IN THE MATTER OF THE SECURITIES ACT,
R.S.O. 1990, CHAPTER S.5
IN THE MATTER OF
MAPLE LEAF SPORTS &
STEVE A. STAVRO, BRIAN P. BELLMORE
and J. DONALD CRUMP
STATEMENT OF ALLEGATIONS OF
STAFF OF THE ONTARIO
Staff of the Ontario Securities Commission (the "Commission") make the followingallegations:
1. The respondent Maple Leaf Sports & Entertainment Ltd. ("MLSE") is a corporationamalgamated pursuant to the laws of the Province of Ontario. One of the amalgamatingcorporations that formed MLSE was Maple Leaf Gardens, Limited ("MLGL"). At allmaterial times, the shares of MLGL were listed for trading on the Toronto Stock Exchange.
2. The respondent Steve A. Stavro ("Stavro") resides in the Province of Ontario. Stavro was,at all material times:
(a) an executor appointed under the last will of Harold E. Ballard ("Ballard") toadminister Ballard's estate;
(b) the Chief Executive Officer of MLGL;
(c) a director of MLGL;
(d) a member of the Executive Committee of MLGL; and
(e) an indirect controlling shareholder of MLG Ventures Limited ("MLG Ventures"), aprivate corporation.
3. The respondent Brian P. Bellmore ("Bellmore") resides in the Province of Ontario. Bellmorewas, at all material times:
(a) a director of MLGL; and
(b) a member of the Executive Committee of MLGL.
4. The respondent J. Donald Crump ("Crump") resides in the Province of Ontario.Crump was, at all material times:
(a) an executor appointed under Ballard's last will to administer Ballard's estate;
(b) the Chief Financial Officer and a director of MLGL; and
(c) a member of the Executive Committee of MLGL.
The 1980 Broadcast Agreement
5. In 1980, MLGL granted its local broadcast rights to McLaren Advertising Limited for afifteen-year period (the "1980 Broadcast Agreement"). The 1980 Broadcast Agreement waslater assigned to Molson Breweries of Canada ("Molson Breweries"). The amounts payableunder the 1980 Broadcast Agreement were subject to predetermined periodic adjustments andas a result were in fact adjusted on a periodic basis.
6. The 1980 Broadcast Agreement further provided that MLGL would re-negotiate thelocal broadcast rights with Molson Breweries prior to the expiry of the 1980Broadcast Agreement in 1995.
The Importance of Broadcast Revenues
7. The revenues derived by MLGL pursuant to the 1980 Broadcast Agreement were MLGL'ssecond largest source of revenue after ticket sales and were an important component ofMLGL's overall business and affairs as a public company in Ontario.
Valuations of MLGL
8. At the time of his death in 1990, Ballard held directly and indirectly a controlling block ofshares in MLGL.
9. In 1991 Stavro obtained an option to purchase the Estate's interest in MLGL, after makingan application to the Court which determined that the granting of such an option would beconsistent with Ballard's will. Subsequently, Stavro obtained an option on another block ofshares of MLGL held by The Molson Companies Limited.
10. In 1993 Ballard's estate retained R.B.C. Dominion Securities ("DS") and Burns Fry ("BF")(together, "the Valuators") to provide valuations of MLGL. In the valuations, DS and BFconcluded that the fair market value of MLGL shares was in the range of $27 to $34, and$25.83 to $29.91, respectively.
11. In its valuation dated October 15, 1993, BF assumed that MLGL's combined televisionrevenues and advertising revenues would increase by 6% annually from just over $12 millionin 1994 to approximately $12.9 million and $13.1 million in 1995 and 1996 respectively. Thebroadcast revenues in the 1994-1995 season represented only approximately $4.3 million ofthe total television and advertising revenues.
12. In its valuation dated October 1, 1993, DS treated all revenues together as a single aggregate.DS assumed, beginning with actual revenues and expenses, an annual growth of mostrevenues and expenses (including television revenues) of 2%.
