Dye & Durham Limited
Headnote
Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Exemption from the extension take up requirements in subsection 2.32(4) of National Instrument 62-104 Take-Over Bids and Issuer Bids -- an issuer conducting an issuer bid requires relief from the requirement not to extend its issuer bid if all terms and conditions are met unless the issuer first takes up all securities validly deposited and not withdrawn under the issuer bid -- requested relief granted, subject to conditions.
Applicable Legislative Provisions
National Instrument 62-104 Take-Over Bids and Issuer Bids, ss. 2.32(4) and 6.1.
August 11, 2023
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF DYE & DURHAM LIMITED (the Filer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) that, in connection with the proposed purchase by the Filer of a portion of its outstanding 3.75% unsecured convertible debentures due March 1, 2026 (the Debentures) pursuant to an issuer bid commenced on July 26, 2023 (the Offer), the Filer be exempt from the requirement set out in subsection 2.32(4) of National Instrument 62-104 Take-Over Bids and Issuer Bids (NI 62-104) that the Offer not be extended if all the terms and conditions of the Offer have been complied with or waived unless the Filer first takes up all of the Debentures deposited under the Offer and not withdrawn (the Exemption Sought).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application; and
(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, Nova Scotia, New Brunswick, Newfoundland and Labrador, Prince Edward Island, the Northwest Territories, Nunavut and Yukon.
Interpretation
Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation validly existing under the Business Corporations Act (Ontario) and is in good standing.
2. The registered office and the principal executive office of the Filer is located in Toronto, Ontario.
3. The Filer is a reporting issuer in the Province of Ontario and is not in default of any requirement of the securities legislation in any jurisdiction in which it is a reporting issuer.
4. The authorized share capital of the Filer consists of an unlimited number of common shares. As at July 24, 2023, 54,953,325 common shares were issued and outstanding. The common shares are listed and posted for trading on the Toronto Stock Exchange under the symbol "DND".
5. The Debentures are not currently listed on any stock exchange.
6. The board of directors of the Filer (the Board) believes that the purchase of Debentures pursuant to the Offer constitutes an efficient means of providing value to the holders of Debentures (each a Debentureholder, collectively the Debentureholders) and is in the best interests of the Filer and its Debentureholders. The Board believes that the Offer is a prudent use of the Filer's financial resources given its business profile and assets, its understanding of the current fair market value of the Debentures, the excess capital position of the Filer and its cash requirements and borrowing costs, and represents an appropriate use of the Filer's available cash on hand.
7. The Filer commenced the Offer on July 26, 2023. The issuer bid circular dated July 25, 2023 prepared and filed by the Filer in connection with the Offer (the Circular) specifies that the Filer proposes to purchase, by way of a modified "Dutch auction" procedure in the manner described therein and below, up to $52,000,000 aggregate principal amount of outstanding Debentures at a purchase price of not less than $500 and not more than $650 per $1,000 principal amount of Debentures (the Price Range), subject to a maximum aggregate purchase price of $26,000,000 (the Maximum Aggregate Purchase Price).
8. The Filer will fund any purchase of Debentures pursuant to the Offer, together with all related fees and expenses of the Offer, from available cash on hand.
9. Each Debentureholder wishing to tender to the Offer may do so pursuant to:
(a) auction tenders in which the tendering Debentureholders specify the amount of Debentures being tendered at a specified price per $1,000 principal amount of Debentures (the Auction Price) within the Price Range in increments of $5.00 per $1,000 principal amount of Debentures (the Auction Tenders); or
(b) purchase price tenders in which the tendering Debentureholders do not specify a price per $1,000 principal amount of Debentures, but rather agree to have a specified amount of Debentures purchased at the Purchase Price (as defined below) to be determined by the Filer (the Purchase Price Tenders).
10. Debentureholders may make both Auction Tenders and Purchase Price Tenders, but not in respect of the same lot of Debentures. Debentureholders may also make multiple Auction Tenders at different Auction Prices, but not in respect of the same lot of Debentures (i.e. Debentureholders may tender different lots of Debentures at different prices, but cannot tender the same lot of Debentures at different prices). Debentureholders who tender Debentures without making a valid Auction Tender or Purchase Price Tender will be deemed to have made a Purchase Price Tender.
