Custom Direct Income Fund Completes IPO and Follow-on Offering

On May 29, 2003, Custom Direct Income Fund completed its initial public offering of 11 million units for $110 million of gross proceeds. On the same day, Custom Direct, Inc. (Custom Direct), entered into a $58.9 million credit facility, including a $52 million term loan, which was drawn at closing and a $6.9 million revolving facility, which was undrawn at closing. The gross proceeds of the public offering and credit facilities were $162 million and were paid (net of commissions, fees and expenses) to MDC Corporation Inc. to acquire, indirectly, 80 per cent of the common shares of Custom Direct.

The offering was underwritten by a syndicate led by CIBC World Markets Inc. and TD Securities Inc., which included Scotia Capital Inc., BMO Nesbitt Burns Inc., National Bank Financial Inc. and Griffiths McBurney & Partners. The underwriters were granted an overallotment option for 1.65 million units, which was exercised in full on June 11, and closed on June 13. The overallotment closing resulted in an additional $16.5 million in gross proceeds to MDC. Following the initial public offering and the exercise of the overallotment option, MDC owned 20 per cent of the common shares of Custom Direct and 19 per cent of the fund (approximately three million units).

On July 31, the underwriters acquired MDC’s additional units of the fund for additional gross proceeds of $29.6 million, bringing MDC’s total gross proceeds from the transaction to $208.1 million. MDC’s remaining 20 per cent interest in Custom Direct is subordinated to public unitholders and MDC has agreed not to sell it until after December 31.

For the offering and credit facilities, the fund and MDC were represented by Torys LLP with a team that included Karrin Powys-Lybbe, Phil Brown, Jamie Scarlett, John Emanoilidis, Tom Yeo, Rena Shadowitz and Andrew Prodanyk (corporate and securities), Corrado Cardarelli and Ann Marie McGovern (tax), Adam Delean (lending) and Christina Medland (employment) in Toronto, and in New York, Gary Gartner, Jeff Scheine and Pamela Petree (tax), Daniel Donnelly and Bina Galal (lending), John Butler and David Hellmuth (U.S. employment), Gary Litke (real estate) and Darren Baccus (corporate).

The underwriters were represented in Canada, by Lang Michener, with a team that included Geofrey Myers, Hellen Siwanowicz, Paul Collins, John Conway and Dunia El-Jawhari (securities) and Kalle Soomer (tax); and in the U.S. by Michael Schler (tax) of Cravath, Swaine & Moore LLP in New York.

The lenders were represented in Canada by Gordon Baird and Aimée Downey of McCarthy Tétrault LLP; and in the U.S. by Tom Mullen and Zachary Barnett (lending) and James Barry (tax) of Mayer, Brown, Rowe & Maw in Chicago.

Ernst & Young LLP provided tax advise to MDC with respect to a U.S. restructuring that took place prior to the completion of the offering. Chris Morgan and Raziel Zisman of Skadden, Arps, Slate, Meagher & Flom LLP in Toronto represented MDC as special U.S. counsel on the restructuring.