13. The respondents reviewed with the Valuators the assumptions in the draftvaluations, prior to the valuations being issued. In doing so, however, therespondents did not comment on the assumptions used by the Valuators withrespect to broadcast revenues.
14. In November of 1993, after the delivery of the valuations, MLGL managementdelivered a forecast to the board of directors which projected, among other things,that MLGL would experience significant increases in broadcast revenues and inplayer salaries (MLGL's largest expense). These projections were substantiallydifferent from the assumptions used in the DS and BF valuations.
15. The forecast was brought to the attention of DS and BF prior to the issuance of theOffering Circular. Neither firm changed the assumptions in its valuation. Neitherfirm changed its assessment of the fair market value of MLGL shares.
16. Following the issuance of the valuations and prior to the takeover bid, therespondents discussed, directly or indirectly, their views regarding the potential forsignificantly increased broadcast revenues with bankers, investment advisers andinvestors in MLG Ventures. The views communicated to these third parties weresubstantially different from the assumptions used in the Valuations.
The Takeover of MLGL
17. In March of 1994 Stavro incorporated MLG Ventures for the purpose of acquiring the sharesof MLGL. Stavro indirectly controlled 51% of MLG Ventures.
18. On April 8, 1994, MLG Ventures issued an offering circular (the "Offering Circular") offering$34.00 cash for each outstanding share of MLGL. On April 15, 1994, MLGL issued adirectors' circular (the "Directors' Circular") recommending that MLGL shareholders acceptthe offer set out in the Offering Circular.
19. MLG Ventures was successful in its takeover bid. MLG Ventures subsequently completedits acquisition of MLGL by effecting a going private transaction. MLG Ventures thenamalgamated with MLGL.
Disclosure in the Offering Circular and Directors' Circular
20. With the consent of the Valuators, each of the Offering Circular and the Directors' Circularreferred to and relied upon the DS and BF valuations. No further valuation was performedfor the purpose of the takeover bid in reliance on the exemption contained in OSC Policy 9.1based on the prior arm's length negotiations that had taken place between MLG Ventures andthe Estate regarding the Estate's MLGL interest.
21. The Offering Circular summarized the DS and BF valuations and provided that copies of thevaluations were available for inspection. The Offering Circular contained no qualification,reservation, disagreement or critical comment on the conclusions reached or the assumptionsused in the valuations.
22. The Directors' Circular identified, as the first reason for the recommendation that MLGLshareholders accept the offer, the DS and BF valuations and the conclusions reached in thosevaluations. The Directors' Circular contained no qualification, reservation, disagreement orcritical comment on the conclusions reached or the assumptions used in the valuations.
23. During the takeover bid period, and prior to preparing the Directors' Circular,members of the Independent Committee of the board of directors, and theCommittee's counsel, met with representatives of DS and BF to review thevaluations. As part of that review, issues and assumptions relating to the potentialsignificant increases in broadcast revenues and players' salaries were discussed.DS and BF confirmed that their assessments of the fair market value of MLGLshares remained the same.
24. Notwithstanding the foregoing, the assumed growth in broadcast revenues adopted by DS andBF (2% and 6%, respectively) was substantially lower than the expectations and beliefs of therespondents, who assumed that broadcast revenues would increase significantly upon expiryof the 1980 Broadcast Agreement.
Conduct of the Respondents
25. Each of the respondents knew that the disclosure to MLGL shareholders in the OfferingCircular and Directors' Circular reflected assumptions as to broadcast revenues that weresubstantially different from the views of the respondents.
26. Each of the respondents permitted or acquiesced in the issuance of the Directors' Circular bythe board of directors of MLGL.
27. Staff of the Commission make no allegation that the respondents were inpossession of an undisclosed material fact related to the affairs of MLGL. However,each respondent was in a position to ensure, did not ensure, and ought to haveensured, that the Offering Circular and Directors' Circular disclosed thesubstantially more optimistic views relating to potential significant increases inbroadcast revenues.
28. Such additional allegations as counsel may advise and as the Commission may permit.