Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief in Multiple Jurisdictions -- Filer wants to put in place a credit support issuer structure, but is unable to rely on the exemption for credit support issuers in applicable securities legislation -- Filer obtained relief from continuous disclosure requirements, certification requirements, audit committee requirements and corporate governance requirements in connection with an amalgamation -- Filer unable to rely on exemption for credit support issuers in applicable legislation since Filer's convertible debentures do not convert immediately into securities of credit supporter and warrants are outstanding -- relief subject to conditions -- relief pursuant to subsection 158(1.1) of the Business Corporations Act (Ontario) that an offering corporation is authorized to dispense with its audit committee as filer obtained relief related to credit support issuer -- filer exempt from audit committee requirements of National Instrument 52-110 Audit Committees -- Relief from audit committee requirements of National Instrument 52-110 conditional upon issuer continuing to satisfy conditions of credit support issuer relief.

Applicable Legislative Provisions

National Instrument 51-102 Continuous Disclosure Obligations, ss. 13.1(2), 13.4.

National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, ss. 8.5, 8.6(2).

National Instrument 52-110 Audit Committees, ss. 1.2(g), 8.1(2).

National Instrument 58-101 Disclosure of Corporate Governance Practices, ss. 1.3(c), 3.1(2).

Business Corporations Act, R.S.O. 1990, c. B.16, s. 158(1.1).

August 13, 2013


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
DIR INDUSTRIAL PROPERTIES INC.
(the “Filer”)

DECISION

Background

The principal regulator has received an application from the Filer for a decision under the securities legislation of the principal regulator (the "Legislation") granting the Filer relief from the following:

1. the continuous disclosure requirements contained in National Instrument 51-102 -- Continuous Disclosure Obligations ("NI 51-102"), as amended from time to time (the "Continuous Disclosure Requirements");

2. the certification requirements contained in National Instrument 52-109 -- Certification of Disclosure in Issuers' Annual and Interim Filings, as amended from time to time (the "Certification Requirements");

3. the corporate governance requirements contained in National Instrument 58-101 -- Corporate Governance Requirements, as amended from time to time (the "Corporate Governance Requirements");

4. the audit committee requirements contained in National Instrument 52-110 -- Audit Committees, as amended from time to time (the "Audit Committee Requirements"); and

5. the audit committee requirements contained in section 158 of the Business Corporations Act (Ontario) (the "OBCA"), as amended from time to time (the "OBCA Audit Committee Requirements"),

collectively, the "Exemption Sought".

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application),

1. the Ontario Securities Commission is the principal regulator for the application, and

2. other than for the OBCA Audit Committee Requirements, 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, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador.

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

The decision is based on the following facts represented by the Filer:

1. The Filer is a corporation incorporated under the laws of the Province of Ontario. The Filer is the continuing corporation resulting from the amalgamation on July 19, 2013 of C2C Industrial Properties Inc. ("C2C") and Dundee Industrial Atlantic Acquisition Inc. (the "Offeror").

2. The Filer's head office is located at 30 Adelaide Street East, Suite 1600, Toronto, Ontario, M5C 3H1.

3. The Filer is a reporting issuer in each of the provinces of Canada other than Québec.

4. Dundee Industrial REIT is an unincorporated, open-ended real estate investment trust created by a declaration of trust dated October 4, 2012, as amended and restated.

5. Dundee Industrial REIT's head office is located at 30 Adelaide Street East, Suite 1600, Toronto, Ontario, M5C 3H1.

6. Dundee Industrial REIT is a reporting issuer in all of the provinces of Canada.

7. Dundee Industrial Limited Partnership ("Dundee Industrial LP") is a limited partnership formed under the laws of the Province of Ontario on December 21, 2010.

8. Dundee Industrial LP is a direct subsidiary of Dundee Industrial REIT.

9. The Filer is a direct subsidiary of Dundee Industrial LP.

10. On March 19, 2013, Dundee Industrial REIT, the Offeror (which was then a wholly-owned subsidiary of Dundee Industrial LP) and C2C (which was then a widely-held public company) entered into a support agreement pursuant to which Dundee Industrial REIT agreed to cause the Offeror to make an offer (the "Offer") to purchase all of the issued and outstanding common shares of C2C in consideration for 0.4485 units of Dundee Industrial REIT per common share of C2C and the board of directors of C2C agreed to recommend to the holders of common shares of C2C that they accept the Offer.

11. On April 5, 2013, the Offeror made the Offer and on May 15, 2013, the Offeror took up and paid for the 16,634,679 common shares of C2C deposited pursuant to the Offer, representing approximately 95% of the outstanding common shares of C2C.

12. In the take-over circular dated April 5, 2013, the Offeror disclosed its intention, if the Offer was successful, to acquire all of the common shares of C2C not deposited under the Offer either by means of a compulsory acquisition in accordance with the provisions of section 188 of the OBCA, if available, or a subsequent acquisition transaction such as an amalgamation of C2C and the Offeror (the "Amalgamation").

