunications, supplies, software and equipment			89				56
Professional fees			36				24
Other, net			38				35
Depreciation			39				32
Amortization of intangible assets (note 6)			193				146
			1,695				1,236
Foreign exchange loss (gain)			10				0
IRGA/TSS Membership liability revaluation charge (note 7)			39				27
Finance and other expense (income) (note 13)			(7	)			(2	)
Bargain purchase gain (note 4)			(1	)			(1	)
Impairment of intangible and other non-financial assets (note 6)			2				1
Redeemable preferred securities expense (income) (note 9)			188				—
Finance costs (note 13)			36				19
			267				44
Income (loss) before income taxes			(43	)			151
Current income tax expense (recovery) (note 11)			103				99
Deferred income tax expense (recovery) (note 11)			(62	)			(58	)
Income tax expense (recovery)			40				40
Net income (loss)			(83	)			111
Net income (loss) attributable to:
Common shareholders of Constellation Software Inc. (notes 1 and 18)			94				98
Non-controlling interests (notes 1 and 18)			(177	)			13
Net income (loss)			(83	)			111
Earnings per common share of Constellation Software Inc.
Basic and diluted (note 14)		$	4.44			$	4.63

 

See accompanying notes to the condensed consolidated interim financial statements.

 

2

---

CONSTELLATION SOFTWARE INC.

Condensed Consolidated Interim Statements of Comprehensive Income (Loss)

(In millions of U.S. dollars, except per share amounts. Due to rounding, numbers presented may not foot.)

Unaudited

 

		Three months ended March 31,
		2023				2022
Net income (loss)		$	(83	)		$	111
Items that are or may be reclassified subsequently to net income (loss):
Foreign currency translation differences from foreign operations and other, net of tax			16				6
Other comprehensive income (loss), net of income tax			16				6
Total comprehensive income (loss)		$	(67	)		$	116
Total other comprehensive income (loss) attributable to:
Common shareholders of Constellation Software Inc. (notes 1 and 18)			10				9
Non-controlling interests (notes 1 and 18)			6				(3	)
Total other comprehensive income (loss)		$	16			$	6
Total comprehensive income (loss) attributable to:
Common shareholders of Constellation Software Inc. (notes 1 and 18)			105				107
Non-controlling interests (notes 1 and 18)			(171	)			9
Total comprehensive income (loss)		$	(67	)		$	116

 

See accompanying notes to the condensed consolidated interim financial statements.

 

3

---

CONSTELLATION SOFTWARE INC.

Condensed Consolidated Interim Statement of Changes in Equity

(In millions of U.S. dollars, except per share amounts. Due to rounding, numbers presented may not foot.)

Unaudited

 

Three months ended March 31, 2023
		Equity Attributable to Common Shareholders of CSI
		Capital stock				Other equity				Accumulated				Retained earnings				Total				Non-controlling				Total equity
										other												interests
										comprehensive
										income (loss)
Balance at January 1, 2023		$	99			$	—			$	(150	)		$	1,763			$	1,713				221			$	1,933
Total comprehensive income (loss):
Net income (loss)			—				—				—				94				94				(177	)			(83	)
Other comprehensive income (loss)
Foreign currency translation differences from foreign operations and other, net of tax			—				—				10				—				10				6				16
Total other comprehensive income (loss)			—				—				10				—				10				6				16
Total comprehensive income (loss)			—				—				10				94				105				(171	)			(67	)
Transactions with owners, recorded directly in equity
Special dividend of Lumine Subordinate Voting Shares (note 1 and 12)			—				—				12				(378	)			(366	)			366				—
Acquisition of non-controlling interests			—				—				—				—				—				(1	)			(1	)
Conversion of Lumine Special Shares to subordinate voting shares of Lumine			—				—				—				—				—				1				1
Other movements in non-controlling interests			—				—				0				(4	)			(4	)			4				(0	)
Dividends to shareholders of the Company (note 12)			—				—				—				(21	)			(21	)			—				(21	)
Balance at March 31, 2023		$	99			$	—			$	(128	)		$	1,454			$	1,426			$	419			$	1,845

 

See accompanying notes to the condensed consolidated interim financial statements.

 

4

---

CONSTELLATION SOFTWARE INC.

Condensed Consolidated Interim Statement of Changes in Equity

(In millions of U.S. dollars, except per share amounts. Due to rounding, numbers presented may not foot.)

Unaudited

 

Three months ended March 31, 2022
		Equity Attributable to Common Shareholders of CSI
		Capital stock				Other equity				Accumulated				Retained earnings				Total				Non-controlling				Total equity
										other												interests
										comprehensive
										income (loss)
Balance at January 1, 2022		$	99			$	(179	)		$	(66	)		$	1,206			$	1,061			$	460			$	1,521
Total comprehensive income (loss):
Net income (loss)			—				—				—				98				98				13				111
Other comprehensive income (loss)
Foreign currency translation differences from foreign operations and other, net of tax			—				—				9				—				9				(3	)			6
Total other comprehensive income (loss)			—				—				9				—				9				(3	)			6
Total comprehensive income (loss)			—				—				9				98				107				9				116
Transactions with owners, recorded directly in equity
Conversion of redeemable preferred securities to subordinate voting shares of Topicus.com Inc. and ordinary units of Topicus Coop and other movements			—				305				(5	)			—				301				(301	)			—
Non-controlling interests arising from business combinations			—																—				23				23
Other movements in non-controlling interests			—												(0	)			(0	)			(0	)			(1	)
Dividends to shareholders of the Company (note 12)			—				—				—				(21	)			(21	)			—				(21	)
Reclassification of other equity to retained earnings			—				(127	)							127				—								—
Balance at March 31, 2022		$	99			$	—			$	(62	)		$	1,410			$	1,447			$	191			$	1,638

 

See accompanying notes to the condensed consolidated interim financial statements.

 

5

---

CONSTELLATION SOFTWARE INC.

Condensed Consolidated Interim Statements of Cash Flows

(In millions of U.S. dollars, except per share amounts. Due to rounding, numbers presented may not foot.)

Unaudited

 

		Three months ended March 31,
		2023				2022
Cash flows from (used in) operating activities:
Net income (loss)		$	(83	)		$	111
Adjustments for:
Depreciation			39				32
Amortization of intangible assets			193				146
IRGA/TSS Membership liability revaluation charge			39				27
Finance and other expense (income)			(7	)			(2	)
Bargain purchase (gain)			(1	)			(1	)
Impairment of intangible and other non-financial assets			2				1
Redeemable preferred securities expense (income) (note 9)			188				—
Finance costs			36				19
Income tax expense (recovery)			40				40
Foreign exchange loss (gain)			10				0
Change in non-cash operating assets and liabilities exclusive of effects of business combinations (note 17)			268				169
Income taxes paid			(91	)			(44	)
Net cash flows from (used in) operating activities			632				498
Cash flows from (used in) financing activities:
Interest paid on lease obligations			(3	)			(2	)
Interest paid on debt			(26	)			(10	)
Increase (decrease) in CSI facility (note 7)			(51	)			—
Increase (decrease) in Topicus revolving credit debt facility without recourse to CSI			(11	)			57
Proceeds from issuance of debt facilities without recourse to CSI			180				83
Repayments of debt facilities without recourse to CSI			(86	)			(7	)
Other financing activities			2				—
Credit facility transaction costs			(2	)			(1	)
Payments of lease obligations			(25	)			(22	)
Distribution to the Joday Group (note 7)			—				(23	)
Dividends paid to redeemable preferred security holders			—				(7	)
Dividends paid to common shareholders of the Company			(21	)			(21	)
Net cash flows from (used in) in financing activities			(43	)			47
Cash flows from (used in) investing activities:
Acquisition of businesses (note 4)			(452	)			(214	)
Cash obtained with acquired businesses (note 4)			45				38
Post-acquisition settlement payments, net of receipts			(72	)			(33	)
Purchases of investments and other assets			(31	)			(96	)
Proceeds from sales of other investments			119				3
Interest, dividends and other proceeds received			3				0
Property and equipment purchased			(10	)			(8	)
Net cash flows from (used in) investing activities			(398	)			(309	)
Effect of foreign currency on cash			7				(2	)
Increase (decrease) in cash			199				233
Cash, beginning of period		$	811			$	763
Cash, end of period		$	1,010			$	996

 

See accompanying notes to the condensed consolidated interim financial statements.

 

6

---

CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated)

(Due to rounding, numbers presented may not foot)

Three months ended March 31, 2023 and 2022

(Unaudited)

 

Notes to the condensed consolidated interim financial statements

 

1.		Reporting entity		11.		Income taxes
2.		Basis of presentation		12.		Capital and other components of equity
3.		Material accounting policies		13.		Finance and other expense (income) and finance costs
4.		Business acquisitions		14.		Earnings per share
5.		Other assets and other non-current liabilities		15.		Financial instruments
6.		Intangible assets		16.		Contingencies
7.		Debt with recourse to CSI		17.		Changes in non-cash operating assets and liabilities
8.		Debt without recourse to CSI		18.		Non-controlling interests
9.		Redeemable preferred securities		19.		Subsequent events
10.		Provisions

 

7

---

CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated)

(Due to rounding, numbers presented may not foot)

Three months ended March 31, 2023 and 2022

(Unaudited)

 

1.	Reporting entity

Constellation Software Inc. is a company domiciled in Canada. The address of Constellation Software Inc.’s registered office is 20 Adelaide Street East, Suite 1200, Toronto, Ontario, Canada. The condensed consolidated interim financial statements of Constellation Software Inc. as at and for the three month period ended March 31, 2023 comprise Constellation Software Inc. and its subsidiaries (together referred to as “Constellation”, “CSI”, or the “Company”) and the Company’s interest in associates. The Company is engaged principally in the development, installation and customization of software as well as in the provisioning of related professional services and support for customers globally across over 100 diverse markets.

On February 22 and 23, 2023 (as part of a series of transactions relating to the acquisition of WideOrbit Inc. (“WideOrbit”) described further in note 4), the Company’s subsidiary, Lumine Group Inc. (“Lumine”), completed a corporate reorganization. After the reorganization was completed, the Company now owns 1 super voting share, 6 subordinate voting shares and 63,582,712 preferred shares of Lumine. Furthermore, the Company distributed 63,582,706 of the subordinate voting shares of Lumine to its common shareholders pursuant to a dividend-in-kind on February 23, 2023. The steps performed in conjunction with the reorganization consisted of the following:

 

•

The Company exchanged its existing common shares and preferred shares in Lumine Group (Holdings) Inc. (“Lumine Group Holdings”) for 63,582,712 subordinate voting shares (“Lumine Subordinate Voting Shares”) and 55,233,745 preferred shares (“Lumine Preferred Shares”) on February 22, 2023.

 

•

Lumine and Lumine Group Holdings amalgamated on February 22, 2023.

 

•

The Company subscribed for 8,348,967 Lumine Preferred Shares on February 22, 2023. The Lumine Preferred Shares are convertible into Lumine Subordinate Voting Shares at a rate of 1:2.4302106.

 

•

Lumine had 63,582,712 Lumine Subordinate Voting shares outstanding on February 22, 2023. The Company distributed 63,582,706 of the Lumine Subordinate Voting Shares to its common shareholders pursuant to a dividend-in-kind on February 23, 2023 and continues to hold 6 Lumine Subordinate Voting Shares.

The Company holds 1 super voting share of Lumine (the “Lumine Super Voting Share”). The Lumine Super Voting Share entitles CSI to that number of votes that equals 50.1% of the aggregate number of votes attached to all the outstanding Lumine Super Voting Shares, Lumine Subordinate Voting Shares and special shares of Lumine (the “Lumine Special Shares”). As a result, the Company controls Lumine and has consolidated Lumine’s financial position and results of operations. The Company reflects a non-controlling interest held by other parties in Lumine of 100% as of March 31, 2023 (December 31, 2022 – 0%).

Preferred Share Investment in Lumine

As noted above, the Company owns 63,582,712 Lumine Preferred Shares. The Lumine Preferred Shares are non-voting and under certain conditions are redeemable at the option of CSI for a redemption price of $21.74 (the “Initial Face Value”) per share. The redemption price may either be settled in cash or through the issuance of a variable number of Lumine Subordinate Voting Shares based on the terms of the Lumine Preferred Shares, or any combination thereof. The Lumine Preferred Shares are also convertible into Lumine Subordinate Voting Shares at a conversion ratio of 1:2.4302106 at any time. The Lumine Preferred Shares entitle CSI to a fixed annual cumulative dividend of 5% per annum on the Initial Face Value.

Further descriptions of the significant terms and conditions of the Lumine Preferred Shares are described below. The terms and conditions of the Lumine Preferred Shares should be read in conjunction with the terms and conditions of the Lumine Special Shares as outlined in note 9.

 

8

---

CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated)

(Due to rounding, numbers presented may not foot)

Three months ended March 31, 2023 and 2022

(Unaudited)

 

Conversion

CSI is entitled to convert some or all of its Lumine Preferred Shares into Lumine Subordinate Voting Shares on the basis of 2.4302106 Lumine Subordinate Voting Shares per Lumine Preferred Share, at any time (the “Lumine Preferred Share Conversion Right”).

Upon the exercise of the Lumine Preferred Share Conversion Right, CSI will be entitled to receive all accrued but unpaid dividends accruing on the Lumine Preferred Shares to the day before the conversion date. Pursuant to the terms of the shareholders agreement entered into by Lumine, CSI, Trapeze Software ULC and the holders of the Lumine Special Shares (the “Lumine Shareholders Agreement”), the board of directors of Lumine will make a determination as to whether Lumine has sufficient cash on hand to satisfy the payment of any accrued but unpaid dividends on the Lumine Preferred Shares in cash. If the board of directors of Lumine determines that Lumine does not have sufficient cash on hand, the accrued but unpaid dividends will, subject to TSX Venture Exchange (“TSXV”) approval, be satisfied by the issuance of Lumine Subordinate Voting Shares of equal value.

