RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002 COMPARED TO 2001
NET LOSS. The net loss in the year ended December 31, 2002 amounted to
$88.6 million or a loss of $2.76 per retractable common share compared to a net
loss of $131.9 million or a loss of $3.91 per retractable common share in 2001.
The results of both periods are impacted by a large number of unusual items
which are discussed below.
SALES REVENUE. Sales revenue in 2002 was $1,628.2 million compared with
$1,822.1 million in 2001, a decrease of $193.9 million. The reduction in sales
revenue is primarily due to the sale of most of the remaining Canadian newspaper
properties in July and November 2001 and the sale of the remaining 50% interest
in the National Post in August 2001. Declines in U.K. advertising revenue in
local currency were partly offset by the strengthening of the pound sterling.
Sales revenue, in local currency, for the Chicago Group was flat year over year.
COST OF SALES AND EXPENSES. Cost of sales and expenses in 2002 were
$1,453.9 million compared with $1,730.1 million in 2001, a decrease of $276.2
million. The decrease in cost of sales and expenses resulted primarily from the
disposition of Canadian newspaper properties in 2001 as well as lower newsprint
costs, lower compensation costs and general cost reductions at the Chicago Group
and the U.K. Newspaper Group, primarily as a result of cost containment
strategies. Lower cost of sales and expenses at the U.K. Newspaper Group, in
local currency, were partially offset by the effect of the strengthening of the
pound sterling.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization in 2002
amounted to $88.2 million compared with $144.7 million in 2001, a reduction of
$56.5 million. The reduction results from both the disposition of Canadian
properties in 2001 and the adoption on January 1, 2002 of CICA Handbook Section
3062, which resulted in goodwill not being amortized subsequent to January 1,
2002. In the year ended December 31, 2001, amortization of goodwill and
intangible assets, including amortization of goodwill and intangible assets in
respect of properties sold during 2001 which were not being amortized in 2002,
approximated $53.3 million.
INVESTMENT AND OTHER INCOME. Investment and other income in 2002 amounted
to $29.7 million compared with $97.3 million in 2001, a decrease of $67.6
million. Investment and other income in 2001 included interest on debentures
issued by a subsidiary of CanWest and a dividend on CanWest shares. In September
2001, CanWest temporarily suspended its semi-annual dividend. In the latter part
of 2001, all of the CanWest shares were sold and Participations were sold to the
Hollinger Participation Trust in respect of nearly all of the CanWest
debentures,
38
resulting in significantly lower interest and dividend income in 2002. Most of
the proceeds from the disposal of the CanWest investments were retained as
short-term investments at low rates of interest until the end of the first
quarter of 2002 when a portion of International's long-term debt was retired.
INTEREST EXPENSE. Interest expense for 2002 was $121.7 million compared
with $177.9 million in 2001, a reduction of $56.2 million. The reduction mainly
results from lower average debt levels in 2002 compared with 2001. The Company
reduced its revolving bank credit facility in 2001 by $173.4 million and by
$38.5 million in January 2002 and International reduced its long-term debt
beginning in March 2002 by U.S. $290.0 million. In addition, since both the
Company's Series II and Series III preference shares are financial liabilities,
dividends on such shares are included in interest expense. Dividends paid on the
Series II preference shares were lower in 2002 than in 2001, as a result of
Series II preference share retractions and International reducing its dividend
on shares of Class A common stock, on which the Series II preference share
dividends are based.
NET LOSS IN EQUITY-ACCOUNTED COMPANIES. Net loss in equity-accounted
companies amounted to $1.2 million in 2002 compared with $18.6 million in 2001.
Net loss in equity-accounted companies in 2001 primarily represented an
equity-accounted loss in Interactive Investor International, which was sold
during the third quarter of 2001.
NET FOREIGN CURRENCY LOSSES. Net foreign currency losses increased from a
loss of $7.5 million in 2001 to a loss of $19.7 million in 2002. Net foreign
currency losses in 2002 includes a $10.4 million net loss on amounts sold to the
Hollinger Participation Trust and a $5.7 million loss on a cross currency swap.
UNUSUAL ITEMS. Unusual items in 2002 amounted to a loss of $62.6 million
compared with a loss of $295.4 million in 2001. Unusual items in 2002 included
the loss on retirement of Publishing's Senior Notes in the amount of $56.3
million, a $63.6 million write-off of investments, and a $43.3 million loss on
the termination of the Total Return Equity Swap, partly reduced by a $20.1
million gain on the dilution of the Company's investment in International, a net
$44.5 million foreign exchange gain on the reduction of net investments in
foreign subsidiaries and a $34.4 million reduction of the pension valuation
allowance. Unusual items in 2001 included a $240.1 million loss on sales of
investments, a $23.0 million loss on sale of publishing interests, a $79.9
million loss on write-off of investments and a $29.6 million realized loss on
the Total Return Equity Swap, partly offset by a $59.4 million gain on the sale
of and dilution of the Company's investment in International and a $58.7 million
reduction of the pension valuation allowance.
INCOME TAXES. In 2002, income tax expense was $124.0 million computed on a
loss before income taxes and minority interest of $89.5 million primarily as a
result of non-deductible expenses including the settlement of the Total Return
Equity Swap and an increase in the tax valuation allowance of $74.0 million. In
2001, the income tax recovery was $89.5 million on a loss before income taxes
and minority interest of $454.9 million in part due to the impact of losses at
the National Post for which a tax benefit was not recorded.
MINORITY INTEREST. Minority interest in the year ended December 31, 2002
was a recovery of $124.9 million compared to a recovery of $233.5 million in
2001. Minority interest primarily represents the minority share of the net loss
of International and the net earnings of the Partnership. In 2001, minority
interest also included the minority's 50% share of the National Post net loss to
August 31, which totaled $28.7 million.
RESULTS OF OPERATIONS BY SEGMENT FOR THE YEAR ENDED DECEMBER 31, 2002 COMPARED
TO 2001
CHICAGO GROUP
Sales revenue in 2002 was $693.7 million compared with $686.3 million in
2001, an increase of $7.4 million or 1.1%. The increase results entirely from
the slightly stronger United States dollar compared to the Canadian dollar on
average in 2002 compared with 2001. In U.S. dollars, sales revenue was U.S.
$441.8 million in 2002, a slight decrease compared with U.S. $442.9 million in
2001. Advertising revenue in 2002 was U.S. $341.3 million compared with
U.S.$338.5 million in 2001, an increase of U.S. $2.8 million or 0.8%.
Circulation revenue in 2002 was U.S. $89.4 million compared with U.S. $92.7
million in 2001, a decrease of U.S. $3.3 million or 3.6%. The decrease was
primarily the result of price discounting.
Cost of sales and expenses in 2002 were $591.6 million compared with $623.0
million in 2001, a decrease of $31.4 million or 5.0%. In U.S. dollars, cost of
sales and expenses were U.S. $376.7 million in 2002 compared with U.S. $402.1
million in 2001, a decrease of U.S. $25.4 million or 6.3%. Cost savings were
achieved across the board
39
with reductions in compensation costs, in newsprint costs and in other operating
costs. Reductions in compensation and other costs are the result of cost
management initiatives undertaken during the course of 2002 and 2001; however,
the reduction in newsprint cost was primarily the result of newsprint price
decreases. The average newsprint cost per tonne was approximately 21% lower in
2002 than in 2001.
Depreciation and amortization in 2002 was $42.4 million compared with $53.5
million in 2001, a reduction of $11.1 million. The reduction is largely the
result of the adoption, effective January 1, 2002 of Section 3062, which
resulted in goodwill and intangible assets with indefinite useful lives no
longer being amortized. Amortization of approximately $15.3 million in 2001
related to such assets.
Operating income in 2002 totaled $59.7 million compared with $9.8 million
in 2001, an increase of $49.9 million. This increase is the result of lower
newsprint, compensation and other operating costs in 2002 compared with 2001 and
lower amortization expense resulting from the adoption of new accounting
standards for goodwill and intangible assets.
U.K. NEWSPAPER GROUP
In 2002, sales revenue for the U.K. Newspaper Group was $804.6 million
compared with $801.1 million in 2001, an increase of $3.5 million or 0.4%. In
pounds sterling, sales revenue was (pound)341.5 million in 2002 compared with
(pound)358.9 million in 2001, a decrease of (pound)17.4 million or 4.8%. In 2002
compared to 2001, the pound sterling on average strengthened compared with the
Canadian dollar. Advertising revenue at the Telegraph in 2002 was (pound)211.0
million compared with (pound)228.7 million in 2001, a decrease of (pound)17.7
million or 7.7%. Advertising revenues were lower in the recruitment and
financial areas. Circulation revenue in 2002 was (pound)93.6 million at the
Telegraph compared with (pound)94.5 million in 2001. Lower revenue from both a
change in the mix of sales between single copy and subscribers and lower overall
average circulation in 2002 compared with 2001 was partly offset by increased
revenue resulting from single copy cover price increases of 5 pence in each of
September 2001 and 2002 in respect of The Daily Telegraph.
Total cost of sales and expenses in the year ended December 31, 2002 were
$693.9 million compared with $703.3 million in 2001, a decrease of $9.4 million
or 1.3%. In local currency, cost of sales and expenses in 2002 approximated
(pound)294.3 million compared with (pound)314.9 million in 2001, a decrease of
(pound)20.6 million or 6.5%. The majority of the decrease is due to a reduction
in newsprint and compensation costs. The decrease in newsprint costs results
from a reduction in consumption due to lower pagination as a result of lower
advertising revenue, and a reduction in the average price per tonne of newsprint
of 9.9%. Lower compensation costs in 2002 result primarily from reduced staff
levels, mainly in editorial, which occurred at the end of 2001, as well as a
general salary level freeze in 2002.
Depreciation and amortization in 2002 was $35.9 million compared with $63.9
million in 2001, a reduction of $28.0 million. The reduction is primarily the
result of the adoption, effective January 1, 2002, of new accounting standards,
which resulted in goodwill and other intangible assets with indefinite useful
lives not being amortized in 2002. Amortization expense of approximately $25.9
million in 2001 related to such assets.
Operating income in 2002 totaled $74.8 million compared with $33.9 million
in 2001, an increase of $40.9 million. The increase in operating income, in
local currency, is the result of lower newsprint and compensation costs and
reduced amortization expense resulting from the adoption of new accounting
standards, reduced by lower advertising revenue. In addition, the strength of
the pound sterling on average in 2002 compared with the Canadian dollar, further
improved operating income in Canadian dollars.
CANADIAN NEWSPAPER GROUP
Sales revenue at the Canadian Newspaper Group in 2002 was $109.1 million
compared with $305.1 million in 2001, a decrease of $196.0 million. The
operating loss was $5.3 million in 2002 compared with an operating loss of $50.4
million in 2001, a decrease of $45.1 million. The results for 2001 included the
results of the National Post and other Canadian newspaper properties, all of
which were sold during 2001. The newspapers that were sold accounted for the
majority of the decrease in year-over-year sales revenue and the net reduction
in year-over-year operating loss. The 2001 operating loss included a $57.3
million operating loss for the National Post for the period January 1 to August
31, when the National Post was sold. Sales revenue for operations owned
throughout 2001 and 2002 was $108.8 million in 2002 and $114.1 million in 2001,
a decrease of $5.3 million or 4.6%. The decrease primarily resulted from lower
sales revenue at the Business Information Group.
40
COMMUNITY GROUP
In 2002, sales revenue was $20.8 million and the operating loss was $8.2
million compared with sales revenue of $29.6 million and an operating loss of
$5.3 million in 2001. The results for 2001 include the last remaining U.S.
Community Group newspaper which had operating revenue of U.S. $0.8 million and
an operating loss of U.S. $0.2 million in 2001. Sales revenue at the Jerusalem
Post in 2002 was U.S.$13.2 million compared with U.S. $19.1 million in 2001, a
decrease of U.S. $5.9 million. Advertising revenue declined U.S. $1.9 million,
circulation revenue declined U.S. $1.7 million and printing revenue declined
U.S.$2.3 million, each due to the poor economic climate in Israel. In addition
in the past, Jerusalem Post derived a relatively high percentage of its revenues
from printing as a result of a long-term contract to print and bind copies of
the Golden Pages, Israel's equivalent of a Yellow Pages telephone directory.
During 2002, Golden Pages effectively cancelled this agreement and has ceased
placing printing orders. An action was commenced by the Jerusalem Post in 2003
seeking damages for the alleged breach of contract. In addition, amortization
expense in the amount of $0.9 million at the Jerusalem Post in 2001 was not
incurred in 2002 as a result of new accounting standards for goodwill.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001 COMPARED TO 2000
NET EARNINGS (LOSS). The Company had a net loss of $131.9 million in 2001 or
a loss of $3.91 per retractable common share compared with net earnings of
$189.4 million in 2000 or $5.11 per retractable common share. The results of
both years included a large number of unusual items. In 2001, the net loss from
unusual items after income taxes and minority interest amounted to $74.0 million
compared with net income from unusual items after income taxes and minority
interest, in 2000 of $219.5 million. Excluding the net effect of unusual items,
the net loss in 2001 was $57.9 million compared with a net loss of $30.1 million
in 2000.
SALES REVENUE. Sales revenue in 2001 was $1,822.1 million compared with
$3,158.3 million in 2000, a decrease of $1,336.2 million. The overall decrease
in sales revenue was primarily due to the sale of Canadian Newspaper Group
properties in both 2000 and 2001 and the 2000 sale of Community Group newspaper
properties. In addition, lower sales revenue at the U.K. Newspaper Group and the
Chicago Group on a same store basis contributed to the decrease. However, the
acquisition of Fox Valley Publications Inc. (formerly Copley Group) in December
2000 increased total Chicago Group sales revenue.
COST OF SALES AND EXPENSE. Total cost of sales and expenses in 2001 were
$1,730.1 million compared with $2,586.2 million in 2000, a decrease of $856.1
million. The decrease in costs primarily results from the sales of Canadian
Newspaper Group properties in both 2000 and 2001 and the sale of Community Group
newspaper properties in 2000. In addition newsprint expense in respect of
properties owned throughout both 2000 and 2001 was lower mainly as a result of
lower consumption at the U.K. Newspaper Group and the Chicago Group. Cost of
sales and expenses are net of betterments capitalized. On completion of a
detailed impairment analysis of the cumulative betterments capitalized,
principally in respect of the U.K. Newspaper Group, a write-down of $37.8
million was taken in the fourth quarter of 2001 and included in cost of sales
and expenses. This partly offsets the decreases noted above.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization in 2001 totaled
$144.7 million compared with $219.9 million in 2000, a decrease of $75.2
million. Lower depreciation and amortization resulting from the sale of
properties in both the Community Group and Canadian Newspaper Group was in part
offset by increased depreciation at the Chicago Group related to the new
printing facility and increased depreciation and amortization resulting from the
Fox Valley Publications Inc. acquisition in December 2000.
INVESTMENT AND OTHER INCOME. Investment and other income in 2001 totaled
$97.3 million compared with $28.1 million in 2000, an increase of $69.2 million.
Investment and other income in 2001 included interest on the CanWest debentures
until the sale of participation interests in August and December, interest on
the remaining CanWest debentures, dividends on CanWest shares and bank interest
on the significant cash balance primarily accumulated from the proceeds of the
sale in 2001 of Canadian newspaper properties and the sale of CanWest shares and
participation interests in CanWest debentures. In 2000, interest and dividend
income on CanWest investments was received only for the period November 17 to
December 31.
INTEREST ON LONG-TERM DEBT. Interest on long-term debt amounted to $122.7
million in 2001 compared with $220.0 million in 2000, a decrease of $97.3
million. This decrease primarily results from the significantly lower debt
41
levels during 2001 compared with 2000. In November 2000, International repaid
U.S.$972.0 million of its senior credit facility with the proceeds from the sale
of properties to CanWest.
