Securities Law & Instruments


Headnote

National Policy 11-206 Process for Cease to be a Reporting Issuer Applications – Issuer deemed to be no longer a reporting issuer in Ontario – The issuer is undergoing a restructuring under a plan of arrangement pursuant to the Canada Business Corporations Act – under the plan, the outstanding debt of the issuer will be converted into a loan and equity; it is a condition of the plan that the issuer not be reporting in Canada; shareholders voted to approve the plan; following implementation of the plan, the issuer’s only shareholders will be former holders of debt who are sophisticated investors; post-closing issuer has more than 51 securityholders worldwide and fewer than 15 securityholders in each of the jurisdictions of Canada – Decision subject to securities of the issuer being delisted from the TSX.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., s. 1(10)(a)(ii).

January 24, 2017

IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA AND ONTARIO
 (the Jurisdictions)

AND

IN THE MATTER OF
THE PROCESS FOR CEASE TO BE
A REPORTING ISSUER APPLICATIONS

AND

IN THE MATTER OF
CATALYST PAPER CORPORATION
(the Filer)

ORDER

Background

1              The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filer for an order under the securities legislation of the Jurisdictions (the Legislation) that the Filer has ceased to be a reporting issuer in all jurisdictions of Canada in which it is a reporting issuer (the Order Sought).

Under National Policy 11-206 Process for Cease to be a Reporting Issuer Applications (NP 11-206) (for a dual application):

(a)           the British Columbia Securities Commission is the principal regulator for this application,

(b)           the Filer has provided notice that subsection 4C.5(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Quebec, Prince Edward Island and Newfoundland and Labrador, and

(c)           this order is the order of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.

Interpretation

2              Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this order, unless otherwise defined.

Representations

3              This order is based on the following facts represented by the Filer:

1.             the Filer is a corporation existing under the Canada Business Corporations Act (CBCA) with a registered and head office located in Richmond, British Columbia;

2.             the Filer is a reporting issuer in each of the provinces of Canada and is not in default of any of its obligations under the securities legislation of any of the provinces of Canada;

3.             the Filer is also subject to reporting requirements as a registrant under the United States Securities Exchange Act of 1934, as amended;

4.             the authorized capital of the Filer consists of an unlimited number of common shares (the Common Shares) and 100,000,000 preferred shares; as at January 11, 2017, there were 14,527,571 issued and outstanding common shares (the Existing Common Shares) and no issued or outstanding preferred shares;

5.             the Filer previously issued 11.00% PIK Toggle Senior Secured Notes due 2017 (the Notes) under an indenture dated as of September 13, 2012 (as amended and supplemented from time to time, the Indenture); as of January 11, 2017, there was approximately U.S. $260.5 million in aggregate principal amount of the Notes outstanding;

6.             the Filer has no securities issued and outstanding other than the Existing Common Shares and the Notes;

7.             the Existing Common Shares are listed on the Toronto Stock Exchange (the TSX) but will be delisted in connection with the Privatization Transaction (as defined below) as further described below;

8.             the Notes are not and have never been listed on any exchange; the Notes were initially distributed in connection with a reorganization completed on September 13, 2012 under a plan of compromise and arrangement under the Companies' Creditors Arrangement Act;

9.             on October 30, 2016, the Filer entered into a support agreement with certain securityholders (collectively, the Supporting Parties) representing approximately 70% of the Filer's outstanding Common Shares and 87% of the Notes in connection with a proposed recapitalization of the Filer (as further described below, the Recapitalization) and in connection with the repurchase for cancellation of the Existing Common Shares of the Filer held by Existing Shareholders (as defined below) immediately prior to the Recapitalization other than the Existing Common Shares held by the Supporting Parties (as further described below, the Privatization Transaction), under which the Supporting Parties undertook to vote the Existing Common Shares held by the Supporting Parties and to vote the Notes held by the Supporting Parties in favor of the Recapitalization and of the Privatization Transaction;

10.          additionally, on December 13, 2016, the Filer entered into a support agreement with an additional shareholder of the Filer under which such shareholder agreed to vote all of the Existing Common Shares held by it, representing approximately 9.98% of the issued and outstanding Existing Common Shares, in favor of the Recapitalization and the Privatization Transaction;

11.          on December 9, 2016 the Supreme Court of British Columbia (the Court) granted an order (the Interim Order) relating, among other things, to (i) the calling of a meeting (the Shareholders' Meeting) of the holders of Existing Common Shares (the Existing Shareholders) and the calling of a meeting (the Noteholders' Meeting, and together with the Shareholders' Meeting, the Meetings) of the holders of the Notes (the Noteholders) to consider and vote on the Recapitalization and the Privatization Transaction;

12.          on December 16 2016, a management information circular (the Information Circular) relating to the Meetings, the Recapitalization and the Privatization Transaction was filed on SEDAR and mailed to the Existing Shareholders and to the Noteholders;

