Securities Law & Instruments

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- relief from issuer bid requirements -- reporting issuer received irrevocable offer to purchase 1.4 million of its common shares from two major shareholders at discount to market price -- final price based on discount to market price following acceptance of offer and public announcement by reporting issuer of terms of agreement -- selling shareholders do not need the protections afforded by the issuer bid requirements -- market for the issuer's shares is extremely liquid and other shareholders are able to sell their common shares on the Toronto Stock Exchange at a price higher than the price received by the selling shareholders under the transaction -- purchase made in compliance with requirements regulating related party transactions -- relief granted from issuer bid requirements.

Applicable Ontario Statutory Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 95, 96, 97, 98, and 104(2)(c).

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

THE PROVINCES OF

QUÉBEC AND ONTARIO

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

COSSETTE COMMUNICATION GROUP INC.

 

MRRS DECISION DOCUMENT

WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of Québec and Ontario (collectively, the "Jurisdictions") has received an application from Cossette Communication Group Inc. ("Cossette" or the "Company") for a decision under the securities legislation of the Jurisdictions (the "Legislation") that the requirements contained in the Legislation regarding issuer bids in connection with a purchase by Cossette of subordinate voting shares from certain holders (the "Issuer Bid Requirements") shall not apply to Cossette;

AND WHEREAS under the Mutual Reliance System for Exemptive Relief Applications (the "System"), the Agence nationale d'encadrement du secteur financier is the principal regulator for this application;

AND WHEREAS, unless otherwise defined, the terms herein have the meaning set out in National Instrument 14-101 Definitions or in the Agence nationale d'encadrement du secteur financier Notice 14-101;

AND WHEREAS Cossette represented to the Decision Makers that:

1. Cossette is a company incorporated under the laws of Quebec on March 23, 1999. Cossette's head office is located at 801, Chemin St-Louis, suite 200, Québec, Québec, Canada G1S 1C1.

2. Cossette is a reporting issuer in all of the provinces of Canada, including the Jurisdictions, and is not in default of its obligations under the requirements of the securities laws of the Jurisdictions.

3. The authorized share capital of Cossette includes two classes of voting shares that may each be issued in an unlimited number: the subordinate voting shares, without par value, carrying one vote per share, and the multiple voting shares, without par value, carrying ten votes per share. Each multiple voting share may be converted into one subordinate voting share by its holder at any time. As at February 18, 2004 there were 10,289,994 subordinate voting shares and 8,631,224 multiple voting shares of Cossette issued and outstanding.

4. The subordinate voting shares are listed on the Toronto Stock Exchange under stock symbol "KOS".

5. Cossette contemplates purchasing for cancellation (the "Purchase") 700,000 subordinate voting shares from each of Messrs. Louis Larivière and Ian Saville, for an aggregate of 1,400,000 subordinate voting shares (the "Offered Shares"), pursuant to identical offers to purchase received from the holding companies of such holders (collectively, the "Offer"). The Offer is open for acceptance by Cossette until April 9, 2004. Closing of the Offer is scheduled to take place on the fourth trading day following the acceptance of the Offer by the Company (the "Closing Date").

6. The Offer is an irrevocable offer made at a price per share equal to 90% of the lesser of (i) the volume weighted average closing price on the Toronto Stock Exchange (the "TSX") for the subordinate voting shares for the 20 business days prior to the receipt by the offerors of the acceptance by the Company of the Offer, and (ii) the volume weighted average closing price for the Subordinate Voting Shares traded on the TSX for the three trading days immediately prior to the Closing Date (the "Sale Price"), subject to the Sale Price not being less than $14.00 (the "Minimum Price").

7. If the Sale Price is less than the Minimum Price, the Closing Date will be postponed until the first trading day thereafter on which the Sale Price calculated as set forth above is not less than the Minimum Price up to the date which falls on the 10th business day following the initial Closing Date, but in any event no later than April 30, 2004. If after such date the Sale Price is not greater than the Minimum Price, the Offer will become null and void.

8. Notwithstanding the foregoing, each of the offerors has reserved his right to transfer the Offered Shares to a newly created wholly-owned holding company incorporated under the laws of Canada, Quebec or Ontario having never had any assets other than a nominal amount of cash and the Offered Shares and no liabilities whatsoever ("Holdco"), and to sell to the Company under the Offer all of the issued and outstanding shares of Holdco (the "Holdco Shares") at the time of closing for the Sale Price that would have been payable if the Company had purchased the Offered Shares (the "Holdco Election"). This right to the Holdco Election will be exercisable by written notice to the Company at least two business days prior to the Closing Date and will be subject to and conditional upon Holdco and the selling shareholder entering into a share purchase agreement (the "Holdco Agreement") with the Company at the time of closing relating to the purchase and sale of the Holdco Shares in a pre-determined form of the agreement.