UNUSUAL ITEMS. Unusual items in 2001 amounted to a loss of $295.4 million
compared with a gain of $700.9 million in 2000. Unusual items in 2001 included a
loss on sale of investments of $240.1 million, being primarily the loss on sale
of participations in CanWest debentures and a loss on sale of CanWest shares, a
net loss of $23.0 million on sale of publishing interests including the loss on
sale of National Post, partly offset by gains on sales of Canadian properties, a
$79.9 million write-off of investments, a $29.6 million realized loss on
International's Total Return Equity Swap, a pension and post retirement plan
liability adjustment of $16.8 million primarily in respect of retired former
Southam employees, redundancy, rationalization and other costs of $16.9 million
and $7.2 million of duplicated costs resulting from operating two plants during
the start-up of a new plant in Chicago. These unusual losses were reduced by a
$59.4 million gain on the effective sale of International shares and a $58.7
million accounting gain resulting from a decrease in the required pension
valuation allowance in respect of Canadian Newspaper Group pension plans due to
a decline in the value of plan assets.
Unusual items in 2000 included $697.9 million of gains on sales of
publishing interests, being primarily the sale of Canadian properties to CanWest
and the sale of most of the remaining United States Community Group newspaper
properties, a $47.9 million gain on sale of investments, a $28.5 million gain on
the effective sales of International shares and a $25.8 million gain on the
dilution of the investment in Interactive Investor International. These gains
were reduced by a loss on the write-off of investments of $31.4 million,
redundancy, rationalization and other costs of $41.5 million, the write-off of
financing fees of $16.1 million and $10.1 million of duplicated costs resulting
from operating two plants during the start-up of the new plant in Chicago.
INCOME TAXES. In 2001, the effective tax rate was lower than the effective
tax rate in 2000 due to the impact of significantly higher losses of the
National Post, for which a tax benefit is not being recorded.
MINORITY INTEREST. Minority interest in 2001 was a recovery of $233.5
million compared with an expense of $331.1 million in 2000. Minority interest
primarily represents the minority share of the results of International, and the
net earnings of the Partnership and in 2001, the minority's share of the
National Post losses. In 2001, International reported a significant net loss
including unusual losses whereas in 2000 International reported net earnings
including unusual gains. Minority interest reflects the minority's share of
these results.
RESULTS OF OPERATIONS BY SEGMENT FOR THE YEAR ENDED DECEMBER 31, 2001 COMPARED
TO 2000
CHICAGO GROUP
Sales revenue in 2001 was $686.3 million compared with $596.8 million in
2000, an increase of $89.5 million. In United States dollars, sales revenue was
US$442.9 million in 2001 compared with US$401.4 million, an increase of US$41.5
million. Advertising revenue was US$338.5 million in 2001 compared with US$305.0
million in 2000, an increase of US$33.5 million. Circulation revenue was US$92.7
million in 2001 compared with US$80.3 million in 2000, an increase of US$12.4
million. Printing and other revenue was US$11.7 million in 2001 compared with
US$16.1 million in 2000, a decrease of US$4.4 million.
Chicago Group results are based on standard accounting periods, which for
2000 resulted in a 53-week year for the reported results of the Chicago Group
only. The effect of the 53rd week in 2000 was to add US$6.0 million to sales
revenue and US$6.2 million to operating costs and expenses. On December 15,
2000, the acquisition of Chicago Suburban Newspapers from Copley Group was
completed and operating results of this group have been included since that
time. Revenues for operations owned in both years, excluding Chicago Suburban
Newspapers ("same store") and based on a 52-week year in 2000, were US$363.6
million for 2001, compared with US$392.0 million in 2000. Advertising revenue in
2001, on a same store 52-week basis, was US$20.0 million or 6.7% lower than in
2000. Circulation revenue on a same store 52-week basis, in 2001, was US$2.7
million or 3.5% lower than in 2000. Chicago Sun-Times average daily circulation
in 2001 was higher than in 2000; however, circulation revenue for 2001 was lower
than in 2000 as a result of price discounting to build and maintain market share
in response to competitive activity. Printing and other revenue, on a same store
52-week basis was US$10.1 million in 2001 compared with US$15.8 million in 2000,
a decrease of US$5.7 million.
Cost of sales and expenses in 2001 were $623.0 million compared with $504.1
million in 2000, an increase of $118.9 million. In US dollars, costs of sales
and expenses were US$402.1 million in 2001 compared with US$339.0
42
million in 2000, an increase of US$63.1 million. Newsprint expense in 2001 was
US$76.4 million compared with US$69.2 million in 2000, an increase of US$7.2
million. Compensation costs were US$178.7 million in 2001 compared with US$150.9
million in 2000, an increase of US$27.8 million. Other operating costs were
US$147.0 million in 2001 compared with US$118.9 million in 2000, an increase of
US$28.1 million. On a same store 52-week basis, cost of sales and expenses were
US$328.5 million compared with US$329.9 million in 2000, a decrease of US$1.4
million or 0.4%. Same store newsprint expense in 2001 was US$67.5 million,
compared to US$67.6 million in 2000. Average newsprint prices in 2001 were
approximately 11% higher than in 2000. In 2001, newsprint consumption was
significantly less than in 2000 as a result of lower page counts due to reduced
advertising revenue, a reduction in commercial printing, and general cost
controls. On a same store 52-week basis, compensation and other costs decreased
US$1.3 million or 0.5% year over year. The lower compensation costs result from
staff reductions across the Chicago Group offset in part by increased medical
costs and workers compensation costs. Other operating costs are lower as a
result of reduced commercial printing production costs, and general cost
reductions across all areas. On a same store basis depreciation and amortization
increased US$6.3 million mainly as a result of higher depreciation charges
related to the new Chicago printing facility.
Operating income in 2001 totaled $9.8 million compared with $55.4 million
in 2000, a decrease of $45.6 million. On a same store 52-week basis in United
States dollars, operating income was US$16.9 million in 2001 compared with
US$37.0 million in 2000, a decrease of US$20.1 million. The decrease results
primarily from lower sales revenue, increased depreciation and amortization
offset in part by lower compensation and other operating costs. The acquisition
of Chicago Suburban Newspapers in 2000 added US$79.3 million to sales revenue
and operating income of US$2.4 million in 2001.
U.K. NEWSPAPER GROUP
In 2001, sales revenue for the U.K. Newspaper Group was $801.1 million
compared with $882.2 million in 2000, a decrease of $81.1 million or 9.2%. In
2001 compared to 2000, the pound sterling on average weakened compared with
the Canadian dollar. In pounds sterling, sales revenue was (pound)358.9 million
in 2001 compared with (pound)392.3 million in 2000, a decrease of (pound)33.4
million or 8.5%. The decrease in revenue was almost entirely the result of lower
advertising revenue. Advertising revenue in 2001 was (pound)228.7 million
compared with (pound)255.9 million in 2000, a decrease of (pound)27.2 million or
10.6%. Circulation revenue in 2001 was (pound)94.5 million compared with
(pound)95.7 million in 2000. On September 5, 2001, the price of The Daily
Telegraph on Monday to Friday increased from 45 pence to 50 pence and on
September 8, 2001, the price of The Daily Telegraph on Saturday increased from
75 pence to 85 pence. The price increases improved circulation revenue in the
last quarter of 2001.
Cost of sales and expenses in 2001 were $703.3 million compared with $684.9
million in 2000, an increase of $18.4 million or 2.7%. In local currency, cost
of sales and expenses in 2001 approximated (pound)314.9 million compared with
(pound)305.9 million in 2000, an increase of (pound)9.0 million or 2.9%.
Newsprint expense in local currency was (pound)64.7 million in 2001 compared
with (pound)60.6 million in 2000, an increase of (pound)4.1 million or 6.8%.
This increase results from the significant increase in newsprint prices in 2001
compared to 2000, offset in part by 4% lower consumption in 2001 compared to
2000. In addition, cost of sales and expenses are net of betterments
capitalized. On completion of a detailed impairment analysis during 2001 of the
cumulative betterments capitalized, a write down was taken in the fourth quarter
of 2001, resulting in a net reduction in betterments capitalized year over year
of (pound)9.8 million. The increased cost of sales and expenses in 2001 compared
with 2000 resulted from increased newsprint costs and the net reductions in
betterments capitalized reduced in part by lower other operating costs.
Depreciation and amortization in 2001 was $63.9 million compared with $58.1
million in 2000, an increase of $5.8 million.
Operating income in 2001 totaled $33.9 million compared with $139.1 million
in 2000, a decrease of $105.2 million. The decrease in operating income, is
primarily the result of lower advertising revenue, increased newsprint costs,
the net reduction in betterments capitalized and increased depreciation and
amortization offset in part by lower other operating costs.
CANADIAN NEWSPAPER GROUP
Sales revenue in the Canadian Newspaper Group was $305.1 million in 2001
compared with $1,579.2 million in 2000 and in 2001 there was an operating loss
of $50.4 million compared with operating income of $174.1 million in 2000. The
significant decrease in both sales revenue and operating income was largely a
result of the sale of
43
newspaper assets in November 2000 to CanWest, the sale of UniMedia Company
completed in January 2001, the July and November 2001 sales of operations to
Osprey and the August 31, 2001 sale of the National Post.
Included in the $50.4 million operating loss for the year ended December 31,
2001, are overhead costs of approximately $3.8 million that are not expected to
be incurred in 2002. Also included is a $2.6 million expense in respect of
employee benefit costs of retired former Southam employees.
COMMUNITY GROUP
Sales revenue and operating income were $29.6 million and a loss of $5.3
million in 2001, compared to $100.1 million and operating income of $6.7 million
in 2000. The significant decrease in both sales revenue and operating income
results almost entirely from the sale of Community Group properties that
occurred primarily during 2000. During the third quarter of 2001, the last
remaining U.S. Community Group property was sold. At December 31, 2001, the
Jerusalem Post was the only Community Group property still owned by the Company.
B. LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL CONDITION AND CASH FLOWS
The Company is an international holding company and its assets consist
primarily of investments in its subsidiaries and affiliated companies. As a
result, the Company's ability to meet its future financial obligations, on a
non-consolidated basis, is dependent upon the availability of cash flows
principally from International through dividends and other payments.
International and the Company's other subsidiaries and affiliated companies are
under no obligation to pay dividends. International's ability to pay dividends
on its common stock may be limited as a result of its dependence on the receipt
of dividends and other receipts primarily from Publishing. Publishing and its
principal United States and foreign subsidiaries are subject to statutory
restrictions and restrictions in debt agreements that limit their ability to pay
dividends. Substantially all of the assets of Publishing and its material U.S.
and U.K. subsidiaries have been pledged to the group's lenders. The Company's
right to participate in the distribution of assets of any subsidiary or
affiliated company upon its liquidation or reorganization will be subject to the
prior claims of the creditors of such subsidiary or affiliated company,
including trade creditors, except to the extent that the Company may itself be a
creditor with recognized claims against such subsidiary or affiliated company.
On a non-consolidated basis, the Company has experienced a shortfall
between the dividends and fees received from its subsidiaries and its
obligations to pay its operating costs, including interest and dividends on its
preference shares, and such shortfalls are expected to continue in the future.
Accordingly, the Company is dependent upon the continuing financial support of
RMI to fund such shortfalls and, therefore, pay its liabilities as they fall
due. RMI is a wholly owned subsidiary of Ravelston, the Company's ultimate
parent company. On March 10, 2003, concurrent with the issue of U.S. $120.0
million Senior Secured Notes due 2011, RMI entered into a support agreement with
the Company. Under the agreement, RMI has agreed to make annual support payments
in cash to the Company on a periodic basis by way of contributions to the
capital of the Company (without the issuance of additional shares of the
Company) or subordinated debt. The annual support payments will be equal to the
greater of (a) the Company's negative net cash flow (as defined) for the
relevant period (which does not extend to outlays for retractions or
redemptions), determined on a non-consolidated basis, and (b) U.S.$14.0 million
per year (less any payments of management services fees by International
directly to the Company or NB Inc. and any excess in the net dividend amount
that the Company and NB Inc. receive from International over U.S.$4.65 million
per year), in either case as reduced by any permanent repayment of debt owing by
Ravelston to the Company. Pursuant to this arrangement, RMI has made payments to
the Company in respect of the period from March 10 to March 31, 2003 in the
amount of U.S.$1.1 million.
RMI currently derives all of its income and operating cash flow from the
fees paid pursuant to Services Agreements with International and its
subsidiaries. RMI's ability to provide the required financial support under the
support agreement with the Company is dependent on RMI continuing to receive
sufficient fees pursuant to those Services Agreements. The Services Agreements
may be terminated by either party by giving 180 days notice. The fees in respect
of the Services Agreements are negotiated annually with and approved by the
audit committee of International. The fees to be paid to RMI for the year ending
December 31, 2003 amount to approximately U.S.$22.0 million to U.S.$24.0 million
and were approved in February 2003. The fees in respect of the periods after
December 31, 2003 have not yet been negotiated or approved. If in any quarterly
period after April 1, 2003 the Company fails to receive in cash a minimum
aggregate amount of at least U.S.$4.7 million from a) payments made
44
by RMI pursuant to the support agreement and b) dividends paid by International
on its shares held by the Company, the Company would be in default under its
Senior Secured Notes. Based on the Company's current investment in International
and the current quarterly dividend paid by International of U.S.$0.05 per share,
the minimum support payment required to be made by RMI to avoid such a default
is approximately U.S.$3.5 million per quarter or U.S.$14.0 million annually.
This default could cause the Senior Secured Notes to become due and payable
immediately.
Initially, the support amount to be contributed by RMI will be satisfied through
the permanent repayment by Ravelston of its approximate $16.4 million of
advances from the Company, which resulted from the use of proceeds of the
Company's issue of its Senior Secured Notes. Thereafter, all support amount
contributions by RMI will be made through contributions to the capital of the
Company, without receiving any additional shares of the Company, except that, to
the extent that the minimum payment exceeds the negative net cash flow of the
Company, the amounts will be contributed through an interest-bearing, unsecured,
subordinated loan to the Company. The support agreement terminates upon the
repayment of the Senior Secured Notes which mature in 2011. The Senior Secured
Notes are secured by a first priority lien on 10,108,302 shares of
International's Class A common stock and 14,990,000 shares of International's
Class B common stock owned by the Company and NB Inc. Therefore, at June 19,
2003, the Company and NB Inc., in total, hold only 1,148,236 shares of
International Class A common stock which are unencumbered, the current market
value of which approximates US$12.9 million.
On March 10, 2003, the Company repaid the amount due to Ravelston, made an
advance to Ravelston and repaid all borrowings under its revolving credit
facility and operating line of credit with the proceeds of its issuance of
Senior Secured Notes. Currently, the Company does not have a line of credit. The
Trust Indenture governing the Senior Secured Notes places certain limitations on
the Company's ability to incur additional indebtedness and the ability to
retract the Series II and III preference shares and the retractable common
shares.
In addition, on March 10, 2003, Ravelston and RMI entered into a
contribution agreement with the Company. The contribution agreement is not
pledged to the trustee for the Notes, and holders of the Notes are not entitled
to any rights thereunder. The contribution agreement sets out the manner in
which RMI will make support payments to the Company as described above.
Ravelston has guaranteed RMI's obligations under the contribution agreement and
its obligation to make support payments to the Company under the support
agreement. Ravelston's guarantee will not enure to the benefit of, or be
enforceable by, the trustee for the Notes or holders of the Notes. The Company
has pledged the benefit of this guarantee as security for its obligations under
the indebtedness of NB Inc. due to International. The contribution agreement
will terminate upon the repayment in full of the Notes, the termination of the
support agreement or if the Company ceases to be a public company.
RETRACTABLE SHARES.
