Securities Law & Instruments


Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – plan of arrangement contemplates issuing exchangeable securities as part of deal consideration but resulting issuer is unable to rely on the exemption for exchangeable security issuer in subsection 13.3 of National Instrument 51-102 Continuous Disclosure Obligations and other applicable securities legislation – voting securities held by three shareholders in order to comply with CRTC foreign ownership restrictions – exchangeable shares are not “designated exchangeable securities” because they do not have voting rights for parent but are otherwise the economic equivalent – additional securities and debt securities outstanding – equivalent relief granted with respect to continuous disclosure requirements, subject to conditions.

Insiders of exchangeable security issuer granted relief from insider reporting requirements, subject to conditions.

Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions – relief granted from the requirement under subsection 6.3(1)(c) to obtain a formal valuation of exchangeable shares to be used as non-cash consideration in connection with a business combination – exemption to the formal valuation under subsection 6.3(2) of MI 61-101 is technically not available – exchangeable securities are in all material respects the economic equivalent to the parent’s publicly traded shares – valuation not required of exchangeable shares since parent shares can be a proxy for such exchangeable shares.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, ss. 107, 121(2)(a)(ii).
National Instrument 51-102 Continuous Disclosure Obligations, s. 13.3.
National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, ss. 8.4, 8.6(2).
National Instrument 52-110 Audit Committees, ss. 1.2(f), 8.1(2).
National Instrument 58-101 Disclosure of Corporate Governance Practices, ss. 1.3(c), 3.1(2).
National Instrument 55-102 System for Electronic Disclosure by Insiders (SEDI), s. 6.1(2).
National Instrument 55-104 Insider Reporting Requirements and Exemptions, s. 10.1(2).
Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, ss. 6.3(1)(c), 6.3(2).

February 10, 2017

IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ONTARIO
(the “Jurisdiction”)

AND

IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF
SIRIUS XM CANADA HOLDINGS INC.
(“XSR”)
AND
2517835 ONTARIO INC.
(“2517835”)

DECISION
Background

The principal regulator in the Jurisdiction has received an application from XSR and 2517835 for a decision under the securities legislation of the Jurisdiction of the principal regulator (the “Legislation”) exempting:

(a)           New XSR (as defined below) from the requirements prescribed by National Instrument 51-102 Continuous Disclosure Obligations (“NI 51-102”) (the “Continuous Disclosure Requirements”);

(b)           New XSR from the requirements prescribed by National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (the “Certification Requirements”);

(c)           New XSR from the requirements prescribed by National Instrument 52-110 Audit Committees (the “Audit Committee Requirements”);

(d)           New XSR from the requirements prescribed by National Instrument 58-101 Disclosure of Corporate Governance Practices (the “Corporate Governance Requirements”, (a), (b), (c), and (d) collectively, the “CD Relief”);

(e)           insiders of New XSR from the insider reporting requirements set out in section 107 of the Securities Act (Ontario) (the “Insider Act Requirements”);

(f)            insiders of New XSR from the insider reporting requirements prescribed by National Instrument 14-101 Definitions (“NI 14-101”), National Instrument 55-102 System for Electronic Disclosure by Insiders (“NI 55-102”) and National Instrument 55-104 Insider Reporting Requirements and Exemptions (“NI 55-104”) in respect of New XSR (the “Insider Reporting Requirements”, (e) and (f) together, the “Insider Reporting Relief”); and

(g)           XSR from the requirement in subsection 6.3(1)(c) of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (“MI 61-101”) to obtain a formal valuation of the non-cash consideration being offered to holders of Class A Shares (as defined below) in the form of Exchangeable Shares (as defined below) under the Arrangement (as defined below) (the “Formal Valuation Relief”),

(the CD Relief, the Insider Reporting Relief and the Formal Valuation Relief collectively, the “Exemptions Sought”).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a)           the Ontario Securities Commission is the principal regulator for this application; and

(b)           XSR and 2517835 have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (“MI 11-102”) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador.