13.          the approval and implementation of the Recapitalization and the Privatization Transaction involved the following steps, which are further described below:

(a)           approval of the Plan (as defined below) by the required majorities described below;

(b)           obtaining an order of the Court approving the Plan (the Final Order); and

(c)           the satisfaction or waiver of all conditions precedent to the implementation of the Plan (including, for the implementation of the Privatization Transaction and the payment of the Cash Consideration (as defined below), the Order Sought being obtained);

14.          the purpose of the Recapitalization was to significantly reduce the Filer's debt and enhance the Filer's liquidity position, without adversely impacting any of the Filer's trade vendors;

15.          the terms and conditions of the Recapitalization were set forth in a plan of arrangement dated December 14, 2016 (as amended, supplemented or restated from time to time, the Plan) implemented under section 192 of the CBCA, which provided for the following principal transactions to occur promptly following the Court granting the Final Order:

(a)           the Notes and all accrued and unpaid interest on the Notes up to but excluding November 1, 2016 were exchanged such that the Noteholders received from the Filer their pro rata share of:

(i)            the principal amount of a new secured term loan (the New Secured Term Loan) in the principal amount of U.S.$135 million plus all accrued and unpaid interest on the Notes accruing on and after November 1, 2016, up to and including the date upon which the Recapitalization becomes effective (the Effective Date); and

(ii)           Common Shares representing approximately 95% of the outstanding Common Shares of the Filer after such issuance; and

(b)           the Notes, the Indenture and all obligations and entitlements related thereto (other than obligations that expressly survive the termination of the Indenture) were irrevocably and finally settled, terminated and satisfied and discharged, without the need for any further payment or otherwise;

16.          the New Secured Term Loan will include reporting covenants providing for the distribution of quarterly and annual financial statements of the Filer and other reporting standard for loan agreements, which will be available to the Noteholders receiving their pro rata portion of the New Secured Term Loan in addition to Common Shares issuable under the Plan;

17.          approval of the Recapitalization was sought and obtained from the Existing Shareholders and the Noteholders at the Meetings that were held on January 17, 2017;

18.          in order to become effective, the Recapitalization was subject to approval by:

(a)           at least two-thirds of the votes cast by the Existing Shareholders present in person or represented by proxy at the Shareholders' Meeting, voting as a single class;

(b)           at least a simple majority of the votes cast by disinterested shareholders in accordance with the rules of the TSX. The votes attached to Common Shares held or controlled by the Supporting Parties were excluded from such vote in accordance with the rules of the TSX, as further described in the Information Circular;

(c)           at least a simple majority of the votes cast by Existing Shareholders present in person or represented by proxy at the Shareholders' Meeting voting as a single class, excluding the votes cast by persons whose votes may not be included in determining minority approval under Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101); and

(d)           at least two-thirds of the votes cast by the Noteholders present in person or represented by proxy at the Noteholders' Meeting voting as a single class;

19.          the Recapitalization is a related party transaction under MI 61-101 since certain Noteholders are related parties of the Filer for purposes of MI 61-101 who will be issued Common Shares and interests in the New Secured Term Loan under the Recapitalization; the votes attached to Common Shares held or controlled by such related parties were excluded for the purposes of minority approval under MI 61-101; given the existing exclusion of the votes of an additional Supporting Party from the minority approval for the purposes of the rules of the TSX and such additional Supporting Party’s interest in the Recapitalization as the largest holder of Notes, the Filer has determined that such additional Supporting Party’s vote would also be excluded for the purposes of the minority approval of the Recapitalization under MI 61-101; as a result, a total of 10,115,386 Common Shares held by the Supporting Parties, representing approximately 69.6% of the issued and outstanding Existing Common Shares, were excluded from the majority of minority votes required under MI 61-101 to approve the Recapitalization;

20.          under the Privatization Transaction component of the Recapitalization, all Existing Common Shares immediately before the Recapitalization (other than Existing Common Shares held by the Supporting Parties and dissenting shareholders who validly exercise their dissent rights) will be repurchased for cancellation by the Filer for cash consideration equal to C$0.50 per Common Share (the Cash Consideration);

21.          the amount of the Cash Consideration exceeds the value per share determined by PricewaterhouseCoopers LLP (PWC) in a formal valuation provided to the board of directors of the Filer for the purposes of MI 61-101 in the context of the Recapitalization, which concluded that, subject to the limitations, the scope of review and the assumptions set out therein, the fair market value of the Existing Common Shares, as at October 31, 2016, was $NIL;

22.          PWC has provided opinions to the independent committee of the board of directors of the Filer and to the board of directors of the Filer to the effect that, as of October 31, 2016: (a) the Recapitalization is fair, from a financial point of view, to the Filer, the minority shareholders of the Filer and the Noteholders, and (b) the Privatization Transaction is fair, from a financial point of view, to the minority shareholders of the Filer;