The Company's issued capital stock consists of Series II preference shares,
Series III preference shares and retractable common shares, each of which is
retractable at the option of the holder. On retraction, the Series II preference
shares are exchangeable into a fixed number of shares of the Company's Class A
common stock of International or, at the Company's option, cash of equivalent
value. The Series III preference shares were retractable at the option of the
holder for a retraction price payable in cash, which fluctuated by reference to
two benchmark Government of Canada bonds having a comparable yield and term to
the shares and, after May 1, 2003, are retractable for a cash payment of $9.50
per share. The Series II preference shares provide for redemption on April 30,
2004 at $10.00 per share. The retractable common shares are retractable at any
time at the option of the holder at their retraction price (which is fixed from
time to time) in exchange for the Company's International Class A common stock
of equivalent value or, at the Company's option, cash. There is uncertainty
regarding the Company's ability to meet future retractions of preference shares
and retractable common shares. Under corporate law, the Company is not required
to make any payment to redeem any shares in certain circumstances, including if
the Company's liquidity would be unduly impaired as a consequence. If, when
shares are submitted by holders for retraction or when the Company is obliged to
redeem the Series III preference shares on April 30, 2004, there are reasonable
grounds for believing that, after making the payment in respect of those shares,
the Company's liquidity would be unduly impaired, the retractions and
redemptions will not be completed. In such event, shareholders would not become
creditors of the Company but would remain as shareholders until such time as the
retraction is able to be completed under applicable law. The Company's uncertain
ability to make payments on future retractions and redemptions of shares is due
to the fact that liquidity of its assets is limited at present, given that
substantially all of its shares of International common stock were provided as
security for the Senior Secured Notes.
45
During the period April 1, 2003 to May 16, 2003 holders of 3,651,784 Series
III preference shares, holders of 504,989 Series II preference shares, and
holders of 22,500 retractable common shares have submitted retraction notices to
the Company. As of May 20, 2003, the Company has completed or announced that it
is able to complete the retraction of 504,989 Series II preference shares for
232,293 shares of International Class A common stock, 876,050 Series III
preference shares for approximately $7.7 million in cash and 22,500 retractable
common shares for cash of $124,000. This completed all retraction notices
received up to and including April 30, 2003.
On May 20, 2003, after careful deliberation, the Company concluded that it
was not able to complete the retractions of shares submitted after April 30,
2003 without unduly impairing its liquidity. Since April 30, 2003 and up to and
including June 19, 2003, the Company has received retraction notices from
holders of 2,939,543 Series III preference shares of which 1,281,239 retraction
notices were subsequently withdrawn, leaving retraction notices from holders of
1,658,354 Series III preference shares for aggregate retraction proceeds of
approximately $15.8 million which are unable to be completed at the current
time. In addition, during the same time period, retraction notices were received
from the holders of 357,958 Series II preference shares for aggregate retraction
proceeds of 164,660 shares of International Class A common stock or cash of
approximately $2.5 million, which are unable to be completed at the current
time.
Giving effect to the retractions completed as of June 19, 2003, there
continues to be outstanding 3,775,990 Series II preference shares (exchangeable
for 1,736,955 shares of Class A common stock of International), 9,271,175 Series
III preference shares and 32,917,186 retractable common shares.
The Company's Series III preference shares have a fixed redemption date on
April 30, 2004 for a cash payment of $10.00 per share plus any accrued and
unpaid dividends to that date. The total cost to redeem all of the issued and
outstanding Series III preference shares would be $92.7 million. The Company
made an offer to exchange all of its Series III preference shares for newly
issuable Series IV preference shares having comparable terms, except for a
higher dividend rate (8% compared to 7% for the Series III preference shares)
and a longer term to mandatory redemption (April 30, 2008 compared to April 30,
2004). Holders will have the right at any time to retract Series IV preference
shares for a retraction price payable in cash which, during the first four years
will be calculated using 95% of prices for Government of Canada Bonds having a
comparable yield and term, and during the fifth year will be $9.50 per share
(plus unpaid dividends in each case). On June 9, 2003, the Company announced
that it was permitting the exchange offer to expire because holders of at least
5,000,000 of the Series III preference shares had not accepted the offer.
The Company will periodically review its liquidity position to determine if
and when further retractions can be completed. The Company will not complete
retractions or redemptions if to do so would unduly impair its liquidity.
Retractions of Series II preference shares and Series III preference shares will
be processed on a combined basis in order determined by their retraction date
(with equal ranking of the series) in advance of any retractable common shares
that are submitted for retraction. Following the satisfaction of all pending
retracted Series II preference shares and Series III preference shares,
retractions of the retractable common shares will be processed in order
determined by their retraction date. Accordingly, retractions of retractable
common shares cannot be completed as long as there are pending and unsatisfied
retractions of Series II preference shares and Series III preference shares.
RETRACTION PRICE OF RETRACTABLE COMMON SHARES OF HOLLINGER INC.
The retractable common shares of the Company have terms equivalent to
common shares, except that they are retractable at any time by the holder for
their retraction price in exchange for shares of the Company's holding of
International Class A common stock of equivalent value. The Company has the
right to settle the retraction price by cash payment. The retraction price
determined each quarter (or, in certain specific cases more frequently) by the
Company's Retraction Price Committee, is between 90% and 100% of the Company's
current value, being the aggregate fair market value of all of its assets less
the aggregate of (i) the maximum amount payable at such date by the Company on
its liquidation, dissolution or winding-up in respect of outstanding preference
shares other than the retractable common shares, and (ii) its liabilities,
including any tax liabilities that would arise on a sale of all or substantially
all of its assets, which, in the opinion of the Board, would not be refundable
at such date, divided by the number of retractable common shares outstanding on
such date.
Currently the Company and its wholly owned subsidiaries, which excludes
International, have assets which consist principally of the investment in
International together with other miscellaneous investments. The Company as at
June 19, 2003 directly and indirectly owned 11,256,538 shares of Class A common
stock and 14,990,000
46
shares of Class B common stock of International with a then market value of
approximately U.S.$294.2 million. The Company's significant liabilities include
U.S.$120.0 million 11 7/8% Senior Secured Notes due 2011, Series II preference
shares, which are exchangeable into 1,736,955 shares of International Class A
common stock with a current value of approximately U.S.$19.5 million and Series
III preference shares which are redeemable on April 30, 2004 for an aggregate of
$92.7 million.
The retraction price of the retractable common shares during 2002 and early
2003 was as follows:
Per Retractable
Common Share
January 10, 2002 $ 7.50
April 11, 2002 $ 9.50
July 9, 2002 $ 7.50
October 3, 2002 $ 5.50
January 7, 2003 $ 5.50
April 2, 2003 $ 1.75
The decline in the retraction price of the retractable common shares from
$5.50 per share on January 7, 2003 to $1.75 per share on April 2, 2003 primarily
results from the lower market price of shares of International Class A common
stock and a strengthening of the Canadian dollar relative to the U.S. dollar.
Since at the current time the Company is unable to complete retractions in
respect of retraction notices received for Series III preference shares, the
Company would be unable to complete any retraction notices received in the
future in respect of retractable common shares until all preference share
retraction notices, received by the Company and not withdrawn, are completed.
At June 19, 2003 there are 33,891,404 retractable common shares issued and
outstanding, of which 26,516,886 are held by Ravelston and its affiliates.
WORKING CAPITAL
Working capital consists of current assets less current liabilities. At
December 31, 2002, working capital, excluding the current portion of long-term
debt obligations and the related funds held in escrow, was a deficiency of
$604.4 million compared to working capital of $133.6 million at December 31,
2001. Current assets excluding funds held in escrow were $594.4 million at
December 31, 2002 compared with $1,196.9 million at December 31, 2001. Current
liabilities, excluding debt obligations, but including short-term bank
indebtedness, were $1,051.6 million at December 31, 2002, compared with $1,063.3
million at December 31, 2001. Current liabilities at December 31, 2002 include
$147.3 million in respect of retractable preference shares and the related
deferred unrealized gain. These retractable preference shares are included in
current liabilities since they are retractable at any time at the option of the
holder. Also included in current liabilities are approximately $436.7 million of
income taxes that have been provided on gains on sales of assets computed on tax
bases that result in higher gains for tax purposes than for accounting purposes.
Strategies have been and may be implemented that may also defer and/or reduce
these taxes but the effects of these strategies have not been reflected in the
accounts. While the timing of the payment of such income taxes, if any, is
uncertain, the Company does not expect any significant amounts to be paid in
2003.
The reduction in working capital in 2002, excluding the current portion of
long-term debt obligations and related funds held in escrow, is primarily the
result of the retractable preference shares being included in current
liabilities and the reduction in cash and cash equivalents as a result of the
pay-down of long-term debt since December 31, 2001, offset by the reduction in
bank indebtedness. During the year ended December 31, 2002, approximately
U.S.$370.8 million of cash and cash equivalents, which included both principal
repayments and related premiums, was used to retire a portion of Publishing's
long-term debt.
During January 2002, the Company's revolving bank credit facility was
reduced to $81.9 million from $120.4 million at December 31, 2001, using
proceeds from the sale of 2,000,000 shares of International's Class A common
stock. During 2001, the Company reduced its bank indebtedness by $173.4 million
with proceeds from the sale of
47
7.1 million shares of International's Class A common stock to International for
cancellation and from the December 2001 sale to third parties of 2,000,000
shares of International's Class A common stock.
At December 31, 2002, the Company had fully borrowed on its bank operating
line that provided for up to $10.0 million of borrowings and its revolving bank
credit facility that provided for up to $80.8 million in borrowings. The
Company's revolving bank credit facility was secured by International shares
owned by the Company and bore interest at the prime rate plus 2.5% or the
bankers' acceptance ("BA") rate plus 3.5%. Under the terms of the revolving bank
credit facility, the Company and its wholly owned subsidiaries were subject to
restrictions on the incurrence of additional debt. The revolving bank credit
facility was amended and restated on August 30, 2002 and was to mature on
December 2, 2002. A mandatory repayment of the revolving bank credit facility in
the amount of $50.0 million was required by December 2, 2002 and if such payment
was made, the lenders could have consented to an extension of the maturity date
to December 2, 2003 in respect of the principal outstanding. On December 2,
2002, the lenders extended the $50.0 million principal repayment date to
December 9, 2002. This repayment was not made, and on December 9, 2002, the bank
credit facility was amended to require a principal repayment of $44.0 million on
February 28, 2003 with the balance maturing on December 2, 2003. As a result of
the impending closing of the Company's Senior Secured Note issue, the lenders
further extended the due date for the repayment of $44.0 million to March 14,
2003. On March 10, 2003, the revolving bank credit facility in the amount of
$80.8 million and the bank operating line of $10.0 million were repaid with part
of the proceeds of the Company's issue of Senior Secured Notes.
On October 3, 2002, International entered into a term lending facility and
borrowed U.S.$50.0 million ($79.6 million). As a result of International's
borrowing under this term lending facility, the Company was in default of a
covenant under its revolving bank credit facility which, while in default,
resulted in borrowings being due on demand. The Company's banks waived the
default and on December 23, 2002 International repaid the full amount borrowed
under the term lending facility.
LONG-TERM DEBT
Long-term debt, including the current portion, was $1,789.3 million at
December 31, 2002 compared with $1,351.6 million at December 31, 2001.
On March 10, 2003, the Company issued U.S. $120.0 million aggregate
principal amount of 11 7/8% Senior Secured Notes due 2011. The total net
proceeds were used to repay the Company's revolving bank credit facility and
bank operating line, repay amounts due to Ravelston and to make an advance
to Ravelston. The Senior Secured Notes are fully and unconditionally guaranteed
by RMI and are secured by a first priority lien on 10,108,302 shares of
International's Class A Common stock and 14,990,000 shares of Class B common
stock owned by the Company NB Inc.
On December 23, 2002, certain of International's subsidiaries entered into
an amended and restated U.S. $310.0 million Senior Credit Facility with a group
of financial institutions arranged by Wachovia Bank, N.A. (the "Senior Credit
Facility").
The Senior Credit Facility consists of (a) a U.S. $45.0 million revolving
credit facility, which matures on September 30, 2008 (the "Revolving Credit
Facility"), (b) a U.S. $45.0 million Term Loan A, which matures on September 30,
2008 ("Term Loan A") and (c) a U.S. $220.0 million Term Loan B, which matures on
September 30, 2009 ("Term Loan B"). Publishing (a wholly owned direct
subsidiary) and Telegraph Group Limited ("Telegraph Group", a wholly owned
indirect United Kingdom subsidiary) are the borrowers under the Revolving Credit
Facility and First DT Holdings Ltd. ("FDTH", a wholly owned indirect U.K.
subsidiary) is the borrower under Term Loan A and Term Loan B. The Revolving
Credit Facility and Term Loans bear interest at either the Base Rate (U.S.) or
U.S. $ LIBOR, plus an applicable margin. Cross-currency floating to fixed rate
swaps from U.S.$ LIBOR to Sterling fixed rate have been purchased in respect of
all amounts advanced under the Senior Credit Facility. No amounts have currently
been drawn under the Revolving Credit Facility
Publishing's borrowings under the Senior Credit Facility are guaranteed by
Publishing's material U.S. subsidiaries, while FDTH's and Telegraph Group's
borrowings under the Senior Credit Facility are guaranteed by Publishing and its
material U.S. and U.K. subsidiaries. International is also a guarantor of the
Senior Credit Facility. Publishing's borrowings under the Senior Credit Facility
are secured by substantially all of the assets of Publishing and its material
U.S. subsidiaries, a pledge of all of the capital stock of Publishing and its
material U.S. subsidiaries and a pledge of 65% of the capital stock of certain
foreign subsidiaries. FDTH's and Telegraph Group's borrowings
48
under the Senior Credit Facility are secured by substantially all of the assets
of Publishing and its material U.S. and U.K. subsidiaries and a pledge of all of
the capital stock of Publishing and its material U.S. and U.K. subsidiaries.
International's assets in Canada have not been pledged as security under the
Senior Credit Facility.
The Senior Credit Facility loan documentation requires Publishing to comply
with certain covenants which include, without limitation and subject to certain
exceptions, restrictions on additional indebtedness; liens; certain types of
payments (including without limitation, capital stock dividends and redemptions,
payments on existing indebtedness and intercompany indebtedness), and on
incurring or guaranteeing debt of an affiliate, making certain investments and
paying management fees; mergers, consolidations, sales and acquisitions;
transactions with affiliates; conduct of business, except as permitted; sale and
leaseback transactions; changing fiscal year; changes to holding company status;
creating or allowing restrictions on taking action under the Senior Credit
Facility loan documentation; and entering into operating leases, subject to
certain baskets and exceptions. The Senior Credit Facility loan documentation
also contains customary events of default.
On December 23, 2002, Publishing issued U.S. $300.0 million aggregate
principal amount of 9% senior unsecured notes due 2010 (the "9% Senior Notes")
at par to certain qualified institutional buyers ("QIBs") pursuant to Rule 144A
under the Securities Act of 1933, as amended. The aggregate commissions were
U.S. $8.3 million. The proceeds from the sale of the 9% Senior Notes, together
with drawdowns under the Senior Credit Facility and available cash balances,
were used to redeem approximately U.S. $239.9 million of Publishing's Senior
Subordinated Notes due 2006 and approximately U.S. $265.0 million of
Publishing's Senior Subordinated Notes due 2007, plus applicable premium and
accrued interest to the date of redemption, and to make a distribution of U.S.
$100.0 million to International. International used the distribution (a) to
repay all amounts borrowed by International on October 3, 2002 under its loan
agreement with Trilon International Inc., (b) to retire the equity forward
purchase agreements between International and certain Canadian chartered banks
(the "Total Return Equity Swap") made as of October 1, 1998, as amended, and (c)
for other general corporate purposes. The trust indenture in respect of the 9%
Senior Notes contains customary covenants and events of default, which are
comparable to those under the Senior Credit Facility.
On February 14, 2002, Publishing commenced a cash tender offer for any and
all of its outstanding 8.625% Senior Notes due 2005. In March 2002, Senior Notes
in the aggregate principal amount of U.S. $248.9 million had been validly
tendered pursuant to the offer and these Senior Notes were paid out in full. In
addition, in 2002, Publishing purchased for retirement an additional U.S.$41.1
million in aggregate principal amount of the Senior Notes and Senior
Subordinated Notes. The total principal amount of Publishing's Senior Notes and
Senior Subordinated Notes retired during 2002 was U.S. $290.0 million. The
premiums paid to retire the debt totaled U.S. $27.1 million, which, together
with a write-off of U.S. $8.3 million of related deferred financing costs, have
been presented as an unusual item.
AMOUNT DUE TO INTERNATIONAL FROM NB INC.