Redemption at the Option of CSI

At any time prior to the Mandatory Conversion Date (as defined below), upon thirty (30) days notice to Lumine, the holders of the Lumine Preferred Shares will have the right (but not the obligation) to sell some or all of their Lumine Preferred Shares (the “Lumine Preferred Share Retraction Right”) back to Lumine. Upon exercise of the Lumine Preferred Share Retraction Right, the holders of the Lumine Preferred Shares will be entitled to receive an amount of cash equal to the Initial Face Value for each Lumine Preferred Share in respect of which the Lumine Preferred Share Retraction Right has been exercised, or Lumine Subordinate Voting Shares of equal value, or any combination thereof, in each case at the option of the holder of the Lumine Preferred Shares. Notwithstanding the foregoing, if the board of directors of Lumine determines that Lumine does not have sufficient cash on hand to make the payment in cash, the holders of Lumine Preferred Shares will, subject to TSXV approval, receive Lumine Subordinate Voting Shares on the terms described above

Redemption at the Option of Lumine

Subject to the terms of the Lumine Shareholders Agreement, upon the later of (the “Mandatory Conversion Date”) the date which occurs 12-months after the date the trading of the Lumine Subordinate Voting Shares commences on the TSXV, and 10 business days after the first date on which the closing trading price of the Lumine Subordinate Voting Shares is equal to or greater than C$13.243656, Lumine will redeem the Lumine Preferred Shares in exchange for the issuance of 2.4302106 Lumine Subordinate Voting Shares for each Lumine Preferred Share redeemed (the “Lumine Preferred Share Mandatory Conversion”). Notwithstanding the foregoing, if holders representing at least 95% of the Lumine Preferred Shares and Lumine Special Shares approve, each holder of Lumine Preferred Shares and Lumine Special Shares will have the option to take the amount equal to the value of the Lumine Subordinate Voting Shares such holder would have otherwise received in connection with the Lumine Preferred Share Mandatory Conversion, determined on the basis of the 60 day volume weighted average trading price of the Lumine Subordinate Voting Shares, in cash. Upon the Lumine Mandatory Conversion (as defined below), the holders of the Lumine Preferred Shares and the Lumine Special Shares will also be entitled to receive all accrued but unpaid dividends accruing to the day before the redemption date. Pursuant to the terms of the Lumine Shareholders Agreement, the board of directors of Lumine will make a determination as to whether Lumine has sufficient cash on hand to satisfy the payment of any accrued but unpaid dividends on the Lumine Preferred Shares in cash. If the board of directors of Lumine determines that Lumine does not have sufficient cash on hand, the accrued but unpaid dividends will, subject to TSXV approval, be satisfied by the issuance of Lumine Subordinate Voting Shares of equal value.

 

9

---

CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated)

(Due to rounding, numbers presented may not foot)

Three months ended March 31, 2023 and 2022

(Unaudited)

 

As of March 24, 2023, the closing trading price of the Lumine Subordinate Voting Shares was greater than C$13.243656. As such, the Mandatory Conversion Date for the Lumine Preferred Shares will be March 25, 2024.

 

2.	Basis of presentation

 

(a)	Statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting (“IAS 34”) as issued by the International Accounting Standards Board (“IASB”) and using the accounting policies disclosed in Note 3 of the Company’s 2022 annual consolidated financial statements except as disclosed herein.

These condensed consolidated interim financial statements were approved and authorized for issuance by the Board of Directors of the Company on May 15, 2023.

These condensed consolidated interim financial statements should be read in conjunction with the Company’s 2022 annual consolidated financial statements.

 

(b)	Basis of measurement

The condensed consolidated interim financial statements have been prepared on the historical cost basis except for certain assets and liabilities initially recognized in connection with business combinations, derivative financial instruments and contingent consideration related to business acquisitions, which are measured at their estimated fair value.

 

(c)	Functional and presentation of currency

The condensed consolidated interim financial statements are presented in U.S. dollars, which is Constellation’s functional currency.

 

(d)	Use of estimates and judgements

The preparation of the condensed consolidated interim financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses, consistent with those disclosed in the 2022 annual consolidated financial statements and described in these condensed consolidated interim financial statements. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Estimates are based on historical experience and other assumptions that are considered reasonable in the circumstances. The actual amount or values may vary in certain instances from the assumptions and estimates made. Changes will be recorded, with corresponding effect in profit or loss, when, and if, better information is obtained.

 

3.	Material accounting policies

Unless otherwise noted in the condensed consolidated interim financial statements, the material accounting policies used in preparing these condensed consolidated interim financial statements are unchanged from those disclosed in the Company’s 2022 annual consolidated financial statements and have been applied consistently to all periods presented in these condensed consolidated interim financial statements.

 

10

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CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated)

(Due to rounding, numbers presented may not foot)

Three months ended March 31, 2023 and 2022

(Unaudited)

 

The accounting policies have been applied consistently by Constellation’s subsidiaries.

 

4.	Business acquisitions

(a) On February 22, 2023, the Company completed the acquisition of 100% of the shares of WideOrbit Inc. (“WideOrbit”) The Company paid cash of $273 plus a cash holdback payable of $10. The Company (through Lumine) also issued 10,204,294 Lumine Special Shares to the seller for an initial subscription price of $222. The total consideration resulting from acquisition of WideOrbit is $505.

WideOrbit is a software business that primarily operates in the advertising market for cable networks, local television stations and radio stations. The acquisition has been accounted for using the acquisition method with the results of operations included in the condensed consolidated interim statements of income for the three months ended March 31, 2023 from the date of the acquisition.

The goodwill recognized in connection with this acquisition is primarily attributable to the application of the Company’s best practices to improve the operations of the companies acquired, synergies with existing businesses of the Company, and other intangible assets that do not qualify for separate recognition including assembled workforce. Goodwill is in the amount of $3 is expected to be deductible for income tax purposes.

The gross contractual amounts of acquired receivables was $21; however, the Company has recorded an allowance of $0 as part of the acquisition accounting to reflect contractual cash flows that are not expected to be collected.

Due to the complexity of the acquisition, the Company is in the process of determining and finalizing the estimated fair value of the net assets acquired as part of the WideOrbit acquisition. The amounts determined on a provisional basis generally relate to net asset assessments and measurement of the assumed liabilities. The provisional purchase price allocations may differ from the final purchase price allocations, and these differences may be material. Revisions to the allocations will occur as additional information about the fair value of assets and liabilities becomes available.

 

11

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CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated)

(Due to rounding, numbers presented may not foot)

Three months ended March 31, 2023 and 2022

(Unaudited)

 

The impact of acquisition accounting applied on a provisional basis in connection with the acquisition of WideOrbit is as follows:

 

Assets acquired:
Cash		$	25
Accounts receivable			21
Other current assets			21
Property and equipment			2
Right of use assets			8
Other non-current assets			7
Technology assets			166
Customer assets			379
			630
Liabilities assumed:
Current liabilities			24
Deferred revenue			10
Deferred income taxes			121
Long-term lease obligations			5
Other non-current liabilities			1
			161
Goodwill			36
Total consideration		$	505

The acquisition of WideOrbit contributed revenue of $18 and a net loss of $1 for the three months ended March 31, 2023. If this acquisition had occurred on January 1, 2023, the Company estimates that pro-forma consolidated revenue and pro-forma consolidated net income (loss) would have been $1,944 and ($83) compared to the actual amounts reported in the condensed consolidated interim statement of income (loss) for the actual period for the three months ended March 31, 2023.

(b) During the three-month period ended March 31, 2023, the Company completed a number of additional acquisitions for aggregate cash consideration of $179 plus cash holdbacks of $24 and contingent consideration with an estimated acquisition date fair value of $11. The total consideration resulting from the additional acquisitions in the three-month period ended March 31, 2023 was $213. The contingent consideration is payable on the achievement of certain financial targets in the post-acquisition periods. The obligation for contingent consideration for acquisitions during the three-month period ended March 31, 2023 has been recorded at its estimated fair value at the various acquisition dates. The estimated fair value of the applicable contingent consideration is calculated using the estimated financial outcome and resulting expected contingent consideration to be paid and inclusion of a discount rate as appropriate. For these arrangements, which include both maximum, or capped, and unlimited contingent consideration amounts, the estimated increase to the initial consideration is not expected to exceed $40. Aggregate contingent consideration of $169 (December 31, 2022 - $157) has been reported in the condensed consolidated interim statement of financial position at its estimated fair value relating to applicable acquisitions completed in the current and prior periods. Changes made to the estimated fair value of contingent consideration are included in other, net in the condensed consolidated interim statements of income (loss). An expense of $0 has been recorded for the three months ended March 31, 2023, as a result of such changes (expense of $10 for the three months ended March 31, 2022).

 

12

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CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated)

(Due to rounding, numbers presented may not foot)

Three months ended March 31, 2023 and 2022

(Unaudited)

 

Other than WideOrbit, no other acquisitions were deemed to be individually significant. The majority of the businesses acquired during the period were acquisitions of shares and the remainder were asset acquisitions. The cash holdbacks are generally payable over a two-year period and are adjusted, as necessary, for such items as working capital or net tangible asset assessments, as defined in the agreements, and claims under the respective representations and warranties of the purchase and sale agreements.

The additional acquisitions during the three-month period ended March 31, 2023 include software companies catering to the following markets: financial services, mining, education, insurance, construction, forestry, metals, transit, product development, field service, legal, daycare, telecommunications and healthcare all of which are software businesses similar to existing businesses operated by the Company. The acquisitions have been accounted for using the acquisition method with the results of operations included in these consolidated financial statements from the date of each acquisition.

The goodwill recognized in connection with these acquisitions is primarily attributable to the application of Constellation’s best practices to improve the operations of the companies acquired, synergies with existing businesses of Constellation, and other intangible assets that do not qualify for separate recognition including assembled workforce. Goodwill in the amount of $0 is expected to be deductible for income tax purposes.

The gross contractual amounts of acquired receivables was $33; however, the Company has recorded an allowance of $1 as part of the acquisition accounting to reflect contractual cash flows that are not expected to be collected.

Due to the complexity and timing of certain acquisitions made, the Company is in the process of determining and finalizing the estimated fair value of the net assets acquired as part of the acquisitions closed during 2023 and the last three quarters of 2022. The amounts determined on a provisional basis generally relate to net asset assessments and measurement of the assumed liabilities, including acquired contract liabilities. The provisional purchase price allocations may differ from the final purchase price allocations, and these differences may be material. Revisions to the allocations will occur as additional information about the fair value of assets and liabilities becomes available. The cash consideration associated with these provisional estimates (including individually significant acquisitions) totals $1,870.

 

13

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CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated)

(Due to rounding, numbers presented may not foot)

Three months ended March 31, 2023 and 2022

(Unaudited)

 

The aggregate impact of acquisition accounting applied in connection with the aggregate of business acquisitions that are not individually significant in the period ended March 31, 2023 is as follows:

 

Assets acquired:
Cash		$	20
Accounts receivable			31
Other current assets			19
Property and equipment			3
Right of use assets			6
Other non-current assets			3
Deferred income taxes			0
Technology assets			127
Customer assets			111
			321
Liabilities assumed:
Current liabilities			27
Deferred revenue			48
Deferred income taxes			48
Long-term lease obligations			5
Other non-current liabilities			1
			129
Non-controlling interest			—
Goodwill			22
Bargain purchase gain			(0	)
Total consideration		$	213

The 2023 additional business acquisitions did not have a material impact to either the consolidated revenue or the consolidated net income (loss) for the three months ended March 31, 2023. The materiality threshold is reviewed on a regular basis taking into account the quantitative (contribution to revenue and net income (loss)) and qualitative (size and comparability with other Constellation businesses) factors of current period acquisitions on both an individual and aggregate basis.

 

14

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CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated)

(Due to rounding, numbers presented may not foot)

Three months ended March 31, 2023 and 2022

(Unaudited)

 

(c) The following measurement period adjustments on prior year acquisitions have been reflected on the condensed consolidated interim statement of financial position as of December 31, 2022.

 

Current Assets:
Accounts receivable			5
Unbilled revenue			1
Other assets			1
			7
Non-current Assets:
Intangible assets			(6	)
			(6	)
Total assets			1
Current liabilities:
Accounts payable and accrued liabilities			3
Deferred revenue			1
Acquisition holdback payables			2
Income taxes payable			6
			13
Non-current liabilities:
Deferred income taxes			(6	)
Acquisition holdback payables			(1	)
Other liabilities			(5	)
			(11	)
Total liabilities			1

 

15

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CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated)

(Due to rounding, numbers presented may not foot)

Three months ended March 31, 2023 and 2022

(Unaudited)

 

5.	Other assets and other non-current liabilities

 

(a)	Other assets

 

		March 31, 2023				December 31, 2022
Prepaid expenses and other current assets		$	276			$	223
Holdback receivable			2				1
Investment tax credits recoverable			46				39
Sales tax receivable			29				26
Equity securities held for trading			0				115
Other receivables			95				93
Total other current assets		$	448			$	497
Investment tax credits recoverable		$	16			$	18
Costs to obtain a contract			59				55
Non-current trade and other receivables and other assets			104				96
Equity accounted investees			3				3
Total other non-current assets		$	182			$	172

 

(b)	Other non-current liabilities

 

		March 31, 2023				December 31, 2022
Contingent consideration		$	91			$	109
Deferred revenue			97				100
Other non-current liabilities			48				48
Total other non-current liabilities		$	237			$	257

 

16

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CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated)

(Due to rounding, numbers presented may not foot)

Three months ended March 31, 2023 and 2022

(Unaudited)

 

6.	Intangible Assets

 

		Technology Assets				Customer Assets				Backlog				Non-compete agreements				Trademarks				Goodwill				Total
Cost
Balance at January 1, 2022		$	3,226			$	2,356			$	17			$	3			$	30			$	614			$	6,245
Acquisitions through business combinations			816				1,021				0				—				0				223				2,061
Effect of movements in foreign exchange			(105	)			(81	)			1				(0	)			(2	)			(28	)			(216	)
Balance at December 31, 2022		$	3,937			$	3,296			$	17			$	2			$	29			$	809			$	8,089
Balance at January 1, 2023		$	3,937			$	3,296			$	17			$	2			$	29			$	809			$	8,089
Acquisitions through business combinations			294				490				—				—				—				58				842
Effect of movements in foreign exchange and other			23				21				0				0				0				8				52
Balance at March 31, 2023		$	4,253			$	3,807			$	17			$	2			$	29			$	875			$	8,984
Accumulated amortization and impairment losses
Balance at January 1, 2022		$	1,941			$	849			$	17			$	2			$	4			$	4			$	2,817
Amortization for the period			394				280				0				0				2				—				676
Impairment charge			1				0				—				—				—				5				7
Effect of movements in foreign exchange			(56	)			(27	)			0				(0	)			—				—				(83	)
Balance at December 31, 2022		$	2,280			$	1,103			$	17			$	2			$	6			$	9			$	3,416
Balance at January 1, 2023		$	2,280			$	1,103			$	17			$	2			$	6			$	9			$	3,416
Amortization for the period			110				83				0				0				0				—				193
Impairment charge			1				1				—				—				—				0				2
Effect of movements in foreign exchange			12				7				0				0				—				—				19
Balance at March 31, 2023		$	2,402			$	1,194			$	17			$	2			$	6			$	9			$	3,630
Carrying amounts
At January 1, 2022		$	1,285			$	1,507			$	0			$	0			$	26			$	610			$	3,428
At December 31, 2022		$	1,657			$	2,193			$	0			$	—			$	23			$	800			$	4,673
At January 1, 2023		$	1,657			$	2,193			$	0			$	—			$	23			$	800			$	4,673
At March 31, 2023		$	1,851			$	2,613			$	0			$	0			$	23			$	866			$	5,354

 

17

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CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated)

(Due to rounding, numbers presented may not foot)

Three months ended March 31, 2023 and 2022

(Unaudited)

 

7.	Debt with recourse to CSI

 

		CSI Facility				Liability of CSI under the IRGA				Debentures				Term Loan				Total
Principal outstanding at March 31, 2023 (and, except for debentures, equal to fair value)		$	271			$	512			$	209			$	80			$	1,072
Deduct: Carrying value of transaction costs included in debt balance			(1	)			—				—				(0	)			(2	)
Carrying value at March 31, 2023			270				512				209				80				1,071
Current portion			270				211				—				—				480
Non-current portion			—				302				209				80				590

CSI Facility

On November 5, 2021, Constellation completed an amendment and restatement of its revolving credit facility agreement (the “CSI Facility”), with a syndicate of Canadian chartered banks and U.S. banks in the amount of $700, extending its maturity date to November 2026. In March 2023, the total amount on the revolver was increased from $700 to $840. The CSI Facility bears a variable interest rate with no fixed repayments required over the term to maturity. Interest rates are calculated at standard U.S. and Canadian reference rates plus interest rate spreads based on a leverage table. The CSI Facility is collateralized by the majority of the Company’s assets including the assets of certain material subsidiaries. The CSI Facility contains standard events of default which if not remedied within a cure period would trigger the repayment of any outstanding balance. As at March 31, 2023, $271 (December 31, 2022 – $322) had been drawn from this credit facility, and letters of credit totaling $14 (December 31, 2022 - $12) were issued, which limits the borrowing capacity on a dollar-for-dollar basis. Transaction costs associated with the CSI Facility are being amortized through profit or loss using the effective interest rate method. As at March 31, 2023, the carrying amount of such costs is $1 (December 31, 2022 - $1).

