Mutual Reliance Review System for ExemptiveRelief Applications - trades of common shares of a reportingissuer by a selling shareholder upon exercise of warrants issuedpursuant to a prospectus not subject to prospectus or registrationrequirements subject to conditions.
Securities Act, R.S.O. 1990, c. S.5, as am.,ss. 25, 53, 74.
Applicable Multilateral Instrument
Multilateral Instrument 45-102 Resale of Securities.
IN THE MATTER OF
THE SECURITIES LEGISLATIONOF
BRITISH COLUMBIA, ALBERTA,SASKATCHEWAN, MANITOBA, ONTARIO
NEW BRUNSWICK, NOVA SCOTIA,PRINCE EDWARD ISLAND,
NEWFOUNDLAND AND LABRADOR,THE NORTHWEST TERRITORIES,
THE YUKON TERRITORY AND THETERRITORY OF NUNAVUT
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEWSYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in eachof British Columbia, Alberta, Saskatchewan, Manitoba, Ontario,New Brunswick, Nova Scotia, Prince Edward Island, Newfoundlandand Labrador, the Northwest Territories, the Yukon Territoryand the Territory of Nunavut (the "Jurisdictions")has received an application from Domtar Inc. ("Domtar")for a decision under the securities legislation of the Jurisdictions(the "Legislation") that the dealer registration andprospectus requirements of the Legislation (the "DealerRegistration and Prospectus Requirements") shall not applyto certain trades in securities in connection with the secondaryoffering (the "Offering") of 18,170,249 units ("Units")of Domtar;
AND WHEREAS under the Mutual RelianceReview System for Exemptive Relief Applications (the "System")the Ontario Securities Commission is the principal regulatorfor this application;
AND WHEREAS, unless otherwise defined,the terms herein have the meaning set out in National Instrument14-101 Definitions;
AND WHEREAS Domtar has represented tothe Decision Makers that:
1. Domtar is a corporation incorporated underthe laws of Canada and governed by the Canada BusinessCorporation Act. Domtar is a reporting issuer in eachof the Jurisdictions in which such concept exists and, tothe best of its knowledge, is not in default of any of therequirements of the Legislation.
2. The Offering of Units is being made (i)in Canada under a short form prospectus to be filed in eachof the Jurisdictions and (ii) in the United States pursuantto the multi-jurisdictional disclosure system (the "MJDS").
3. Each Unit is comprised of one common shareof Domtar (a "Unit Share") being sold by Dofor Inc.(the "Selling Shareholder") and one common sharepurchase warrant of Domtar (a "Warrant"). Each Warrantwill entitle its holder (the "Warrantholder") topurchase one common share of Domtar (an "Underlying Share")as detailed below.
4. The Selling Shareholder is an indirectwholly-owned subsidiary of Société généralde financement du Québec ("SGF"), an economicdevelopment agency of the Government of the Province of Québec.Domtar has been advised by the Selling Shareholder that SGFis party to an agreement with Caisse de dépôtet placement du Québec under which the two entitieshave agreed to vote their common shares of Domtar in favourof the election to the Domtar board of directors of a numberof representatives of the entities.
5. The Selling Shareholder beneficially owns36,340,498, or 15.97%, of the outstanding common shares ofDomtar. Of those common shares, 18,170,249 will be sold asUnit Shares under the Offering and the remaining 18,170,249will be deposited with the Warrant Agent (as defined below)on Closing in connection with Domtar's obligation to issue,or cause to be delivered, Underlying Shares to Warrantholderson exercise of their Warrants, as described in greater detailbelow.
6. Domtar is qualified to file a prospectusin the form of a short form prospectus under National Instrument44-101-Short Form Prospectus Distributions ("NI 44-101").
7. On December 10, 2002, Domtar issued a pressrelease announcing that it had entered into an underwritingagreement dated December 10, 2002 among the Selling Shareholder,Domtar, and each of National Bank Financial Inc., CIBC WorldMarkets Inc., Merrill Lynch Canada Inc., BMO Nesbitt BurnsInc., Scotia Capital Inc., UBS Bunting Warburg Inc., DesjardinsSecurities Inc. and TD Securities Inc. (the "Underwriters"),pursuant to which the Underwriters have agreed to purchaseon Closing 18,170,249 Units at a price of $16.50 per Unit,payable in cash to the Selling Shareholder against deliveryand otherwise subject to the terms and conditions containedin the underwriting agreement.