The amount due to International from NB Inc. at December 31, 2002,
including accrued interest, totaled U.S.$45.8 million. On March 10, 2003
International repurchased for cancellation, from NB Inc., 2,000,000 shares of
Class A common stock of International at U.S.$8.25 per share for total proceeds
of U.S.$16.5 million and redeemed from NB Inc., pursuant to a redemption
request, all of the 93,206 outstanding shares of Series E Redeemable Convertible
Preferred Stock of International at the fixed redemption price of $146.63 per
share. Proceeds from the repurchase and redemption were offset against the debt
due to International from NB Inc., resulting in net outstanding debt due to
International of approximately U.S.$20.4 million as of March 10, 2003. The
remaining debt of U.S.$20.4 million was subordinated in right of payment to the
11 7/8% Senior Secured Notes due 2011 and the interest rate amended to 14.25% if
paid in cash and 16.5% if paid in kind.
Effective April 30, 2003, U.S.$15.7 million principal amount of NB Inc.'s
subordinated debt was transferred by International to HCPH Co., a subsidiary of
International, and subsequently transferred to RMI by HCPH Co., in satisfaction
of a non-interest bearing demand loan due from HCPH Co. to RMI. After the
transfer, NB Inc.'s debt to International was approximately U.S.$4.7 million and
NB Inc.'s debt to RMI was approximately U.S.$15.7 million. The debts owing by NB
Inc. to RMI and owing by NB Inc. to International each bears interest at the
rate of 14.25% if interest is paid in cash and 16.50% if it is paid in kind,
except that RMI has waived its right to receive interest until further notice.
The debts owing by NB Inc. are subordinated to the Senior Secured Notes for so
long as the Senior Secured Notes are outstanding, and that portion of the debt
due from NB Inc. to International is guaranteed by RCL and the Company.
International entered into a subordination agreement with the Company and NB
Inc. pursuant to which International has subordinated all payments of principal,
interest and fees on the debt owed to it
49
by NB Inc. to the payment in full of principal, interest and fees on the Senior
Secured Notes, provided that payments with respect to principal and interest can
be made to International to the extent permitted in the indenture governing the
Senior Secured Notes. RMI has agreed to be bound by these subordination
arrangements with respect to the debt owed by NB Inc. to RMI.
CASH FLOWS
Cash flows provided by operating activities were $149.4 million in 2002,
and cash flows used for operating activities were $334.9 million in 2001.
Improved operating results and lower cash interest costs and cash taxes resulted
in improved year-over-year cash flows provided by operating activities. The cash
flows used in operating activities in 2001 primarily resulted from the sales of
Canadian Newspaper Group properties and Community Group properties, lower
operating results at the Company's remaining operations and the non-cash
interest income received on the CanWest debentures.
Cash flows used in financing activities were $751.4 million in 2002 and
$239.5 million in 2001. In 2002, International repaid U.S. $290.0 million of
long-term debt primarily from available cash balances and repaid U.S. $100.0
million to terminate the Total Return Equity Swaps. The cash flows used in
financing activities in 2001 included the repurchase of shares of
International's Class A common stock and the redemption of retractable common
and preferred shares totalling $72.4 million.
Cash flows used in investing activities were $18.8 million in 2002 compared
to cash flows provided by investing activities of $1,132.5 million in 2001. The
cash flows used in investing activities in 2002 resulted primarily from
purchases of fixed assets and investments partially offset by proceeds from the
sale of 2,000,000 shares of International's Class A common stock in January 2002
and proceeds on the sale of fixed assets. The cash flows provided by investing
activities in 2001 resulted principally from the sales of Canadian newspaper
operations and sale of investments offset in part by additions to investments
and fixed assets.
CAPITAL RESOURCES AND NEEDS
Additions to capital assets amounted to $64.0 million, $91.0 million and
$113.0 million in 2002, 2001 and 2000, respectively. These additions are
principally in respect of International's operations. The following is a summary
of the major capital expenditures during these periods:
2002 2001 2000
Million $ Million $ Million $
--------- --------- ---------
Chicago Sun-Times plant................................... $ 3 $ 6 $ 38
Montreal presses.......................................... - - 26
National Post............................................. - - 4
Printing joint venture-- new presshall and mailroom....... - 20 -
Airplane.................................................. - 18 -
Jerusalem Post press...................................... 5 - -
Fox Valley - printing facility............................ 6 - -
Other capital additions and routine capital expenditures.. 50 47 45
--------- --------- ---------
$ 64 $ 91 $ 113
========= ========= =========
CAPITAL EXPENDITURES AND ACQUISITION FINANCING.
In the past three years, the Chicago Group, the Community Group, the U.K.
Newspaper Group and the Canadian Newspaper Group have funded their capital
expenditures and acquisition and investment activities out of cash provided by
their respective operating activities and in 2000 through borrowings. In 2003
International expects to invest approximately U.S.$20 million in capital
expenditures primarily through available cash flow.
Capital expenditures at the Chicago Group amounted to $24.3 million, $19.3
and $38.2 million in 2002, 2001 and 2000, respectively. International began
construction of a new printing facility in Chicago during 1998, which became
partially operational in 2000 and fully operational in 2001. The capital
expenditures in 2001 and 2000 are primarily related to the construction of this
facility.
50
Capital expenditures at the Community Group amounted to $7.9 million, $0.5
million and $4.9 million in 2002, 2001 and 2000, respectively. The capital
expenditures in 2002 were primarily for the acquisition of a new press by the
Jerusalem Post.
Capital expenditures at the U.K. Newspaper Group were $27.7 million, $48.8
million and $24.1 million in 2002, 2001 and 2000, respectively.
Capital expenditures at the Canadian Newspaper Group were $3.6 million,
$4.4 million and $42.8 million in 2002, 2001 and 2000, respectively.
Capital expenditures at the Corporate Group were $0.1 million, $18.4
million and $2.6 million in 2002, 2001 and 2000, respectively. Expenditures in
2001 were primarily in respect of a new airplane to replace an older airplane
that was sold in early 2002.
DERIVATIVE INSTRUMENTS
The Company or its subsidiaries may enter into various swap, option and
forward contracts from time to time when management believes conditions warrant.
Management does intend, however, that such contracts will be limited to those
that relate to the actual exposure to commodity prices, interest rates and
foreign currency risks. If, in management's view, the conditions that made such
arrangements worthwhile no longer exist, the contracts may be closed.
On December 27, 2002, FDTH, entered into two cross-currency floating to
fixed rate swap transactions to hedge principal and interest payments on U.S.
dollar borrowings by FDTH under the December 23, 2002 Senior Credit Facility.
The contracts have a total foreign currency obligation notional value of U.S.
$265.0 million, fixed at a rate of U.S. $1.5922 to (pound)1, convert the
interest rate on such borrowings from floating rate to a fixed blended interest
rate of 8.47%, and expire as to U.S. $45.0 million on December 29, 2008 and as
to U.S. $220.0 million on December 29, 2009. The swaps were purchased to take
advantage of low rates on this type of instrument and to provide certainty on
interest charges to the operations of the U.K. Newspaper Group in a time of soft
advertising sales.
On January 22, 2003 and February 6, 2003, Publishing entered into interest
rate swaps to convert U.S. $150.0 million and U.S. $100.0 million, respectively,
of the total U.S.$300.0 million Senior Notes issued in December 2002, from fixed
to floating rates for the period to December 15, 2010, subject to early
termination notice, with the objective of reducing the cost of borrowing.
Interest for the first six months has been set at 5.98% and floats, for
subsequent periods, at the six-month LIBOR rate plus a blended spread of 4.61%.
A further discussion of the Company's derivative instruments can be found
in note 24 to the Company's audited consolidated financial statements included
elsewhere in this Annual Report.
OFF-BALANCE SHEET ARRANGEMENTS
HOLLINGER PARTICIPATION TRUST. As part of its November 16, 2000 purchase
and sale agreement with CanWest, International was prohibited from selling the
CanWest debentures received in partial consideration prior to May 15, 2003. In
order to monetize this investment, International entered into a participation
agreement in August 2001 pursuant to which it sold participation interests in
$540.0 million (U.S. $350.0 million) principal amount of CanWest debentures to
the Participation Trust administered by an arm's-length trustee. That sale of
participation interests was supplemented by a further sale of participation
interests in $216.8 million (U.S. $140.5 million) principal amount of CanWest
debentures in December 2001. International remains the record and beneficial
owner of the participated CanWest debentures and is required to make payments to
the Participation Trust with respect to those debentures if and to the extent it
receives payment in cash or kind on the debentures from CanWest. Coincident with
the Participation Trust's purchase of the participation interests, the
Participation Trust sold senior notes to arm's-length third parties to finance
the purchase of the participation interests. These transactions resulted in net
cash proceeds to International of $621.8 million and for accounting purposes
have been accounted for as sales of CanWest debentures. The net loss on the
transactions amounted to $97.4 million and is included in unusual items in 2001.
At any time up to November 5, 2005, CanWest may elect to pay interest on
the debentures by way of additional CanWest debentures or through the issuance
of non-voting common shares of CanWest. Further, at any time after
51
May 15, 2003, the holders of the Participation Trust senior notes may, under the
terms of the Participation Trust request that the Participation Trust require
International to complete an outright transfer to the Participation Trust of the
CanWest debentures. The unrealized foreign exchange losses recognized at
December 31, 2002 and 2001 are classified as deferred credits in the
consolidated balance sheet.
On May 11, 2003, CanWest redeemed $265 million of the debentures of which
U.S.$159.8 million has been delivered to the Participation Trust and the balance
of US$27.6 million has been received by International and the Partnership, a
portion of which must be retained until November 4, 2010. This will reduce the
Company's obligation to the Participation Trust and hence its exposure to
changes in the U.S. dollar to Canadian dollar exchange rate.
COMMERCIAL COMMITMENTS AND CONTRACTUAL OBLIGATIONS.
The Telegraph Group has guaranteed the printing joint venture partners'
share of leasing obligations to third parties, which amounted to $1.0 million
(L0.4 million) at December 31, 2002. These obligations are also guaranteed
jointly and severally by each joint venture partner.
In connection with International's insurance program, letters of credit are
required to support certain projected workers' compensation obligations. At
December 31, 2002, letters of credit in the amount of $4.4 million were
outstanding.
In special circumstances, International's newspaper operations may engage
freelance reporters to cover stories in locales that carry a high risk of
personal injury or death. Subsequent to December 31, 2002, the Telegraph has
engaged a number of journalists and photographers to report from the Middle
East. As a term of their engagement, The Telegraph has agreed to provide a death
benefit which, in the aggregate for all freelancers engaged, amounts to $13.1
million (L5.1 million). This exposure is uninsured. Precautions have been
taken to avoid a concentration of the freelancers in any one location.
In connection with certain of its cost and equity method investments,
International is committed to fund approximately $1.9 million (U.S.$1.2 million)
to those investees in 2003.
Set out below is a summary of the amounts due and committed under
contractual cash obligations, other than in respect of the retractable common
shares at December 31, 2002:
Due Due
Due in between between
1 year 1 and 4 and Due over
Total or less 3 years 5 years 5 years
------------- ---------- ---------- ----------- ----------
(Dollars in thousands)
Existing Senior and Senior Subordinated Notes(1)..... $ 1,279,781 $ 797,751 $ 8,030 $ - $ 474,000
Other long-term debt................................. 443,954 4,886 40,014 45,212 353,842
Capital lease obligations............................ 65,586 12,157 17,165 11,909 24,355
Series II preference shares(2)....................... 33,827 33,827 - - -
Series III preference shares(3)...................... 101,472 101,472 - - -
Operating leases..................................... 257,251 27,095 45,590 35,125 149,441
----------- ---------- ---------- ----------- -----------
Total contractual cash obligations................... $ 2,181,871 $ 977,188 $ 110,799 $ 92,246 $ 1,001,638
=========== ========== ========== =========== ==========
(1) During 2002, Publishing purchased for retirement approximately
$406.8 million (U.S.$254.9 million) of the existing Senior Notes due
2005. The balance of those notes outstanding, approximately $8.0
million (U.S.$5.1 million) will mature in 2005. Included in the
total of notes outstanding is $797.8 million (U.S.$504.9 million) of
Senior Subordinated Notes with maturities in 2006 and 2007. At
December 31, 2002, the borrowings under the Senior Credit Facility
and the 9% Senior Notes due 2010 were held in escrow pending and for
the purpose of redemption of the Senior Subordinated Notes.
Consequently, outstanding balances for the Senior Subordinated
Notes, irrespective of their maturity date, have been reflected as
due in one year or less. Refer to "long-term debt" for a discussion
of the new $489.8 million (U.S.$310 million) Senior Credit Facility
maturing in 2008 and 2009.
(2) The Company has Series II preference shares that are exchangeable at
the holder's option for 0.46 of a share of International's Class A
common stock for each Series II preference share. The Company has
the option
52
to make a cash payment of equivalent value on redemption of any of
the Series II preference shares. As at December 31, 2002, the market
value of the shares of International's Class A common stock that
they are exchangeable into totals $33.8 million. While it is
uncertain as to when, if ever, the preference shares will be
retracted, because the retraction can occur at any time at the
option of the holder, the outstanding balance has been reflected as
due in one year or less.
(3) The Company has Series III preference shares which provide for a
mandatory redemption on the fifth anniversary of issue (April 30,
2004) for $10.00 cash per share (plus unpaid dividends) and an
annual cumulative dividend, payable quarterly, of $0.70 per share
per annum (or 7%) during their five-year term. The Company had the
right at its option to redeem all or any part of the Series III
preference shares at any time after three years (April 30, 2002) for
$10.00 cash per share (plus unpaid dividends). Holders have the
right at any time to retract Series III preference shares for a
retraction price payable in cash which, until April 30, 2003,
fluctuated by reference to two benchmark Government of Canada bonds
having a comparable yield and term to the shares, and during the
year ending April 30, 2004, will be $9.50 per share (plus unpaid
dividends in each case). While it is uncertain as to when, if ever,
the preference shares will be retracted, because the retraction can
occur at any time at the option of the holder, the outstanding
balance has been reflected as due in one year or less.
In addition to amounts committed under contractual cash obligations, the
Company and International have also assumed a number of contingent obligations
by way of guarantees and indemnities in relation to the conduct of their
business. The more significant guarantees and indemnities include those for
lease obligations of a 50% owned joint venture producing many of International's
U.K. publications; in support of representations and warranties on the
disposition of operations; against changes in laws affecting returns to certain
lenders; and against fluctuations in foreign currency exchange rates in respect
of the Participation Trust. For more information on our contingent obligations,
refer to note 27 h) - the Company's audited consolidated financial statements,
included elsewhere in this Annual Report.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS AND SENIOR MANAGEMENT
The names, ages, positions with the Company and principal occupations of
the directors and executive officers of the Company are as shown below. As of
April 30, 2003, the directors and executive officers of the Company as a group
beneficially own, directly or indirectly, or exercise control or direction over,
194,645 retractable common shares (representing 0.6% of the outstanding shares),
2,479,456 Series II Preference Shares (representing 65.7% of the outstanding
shares) and 243,580 Series III Preference Shares (representing 2.6% of the
outstanding shares) of the Company. In addition, Ravelston exercises control or
direction over a total of 25,754,303 retractable common shares (representing
78.2% of the outstanding common shares). Lord Black indirectly controls
Ravelston and therefore beneficially owns or exercises control or direction over
the retractable common shares owned by Ravelston. The term of each director will
expire at the next annual meeting of the Company's shareholders.