Liability of CSI under the terms of the IRGA/TSS Members Agreement

On December 23, 2014, in accordance with the terms of the purchase and sale agreement for the initial acquisition of TSS by CSI, and on the basis of the term sheets attached thereto, Constellation and the Joday Group, among others, entered into a Members Agreement (the “TSS Members Agreement”) pursuant to which the Joday Group acquired 33.29% of the voting interests in Constellation Software Netherlands Holding Coöperatief U.A. (which was renamed to Topicus.com Coöperatief U.A., (“Topicus Coop)), a subsidiary of Constellation and the indirect owner of 100% of TSS at the time of the acquisition. Total proceeds from this transaction was EUR 39.

On January 5, 2021, the TSS Members Agreement was terminated in conjunction with the acquisition of Topicus.com B.V., the reorganization of Topicus Coop and the execution of the Investors Rights and Governance Agreement (“IRGA”). The IRGA was established to create certain contractual obligations of the parties in respect of the governance of Topicus and Topicus Coop. The Joday Group’s interest in Topicus Coop comprises 39,331,284 Topicus Coop Ordinary Units resulting in an interest of 30.29% in Topicus Coop. The IRGA provides for transfer restrictions in respect of the Topicus Coop Units.

Any time after January 5, 2021, any member of the Joday Group has the right, at their option, to sell any number of its Topicus Coop Units to CSI at a cash price per Topicus Coop Unit determined in accordance with the IRGA. Upon the exercise of such option by a member of the Joday Group, CSI will be obligated to purchase 33.33% of such Topicus Coop Units within 30 days, and an additional 33.33% on each of the first and the second anniversary of such initial purchase. Notwithstanding the foregoing, CSI can offer Topicus the right to purchase such Topicus Coop Units in lieu of CSI.

 

18

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CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated)

(Due to rounding, numbers presented may not foot)

Three months ended March 31, 2023 and 2022

(Unaudited)

 

In the event of a change of control of CSI, any member of the Joday Group has the right, at their option, to sell all of its Topicus Coop Units to CSI at a cash price per Topicus Coop Unit determined in accordance with the IRGA. Upon the exercise of such option by a member of the Joday Group, CSI will be obligated to purchase all such Topicus Coop Units. Notwithstanding the foregoing, CSI can offer Topicus the right to purchase such Topicus Coop Units in lieu of CSI.

If CSI reduces its economic interest in Topicus by a sale or transfer of its economic interest (and not due to any additional issuance of any shares or equity by Topicus) by more than one-third (calculated on a fully converted basis in accordance with the IRGA), any member of the Joday Group has the right, at their option, to sell to CSI one-third of its Topicus Coop Units at a cash price per Topicus Coop Unit determined in accordance with the IRGA. Upon the exercise of such put option by a member of the Joday Group, CSI will be obligated to purchase all such put Topicus Coop Units. Notwithstanding the foregoing, CSI can offer Topicus the right to purchase such Topicus Coop Units in lieu of CSI. Any member of the Joday Group has a similar right to sell one-half or all of its remaining Topicus Coop Units, respectively, at its option, if CSI further reduces its remaining fully-diluted economic interest in Topicus by a sale or transfer of its economic interest by one-half and again if CSI sells its entire remaining economic interest in Topicus.

All of the Topicus Coop Ordinary Units held by the Joday Group and Ijssel B.V. (collectively, the “Topicus Coop Exchangeable Units”) are exchangeable, directly or indirectly, for Topicus Subordinate Voting Shares. All of the above rights of members of the Joday Group apply to any Topicus Subordinate Voting Shares issued on an exchange of Topicus Coop Exchangeable Units.

At any time after December 31, 2023, CSI has the right, at its option, to buy all of the Topicus Coop Units and shares of Topicus held by certain members of the Joday Group (excluding Joday) at a cash price per Topicus Coop Unit (or share of Topicus, as applicable) determined in accordance with the IRGA. After December 31, 2043, CSI has the same right to buy all of the Topicus Coop Units and shares of Topicus held by the remaining members of the Joday Group, including Joday.

In addition, if certain individuals affiliated with Joday are terminated from their employment with Topicus Coop or an affiliate thereof for urgent cause (as defined in the Dutch Civil Code), CSI has the right, at its option, to buy all of Topicus Coop Units held by such individuals at a cash price per Topicus Coop Unit determined in accordance with the IRGA.

The Company has continued to classify the above obligations of CSI under the terms of the IRGA as a liability. The main valuation driver in such calculation is the maintenance and other recurring revenue of Topicus. Maintenance and recurring revenue of Topicus for the trailing twelve months on a pro-forma basis determined at the end of the current reporting period was used as the basis for valuing the interests at each redemption date. Any increase or decrease in the value of such liability is recorded as an expense or income in the consolidated statements of income (loss) for the period.

During the periods ended March 31, 2023 and December 31, 2022, no options were exercised. During the year December 31, 2022, a distribution in the amount of $23 was paid to the Joday Group.

 

19

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CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated)

(Due to rounding, numbers presented may not foot)

Three months ended March 31, 2023 and 2022

(Unaudited)

 

Debentures

On October 1, 2014 and November 19, 2014, the Company issued debentures with a total principal value of C$96 for total proceeds of C$91. On September 30, 2015, the Company issued another tranche of debentures (collectively with the 2014 issuances called the “Debentures”) with a total principal value of C$186 for total proceeds of C$214.

The Debentures have a maturity date of March 31, 2040 (the “Maturity Date”).

The interest rate from and including:

 

•

March 31, 2020 but excluding March 31, 2021 was 8.4%

 

•

March 31, 2021 but excluding March 31, 2022 was 7.2%

 

•

March 31, 2022 but excluding March 31, 2023 was 9.9%

 

•

March 31, 2023 but excluding March 31, 2024 is 13.3%

Subsequent from and including March 31, 2024 to but excluding the Maturity Date, the interest rate applicable to the Debentures will be reset on an annual basis on March 31 of each year, at a rate equal to the annual average percentage change in the All-items Consumer Price Index during the 12-month period ending on December 31 in the prior year (which amount may be positive or negative) plus 6.5%. Notwithstanding the foregoing, the interest rate applicable to the debentures will not be less than 0%. The Company may, subject to certain approvals, elect the Payment in Kind election (“PIK Election”), in lieu of paying interest in cash, to satisfy all or any portion of its interest obligation payable on an interest payment date by issuing to each Debenture holder PIK Debentures equal to the amount of the interest obligation to be satisfied. The PIK Debentures will have the same terms and conditions as the Debentures and will form part of the principal amount of the Debentures. If, on any interest payment date, the Company fails to pay the amount of interest owing on the Debentures in full in cash, the Company will not (A) declare or pay dividends of any kind on the Common Shares, nor (B) participate in any share buyback or redemption involving the Common Shares, until the date on which the Company pays such interest (or the unpaid portion thereof) in cash to holders of the Debentures; however, where the Company has issued PIK Debentures in respect of all or a portion of the amount of interest owing on the Debentures on an interest payment date, the Company may resume declaring or paying dividends of any kind on the Common Shares and participating in any share buyback or redemption involving the Common Shares beginning on the next earlier of (i) the interest payment date of which the Company pays the amount of interest owing on the Debentures in full in cash and (ii) the date on which the Company repays all amounts owing under the PIK Debenture. All payments in respect of the Debentures will be subordinated in right of payment to the prior payment in full of all senior indebtedness of the Company.

The Debentures will be redeemable in certain circumstances at the option of the Company or the holder. During the period beginning on March 16 and ending on March 31 of each year, the Company will have the right, at its option, to give notice to holders of Debentures of its intention to redeem the Debentures, in whole or in part, on March 31 in the year that is five years following the year in which notice is given, at a price equal to the principal amount thereof plus accrued and unpaid interest up to but excluding the date fixed for redemption. During the period beginning on March 1 and ending on March 15 of each year, holders of Debentures will also have the right, at their option, to give notice to the Company of their intention to require the Company to repurchase (or to “put”) the Debentures, in whole or in part, on March 31 in the year that is five years following the year in which notice is given, at a price equal to the principal amount thereof plus accrued and unpaid interest up to but excluding the date fixed for repurchase.

 

20

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CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated)

(Due to rounding, numbers presented may not foot)

Three months ended March 31, 2023 and 2022

(Unaudited)

 

During the periods ended March 31, 2023 and December 31, 2022, no notices for redemption of the Debentures were received or given by the Company.

The fair value of the debentures as at March 31, 2023 was $290 (December 31, 2022—$287).

Term Loan

One of CSI’s subsidiaries has entered into a GBP 65 term debt facility with a financial institution for which CSI has guaranteed the debt. The facility bears a fixed rate of interest. The term loan contains events of default that, if not remedied, allow the loan note holder to require repayment of the loan principal and interest. The loan is due in 2028.

 

8.	Debt without recourse to CSI

Certain of CSI’s subsidiaries have entered into term debt facilities and revolving credit facilities with various financial institutions. CSI does not guarantee the debt of these subsidiaries, nor are there any cross-guarantees between subsidiaries. The credit facilities are collateralized by substantially all of the assets of the borrowing entity and its subsidiaries. The credit facilities typically bear interest at a rate calculated using an interest rate index plus a margin. The financing arrangements for each subsidiary typically contain certain restrictive covenants, which may include limitations or prohibitions on additional indebtedness, payment of cash dividends, redemption of capital, capital spending, making of acquisitions and sales of assets. In addition, certain financial covenants must be met by those subsidiaries that have outstanding debt.

During 2022, the Company breached its debt covenants associated with 1 Term loan in its subsidiaries which is unresolved as of March 31, 2023. The aggregate value of the loan at March 31, 2023 is $7 and this loan has been classified as a current liability.

Debt without recourse to CSI comprises the following:

 

		Topicus Revolving Credit Facility				Debt Facilities				Total
Principal outstanding at March 31, 2023 (and equal to fair value)			131			$	873				1,003
Deduct: Carrying value of transaction costs included in debt balance			(3	)			(9	)			(12	)
Carrying value at March 31, 2023			127				864				992
Current portion			127				71				199
Non-current portion			—				793				793

 

21

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CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated)

(Due to rounding, numbers presented may not foot)

Three months ended March 31, 2023 and 2022

(Unaudited)

 

The annual minimum repayment requirements for the debt facilities without recourse to CSI (excluding the Topicus Revolving Credit Facility) are as follows:

 

Year		Debt Facilities
2023			58
2024			45
2025			188
2026			126
2027			278
2028			176
2029			1
2030			0
			873

 

9.	Redeemable Preferred Securities

In conjunction with the acquisition of WideOrbit, Lumine issued 10,204,294 Lumine Special Shares to the sellers of WideOrbit for an initial subscription price of approximately $222 which was included in the purchase consideration. Under certain conditions, the Lumine Special Shares are retractable at the option of the holder for a retraction price of the Initial Face Value per Lumine Special Share plus one Lumine Subordinate Voting share for each Lumine Special Share held and has been classified as a liability on the balance sheet of the Company. The Lumine Special Shares are also convertible into Lumine Subordinate Voting shares at a conversion ratio of 1:3.4302106 at any time. The holders of the Lumine Special Shares are also entitled to a fixed annual cumulative dividend of 5% per annum.

The fair value of the Lumine Special Shares owned by the sellers of WideOrbit at issuance was $222 and has been classified as a liability. The Company has determined that the conversion option associated with the Lumine Special Shares does not result in a fixed amount of cash being exchanged for a fixed amount of units (i.e. the conversion option does not meet the “fixed for fixed” requirement). As a result, the Lumine Special Shares have been recorded at fair value at the end of each reporting period. The change in fair value of the Lumine Special Shares is recorded as a redeemable preferred securities expense (income) in the condensed consolidated interim statements of income (loss).

Further descriptions of the significant terms and conditions of the Lumine Special Shares are described below. The terms and conditions of the Lumine Special Shares should be read in conjunction with the terms and conditions of the Lumine Preferred Shares held by CSI (note 1).

Dividends

Holders of the Lumine Special Shares are entitled to receive fixed preferential cumulative dividends at the rate of 5% per annum on the Initial Face Value. No dividend will at any time be declared or paid on the Lumine Subordinate Voting Shares or the Lumine Super Voting Share, or on any other shares ranking junior to the Special Shares, unless and until the accrued preferential cumulative dividends on all of the Lumine Preferred Shares and Lumine Special Shares outstanding have been declared and paid. In addition, no dividends will be paid on the Lumine Subordinate Voting Shares or the Lumine Super Voting Share for an amount that would cause Lumine to not have sufficient net assets to effect the redemption of the Lumine Preferred Shares and Lumine Special Shares on a Mandatory Conversion (as defined below). In addition to the foregoing, the holders of the Lumine Special Shares are entitled to receive dividends on a pari passu, share for share, basis at such times and in such amounts as Lumine’s board of directors may from time to time determine to declare dividends on the Lumine Subordinate Voting Shares, without preference or distinction between the Lumine Subordinate Voting Shares and the Lumine Special Shares, subject to the foregoing preferential rights of the holders of the Lumine Preferred Shares and the Lumine Special Shares.