11. If a Debentureholder wishes to deposit Debentures in separate lots at a different price for each lot, that Debentureholder must complete a separate letter of transmittal (and, if applicable, a notice of guaranteed delivery) for each price at which the Debentureholder is depositing Debentures. A Debentureholder may not deposit the same lot of Debentures pursuant to both an Auction Tender and a Purchase Price Tender, or pursuant to an Auction Tender at more than one price.
12. The Filer will determine a single purchase price payable per $1,000 principal amount of Debentures (the Purchase Price) promptly after the expiry of the Offer by taking into account the amount of Debentures deposited pursuant to Auction Tenders and Purchase Price Tenders and the Auction Prices specified by Debentureholders depositing Debentures pursuant to Auction Tenders. The Purchase Price will be the lowest price per $1,000 principal amount of Debentures that enables the Filer to purchase the maximum amount of Debentures validly deposited and not properly withdrawn pursuant to the Offer having an aggregate purchase price not exceeding the Maximum Aggregate Purchase Price. For the purposes of determining the Purchase Price, Debentures deposited pursuant to a Purchase Price Tender will be deemed to have been deposited at a price of $500 per $1,000 principal amount of Debentures (which is the minimum Purchase Price under the Offer).
13. If the aggregate Purchase Price for the Debentures validly deposited and not withdrawn pursuant to Auction Tenders at Auction Prices at or below the Purchase Price and Purchase Price Tenders would result in an aggregate Purchase Price in excess of the Maximum Aggregate Purchase Price, then such deposited Debentures will be purchased on a pro rata basis according to the amount of Debentures deposited or deemed to be deposited at a price equal to or less than the Purchase Price by the depositing Debentureholders. All Auction Tenders and Purchase Price Tenders will be subject to adjustment to maintain $1,000 minimum denominations of Debentures.
14. Until expiry of the Offer, all information about the amount of Debentures tendered and the prices at which such Debentures are tendered will be required to be kept confidential by the depositary and the Filer until the Purchase Price has been determined.
15. All Debentures purchased by the Filer pursuant to the Offer (including Auction Tenders tendered at a price below the Purchase Price) will be purchased at the Purchase Price, payable in cash. All payments to Debentureholders will be subject to deduction of applicable withholding taxes. Debentureholders who deposit their Debentures will not be entitled to receive accrued and unpaid interest on the Debentures.
16. Debentures validly deposited by a Debentureholder pursuant to an Auction Tender will not be purchased by the Filer pursuant to the Offer if the Auction Price per $1,000 principal amount of Debentures specified by the Debentureholder is greater than the Purchase Price.
17. Certificates for all Debentures not purchased under the Offer (including Debentures deposited pursuant to an Auction Tender at prices greater than the Purchase Price, Debentures not purchased because of proration, improper tenders, or Debentures not taken up due to the termination of the Offer), or properly withdrawn before the Expiration Time (as defined below), will be returned (in the case of certificates representing Debentures all of which are not purchased) or replaced with new certificates representing the balance of Debentures not purchased (in the case of certificates representing Debentures of which less than all are purchased), promptly after the Expiration Time or termination of the Offer or the date of withdrawal of the Debentures, without expense to the Debentureholder. In the case of Debentures tendered through book-entry transfer into the account of Computershare Trust Company of Canada at Depository Trust Company (DTC) or CDS Clearing and Depository Services Inc. (CDS), the Debentures will be credited to the appropriate account maintained by the tendering Debentureholder at DTC or CDS, as applicable, without expense to the Debentureholder.
18. Debentureholders who do not accept the Offer will continue to hold the same amount of Debentures held before the Offer and their proportionate ownership of Debentures will increase following completion of the Offer, subject to the amount of Debentures purchased under the Offer.
19. As of July 24, 2023, $345,000,000 aggregate principal amount of Debentures were outstanding. Accordingly, the Offer is for up to $52,000,000 aggregate principal amount of Debentures or approximately 15% of the total aggregate principal amount of outstanding Debentures if the Purchase Price is determined to be $500 (which is the minimum Purchase Price under the Offer) or up to $40,000,000 aggregate principal amount of Debentures or approximately 12% of the total aggregate principal amount of outstanding Debentures if the Purchase Price is determined to be $650 (which is the maximum Purchase Price under the Offer).