13. On June 18, 2013, the board of directors of each of C2C and the Offeror decided to proceed with the Amalgamation pursuant to which holders of common shares of C2C (other than dissenting shareholders and the Offeror) would ultimately receive the same consideration as holders of common shares who deposited their common shares under the Offer.

14. On June 19, 2013, C2C and the Offeror entered into an amalgamation agreement providing for and prescribing the terms and conditions of the Amalgamation, including a condition in respect of the approval of the common shareholders of C2C at a special meeting to be held on July 18, 2013.

15. On June 20, 2013, C2C mailed the management information circular for the special meeting to common shareholders of C2C and to the holders of the outstanding 6.25% convertible unsecured subordinated debentures due November 30, 2017 of C2C (the "Convertible Debentures") and outstanding warrants to acquire common shares of C2C (the "Warrants") together with a notice to the holders of Convertible Debentures and Warrants as contemplated by the terms of such securities.

16. Holders of approximately 97% of the outstanding common shares of C2C were represented at the special meeting of common shareholders of C2C and all of such shares were voted in favour of the resolution approving the Amalgamation. The Amalgamation became effective on July 19, 2013.

17. As a result of the Amalgamation, the property of C2C and the Offeror became the property of the Filer and the Filer continues to be liable for the obligations of each of C2C and the Offeror. The Filer continues to carry on the operations of C2C and has the same assets and liabilities as C2C and the Offeror.

18. Effective on the Amalgamation, common shareholders of C2C (other than the Offeror) received one redeemable preference share ("Redeemable Preference Share") of the Filer for each common share of C2C held. In order to achieve the desired income tax consequences for the shareholders of C2C and the Offeror and the desired income tax consequences for the Filer, it was necessary for the shareholders of C2C and the Offeror to receive shares of the Filer pursuant to the Amalgamation. Each Redeemable Preference Share was redeemed immediately following the Amalgamation in consideration for 0.4485 units of Dundee Industrial REIT. In addition, effective on the Amalgamation, each issued and outstanding common share of C2C held by the Offeror was cancelled without any repayment of capital in respect thereof and each issued and outstanding common share of the Offeror was converted into one common share ("Common Share") of the Filer.

19. Dundee Industrial LP is the only holder of Common Shares following the Amalgamation. The Common Shares are the only voting securities of the Filer. Accordingly, Dundee Industrial LP is the beneficial owner of all the outstanding voting securities of the Filer.

20. Pursuant to the Amalgamation, the Convertible Debentures and the Warrants became obligations of the Filer under applicable law.

21. As of July 18, 2013, $19,420,000 aggregate principal amount of Convertible Debentures were issued and outstanding.

22. The trust indenture governing the Convertible Debentures required the Filer to enter into a supplemental indenture with Equity Financial Trust Company, as trustee (the "Trustee") as the successor to C2C upon the Amalgamation. In addition, Dundee Industrial REIT has provided a full and unconditional guarantee (as contemplated by section 13.4 of NI 51-102) of the Filer's obligations under the trust indenture governing the Convertible Debentures. Accordingly, on July 19, 2013, the Filer, Dundee Industrial REIT and the Trustee entered into a supplemental indenture (the "Supplemental Indenture") amending and supplementing the trust indenture governing the Convertible Debentures (such trust indenture as amended and supplemented by the Supplemental Indenture is referred to as the "Trust Indenture").

23. The terms of the Trust Indenture provide that following an amalgamation a holder of Convertible Debentures is entitled to receive the shares, securities or other property which the holder would have received if it had been a holder of common shares of C2C on the effective date of the Amalgamation. Accordingly, the Trust Indenture provides that a holder of Convertible Debentures is entitled to convert its Convertible Debentures for Redeemable Preference Shares at a conversion price of $5.55 per share. The Trust Indenture provides that, in accordance with the terms of the Redeemable Preference Shares, each Redeemable Preference Share will be redeemed by the Filer immediately following its issuance in consideration for 0.4485 units of Dundee Industrial REIT.

24. The Convertible Debentures are not "designated credit support securities", as defined in subsection 13.4(1) of NI 51-102, solely because on conversion of the Convertible Debentures the holders will receive Redeemable Preference Shares which will be immediately redeemed for 0.4485 units of Dundee Industrial REIT rather than being convertible, in the first instance, for 0.4485 units of Dundee Industrial REIT.

25. In accordance with the terms of the Warrants, as a result of the Amalgamation each Warrant entitles the holder to acquire one Redeemable Preference Share at an exercise price of $5.00 per share. In accordance with the terms of the Redeemable Preference Shares, each Redeemable Preference Share must be redeemed by the Filer immediately following its issuance in consideration for 0.4485 units of Dundee Industrial REIT.

26. As of July 18, 2013, 21,607 Warrants were outstanding and held by four holders in the following amounts:

(a) 6,611 Warrants;

(b) 5,555 Warrants;

(c) 8,334 Warrants; and

(d) 567 Warrants.