 

22

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CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated)

(Due to rounding, numbers presented may not foot)

Three months ended March 31, 2023 and 2022

(Unaudited)

 

Conversion

Holders of the Lumine Special Shares are entitled to convert some or all of their Lumine Special Shares into Lumine Subordinate Voting Shares on the basis of 3.4302106 Lumine Subordinate Voting Shares per Lumine Special Share, at any time (the “Lumine Special Share Conversion Right”).

Upon the exercise of the Lumine Special Share Conversion Right, the holders of the Lumine Special Shares, will be entitled to receive all accrued but unpaid dividends accruing to the day before the conversion date. Pursuant to the terms of the Lumine Shareholders Agreement, the board of directors of Lumine will make a determination as to whether Lumine has sufficient cash on hand to satisfy the payment of any accrued but unpaid dividends on the Special Shares, as applicable, in cash. If the board of directors of Lumine determines that Lumine does not have sufficient cash on hand to make the applicable payments, the accrued but unpaid dividends will, subject to TSXV approval, be satisfied by the issuance of Lumine Subordinate Voting Shares of equal value.

Redemption at the Option of the Holder

At any time prior to the Mandatory Conversion Date, upon thirty (30) days notice to Lumine, the holders of the Lumine Special Shares will have the right (but not the obligation) to sell some or all of their Lumine Special Shares (the “Lumine Special Share Retraction Right”), provided that the exercise of the Lumine Special Share Retraction Right (including the manner of exercise) must first be approved by the holders of a majority of the Lumine Special Shares, in their sole discretion. Upon exercise of the Lumine Special Share Retraction Right, the holders of the Lumine Special Shares will be entitled to receive (i) one Lumine Subordinate Voting Share for each Lumine Special Share in respect of which the Lumine Special Share Retraction Right has been exercised, and (ii) an amount of cash equal to the Initial Face Value for each Lumine Special Share in respect of which the Lumine Special Share Retraction Right has been exercised, or Lumine Subordinate Voting Shares of equal value, or any combination thereof, in each case at the option of the holder of the Lumine Special Shares. Notwithstanding the foregoing, if the board of directors of Lumine determines that Lumine does not have sufficient cash on hand to make the payment in cash, the holders of Lumine Special Shares will, subject to TSXV approval, receive Lumine Subordinate Voting Shares on the terms described above.

Upon the exercise of the Lumine Special Share Retraction Right, the holders of the Lumine Special Shares will also be entitled to receive all accrued but unpaid dividends accruing on the Lumine Special Shares in respect of which the Lumine Special Share Retraction Right has been exercised, to the day before the redemption date. The board of directors of Lumine will make a determination as to whether Lumine has sufficient cash on hand to satisfy the payment of any accrued but unpaid dividends on the Lumine Special Shares in cash. If the board of directors of Lumine determines that Lumine does not have sufficient cash on hand to make the applicable payments, the accrued but unpaid dividends will, subject to TSXV approval, be satisfied by the issuance of Lumine Subordinate Voting Shares of equal value.

 

23

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CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated)

(Due to rounding, numbers presented may not foot)

Three months ended March 31, 2023 and 2022

(Unaudited)

 

Redemption at the Option of Lumine

Subject to the terms of the Lumine Shareholders Agreement, upon the Mandatory Conversion Date, Lumine will redeem the Lumine Special Shares in exchange for the issuance of 3.4302106 Lumine Subordinate Voting Shares for each Lumine Special Share redeemed (the “Lumine Special Share Mandatory Conversion” and, together with the Lumine Preferred Share Mandatory Conversion, the “Lumine Mandatory Conversion”). Notwithstanding the foregoing, if holders representing at least 95% of the Lumine Preferred Shares and Lumine Special Shares approve, each holder of Lumine Preferred Shares and Lumine Special Shares will have the option to take the amount equal to the value of the Lumine Subordinate Voting Shares such holder would have otherwise received in connection with the Lumine Mandatory Conversion, determined on the basis of the 60 day volume weighted average trading price of the Lumine Subordinate Voting Shares, in cash.

Upon the Lumine Mandatory Conversion, the holders of the Lumine Special Shares will also be entitled to receive all accrued but unpaid dividends accruing to the day before the redemption date. Pursuant to the terms of the Lumine Shareholders Agreement, the board of directors of Lumine will make a determination as to whether Lumine has sufficient cash on hand to satisfy the payment of any accrued but unpaid dividends on the Lumine Special Shares in cash. If the board of directors of the Lumine determines that Lumine does not have sufficient cash on hand, the accrued but unpaid dividends will, subject to TSXV approval, be satisfied by the issuance of Lumine Subordinate Voting Shares of equal value.

As of March 24, 2023, the closing trading price of the Lumine Subordinate Voting Shares was greater than C$13.243656. As such, the Mandatory Conversion Date for the Lumine Special Shares will be March 25, 2024.

10. Provisions

 

At January 1, 2023		$	21
Reversal			(1	)
Provisions recorded during the period			3
Provisions used during the period			(5	)
Effect of movements in foreign exchange and other			0
At March 31, 2023		$	18
Provisions classified as current liabilities			9
Provisions classified as other non-current liabilities			10

The provisions balance is comprised of various individual provisions for onerous contracts and other estimated liabilities of the Company of uncertain timing or amount.

 

11.	Income taxes

Income tax expense is recognized based on management’s best estimate of the actual income tax rate for the interim period applied to the pre-tax income of the interim period for each entity in the consolidated group. As a result of foreign exchange fluctuations, acquisitions and ongoing changes due to intercompany transactions amongst entities operating in different jurisdictions, the Company has determined that a reasonable estimate of a weighted average annual tax rate cannot be determined on a consolidated basis. The Company’s consolidated effective tax rate in respect of continuing operations for the three months ended March 31, 2023 was -95% (27% for the three months ended March 31, 2022). The 2023 effective tax rate was impacted by the redeemable preferred securities expense, which is not deductible for tax purposes.

 

24

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CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated)

(Due to rounding, numbers presented may not foot)

Three months ended March 31, 2023 and 2022

(Unaudited)

 

Constellation is subject to tax audits in the countries in which the Company does business globally. These tax audits could result in additional tax expense in future periods relating to historical filings. Reviews by tax authorities generally focus on, but are not limited to, the validity of the Company’s intercompany transactions, including financing and transfer pricing policies which generally involve subjective areas of taxation and a significant degree of judgment. If any of these tax authorities are successful with their challenges, the Company’s income tax expense may be adversely affected and Constellation could also be subject to interest and penalty charges.

 

12.	Capital and other components of equity

 

		Common Shares
		Number				Amount
March 31, 2023			21,191,530			$	99
December 31, 2022			21,191,530			$	99

Dividends and other distributions to shareholders

During the three months ended March 31, 2023, the Company declared a $1.00 per share dividend to all common shareholders of record at close of business on April 6, 2023. The dividend declared in the quarter ended March 31, 2023 representing $21 was paid and settled on April 14, 2023.

The dividend declared in the quarter ended December 31, 2022 representing $21 was paid and settled on January 11, 2023.

On February 6, 2023, the Company declared a special dividend pursuant to which all common shareholders of record on February 16, 2023 of the Company were entitled to receive, by way of a dividend-in-kind, 3.0003833 Lumine Subordinate Voting Shares for each Constellation Software Inc. share held. The dividend was distributed on February 23, 2023.

 

25

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CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated)

(Due to rounding, numbers presented may not foot)

Three months ended March 31, 2023 and 2022

(Unaudited)

 

13.	Finance and other expense (income) and finance costs

 

		Three months ended March 31,
		2023				2022
Interest income on cash		$	(1	)		$	(0	)
(Increase) decrease in the fair value of equity securities held for trading			(4	)			1
Share in net (income) loss of equity investee			(0	)			0
Finance and other income			(3	)			(3	)
Finance and other expense (income)		$	(7	)		$	(2	)
Interest expense on debt and debentures		$	27			$	12
Interest expense on lease obligations			3				2
Amortization of debt related transaction costs			1				1
Other finance costs			6				4
Finance costs		$	36			$	19

 

14.	Earnings per share

Basic and diluted earnings per share

 

		Three months ended March 31,
		2023				2022
Numerator:
Net income (loss) attributable to common shareholders of CSI		$	94			$	98
Denominator:
Basic and diluted shares outstanding			21,191,530				21,191,530
Earnings per share
Basic and diluted		$	4.44			$	4.63

 

15.	Financial instruments

Fair values versus carrying amounts

The carrying values of cash, accounts receivable, accounts payable, accrued liabilities, dividends payable, the majority of acquisition holdbacks, and the CSI Facility, approximate their fair values due to the short-term nature of these instruments. The carrying value of the debt without recourse to CSI approximate their fair values as the debt is subject to market interest rates. The carrying value of the IRGA liability and the Term Loan with recourse to CSI approximates fair value.

 

26

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CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated)

(Due to rounding, numbers presented may not foot)

Three months ended March 31, 2023 and 2022

(Unaudited)

 

Fair value hierarchy

The table below analyzes financial instruments carried at fair value, by valuation method.

 

•

level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;

 

•

level 2 inputs are inputs other than quoted prices included in level 1 that are observable for the asset or liability either directly (i.e. prices) or indirectly (i.e. derived from prices); and

 

•

level 3 inputs are inputs for the asset or liability that are not based on observable market data (i.e. unobservable inputs).

In the table below, the Company has segregated all financial assets and liabilities that are measured at fair value into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date.

Financial assets and financial liabilities measured at fair value as at March 31, 2023 and December 31, 2022 in the condensed consolidated interim financial statements are summarized below. The Company has no additional financial liabilities measured at fair value after initial recognition other than those recognized in connection with business combinations and the redeemable preferred securities.

 

						March 31, 2023																December 31, 2022
		Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
Assets:
Equity securities held for trading		$	0			$	—			$	—			$	0			$	115			$	—			$	—			$	115
			0				—				—				0				115				—				—				115
Liabilities:
Redeemable preferred securities		$	—			$	—			$	409			$	409			$	—			$	—			$	—			$	—
Contingent consideration			—				—				169				169				—				—				157				157
			—				—				577				577				—				—				157				157

There were no transfers of fair value measurement between level 1, 2 and 3 of the fair value hierarchy in the periods ended March 31, 2023 and December 31, 2022.

 

27

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CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated)

(Due to rounding, numbers presented may not foot)

Three months ended March 31, 2023 and 2022

(Unaudited)

 

The following tables shows a reconciliation from the beginning balances to the ending balances for fair value measurements in level 3 of the fair value hierarchy.

Contingent Consideration

 

Balance at January 1, 2023			157
Increase from business acquisitions			11
Cash recoveries (payments)			(7	)
Charges through profit or loss			2
Foreign exchange and other movements			6
Balance at March 31, 2023			169
Contingent consideration classified as current liabilities			77
Contingent consideration classified as other non-current liabilities			91

Estimates of the fair value of contingent consideration are performed by the Company on a quarterly basis. Key unobservable inputs include revenue/profitability growth rates and the discount rates applied (8% to 11%). The estimated fair value increases as the annual revenue/profitability growth rate increases and as the discount rate decreases and vice versa.

Redeemable Preferred Securities

 

Balance at January 1, 2023		$	—
Issuance of Lumine Special Shares in conjunction with business acquistions			222
Redeemable preferred securities expense (income)			188
Conversions to subordinate voting shares of Lumine			(1	)
Payments			—
Balance at March 31, 2023			409

Estimates of the fair value of the Redeemable Preferred Securities are performed by the Company on a quarterly basis. Key unobservable inputs include expected volatility and credit spread of the Lumine Special Shares. The estimated fair value increases as the expected volatility increases. The estimated fair value decreases as the credit spread increases. The key observable input is the subordinated voting share price of Lumine. As the Lumine subordinate voting share price increases, the fair value of the Redeemable Preferred Securities increases.

 

16.	Contingencies

In the normal course of operations, the Company is subject to litigation and claims from time to time. The Company may also be subject to lawsuits, investigations and other claims, including environmental, labour, income and sales tax, product, customer disputes and other matters. Management believes that adequate provisions have been recorded in the accounts where required. Although it is not always possible to estimate the extent of potential costs, if any, management believes that the ultimate resolution of such contingencies will not have a material adverse impact on the results of operations, financial position or liquidity of the Company.

 

28

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CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated)

(Due to rounding, numbers presented may not foot)

Three months ended March 31, 2023 and 2022

(Unaudited)

 

17.	Changes in non-cash operating assets and liabilities

 

		Three months ended March 31,
		2023				2022
Decrease (increase) in current accounts receivable		$	(86	)		$	(38	)
Decrease (increase) in current unbilled revenue			(32	)			(20	)
Decrease (increase) in other current assets			(13	)			(25	)
Decrease (increase) in inventories			(1	)			(3	)
Decrease (increase) in other non-current assets			2				(5	)
Increase (decrease) in other non-current liabilities			(34	)			10
Increase (decrease) in current accounts payable and accrued liabilities, excluding holdbacks from acquisitions			(8	)			(102	)
Increase (decrease) in current deferred revenue			443				350
Increase (decrease) in current provisions			(2	)			1
Change in non-cash operating working capital		$	268			$	169

 

18.	Non-controlling interests

Topicus:

The Company’s significant non-controlling interests at March 31, 2023 were associated with Topicus, a company whose operations are based in the Netherlands. Constellation’s equity interest in Topicus is 60.65% (39.35% being non-controlling interest) as at March 31, 2023. On May 16, 2022, Topicus also acquired a controlling interest of 72.68% in Sygnity S.A. (“Sygnity”), a Company based in Poland. The remaining 27.32% represents non-controlling interest.

Adapt IT:

On January 3, 2022, the Company acquired a controlling interest in Adapt IT Holdings Limited (“Adapt IT”), a Company based in South Africa. As of March 31, 2023, the Company has an interest of 67.21% in Adapt IT(the remaining 32.79% represents non-controlling interest).

Lumine:

Prior to February 23, 2023, the Company reflected a 100% ownership interest in Lumine. However, as outlined in Note 1 to the condensed consolidated interim financial statements, Constellation’s common equity interest in Lumine was reduced from 100% to 0% (100% being non-controlling interest) in 2023.