20. As at July 24, 2023, to the knowledge of the Filer and its directors and officers after reasonable inquiry, no director or officer of the Filer, no insider of the Filer, no associate or affiliate of the Filer or of an insider of the Filer, and no person or company acting jointly or in concert with the Filer, owns any Debentures.
21. The Offer is scheduled to expire at 5:00 p.m. (Eastern Time) on August 30, 2023 (the Expiration Time).
22. If all the terms and conditions of the Offer have been complied with or waived by the Filer by the Expiration Time but the aggregate Purchase Price of the Debentures validly tendered and not withdrawn pursuant to Auction Tenders and Purchase Price Tenders is less than the Maximum Aggregate Purchase Price, the Filer may wish to extend the Offer. The Filer will not extend the Offer if all the terms and conditions of the Offer have been complied with or waived by the Filer by the Expiration Time and the aggregate Purchase Price of the Debentures validly tendered and not withdrawn pursuant to Auction Tenders and Purchase Price Tenders is equal to or greater than the Maximum Aggregate Purchase Price.
23. Pursuant to subsection 2.32(4) of NI 62-104, an issuer may not extend an issuer bid if all the terms and conditions of the issuer bid have been complied with or waived unless the issuer first takes up all securities deposited under the issuer bid and not withdrawn.
24. As the determination of the Purchase Price requires that all Auction Prices and the amount of Debentures deposited pursuant to both Auction Tenders and Purchase Price Tenders be known and taken into account, the Filer will be unable to take up the Debentures deposited and not withdrawn under the Offer as of the Expiration Time prior to extending the Offer because the Purchase Price will not and cannot be known as additional Auction Tenders and Purchase Price Tenders may be made during the extension period that will impact the calculation of the Purchase Price. Accordingly, the Exemption Sought is required in connection with an extension of the Offer to enable the Filer to make a final determination regarding the Purchase Price, taking into account all Debentures tendered prior to the Expiration Time and those tendered during any extension period.
25. Debentures deposited pursuant to the Offer, including those deposited prior to the Expiration Time, may be withdrawn by the Debentureholder at any time prior to the expiration of any extension period in respect of the Offer.
26. INFOR Financial Inc. (INFOR Financial) was engaged by the Filer as the independent valuator to prepare a formal valuation of the Debentures as prescribed by section 3.3 of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (the Valuation). A copy of the Valuation is attached to the Circular at Schedule A. The Valuation contains INFOR Financial's opinion that, based on the scope of its review and subject to the assumptions, restrictions and limitations provided therein, as of July 21, 2023, the fair market value of the Debentures falls within the range of $645 to $715 per $1,000 principal amount of Debentures.
27. The Board has determined that the Offer is in the best interests of the Filer and Debentureholders, that the Offer represents an appropriate use of its available cash on hand, that the Offer will not preclude the Filer from completing any foreseeable or planned business opportunities and that, after giving effect to the Offer, the Filer will continue to have sufficient financial resources and working capital to conduct its ongoing operations.
28. The Circular:
(a) discloses the mechanics for the take up of, and payment for, deposited Debentures;
(b) explains that, by tendering Debentures under an Auction Tender at the lowest price in the Price Range or by tendering Debentures under a Purchase Price Tender, a Debentureholder can reasonably expect that the Debentures so tendered will be purchased at the Purchase Price, subject to proration and other terms of the Offer as specified herein;
(c) discloses that the Filer has applied for the Exemption Sought;
(d) sets out the manner in which an extension of the Offer will be communicated to Debentureholders and the public;
(e) discloses that Debentures deposited pursuant to the Offer may be withdrawn at any time prior to the expiration of any extension period in respect of the Offer; and
(f) contains the disclosure prescribed by the Legislation for issuer bids (including in respect of the Valuation).
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:
(a) Debentures validly deposited under the Offer and not withdrawn are taken up and paid for, or dealt with, in the manner set out in the Circular and described above; and
(b) the Filer issues and files a press release announcing receipt of the Exemption Sought promptly, and in any case no later than one (1) business day following receipt of the Exemption Sought.