Variation of management and insider cease trade order (MCTO) previously issued against, among others, controlling shareholder of a reporting issuer in default of filings required under Ontario securities law - controlling shareholder previously agreeing to indemnify issuer for costs and expenses relating to a failed going private transaction -- controlling shareholder agreeing to grant issuer security over all its assets, including shares of issuer owned by controlling shareholder -- security interest against shares cannot be perfected unless MCTO varied -- controlling shareholder in court-supervised insolvency proceedings -- court-appointed receiver and monitor consenting to variation of MCTO -- court order allowing issuer to apply to Commission for MCTO to be varied -- variation granted.
Applicable Ontario Statutory Provisions
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 127, 144.
IN THE MATTER OF THE SECURITIES ACT
R.S.O. 1990, c. S.5, AS AMENDED
IN THE MATTER OF
CERTAIN DIRECTORS, OFFICERS AND INSIDERS OF
(BEING THE PERSONS AND COMPANIES LISTED
IN SCHEDULE "A" HERETO)
WHEREAS on June 1, 2004, the Ontario Securities Commission (the "Commission") made an Order under paragraph 2 of subsection 127(1) of the Securities Act, R.S.O. 1990, c. S.5, as amended (the "Act"), as varied by an Order of the Commission dated March 8, 2005 (collectively, the "Hollinger MCTO"), that all trading, whether direct or indirect, by the persons and companies listed in Schedule "A" (individually, a "Respondent" and collectively, the "Respondents") in the securities of Hollinger Inc. ("Hollinger" or the "Applicant") shall cease, subject to certain exceptions as provided for in the Hollinger MCTO, until two full business days following the receipt by the Commission of all filings Hollinger is required to make pursuant to Ontario securities law;
AND WHEREAS Hollinger has made an application (the "Application") pursuant to section 144 of the Act to vary the Hollinger MCTO as set out herein;
AND UPON the Applicant having represented to the Commission that:
1. Hollinger is amalgamated under the Canada Business Corporations Act (the "CBCA") and is a reporting issuer in the Province of Ontario.
2. The authorized capital of Hollinger consists of an unlimited number of retractable common shares (the "Common Shares"), an unlimited number of Exchangeable Non-Voting Preference Shares Series I (the "Series I Preference Shares"), an unlimited number of Exchangeable Non-Voting Preference Shares Series II (the "Series II Preference Shares") and an unlimited number of Retractable Non-Voting Preference Shares Series III (the "Series III Preference Shares"). As at June 28, 2005, 34,945,776 Common Shares, no Series I Preference Shares, 1,701,995 Series II Preference Shares and no Series III Preference Shares are issued and outstanding. The only voting securities of Hollinger are the Common Shares.
3. Hollinger's outstanding Common Shares and Series II Preference Shares are listed on the Toronto Stock Exchange under the symbols "HLG.C" and "HLG.PR.B", respectively.
4. The Ravelston Corporation Limited ("RCL"), a privately held corporation, owns: (a) directly approximately 16.5% of the Common Shares and approximately 3.9% of the Series II Preference Shares; and (b) indirectly, through Argus Corporation Limited ("Argus") (of which RCL owns 100% of the common shares), approximately 61.8% of the Common Shares (collectively, the "RCL Owned Shares"). Prior to the Receivership Proceedings (as defined below) RCL was indirectly controlled by Conrad M. (Lord) Black ("Black") through 1269940 Ontario Limited, 2753421 Canada Limited and Conrad Black Capital Corporation. Argus is a corporation governed by the CBCA and is a reporting issuer under the securities laws of the provinces of Ontario and Quebec. The Common Shares owned by Argus are indirectly held through 509643 N.B. Inc., 509644 N.B. Inc., 509645 N.B. Inc., 509646 N.B. Inc. and 509647 N.B. Inc., each of which is a direct or indirect wholly-owned subsidiary of Argus. The principal asset of RCL consists of the RCL Owned Shares.
5. Hollinger has further failed to make subsequent requisite periodic filings under the Act.
6. As of the date of this Order, Hollinger has not rectified the filing deficiencies described in paragraphs 4 and 5 of this Order.
7. On October 28, 2004, Hollinger issued a press release disclosing a proposed business combination/going private transaction (the "Going Private Transaction") involving Hollinger by way of a consolidation of the outstanding Common Shares and Series II Preference Shares. On October 28, 2004, Black delivered a letter to the Board of Hollinger (the "Board") indicating that RCL was proposing to proceed with Going Private Transaction.
8. At a meeting of the Board held on October 28, 2004, Black committed on behalf of RCL that, in the event that approval by holders of the requisite number of Common Shares (the "Common Share Approvals") in respect of the Going Private Transaction involving the Common Shares was not obtained for any reason on or before March 31, 2005, RCL would reimburse Hollinger in connection with US$1.99 million of fees and expenses incurred by Hollinger in connection with the consent and contingent financing arrangements made with certain of Hollinger's holders of 11.875% Senior Secured Notes due 2011 entered into on such date in connection with the facilitation of the Going Private Transaction (the "Up-Front Expenses").