NAME AND AGE POSITION(S) WITH THE COMPANY
------------ ----------------------------
Peter Y. Atkinson, 56................................... Executive Vice President and Director
Barbara Amiel Black, 61................................. Vice President, Editorial and Director
The Lord Black of Crossharbour, PC(C), OC, KCSG, 58..... Chairman of the Board, Chief Executive Officer and Director
J. A. Boultbee, 59...................................... Executive Vice President and Director
Daniel W. Colson, 54.................................... Vice Chairman and Director, Deputy Chairman,
Chief Executive Officer and Director of The Telegraph
Frederick A. Creasey, 52................................ Vice President and Chief Financial Officer
Charles G. Cowan, CD, QC, 74............................ Vice President and Secretary, Director
Claire F. Duckworth, 35................................. Assistant Controller
Fredrik S. Eaton, OC, OOnt, 64.......................... Director
R. Donald Fullerton, 71................................. Director
Allan E. Gotlieb, CC, 74................................ Director
Henry H. Ketcham III, 52................................ Director
53
Peter K. Lane, 49....................................... Vice President
F. David Radler, 60..................................... Deputy Chairman, President, Chief Operating
Officer and Director
Sherrie L. Ross, 34..................................... Assistant Treasurer
Maureen J. Sabia, 61.................................... Director
Tatiana Samila, 39...................................... Treasurer
Peter G. White, 63...................................... Director, Executive Vice-President, The Ravelston Corporation
Limited
The principal occupation, business experience and tenure as a director of
the Company are set forth below. Unless otherwise indicated, all principal
occupations have been held for more than five years.
Peter Y. Atkinson, Executive Vice President and Director. Mr. Atkinson has
served as a Director and as Vice President since February 1996. In 2000 he was
appointed Vice President and General Counsel of the Company and in 2002 was
appointed Executive Vice President. He also serves as an officer and director of
Argus Corporation Ltd. and Hollinger Canadian Newspapers G.P. Inc. He is an
Executive Vice President and a Director of International. He is a director of
Toronto Hydro Corporation and of Canadian Tire Corporation, Limited and
Diamondex Resources Ltd., the latter two corporations being Canadian public
reporting companies.
Barbara Amiel Black (Lady Black), Vice President, Editorial and Director.
Barbara Amiel Black has served as Vice President, Editorial since September 1995
and as a director since February 1996 and is the wife of Lord Black. After an
extensive career in both on and off-camera television production, she was Editor
of The Toronto Sun from 1983 to 1985; columnist of The Times and senior
political columnist of The Sunday Times of London from 1986 to 1994; and
columnist of The Telegraph from 1994 to present. She has been a columnist of
Maclean's magazine since 1977. Barbara Amiel Black also serves as a director of
International and the Jerusalem Post. She is the author of two books: "By
Persons Unknown" (co-author), which won the Mystery Writers of America Edgar
Award for best non-fiction in 1978, and "Confessions", a book of political
essays published in 1980, which won the Canadian periodical publishers prize.
The Lord Black of Crossharbour, PC(C), OC, KCSG, Chairman of the Board of
Directors, Chief Executive Officer and Director, International, New York,
Chicago; Hollinger Inc., Toronto; Argus Corporation Ltd., Toronto. Lord Black
has held these or equivalent or similar positions since 1978. He currently
serves as the Chairman and as a director of Telegraph Group Limited, London,
U.K., and as a director of the Jerusalem Post and The Spectator (London). Lord
Black also serves as a director of Brascan Limited, the Canadian Imperial Bank
of Commerce and CanWest Global Communications Corp., all of which are public
reporting companies in Canada, and as a director of Sotheby's Holdings, Inc.
Lord Black is Chairman of the Advisory Board of The National Interest
(Washington) and a member of the International Advisory Board of The Council on
Foreign Relations (New York).
J.A. Boultbee, Executive Vice President and Director. Mr. Boultbee has
served as Executive Vice President since June 1996 and as Chief Financial
Officer from 1995 to 1999. Mr. Boultbee served as a Vice President of
International from 1990 to June 1996 and as a director of International from
1990 to October 25, 1995. Mr. Boultbee has served for the past five years as a
director and as the Vice-President, Finance and Treasury and Executive Vice
President and Chief Financial Officer of the Company. Mr. Boultbee also serves
as a director of Argus, IAMGOLD Corporation and Consolidated Enfield
Corporation, all of which are Canadian public reporting companies.
Daniel W. Colson, Vice Chairman and Director, Deputy Chairman, Chief
Executive Officer and Director of The Telegraph. Mr. Colson currently serves as
Vice Chairman and as a director of the Company. Mr. Colson has served as a
director of International since February 1995 and as Vice Chairman of
International since May 1998. He has served as Deputy Chairman of The Telegraph
since 1995 and as Chief Executive Officer of The Telegraph since 1994, and was
Vice Chairman of The Telegraph from 1992 to 1995. Mr. Colson also currently
serves as Chairman and as a director of Hollinger Telegraph New Media Ltd. and
as Vice Chairman and director of Hollinger Digital Inc. He also serves as a
director of Argus, Molson Inc. and Macyro Group Inc. (Canada), all of which are
Canadian public reporting companies. Mr. Colson also served as Deputy Chairman
and director of Interactive Investor International plc from 1998 to 2001.
54
Frederick A. Creasey, Vice President and Chief Financial Officer. Mr.
Creasey has served as Chief Financial Officer since September 2002 and for the
past five years as the Controller of the Company. Mr. Creasey has also served as
Vice President of International since September 2002 and Group Corporate
Controller since June 1996.
Charles G. Cowan, CD, QC, Vice-President and Secretary, Director. Mr. Cowan
has served as a Director since 1981 and as Vice-President and Secretary since
1985. He also serves as a director and officer of Argus Corporation Limited and
Ravelston. He was appointed the Secretary of the Company's predecessor
corporations in 1961, at which time he was practising law in the
corporate/commercial field with the Toronto law firm that was the general
counsel to those companies, and he continued with that firm, becoming Managing
Partner and Chairman of its Executive Committee, until he joined the Company on
a full-time basis in 1985.
Claire F. Duckworth, Assistant Controller. Ms. Duckworth has served as
Assistant Controller since May 2002. Ms. Duckworth has also served as Assistant
Treasurer from 1999 to May 2002. Prior to 1999, Ms. Duckworth was a principal
with Ernst & Young LLP.
Fredrik S. Eaton, OC, OOnt, Director. Mr. Eaton initially served as a
director from 1979 to 1991 and has subsequently served as a director since 1994.
Mr. Eaton is presently Chairman of White Raven Capital Corp., a privately owned
investment holding company, and director of Eaton's of Canada Inc. From 1967
until 1999, he held various positions with The T. Eaton Company Limited,
including director, Chairman, President and Chief Executive Officer. Mr. Eaton
is also a director of Masonite International Corporation.
R. Donald Fullerton, Director. Mr. Fullerton has served as a director since
1992. Mr. Fullerton joined Canadian Imperial Bank of Commerce in 1953 and was
Chairman and Chief Executive Officer from 1985 to 1992. He was Chairman of the
Executive Committee of Canadian Imperial Bank of Commerce from 1992 to 1999. Mr.
Fullerton is also a director of George Weston Limited and Asia Satellite
Telecommunications Co. Ltd.
Allan E. Gotlieb, CC, Director. Mr. Gotlieb has served as a director since
1989. Mr. Gotlieb has served as Canadian Ambassador to the United States,
Chairman of the Canada Council and Undersecretary of State for External Affairs.
Mr. Gotlieb is currently Chairman of Sotheby's Canada, the Donner Canadian
Foundation and The Ontario Heritage Foundation and a senior advisor to the law
firm, Stikeman Elliott LLP and various other corporate and financial
institutions. He is also currently a Director of D+H Holdings Corp. and a
Trustee of Davis + Henderson Income Fund.
Henry H. Ketcham III, Director. Mr. Ketcham has served as a director since
1996. Mr. Ketcham is Chairman, President and Chief Executive Officer of West
Fraser Timber Co. Ltd. and has held that position since 1996. Mr. Ketcham is
also a Director of the Toronto Dominion Bank.
Peter K. Lane, Vice President. Mr. Lane has served as Vice President since
October 2002. Mr. Lane acted as Chief Financial Officer of Southam Publications
from 2000 to 2002 and prior to that as Chief Financial Officer of Philip
Utilities Management Corporation commencing in 1994. Mr. Lane was a partner with
Coopers & Lybrand from 1990 to 1994. Before then he was a partner with Ernst &
Young, having joined that firm in 1976.
F. David Radler, Deputy Chairman, President, Chief Operating Officer and
Director. Mr. Radler currently serves as President and Chief Operating Officer
and Deputy Chairman of the Company and as a director of The Telegraph. Mr.
Radler has also served as President and Chief Operating Officer of International
since October 1995, as Deputy Chairman since May 1998 and as a director since
1990. Mr. Radler was Chairman of the Board of Directors of International from
1990 to October 1995. Mr. Radler also serves as a director of Argus, Dominion
Malting Limited, West Fraser Timber Co. Ltd. and CanWest Global Communications
Corp., all of which are Canadian public reporting companies. Mr. Radler also
serves as a director of the Jerusalem Post.
Sherrie L. Ross, Assistant Treasurer. Ms. Ross has served as Assistant
Treasurer since May 2002 having joined the Company in 2001. Prior to that Ms.
Ross was an accountant in public practice for three years.
Maureen J. Sabia, Director. Ms. Sabia has served as a director since 1996.
Ms. Sabia has served as the principal of her own consulting practice with
specialized business, organizational and strategic related projects in the
private sector since 1986. Ms. Sabia was appointed Chairman of Export
Development Corporation's Board of Directors in 1991 and is a director of a
number of organizations, including Canadian Tire Corporation Limited; O&Y
Properties Corporation and O&Y FPT Inc.
55
Tatiana Samila, Treasurer. Ms. Samila has served as a Treasurer since May
2002. Ms. Samila has also served as Assistant Controller from 1992 to May 2002.
Peter White, Director, Executive Vice-President, The Ravelston Corporation
Limited. Mr. White initially served as a director from 1979 to 1984 and from
1986 to 1988 and subsequently has served as a director since 1991. Mr. White
also serves as an officer and director of Argus Corporation Ltd. Mr. White is a
Director of Cinram International, Transat A.T. Inc., Normerica Building Systems
Inc., and Proprietary Industries Inc. From 1984 to 1986, and again from 1988 to
1989, Mr. White was respectively Director of Government Appointments and
Principal Secretary to the Prime Minister of Canada. On April 10, 1997, Mr.
White was named Chevalier de l'Ordre National de la Legion d'Honneur by the
President of France.
B COMPENSATION
Description of Officers' Remuneration
Services of the Company's executive officers are provided by Ravelston and,
prior to its termination, pursuant to the Hollinger Management Agreement. The
Company does not provide cash remuneration to its executive officers as such.
There is no basis upon which to allocate the aggregate amount previously payable
under the Hollinger Management Agreement to individual officers because the
individuals providing services to the Company pursuant to the Hollinger
Management Agreement are not in fact receiving compensation primarily in respect
of those services. Their individual cash compensation is determined by Ravelston
(which, as mentioned above, derives management fees from a number of other
companies) and not by the Compensation Committee of the Company. The aggregate
cash compensation paid to executive officers of the Company as directors of the
Company and its subsidiaries in 2002 was $321,625.
Description of Directors' Remuneration
Each director of the Company is entitled to receive an annual director's fee
of $25,000 and a fee of $1,500 for each board or committee meeting attended.
Directors are reimbursed for expenses incurred in attending the meetings.
Members of the Executive Committee receive annual fees of $6,000 and members of
the Audit, Corporate Governance, Compensation and Retraction Price Committees
receive annual fees of $3,000. The Chairman of any Committee of the Company's
Board of Directors receives an annual fee of $2,500.
The Company has taken steps to align more closely the interests of our
directors with those of our shareholders. Effective February 24, 1999, directors
are permitted to elect that up to 100% of the total fees to which they are
entitled be paid in the form of deferred share units under the Hollinger Inc.
Share Unit Plan for Directors (the "Directors' Share Unit Plan"). For a director
that elects to participate, a number of deferred share units equal to the number
of retractable common shares that could be purchased on the open market for a
dollar amount equal to the applicable percentage of that director's fee is
credited to an account maintained by the Company for that director under the
Directors' Share Unit Plan. Dividend equivalents will be credited to the
director's account as if dividends were paid on each deferred share unit held by
the director on the dividend record date and reinvested in additional deferred
share units at the market price of the retractable common shares on the dividend
payment date. Deferred share units will be paid to the director no later than
December 31 of the year following the calendar year in which the director ceased
to serve. Payment will be made, at the election of the director, in either cash
or retractable common shares purchased on the market, net of withholding tax,
based on the market value of the retractable common shares on the date of the
payment.
A Special Committee was constituted in February 2003 to review all aspects
of an issue by the Company of 11-7/8% Senior Secured Notes due in 2011. The
Chairman of the Special Committee, Ms. Sabia, received additional compensation
in the amount of $25,000 and the members of the Committee, Messrs. Eaton and
Gotlieb, received additional compensation in the amount of $10,000 each.
56
C. BOARD PRACTICES
The board of directors currently consists of thirteen members and is of a
size which is conducive to effective and efficient communication and
decision-making. The appropriate size of the board is under continuing
consideration by the directors and management.
The leaders of our principal subsidiaries are members of the board. This
provides non-executive directors with direct and frequent access to these key
executives. Such access assists the non-executive directors in achieving a
thorough understanding of the Company's businesses and operations and the issues
they face and also affords them opportunities to assess the calibre of
management.
Of its thirteen directors, eight are involved in the management of the
business and affairs of the Company or its affiliates. Five directors are not
part of management and are free from any interest (other than interests arising
from their shareholdings), business or familial relationship in or with the
Company or the significant shareholder, that could or could reasonably be
perceived to, materially interfere with the director's ability to act with a
view to the best interests of the Company. Consequently, 38% of directors are
"unrelated directors" as that term is defined in the current guidelines
published by the Toronto Stock Exchange (the "TSX Guidelines") and independently
represent the 22% interest held by shareholders other than the significant
shareholder. This exceeds the recommendation for the proportionate
representation of minority shareholders established in accordance with the
current TSX Guidelines. For these reasons and because the Company's directors
are legally obligated to be aware of the potential for conflicts of interest and
to declare them wherever a conflict exists, the Company believes it has an
adequate number of unrelated directors to discharge the board's
responsibilities.
In addition to those matters which must be legally approved by the board,
the board reviews and approves actions proposed by management which are outside
the ordinary course of business or are "material" to the Company's business.
These matters include dispositions, acquisitions, the recommendations of the
Corporate Governance Committee, the Audit Committee, and major capital
expenditures of the Company and its wholly owned subsidiaries.
The categorization of directors is as follows:
RELATED UNRELATED
P. Y. Atkinson F. S. Eaton
Lord Black R. D. Fullerton
B. Amiel Black A. E. Gotlieb
J. A. Boultbee H. H. Ketcham III
D. W. Colson M. J. Sabia
C. G. Cowan
F. D. Radler
P. G. White
CORPORATE AND GOVERNANCE COMMITTEE. The board has appointed a Corporate
Governance Committee, all of the members of which are unrelated directors, whose
mandate includes the nominating and assessment functions of the members of the
board. The nominating function of the Committee is conducted after consultation
with the Chairman and CEO. The Corporate Governance Committee has been assigned
the responsibility for administering the board's relationship to management. The
Committee monitors the ability of the board to act independently of management
and board members are encouraged to discuss privately with the Chairman and CEO
or the Chairman of the Corporate Governance Committee any matter or concern that
they would prefer not to raise before the full board. The Chairman and the
Corporate Governance Committee share responsibility for succession planning.
AUDIT COMMITTEE. All members of the Audit Committee are non-management
directors. The roles and responsibilities of the Audit Committee are set forth
in a formal charter and include, among other things, responsibility for
monitoring management in connection with, and reviewing:
- the financial reporting process;
- the preparation of consolidated financial statements in accordance with
generally accepted accounting principles;
57
- the system of internal controls and procedures designed to ensure
compliance with accounting standards and applicable laws and
regulations;
- the system of disclosure controls designed to ensure compliance with the
Company's disclosure obligations; and
- the independence and objectivity of the external auditors.
The Audit Committee charter sets out the criteria that should be considered
in the appointment of Committee members as well as the Committee's roles and
responsibilities. The board and the Committee are currently reviewing the
various ways of implementing appropriate processes to assist the Committee in
fulfilling its duties.