27. The Filer has entered into a unit purchase agreement with Dundee Industrial LP (the "Unit Purchase Agreement") pursuant to which it will acquire units of Dundee Industrial REIT from time to time as required to enable the Filer to satisfy its obligation to redeem Redeemable Preference Shares following the conversion of Convertible Debentures or the exercise of Warrants. Dundee Industrial LP is a party to a unit purchase agreement with Dundee Industrial REIT, pursuant to which Dundee Industrial LP will acquire units of Dundee Industrial REIT from time to time as required to enable Dundee Industrial LP to satisfy its obligation to deliver units of Dundee Industrial REIT to the Filer pursuant to the Unit Purchase Agreement.

28. Following the Amalgamation, the Filer does not have any securities outstanding other than (i) the Common Shares held by Dundee Industrial LP, (ii) the Convertible Debentures which are guaranteed by Dundee Industrial REIT and which entitle the holder to ultimately acquire units of Dundee Industrial REIT, and (iii) the Warrants which entitle the holder to ultimately acquire units of Dundee Industrial REIT.

29. Neither the Filer nor Dundee Industrial REIT is in default of any of its obligations under the securities legislation in any of the provinces of Canada in which it is a reporting issuer.

30. The Filer is an "offering corporation" under the OBCA and is obligated under subsection 158(1) of the OBCA to have an audit committee.

31. The board of directors of the Filer will approve the Filer's financial statements, as required by subsection 159(1) of the OBCA.

32. Dundee Industrial LP and Dundee Industrial REIT require the Filer to provide them with a regular flow of financial and operating reports designed to furnish comprehensive and up-to-date information on the financial condition and results of the Filer and on its operations, and where deemed necessary, these reports are supplemented by personal interviews with officers or other management employees of the Filer. Dundee Industrial LP and Dundee Industrial REIT maintain an experienced and professionally trained staff to review the foregoing information.

33. The Filer believes that Dundee Industrial LP, as the sole shareholder of the Filer, and Dundee Industrial REIT as the majority shareholder of Dundee Industrial LP, would not be prejudiced if the Exemption Sought is granted.

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:

1. the Filer continues to satisfy all the conditions set forth in subsection 13.4(2) of NI 51-102, other than paragraph 13.4(2)(c);

2. the Filer does not issue any securities other than:

(a) designated credit support securities (as such term is defined in NI 51-102) for which Dundee Industrial REIT has provided a full and unconditional guarantee;

(b) securities issued to and held by Dundee Industrial REIT or an affiliate of Dundee Industrial REIT;

(c) debt securities issued to and held by banks, loan corporations, loan and investment corporations, savings companies, trust corporations, treasury branches or credit unions, financial services cooperatives, insurance companies or other financial institutions;

(d) securities issued under the exemptions from the registration requirement and prospectus requirement in section 2.35 of National Instrument 45-106 Prospectus and Registration Exemptions ("NI 45-106"); and

(e) Redeemable Preference Shares.

3. the Filer does not have any securities outstanding other than:

(a) designated credit support securities (as such term is defined in NI 51-102) for which Dundee Industrial REIT has provided a full and unconditional guarantee;

(b) securities issued to and held by Dundee Industrial REIT or an affiliate of Dundee Industrial REIT;

(c) debt securities issued to and held by banks, loan corporations, loan and investment corporations, savings companies, trust corporations, treasury branches or credit unions, financial services cooperatives, insurance companies or other financial institutions;

(d) securities issued under the exemptions from the registration requirement and prospectus requirement in section 2.35 of NI 45-106;

(e) the Convertible Debentures;

(f) the Warrants; and

(g) Redeemable Preference Shares.

4. Pursuant to the indenture governing the Convertible Debentures, Dundee Industrial REIT continues to provide a guarantee of the payments to be made by the Filer in respect of the Convertible Debentures.

5. In respect of the Certification Requirements, the Filer continues to satisfy the conditions for relief from the Continuous Disclosure Requirements set forth above in paragraphs 1, 2, 3 and 4.

6. In respect of the Corporate Governance Requirements, the Filer continues to satisfy the conditions for relief from the Continuous Disclosure Requirements set forth above in paragraphs 1, 2, 3 and 4.

7. In respect of the Audit Committee Requirements, the Filer continues to satisfy the conditions for relief from the Continuous Disclosure Requirements set forth above in paragraphs 1, 2, 3 and 4.

8. In respect of the OBCA Audit Committee Requirements, the Filer continues to satisfy the conditions for relief from the Continuous Disclosure Requirements above in paragraphs 1, 2, 3 and 4.

As to the Exemption Sought (other than from the OBCA Audit Committee Requirements in the OBCA).

"Sonny Randhawa"
Manager, Corporate Finance Branch
Ontario Securities Commission

AND UPON the Commission being satisfied that do so would not be prejudicial to the Filer's sole shareholder,

IT IS ORDERED, pursuant to subsection 158(1.1) of the OBCA, that the Filer is authorized to dispense with an audit committee for so long as the Filer continues to satisfy the conditions for relief from the Continuous Disclosure Requirements above in paragraphs 1, 2, 3 and 4.

"Judith Robertson"
Commissioner
Ontario Securities Commission
 
"James D. Carnwath"
Commissioner
Ontario Securities Commission