23.          approval of the Privatization Transaction was also sought and obtained as a separate vote at the Shareholders' Meeting;

24.          in order to become effective, the Privatization Transaction was subject to approval by:

(a)           a separate vote of at least two-thirds of the votes cast by Existing Shareholders present in person or represented by proxy at the Shareholders' Meeting, voting as a single class; and

(b)           at least a simple majority of the votes cast by Existing Shareholders present in person or represented by proxy at the Shareholders' Meeting, voting as a single class, excluding the votes cast by persons whose votes may not be included in determining minority approval pursuant to MI 61-101;

25.          the Privatization Transaction is a business combination under MI 61-101 since it is implemented under a statutory arrangement under the CBCA which may result in the termination of shareholders' interests in Existing Common Shares without their consent, and under which the Existing Common Shares held or controlled by certain related parties of the Filer for the purposes of MI 61-101, will not be repurchased; such related parties were therefore entitled to consideration that was different than the consideration which the remaining holders of Existing Common Shares were entitled to receive, and the votes attached to Existing Common Shares held or controlled by such related parties were excluded for the purposes of determining whether minority approval under MI 61-101 has been obtained; the Filer has therefore determined that the votes attached to Common Shares held by an additional Supporting Party entitled to different consideration than the remaining shareholders would also be excluded for the purposes of determining whether minority approval under MI 61-101 has been obtained; as a result, a total of 10,115,386 Common Shares held by the Supporting Parties, representing approximately 69.6% of the issued and outstanding Existing Common Shares, were excluded from the majority of minority votes required under MI 61-101 to approve the Privatization Transaction;

26.          completion of the Privatization Transaction and payment of the Cash Consideration is conditional upon receipt of the Order Sought;

27.          prior to completion of the Privatization Transaction, the Filer was eligible to cease being a registrant and subject to reporting requirements under the U.S. Exchange Act of 1934 but had not at this stage implemented the filings to do so in order to preserve its ability to continue to prepare its financial statements in accordance with U.S. GAAP under National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards; a change of GAAP reporting standard would have had a significant cost to the Filer; as a non-reporting private issuer following the implementation of the Plan and the Privatization Transaction, the Filer will be entitled to continue to prepare its financial statements in accordance with U.S. GAAP;

28.          concurrently with the receipt of the Order Sought, the Filer intends to file a Form 15 with the U.S. Securities and Exchange Commission (SEC) in order to terminate the registration of its class of Existing Common Shares; the filing of such Form 15 will suspend the reporting obligations of the Filer under the U.S. Exchange Act of 1934 as of the date of its filing;

29.          the Plan was approved by the Court which determined at a hearing held on January 18, 2017 that the Plan was fair and reasonable to the Existing Shareholders and the Noteholders;

30.          further to the approval of the Privatization Transaction, the Common Shares will be delisted from the TSX as contemplated in the Information Circular; on January 20, 2017 the TSX issued a bulletin announcing the delisting of the Common Shares effective at the close of business on January 25, 2017;

31.          implementation of the Plan is subject to satisfaction or waiver of various conditions precedent set forth therein; assuming satisfaction or waiver of these conditions within the expected time frames, the Filer anticipates implementing the Plan and completing the Recapitalization and the Privatization Transaction before January 31, 2017;

32.          except as otherwise provided in the Plan, the transactions to be effected on implementation of the Plan are to occur in the sequence specified therein commencing at 12:01 a.m. on the Effective Date or such other time as the Filer and the initial Supporting Parties may agree (the Effective Time);

33.          the Information Circular disclosed the intention of the Filer to apply to the applicable securities regulatory authorities to cease to be a reporting issuer in all jurisdictions where it was a reporting issuer, such that its reporting obligations under the securities legislation of the jurisdictions would terminate in connection with implementation of the Privatization Transaction;

34.          the Information Circular also disclosed that in the event that the Privatization Transaction was completed and the Filer ceased to be a reporting issuer, the Common Shares issued under the Plan would be subject to certain resale restrictions under applicable Canadian securities legislation and that Noteholders who would receive Common Shares under the Recapitalization may not be able to freely resell the Common Shares in Canada or to a Canadian resident, unless they can trade or resell the Common Shares pursuant to an exemption from the prospectus requirements of applicable Canadian securities legislation;

35.          the Information Circular further disclosed that if the Privatization Transaction was approved and the Order Sought was obtained, the Filer intended to file a Form 15 with the SEC in order to terminate the registration of its class of common shares and its reporting obligations under the U.S. Exchange Act of 1934, as amended;