The majority of the Company's revenue in the last financial year represents
dividends from International. The outside auditor of International is KPMG who
is also the outside auditor of the Company. In addition, management services are
provided to International by RMI and RMI's parent, Ravelston, which also
provides management services to the Company. The Audit Committee of the Company
relies in good faith on the financial statements of International in considering
and reviewing the financial statements of the Company. In doing so, the Audit
Committee takes steps in order to be satisfied that such reliance is reasonable
and appropriate. Such steps include meeting with the representatives of KPMG who
have carried out the audit of International in order to satisfy the Audit
Committee of the Company that International's financial statements have been
prepared in accordance with generally accepted accounting principles in the
U.S., that an appropriate system of internal controls and procedures is in place
at International, that the Audit Committee understands the key accounting
principles applied in preparing the financial statements of International and
the effect of alternative presentations, and that KPMG is independent and
objective for purposes of that audit. The Audit Committee of the Company meets
with the members of management of Ravelston responsible for providing through
RMI financial and accounting services to International. The Audit Committee of
the Company also reviews the management letter prepared by KPMG and sent to
management of International in connection with the audit of the financial
statements of International as well as other material written communications
from KPMG to management of International or its audit committee in connection
with financial or internal control matters.
With respect to the financial results of the Company's operations unrelated
to International, the Audit Committee is responsible for monitoring and
reviewing the matters referred to above in accordance with its Audit Committee
charter. In that connection, the Audit Committee has direct communication
channels with the external auditors of the Company and has oversight
responsibility for management reporting on internal control. In carrying out
these responsibilities, the Audit Committee meets regularly with KPMG and the
individuals at Ravelston responsible for providing through RMI financial and
accounting services to the Company.
CORPORATE AND GOVERNANCE COMMITTEE, AUDIT COMMITTEE AND OTHER COMMITTEES.
Set out below is the composition of the current committees of the Company's
board. The right-hand column entitled "Status" represents the board's
characterization of each of the members:
COMMITTEE MEMBER STATUS
--------- ------ --------
1. Executive Committee................ Lord Black inside -- related
D. W. Colson inside -- related
A. E. Gotlieb outside -- unrelated
F. D. Radler inside -- related
2. Audit Committee.................... F. S. Eaton outside -- unrelated
R. D. Fullerton outside -- unrelated
A. E. Gotlieb outside -- unrelated
H. H. Ketcham outside -- unrelated
M. J. Sabia outside -- unrelated
3. Corporate Governance Committee..... F. S. Eaton outside -- unrelated
R. D. Fullerton outside -- unrelated
A. E. Gotlieb outside -- unrelated
4. Compensation Committee............. F. S. Eaton outside -- unrelated
R. D. Fullerton outside -- unrelated
A. E. Gotlieb outside -- unrelated
58
COMMITTEE MEMBER STATUS
--------- ------ --------
H. H. Ketcham outside -- unrelated
M. J. Sabia outside -- unrelated
5. Retraction Price Committee......... J. A. Boultbee inside -- related
P. Y. Atkinson inside -- related
The Executive Committee acts infrequently. When it does, it reports on its
actions to the board. Matters of any consequence are brought to the board for
consideration except on rare occasions when immediate action is required.
The Compensation Committee periodically settles and approves the management
fees, if any, paid by the Company and its subsidiaries to Ravelston and approves
the granting of options under its executive stock option plan.
The Retraction Price Committee meets quarterly and determines when the
right of retraction of holders of the Company's retractable common shares takes
effect and the retraction price of the Company's retractable shares.
D. EMPLOYEES
As of December 31, 2002, the Chicago Group employed approximately 3,372
employees including approximately 639 part-time employees. Of the 2,733
full-time employees, 702 are production staff, 659 are sales and marketing
personnel, 379 are circulation staff, 254 are general and administrative staff
and 739 are editorial staff. Approximately 920 employees are represented by 23
collective bargaining units. Employee costs (including salaries, wages, fringe
benefits, employment-related taxes and other direct employee costs) equaled
approximately 38.7% of the Chicago Group's revenues in the year ended December
31, 2002. There have been no strikes or general work stoppages at any of the
Chicago Group's newspapers in the past five years. The Chicago Group believes
that its relationships with its employees are generally good.
At December 31, 2002, The Telegraph and its subsidiaries employed
approximately 1,238 persons and the joint venture printing companies employed an
additional 914 persons. Of The Telegraph's approximately 1,238 employees, 52 are
production staff, 414 are sales and marketing personnel, 223 are general and
administrative staff and 549 are editorial staff. Collective agreements between
The Telegraph and the trade unions representing certain portions of The
Telegraph's workforce expired on June 30, 1990 and have not been renewed or
replaced. The absence of such collective agreements has had no adverse effect on
The Telegraph's operations and, in management's view, is unlikely to do so in
the foreseeable future.
The Telegraph's joint venture printing companies, West Ferry Printers and
Trafford Park Printers, each have "in-house" collective agreements with the
unions representing their employees and certain provisions of these collective
agreements are incorporated into the employees' individual employment contracts.
In contrast to the union agreements that prevailed on Fleet Street when the
Company acquired control of The Telegraph, these collective agreements provide
that there shall be flexibility in the duties carried out by union members and
that staffing levels and the deployment of staff are the sole responsibility of
management. Binding arbitration and joint labor-management standing committees
are key features of each of the collective agreements. These collective
agreements may be terminated by either party with six months' prior written
notice.
There have been no strikes or general work stoppages involving employees of
The Telegraph or the joint venture printing companies in the past five years.
Management of The Telegraph believes that its relationships with its employees
and the relationships of the joint venture printing companies with their
employees are generally good.
As of December 31, 2002, the Canadian Newspaper Group had approximately 725
full time equivalent employees of which approximately 31% are unionized. The
Canadian Newspaper Group has union contracts in place at approximately 11 of the
19 newspaper operating locations. The percentage of unionized employees varies
widely from paper to paper. With the large number of contracts being
renegotiated every year, labor disruptions are always possible, but no single
disruption would have a material effect on the Company.
59
E. SHARE OWNERSHIP
The following table and the notes thereto set forth the name of each of the
directors and executive officers of the Company and the approximate number of
shares of the Company, that they have advised the Company, are beneficially
owned by them or over which they exercise control or direction.
APPROXIMATE NUMBER OF SHARES
OF THE COMPANY BENEFICIALLY
OWNED OR OVER WHICH CONTROL
NAME OR DIRECTION IS EXERCISED(3)(4)
-------------------------------
PETER Y. ATKINSON................................ 5,158 retractable common shares
BARBARA AMIEL BLACK(5)(7)........................ 1,650 retractable common shares
FREDERICK A. CREASEY............................. 1,500 Series III Preference Shares
THE LORD BLACK OF CROSSHARBOUR, 1,611,039 Series II
P.C. (CAN), O.C., K.C.S.G.(6)(7)(9)........... Preference Shares
8,190 retractable
common shares(8)
J.A. BOULTBEE(7)................................. 1,031 retractable common shares
DANIEL W. COLSON(6)(7)........................... 290,697 Series II Preference Shares
16,625 retractable common shares(8)
CHARLES G. COWAN, Q.C.(7)........................ 5,158 retractable common shares
11,100 Series III Preference Shares
FREDRIK S. EATON, O.C.(6)........................ 174,284 retractable common shares
23,091 retractable common shares(8)
ALLAN E. GOTLIEB, C.C............................ 3,714 retractable common shares
1,000 Series III Preference Shares
17,437 retractable common shares(8)
60
APPROXIMATE NUMBER OF SHARES
OF THE COMPANY BENEFICIALLY
OWNED OR OVER WHICH CONTROL
NAME OR DIRECTION IS EXERCISED(3)(4)
-------------------------------
HENRY H. KETCHAM III(6).......................... 1,000 retractable common shares
23,794 retractable common shares(8)
1,000 Series III Preference Shares
F. DAVID RADLER(6)(7)............................ 577,720 Series II Preference Shares
229,980 Series III Preference Shares
16,720 retractable common shares(8)
MAUREEN J. SABIA................................. 619 retractable common shares
3,256 retractable common shares(8)
PETER G. WHITE(7)................................ --
Notes:
(1) Lord Black is the Chairman of the Executive Committee of the board of
directors. Messrs. Colson, Gotlieb and Radler are members.
Mr. Ketcham is the Chairman of the Audit Committee. Messrs. Eaton, Fullerton
and Gotlieb and Ms. Sabia are members.
Mr. Gotlieb is the Chairman of the Corporate Governance Committee. Mr. Eaton
and Mr. Fullerton are members.
Mr. Ketcham is Chairman of the Compensation Committee. Messrs. Eaton,
Fullerton and Gotlieb and Ms. Sabia are members.
Mr. Boultbee is Chairman of the Retraction Price Committee. Mr. Atkinson is
a member.
The following persons also held senior management positions with International:
(2) Lord Black is the Chairman of the Board and Chief Executive Officer; Mr.
Radler is the Deputy Chairman President and Chief Operating Officer; Mr.
Colson is the Vice-Chairman; Mrs. Black is Vice-President, Editorial; Mr.
Boultbee is an Executive Vice-President and a director; and Mr. Atkinson is
an Executive Vice-President. Lord Black is the Chairman and a director and
Mr. Colson is the Deputy Chairman and Chief Executive Officer and a director
of Telegraph Group Limited. Lord Black and Messrs. Colson, Atkinson and
Radler are directors of International.
(3) Lord Black and Messrs. Atkinson, Boultbee, Colson, Cowan, Radler and White
are shareholders, directly or indirectly, and officers and directors of
Ravelston.
(4) Lord Black controls Ravelston which exercises control or direction over 78.2
% of the outstanding retractable common shares of the Company.
(5) Mrs. Barbara Amiel Black is the wife of Lord Black.
(6) Lord Black and Messrs. Colson, Eaton, Ketcham and Radler own, directly or
indirectly, 7,500, 500, 17,000, 1,000 and 9,000 shares of Class A common
stock of International, respectively.
61
(7) Lord Black, Mrs. Black and Messrs. Colson, Boultbee, Radler and White own,
directly or indirectly, 72,300, 7,000, 100,000, 1,820, 103,300 and 3,500,
respectively, and Lord Black and Mr. Cowan exercises control or direction
over 150,000 and 5,000, limited partnership units of the Partnership,
respectively.
(8) The number of retractable common shares credited to the director's account
as of March 31, 2003 pursuant to the Directors Share Unit Plan (see page
58).
(9) Through Lord Black's indirect control of the Company, Lord Black exercises
control or direction over 14,990,000 Class B common shares of International.
Summary Compensation Table
The following table sets forth compensation information for the three fiscal
years ended December 31, 2002 in respect of each of the named executives.
TABLE A
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------------------------------------
Other Securities Under
Annual Options All Other
Name and Principal Position Year Salary Bonus Compensation Granted Compensation
---------------------------------------------------------------------------------------------------------------------------------
($)(1)(2) ($)(1) ($)(3) (#)(4) ($)(5)
Lord Black, 2002 900,361 0 237,440 (a) 250,000 (Company) 0
Chairman of the Board and 2001 898,884 387,250 0 (b) 205,000 (Partnership) 0
Chief Executive Officer 2000 888,552 2,763,902 47,295 (c) 375,000 (International) 0
-------------------------------------------------------------------------------------------------------------------------------
F. David Radler 2002 169,867 0 41,519 (a) 230,000 (Company) 0
Deputy Chairman, 2001 208,464 232,350 0 (b) 205,000 (Partnership) 0
President and Chief Operating 2000 233,294 788,267 0 (c) 375,000 (International) 0
Officer
-------------------------------------------------------------------------------------------------------------------------------
Daniel W. Colson 2002 569,929 0 29,477 (a) 160,000 (Company) 92,639
Vice-Chairman; 2001 608,078 1,740,641 22,860 (b) 130,000 (Partnership) 92,933
Deputy Chairman and Chief 2000 611,263 2,666,634 22,520 (c) 280,000 (International) 96,333
Executive Officer, Telegraph
Group Limited
-------------------------------------------------------------------------------------------------------------------------------
J.A. Boultbee 2002 62,000 0 0 (a) 95,000 (Company) 0
Executive Vice-President 2001 70,250 77,450 0 (b) 75,000 (Partnership) 0
and Chief Financial Officer 2000 81,250 0 0 (c) 117,000 (International) 0
-------------------------------------------------------------------------------------------------------------------------------
Peter Y. Atkinson 2002 79,955 0 0 (a) 80,000 (Company) 0
Executive Vice-President 2001 67,750 154,900 0 (b) 80,000 (Partnership) 0
2000 78,750 74,280 0 (c) 117,000 (International) 0
-------------------------------------------------------------------------------------------------------------------------------
Notes:
(1) With the exception of salaries paid to Lord Black and Mr. Colson by The
Telegraph (which salaries were paid in pounds sterling and Canadian dollars,
respectively, and have been converted into Canadian dollars at the 2002
average rate of 2.3591 for the purposes of this disclosure) and certain
performance incentive bonuses, none of the executive officers of the Company
receives salary or bonus directly from the Company. See "Principal
Agreements with International" and "Compensation". Ravelston and RMI are
associates of Lord Black and Mr. Radler. The Company and its wholly-owned
subsidiaries paid management fees to Ravelston pursuant to the Hollinger
Management Agreement, prior to its termination as of January 1, 2001, of
$3,200,000 in 2000. The Company does not determine the allocation of the
management fee paid to Ravelston among its ultimate recipients. That
allocation is determined by Ravelston. The Company has requested, and
Ravelston provided, an allocation of the economic interest, direct or
indirect through compensation arrangements, shareholdings or otherwise, in
the management fee paid by the Company and its subsidiaries during the years
ended December 31, 2001 and December 31, 2002 which can reasonably be
attributed to the Chief Executive Officer of the Company and the other four
most senior officers of the Company whose salaries and bonuses for the years
ended December 31, 2001 and December 31, 2002 exceeded $100,000. The
allocation provided by Ravelston has not been independently verified by the
Company.
62
YEAR ENDED
----------------------------
December 31, December 31,
NAME 2002 2001
---- ---- ----
(U.S. DOLLARS)
Lord Black................................................................. $ 6,485,439 $ 6,619,256
F. David Radler............................................................ 3,147,922 3,102,221
Daniel W. Colson........................................................... 1,770,770 1,714,308
Peter Y. Atkinson.......................................................... 876,009 846,063
J. A. Boultbee............................................................. 929,395 897,250
(2) The amounts in this column also include directors' fees paid by the Company,
International, The Telegraph, the Partnership, The Sun-Times Company and
Jerusalem Post Publications Limited.
(3) With respect to Lord Black, "Other Annual Compensation" reflects a portion
of the cost of maintaining his New York condominium, an allocation for a
portion of the cost of a New York and a London automobile and driver, a
portion of the cost of his personal house staffs where offices are
maintained and in which meetings are frequently held, and an allocation of
variable costs covering any occasion when his use of a corporate airplane is
not entirely for corporate purposes. With respect to Mr. Radler, "Other
Annual Compensation" reflects a portion of the cost of maintaining the
Chicago condominium and automobile and an allocation of variable costs
covering any occasion when his use of a corporate airplane is not entirely
for corporate purposes. With respect to Mr. Colson, "Other Annual
Compensation" reflects a portion of the cost of an automobile allowance and
medical benefits.
(4) These amounts relate, as indicated, to options on retractable common shares
of the Company granted pursuant to the Company's Executive Share Option
Plan, to options on limited partnership units of the Partnership granted
pursuant to the Partnership's Unit Option Plan and to options on shares of
Class A common stock of International granted pursuant to International's
Stock Option Plans.
(5) With respect to Mr. Colson, "All Other Compensation" includes contributions
made by The Telegraph to its Executive Pension Scheme.
Options/Stock Appreciation Rights
In 1994 the Board of Directors approved an Executive Share Option Plan (the
"Option Plan"). Under the Option Plan the Company issues non-transferable
options ("Options") to purchase retractable common shares of the Company to
certain executives of the Company and its subsidiaries (including the named
executives). The Option Plan is designed: (i) to provide incentive to executives
of the Company and its subsidiaries who are in positions which enable them to
make significant contributions to the longer term objectives of the Company;
(ii) to give suitable recognition to the ability and industry of such
executives; and (iii) to attract and retain in the employment of the Company and
its subsidiaries persons of ability and industry.