Interpretation

Terms defined in NI 14-101 and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by XSR and 2517835:

1.             XSR is a corporation incorporated under the Business Corporations Act (Ontario) (the “OBCA”). The head office of XSR is located in Toronto, Ontario.

2.             XSR is the sole shareholder of Sirius XM Canada Inc. (“SXMC”), the entity through which XSR operates its business.

3.             XSR and SXMC entered into an arrangement agreement dated May 12, 2016 with Sirius XM Radio Inc. (“Sirius XM Radio”) and 2517835 pursuant to which 2517835 agreed to acquire all of the issued and outstanding shares of XSR under a plan of arrangement (the “Arrangement”). Immediately following the completion of the Arrangement, XSR and 2517835 will amalgamate (the “Amalgamation”), with the resulting company being referred to herein as “New XSR”.

4.             2517835, a company incorporated under the OBCA, is currently wholly-owned by Sirius XM Radio.

5.             Sirius XM Radio, a company incorporated under the laws of Delaware, is a wholly-owned subsidiary of Sirius XM Holdings Inc. (“SIRI”), a company incorporated under the laws of Delaware. SIRI is an SEC issuer with its common stock registered under section 12 of the Securities Exchange Act of 1934 and listed for trading on the NASDAQ Global Select Market (“NASDAQ”).

6.             The authorized share capital of XSR consists of an unlimited number of Class A subordinate voting shares (the “Class A Shares”), an unlimited number of Class B voting shares (the “Class B Shares”) and an unlimited number of Class C non-voting shares (“Class C Shares”), of which, as at the date hereof, there are issued and outstanding approximately 104,818,043 Class A Shares, 30,729,510 Class B Shares and 13,638,527 Class C Shares.

7.             As of November 30, 2016, (i) Obelysk Media Inc. (“Obelysk”) owned 7,887,307 Class A Shares and 15,259,149 Class B Shares of XSR, (ii) Slaight Communications Inc. (“Slaight”) owned 10,700,000 Class A Shares and 15,470,361 Class B Shares of XSR, and (iii) Sirius XM Radio owned 33,685,653 Class A Shares and 13,638,527 Class C Shares of XSR. Assuming conversion of all Class B Shares and Class C Shares into Class A Shares, as of November 30, 2016, (i) Obelysk would have owned 12,973,690 Class A Shares of XSR, (ii) Slaight would have owned 15,856,787 Class A Shares of XSR, and (iii) Sirius XM Radio would have owned 47,324,180 Class A Shares of XSR.

8.             Each of Obelysk, Slaight and Sirius XM Radio is a “related party”, as defined under MI 61-101, of XSR.

9.             XSR has issued $200 million in aggregate principal amount of 5.625% senior unsecured notes due April 23, 2021 (the “2021 Notes”) on a private placement basis to certain accredited investors. The 2021 Notes are non-convertible debt securities without any conversion or exchange rights. They are not traded in Canada or another country on a marketplace as defined in National Instrument 21-101 Marketplace Operation (“NI 21-101”) and will remain outstanding following the completion of the Arrangement.

10.          The trust indenture governing the 2021 Notes dated April 23, 2014 between XSR, SXMC and Equity Financial Trust Company (the “Trust Indenture”) contains provisions regarding the informational rights of holders of 2021 Notes. In the event that XSR completes a going private transaction such as the Arrangement, the terms of the Trust Indenture provide holders with information rights, including requirements for annual and interim financial statements and management’s discussion and analysis to be prepared and furnished privately to holders of 2021 Notes.

11.          XSR’s Class A Shares are listed and posted for trading on the Toronto Stock Exchange. XSR is a reporting issuer in each of the provinces of Canada (the “Reporting Jurisdictions”). Neither XSR nor 2517835 are in default of their obligations under the securities legislation in any of the Reporting Jurisdictions.

