Canwest Communications Corp. - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications - take-over bids - vendors ("H" and "S", respectively)entering into an asset purchase agreement with purchasers ("CW" and "CCC", respectively) providing for the purchasers'acquisition of certain assets in exchange for aggregate consideration of approximately $3.5 billion, consisting of cash,subordinated debentures and shares to be issued by CW - S also entering into share purchase agreement permittingCCC to sell, or assign to certain charities the right to sell, shares of CW having a value of approximately $67.5 millionto S - substantially all of the funds realized from the disposition of the shares under the purchase agreement to bedevoted to charitable purposes - acquisition of shares under the purchase agreement involves a take-over bid that doesnot fall within the scope of the private agreement exemption - acquisition of shares under the purchase agreementexempted from the take-over bid requirements in the legislation

Ontario Statutes Cited

Securities Act, R.S.O. 1990, c. S.5, as amended, ss. 89, 90, 93(1)(c), 95-100 and 104(2)(c).

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

MANITOBA AND ONTARIO

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

CANWEST COMMUNICATIONS CORP.,

CANWEST GLOBAL COMMUNICATIONS CORP.,

HOLLINGER INC. AND SOUTHAM INC.

MRRS DECISION DOCUMENT

WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of Manitoba andOntario (the "Jurisdictions") has received an application (the "Application") from CanWest Communications Corp. ("CCC")and CanWest Global Communications Corp. ("CanWest" and collectively with CCC, the "Applicants") for a decisionpursuant to the securities legislation of the Jurisdictions (the "Legislation") that the proposed acquisition by Southam Inc.("Southam") of non-voting shares of CanWest (the "NVS") and/or subordinate voting shares of CanWest (the "SVS")pursuant to a share purchase agreement dated July 26, 2000 (the "Share Purchase Agreement") is exempt from theprovisions in the legislation relating to delivery of an offer and take-over bid circular and any notices of change andvariation thereto, minimum deposit periods and withdrawal rights, extensions, taking up and paying for securitiestendered to a take-over bid, disclosure, restrictions upon purchases of securities, bid financing, identical consideration,collateral benefits and the filing of consents or reports with and the payment of related fees to the Decision Makers(collectively, the "Take-over Bid Requirements");

AND WHEREAS pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the"System"), the Manitoba Securities Commission (the "Commission") is the principal regulator for the Application;

AND WHEREAS the Applicants have represented to the Decision Makers as follows:

1. CanWest is a company continued under the laws of Canada and is a reporting issuer or the equivalent in eachof the provinces and territories of Canada. CanWest's head office is located in Manitoba.

2. CCC is a private company incorporated under the laws of Canada and is not a reporting issuer or the equivalentin any province or territory of Canada. CCC's head office is located in Manitoba.

3. Hollinger Inc. ("Hollinger") is a company amalgamated under the laws of Canada and is a reporting issuer orthe equivalent in each province or territory of Canada. Hollinger's head office is located in Ontario.

4. Southam is a corporation governed by the laws of Canada that is a reporting issuer or the equivalent in certainprovinces, including Ontario and Manitoba. Southam's head office is located in Ontario.

5. The authorized capital of CanWest consists of an unlimited number of multiple voting shares (the "MVS"), SVSand NVS and an unlimited number of preference shares issuable in series. As of the close of business on July31, 2000, there were 78,040,908 MVS, 69,295,035 SVS, 2,707,836 NVS and no preference shares outstanding.

6. CanWest is a constrained-share company. At least 66.7% of CanWest's voting shares must be beneficiallyowned by individuals who are Canadian citizens or corporations controlled in Canada. CanWest's articles ofcontinuance (the "Articles") prohibit the issuance or transfer of SVS to a person who is not a "Canadian holder",as that term is defined in the Articles, and, if a person who is not a Canadian holder somehow becomes aholder of any SVS, such SVS are deemed to have been converted automatically into NVS on a one-for-onebasis.

7. The MVS, SVS and NVS (collectively, the "Equity Shares") have the following attributes, among others:

a) Each MVS carries a right to exercise ten votes per MVS at meetings of CanWest shareholders. EachSVS carries a right to exercise one vote per SVS at meetings of CanWest shareholders. The NVSare non-voting.

b) MVS, SVS and NVS share equally in dividends and, upon a winding-up or dissolution of CanWest, inits assets.

c) Holders of MVS may at any time convert all or any of their MVS into SVS on a one-for-one basis,provided that the holder of the MVS is a Canadian holder at the time of conversion. In addition,holders of MVS may at any time convert all or any of their MVS into NVS on a one-for-one basis.

d) The NVS and SVS are interconvertible. Holders of NVS may at any time convert all or any of theirNVS into SVS on a one-for-one basis, provided that the holder of the NVS is a Canadian holder at thetime of conversion. Holders of SVS may at any time convert all or any of their SVS into NVS on a one-for-one basis.