 

29

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CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated)

(Due to rounding, numbers presented may not foot)

Three months ended March 31, 2023 and 2022

(Unaudited)

 

The following tables summarize the information relating to the Company’s non-controlling interests in Topicus, Adapt IT and Lumine before and after intercompany eliminations:

 

		As at March 31, 2023
		Topicus Coop				Adapt-IT				Lumine
Non-controlling interest			39.35	%			32.79	%			100.00	%
Current assets			478				38				320
Non-current assets			1,077				87				848
Total assets			1,555				126				1,168
Current liabilities			736				34				2,467
Non-current liabilities			287				32				375
Total liabilities			1,024				66				2,842
Less: Non-controlling interest of subsidaries, including interests held by CSI			48				—				—
Net assets after allocation of non-controlling interests (including interests held by CSI)			483				59				(1,674	)
Inter-group eliminations			20				—				1,859
Total			503				59				184
Net assets allocated to the non-controlling interests of subsidiary			198				19				184
Add: Non-controlling interest of subsidaries not owned by CSI			18				—				—
Total non-controlling interest			216				19				184

 

		Three months ended March 31, 2023
		Topicus Coop				Adapt-IT				Lumine
Revenue			284				27				95
Expenses			251				25				90
Redeemable preferred securities expense (income)			—				—				655
Income (loss) before income taxes			33				2				(650	)
Income tax expense			9				0				2
Net income (loss) prior to non-controlling interest allocation			24				2				(652	)
Less: Non-controlling interest of subsidaries, including interests held by CSI			(0	)			—				—
Net income (loss) after allocation of non-controlling interest			24				2				(652	)
Inter-group eliminations			(1	)			—				467
Total			23				2				(185	)
Net income (loss) attributable to non-controlling interests			9				0				(186	)
Add: Non-controlling interest of subsidaries not owned by CSI			(0	)			—				—
Total non-controlling interest			9				0				(186	)

 

30

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CONSTELLATION SOFTWARE INC.

Notes to Condensed Consolidated Interim Financial Statements

(In millions of U.S. dollars, except per share amounts and as otherwise indicated)

(Due to rounding, numbers presented may not foot)

Three months ended March 31, 2023 and 2022

(Unaudited)

 

Financial information on the statement of cash flows for Topicus, Adapt IT and Lumine is as follows:

 

		Three months ended March 31, 2023
		Topicus Coop				Adapt-IT				Lumine
Cash flows from (used in) operating activities			187				8				15
Cash flows from (used in) financing activities			(89	)			(4	)			349
Cash flows from (used in) investing activities			(32	)			(0	)			(281	)

 

19.	Subsequent events

On May 15, 2023 the Company declared a $1.00 per share dividend that is payable on July 11, 2023 to all common shareholders of record at close of business on June 20, 2023.

Subsequent to March 31, 2023, the Company completed or entered into agreements to acquire a number of additional businesses for aggregate cash consideration of $197 on closing plus cash holdbacks of $53 and contingent consideration with an estimated fair value of $13 for total consideration of $262. The business acquisitions include companies catering primarily to the transit, creative agencies, local government, horticulture, healthcare, mining, accounting, travel, field service, retail management and distribution and utilities verticals and are all software companies similar to the existing business of the Company.

 

31

Exhibit 2.7

Note to Reader: This Management’s Discussion and Analysis for the three months ended March 31, 2023 is being refiled to correct errors in the last two rows of the table on page 15 related to Altera’s supplemental financial information. Specifically, the “Net cash flows from operating activities” and the “Free cash flow available to shareholders” have been updated.

CONSTELLATION SOFTWARE INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS (“MD&A”)

The following discussion and analysis should be read in conjunction with the Unaudited Condensed Consolidated Interim Financial Statements for the three month period ended March 31, 2023, which we prepared in accordance with International Financial Reporting Standards (“IFRS”). Certain information included herein is forward-looking and based upon assumptions and anticipated results that are subject to uncertainties. Should one or more of these uncertainties materialize or should the underlying assumptions prove incorrect, actual results may vary significantly from those expected. See “Forward-Looking Statements” and “Risks and Uncertainties”.

Unless otherwise indicated, all dollar amounts are expressed in U.S. dollars. All references to “$” are to U.S. dollars and all references to “C$” are to Canadian dollars. Due to rounding, certain totals and subtotals may not foot and certain percentages may not reconcile.

Additional information about Constellation Software Inc. (the “Company” or “Constellation”), including our most recently filed Annual Information Form (“AIF”), is available on SEDAR at www.sedar.com.

Forward Looking Statements

Certain statements in this report may contain “forward looking” statements that involve risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company or industry to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Words such as “may”, “will”, “expect”, “believe”, “plan”, “intend”, “should”, “anticipate” and other similar terminology are intended to identify forward looking statements. These statements reflect current assumptions and expectations regarding future events and operating performance as of the date of this MD&A May 15, 2023. Forward looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to vary significantly from the results discussed in the forward looking statements, including, but not limited to, the factors discussed under “Risks and Uncertainties”. Although the forward looking statements contained in this MD&A are based upon what management of the Company believes are reasonable assumptions, the Company cannot assure investors that actual results will be consistent with these forward looking statements. These forward looking statements are made as of the date of this MD&A and the Company assumes no obligation, except as required by law, to update any forward looking statements to reflect new events or circumstances. This report should be viewed in conjunction with the Company’s other publicly available filings, copies of which can be obtained electronically on SEDAR at www.sedar.com.

Non-IFRS Measures

This MD&A includes certain measures which have not been prepared in accordance with IFRS such as Free cash flow available to shareholders.

Free cash flow available to shareholders ‘‘FCFA2S’’ refers to net cash flows from operating activities less interest paid on lease obligations, interest paid on other facilities, credit facility transaction costs, repayments of lease obligations, the IRGA / TSS membership liability revaluation charge, and property and equipment purchased, and includes interest and dividends received. The portion of this amount applicable to non-controlling interests is then deducted. We believe that FCFA2S is useful supplemental information as it provides an indication of the uncommitted cash flow that is available to shareholders if we do not make any acquisitions, or investments, and do not repay any debts. While we could use the FCFA2S to pay dividends or repurchase shares, our objective is to invest all of our FCFA2S in acquisitions which meet our hurdle rate.

 

1

---

FCFA2S is not a recognized measure under IFRS and may not be comparable to similar financial measures disclosed by other issuers. Accordingly, readers are cautioned that FCFA2S should not be construed as an alternative to net cash flows from operating activities. See ‘‘Results of Operations —Free cash flow available to shareholders” for a reconciliation of FCFA2S to net cash flows from operating activities.

Corporate Reorganization

On February 22 and 23, 2023 (as part of a series of transactions relating to the acquisition of WideOrbit Inc. (“WideOrbit”)), the Company’s subsidiary, Lumine Group Inc. (“Lumine”), completed a corporate reorganization. After the reorganization was completed, the Company now owns 1 super voting share, 6 subordinate voting shares and 63,582,712 preferred shares of Lumine. Furthermore, the Company distributed 63,582,706 of the subordinate voting shares of Lumine to its common shareholders pursuant to a dividend-in-kind on February 23, 2023. The steps performed in conjunction with the reorganization consisted of the following:

 

•

The Company exchanged its existing common shares and preferred shares in Lumine Group (Holdings) Inc. (“Lumine Group Holdings”) for 63,582,712 subordinate voting shares (“Lumine Subordinate Voting Shares”) and 55,233,745 preferred shares (“Lumine Preferred Shares”) on February 22, 2023.

 

•

Lumine and Lumine Group Holdings amalgamated on February 22, 2023.

 

•

The Company subscribed for 8,348,967 Lumine Preferred Shares on February 22, 2023. The Lumine Preferred Shares are convertible into Lumine Subordinate Voting Shares at a rate of 1:2.43.

 

•

Lumine had 63,582,712 Lumine Subordinate Voting shares outstanding on February 22, 2023. The Company distributed 63,582,706 of the Lumine Subordinate Voting Shares to its common shareholders pursuant to a dividend-in-kind on February 23, 2023 and continues to hold 6 Lumine Subordinate Voting Shares.

The Company holds 1 super voting share of Lumine (the “Lumine Super Voting Share”). The Lumine Super Voting Share entitles CSI to that number of votes that equals 50.1% of the aggregate number of votes attached to all the outstanding Lumine Super Voting Shares, Lumine Subordinate Voting Shares and special shares of Lumine (the “Lumine Special Shares”). As a result, the Company controls Lumine and has consolidated Lumine’s financial position and results of operations. The Company reflects a non-controlling interest held by other parties in Lumine of 100% as of March 31, 2023 (December 31, 2022 – 0%).

Overview

We acquire, manage and build vertical market software (“VMS”) businesses. Generally, these businesses provide mission critical software solutions that address the specific needs of our customers in particular markets. Our focus on acquiring businesses with growth potential, managing them well and then building them, has allowed us to generate significant cash flows and revenue growth during the past several years.

Our revenue consists primarily of software license fees, maintenance and other recurring fees, professional service fees and hardware sales. Software license revenue is comprised of non-recurring license fees charged for the use of software products licensed under multiple-year or perpetual arrangements. Maintenance and other recurring revenue primarily consists of fees charged for customer support on software products post-delivery and also includes recurring fees derived from combined software/support contracts, transaction revenues, managed services associated with CSI software that has been sold to the customer, and hosted software-as-a-service products. Professional service revenue consists of fees charged for implementation services, custom programming, product training, certain managed services, and consulting. Hardware and other revenue includes the resale of third party hardware as part of customized solutions, as well as sales of hardware assembled internally and the reimbursement of travel costs. Our customers typically purchase a combination of software, maintenance, professional services and hardware, although the type, mix and quantity of each vary by customer and by product.

 

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Expenses consist primarily of staff costs, the cost of hardware, third party licenses, maintenance and professional services to fulfill our customer arrangements, travel and occupancy costs, depreciation, and other general operating expenses.

 

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Results of Operations

(In millions of dollars, except percentages and per share amounts)

Unaudited

 

		Three months ended March 31,								Period-Over- Period Change
		2023				2022				$				%
Revenue			1,919				1,431				488				34	%
Expenses			1,502				1,090				412				38	%
Amortization of intangible assets			193				146				47				32	%
Foreign exchange (gain) loss			10				0				10				NM
IRGA / TSS membership liability revaluation charge			39				27				11				42	%
Finance and other expense (income)			(7	)			(2	)			(5	)			217	%
Bargain purchase gain			(1	)			(1	)			(0	)			27	%
Impairment of intangible and other non-financial assets			2				1				1				67	%
Redeemable preferred securities expense (income)			188				—				188				NM
Finance costs			36				19				17				91	%
Income before income taxes			(43	)			151				(194	)			NM
Income tax expense (recovery)
Current income tax expense (recovery)			103				99				4				4	%
Deferred income tax expense (recovery)			(62	)			(58	)			(4	)			7	%
Income tax expense (recovery)			40				40				0				0	%
Net income (loss) attributable to:
Common shareholders of CSI			94				98				(4	)			-4	%
Non-controlling interests			(177	)			13				(190	)			NM
Net income (loss)			(83)				111				(194)				NM
Net cash flows from operating activities			632				498				134				27	%
Free cash flow available to shareholders			453				324				129				40	%
Weighted average number of shares outstanding
Basic and diluted			21.2				21.2
Net income (loss) per share
Basic and diluted		$	4.44			$	4.63			$	(0.19	)			-4	%
Net cash flows from operating activities per share
Basic and diluted		$	29.85			$	23.51			$	6.34				27	%
Free cash flow available to shareholders per share
Basic and diluted		$	21.37			$	15.27			$	6.10				40	%
Cash dividends declared per share
Basic and diluted		$	1.00			$	1.00			$	—				0	%

NM - Not meaningful

Due to rounding, certain totals may not foot and certain percentages may not reconcile.

 

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Comparison of the first quarter ended March 31, 2023 and 2022

Revenue:

Total revenue for the quarter ended March 31, 2023 was $1,919 million, an increase of 34%, or $488 million, compared to $1,431 million for the comparable period in 2022. The increase is primarily attributable to growth from acquisitions as the Company experienced organic growth of 2% in the quarter, 5% after adjusting for the impact of changes in the valuation of the US dollar against most major currencies in which the Company transacts business. For acquired companies, organic growth is calculated as the difference between actual revenues achieved by each company in the financial period following acquisition compared to the estimated revenues they achieved in the corresponding financial period preceding the date of acquisition by Constellation. Organic growth is not a standardized financial measure and might not be comparable to measures disclosed by other issuers.

The following table displays the breakdown of our revenue according to revenue type:

 

		Three months ended March 31,								Period-Over- Period Change								Q122 Proforma Adj. (Note 1)				Organic Growth
		2023				2022				$				%				$				%
		($ in millions, except percentages)
Licenses			81				69				12				17	%			21				-9	%
Professional services			411				270				141				52	%			141				0	%
Hardware and other			57				47				10				22	%			11				-1	%
Maintenance and other recurring			1,369				1,045				324				31	%			275				4	%
			1,919				1,431				488				34	%			448				2	%

$M - Millions of dollars

Due to rounding, certain totals may not foot and certain percentages may not reconcile.

Note 1: Estimated pre-acquisition revenues for the three months ended March 31, 2022 from companies acquired after December 31, 2021. (Obtained from unaudited vendor financial information.)

For comparative purposes the table below shows the quarterly organic growth as compared to the same period in the prior year by revenue type since Q1 2021. Note that the estimated revenues achieved by acquired companies in the corresponding financial period preceding the date of acquisition by Constellation may be updated in the quarter following the quarter they were acquired resulting in slight variances to previously reported figures.

 

		Quarter Ended
		Mar. 31 2021				Jun. 30 2021				Sep. 30 2021				Dec. 31 2021				Mar. 31 2022				Jun. 30 2022				Sep. 30 2022				Dec. 31 2022				Mar. 31 2023
Licenses			-4	%			18	%			3	%			4	%			-13	%			-21	%			-16	%			-7	%			-9	%
Professional services			6	%			17	%			8	%			6	%			-5	%			-8	%			-7	%			-9	%			0	%
Hardware and other			-12	%			15	%			-12	%			-12	%			-5	%			-8	%			-7	%			36	%			-1	%
Maintenance and other recurring			7	%			12	%			8	%			5	%			4	%			1	%			-1	%			1	%			4	%
Revenue			6	%			14	%			7	%			4	%			1	%			-2	%			-3	%			-1	%			2	%

 

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The following table shows the same information adjusting for the impact of foreign exchange movements.