The Arrangement

12.          The Arrangement would, subject to applicable shareholder, regulatory and court approval and other conditions, effect a “business combination” of XSR and 2517835 pursuant to section 182 of the OBCA, utilizing a traditional cross-border “exchangeable share” structure. The Arrangement is a going private transaction.

13.          The Arrangement will be consummated on the effective date and will include, among others, the following key steps:

(a)           each of

(i)            Obelysk and Slaight will transfer 1,666,667 Class A Shares of XSR to 2517835 as at the effective time of the Arrangement in exchange for each receiving 1,666,667 voting Class A shares of 2517835, and

(ii)           Sirius XM Radio will transfer all of its Class A Shares and Class C Shares of XSR to 2517835 as at the effective time of the Arrangement in exchange for 1,641,791 voting Class A shares of 2517835, 6,135,987 non-voting Class B shares of 2517835 and 177,958,942 non-voting Series 2 preferred shares of 2517835; and

(b)           2517835 will acquire all of the remaining outstanding Class A Shares and Class B Shares of XSR in exchange for,

(i)            in the case of the Class A Shares, either (A) $4.50 in cash, (B) 0.898 of a share of SIRI common stock (each such whole share, a “SIRI Share”), or (C) 0.898 of a share of 2517835 (each such whole share, an “Exchangeable Share”) exchangeable into one share of SIRI common stock, and

(ii)           in the case of the Class B Shares, either (A) $1.50 in cash, (B) 0.299 of a SIRI Share, or (C) 0.299 of an Exchangeable Share.

14.          2517835 is only obligated to issue Exchangeable Shares as part of the consideration under the Arrangement if (i) Class A Shares and Class B Shares having an equivalent aggregate value of at least $25,000,000 (on the basis of $4.50 per Class A Share and $1.50 per Class B Share) are exchanged for Exchangeable Shares, and (ii) if the exemptive relief which is the subject of this decision is obtained prior to the effective time of the Arrangement. If either of the foregoing conditions are not satisfied, then no Exchangeable Shares will be issued and any holders of XSR shares that elected Exchangeable Shares will instead receive cash and/or SIRI Shares as specified in their letter of transmittal and election form.

15.          The maximum aggregate number of SIRI Shares and Exchangeable Shares that may be issued to XSR shareholders pursuant to the Arrangement is 35,000,000. In the event that the aggregate number of SIRI Shares and Exchangeable Shares elected by XSR shareholders pursuant to the Arrangement exceeds 35,000,000, then such XSR shareholders shall receive a pro-rated number of SIRI Shares and Exchangeable Shares.

16.          The Exchangeable Shares issuable under the Arrangement would represent less than one percent of the total outstanding voting rights of SIRI.

17.          Immediately prior to the effective time of the Arrangement, Sirius XM Radio will provide the required cash to 2517835, through an advance of funds by way of an inter-corporate loan to 2517835 (the “2517835 Debt”) and by way of a subscription for non-voting Series 2 preferred shares of 2517835, such that 2517835 can fund the cash component of the consideration payable under the Arrangement (as described in paragraph 13(b)) at the effective time of the Arrangement.

18.          The amount and specific terms of the 2517835 Debt will be finalized prior to the closing date of the Arrangement but the terms, including interest rate and terms of default, will be commercially and market based.

Amalgamation

19.          Following the Amalgamation, New XSR will have the following securities outstanding:

(a)           4,975,125 voting Class A shares (“New XSR Class A Shares”) to be held as follows:

(i)            Obelysk – 1,666,667 New XSR Class A Shares,

(ii)           Slaight – 1,666,667 New XSR Class A Shares, and

(iii)          Sirius XM Radio – 1,641,791 New XSR Class A Shares;

(b)           6,135,987 non-voting Class B shares (“New XSR Class B Shares”), all of which will be held by Sirius XM Radio;

(c)           non-voting preferred shares (“New XSR Preferred Shares”), all of which will be held by Sirius XM Radio; and

(d)           exchangeable shares (“New XSR Exchangeable Shares”) having the same terms and in the same quantity as the Exchangeable Shares issued under the Arrangement, if any.