The Options are to purchase up to a specified maximum number of retractable
common shares at a price equal to the exercise price which is the average
trading price on the Toronto Stock Exchange of the Company's retractable common
shares for the 10 trading days ending on the third trading day preceding the
date of grant. The Options are exercisable to the extent of 25% thereof at the
end of each of the first through fourth years following issuance, on a
cumulative basis, with the exercise period terminating six years after the date
of grant of the Options. Unexercised Options expire at the earlier of one month
following the date of termination of the employee's employment or six years
after grant.
HOLLINGER INTERNATIONAL INC. 1999 STOCK INCENTIVE PLAN. On May 5, 1999,
International adopted, and its stockholders approved, a new compensation plan
known as the Hollinger International Inc. 1999 Stock Incentive Plan (the "1999
Stock Incentive Plan"). The 1999 Stock Incentive Plan replaces International's
1997 Stock Incentive Plan. Awards previously made under the 1997 Stock Incentive
Plan are not affected. The purpose of the 1999 Stock Incentive Plan is to assist
in attracting and retaining highly competent employees and directors and to act
as an incentive in motivating selected officers and other key employees and
directors to achieve long-term corporate objectives. The 1999 Stock Incentive
Plan provides for awards of up to 8,500,000 shares of Class A common stock of
International. The number of shares available for issuance under the 1999 Stock
Incentive Plan are
63
subject to anti-dilution adjustments upon the occurrence of significant
corporate events. The shares offered under the 1999 Stock Incentive Plan are
either authorized and unissued shares or issued shares which have been
reacquired by International.
HOLLINGER L.P. UNIT OPTION PLAN. Simultaneously with the Partnership's
initial public offering in April 1999, Hollinger Canadian Newspapers G.P. Inc.,
the general partner of the Partnership, adopted and approved a unit option plan
for the Partnership. dated April 27, 1999 (the "Unit Option Plan"), under which
unit option awards have been made to eligible employees and officers. The
purpose of the Unit Option Plan was to promote the interest of the Partnership
and its unit holders by establishing a direct link between the financial
interest of eligible employees and officers and the performance of the
Partnership and by enabling the Partnership to attract and retain highly
competent employees and officers. The Unit Option Plan provides for awards of up
to 5,000,000 units. The number of units available for issuance under the Unit
Option Plan is subject to anti-dilution adjustments upon the occurrence of
significant partnership events.
The following table sets forth information concerning the issue in 2002 to
the named executives of options to purchase shares of Class A common stock of
International pursuant to International's Stock Option Plans. No options were
granted in 2002 pursuant to the Option Plan or the Partnership's Unit Option
Plan.
OPTION/SAR GRANTS DURING THE MOST RECENTLY
COMPLETED FINANCIAL YEAR
TABLE B
% OF TOTAL MARKET VALUE
SECURITIES OPTIONS EXERCISE OF SECURITIES
UNDER GRANTED TO OR UNDERLYING
OPTIONS EMPLOYEES IN BASE PRICE OPTIONS EXPIRATION
NAME GRANTED (#) FINANCIAL YEAR ($/SECURITY) ($/SECURITY) DATE
-----------------------------------------------------------------------------------------------------------------------
Lord Black, 375,000 16.8 U.S.$11.13 U.S.$11.13 Feb. 4, 2012
Chairman of the Board and (International)
Chief Executive Officer
-----------------------------------------------------------------------------------------------------------------------
F. David Radler 375,000 16.8 U.S.$11.13 U.S.$11.13 Feb. 4, 2012
Deputy Chairman (International)
President and
Chief Operating Officer
-----------------------------------------------------------------------------------------------------------------------
Daniel W. Colson 280,000 12.6 U.S.$11.13 U.S.$11.13 Feb. 4, 2012
Vice-Chairman; (International)
Deputy Chairman and
Chief Executive Officer,
The Telegraph
-----------------------------------------------------------------------------------------------------------------------
J.A. Boultbee 117,000 5.2 U.S.$11.13 U.S.$11.13 Feb. 4, 2012
Executive Vice-President (International)
-----------------------------------------------------------------------------------------------------------------------
Peter Y. Atkinson 117,000 5.2 U.S.$11.13 U.S.$11.13 Feb. 4, 2012
Executive Vice-President (International)
-----------------------------------------------------------------------------------------------------------------------
The following table sets forth details concerning the financial year end value
of (a) outstanding options issued pursuant to the Option Plan, (b) outstanding
options to purchase shares of Class A common stock of International issued
pursuant to International's Stock Option Plans and (c) outstanding options to
purchase limited partnership units of the Partnership issued pursuant to the
Partnership's Unit Option Plan.
AGGREGATED OPTION/SAR EXERCISES DURING THE MOST RECENTLY COMPLETED
FINANCIAL YEAR AND FINANCIAL YEAR-END OPTION/SAR VALUES
64
TABLE C
VALUE OF
UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SECURITIES AGGREGATE FY-END FY-END
ACQUIRED VALUE (#)(1) ($)(2)
ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
-----------------------------------------------------------------------------------------------------------------------------
Lord Black, 250,000/0 0
Chairman of the Board 0 0 (Company)
and Chief Executive Officer 153,750/51,250 0/0
0 0 (Partnership)
803,750/941,250 U.S.$61,150/U.S.$0
0 0 (International)
-----------------------------------------------------------------------------------------------------------------------------
F. David Radler 230,000/0 0
Deputy Chairman, President 0 0 (Company)
and Chief Operating Officer 153,750/51,250 0/0
0 0 (Partnership)
803,750/941,250 U.S.$61,150/U.S.$0
0 0 (International)
-----------------------------------------------------------------------------------------------------------------------------
Daniel W. Colson 160,000/0 0
Vice-Chairman; 0 0 (Company)
Deputy Chairman and 97,500/32,500 0/0
Chief Executive Officer, 0 0 (Partnership)
The Telegraph 462,500/702,500 U.S.$10,800/ U.S.$0
0 0 (International)
-----------------------------------------------------------------------------------------------------------------------------
J.A. Boultbee 95,000/0 0
Executive Vice-President 0 0 (Company)
56,250/18,750 0/0
0 0 (Partnership)
241,000/302,000 U.S.$3,120/U.S.$0
0 0 (International)
-----------------------------------------------------------------------------------------------------------------------------
Peter Y. Atkinson 80,000/0 0
Executive Vice-President 0 0 (Company)
60,000/20,000 0/0
0 0 (Partnership)
250,000/302,000 U.S.$20,000/U.S.$0
0 0 (International)
-----------------------------------------------------------------------------------------------------------------------------
****Notes:
(1) These numbers relate to the options granted pursuant to the Option Plan, the
options granted pursuant to the International Stock Option Plans and the
options granted pursuant to the Partnership's Unit Option Plan.
(2) Calculated using the closing price for retractable common shares of the
Company on the Toronto Stock Exchange, the shares of Class A common stock of
International on the New York Stock Exchange and the limited partnership
units of the Partnership on the Toronto Stock Exchange on December 31, 2002,
less the exercise price of the options.
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee consists of five directors who are neither
officers nor employees of the Company or Ravelston and who do not have any other
material interest in Ravelston. None of the Compensation Committee members is
eligible to participate in the Option Plan.
International is the most significant user of RMI's management services.
Since International is a public corporation with its own board of directors,
including directors independent of the Company and related companies, the
Committee has concluded that it would be appropriate for the International board
of directors to negotiate
65
directly with RMI the management fees payable for the services provided to it
and its subsidiaries pursuant to the two Services Agreements.
In the past under the Hollinger Management Agreement, the aggregate
management fee for each calendar year was negotiated with the Company on an
annual basis. The Compensation Committee had been delegated authority by the
board of directors of the Company to settle and approve the management fees, if
any, to be paid by the Company , and its wholly-owned subsidiaries, to Ravelston
pursuant to such agreement. Until the annual fee was determined for any year,
Ravelston continued to be compensated on the basis of the previous year's fee.
The Hollinger Management Agreement was terminated as of January 1, 2001 although
Ravelston continues to provide management services to the Company . No
management fee will be payable by the Company to Ravelston in respect of the
management services to be provided for the year 2003.
The compensation levels for the executives and other employees of Ravelston
are the responsibility of Ravelston and are not determined by the Compensation
Committee of the Company or by the board of directors or any committee of
International, except to the extent that the Company or International
compensates the executives and employees in the form of stock options. Pursuant
to the management fee arrangements, the management fees are not allocated to
specific Ravelston or RMI employees, consequently, the Compensation Committee
has no basis for attributing specific amounts to the Company's executive
officers as salaries and bonuses.
The Compensation Committee also approves the granting of Options under the
Company's Option Plan.
In respect of its role in approving the grant of options to the Company's
executives, the Compensation Committee utilizes the following strategy:
(i) motivate executives to achieve their strategic goals by tying grants
to the performance of the Company as well as their individual
performance;
(ii) be competitive with other leading companies so as to attract and
retain talented executives; and
(iii) align the interests of the Company's executives with long-term
interests of the Company's shareholders through stock-related
programs.
No Options were granted under the Option Plan in 2002.
The foregoing report has been furnished by the current members of the
Compensation Committee: Henry H. Ketcham III (Chairman), Fredrik S. Eaton, R.
Donald Fullerton, Allan E. Gotlieb and Maureen J. Sabia.
SHAREHOLDER RETURN PERFORMANCE GRAPH
The chart below compares the yearly percentage change in the Company's
cumulative total shareholder return on the Company's retractable common shares
(assuming all dividends were reinvested at the market price on the date of
payment) against the cumulative total shareholder return of the S&P/TSX
Composite Index for the five years commencing December 31, 1997 and ending
December 31, 2002.
66
COMPARISON OF 5-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN
ON RETRACTABLE COMMON SHARES OF THE COMPANY'S
AND THE S&P/TSX COMPOSITE INDEX
INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS
In the past, the Company made loans to certain directors and officers of the
Company in connection with the subscription for convertible preference shares
pursuant to its now-expired executive share purchase plan (the "Purchase Plan").
These loans were assumed by one of the Company's wholly-owned subsidiaries,
Domgroup Ltd. In 1999, the Company also made loans to companies controlled by
certain directors and officers of the Company in connection with the initial
public offering by the Partnership. Hollinger's board of directors has resolved
to retire these loans on a timely and orderly basis. The following table sets
out certain information relating to such loans.
TABLE D
FINANCIALLY
LARGEST AMOUNT ASSISTED
INVOLVEMENT AMOUNT OUTSTANDING SECURITIES SECURITY
OF ISSUER OR OUTSTANDING AS AT PURCHASES FOR
SUBSIDIARY(1)(2) DURING 2002 MAY 16, 2003 DURING INDEBTEDNESS(3)
NAME 2002
----------------------------------------------------------------------------------------------------------------------------
($) ($) (#)
Lord Black, Domgroup as lender 3,345,646 3,369,570 0 735,280 Series II
Preference Shares
Chairman of the Board and the Company as lender 183,101 186,671 0 50,000 units
Chief Executive Officer
----------------------------------------------------------------------------------------------------------------------------
F. David Radler Domgroup as lender 2,450,463 2,447,587 0 577,720 Series II
Preference Shares
Deputy Chairman, President the Company as lender 189,684 193,382 0 50,000 units
and Chief Operating Officer
----------------------------------------------------------------------------------------------------------------------------
Notes :
(1) The loans made by the Company and assigned to Domgroup were on a
non-interest basis prior to the conversion of the preference shares
subscribed for with the proceeds of the loans. All preference shares
subscribed for under the Purchase Plan have been converted and, as a
consequence of tenderings to issuer bids by the Company in 1997 and 1998,
Series II Preference Shares resulting from the preference shares issued
under the Purchase Plan are now held in trust by Ravelston for the benefit
of the subscribers. From October 1, 1998, the loans made by the Company and
assigned to Domgroup have been bearing interest at the prime rate
established by the Canadian Imperial Bank of Commerce plus 1/2%; and are
secured by a pledge of the Series II Preference Shares resulting from the
preference shares issued under the Purchase Plan.
(2) From April 13, 1999, the loans are partially secured by a pledge of the
Partnership units and have been bearing interest at the prime rate
established by the Canadian Imperial Bank of Commerce plus 1/2%.
(3) The number of Series II Preference Shares of the Company and limited
partnership units of the Partnership pledged as security for the
indebtedness.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS
To the knowledge of the directors and officers of the Company, there is
no beneficial owner or person who exercises control or direction over
more than 10% of the outstanding retractable common shares of the
Company except as follows. Ravelston exercises control or direction
over a total of 26,516,886 retractable common shares or 78.2% of the
outstanding retractable common shares of the Company. Lord Black
indirectly controls Ravelston and therefore beneficially owns or
exercises control or direction over 78.2% of the outstanding
retractable common shares of the Company. The address of Ravelston is
10 Toronto Street, Toronto, Ontario, M5C 2B7.
67
B. RELATED PARTY TRANSACTIONS
International and its subsidiaries have entered into Services Agreements with
Ravelston, whereby Ravelston acts as manager of International and its
subsidiaries and carries out head office and executive responsibilities. These
Services Agreements were assigned on July 5, 2002 to RMI, a wholly-owned
subsidiary of Ravelston. Ravelston and RMI billed International and its
subsidiaries $37.3 million in 2002 pursuant to these agreements ($44.9 million
in 2001 and $49.9 million in 2000). In addition, certain executives of Ravelston
and Moffat Management and Black-Amiel Management, affiliates of Ravelston and
RMI, have separate Services Agreements with certain subsidiaries of
International. During 2002, amounts paid directly by subsidiaries of
International pursuant to such agreements were $3.0 million ($2.6 million in
2001 and $5.4 million in 2000). The fees under Ravelston's and RMI's services
agreement and the fees paid directly to executives and affiliates of Ravelston,
have been negotiated and approved by International's independent directors.
In addition to the amounts referred to in the preceding paragraph, during 2001
and 2000 there were further remuneration paid directly by subsidiaries of
International to certain Ravelston executives of $2.6 million and $6.3 million,
respectively (2002-nil).
Similarly, Ravelston carries out head office and executive responsibilities for
the Company and its subsidiaries, other than International and its subsidiaries.
In 2002 and 2001, no amounts were charged by Ravelston for such services. In
2000, the Company received $10.7 million, net, from Ravelston pursuant to a
services agreement which was terminated on December 31, 2000.
In 2002, expenses are net of $2.4 million received from Ravelston and RMI as a
reimbursement of certain head office expenses incurred on behalf of Ravelston
and RMI ($2.0 million in 2001). Such expenses were not incurred on behalf of
Ravelston in 2000.
During 2001 and 2000, in connection with the sales of properties, the Company,
Ravelston, International, Lord Black and three senior executives entered into
non-competition agreements with the purchasers in return for cash consideration
paid.
68
During the three months ended March 31, 2003, International made a venture
capital investment of US$2.5 million in a company in which a director of
International has a minority interest.
On March 10, 2003, prior to the issue of Senior Secured Notes, NB Inc. sold
its shares of Class A common stock and Series E redeemable preferred stock of
International to RMI. Such shares were in turn sold back to NB Inc. from RMI at
the same price with a resulting increase in the tax basis of the shares of
International and a taxable gain to RMI.
All of the Services Agreements were negotiated in the context of a
parent-subsidiary relationship and, therefore, were not the result of arm's
length negotiations between independent parties. The terms of the Services
Agreements may therefore not be as favorable to International and its
subsidiaries as the terms that might be reached through negotiations with
non-affiliated third parties.
ASSET SALES
On July 3, 2002, NP Holdings Company ("NP Holdings"), a subsidiary of
International, was sold to RMI for cash consideration of $5,750,000. The net
assets of NP Holdings primarily included Canadian tax losses. The tax losses,
only a portion of which were previously recognized for accounting purposes, were
effectively sold at their carrying value. Due to the inability of NP Holdings to
utilize its own tax losses prior to their expiry, as a result of its disposing
of its interest in the National Post, it sold these losses to a company which
would be able to utilize the losses. The only other potential purchaser for
these losses, CanWest, declined the opportunity to acquire the losses. The terms
of the sale of the tax losses to RMI were negotiated with and approved by the
independent directors of International.
