Ex-Dye & Durham CEO Matthew Proud poses in his Toronto office in September. An amended credit agreement would complicate Proud's efforts to purchase the company.DUANE COLE/The Globe and Mail
Dye & Durham Ltd. DND-T has bought itself more time to file its delayed financial statements without triggering a debt default and has started a process to sell the company.
But terms in the amended credit agreement with its lenders could complicate efforts by its most motivated potential buyer, former CEO Matt Proud, to submit a bid.
The beleaguered Toronto legal software company had promised that its overdue statements for its fiscal year ended June 30 and subsequent first quarter would be delivered some time this week, but it also had until Thursday under its senior credit agreement to file or risk being in default.
D&D said in a release late Wednesday that it had secured a two-month extension to the deadline in exchange for an unspecified consent fee, and revealed that it now expects to file the statements next week.
The company’s stock has been subject to a cease-trade order this week by the Ontario Securities Commission because of the tardy statements. It is expected to lift once they are filed.
But another amendment to the 2024 senior credit agreement with a syndicate led by Goldman Sachs eliminates a special status for Mr. Proud as a potential bidder. The deal, struck when he was CEO, had enabled him and his holding company Plantro Ltd. – one of D&D’s biggest shareholders – to buy D&D without the transaction being considered a change of control. Now, under the amended deal, it would amount to just that, requiring them to refinance $1.3-billion of debt the Goldman group had extended to the company if they prevailed.
The amended agreement also makes another important change. Under the original credit agreement, D&D could spin out its financial services business – which accounts for roughly one-quarter to one-third of total operating income – into a separate public company and pay proceeds to shareholders. Under the amended deal, any subsidiary to which those assets go will be considered a guarantor, and any proceeds would be paid to lenders. Neither amendment would have been needed if D&D had filed its financial statements by Thursday.
Mr. Proud declined to comment on the revised credit agreement. But Martha Vallance, D&D’s former chief operating officer, said in a statement to The Globe and Mail: “The concessions made by the company have transferred a significant amount of potential value from equity holders to creditors, stemming from the company’s ongoing and inexplicable failure to file its financial statements.” Ms. Vallance is running for a board seat later this month.
The late statements mean investors will have less than 10 days to digest the financial state of the company before its Dec. 31 annual meeting. Shareholders are supposed to have at least 21 days under federal and Ontario business law, but D&D has asked the Ontario Superior Court for relief from the requirement.
The company also said its strategic committee had decided to start a sale process and will consider bids for both the entire company and its financial services division. Dye & Durham has hired Canaccord Genuity Group Inc. to oversee the process, and Cormark Securities Inc. will advise the board. CIBC Capital Markets had originally been tapped to lead the process in October but backed out days later, triggering one of several sell-offs in the stock this fall.
D&D had pledged to kick off the strategic review by year’s end under a standstill agreement with Mr. Proud. The company subsequently sued Mr. Proud and Plantro to force them to honour the agreement, and were countersued for $200-million.
The company has had a tumultuous fall. For the second straight year, it will emerge from its annual meeting with a completely overhauled board after Mr. Proud’s brother, former chairman Tyler Proud, struck a governance truce with D&D. Activist hedge fund Engine Capital LP swept in a new board last December after its campaign successfully tapped into widespread investor dissatisfaction with D&D’s direction and leadership.
But the Engine board failed to deliver the quick changes it promised, including the hiring of a new CEO; George Tsivin was only named to the position midyear. The company hired and fired a former chief financial officer and delivered disappointing results, prompting S&P and Moody’s to cut its credit ratings. Matt Proud approached the board with three separate takeover bids and launched his own brief activist campaign, promising to back off under the standstill agreement.
D&D previously launched a strategic review in 2024, when Mr. Proud was still CEO, but suspended the effort, which also considered a sale, last fall in the face of stiff opposition from investors.