20.          Immediately following the completion of the Arrangement and the Amalgamation, Slaight and Obelysk will collectively own 67% of the New XSR voting shares, while Sirius XM Radio will own the remaining 33% of the voting shares of New XSR.

21.          Upon completion of the Arrangement and the Amalgamation, New XSR will assume the 2021 Notes and the 2517835 Debt.

22.          As of the closing of the Arrangement and Amalgamation, New XSR will not have any business operations other than indirectly through its interest in SXMC.

Special Committee and Board

23.          The special independent committee of XSR’s board of directors (the “Special Committee”) unanimously recommended to XSR’s board of directors that it recommend that XSR shareholders (other than Slaight, Obelysk and Sirius XM Radio) vote in favour of the shareholder resolution authorizing and approving the Arrangement (the “Arrangement Resolution”). In connection and concurrently with its recommendation, the Special Committee received fairness opinions from Ernst & Young LLP and National Bank Financial Inc., that the consideration offered under the Arrangement (which includes the Exchangeable Shares) is fair, from a financial point of view, to the holders of XSR shares (other than Slaight, Obelysk and Sirius XM Radio). Ernst & Young LLP also provided a formal valuation of the Class A Shares. Following the recommendation of the Special Committee, XSR’s board of directors (with the interested directors abstaining from voting and not participating in the review of the Arrangement) unanimously recommended that XSR shareholders (other than Slaight, Obelysk and Sirius XM Radio) approve the Arrangement.

Securityholder Approval

24.          The special meeting of XSR voting shareholders (the “Special Meeting”) was held on August 30, 2016. A special majority of XSR voting shareholders, including a majority of disinterested XSR voting shareholders, approved the Arrangement Resolution by 89.14% of the 121,792,144 votes cast by XSR voting shareholders, and 65.91% of the 38,781,229 votes cast by disinterested XSR voting shareholders, present in person or represented by proxy at the Special Meeting.

25.          The Arrangement Resolution received the required shareholder approval, being the affirmative vote of not less than:

(a)           66⅔% of the votes cast on the arrangement resolution by the holders of the Class A Shares and Class B Shares of XSR, voting together, present in person or by proxy at the Special Meeting; and

(b)           a majority of the votes cast by holders of Class A Shares present in person or by proxy at the Special Meeting excluding for this purpose votes attached to Class A Shares held by persons described in items (a) through (d) of subsection 8.1(2) of MI 61-101.

All issued and outstanding Class A Shares held by Sirius XM Radio, Slaight and Obelysk were excluded for purposes of “minority approval”. All of the issued and outstanding Class B Shares and Class C Shares were excluded for purposes of “minority approval” as they are held by Slaight and Obelysk, in the case of the Class B Shares, and Sirius XM Radio in the case of the Class C Shares. There are no Class B Shares or Class C Shares held by minority shareholders and therefore no vote was needed in respect of either class under MI 61-101. In addition, there are no voting rights attached to the Class C Shares and therefore Sirius XM Radio was not entitled to vote such Class C Shares on the arrangement resolution.

26.          The meeting materials, including the notice of meeting, management information circular (the “Circular”), form of proxy and letters of transmittal and election form, were made publicly available on SEDAR as of August 2, 2016 and mailed to XSR shareholders. The Circular complied with the requirements of applicable securities law and disclosed that neither XSR nor any of its officers or directors has any knowledge of any material information concerning 2517835 or the Exchangeable Shares and XSR likewise has no material undisclosed information concerning SIRI or the SIRI Shares.

27.          The Circular contained the formal valuation and fairness opinion of Ernst & Young LLP as well as the fairness opinion of National Bank Financial Inc. The Circular also contained disclosure in respect of XSR, SIRI and 2517835.