 

		Quarter Ended
		Mar. 31 2021				Jun. 30 2021				Sep. 30 2021				Dec. 31 2021				Mar. 31 2022				Jun. 30 2022				Sep. 30 2022				Dec. 31 2022				Mar. 31 2023
Licenses			-8	%			12	%			2	%			5	%			-11	%			-17	%			-11	%			-3	%			-7	%
Professional services			1	%			10	%			6	%			7	%			-2	%			-3	%			-2	%			-5	%			3	%
Hardware and other			-16	%			9	%			-13	%			-11	%			-3	%			-4	%			1	%			44	%			2	%
Maintenance and other recurring			3	%			7	%			6	%			6	%			7	%			6	%			5	%			6	%			6	%
Revenue			1	%			8	%			5	%			5	%			4	%			2	%			2	%			4	%			5	%

Expenses:

The following table displays the breakdown of our expenses:

 

		Three months ended March 31,								Period-Over- Period Change
		2023				2022				$				%
		($ in millions, except percentages)
Expenses
Staff			1,068				783				285				36	%
Hardware			35				27				8				31	%
Third party license, maintenance and professional services			185				122				63				52	%
Occupancy			13				11				3				23	%
Travel, Telecommunications, Supplies & Software and equipment			89				56				33				58	%
Professional fees			36				24				11				46	%
Other, net			38				35				2				7	%
Depreciation			39				32				7				21	%
			1,502				1,090				412				38	%

Due to rounding, certain totals may not foot and certain percentages may not reconcile.

Overall expenses for the quarter ended March 31, 2023 increased 38%, or $412 million to $1,502 million, compared to $1,090 million during the same period in 2022. As a percentage of total revenue, expenses equalled 78% for the quarter ended March 31, 2023 and 76% for the same period in 2022. The change in valuation of the US dollar against most major currencies in which the Company transacts business resulted in an approximate 3% decrease in expenses for the three months ended March 31, 2023 compared to the first quarter of 2022.

Staff expense – Staff expenses increased 36% or $285 million for the quarter ended March 31, 2023 over the same period in 2022. Staff expense can be broken down into five key operating departments: Professional Services, Maintenance, Research and Development, Sales and Marketing, and General and Administrative. Included within staff expenses for each of the above five departments are personnel and related costs associated with providing the necessary services. The table below compares the period over period variances.

 

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		Three months ended March 31,								Period-Over- Period Change
		2023				2022				$				%
		($ in millions, except percentages)
Professional services			254				165				90				54	%
Maintenance			202				154				48				31	%
Research and development			285				214				71				33	%
Sales and marketing			133				106				27				26	%
General and administrative			193				144				49				34	%
			1,068				783				285				36	%

Due to rounding, certain totals may not foot and certain percentages may not reconcile.

The increase in staff expenses for the quarter ended March 31, 2023 was primarily due to the growth in the number of employees compared to the same period in 2022 primarily due to acquisitions. Staff expenses in the first quarter of every year are typically higher as a percentage of revenue as compared to other quarters, largely attributable to increased payroll tax costs associated with our annual bonus payments that are made in the month of March.

Hardware expenses – Hardware expenses increased 31% or $8 million for the quarter ended March 31, 2023 over the same period in 2022, as compared to the 22% increase in hardware and other revenue for the same periods. Hardware margin for the three months ended March 31, 2023 was 39% as compared to 43% for the same period in 2022.

Third party license, maintenance and professional services expenses – Third party license, maintenance and professional services expenses increased 52% or $63 million for the quarter ended March 31, 2023 over the same period in 2022. The increase is primarily due to third party license, maintenance and professional services expenses of acquired businesses.

Occupancy expenses – Occupancy expenses increased 23% or $3 million for the quarter ended March 31, 2023 over the same period in 2022. This increase is primarily due to the occupancy expenses of acquired businesses.

Travel, Telecommunications, Supplies & Software and equipment expenses – Travel, Telecommunications, Supplies & Software and equipment expenses increased 58% or $33 million for the quarter ended March 31, 2023 over the same period in 2022. The increase in these expenses is primarily due to expenses incurred by acquired businesses. In addition, employee travel during the three months ended March 31, 2022 was reduced due to restrictions imposed as a result of COVID-19.

Professional fees – Professional fees increased 46% or $11 million for the quarter ended March 31, 2023 over the same period in 2022. Approximately $6 million was incurred during the quarter ended March 31, 2023 relating to the Lumine group corporate reorganization and acquisition of WideOrbit. There are no other individually material reasons contributing to this variance.

Other, net – Other expenses increased 7% or $2 million for the quarter ended March 31, 2023 over the same period in 2022. The following table provides a further breakdown of expenses within this category.

 

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		Three months ended March 31,								Period-Over-Period Change
		2023				2022				$				%
		($ in millions, except percentages)
Advertising and promotion			25				19				6				29	%
Recruitment and training			10				7				3				38	%
Bad debt expense			4				2				2				83	%
R&D tax credits			(8	)			(7	)			(1	)			8	%
Contingent consideration			0				10				(9	)			-96	%
Government assistance			(0	)			(1	)			1				-85	%
Other expense, net			7				5				2				30	%
			38				35				2				7	%

Due to rounding, certain totals may not foot and certain percentages may not reconcile.

The contingent consideration expense amounts recorded for the three months ended March 31, 2022 related to an increase (decrease) in anticipated acquisition earnout payment accruals primarily as a result of increases (decreases) to revenue forecasts for the associated acquisitions. Revenue forecasts are updated on a quarterly basis and the related anticipated acquisition earnout payment accruals are updated accordingly.

There are no individually material reasons contributing to the remaining variances.

Depreciation – Depreciation of property and equipment and right of use assets increased 21% or $7 million for the quarter ended March 31, 2023 over the same period in 2022. The increase is primarily due to the depreciation expense associated with acquired businesses.

Other Income and Expenses:

The following table displays the breakdown of our other income and expenses:

 

		Three months ended March 31,								Period-Over- Period Change
		2023				2022				$				%
		($ in millions, except percentages)
Amortization of intangible assets			193				146				47				32	%
Foreign exchange (gain) loss			10				0				10				NM
IRGA / TSS membership liability revaluation charge			39				27				11				42	%
Finance and other expense (income)			(7	)			(2	)			(5	)			217	%
Bargain purchase gain			(1	)			(1	)			(0	)			27	%
Impairment of intangible and other non-financial assets			2				1				1				67	%
Redeemable preferred securities expense (income)			188				—				188				NM
Finance costs			36				19				17				91	%
Income tax expense (recovery)			40				40				0				0	%
			500				230				270				117	%

NM - Not meaningful

Due to rounding, certain totals may not foot and certain percentages may not reconcile.

Amortization of intangible assets – Amortization of intangible assets increased 32% or $47 million for the quarter ended March 31, 2023 over the same period in 2022. The increase in amortization expense is primarily attributable to an increase in the carrying amount of our intangible asset balance over the twelve-month period ended March 31, 2023 as a result of acquisitions completed during this twelve-month period.

 

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Foreign exchange – Most of our businesses are organized geographically so many of our expenses are incurred in the same currency as our revenues, which mitigates some of our exposure to currency fluctuations. For the quarter ended March 31, 2023, we realized a foreign exchange loss of $10 million compared to nil for the same period in 2022. The following table provides a breakdown of these amounts.

 

		Three months ended March 31,								Period-Over-Period Change
		2023				2022				$				%
		($ in millions, except percentages)
Unrealized foreign exchange (gain) loss related to:
-  revaluation of intercompany loans between entities with differing functional currencies (1)			3				(2	)			4				NM
-  revaulation of the Company’s unsecured subordinated floating rate debentures as a result of the appreciation (depreciation) of the Canadian dollar against the US dollar.			0				3				(3	)			-92	%
-  revaluation of the liability associated with the IRGA (Euro denominated liability)			8				(8	)			16				NM
Remaining foreign exchange (gain) loss			(1	)			6				(7	)			NM
			10				0				10				NM

NM - Not meaningful

Due to rounding, certain totals may not foot and certain percentages may not reconcile.

 

(1)	Offsetting amounts recorded in other comprehensive income. Net impact to Total comprehensive income for each period is nil.

The remaining foreign exchange gains and losses per the table above are primarily related to the unrealized foreign exchange translation gains and losses of certain non-US dollar denominated working capital balances to US dollars as a result of the depreciation or appreciation of the US dollar.

IRGA / TSS membership liability revaluation charge – On December 23, 2014, in accordance with the terms of the purchase and sale agreement for the initial acquisition of TSS (as defined below) by CSI, and on the basis of the term sheets attached thereto, Constellation and the Joday Group, among others, entered into a Members Agreement (the “Members Agreement”) pursuant to which the Joday Group acquired 33.29% of the voting interests in Constellation Software Netherlands Holding Coöperatief U.A. (which was renamed to Topicus.com Coöperatief U.A.), a subsidiary of Constellation and the indirect owner of 100% of TSS at the time of the acquisition. Total proceeds from this transaction was €39 million ($49 million).

On January 5, 2021, the Members Agreement was terminated in conjunction with the acquisition of Topicus.com B.V., the reorganization of Topicus Coop and the execution of the IRGA. The IRGA was established to create certain contractual obligations of the parties in respect of the governance of Topicus and Topicus Coop. The Joday Group’s interest in Topicus Coop now comprises 39,331,284 Topicus Coop Ordinary Units (“Topicus Coop Units”) resulting in an interest of 30.29% in Topicus Coop as of March 31, 2023. The IRGA provides for transfer restrictions in respect of the Topicus Coop Units. See “Liability of CSI under the terms of the IRGA” below for further details.

 

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The valuation of the IRGA liability (previously the TSS membership liability) increased by approximately 8% or $39 million from Q4 2022. The increase is primarily the result of the growth in TSS’ trailing twelve month maintenance revenue on a pro-forma basis (primarily due to acquisitions). Maintenance revenue and net tangible assets are the two main drivers in the calculation of the liability. The liability recorded on the balance sheet increased by 10% or $47 million over the three month period ended March 31, 2023 from $465 million to $512 million as a result of the revaluation charge of $39 million and a $8 million foreign exchange loss. The IRGA / TSS membership liability is denominated in Euros and the Euro appreciated 2% versus the US dollar during the three months ended March 31, 2023.

Finance and other expense (income) – Finance and other income for the quarter ended March 31, 2023 was $7 million compared to $2 million for the same period in 2022. Interest earned on cash balances was $1 million in Q1 2023 and $0.3 million in Q1 2022. The increase in fair value of equity securities held for trading for the three months ended March 31, 2023 was $4 million compared to a decrease of $1 million for the three months ended March 31, 2022.

Bargain purchase gain – Bargain purchase gains totalling $1 million were recorded in both the three months ended March 31, 2023 and 2022 relating to acquisitions made in the respective periods. The gains resulted from the fact that the fair value of the separately identifiable assets and liabilities acquired exceeded the total consideration paid, principally due to the acquisition of certain assets that will benefit the Company that had limited value to the sellers.

Impairment of intangible and other non-financial assets – An impairment expense of $2 million was recorded in the three month period ended March 31, 2023 compared to $1 million for the same period in 2022. The expenses relate to businesses that have been unable to achieve the goals established in their respective investment theses.

Redeemable preferred securities expense – The redeemable preferred securities expense for the three month period ended March 31, 2023 was $188 million, with no similar expense recorded for the same period in 2022. In conjunction with the acquisition of WideOrbit, Lumine issued 10,204,294 Lumine Special Shares (the “Preferred Securities”) to the sellers of WideOrbit for an initial subscription price of approximately $222 million. Holders of the Preferred Securities are entitled to convert some or all of their Preferred Securities into Lumine Subordinate Voting Shares on the basis of 3.4302106 Lumine Subordinate Voting Shares per Preferred Security, at any time.

The Preferred Securities will be recorded at fair value at the end of each reporting period. The change in fair value of the Preferred Securities is recorded as redeemable preferred securities expense (income) in the condensed consolidated interim statements of income. Based on the Preferred Securities conversion right, the value of the Preferred Securities is primarily dependent on the price movement of Lumine’s Subordinate Voting Shares. At March 31, 2023 the market price of Lumine’s Subordinate Voting Shares closed at C$14.71 or approximately $10.87. The value of the Preferred Securities was therefore approximately $380 million. The increase in value from the initial subscription price of $222 million was $159 million. The difference between $159 million and the fair value adjustment of $188 million primarily relates to the impact of share price volatility and optionality and the accrued dividend of $11 million.

Further descriptions of the significant terms and conditions of the Preferred Securities are described in Note 9 to the Company’s Unaudited Condensed Consolidated Interim Financial Statements for the three month period ended March 31, 2023.

Finance costs – Finance costs for the quarter ended March 31, 2023 increased $17 million to $36 million, compared to $19 million for the same period in 2022 primarily a result of an increase in the average debt outstanding in Q1 2023 as compared to Q1 2022, and an increase in interest rates.

 

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Income taxes – We operate globally and we calculate our tax provision in each of the jurisdictions in which we conduct business. Our effective tax rate on a consolidated basis is, therefore, affected by the realization and anticipated relative profitability of our operations in those various jurisdictions, as well as different tax rates that apply and our ability to utilize tax losses and other credits. For the quarter ended March 31, 2023, income tax expense was $40 million compared to $40 million for the same period in 2022. Current tax expense has historically approximated our cash tax rate however the quarterly expense can sometimes fall outside of the annual range due to out of period adjustments. Current tax expense reflects gross taxes before the application of R&D tax credits which are classified as part of “other, net” expenses in the statement of income (loss). The Company’s consolidated effective tax rate in respect of continuing operations for the three months ended March 31, 2023 was -95% (27% for the three months ended March 31, 2022). The current period effective tax rate is impacted by the redeemable preferred securities expense, which is not deductible for tax purposes.

Effective for 2022, research and experimentation (R&E) expenditures are no longer allowed to be deducted as incurred for tax purposes by US entities. The Tax Cuts and Jobs Act (TCJA) mandates that, for tax years beginning after December 31, 2021, R&E expenditures be deferred and amortized. US-based expenditures will be amortized over a 5 year period, and non-US-based expenditures over a 15 year period. The total estimated impact to current income tax expense is $105 million for the 2023 fiscal year. $25 million was accrued and expensed in the three month period ended March 31, 2023 ($33 million for the three month period ended March 31, 2022). An offsetting amount has been booked to deferred income tax expense so there is no impact on net tax expense or the effective tax rate.

Constellation is subject to tax audits in the countries in which the Company carries on business globally. These tax audits could result in additional tax expense in future periods relating to historical filings. Reviews by tax authorities generally focus on, but are not limited to, the validity of the Company’s inter-company transactions, including financing and transfer pricing policies which generally involve subjective areas of taxation and a significant degree of judgment. If any of these tax authorities are successful with their challenges, the Company’s income tax expense may be adversely affected and Constellation could also be subject to interest and penalty charges.