9. Messrs. Larivière and Saville are employees of Cossette but are not directors or members of the senior management of Cossette.

10. Mr. Larivière, residing in the Province of Québec, beneficially holds through wholly-owned Communipro Limitée, 740,000 multiple voting shares, representing approximately 8.57% of the issued and outstanding shares of that class, and 197,660 subordinate voting shares, representing approximately 1.92% of the issued and outstanding shares of that class, providing Mr. Larivière with a total of approximately 6.81% of the voting rights attaching to all outstanding voting shares of Cossette.

11. Mr. Saville, residing in the Province of Ontario, beneficially holds through wholly-owned Lauren Communications Limited, 1,120,230 multiple voting shares, representing approximately 12.98% of the issued and outstanding shares of that class, and 100,000 subordinate voting shares, representing less than 1.00% of the issued and outstanding shares of that class, providing Mr. Saville with approximately 10.13% of the voting rights attaching to all outstanding voting shares of Cossette. As a result, Mr. Saville is considered an insider of Cossette pursuant to the applicable securities legislation.

12. Each of Mr. Larivière and Mr. Saville will convert all of their multiple voting shares into subordinate voting shares in order to proceed with the transaction, save for 57,580 and 90,380 multiple voting shares respectively which are currently under option to certain senior executive officers of Cossette. Once the options expire, if not previously exercised, the multiple voting shares related thereto will be converted into subordinate voting shares.

13. According to calculations confirmed by Cossette, had the acquisition been agreed to as of the date hereof, there would be a liquid market for the subordinate voting shares within the meaning of section 1.3(a) of Québec Policy Statement Q-27 and section 1.3(a) of Ontario Rule 61-501, as the liquidity thresholds set forth in these instruments are met.

14. The board of directors of Cossette has formed an independent committee of directors to review the proposed purchase and make appropriate recommendations to the board of directors (the "Independent Committee"). The Independent Committee has retained the services of independent financial advisors and independent legal advisors to assist it in assessing the transaction.

15. The Independent Committee was provided with an opinion by its financial advisors dated February 27, 2004 that, assuming the transaction was agreed to on that date, then (i) the Sale Price is such that all other holders of subordinate voting shares could sell their subordinate voting shares on the Toronto Stock Exchange at a price that, after payment of commission in the ordinary course, is not less than the Sale Price, and (ii) the transaction is fair, from a financial point of view, to all holders of subordinate voting shares other than the selling shareholders.

16. The Independent Committee approved the terms of the transaction, subject to applicable regulatory approvals or exemptions, and subject to the reconfirmation of the opinion of its financial advisors as to the opinion referred to in paragraph 15 prior to Cossette accepting the Offer, and advised Cossette that, had the Offer been agreed to by Cossette as of the date hereof, it would recommend to the board of directors of Cossette that the transaction was fair to the holders of subordinate voting shares, other than the selling shareholders.

17. Upon acceptation of the Offer by Cossette, as the case may be, once the regulatory approvals will have been obtained and the opinion of the financial advisors reconfirmed, Cossette will publicly disclose its acceptance of the Offer.

18. Management considers that it would be appropriate to use the excess cash for the purpose of the Purchase.

19. The management of Cossette considers that the repurchase of 1,400,000 subordinate voting shares held by Messrs. Larivière and Saville is in the best interest of Cossette and its shareholders for the following reasons:

(a) the transaction will rebalance the debt/equity structure of Cossette at a level considered more optimal by management;

(b) the market overhang on the shares created by the existence of significant shareholders reducing their participation in Cossette will be eliminated;

(c) the number of multiple voting shares outstanding will be reduced;

(d) the cancellation of the shares will be made at a price representing a discount to current market price;

(e) assuming current market conditions remain the same, the discount is such that all other holders of subordinate voting shares will be able to sell their shares on the market at a price not less than the Sale Price;

(f) the transaction will be able to be carried out with a minimum of cost and formalities;

(g) the transaction will be accretive to the earnings per share for all shareholders;

(h) the transaction will increase the return on equity for all shareholders by increasing the earnings per share and reducing the book value of the shareholders' equity;

(i) the use of excess cash will not prevent Cossette from pursuing its acquisition strategy;

(j) the transaction will not negatively impact the liquidity of the market for its subordinate voting shares; and

(k) the share ownership structure of Cossette will not be materially impacted and the transaction will not materially affect the control of Cossette.

AND WHEREAS under the System, this MRRS Decision Document evidences the decision of each Decision Maker (collectively, the "Decision");

AND WHEREAS each of the Decision Makers is satisfied that to do so should not be prejudicial to the public interest;

THE DECISION of the Decision Makers under the Legislation is that Cossette is exempt from the Issuer Bid Requirements in connection with the Purchase.

March 23, 2004.

"Daniel Laurion"