Court Approval

28.          On July 28, 2016, the Ontario Superior Court of Justice (Commercial List) (the “Court”) granted an interim order under the OBCA and on September 6, 2016, the Court issued a final order approving the Arrangement.

CRTC Approval

29.          The Arrangement is subject to the approval of the Canadian Radio-Television and Telecommunications Commission (“CRTC”).

30.          It is a CRTC requirement that Canadian shareholders own at least 67% of the votes and voting shares of New XSR. As such, the shareholdings of New XSR have been structured to satisfy this Canadian ownership requirement (the “CRTC Requirement”).

New XSR Capital Structure

31.          The rights, privileges, restrictions and conditions attaching to the New XSR Class A Shares, New XSR Class B Shares, New XSR Preferred Shares and New XSR Exchangeable Shares will be set out in the articles of amalgamation to be filed in connection with the Amalgamation.

32.          Holders of New XSR Class A Shares will be entitled (i) to dividends if, as and when declared by the directors of New XSR, (ii) upon the liquidation, dissolution or winding-up of New XSR, to participate rateably with the holders of New XSR Class B Shares in the remaining assets of New XSR (subject to the prior rights of the holders of New XSR Preferred Shares), and (iii) to one vote in respect of each New XSR Class A Share on matters brought before all meetings of holders of New XSR Class A Shares.

33.          New XSR, SXMC, Sirius XM Radio, Slaight and Obelysk will enter into a shareholders agreement (the “Shareholders’ Agreement”) upon closing of the Arrangement to manage their relationship with respect to New XSR including, among other things, board appointments, information rights and restricting the transfer of the voting securities in order to align with the CRTC Requirement.

34.          Pursuant to the Shareholders’ Agreement, the shareholders of New XSR will agree to act to ensure that no transfer or issuance of securities shall be permitted if such transfer or issuance would result in a violation of the Broadcasting Act (Canada) (the “Broadcasting Act”) and related regulations, rules, policies, directions and decisions or require the prior approval of the CRTC or any other regulatory authority having jurisdiction, unless and until such approval has been obtained.

35.          Holders of New XSR Class B Shares will be entitled (i) to dividends if, as and when declared by the directors of New XSR, and (ii) upon the liquidation, dissolution or winding-up of New XSR, to participate rateably with the holders of New XSR Class A Shares in the remaining assets of New XSR (subject to the prior rights of the holders of New XSR Preferred Shares).

36.          Holders of New XSR Class A Shares and New XSR Class B Shares will be entitled to the receipt of equal dividends on their shares, if declared by the directors of New XSR.

37.          Holders of New XSR Preferred Shares will be entitled (i) to cash dividends as and when declared by the directors of New XSR (which dividends may only be declared and paid if the target dividends in respect of the New XSR Class A Shares and New XSR Class B Shares have been declared and paid), and (ii) upon the liquidation, dissolution or winding-up of New XSR, to receive an amount equal to the redemption price ($1.00) before any distribution in respect of any other shares of New XSR.

38.          The New XSR Exchangeable Shares are intended to provide Canadian shareholders with a temporary tax deferral from the effective time of the Arrangement until conversion to SIRI Shares.

39.          The rights, privileges, restrictions and conditions attaching to the New XSR Exchangeable Shares will be set out in articles of amalgamation of New XSR. Holders of New XSR Exchangeable Shares are entitled:

(a)           at any time without any conditions to exchange one New XSR Exchangeable Share for one SIRI Share;

(b)           to dividends equal to the dividends, if any, declared from time to time on the SIRI Shares;

(c)           in the event of the liquidation, dissolution or winding-up of New XSR or any other distribution of the assets of New XSR among its shareholders for the purpose of winding up its affairs, to receive from the assets of New XSR in respect of each New XSR Exchangeable Share held by such holder on the liquidation date before any distribution of any part of the assets of New XSR among the holders of the common shares of New XSR or any other shares ranking junior to the New XSR Exchangeable Shares, an amount per share equal to current market value of one SIRI Share plus any declared and unpaid dividends relating to such SIRI Share, which shall be satisfied in full by New XSR delivering or causing to be delivered to such holder one SIRI Share, plus any such dividend amount;

