Ontario Commission des 22nd Floor 22e étage Securities valeurs mobilières 20 Queen Street West 20, rue queen ouest Commission de l’Ontario Toronto ON M5H 3S8 Toronto ON M5H 3S8
June 28, 2017
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (THE JURISDICTION)
AND
IN THE MATTER OF THE PROCESS FOR CEASE TO BE A REPORTING ISSUER APPLICATIONS
AND
IN THE MATTER OF MOOD MEDIA CORPORATION (THE FILER)
ORDER
Background
The principal regulator in the Jurisdiction has received an application from the Filer for an order under the securities legislation of the Jurisdiction (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 the Process for Cease to be a Reporting Issuer Applications (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for this application, and
(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 British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Yukon and Nunavut.
Interpretation
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
This order is based on the following facts represented by the Filer:
The Filer is a corporation existing under the Canada Business Corporations Act (the CBCA) with its head office located in Austin, Texas and its registered office located in Toronto, Ontario.
The Filer is a reporting issuer in each of the provinces and territories of Canada and is not in default of any of its obligations under the securities legislation of any of the provinces and territories of Canada.
The authorized capital of the Filer consists of an unlimited number of common shares (the Common Shares) and an unlimited number of preferred shares. As at June 14, 2017, there were 183,694,082 Common Shares issued and outstanding and no issued or outstanding preferred shares.
The Filer previously issued US$350,000,000 aggregate principal amount of 9.25% senior notes due 2020 (the Notes) pursuant to a trust indenture dated October 19, 2012 (as amended and supplemented from time to time). The Notes were sold only outside of Canada pursuant to exemptions from applicable securities laws, and not pursuant to a prospectus, registration statement or similar instrument that would allow sales of the Notes to the general public.
Prior to the closing of the Transaction (as defined below), the Filer had no securities issued and outstanding other than the Common Shares and the Notes.
The Common Shares are listed on the Toronto Stock Exchange (the TSX) and will forthwith be delisted as further described below.
The Notes have never been listed on any exchange.
Although the Filer was a CBCA corporation (prior to the Continuance and Domestication (as defined below)) and is a reporting issuer in the Jurisdictions with its Common Shares listed on the TSX, the Filer does not have any active operations or employees in Canada.
On April 12, 2017, the Filer entered into an arrangement agreement dated April 12, 2017 (the Arrangement Agreement), with affiliates of several of its key stakeholders, including an affiliate of certain funds managed by affiliates of Apollo Global Management, LLC (together with its consolidated subsidiaries, Apollo) and funds advised or sub-advised by GSO Capital Partners LP or its affiliates (GSO Capital Partners LP, together with its affiliates, GSO) to effect a comprehensive transaction pursuant to which, among other things, the following transactions have been completed:
the acquisition and redemption of all of the issued and outstanding Common Shares (the Share Acquisition) for C$0.17 in cash per Common Share (the Share Cash-Out Consideration);
the exchange of the Notes (the Note Exchange) for consideration, per US$1,000 principal amount, consisting of US$500 principal amount of newly-issued second lien notes of the Filer (New Company Notes) and up to 175 new common shares of the Filer (New Company Shares), as well as additional consideration, to the extent applicable, in connection with the New Equity Issuance described below;
the refinancing of the Filer’s existing US$250 million first lien credit facility with the new first lien credit facility in an aggregate principal amount of US$315 million provided by funds and accounts managed by HPS Investment Partners, LLC (the Credit Facility Refinancing);
the redemption of the US$50 million aggregate principal amount 10% senior unsecured notes due 2023 of the Filer’s subsidiary, Mood Media Group S.A., in accordance with the indenture governing their terms (the MMGSA Note Redemption); and
the redomiciliation of the Filer from Canada to Delaware (the Continuance and Domestication).
All such transactions are collectively referred to as the Transaction.
In connection with the Transaction, eligible holders of Notes were provided with the opportunity to subscribe for and purchase their pro rata portion (as between eligible holders) of approximately US$40 million of additional post-Transaction New Company Shares (the New Equity Issuance).
Holders of Notes who participated in the New Equity Issuance have received 1,250 New Company Shares per US$1,000 of new equity capital contributed, which was comprised of 568 New Company Shares delivered as consideration for their new equity contribution and 682 New Company Shares delivered as additional consideration under the Transaction for their Notes.
Holders of Notes who participated in the New Equity Issuance have received US$500 principal amount of New Company Notes and 175 New Company Shares per US$1,000 principal amount of Notes pursuant to the Note Exchange, as well as the additional consideration described above. Holders of Notes who did not participate in the New Equity Issuance have received US$500 principal amount of New Company Notes and 150 New Company Shares per US$1,000 principal amount of Notes pursuant to the Note Exchange.