9. At a meeting of the Board held on February 14, 2005, Peter G. White committed on behalf of RCL that, in the event that the Common Share Approvals in respect of the Going Private Transaction were not obtained for any reason on or before March 31, 2005, RCL would reimburse Hollinger in connection with all other reasonable fees and expenses in addition to the Up-Front Expenses incurred by Hollinger in connection with the Going Private Transaction, including the fees and disbursements of GMP Securities Ltd. ("GMP"), legal counsel for GMP and legal counsel for the Independent Privatization Committee of the Board (the "Additional Expenses" which, together with the Up-Front Expenses, are collectively, the "Going Private Expenses").
10. On March 7, 2005, RCL and Hollinger entered into a Reimbursement Agreement (the "Reimbursement Agreement") pursuant to which RCL agreed that it would reimburse Hollinger for the Up-Front Expenses by April 30, 2005 and for the Additional Expenses by no later than July 15, 2005, in the event that the Going Private Transaction did not proceed.
11. Pursuant to the Reimbursement Agreement, RCL further agreed to provide Hollinger with security for its obligation to reimburse Hollinger in the form of the General Security Agreement dated as of March 28, 2005, by RCL in favour of Hollinger (the "GSA").
12. Pursuant to the GSA, RCL granted to and in favour of Hollinger, the Security Interest (as defined in the GSA), being a security interest in RCL's rights, title and interest in and to all of the Collateral of RCL (as defined in the GSA).
13. RCL and Hollinger acknowledged that RCL is subject to the Hollinger MCTO relating to the direct and indirect trading of securities of Hollinger and of International, which includes the grant of the Security Interest with respect to the RCL Owned Shares. Accordingly, the parties agreed that notwithstanding anything contained in the GSA, the Security Interest created thereby would not attach to RCL's direct or indirect interest in Hollinger (including, without limitation, the RCL Owned Shares) until such time as the Hollinger MCTO ceases to be in effect or is amended or varied to permit the granting of the Security Interest therein. However, for greater certainty, the Security Interest has attached and been perfected with respect to the balance of the Collateral.
14. Pursuant to the GSA, RCL covenanted, among other things that it would cooperate with Hollinger in supporting an application by Hollinger to the Commission for such amendment or variation of the Hollinger MCTO as is necessary to permit the attachment of the Security Interest to the RCL Owned Shares.
15. The Security Interest is registered in accordance with the Personal Property Security Act (Ontario) and comparable legislation in certain other provinces but remains unperfected with respect to the RCL Owned Shares.
16. On March 15, 2005, Fogler Rubinoff LLP submitted an application to the Commission for an order to vary the Hollinger MCTO to permit certain direct or indirect trades of securities of Hollinger and certain Respondents named therein that were required to effect, or may have occurred in connection with, the Going Private Transaction. On March 27, 2005, following a hearing on the matter, the Commission concluded that it would not be able to grant the relief requested and accordingly that the Application to vary the Hollinger MCTO was denied.
17. Accordingly, Hollinger seeks reimbursement of the Going Private Expenses, which are currently in excess of CAD$7.1 million. To date, no amount has been reimbursed.
18. By Orders dated April 20, 2005 and May 18, 2005, the Ontario Superior Court of Justice Commercial List (the "Court") appointed RSM Richter Inc. ("Richter") as interim receiver and receiver and manager (the "Receiver") in proceedings (the "Receivership Proceedings") in respect of the assets and property of RCL, Ravelston Management Inc., Argus, 509643 N.B. Inc., 509644 N.B. Inc., 509645 N.B. Inc., 509646 N.B. Inc. and 509647 N.B. Inc. (collectively, the "RCL Entities").
19. By separate Orders dated April 20, 2005 and May 18, 2005, the Court granted a stay of proceedings under the Companies Creditors Arrangement Act (the "CCAA") in respect of the RCL Entities and appointed Richter as monitor (the "Monitor") of the RCL Entities (the "CCAA Proceedings").
20. The perfection of the Security Interest in the RCL Controlled Shares may involve certain incidental direct or indirect trades of securities of Hollinger.
21. Richter, in its capacities as Receiver and Monitor, consents to the making of this Order and to the lifting of the stays of proceedings in the Receivership Proceedings and the CCAA Proceedings to permit the within application to proceed, on the understanding that nothing contained in the Receiver's consent or the present Order constitutes or implies an acknowledgement on the part of the Receiver or any third party as to the validity or enforceability of any security, including, the Security Interest, or as to the effect of the steps to be taken by Hollinger pursuant to this Order, the rights of the Receiver and any third parties with respect thereto are specifically reserved.
22. By Order of the Court dated July 19, 2005, the stays of proceedings in the Receivership Proceedings and the CCAA Proceedings were lifted to permit the within application to proceed.
AND UPON considering the Application and the recommendation of the staff of the Commission;
AND WHEREAS the Commission is of the opinion that it would not be prejudicial to the public interest to make this Order;
IT IS ORDERED, pursuant to section 144 of the Act, that the Hollinger MCTO be and is hereby varied solely to permit:
(a) certain direct and indirect trades of the securities of Hollinger insofar as the attachment and resulting perfection of the Security Interest constitutes such direct or indirect trades; and
(b) all acts in furtherance of the attachment and perfection of the Security Interest in respect of the RCL Owned Shares that may be considered to fall within the definition of "trade" in subsection 1(1) of the Act.
[Editor's Note to the website, February 7, 2006. The date of the Order was inadvertently omitted from the published version, and should read: "Dated at Toronto, this 10th day of August, 2005."]
"Susan Wolburgh Jenah"
"Paul M. Moore"