(d)           in the event of a liquidation event of SIRI (a “SIRI Liquidation Event”), SIRI will purchase all of the New XSR Exchangeable Shares from the holders thereof immediately prior to the effective date of such SIRI Liquidation Event. The purchase price payable by SIRI for each New XSR Exchangeable Share purchased pursuant to the SIRI Liquidation Event will be satisfied by the delivery of one SIRI Share for each New XSR Exchangeable Share purchased, together with an amount equal to the dividend amount, if any; and

(e)           in the event that a tender offer, share exchange offer, issuer bid, takeover bid or similar transaction with respect to SIRI Shares is proposed by SIRI or is proposed to SIRI or its shareholders and is recommended by the board of directors of SIRI, or is otherwise effected or to be effected with the consent or approval of the board of directors of SIRI, and the New XSR Exchangeable Shares are not redeemed by New XSR or purchased pursuant to the terms of the New XSR Exchangeable Shares, SIRI will expeditiously and in good faith take all such actions and do all such things as are necessary or desirable to enable and permit holders of New XSR Exchangeable Shares (other than SIRI, its affiliates and New XSR) to participate in such offer to the same extent and on an economically equivalent basis as the holders of SIRI Shares, without discrimination.

40.          Holders of New XSR Exchangeable Shares are not entitled to receive notice of or to attend any meeting of the shareholders of SIRI or to vote at any such meeting. Except as required by applicable law and in respect of certain matters as further described in the share provisions of the New XSR Exchangeable Shares, holders of New XSR Exchangeable Shares will not be entitled as such to receive notice of or to attend any meeting of the shareholders of New XSR or to vote at any such meeting. Without limiting the generality of the foregoing, holders of New XSR Exchangeable Shares will not have class votes except as required by applicable law.

41.          Subject to certain conditions and limitations as described in the Circular, holders of New XSR Exchangeable Shares will be entitled at any time following completion of the Arrangement to retract any or all New XSR Exchangeable Shares registered in their names and to receive an amount per share equal to the current market price of a SIRI Share on the last business day prior to the day on which New XSR will redeem such New XSR Exchangeable Shares plus the dividend amount, which shall be satisfied in full by New XSR delivering or causing to be delivered to such holder one SIRI Share, plus any dividend amount.

42.          Subject to certain conditions and limitations as described in the Circular, New XSR may redeem the whole of the then outstanding New XSR Exchangeable Shares by delivery of an amount per share equal to the current market price of a SIRI Share on the last business day prior to the redemption date plus the dividend amount to each holder thereof, which shall be satisfied in full by New XSR causing to be delivered to each holder of New XSR Exchangeable Shares one SIRI Share for each New XSR Exchangeable Share, plus the dividend amount.

CD Relief

43.          Following the completion of the Arrangement and the Amalgamation, (i) New XSR and SIRI will be reporting issuers in each of the Reporting Jurisdictions (where that concept exists), (ii) XSR’s shares will be de-listed from the Toronto Stock Exchange, and (iii) no securities of New XSR will be listed or posted for trading on any stock exchange or marketplace as defined in NI 21-101. There is no intention to conduct a public financing of securities of New XSR.

44.          SIRI will file continuous disclosure documentation on SEDAR pursuant to the requirements of National Instrument 71-102 Continuous Disclosure and Other Exemptions Relating to Foreign Issuers. SIRI is the parent of Sirius XM Radio, a shareholder of New XSR, and the issuer of the shares underlying the New XSR Exchangeable Shares.

