Mutual reliance review system for exemptive relief application,- Exemption fromprospectus and registration requirements with respect to distribution of securities tocertain creditors and shareholders in connection with a plan of arrangement under theU.S. Bankruptcy Code - first trades permitted to holders subject to conditions insubsection 72(5) other than the requirement that the issuer of the securities be areporting issuer for at least twelve months
Securities Act, R.S.O. 1990, c.S.5, as am. ss. 25, 53, 72(5),74(1).
Regulation made under the Securities Act, R.R.O. 1990, Reg. 1015, as am.,s. 21 .
IN THE MATTER OF THE
MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
PHILIP SERVICES (DELAWARE), INC.
WHEREAS the local securities regulatory authority or regulator (the "DecisionMaker" or collectively the "Decision Makers") in each of Alberta, British Columbia,Manitoba, Saskatchewan, Ontario, Nova Scotia, Newfoundland, Prince Edward Island andNew Brunswick (the "Jurisdictions") has received an application from Philip Services(Delaware), Inc. (the "Applicant") for a decision pursuant to the securities legislation of theJurisdictions (the "Legislation") that the distribution of securities to certain personspursuant to a plan of reorganization (the "U.S. Plan") made under the U.S. BankruptcyCode and approved by the U.S. Bankruptcy Court (the "U.S. Court") is not subject to therequirements contained in the Legislation to be registered to trade in a security, to file apreliminary prospectus and a prospectus and receive receipts therefor (the "Registrationand Prospectus Requirements");
AND WHEREAS pursuant to the Mutual Reliance Review System for ExemptiveRelief Applications (the "System"), the Ontario Securities Commission is the principalregulator for this application;
AND WHEREAS the Applicant has represented to the Decision Makers that:
1. The Applicant is an indirect wholly-owned subsidiary of Philip Services Corp.("PSC") incorporated under the laws of the State of Delaware pursuant to articlesof incorporation dated July 10, 1991.
2. PSC is a corporation amalgamated under the Business Corporations Act (Ontario)by articles of amalgamation dated April 15, 1991, with its principal executive officein the City of Hamilton, in the Province of Ontario.
3. PSC is a reporting issuer or the equivalent in each of the Jurisdictions and is notin default of any of the requirements of the Legislation.
4. The outstanding PSC common shares are listed and posted for trading on TheToronto Stock Exchange (the "TSE"), were prior to December 6, 1999 listed andposted for trading on the Montreal Exchange and are currently suspended fromtrading on The New York Stock Exchange (the "NYSE"). The NYSE hascommenced formal delisting procedures.
5. As at November 4, 1999, the issued capital of PSC consisted of 131,144,013common shares.
6. On June 25, 1999, PSC, the Applicant and certain of its U.S. subsidiaries filedvoluntary petitions for relief pursuant to Chapter 11 of the U.S. Bankruptcy Code.Also on June 25, 1999, PSC and certain of its Canadian subsidiaries (the"Canadian Applicants") obtained a protective order of the Ontario Superior Courtof Justice (the "Ontario Court") pursuant to the Companies' Creditors ArrangementAct (the "CCAA").
7. The U.S. Plan was confirmed by the U.S. Bankruptcy Court on November 30, 1999.A CCAA plan of compromise and arrangement (the "CCAA Plan" and collectivelywith the U.S. Plan, the "Plans") of PSC and certain of its Canadian subsidiaries wasconfirmed by the Ontario Court on November 26, 1999. All distributions of securitiesto holders of claims and interests will be made pursuant to the U.S. Plan.
8. The Plans were the result of several months of negotiations between PSC and itssecured lenders (the "Secured Lenders") under the credit agreement dated as ofAugust 11, 1997, as amended among PSC, the Applicant and the Secured Lenders(the "Credit Agreement"). The Plans provide for a comprehensive recapitalizationof PSC and its subsidiaries through the settlement of claims in consideration of theissuance of debt, debt securities and common shares of the Applicant.
9. The classes of holders of claims and interests impaired under the U.S. Plan orotherwise entitled to disbursements under the U.S. Plan are as follows:
(a) the Secured Lenders;
(b) U.S. resident holders of unsecured claims against PSC, the Applicant andcertain of its U.S. subsidiaries and Canadian resident holders of unsecuredclaims against PSC and certain of its Canadian subsidiaries that haveelected to participate in the disbursements under the U.S. Plan (the"Unsecured Creditors");
(c) holders of PSC common shares (the "PSC Shareholders");
(d) holders of claims pursuant to U.S. and Canadian class action proceedings(the "Class Action Claimants"); and
(e) holders of other securities claims (the "Other Claimants").
