Securities Law & Instruments

Headnote

MI 11-102 -- related party transactions also connected transactions -- issuer to acquire 100% of outstanding securities of related party in accordance with UK laws - proposed acquisition conditional upon issuer providing loan to related party to cover related party's credit facility - MI 61-101 requires minority approval for loan - 25% market capital exemption would be available but for the fact that the loan and acquisition are related party transactions that are also connected party transactions - without the loan, the acquisition is unlikely to happen - issuer will obtain valuation and minority approval for the acquisition - related party to repay loan within 90 days of failing to obtain minority approval for the acquisition - issuer granted relief from obtaining minority approval in connection with the loan.

Applicable Legislative Provisions

Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, s. 5.6.

IN THE MATTER OF

MULTILATERAL INSTRUMENT 61-101

PROTECTION OF MINORITY SECURITY

HOLDERS IN SPECIAL TRANSACTIONS

("MI 61-101")

AND

IN THE MATTER OF

WESTERN CANADIAN COAL CORP.

("Western")

 

ORDER

(Section 9.1 of Multilateral Instrument 61-101)

UPON the application (the "Application") of Western to the Director of the Ontario Securities Commission (the "OSC") pursuant to Section 9.1 of MI 61-101 for a decision exempting Western from the requirement to obtain minority approval required by section 5.6 of MI 61-101 in connection with a proposed related party transaction with Cambrian Mining plc ("Cambrian").

AND UPON considering the Application and the recommendation of the staff of the Commission;

AND UPON Western having represented to the Director as follows:

1. Western is a corporation incorporated under the laws of British Columbia. Western is a reporting issuer in each of the provinces of Canada, except Québec, and is not in default of its reporting issuer obligations in any jurisdiction.

2. The authorized share capital of Western consists of an unlimited number of common shares and an unlimited umber of preferred shares, of which 209,715,935 common shares (the "Western Shares") are issued and outstanding. The Western Shares are listed on the Toronto Stock Exchange and the Alternative Investment Market of the London Stock Exchange under the symbol "WTN". Certain share purchase warrants and convertible debentures of Western are also listed on the Toronto Stock Exchange under the symbol "WTN.WT" and "WTN.DB", respectively.

3. Cambrian is the largest shareholder of Western, holding approximately 34% of the Western Shares as of December 22, 2008. With the exception of Cambrian, only one other shareholder, Audley European Opportunities Fund Limited ("Audley"), holds more than 10% of the issued and outstanding Western Shares. Two members of Western's board of directors (John Byrne and John Conlon) are also directors of Cambrian.

4. Cambrian is a corporation incorporated under the laws of the United Kingdom. Cambrian's registered office is located at 27 Albemarle Street, London W1S 4DW United Kingdom.

5. The ordinary shares of Cambrian (the "Cambrian Shares") are listed on the Alternative Investment Market of the London Stock Exchange under the symbol "CBM".

6. Audley is the largest shareholder of Cambrian, holding approximately 25% of Cambrian's Shares as of December 22, 2008.

7. Cambrian Investment Holdings Limited, a wholly-owned subsidiary of Cambrian, is currently indebted to Investec Bank (UK) Limited ("Investec") in the amount of US$35,000,000 under the US$50,000,000 Revolving Credit and Term Loan Facilities Agreement dated July 21, 2006 among Cambrian, Cambrian Investment Holdings Limited, Deepgreen Minerals Corporation Limited, AGD Mining Limited, Investec and certain other lenders (the "Investec Facility"). The Investec Facility is secured by, among other things, the Western Shares held by Cambrian.

8. The obligations of Cambrian Investment Holdings Limited under the Investec Facility are due and payable on January 21, 2009. Cambrian has advised Western that it does not currently have the financial resources necessary to repay the Investec Facility and, given current market conditions, it is highly unlikely that Cambrian would be able to refinance the Investec Facility at this time.

9. On December 24, 2009, Western and Cambrian announced they had entered into an agreement in principle with respect to a combination transaction (the "Combination") pursuant to which Western would acquire 100% of the Cambrian Shares.