45.          An exchangeable security issuer can satisfy its continuous disclosure obligations provided it can meet the conditions of subsection 13.3(2) of NI 51-102 (the “Exchangeable CD Exemption”). By satisfying the requirements and conditions of the Exchangeable CD Exemption, such issuer would also be exempt from (i) the Certification Requirements pursuant to section 8.4 of NI 52-109, (ii) the Audit Committee Requirements pursuant to subsection 1.2(f) of NI 52-110, and (iii) the Corporate Governance Requirements pursuant to subsection 1.3(c) of NI 58-101.

46.          If not for the capital structure of New XSR, which is designed to comply with the CRTC Requirements and to facilitate the completion of the Arrangement, and the outstanding 2021 Notes, New XSR could have relied upon the Exchangeable CD Exemption.

47.          Following the completion of the Arrangement and the Amalgamation and because of the CRTC Requirement, New XSR will have three shareholders holding voting securities, Sirius XM Radio, Slaight and Obelysk. Their relationship with respect to New XSR including, among other things, board appointments, information rights and restricting the transfer of the voting securities in order to align with the CRTC Requirement, will be governed by the Shareholders’ Agreement.

48.          The preferred shares and debt securities, being issued by 2517835 are being issued in connection with the Arrangement to facilitate the acquisition of XSR by 2517835, and such securities will be wholly owned by Sirius XM Radio.

49.          The 2021 Notes (which will become obligations of New XSR) will remain outstanding; however holders of 2021 Notes will receive disclosure pursuant to the information rights under the Trust Indenture.

50.          The New XSR Exchangeable Shares would otherwise satisfy the criteria of “designated exchangeable securities” within the meaning of section 13.3 of NI 51-102 except that holders of New XSR Exchangeable Shares will not have voting rights with respect to matters upon which holders of SIRI Shares are entitled to vote. Notwithstanding the foregoing, the New XSR Exchangeable Shares are otherwise the economic equivalent of SIRI Shares and are exchangeable at the holder’s discretion for SIRI Shares.

Insider Reporting Relief

51.          Insider reporting and profile requirements are set out in section 107 of the Securities Act (Ontario), NI 55-102 and NI 55-104. The insider reporting requirement and the requirement to file an insider profile under NI 55-102, however, do not apply to any insider of an exchangeable security issuer in respect of securities of that exchangeable security issuer so long as the conditions of subsection 13.3(3) of NI 51-102 are met (the “Exchangeable Insider Reporting Exemption”).

52.          New XSR is unable to satisfy the requirements of the Exchangeable Insider Reporting Exemption for the same reasons as noted above with respect to the Exchangeable CD Exemption.

53.          No insider of New XSR will receive, in the ordinary course, information as to material facts or material changes concerning SIRI before the material facts or material changes are generally disclosed.

54.          No insider will be an insider of SIRI in any capacity other than by virtue of being an insider of New XSR.

Formal Valuation Relief

55.          The Arrangement constitutes a “business combination” for purposes of MI 61-101 and is therefore subject to the applicable requirements of MI 61-101 relating to, among other things, preparation of a formal valuation of the non-cash consideration involved in the Arrangement and the approval by a majority of the votes cast by disinterested holders of XSR voting shares at the Special Meeting.

56.          As noted in paragraph 24, the Arrangement was approved by a majority of the votes cast by disinterested XSR voting shareholders, present in person or represented by proxy at the Special Meeting.

57.          As noted in paragraph 23, the Special Committee retained Ernst & Young LLP to provide a formal valuation of the Class A Shares, which was prepared in accordance with MI 61-101. In addition, the Special Committee received fairness opinions from Ernst & Young LLP and National Bank Financial Inc., each fairness opinion to the effect that the consideration to be received by the minority XSR shareholders pursuant to the Arrangement (which includes the Exchangeable Shares) is fair, from a financial point of view, to such holders.