8. Also on December 10, 2002, Domtar fileda preliminary short form prospectus (the "PreliminaryProspectus") with the Decision Makers in accordance withNI 44-101 and obtained a receipt therefor dated December 10,2002. It is anticipated, subject to clearing any commentsthat might be raised by the TSX and/or the Decision Makers,that Domtar will file a final short form prospectus with theDecision Makers on or about December 17, 2002 and that Closingwill take place on or about December 23, 2002.
9. Pursuant to the Offering, each Unit willbe separated into one Unit Share and one Warrant on or afterthe Closing, but, in any event, not later than 60 days afterthe Closing, as may be agreed upon by the Selling Shareholderand the Underwriters. The Selling Shareholder will allocate$15.50 for the Unit Share and $1.00 for the Warrant. EachWarrant will entitle the Warrantholder to purchase one UnderlyingShare at a price of $17.55 at any time on or prior to 5:00p.m. (Montreal time) on the date which is one year from theClosing.
10. The warrant agreement (the "WarrantAgreement"), pursuant to which the Warrants will be issued,will require Domtar to issue, or cause to be delivered, toeach Warrantholder upon due exercise of Warrant, that numberof Underlying Shares to which such Warrantholder is entitled.
11. The delivery agreement (the "DeliveryAgreement") will require the Selling Shareholder to irrevocablycommit and agree to deliver Underlying Shares from its holdingof common shares of Domtar for delivery to Warrantholdersupon due exercise of the Warrants. To secure this obligation,the Selling Shareholder will agree, among other things, todeliver, at the Closing, certificates representing a totalof 18,170,249 common shares of Domtar, or the pledged shares,to the warrant agent (the "Warrant Agent"), as depositoryand delivery agent. The pledged shares will be pledged toDomtar.
12. In the event that the Warrant Agent isunable to deliver to Warrantholders that number of pledgedshares to which the Warrantholders are entitled and the SellingShareholder does not deliver other common shares to the WarrantAgent to permit such delivery, Domtar will issue the requirednumber of Underlying Shares to the Warrant Agent at a priceequal to the exercise price of each Warrant and the equivalentnumber of pledged shares will automatically be cancelled.
13. Application has been made to list theWarrants on the TSX.
14. Domtar will not be entitled to any ofthe proceeds from the sale of the Units.
15. Concurrently with the filing of the PreliminaryProspectus with the Decision Makers, Domtar filed a Form F-10registration statement (incorporating the Preliminary Prospectus)with the U.S. Securities Exchange Commission (the "SEC")under the MJDS.
16. It is a condition of the Closing thata shelf registration statement be filed and declared effectiveby the SEC regarding the Underlying Shares delivered in theUnited States. Domtar will use its reasonable efforts to maintaina registration statement relating to the Underlying Shareseffective until the earlier of the expiry date of the Warrantsand the date on which no Warrants remain outstanding. Theshelf registration statement will be filed on Form F-10 withthe SEC under the MJDS. In connection with this, a prospectuswill be filed with the Quebec Securities Commission relatingto the Underlying Shares. This prospectus will not qualifythe distribution of Underlying Shares on exercise of Warrantsby Warrantholders in Quebec or in any of the Jurisdictions.Similarly, the shelf registration statement filed with theSEC will not qualify in any of the provinces or territoriesof Canada the distribution of the Underlying Shares on exerciseof Warrants by Warrantholders in Canada.
AND WHEREAS under the System, this MRRSDecision Document evidences the decision of each Decision Maker(collectively, the "Decision");
AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Maker with the jurisdiction to make theDecision has been met;
THE DECISION of the Decision Makers underthe Legislation is that the Dealer Registration and ProspectusRequirements shall not apply to trades of Underlying Sharesfrom the Selling Shareholder to Warrantholders on the exerciseby them of their Warrants, provided that no commission or otherremuneration is paid or given to others for the trades exceptfor ministerial or professional services or for services performedby a registered dealer, and further provided that the firsttrade of the Underlying Shares is deemed to be a distributionor a primary distribution to the public unless the requirementsof section 2.10 of Multilateral Instrument 45-102 Resale ofSecurities have been satisfied.
December 20, 2002.
"Theresa McLeod" "HaroldP. Hands"