Net Income and Earnings per Share:

The net income attributable to common shareholders of CSI for the quarter ended March 31, 2023 was $94 million compared to $98 million for the same period in 2022. On a per share basis this translated into net income per basic and diluted share of $4.44 in the quarter ended March 31, 2023 compared to $4.63 for the same period in 2022. There was no change in the number of shares outstanding.

Net cash flows from operating activities (“CFO”):

For the quarter ended March 31, 2023, CFO increased $134 million to $632 million compared to $498 million for the same period in 2022 representing an increase of 27%.

Free cash flow available to shareholders (“FCFA2S”):

For the quarter ended March 31, 2023, FCFA2S increased $129 million to $453 million compared to $324 million for the same period in 2022 representing an increase of 40%.

 

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The following table reconciles FCFA2S to net cash flows from operating activities:

 

		Three months ended March 31,
		2023				2022
		($ in millions)
Net cash flows from operating activities			632				498
Adjusted for:
Interest paid on lease obligations			(3	)			(2	)
Interest paid on other facilities			(26	)			(10	)
Credit facility transaction costs			(2	)			(1	)
Payments of lease obligations			(25	)			(22	)
IRGA / TSS membership liability revaluation charge			(39	)			(27	)
Property and equipment purchased			(10	)			(8	)
Interest and dividends received			1				0
			529				429
Less amount attributable to Non-controlling interests			(76	)			(105	)
Free cash flow available to shareholders			453				324

Due to rounding, certain totals may not foot.

Quarterly Results

 

		Quarter Ended
		Mar. 31 2021				Jun. 30 2021				Sep. 30 2021				Dec. 31 2021				Mar. 31 2022				Jun. 30 2022				Sep. 30 2022				Dec. 31 2022				Mar. 31 2023
Revenue			1,176				1,249				1,299				1,383				1,431				1,618				1,725				1,847				1,919
Net income (loss) *			(9	)			88				107				124				98				126				136				152				94
CFO			495				171				292				341				498				78				321				400				632
FCFA2S			269				145				226				244				324				12				229				290				453
Net income per share * Basic & diluted			-0.41				4.16				5.04				5.86				4.63				5.94				6.42				7.19				4.44
CFO per share Basic & diluted			23.38				8.07				13.78				16.09				23.51				3.66				15.17				18.89				29.85
FCFA2S per share Basic & diluted			12.67				6.84				10.68				11.50				15.27				0.56				10.82				13.68				21.37

 

*	Attributable to common shareholders of CSI

We experience seasonality in our operating results in that CFO and FCFA2S in the first quarter of every year is typically the highest and CFO and FCFA2S in the second quarter of every year is the lowest. The key driver impacting this seasonality is the timing of annual maintenance contract renewals. Our quarterly results may also fluctuate as a result of the various acquisitions which may be completed by the Company in any given quarter. We may experience variations in our net income on a quarterly basis depending upon the timing of certain expenses or gains, which may include changes in provisions, acquired contract liabilities, foreign exchange gains and losses, bargain purchase gains, and gains or losses on the sale of financial and other assets.

 

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Spin-Outs

Topicus.com Inc.

Constellation (TSX:CSU) and Topicus (TSXV:TOI) announced on January 5, 2021 that Constellation, acting through its Total Specific Solutions (“TSS”) operating group and its subsidiary TPCS Holding B.V., completed the purchase of 100% of the shares of Topicus.com B.V., a Netherlands-based diversified vertical market software provider, from IJssel B.V. and that in connection with the closing of the acquisition, TSS has been spun out of Constellation and now operates, together with Topicus.com B.V., as a separate public company, Topicus.com Inc. (collectively, the “Spin-Out Transactions”).

In connection with the completion of the Spin-Out Transactions, on January 4, 2021, all of Constellation’s common shareholders of record on December 28, 2020 received, by way of a dividend-in-kind, 1.859817814 subordinate voting shares of Topicus.com (the “Spin-Out Shares”) for each common share of Constellation held.

Constellation’s equity interest in TSS prior to the Spin-Out Transactions was 66.7%. Constellation’s equity interest in Topicus after completion of the Spin-Out Transactions on a fully diluted basis was approximately 30.4%. In addition, Constellation as the holder of the Topicus Super Voting Share is entitled to that number of votes that equals 50.1% of the aggregate number of votes attached to all of the outstanding voting shares at such time. As a result of the Topicus Super Voting Share Constellation consolidated the financial results of Topicus with its financial results.

Lumine Group Inc.

On February 22 and 23, 2023 (as part of a series of transactions relating to the acquisition of WideOrbit Inc. (“WideOrbit”)), the Company’s subsidiary, Lumine Group Inc. (“Lumine”), completed a corporate reorganization. See “Corporate Reorganization” on page 2.

The Company holds 1 super voting share of Lumine (the “Lumine Super Voting Share”). The Lumine Super Voting Share entitles CSI to that number of votes that equals 50.1% of the aggregate number of votes attached to all the outstanding Lumine Super Voting Shares, Lumine Subordinate Voting Shares and special shares of Lumine (the “Lumine Special Shares”). As a result, the Company controls Lumine and has consolidated Lumine’s financial position and results of operations. The Company reflects a non-controlling interest held by other parties in Lumine of 100% as of March 31, 2023 (December 31, 2022 – 0%).

The tables below provide certain supplemental balance sheet, statement of income, and net operating cash flow information of Topicus and Lumine for the three months ended March 31, 2023. Neither Topicus or Lumine are considered a reportable operating segment of Constellation, however, management has chosen to provide certain supplemental financial information to provide greater clarity into the operating performance and cash flow from operations of Topicus and Lumine considering Constellation’s equity ownership.

Selected Balance Sheet Information

As at March 31, 2023

 

(Unaudited)		Constellation Software Inc. (excluding Topicus & Lumine)				Topicus				Lumine				Consolidated
Cash			644				215				151				1,010
Bank debt and debentures			1,174				184				192				1,550

 

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Statement of Income

(Excluding intercompany activity)

 

		For the three months ended March 31, 2023
(Unaudited)		Constellation Software Inc. (excluding Topicus & Lumine)				Topicus				Lumine				Consolidated
Revenue			1,542				282				95				1,919
Expenses			1,214				215				73				1,502
Amortization of intangible assets			148				30				15				193
Foreign exchange (gain) loss			9				1				0				10
IRGA / Membership liability revaluation charge			39				—				—				39
Finance and other income			(7	)			(0	)			(0	)			(7	)
Bargain purchase gain			(1	)			—				—				(1	)
Impairment of intangible and other non-financial assets			2				(0	)			—				2
Redeemable preferred securities expense (income)			—				—				188				188
Finance costs			30				5				2				36
Income (loss) before income taxes			109				32				(183	)			(43	)
Income tax expense (recovery)
Current income tax expense (recovery)			82				13				8				103
Deferred income tax expense (recovery)			(53	)			(4	)			(6	)			(62	)
Income tax expense (recovery)			30				9				2				40
Net income (loss)			79				23				(185	)			(83	)
Net cash flows from operating activities			431				187				15				632

Foreign Exchange Adjusted Organic Revenue Growth

(Excluding intercompany activity)

 

		For the three months ended March 31, 2023
		Constellation Software Inc. (excluding Topicus & Lumine)				Topicus				Lumine				Consolidated
Licenses			-7	%			-12	%			0	%			-7	%
Professional services			-4	%			7	%			-5	%			3	%
Hardware and other			2	%			-29	%			33	%			2	%
Maintenance and other recurring			6	%			10	%			1	%			6	%
Revenue			3	%			8	%			1	%			5	%

Acquisition of business segment from Allscripts Healthcare Solutions

On May 2, 2022, Constellation, through its wholly-owned subsidiary, N. Harris Computer Corporation, completed the purchase from Allscripts Healthcare Solutions (“Allscripts”) of Allscripts’ Hospitals and Large Physician Practices business segment. This business segment now operates under the name Altera.

 

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The tables below provide certain supplemental balance sheet, statement of income, and net operating cash flow information of Altera for the three months ended March 31, 2023. Altera is not considered a reportable operating segment of Constellation, however, management has chosen to provide certain supplemental financial information to provide greater clarity into the operating performance and cash flow from operations of Altera considering the size of the business and its impact on the results of Constellation.

Selected Balance Sheet Information

As at March 31, 2023

 

(Unaudited)		Constellation Software Inc. (excluding Altera)				Altera				Consolidated
Cash			867				143			1,010
Bank debt and debentures			1,248				302			1,550

Statement of Income

(Excluding intercompany activity)

 

		For the three months ended March 31, 2023
(Unaudited)		Constellation Software Inc. (excluding Altera)				Altera				Consolidated
Revenue			1,716				203				1,919
Expenses			1,324				178				1,502
Amortization of intangible assets			175				18				193
Foreign exchange (gain) loss			11				(1	)			10
IRGA / Membership liability revaluation charge			39				—				39
Finance and other income			(7	)			(0	)			(7	)
Bargain purchase gain			(1	)			—				(1	)
Impairment of intangible and other non-financial assets			2				—				2
Redeemable preferred securities expense (income)			188				—				188
Finance costs			32				5				36
Income (loss) before income taxes			(46	)			4				(43	)
Income tax expense (recovery)
Current income tax expense (recovery)			97				6				103
Deferred income tax expense (recovery)			(57	)			(5	)			(62	)
Income tax expense (recovery)			39				1				40
Net income (loss)			(85	)			3				(83	)
Net cash flows from operating activities			592				40				632
Free cash flow available to shareholders			420				33				453

 

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Foreign Exchange Adjusted Organic Revenue Growth

(Excluding intercompany activity)

		For the three months ended March 31, 2023
		Constellation Software Inc. (excluding Altera)				Altera				Consolidated
Licenses			0	%			-66	%			-7	%
Professional services			6	%			-11	%			3	%
Hardware and other			4	%			-83	%			2	%
Maintenance and other recurring			7	%			-3	%			6	%
Revenue			7	%			-9	%			5	%

Liquidity

 

		March 31,				December 31,
		2023				2022				Variance
Cash			1,010				811				199
Debt with recourse to Constellation Software Inc.			1,071				1,072				(2	)
Debt without recourse to Constellation Software Inc.			992				902				90
Debt			2,062				1,974				88
Cash less Debt			(1,052	)			(1,163	)			111

Cash flows from operations exceeded the net capital deployed on acquisitions plus dividends during the three months ended March 31, 2023. Cash increased by $199 million to $1,010 million at March 31, 2023 compared to $811 million at December 31, 2022 and debt increased by $88 million to $2,062 million at March 31, 2023 compared to $1,974 million at December 31, 2022.

Total assets increased $980 million, from $7,883 million at December 31, 2022 to $8,864 million at March 31, 2023. The increase is primarily due to the $199 million increase in cash, the $133 million increase in accounts receivable, and the $681 million increase in intangible assets. At March 31, 2023 Topicus, Lumine and other subsidiaries with non-recourse debt facilities hold approximately $595 million of cash. As explained in the “Capital Resources and Commitments” section below, there are limitations on the ability of these subsidiaries to distribute funds to Constellation.

Current liabilities increased $804 million, from $3,781 million at December 31, 2022 to $4,584 million at March 31, 2023. The increase is primarily due to an increase in deferred revenue of $510 million mainly due to acquisitions made since December 31, 2022 and the timing of maintenance and other billings versus performance and delivery under those customer arrangements, and an increase in redeemable preferred securities of $409 million, offset by a decrease in non-recourse debt of $117 million.

 

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Net Changes in Cash Flows

( $ in millions)

 

		Three months ended March 31, 2023				Three months ended March 31, 2022
Net cash provided by operating activities			632				498
Net cash from (used in) financing activities			(43	)			47
Cash used in the acquisition of businesses			(524	)			(247	)
Cash obtained with acquired businesses			45				38
Net cash from (used in) other investing activities			81				(100	)
Net cash from (used in) investing activities			(398	)			(309	)
Effect of foreign currency			7				(2	)
Net increase (decrease) in cash and cash equivalents			199				233

The net cash flows from operating activities were $632 million for the quarter ended March 31, 2023. The $632 million provided by operating activities resulted from a net loss of $82 million plus $539 million of non-cash adjustments to net income and $267 million of cash from non-cash operating working capital, offset by $91 million in taxes paid.

The net cash flows used in financing activities for the quarter ended March 31, 2023 were $43 million, which is mainly a result of dividends paid to common shareholders of $21 million, lease obligation payments of $25 million, and interest payments of $29 million offset by $32 million from the net increase in debt facilities.

The net cash flows used in investing activities for the quarter ended March 31, 2023 were $398 million. The cash used in investing activities was primarily due to acquisitions for an aggregate of $524 million (including payments for holdbacks relating to prior acquisitions), offset by $119 million from the sale of other investments, and $45 million of acquired cash.

We believe we have sufficient cash and available credit capacity to continue to operate for the foreseeable future. Generally our VMS businesses operate with negative working capital as a result of the collection of maintenance payments and other revenues in advance of the performance of the related services. As such, management anticipates that it can continue to grow the business organically without any additional funding. If we continue to acquire VMS businesses we may need additional external funding depending upon the size and timing of the potential acquisitions.

Capital Resources and Commitments

CSI Facility

On November 5, 2021, Constellation completed an amendment and restatement of its revolving credit facility agreement (the “CSI Facility”), with a syndicate of Canadian chartered banks and U.S. banks in the amount of $700 million, extending its maturity date to November 2026. On March 3, 2022, Constellation completed a further amendment to the CSI Facility that increased the revolving credit facility limit to $840 million. The CSI Facility bears a variable interest rate with no fixed repayments required over the term to maturity. Interest rates are calculated at standard U.S. and Canadian reference rates plus interest rate spreads based on a leverage table. The CSI Facility is currently collateralized by the majority of the Company’s assets including the assets of certain material subsidiaries. The CSI Facility contains standard events of default which if not remedied within a cure period would trigger the repayment of any outstanding balance. As at March 31, 2023, $271 million had been drawn from this credit facility, and letters of credit totaling $14 million were issued, which limits the borrowing capacity on a dollar-for-dollar basis.

 

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Guarantees

One of CSI’s subsidiaries has entered into a $82 million (£65 million) term debt facility with a financial institution for which CSI has guaranteed the debt. The facility bears a fixed rate of interest. The term loan contains events of default that, if not remedied, allow the loan note holder to require repayment of the loan principal and interest. The loan is due in 2028.