36.          following implementation of the Plan and the Privatization Transaction, the Filer will have no outstanding securities other than Existing Common Shares held by the Supporting Parties which will not be repurchased pursuant to the Privatization Transaction and the Common Shares issued to Noteholders in exchange for their Notes;

37.          therefore, following implementation of the Plan, the only securityholders of the Filer (Post-Closing Securityholders) will be the Supporting Parties who will continue to hold their Existing Common Shares, and the former Noteholders who receive Common Shares in exchange for their Notes;

38.          all of the Supporting Parties who will continue to hold their Existing Common Shares following the Effective Date are sophisticated institutional investors based outside of Canada; such Supporting Parties also hold approximately 87% of the Notes to be exchanged into Common Shares under the Plan;

39.          in addition, in accordance with industry practice and custom, the Filer and its agents have obtained geographical searches from Broadridge Financial Solutions Inc. (Broadridge) of its broker/dealer databases relating to the Notes as of December 22, 2016 (the Geographic Report), which provides information as to the number of Noteholders and Notes held in each jurisdiction of Canada, in the United States and elsewhere;

40.          the Geographic Report covers 97.7% of the outstanding principal amount of Notes and reports a total of 121 Noteholders holding U.S. $254,590,813 principal amount of Notes, with no residents of Canada being identified as holders of Notes in such Geographic Report;

41.          most of the Noteholder accounts identified through the negotiations surrounding the Recapitalization, the Meetings and the proxy collection process are investment funds, and many are members of the same "family of funds" as other identified accounts managed by the same firm; if holdings of Notes attributed to all funds of the same "family" were aggregated and treated as a single account, the total number of identified accounts would be significantly reduced;

42.          based on information regarding non-objecting beneficial holders of Notes (NOBOs) available to the Filer as of October 2016, out of approximately 65 NOBO holders of Notes, only six (6) holders of Notes to receive Common Shares were residents of Canada:

(a)           two (2) accounts resident in British Columbia, being two accounts managed by a single investment fund manager/portfolio manager based in British Columbia), holding U.S. $2,500,000 in principal amount of the Notes, representing 0.96% of the principal amount of Notes; and

(b)           four (4) accounts resident in Ontario, managed by a total of three (3) registered fund managers/portfolio managers, holding U.S. $8,224,000 principal amount of Notes (representing 3.15% of the total principal amount of Notes outstanding);

43.          therefore, the Canadian NOBO holders of Notes collectively held approximately U.S. $10,700,000 principal amount of Notes, representing approximately 4.1% of the outstanding principal amount of the Notes, and therefore hold approximately 3.9% of the Common Shares as of the Effective Date; to the best of the Filer's knowledge, information and belief, following implementation of the Plan and the Privatization Transaction, the Canadian Noteholders are the only holders of Common Shares in the jurisdictions where the Filer is a reporting issuer;

44.          therefore, based on diligent inquiries, the Filer has determined that, immediately following implementation of the Plan:

(a)           there are up to 121 Post-Closing Securityholders in total, which number would be significantly reduced if Noteholder accounts attributed to funds of the same "family" and understood to be under common management and control are aggregated;

(b)           not more than 6 Post-Closing Securityholders are resident in Canada; and

(c)           not more than 15 Post-Closing Securityholders are resident in any Canadian jurisdiction;

45.          the Order Sought has been applied for in all jurisdictions of Canada in which the Filer is currently a reporting issuer, and if it is granted, the Filer will cease to be a reporting issuer in all jurisdictions of Canada;

46.          upon implementation of the Plan, no securities of the Filer, including debt securities, will be traded in Canada or another country on a "marketplace" (as that term is defined in National Instrument 21-101 Marketplace Operation) or any other facility for bringing together buyers and sellers of securities where trading data is publicly reported;

47.          the Filer has no current intention to seek financing by way of public offering of securities in Canada or to distribute securities to the public in Canada;

48.          the Filer will promptly issue a news release upon the occurrence of the implementation of the Plan; the news release will specify that the Filer is no longer a reporting issuer as of the Effective Date of implementation of the Plan;

49.          the Filer is unable to rely on the simplified procedure set forth in NP 11-206, as the Filer's outstanding securities, following implementation of the Plan, will be beneficially owned, directly or indirectly, by more than 51 securityholders in total worldwide; and

50.          the Filer acknowledges that, in granting the Order Sought, the Decision Makers are not expressing any opinion or approval as to the terms of the Plan.

Order

4              Each of the Decision Makers is satisfied that the order meets the test set out in the Legislation for the Decision Maker to make the order.

The decision of the Decision Makers under the Legislation is that the Order Sought is granted effective immediately before the Effective Time on the Effective Date, provided that:

(a)           the Common Shares are delisted from the TSX; and

(b)           the Effective Date occurs on or before February 28, 2017.

“Peter Brady”
Executive Director
British Columbia Securities Commission