8. The SVS and the NVS are listed on The Toronto Stock Exchange and the Winnipeg Stock Exchange and theNVS also are listed on the New York Stock Exchange.

9. CCC owns all of the outstanding MVS, owns or exercises control or direction over 3,767,716 representing5.44% of the SVS outstanding as at July 30, 2000. Accordingly, CCC exercises owns or exercises control over54.5% of the Equity Shares and 92.3% of the voting rights attaching to all CanWest voting shares.

10. On July 30, 2000, CanWest entered into an agreement with Hollinger, Southam, Hollinger CanadianNewspapers, Limited Partnership and HCN Publications Company (collectively, the "Vendors") providing forthe acquisition by CanWest of certain assets (the "Assets") of the Vendors (the "Acquisition"). The terms of theAcquisition are set out in an agreement (the "Asset Purchase Agreement") dated July 30, 2000 amongCanWest and the Vendors. The aggregate purchase price for the Assets is approximately $3.5 billion (the"Purchase Price") and will be satisfied through a cash payment by CanWest of $2.515 billion and the issuanceby CanWest of approximately $700 principal amount of subordinated debentures, 24.3 million NVS at an issueprice of $25 per NVS and 2.7 million newly created class 1 preference shares (the "Class 1 Preference Shares")at an issue price of $3.75 per Class 1 Preference Share.

11. Pursuant to the Share Purchase Agreement, Southam agreed to acquire up to an aggregate of 2.7 million SVSand NVS from CCC and/or entities affiliated to it and from certain charities registered under the Income TaxAct (Canada) to be designated by CCC (the "Charities") to whom CCC will donate certain of CCC's SVS (the"Share Purchase"). Southam's obligations pursuant to the Share Purchase Agreement are analogous to thegranting of an option, subject to certain conditions, to CCC permitting CCC to: (i) sell up to an aggregate of 2.7million SVS or NVS (or a combination thereof not exceeding 2.7 million shares) for consideration equal to $25in cash per share (the "Option"); and (ii) assign all or any part of its rights under the Option to any of its affiliatesand/or certain charities to be designated by CCC.

12. CCC will donate SVS and/or NVS to certain charities and an aggregate of five charities will be entitled to causeSoutham to purchase an aggregate of not less than 1,380,731 SVS and/or NVS. CCC intends to exercise itsrights under the Option in respect of an aggregate of no more than 1,319,269 SVS or NVS and intends thatsubstantially all of the funds realized from the disposition of SVS and/or NVS directly by CCC pursuant to theShare Purchase Agreement be devoted, directly or indirectly, to charitable purposes.

13. The Class 1 Preference Shares to be issued as part of the Acquisition will have the following principal attributes:

a) Each Class 1 Preference Share will carry the right to 19 votes per share.

b) The Class 1 Preference Shares voting as a series will be entitled to elect: (i) two members ofCanWest's board of directors so long as there are more than 1,350,000 Class 1 Preference Sharesoutstanding; or (ii) one member of CanWest's board of directors so long as there are more than900,000 Class 1 Preference Shares outstanding.

c) Each Class 1 Preference Share will be convertible at any time at the holder's option into: (i) NVS ata rate of 0.15 NVS for each Class 1 Preference Share; or (ii) SVS at a rate of 0.15 SVS for each Class1 Preference Share, provided that the holder furnishes proof at the time of conversion that such holderis a Canadian holder.

d) The Class 1 Preference Shares will not be entitled to receive dividends or distributions, other thanstock dividends (entitling the holder to receive NVS in proportion to the number of NVS or SVS it wouldreceive if its Class 1 Preference Shares were converted to NVS or SVS), nor will the Class 1Preference Shares share in the proceeds upon dissolution and winding-up of CanWest.

14. If, for some reason, Southam is unable to acquire all 2.7 million NVS and/or SVS, as contemplated by the SharePurchase Agreement, CanWest has agreed to adjust the consideration to be paid by it for the Assets in orderto issue such number of NVS as would make up the difference between the number NVS and/or SVS to beacquired from CCC and the Charities and 2.7 million shares, with a concomitant reduction in the cash portionof the Purchase Price payable by CanWest for the Assets.

15. On September 1, 2000, CanWest's board of directors declared stock dividends payable on September 29, 2000to shareholders of record of MVS, SVS and NVS on September 15, 2000. An aggregate of no more than1,861,211 shares are issuable pursuant to such stock dividends, the allocation of which among MVS, SVS andNVS is to be determined based on elections provided by such shareholders.