Immediately following the Continuance and Domestication, the New Company Notes were redeemed by delivery of a corresponding aggregate principal amount of second lien notes (having substantially the same terms as the New Company Notes) co-issued by certain Delaware subsidiaries of the Filer (the Substituted New Company Notes).
The indenture governing the Substituted New Company Notes includes customary reporting covenants providing for the distribution of quarterly and annual financial statements of the Filer and other reporting standard for debt securities.
The purpose of the Transaction was to permit the Filer to substantially reduce its outstanding indebtedness and annual cash interest payments, as well as extend the maturity date of the Filer’s outstanding debt after completion of the Transaction, allowing the Filer to better position itself to pursue and take advantage of strategic initiatives. In the absence of the implementation of the Transaction, the Filer may not have had sufficient access to capital in the long-term to refinance its debt as it matures, and, as a result, there would have been a meaningful risk of the Filer having to pursue a filing for protection under the Companies’ Creditors Arrangement Act (Canada) and/or parallel filings under the United States Bankruptcy Code or, in the absence of a restructuring under such filings, commencing an orderly liquidation process, any of which would have had a negative impact on the Filer, the securityholders of the Filer and the long-term value of the Filer’s assets and operations.
Pursuant to the terms of the Arrangement Agreement, the Filer has used commercially reasonable efforts to take such actions and file such applications as are reasonably necessary to cause the Filer to cease to be a reporting issuer under applicable Canadian securities laws and its securities to be delisted from the TSX.
Pursuant to the Arrangement (as defined below), all Common Shares have been acquired, redeemed and cancelled by the Filer, are no longer outstanding and the former holders thereof have no rights as a holder of Common Shares other than to be paid the Share Cash-Out Consideration in accordance with the Arrangement. The Filer has submitted all requested documentation to the TSX and the TSX has confirmed that entitlements to the Share Cash-Out Consideration will be delisted two or three business days following the completion of the Arrangement.
The Share Acquisition, the Note Exchange and the New Equity Issuance were effected by means of a plan of arrangement (the Arrangement) under the Filer’s governing corporate statute, the CBCA.
The Arrangement required the approval of the Ontario Superior Court of Justice (the Court) as well as the approval of at least two-thirds of the votes cast by holders of Common Shares and a majority of the votes cast by disinterested holders of Common Shares at a special meeting of shareholders held to consider the Transaction (the Shareholder Meeting). The Arrangement also required approval by holders of at least two-thirds of the aggregate principal amount of Notes represented in person, or by proxy, at a meeting of the holders of Notes (the Noteholder Meeting and together with the Shareholder Meeting, the Meetings).
The Arrangement was considered a “business combination” in respect of the Filer pursuant to Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61- 101) since the interest of a holder of a Common Share may have been terminated without the holder’s consent and certain “related parties” (as defined in MI 61-101) of the Filer including, among others, Arbiter Partners Capital Management, LLC and its associates and affiliates (Arbiter) were entitled to receive a “collateral benefit” (as defined in MI 61-101) under the Arrangement. Accordingly, MI 61-101 required, in addition to the approval of the Arrangement by at least 66 2/3% of the votes cast by the holders of Common Shares, present in person or represented by proxy, at the Shareholder Meeting, the approval of the Arrangement by a simple majority of the votes cast by the holders of Common Shares, excluding votes cast in respect of Common Shares held by such related parties. As a result, a total of 52,925,634 Common Shares, representing approximately 28.8% of the issued and outstanding Common Shares, have been excluded from the majority of minority votes required under MI 61-101 to approve the Arrangement.
The Continuance and Domestication required the approval of at least two-thirds of the votes cast by holders of Common Shares at the Shareholder Meeting.
In addition to shareholder, noteholder and court approval, the Arrangement was conditional upon the Continuance and Domestication, Credit Facility Refinancing, the MMGSA Note Redemption and the satisfaction of certain other closing conditions customary for transactions of this nature.
Allen & Co. has provided opinions to the special committee of certain independent members of the board of directors of the Filer (the Special Committee) and to the board of directors of the Filer (the Board) to the effect that, as of April 12, 2017, the Share Cash-Out Consideration to be received by holders of Common Shares (other than Arbiter) pursuant to the Arrangement is fair, from a financial point of view, to such holders of Common Shares.