10. The disbursements under the U.S. Plan will include the following:
(a) 24,000,000 common shares ("New Common Shares") of the Applicant;
(b) The Credit Agreement will be amended and restated as a US$350 million offive-year secured term debt, US$100 million of which being convertible into25% of the New Common Shares on a fully diluted basis after giving effectto the issuance of the 24,000,000 New Common Shares pursuant to the U.S.Plan (the "Convertible Bank Debt");
(c) US$48 million of unsecured 10 year payment-in-kind notes (the "UnsecuredNotes") with interest payable by the issuance of additional Unsecured Notes(the "Interest Notes"); and
(d) US$18 million unsecured 20 year notes (the "Convertible Notes") convertibleinto New Common Shares at a conversion price of US$30.
11. The trades and potential trades which will occur pursuant to the implementation ofthe Plans (collectively, the "Trades") are summarized as follows:
(a) the issuance to each of the Secured Lenders of its pro rata share of21,840,000 New Common Shares, the Convertible Bank Debt andUnsecured Notes;
(b) the issuance to each Unsecured Creditor of its pro rata shares of 1,200,000New Common Shares and of Unsecured Notes or Convertible Notesdepending upon an election to receive Convertible Notes which wasavailable to Unsecured Creditors who are residents of the United States;
(c) the issuance to holders of Unsecured Notes of Interest Notes;
(d) the issuance to each PSC Shareholder of its pro rata share of 480,000 NewCommon Shares;
(e) the issuance to each Class Action Claimant of its pro rata share of 360,000New Common Shares; and
(f) the issuance to each Other Claimant of its pro rata share of 120,000 NewCommon Shares.
12. On October 27, 1999, as a result of certain conditions precedent to the then currentversion of the CCAA Plan having not been satisfied, the Canadian Applicants fileda supplement to the CCAA Plan (the "Plan Supplement"). The Plan Supplementamended and restated the CCAA Plan such that the only class of affected creditorsunder the CCAA proceedings is the Secured Lenders. The U.S. Plan permittedthose persons that would have been affected unsecured creditors under the CCAAPlan as it was prior to being amended and restated by the Plan Supplement, toelect to receive distributions in accordance with U.S. law under the U.S. Plan.Sixty-one (61) of the eighty-three (83) holders of such claims made this election andwill receive their share of the distributions to Unsecured Creditors under the U.S.Plan. Those holders that did not so elect are not entitled to any distributions underthe Plans.
13. Pursuant to the Plan Supplement, substantially all of the assets of PSC and theother Canadian Applicants will be transferred pursuant to security held by theSecured Lenders to new companies which, on the implementation of the U.S. Plan,will be wholly-owned subsidiaries of the Applicant (the "Canadian ReorganizationTransaction"). The current outstanding shares in the capital stock of the Applicantwill be cancelled pursuant to the U.S. Plan such that, on the implementation of theU.S. Plan, the Applicant will no longer be a subsidiary of PSC. Accordingly, theApplicant will be the successor to the business currently conducted by PSC and itssubsidiaries following implementation of the Plans. The debt of the SecuredLenders will be restructured under the U.S. Plan. The Canadian ReorganizationTransaction has been structured and will be implemented so as to comply with therequirements of Policy Statement 9.1 of the Ontario Securities Commission.
14. There are 38 Secured Lenders that will receive distributions under the U.S. Plan ofwhich 26 are resident outside of Canada, 11 are resident in the Province of Ontarioand one is resident in the Province of Quebec.
15. There are over 550 Unsecured Creditors of which over 470 are resident outside ofCanada, 70 are resident in Ontario, nine are resident in the Province of Quebec,and one is resident in each of the Provinces of Alberta, British Columbia and NovaScotia.
16. PSC has shareholders resident in each of the provinces of Canada but over eightypercent (80%) of its shares are held by residents of the United States.
17. Following implementation of the U.S. Plan, it is anticipated that over eighty percent(80%) of the New Common Shares will be held by residents of the United States,approximately seventy percent (70%) of the Unsecured Notes will be held byresidents of the United States, over eighty percent (80%) of the Convertible BankDebt will held by residents of the United States and one hundred percent (100%)of the Convertible Notes will be held by residents of the United States.
18. Application has been made to the TSE and to the Nasdaq National Market for thelisting of the New Common Shares and the TSE confirmed to the Applicant onNovember 8, 1999 that it will conditionally approve a substitution listing of the NewCommon Shares. The PSC Common Shares will be delisted by the TSE on or priorto the listing of the New Common Shares.