16. The Asset Purchase Agreement and Share Purchase Agreement (collectively, the "Agreements") provide thatthe transactions contemplated by the Agreements shall close no earlier than October 2, 2000.

17. None of the Vendors qualifies as a Canadian holder for the purposes of the Articles of CanWest and,accordingly, any SVS acquired by Southam pursuant to the Share Purchase or by the Vendors pursuant to theAcquisition or otherwise will be converted automatically into NVS. In addition, pursuant to the Asset PurchaseAgreement, the Vendors have agreed that, even if any of them should change its status and otherwise by ina position to convert its NVS into SVS, it would not do so except immediately prior to a sale to a third party and,in any event, it would not vote any SVS held .

18. CanWest established an independent committee (the "Independent Committee") to consider those aspects ofthese transactions, including the Share Purchase Agreement, which involved CCC and to make arecommendation to the Board of Directors of CanWest as to whether the Acquisition was in the best interestsof CanWest and to determine the impact of the Share Purchase Agreement on its shareholders.

19. The Independent Committee received legal advice about its legal responsibilities, questioned CanWest'smanagement and legal and financial advisors in respect of the Acquisition and its impact on CanWest and itsshareholders and in respect of the Share Purchase Agreement. The Independent Committee also receivedan opinion from CIBC World Markets that the consideration to be offered for the acquisition of the Assets wasfair from a financial point of view to CanWest.

20. The Independent Committee considered all aspects of the transactions, including the fact that CCC and/orcertain charities would be disposing of up to 2.7 million SVS and/or NVS to Southam at $25 per share pursuantto the Share Purchase Agreement, and the opinion from CIBC World Markets. In particular, the IndependentCommittee considered the provisions of the Asset Purchase Agreement that provide for an adjustment to theamount of cash and share consideration payable by CanWest to Hollinger depending on whether Southamacquires 2.7 million NVS from CCC and the designated charities. The Independent Committee considered itimportant that the transfer of SVS and/or NVS to Southam pursuant to the Share Purchase Agreement was lessdilutive to CanWest shareholders than if CanWest issued 2.7 million NVS directly to Hollinger.

21. The Independent Committee unanimously recommended approval of the Acquisition to the Board of Directorsof CanWest.

22. The issuance of an additional 2.7 million NVS directly by CanWest to Hollinger would reduce the cash portionof the purchase price for the Acquisition by $67.5 million, representing only a 2% reduction in such amount.

23. Pursuant to the Acquisition, Hollinger will acquire 24.3 million newly-issued NVS and 2.7 million newly-issuedClass 1 Preference Shares, which are convertible into an aggregate of 405,000 SVS or NVS. Accordingly, afterthe Stock Dividend, the Share Purchase and the Acquisition are effected, Hollinger will own or exercise controlor direction over approximately 15.3% of the Equity Shares of CanWest and 5.7% of the votes attached to allCanWest voting shares.

24. Southam's agreement to acquire NVS and/or SVS under the Share Purchase Agreement constituted a take-over bid since it involved an offer to acquire in excess of 90% of the NVS outstanding as of July 30, 2000.Southam cannot rely upon the private agreement exemption from the Take-over Bid Requirements because:(i) the value of the consideration to be paid under the Share Purchase Agreement exceeds 115% of the marketprice, determined in accordance with the Legislation, of the NVS and SVS as of July 30, 2000; and (ii) it maybe obliged to acquire SVS and/or SVS from more than five sellers.

25. If, however, the NVS and SVS were treated as a single class (the "Combined Class") for purposes of theLegislation, Southam's agreement to acquire NVS and/or SVS under the Share Purchase Agreement wouldconstitute an offer to acquire:

a) 3.7% of the Combined Class as of July 30, 2000, if the CanWest securities to be acquired by Hollingerpursuant to the Asset Purchase Agreement were not treated as "offeror's securities" for purposes ofthe Legislation; and

b) 28.33% of the Combined Class as of July 30, 2000, if the CanWest securities to be acquired byHollinger pursuant to the Asset Purchase Agreement were treated as "offeror's securities" forpurposes of the Legislation.

26 The Applicants will issue a news release outlining the details of the Agreements.

AND WHEREAS pursuant to the System, this decision document evidences the decision of each DecisionMakers (collectively, the "Decision");

AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation that providesthe Decision Maker with the jurisdiction to make the Decision has been met;

THE DECISION of the Decision Makers pursuant to the Legislation is that the acquisition by Southam of NVSand/or SVS pursuant to the Share Purchase Agreement from CCC and/or the Charities shall not be subject to the Take-over Bid Requirements.

October 13, 2000.

"Douglas Brown"