Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief in Multiple Jurisdictions -- Filer is proposing to reorganize its business and conditions from previous relief from exemptions related to its credit support issuer structure no longer applies -- Filer obtained relief from continuous disclosure requirements, certification requirements and audit committee requirements in connection with a reorganization -- 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 and entity other than subsidiary credit supporter provided alternative credit support for the payments to be made -- 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).

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

December 10, 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 Jurisdiction (the "Legislation") granting the Filer an exemption from the following:

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

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

3. the audit committee requirements contained in Section 158 of theBusiness 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. 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 on July 19, 2013.

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 Quebec.

4. Dundee Industrial Real Estate Investment Trust ("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 each 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 subsidiary of Dundee Industrial REIT.

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

10. By decision (the "Existing Decision") dated August 13, 2013 (SeeIn the Matter of DIR Industrial Properties Inc. (2013), 36 O.S.C.B. 8356), the Filer has been exempted from the Continuous Disclosure Requirements, the Certification Requirements and the OBCA Audit Committee Requirements, among other things, subject to the satisfaction of certain conditions.

11. As of September 30, 2013, the Filer had $19,420,000 aggregate principal amount of 6.25% convertible unsecured subordinated debentures due November 30, 2017 ("Convertible Debentures") issued and outstanding. The Convertible Debentures are convertible, at the option of the holder, into redeemable preference shares ("Redeemable Preference Shares") of the Filer at a conversion price of $5.55 per share. The trust indenture ("Trust Indenture") governing the Convertible Debenture 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 ("REIT Units").

12. As of September 30, 2013, 21,607 warrants ("Warrants") to acquire Redeemable Preference Shares of the Filer at an exercise price of $5.00 per Redeemable Preference Share (and, in accordance with the terms of such shares, each Redeemable Preference Share will be redeemed immediately following its issuance for 0.4485 REIT Units) 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.

13. The Convertible Debentures are listed and posted for trading on the Toronto Stock Exchange.

14. The Convertible Debentures are not "designated credit support securities", as defined in subsection 13.4(1) of NI 51-102, 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 and because, although the Filer is controlled by Dundee Industrial REIT, the Filer is not a subsidiary of Dundee Industrial REIT (as defined in subsection 1.2(4) of the Securities Act (Ontario)).

15. 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.

16. The Filer is proposing to reorganize its business, subject to the receipt of the decision granting the Exemption Sought. Such reorganization will include the following steps:

(a) The Filer will incorporate a new wholly-owned subsidiary corporation ("New GP") under the laws of Ontario;

(b) The Filer and New GP will form a new limited partnership ("New LP") under the laws of Ontario, of which New GP will be the sole general partner and the Filer will be the sole limited partner;

(c) The Filer will transfer to New LP properties with an estimated fair market value of between $150 million and $160 million, representing approximately 70% of the total fair market value of the assets of the Filer, in consideration for an increase in capital in New LP and the assumption by New LP of existing mortgages associated with the transferred properties; and

(d) The Filer will transfer all of the shares of New GP and the limited partnership interest in New LP to Dundee Industrial LP in repayment of existing indebtedness owing by the Filer to Dundee Industrial LP.

17. The Trust Indenture provides that, in connection with the proposed transfer (the "Transfer") to Dundee Industrial LP of the shares of New GP and the partnership interest in New LP, Dundee Industrial LP must agree to be bound by the terms of the Trust Indenture with the same effect as if it had been named as a principal obligor because the Transfer constitutes a transfer of all or substantially all of the assets of the Filer. Accordingly, upon completion of the Transfer, Dundee Industrial LP (as successor to and co-obligor with the Filer) will become jointly and severally liable for all obligations under the Trust Indenture in respect of the Convertible Debentures.

18. Upon completion of the Transfer, by virtue of becoming a co-obligor for the Convertible Debentures, Dundee Industrial LP will have provided "alternative credit support" in respect of the Convertible Debentures contrary to the first condition in the Existing Decision because paragraph 13.4(2)(k) of NI 51-102 will not be satisfied. As a result, the Filer will no longer be able to rely on the relief in the Existing Decision.

19. The Filer is an "offering corporation" under the OBCA and obligated under subsection 158(1) of the OBCA to have an audit committee, subject to the terms of the Existing Decision one of the conditions of which will be contravened upon completion of the Transfer as indicated in paragraph 18 above.

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

21. 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 determined to be 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.

22. 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, will not be prejudiced if the Exemption Sought is granted.

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

24. There are no insiders of the Filer other than Dundee Industrial LP who are not also insiders of Dundee Industrial REIT.

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 effective upon the Transfer being completed provided that:

1. Dundee Industrial REIT is the beneficial owner of all the outstanding voting securities of the Filer;

2. Dundee Industrial LP continues to be the sole shareholder of the Filer;

3. the Filer continues to satisfy all the conditions set forth in subsection 13.4(2.1) of NI 51-102, other than paragraph 13.4(2.1)(a) insofar as it incorporates by reference paragraph 13.4(2)(c) of NI 51-102 and except as modified as follows:

(a) any reference to parent credit supporter in section 13.4 of NI 51-102 shall mean Dundee Industrial REIT,

(b) any reference to credit support issuer in section 13.4 of NI 51-102 shall mean the Filer,

(c) any reference to subsidiary credit support issuer in section 13.4 of NI 51-102 shall include Dundee Industrial LP, and

(d) any reference to designated credit support securities in section 13.4 of NI 51-102 shall include the Convertible Debentures;

4. 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 exemption from the prospectus requirement in section 2.35 of National Instrument 45-106 Prospectus and Registration Exemptions ("NI 45-106"), and

(e) Redeemable Preference Shares;

5. 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 exemption from the prospectus requirement in section 2.35 of NI 45-106,

(e) the Convertible Debentures,

(f) the Warrants, and

(g) Redeemable Preference Shares.

6. Pursuant to the Trust Indenture, on and after the date of the Transfer, Dundee Industrial LP continues to be a co-obligor for the due and punctual payment of the principal amount of the Convertible Debentures, the interest thereon and all other moneys payable under the Trust Indenture and Dundee Industrial REIT continues to provide a guarantee of the payments to be made by the Filer in respect of the Convertible Debentures; and

7. 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, 4, 5 and 6.

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

"Sonny Randhawa"
Manager
Corporate Finance Branch

AND UPON the Commission being satisfied that to 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 effective upon the Transfer being completed for so long as the Filer continues to satisfy the conditions for an exemption from the Continuous Disclosure Requirements above in paragraphs 1, 2, 3, 4, 5 and 6.

"James Turner"
Commissioner
Ontario Securities Commission
 
"Judith Robertson"
Commissioner
Ontario Securities Commission