19. Section 1145(a)(1) of the U.S. Bankruptcy Code, as amended, exempts the offerand sale of securities from registration under U.S. federal and state securities lawsif (1) the securities have been issued "under a plan" of reorganization by the debtoror its successor or by an affiliate participating in a joint plan of reorganization withthe debtor, (2) the recipients of the securities hold a pre-petition or administrativeexpense claim against the debtor or an interest in the debtor, and (3) the securitiesare issued entirely in exchange for the recipient's claim against or interest in thedebtor, or "principally" in such exchange and "partly" for cash or property. Section1145(c) of the U.S. Bankruptcy Code deems any offer or sale of securities of thekind and in the manner specified in Section 1145(a)(1) to have been a publicoffering, and such securities will be freely transferable under the U.S. federalsecurities laws, subject to certain exceptions.
20. A disclosure statement for the U.S. Plan (the "Disclosure Statement") which wasprepared in accordance with the requirements of the U.S. Bankruptcy Code, wasapproved by the U.S. Bankruptcy Court on September 22, 1999 and distributed tothe Secured Lenders and Unsecured Creditors under the U.S. Plan. A summary ofthe Disclosure Statement was approved by the U.S. Bankruptcy Court anddistributed to PSC Shareholders, Class Action Claimants and the Other Claimants.
21. The Disclosure Statement provided a detailed description of the terms of the U.S.Plan, the background and events leading up to the filing of the Plans andprospectus-level disclosure of the business of the Applicant and include pro formafinancial statements and was approved by the U.S. Court. A Canadian disclosurestatement, containing information specific to the CCAA proceedings, including theDisclosure Statement and approved by the Ontario Court, was sent to each of theSecured Lenders and to each Unsecured Creditor who was a resident of Canada.
22. Implementation of the Plans is necessary for the business carried on by PSC tocontinue as a going concern and following implementation of the Plans, thebusiness currently carried on by the Applicant will be virtually identical to thebusiness carried on by PSC.
23. Prior to implementation of the Plans, the name of the Applicant will be changed from"Philip Services (Delaware), Inc." to "Philip Services Corporation".
24. Each of the Secured Creditors, Unsecured Creditors, PSC Shareholders, ClassAction Claimants and Other Claimants is at arm's length with the Applicant as suchterm is defined in the Income Tax Act (Canada).
25. The Applicant has applied to be deemed to be a reporting issuer in Nova Scotia.
AND WHEREAS under the System, this MRRS Decision Document evidences thedecision of each Decision Maker (collectively, the "Decision");
AND WHEREAS each of the Decision Makers is satisfied that the test contained inthe Legislation that provides the Decision Maker with the jurisdiction to make the Decisionhas been met;
THE DECISION of the Decision Makers under the Legislation is that:
A. the Registration and Prospectus Requirements shall not apply to the Tradesprovided that all approvals required by orders of the U.S. Court and theOntario Court to implement the U.S. Plan and the Canadian Plan,respectively, have been obtained, and all conditions of such Plans havebeen satisfied or waived in accordance with such Plans; and
B. the first trade in a Jurisdiction of the Unsecured Notes, the ConvertibleNotes, the Interest Notes and the New Common Shares acquired pursuantto this Decision or the New Common Shares issued on the conversion of theConvertible Bank Debt and the Convertible Notes, shall be a distribution orprimary distribution to the public under the Legislation of such Jurisdiction(the "Applicable Legislation") except where:
(a) with respect to Jurisdictions in which such trade takes place, theApplicant is a reporting issuer in the Jurisdiction or in the case ofManitoba, Prince Edward Island, New Brunswick and Newfoundlandthe Applicant has filed with such Jurisdiction the continuousdisclosure documents filed by the Applicant in the other Jurisdictions;
(b) if the seller is in a special relationship with the Applicant, the sellerhas reasonable grounds to believe that the Applicant is not in defaultof any requirement of the Applicable Legislation;
(c) disclosure has been made to the Jurisdiction of the Trade pursuantto which the seller initially acquired the security being sold;
(d) no unusual effort is made to prepare the market or create a demandfor the Unsecured Notes, Convertible Notes, Interest Notes or NewCommon Shares being sold and no extraordinary commission orconsideration is paid in respect of such trade; and
(e) PSI generally discloses, at the time that securities of PSI are listed onthe TSE, that the United States Securities and Exchange Commissionis conducting a formal investigation of the circumstances surroundingthe restatements of PSC's 1995,1996 and 1997 financial statementsand that the Ontario Securities Commission is reviewing thecircumstances surrounding such restatements and the disclosurecontained in a prospectus filed by PSC in November, 1997;
then a first trade shall be a distribution or primary distribution to the public only ifit is a trade from the holding of a person or combination of persons holding asufficient number of any securities of the Applicant to affect materially the controlof the Applicant, but any holding of a person or combination of persons holdingmore than 20 percent (20%) of the outstanding voting securities of the Applicantshall, in the absence of evidence to the contrary, be deemed to affect materially thecontrol of the Applicant.
February 23rd, 2000.
"Howard I. Wetston" "J.A. Geller"