58.          Ernst & Young LLP advised the Special Committee of XSR in the fairness opinion that a formal valuation of the non-cash consideration comprised of the SIRI Shares was not obtained on the basis that a liquid market exists for the SIRI Shares and that Ernst & Young LLP is of the opinion that the SIRI Shares meet the requirements for an exemption from a formal valuation as outlined in subsection 6.3(2) of MI 61-101.

59.          The Special Committee has confirmed that it agrees with the facts set out in this decision.

60.          The New XSR Exchangeable Shares will be, in all material respects, economically equivalent to the SIRI Shares for which there is a liquid market on the NASDAQ, in that (a) they will be exchangeable into SIRI Shares on a one for one basis (subject to customary anti-dilution adjustments) at any time at the option of the holder thereof; and (b) the distributions to be made on the New XSR Exchangeable Shares will be equal to the distributions that the holder of the New XSR Exchangeable Shares would have received if it was holding the SIRI Shares that may be obtained upon the exchange of such New XSR Exchangeable Shares.

61.          The primary mechanism of liquidity for holders of New XSR Exchangeable Shares is expected to be the exchange of the New XSR Exchangeable Shares, given that there will be a public market for the SIRI Shares.

62.          A formal valuation of the New XSR Exchangeable Shares is not necessary as they are the economic equivalent of SIRI Shares, for which a formal valuation is not required pursuant to subsection 6.3(2) of MI 61-101.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemptions Sought be granted provided that:

1.             the Arrangement and the Amalgamation have each become effective on or before May 31, 2017;

2.             in respect of the Continuous Disclosure Requirements, the Certification Requirements, the Audit Committee Requirements and the Corporate Governance Requirements,

(a)           Any of Sirius XM Radio, Obelysk, Slaight and/or their respective affiliates, are the direct or indirect beneficial owners of all of the issued and outstanding voting securities of New XSR;

(b)           New XSR does not issue any securities, including debt securities, other than: (i) pursuant to the Arrangement; (ii) additional New XSR Exchangeable Shares that may be issued only as necessary for such shares to maintain economic equivalence with SIRI Shares; and (iii) to Sirius XM Radio, Obelysk, Slaight or their respective affiliates. Immediately following the Amalgamation, New XSR does not have any securities outstanding (including debt securities), other than the New XSR Class A Shares, New XSR Class B Shares, New XSR Preferred Shares, New XSR Exchangeable Shares, the 2021 Notes previously issued and the 2517835 Debt;

(c)           the New XSR Class A Shares will not be transferred except to Sirius XM Radio, Slaight and Obelysk, or their respective affiliates, including if at any time Sirius XM Radio is not prohibited by applicable laws, including the restrictions imposed by the Broadcasting Act and the CRTC, from acquiring additional New XSR Class A Shares from Slaight or Obelysk, Sirius XM Radio shall be entitled to purchase some or all of such New XSR Class A Shares held by Slaight and Obelysk;

(d)           New XSR and SIRI, as applicable, comply with subsections 13.3(2)(b) and 13.3(2)(d) – (h) of NI 51-102; and

(e)           New XSR complies with the conditions of the Trust Indenture for as long as the 2021 Notes remain outstanding;

3.             in respect of the Insider Act Requirements and the Insider Reporting Requirements,

(a)           insiders of New XSR comply with subsections 13.3(3)(a) and (c) of NI 51-102; and

(b)           New XSR and SIRI continue to satisfy the conditions set out in paragraph 2 above with respect to the Continuous Disclosure Requirements, the Certification Requirements, the Audit Committee Requirements and the Corporate Governance Requirements.

As to the CD Relief and Insider Reporting Relief (other than the Insider Act Requirements):

“Michael Balter”
Manager, Corporate Finance
Ontario Securities Commission

As to the Exemption Sought with respect to the Insider Act Requirements:

“William Furlong”
Commissioner
Ontario Securities Commission

“Janet A. Leiper”
Commissioner
Ontario Securities Commission

As to the Formal Valuation Relief:

“Naizam Kanji”
Director, Office of Mergers & Acquisitions
Ontario Securities Commission