Debt without recourse to CSI

Certain of CSI’s subsidiaries have entered into term debt facilities and revolving credit facilities with various financial institutions. Except as noted above, CSI does not guarantee the debt of its subsidiaries, nor are there any cross-guarantees between subsidiaries. The credit facilities are collateralized by substantially all of the assets of the borrowing entity and its subsidiaries. The credit facilities typically bear interest at a rate calculated using an interest rate index plus a margin. The financing arrangements for each subsidiary typically contain certain restrictive covenants, which may include limitations or prohibitions on additional indebtedness, payment of cash dividends, redemption of capital, capital spending, making of acquisitions and sales of assets. In addition, certain financial covenants must be met by those subsidiaries that have outstanding debt.

Debt without recourse to CSI comprises the following ($ in millions):

 

		Topicus Revolving Credit Facility				Debt Facilities				Total
Principal outstanding at March 31, 2023 (and equal to fair value)		$	131			$	873				1,003
Deduct: Carrying value of transaction costs included in debt balance			(3	)			(9	)			(12	)
Carrying value at March 31, 2023			127				864				992
Current portion			127				71				199
Non-current portion			—				793				793

Debentures

On October 1, 2014 and November 19, 2014, the Company issued unsecured subordinated debentures (the “Debentures”) with a total principal value of C$96 million for total proceeds of C$91 million. The proceeds were used by the Company to pay down $81 million of outstanding bank indebtedness.

On September 30, 2015, the Company issued an additional tranche of Debentures with a total principal value of C$186 million for total proceeds of C$214 million. The proceeds were used by the Company to pay down $130 million of outstanding bank indebtedness. The September 30, 2015 issuance formed a single series with the outstanding C$96 million aggregate principal amount of Debentures, Series 1 of the Company. The Debentures have a maturity date of March 31, 2040.

The total principal value of debentures outstanding at March 31, 2023 was $209 million (C$282 million).

 

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Liability of CSI under the terms of the IRGA / TSS Membership Agreement

On December 23, 2014, in accordance with the terms of the purchase and sale agreement for the initial acquisition of TSS by CSI, and on the basis of the term sheets attached thereto, Constellation and the Joday Group, among others, entered into a Members Agreement (the “Members Agreement”) pursuant to which the Joday Group acquired 33.29% of the voting interests in Constellation Software Netherlands Holding Coöperatief U.A. (which was renamed to Topicus.com Coöperatief U.A.), a subsidiary of Constellation and the indirect owner of 100% of TSS at the time of the acquisition. Total proceeds from this transaction was €39 million ($49 million).

On January 5, 2021, the Members Agreement was terminated in conjunction with the acquisition of Topicus.com B.V., the reorganization of Topicus Coop and the execution of the IRGA. The IRGA was established to create certain contractual obligations of the parties in respect of the governance of Topicus and Topicus Coop. The Joday Group’s interest in Topicus Coop now comprises 39,331,284 Topicus Coop Ordinary Units resulting in an interest of 30.29% in Topicus Coop as of December 31, 2022. The IRGA provides for transfer restrictions in respect of the Topicus Coop Units.

Any time after January 5, 2021, any member of the Joday Group has the right, at his or its option, to sell any number of its Topicus Coop Units to CSI at a cash price per Topicus Coop Unit determined in accordance with the IRGA. Upon the exercise of such option by a member of the Joday Group, CSI will be obligated to purchase 33.33% of such Topicus Coop Units within 30 days, and an additional 33.33% on each of the first and the second anniversary of such initial purchase. Notwithstanding the foregoing, CSI can offer Topicus the right to purchase such Topicus Coop Units in lieu of CSI.

In the event of a change of control of CSI, any member of the Joday Group has the right, at his or its option, to sell all of its Topicus Coop Units to CSI at a cash price per Topicus Coop Unit determined in accordance with the IRGA. Upon the exercise of such option by a member of the Joday Group, CSI will be obligated to purchase all such Topicus Coop Units. Notwithstanding the foregoing, CSI can offer Topicus the right to purchase such Topicus Coop Units in lieu of CSI.

If CSI reduces its economic interest in Topicus by a sale or transfer of its economic interest (and not due to any additional issuance of any shares or equity by Topicus) by more than one-third (calculated on a fully converted basis in accordance with the IRGA), any member of the Joday Group has the right, at his or its option, to sell to CSI one-third of its Topicus Coop Units at a cash price per Topicus Coop Unit determined in accordance with the IRGA. Upon the exercise of such put option by a member of the Joday Group, CSI will be obligated to purchase all such put Topicus Coop Units. Notwithstanding the foregoing, CSI can offer Topicus the right to purchase such Topicus Coop Units in lieu of CSI. Any member of the Joday Group has a similar right to sell one-half or all of its remaining Topicus Coop Units, respectively, at its option, if CSI further reduces its remaining fully-diluted economic interest in Topicus by a sale or transfer of its economic interest by one-half and again if CSI sells its entire remaining economic interest in Topicus.

All of the Topicus Coop Ordinary Units and Topicus Coop Preference Units held by the Joday Group and Ijssel B.V. (collectively, the “Topicus Coop Exchangeable Units”) are exchangeable, directly or indirectly, for Topicus Subordinate Voting Shares. All of the above rights of members of the Joday Group apply to any Topicus Subordinate Voting Shares issued on an exchange of Topicus Coop Exchangeable Units.

At any time after December 31, 2023, CSI has the right, at its option, to buy all of the Topicus Coop Units and shares of Topicus held by certain members of the Joday Group (excluding Joday) at a cash price per Topicus Coop Unit (or share of Topicus, as applicable) determined in accordance with the IRGA. After December 31, 2043, CSI has the same right to buy all of the Topicus Coop Units and shares of Topicus held by the remaining members of the Joday Group, including Joday.

 

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In addition, if certain individuals affiliated with Joday are terminated from their employment with Topicus Coop or an affiliate thereof for urgent cause (as defined in the Dutch Civil Code), CSI has the right, at its option, to buy all of Topicus Coop Units held by such individuals at a cash price per Topicus Coop Unit determined in accordance with the IRGA.

The Company classified the above obligations of CSI under the terms of the IRGA as a liability consistent with the classification of similar obligations under the Members Agreement. The main valuation driver in the calculation of the liability is the maintenance and other recurring revenue of Topicus. Maintenance and recurring revenue of Topicus for the trailing twelve months on a pro-forma basis determined at the end of the current reporting period was used as the basis for valuing the interests at each purchase date. Any increase or decrease in the value of such liability is recorded as an expense or income in the consolidated statement of income for the period. In conjunction with the termination of the Members Agreement and the execution of the IRGA, the Company recognized an expense of $19 million as the formula associated with the calculation of the obligation has changed from the use of actual trailing twelve months maintenance and other recurring revenue of Topicus to a calculation which includes the revenue increase from acquired companies on a pro-forma basis.

During the periods ended March 31, 2023 and March 31, 2022, no options were exercised. During the three months ended March 31, 2022, a distribution in the amount of $23 million was paid to the Joday Group relating to their Topicus Preferred Securities.

The liability recorded on the balance sheet at March 31, 2023 was $512 million.

Redeemable Preferred Securities

In conjunction with the acquisition of WideOrbit, Lumine issued 10,204,294 Lumine Special Shares (the “Preferred Securities”) to the sellers of WideOrbit for an initial subscription price of approximately $222 which was included in the purchase consideration. Under certain conditions, the Preferred Securities are retractable at the option of the holder for a retraction price of $21.74 per Preferred Security plus one Lumine Subordinate Voting share for each Preferred Security held and has been classified as a liability on the balance sheet of the Company. The Preferred Securities are also convertible into Lumine Subordinate Voting shares at a conversion ratio of 1:3.43 at any time. The holders of the Preferred Securities are also entitled to a fixed annual cumulative dividend of 5% per annum.

Further descriptions of the significant terms and conditions of the Preferred Securities are described in note 9 to the Unaudited Condensed Consolidated Interim Financial Statements for the three month period ended March 31, 2023.

Other commitments

Commitments include operating leases for office equipment and facilities, letters of credit and performance bonds issued on our behalf by financial institutions in connection with facility leases and contracts with public sector customers. Also, occasionally we structure some of our acquisitions with contingent consideration based on the future performance of the acquired business. The fair value of contingent consideration recorded in our statement of financial position was $169 million at March 31, 2023. Aside from the aforementioned, we do not have any other business arrangements, derivative financial instruments, or any equity interests in non-consolidated entities that would have a significant effect on our assets and liabilities as at March 31, 2023.

The IRGA liability commitment assumes that the Joday Group has exercised their put option to sell 100% of their interests back to Constellation. This option however has not been exercised as at May 15, 2023. See note 7 to the Unaudited Condensed Consolidated Interim Financial Statements for the three month period ended March 31, 2023 for a discussion on the valuation methodology utilized.

 

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Foreign Currency Exposure

We operate internationally and have foreign currency risks related to our revenue, operating expenses, assets and liabilities denominated in currencies other than the U.S. dollar. Consequently, we believe movements in the foreign currencies in which we transact will impact future revenue and net income. The impact to organic revenue growth for the three months ended March 31, 2023 was approximately negative 3%. We cannot predict the effect of foreign exchange gains or losses in the future; however, if significant foreign exchange losses are experienced, they could have a material adverse effect on our business, revenues, results of operations, and financial condition. The Company enters into forward foreign exchange contracts from time to time with the objective of mitigating volatility in profit or loss in respect of financial liabilities. In entering into these forward exchange contracts, the Company is exposed to the credit risk of the counterparties to such contracts and the possibility that the counterparties will default on their payment obligations under these contracts. However, given that the counterparties are Schedule 1 banks or affiliates thereof, the Company believes these risks are not material. During the three months ended March 31, 2023, the Company did not purchase any contracts of this nature.

The following table provides an approximate breakdown of our revenue and expenses by currency, expressed as a percentage of total revenue and expenses, as applicable, for the three months ended March 31, 2023:

 

		Three Months Ended March 31, 2023
Currencies		% of Revenue				% of Expenses
USD			53	%			49	%
EUR			19	%			18	%
GBP			8	%			8	%
CAD			6	%			8	%
AUD			4	%			4	%
BRL			2	%			2	%
CHF			1	%			2	%
SEK			1	%			1	%
Others			8	%			9	%
Total			100	%			100	%

Due to rounding, certain totals may not foot.

Off-Balance Sheet Arrangements

As a general practice, we have not entered into off-balance sheet financing arrangements. Except for insignificant and short-term operating leases and letters of credit, all of our liabilities and commitments are reflected as part of our statement of financial position.

Proposed Transactions

We seek potential acquisition targets on an ongoing basis and may complete several acquisitions in any given fiscal year.

Share Capital

As at May 15, 2023, there were 21,191,530 common shares outstanding.

 

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Risks and Uncertainties

The Company’s business is subject to a number of risk factors which are described in our most recently filed AIF. Additional risks and uncertainties not presently known to us or that we currently consider immaterial also may impair our business and operations and cause the price of the common shares to decline. If any of the noted risks actually occur, our business may be harmed and the financial condition and results of operations may suffer significantly. In that event, the trading price of the common shares could decline, and shareholders may lose all or part of their investment.

Controls and Procedures

Evaluation of disclosure controls and procedures:

Management is responsible for establishing and maintaining disclosure controls and procedures as defined under National Instrument 52-109. At March 31, 2023, the President and Chief Financial Officer, based on the investigation and advice of those under their supervision, have concluded that the design and operation of these disclosure controls and procedures were effective and that material information relating to the Company, including its subsidiaries, was made known to them and was recorded, processed, summarized and reported within the time periods specified under applicable securities legislation.

Internal controls over financial reporting:

The President and Chief Financial Officer have designed or caused to be designed by those under their supervision, disclosure controls and procedures which provide reasonable assurance that material information regarding the Company is accumulated and communicated to the Company’s management, including its President and Chief Financial Officer in a timely manner.

In addition, the President and Chief Financial Officer have designed or caused it to be designed under their supervision internal controls over financial reporting (“ICFR”) to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements. The President and Chief Financial Officer have been advised that the control framework the President and the Chief Financial Officer used to design the Company’s ICFR is recognized by the Committee of Sponsoring Organizations of the Treadway Commission.

The President and the Chief Financial Officer have evaluated, or caused to be evaluated by those under their supervision, whether or not there were changes to its ICFR during the period ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect the Company’s ICFR. No such changes were identified through their evaluation.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that its objectives are met. Due to inherent limitations in all such systems, no evaluations of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Accordingly, our disclosure controls and procedures and our internal controls over financial reporting are effective in providing reasonable, not absolute, assurance that the objectives of our control systems have been met.

Limitation on scope of design

Management has limited the scope of the design of internal controls over financial reporting and disclosure controls and procedures to exclude the controls, policies and procedures of Altera. (See “Acquisition of business segment from Allscripts Healthcare Solutions” above.) The scope limitation is in accordance with Section 3.3 of National Instrument 52-109, Certification of Disclosure in Issuer’s Annual and Interim Filings, which allows an issuer to limit its design of internal controls over financial reporting and disclosure controls and procedures to exclude the controls, policies and procedures of a company acquired not more than 365 days before the end of the financial period to which the certificate relates. The table below shows additional summary financial information for Altera which is included in the Unaudited Condensed Consolidated Interim Financial Statements for the three month period ended March 31, 2023.

 

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As at March 31, 2023

($ in millions)

 

		Altera
Current Assets			350
Non-current assets			747
Current liabilities			330
Non-current liabilities			366

 

23

Exhibit 3.1

 

 

		KPMG LLP Vaughan Metropolitan Centre 100 New Park Place Suite 1400 Vaughan, ON Canada L4K 0J3 Telephone [phone] Fax [phone] www.kpmg.ca

AUDITORS’ CONSENT

The Board of Directors

Constellation Software Inc.

We consent to the use of our audit report, dated March 29, 2023, on the consolidated financial statements of Constellation Software Inc. (the “Entity”), which comprise the consolidated statements of financial position as at December 31, 2022 and December 31, 2021, the consolidated statements of income (loss), comprehensive income (loss), changes in equity and cash flows for each of the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies, which is included in the Registration Statement on Form F-7 dated August 7, 2023, of the Entity.

 

/s/ KPMG LLP

Chartered Professional Accountants, Licensed Public Accountants

August 7, 2023

Vaughan, Canada

 

Exhibit 3.2

CONSENT OF MCCARTHY TÉTRAULT LLP

We have acted as Canadian counsel to Constellation Software Inc. (the “Registrant”) in connection with the registration statement on Form F-7 (the “Registration Statement”) being filed today by the Registrant with the Securities and Exchange Commission under the United States Securities Act of 1933, as amended. We hereby consent to the references to our name and the inclusion of our opinion contained in the Registration Statement.

 

/s/ McCarthy Tétrault LLP

Toronto, Ontario, Canada

August 7, 2023

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