10. The Combination may proceed by way of a scheme of arrangement or takeover offer under the UK Companies Act. Under the terms of the Combination, Western will issue 0.75 Western Share for each Cambrian Share held. Completion of the Combination will remain subject to, among other things, entering into a definitive combination agreement and receipt of all necessary approvals, including regulatory, shareholder and lender approvals and consents.

11. Western's board of directors established a special committee of directors that are independent of Cambrian (the "Western Committee") to consider, negotiate and make a recommendation regarding the Combination to Western's board of directors. The Western Committee engaged an independent financial advisor to provide it with a formal valuation of the Combination to Western and its shareholders (the "Shareholders").

12. Prior to announcing the Combination, Western had completed an extensive strategic review process to examine and consider opportunities to maximize Shareholder value. The Western Committee concluded that the Combination was the best alternative for Western and should be considered by Shareholders.

13. Western intends to deliver an information circular to its Shareholders in connection with a special meeting to be held for the purposes of considering the Combination. The formal valuation will be included in the information circular delivered to Shareholders.

14. Western is proposing to loan Cambrian US$36,000,000 (C$43,302,000 based on Bank of Canada Exchange Rate on November 28, 2008) on arm's length terms (the "Loan"). The Loan will be drawn down and deposited in Cambrian Investment Holdings Limited's account at Investec to satisfy its obligations under the Investec Facility. The terms of the Loan will include that: (i) the completion of the Loan transaction will be conditional upon the Applicant receiving the exemption order from the OSC contemplated herein; and (ii) the full amount of the Loan will be repaid within 90 days following termination of the Combination transaction or discussions related thereto.

15. The Loan will be secured by a first ranking security interest over all of Cambrian's assets. These assets include Cambrian's Western Shares, Cambrian's convertible debentures of Western, Cambrian's gold and antimony mines in Australia, Cambrian's coal mines in West Virginia and British Columbia as well as Cambrian's ownership interests in other energy and mining related entities.

16. Cambrian has advised Western that, if the Combination proceeds, Investec will require that the Investec Facility be repaid as part of the transaction. As a result, Cambrian may not be in a position to proceed with the Combination unless the Loan is provided on or before January 21, 2009.

17. Cambrian is a "related party" of Western as such term is defined in MI 61-101. Each of the Loan and the Combination constitute a "related party transaction" for the purposes of MI 61-101. The Loan and the Combination constitute "connected transactions" as defined in MI 61-101.

18. A formal valuation of the Loan is not required under MI 61-101, as the Loan is not a related party transaction described in any of paragraphs (a) to (g) of the definition of "related party transaction" in MI 61-101.

19. Pursuant to section 5.6 of MI 61-101, approval of a majority of Western's minority shareholders is required in respect of the Loan, being the approval of the Loan by a majority of Shareholders, excluding Cambrian, Audley and their respective associates and affiliates.

20. Western's market capitalization for the purposes of the Loan transaction calculated in accordance with MI 61-101 is C$213,910,253.70. Accordingly, the amount of the Loan, standing alone, would be less than 25% of Western's market capitalization.

21. Western is required to obtain a formal valuation and minority approval in respect of the Combination in accordance with MI 61-101.

22. Western's board believes that the Combination is the best alternative for Western and that requiring minority approval of the Loan would result in Cambrian having to consider other alternatives for dealing with the Investec Facility, all of which would preclude the Combination and as a result deprive the holders of Western Shares the opportunity to vote on the Combination.

AND UPON the Director being satisfied that to do so would no be prejudicial to the public interest;

IT IS DECIDED by the Director pursuant to section 9.1 of MI 61-101 that, in connection with the Loan, Western shall be exempt from the minority approval requirement in section 5.6 of MI 61-101 provided that if Western does not obtain minority approval for the Combination, the Loan will be repaid within 90 days thereafter.

January 14, 2009.

"Naizam Kanji"
Manager, Mergers & Acquisitions