Origin Merchant Partners has provided opinions to the Special Committee and the Board to the effect that, as of April 12, 2017, (a) the Share Cash-Out Consideration to be received by the holders of Common Shares (other than Arbiter and its associates and affiliates) pursuant to the Arrangement is fair, from a financial point of view, to such holders; (b) the consideration to be received by the holders of Notes (other than Apollo, GSO and their respective associates and affiliates, including their respective affiliated investment funds) pursuant to the Arrangement and the other transactions contemplated by the Arrangement Agreement is fair, from a financial point of view, to such holders (fairness being determined on the basis that the value of the consideration to be received by the holders of Notes (other than Apollo, GSO and their respective associates and affiliates, including their respective affiliated investment funds) is greater than or equal to the value of the Notes held by such holders of Notes pre-Arrangement); (c) the Arrangement and the other transactions contemplated by the Arrangement Agreement are fair, from a financial point of view, to the Filer; and (d) the holders of Notes and the holders of Common Shares would be in a better financial position, respectively, under the Arrangement and the other transactions contemplated by the Arrangement Agreement than if the Filer were liquidated.
Origin Merchant Partners has provided a valuation to the Special Committee and the Board to the effect that, as of April 12, 2017, the fair market value of the Common Shares is in the range of nil to C$0.29 per Common Share.
On May 25, 2017, a management information circular relating to the Meetings and the Transaction (the Information Circular) was filed on SEDAR and mailed to the holders of Common Shares and holders of Notes.
The Information Circular disclosed that in the event that the Transaction was completed and the Filer ceased to be a reporting issuer, the New Company Shares and the New Company Notes issued under the Arrangement would be subject to certain resale restrictions under applicable Canadian securities legislation and that the holders of Notes who would receive New Company Shares and the New Company Notes under the Arrangement may not be able to freely resell the New Company Shares and the New Company Notes in Canada or to a Canadian resident, unless they can trade or resell the New Company Shares and the New Company Notes pursuant to an exemption from the prospectus requirements of applicable Canadian securities legislation.
The approval of the Arrangement was sought and obtained from the holders of Common Shares and the holders of Notes at their respective Meetings which took place on June 15, 2017. The approval of the Continuance and Domestication was also sought and obtained by the holder of Common Shares on such date.
The Filer obtained the final order of the Court approving the Arrangement on June 20, 2017.
The effective time of the Arrangement was 12:01 a.m. (Toronto time) on June 28, 2017 and the closing of the Transaction occurred on June 28, 2017.
Following the closing of the Transaction, the Filer has no outstanding securities other than New Company Shares held by the former holders of the Notes (the Post-Closing Securityholders). The aggregate number of Post-Closing Securityholders is a function of the number of the former holders of Notes who have received their pro rata share of the New Company Shares.
All of the former holders of the Notes who hold their pro rata share of the New Company Shares are sophisticated institutional investors.
Prior to the closing of the Transaction, the Filer engaged Ipreo and Broadridge Financial Solutions, Inc. (Broadridge) to ascertain the beneficial ownership of the Notes.
Ipreo’s report (the Ipreo Report) provides proprietary information on the beneficial ownership levels of various constituencies holding the Notes as of March 14, 2017.
The Filer utilized geographic reports (the Geographic Reports) prepared by Broadridge to better understand the number of Canadian holders of the Notes. Broadridge’s reports, comprised of a Canadian and a United States and international report as at May 17, 2017, contain the geographical holdings information gathered by Broadridge from financial intermediaries in Canada, the United States and offshore that hold beneficial interests in the Notes.
The Ipreo Report covers 99.44% of the outstanding principal amount of the Notes and reports a total of 18 “holders” of Notes (where accounts attributed to funds of the same “family” and understood to be under common management and control are aggregated), all of which are located outside of Canada.
The Geographic Report covers 97.34% of the outstanding principal amount of Notes and reports a total of 59 Noteholders holding US$340,692,350 principal amount of Notes, of which one (1) Noteholder is a resident of Canada holding US$1,030,000 principal amount of Notes (representing approximately 0.29% of the issued and outstanding Notes).
Therefore, based on diligent inquiries, the Filer has determined that, to the best of its knowledge, immediately following closing of the Transaction:
(a) there are approximately 59 Post-Closing Securityholders in total, which number would be significantly reduced to up to approximately 18 noteholders if noteholder accounts attributed to funds of the same “family” and understood to be under common management and control are aggregated (as has been illustrated to the Filer in the Ipreo Report); and
(b) only a single Post-Closing Securityholder is a resident in Canada (representing approximately 0.29% of the issued and outstanding New Company Shares).
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.
No securities of the Filer, including debt securities, are 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.
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.
The Filer is unable to rely on the simplified procedure set forth in NP 11-206, as the Filer’s outstanding securities are beneficially owned, directly or indirectly, by more than 51 securityholders in total worldwide.
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 Transaction.
Order
The principal regulator is satisfied that the order meets the test set out in the Legislation for the principal regulator to make the order.
The decision of the principal regulator under the Legislation is that the Order Sought is granted.
“Robert P. Hutchison” “Peter Currie”
Commissioner Commissioner
Ontario Securities Commission Ontario Securities Commission