In two separate transactions in July and November, 2001, International and
the Partnership completed the sale of most of their remaining Canadian
newspapers to Osprey for total sale proceeds of approximately $255 million plus
closing adjustments primarily for working capital. The former Chief Executive
Officer of the Partnership is a minority shareholder and Chief Executive Officer
of Osprey. International's independent directors approved the terms of these
transactions.
In connection with the above two sales of Canadian newspaper properties to
Osprey and to satisfy a closing condition, International, the Company, and Lord
Black and three senior executives entered into non-competition agreements with
Osprey pursuant to which each agreed not to compete directly or indirectly in
Canada with the Canadian businesses sold to Osprey for a five-year period,
subject to certain limited exceptions, for aggregate consideration of $7.9
million. Such consideration was paid to Lord Black and the three senior
executives and was approved by International's independent directors.
On November 16, 2000, International, together with its affiliates, Southam
and the Partnership, completed the sale of most of their Canadian newspapers and
related assets to CanWest. The aggregate sale price of these properties at fair
value was approximately $2.8 billion, plus closing adjustments for working
capital at August 31, 2000 and cash flow and interest for the period September 1
to November 16, 2000 which in total at December 31, 2000 approximated an
additional $40.7 million.
In connection with the sale to CanWest, Ravelston entered into a management
services agreement with CanWest and National Post pursuant to which it agreed to
continue to provide management services to the Canadian businesses sold to
CanWest in consideration for an annual fee of $6 million payable by CanWest.
CanWest will be obligated to pay Ravelston a termination fee of $45 million in
the event that CanWest chooses to terminate the management services agreement or
$22.5 million in the event that Ravelston chooses to terminate the agreement.
Further, CanWest required as a condition to the transaction that International,
Ravelston, the Company, Lord Black and three senior executives enter into
non-competition agreements with CanWest pursuant to which each agreed not to
compete directly or indirectly in Canada with the Canadian business sold to
CanWest for a five-year period, subject to certain limited exceptions, for
aggregate consideration of $80 million paid by CanWest in addition to the
purchase price referred to above of which $38 million was paid to Ravelston and
$42 million was paid to Lord Black and the three senior executives.
International's independent directors approved the terms of these payments.
During 2001, International transferred two publications to Horizon
Publications Inc. in exchange for net working capital. Horizon Publications Inc.
is managed by former Community Group executives and controlled by
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certain members of the Board of Directors of International. The terms of theses
transactions were approved by the independent directors of International.
During 2000, International sold most of its remaining U.S. community
newspaper properties, for total proceeds of approximately US$215 million. In
connection with those sales, to satisfy a closing condition, International, Lord
Black and three senior executives entered into non-competition agreements with
the purchasers to which each agreed not to compete directly or indirectly in the
United States with the United States businesses sold to purchasers for a fixed
period, subject to certain limited exceptions, for aggregate consideration paid
in 2001 of US$0.6 million. These amounts were in addition to the aggregate
consideration paid in respect of these non-competition agreements in 2000 of
US$15 million. International's independent directors approved the terms of these
payments. Included in these dispositions during 2000 International sold four
U.S. community newspapers for an aggregate consideration of US $38.0 million
($56.5 million) to Bradford Publishing Company, a company formed by a former
U.S. Community Group executive and in which some of International's directors
are shareholders. The terms of this transaction were approved by the independent
directors of International.
International issued to a subsidiary of the Company in connection with the
1995 Reorganization in which International acquired the Company's interest in
The Telegraph and Southam, 739,500 shares of Series A preferred stock. The
Series A preferred stock was subsequently exchanged for Series D preferred
stock. During 1998, 408,551 shares of Series D preferred stock were converted
into 2,795,165 shares of Class A common stock. In February 1999, 196,823 shares
of Series D preferred stock were redeemed for cash of US$19.4 million. In May
1999, the remaining 134,126 shares of Series D preferred stock were converted
into 134,126 shares of Series E preferred stock. In September 2001, 40,920
shares of Series E preferred stock were redeemed for cash of US$3.8 million. The
shares of Series E preferred stock were redeemable in whole or in part, at any
time and from time to time, subject to restrictions in International's credit
facilities, by International or by a holder of such shares. As described above,
the remaining Series E preferred stock was redeemed on March 10, 2003.
Pursuant to a January 1997 transaction wherein International acquired
Canadian publishing assets from the Company, International issued 829,409 shares
of Series C preferred stock. The stated value of each share was $108.51. On June
1, 2001, International converted all the Series C preferred stock at the
conversion ratio of 8.503 shares of Class A common stock per share of Series C
preferred stock into 7,052,464 shares of Class A common stock. On September 5,
2001, International purchased for cancellation, from the Company, the 7,052,464
shares of Class A common stock for a total cost of US$92.2 million or US$13.07
per share which represented 98% of the September 5, 2001 closing price.
International has reviewed its procedures for ensuring that transactions
with affiliates of Publishing (other than its subsidiaries) comply with the
covenants under its debt instruments existing prior to the December 2002
refinancing, including the indentures governing outstanding debt securities.
Based on this review, International has determined that in one related-party
transaction, although International satisfied the requirement to obtain the
approval of the independent directors of International's Board of Directors that
the transaction was being undertaken on an arm's length basis, International did
not obtain a fairness opinion although the transaction exceeded the relevant
threshold for delivering such an opinion by US$23 million. In light of the
various intercompany transactions and arrangements within the Hollinger group
and the related party transactions that have occurred from time to time in the
past and may occur in the future, International intends to strengthen its
controls for monitoring compliance with those covenants under the 9% Senior
Notes and other debt instruments by which International, Publishing and our
other subsidiaries are bound that are applicable to such transactions and
arrangements.
Lord Black controls Ravelston and, through Ravelston and its subsidiaries,
together with his associates, he exercises control or direction over 78.2% of
our outstanding retractable common shares.
RIGHTS OF FIRST REFUSAL
Ravelston has rights of first refusal in respect of any retractable common
shares of the Company that may be issued on exercise of options held to acquire
retractable common shares should the holders decide to exercise their options
and dispose of the retractable common shares.
PRINCIPAL AGREEMENTS WITH INTERNATIONAL
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Services Agreements. Two Services Agreements govern the provision of
certain advisory, consultative, procurement and administrative services to
International and its subsidiaries by RMI. Services provided include, among
other things, strategic advice and planning and financial services (including
advice and assistance with respect to acquisitions) and assistance in
operational matters. The Services Agreements will be in effect until terminated
by either party under certain specified circumstances. The Services Agreements
may be terminated by either party giving 180 days notice. Payments by
International and its subsidiaries made pursuant to the Services Agreements are
subject to the review and approval of the Audit Committee of the Board of
Directors of International.
Business Opportunities Agreement. The Business Opportunities Agreement
provides that International will be the Company's principal vehicle for engaging
in and effecting acquisitions in newspaper businesses and in related media
businesses in the United States, Israel and, through The Telegraph, the European
Community, Australia and New Zealand (the "Telegraph Territory"). The Company
has reserved to itself the ability to pursue newspaper and all media acquisition
opportunities outside the United States, Israel and the Telegraph Territory, and
media acquisition opportunities unrelated to the newspaper business in the
United States, Israel and the Telegraph Territory. The Business Opportunities
Agreement does not restrict newspaper companies in which the Company has a
minority investment from acquiring newspaper or media businesses in the United
States, Israel or the Telegraph Territory, nor does it restrict subsidiaries of
the Company from acquiring up to 20% interests in publicly held newspaper
businesses in the United States. The Business Opportunities Agreement will be in
effect for so long as the Company holds at least 50% of the voting power of
International, subject to termination by either party under specified
circumstances. The Company assigned its rights and obligations under the
Business Opportunities Agreement to a wholly-owned subsidiary on September 22,
1997 with the consent of International.
Co-operation Agreement. In connection with the listing of The Telegraph's
shares on the London Stock Exchange in July 1992, the Company and The Telegraph
entered into the Co-operation Agreement which sets forth the basis upon which
the Company and The Telegraph will divide their respective newspaper and other
media interests world-wide. Under this agreement, The Telegraph and the Company
have agreed not to engage in, or hold a significant interest in an enterprise
engaging in, the newspaper, magazine, radio or television business where the
other has existing operations, except in specified circumstances. For purposes
of this agreement, The Telegraph's areas of operation are the United Kingdom,
the rest of the European Union, Australia and New Zealand; the Company's areas
of operation are the United States, Canada, the Caribbean and Israel.
International, which assumed the Company's position under the Co-operation
Agreement in 1995, has agreed not to violate the Co-operation Agreement.
RELATED PARTY INDEBTEDNESS
The Company and its subsidiaries have amounts due to related parties of $79.7
million and $45.9 million as at December 31, 2002 and 2001 respectively.
Included in these amounts are unsecured demand loans and advances, including
accrued interest owing to Ravelston of $52.2 million and $32.2 million as at
December 31, 2002 and 2001, respectively, which were borrowed to partially fund
the Company's operating costs, including interest and preference share dividend
obligations. The loans bear interest at the bankers' acceptance rate plus 3.75%
per annum or 6.68% at December 31, 2002. In addition, International owes $5.0
million and $13.7 million at December 31, 2002 and 2001, respectively, to
Ravelston or RMI in connection with fees payable pursuant to the Services
Agreements as noted below. The amounts due to related parties at December 31,
2002 also include $22.5 million owing to RMI in connection with the assumption
by RMI, as a result of its purchase of NP Holdings (as noted below), of a
liability of $22.5 million owing to CanWest. As at December 31, 2002, this
amount is due on demand and is non-interest bearing.
On July 11, 2000, International loaned US$36.8 million to a subsidiary of the
Company in connection with the cash purchase by the Company of HCPH Co. Special
shares. The loan is payable on demand and to December 31, 2001, interest was
payable at the rate of 13% per annum at which time, with the approval of the
independent directors, it was changed to LIBOR plus 3% per annum. This loan,
together with accrued interest, totaled US$45.8 million at December 31, 2002. On
March 10, 2003, prior to the closing of the offering of 117/8% Senior Secured
Notes, International repurchased for cancellation, from NB Inc., 2,000,000
shares of Class A common stock at US$8.25 per share for total proceeds of $24.2
million (US $16.5 million) and redeemed, from NB Inc., pursuant to a redemption
request, all of the 93,206 outstanding shares of Series E redeemable convertible
preferred stock of International at the fixed redemption price of $146.63 per
share for total proceeds of $13.6 million (US$9.3 million). The proceeds from
the repurchase and redemption were used to repay US$25.4 million of the loan
resulting in the net outstanding debt due to International of approximately
$29.9 million (US$20.4 million) as of March 10, 2003. The remaining
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debt bears interest at 14.25% or, if paid in additional notes, 16.5% and is
subordinated to the Company's Senior Secured Notes (so long as the Senior
Secured Notes are outstanding), guaranteed by Ravelston and secured by certain
assets of Ravelston. Following a review by a special committee of the Board of
Directors of International, comprised entirely of independent directors, of all
aspects of the transaction relating to the changes in the debt arrangements with
NB Inc. and the subordination of this remaining debt, the special committee
approved the new debt arrangements, including the subordination.
Effective April 30, 2003, US$15.7 million principal amount of subordinated debt
owing to International by NB Inc. was transferred by International to HCPH Co.,
and subsequently transferred to RMI by HCPH Co. in satisfaction of a
non-interest bearing demand loan due from HCPH Co. to RMI. After the transfer,
NB Inc.'s debt to International is approximately US$4.7 million and NB Inc.'s
debt to RMI is approximately US$15.7 million. The debts owing by NB Inc. to RMI
and by NB Inc. to International each bears interest at the rate of 14.25% if
interest is paid in cash and 16.50% if it is paid in kind except that RMI has
waived its right to receive interest until further notice. The debts are
subordinated to the Senior Secured Notes for so long as the Senior Secured Notes
are outstanding, and that portion of the debt due by NB Inc. to International is
guaranteed by Ravelston and the Company. International entered into a
subordination agreement with the Company and NB Inc. pursuant to which
International has subordinated all payments of principal, interest and fees on
the debt owed to it by NB Inc. to the payment in full of principal, interest and
fees on the Senior Secured Notes, provided that payments with respect to
principal and interest can be made to International to the extent permitted in
the indenture governing the Senior Secured Notes. RMI has agreed to be bound by
these subordination arrangements with respect to the debt owed from NB Inc. to
RMI.
In response to the 1998 issuer bid, all options held by executives were
exercised. As at December 31, 2002, included in accounts receivable is $5.8
million (2001-$5.8 million) due from executives, which bears interest at the
prime rate plus 1/2%. The receivables are fully secured by a pledge of the
shares held by the executives.
1n 1999, executive-controlled companies invested in the Partnership. As at
December 31, 2002, included in accounts receivable is $0.4 million (2001-$0.4
million) due from these companies, which bears interest at the prime rate plus
1/2%. The receivables are partially secured by a pledge of the units held in the
Partnership.
Included in Other Assets at December 31, 2002 is $6.5 million (US$4.1 million)
owing to International from Bradford Publishing Company ("Bradford"), a company
in which certain of the Company's and International's directors are significant
shareholders. Such amount represents the present value of the remaining amounts
owing under a non-interest bearing note receivable granted to International in
connection with a non-competition agreement entered into on the sale of certain
operations to Bradford during 2000. The amount receivable is unsecured, due over
the period to 2010 and is subordinated to Bradford's lenders.
Included in Other Assets at December 31, 2002 is $7.7 million (US$4.9 million)
owed by Horizon Publications Inc. ("Horizon"), a company controlled by certain
members of the Board of Directors of International and the Company. Such amount
represents the unpaid purchase price payable to International in connection with
the sale of certain operations to Horizon during 1999. The loan receivable is
unsecured, bears interest at the lower of LIBOR plus 2% and 8% per annum and is
due in 2007.
During 2002, the Company paid to Horizon a management fee in the amount of
$0.3 million in connection with certain administrative services provided by
Horizon. The fee was approved by International's independent directors.
ITEM 8. FINANCIAL INFORMATION
A. CONSOLIDATED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION
See Item 18. Pages F1-F79
B. DIVIDEND DISTRIBUTION POLICY
The Company is an international holding company and its assets consist
primarily of investments in its subsidiaries and affiliated companies. As a
result, the Company's ability to meet its future financial obligations, on a
non-consolidated basis, including the payment of dividends, is dependent upon
the availability of cash flows
72
principally from International through dividends, from RMI under the Support
Agreement, and other payments. International and the Company's other
subsidiaries and affiliated companies are under no obligation to pay dividends.
International's ability to pay dividends on its common stock may be limited as a
result of its dependence on the receipt of dividends and other receipts
primarily from Publishing. Publishing and its principal United States and
foreign subsidiaries are subject to statutory restrictions and restrictions in
debt agreements that limit their ability to pay dividends. Under the Support
Agreement, RMI is required to contribute amounts to the Company with respect to
its dividend obligations under the Series II Preference Shares and Series III
Preference Shares, but RMI is not required to contribute any amounts in respect
of dividends on the retractable common shares.
Under corporate law, the Company is not required to pay any dividends or
redeem any of its shares in certain circumstances, including if the Company's
liquidity would be unduly impaired as a consequence. In addition, there are
restrictions under the indenture governing the Company's Senior Secured Notes on
the Company's ability to pay dividends on its outstanding shares.
The following is a summary of the Company's dividend record for the last
three fiscal years. On December 10, 2002, the Company paid (i) a cash dividend
of $0.05 per retractable common share and (ii) a stock dividend of 0.013334 of a
retractable common share for each retractable common share held as at November
26, 2002. On March 10, 2003, the Company paid (i) a cash dividend of $0.05 per
retractable common share and (ii) a stock dividend of 0.018182 of a retractable
common share, for each retractable common share held as at February 24, 2003. On
April 9, 2003, the Company declared a stock dividend of 0.02961 of a retractable
common share, which was paid on June 10, 2003 to shareholders of record on May
27, 2003. Prior to these dividends, the Company had paid regular quarterly cash
dividends of $0.15 per retractable common share for the period March 10, 2000 to
September 10, 2002.
Each Series II Preference Share entitles the holder to a dividend equal to
the amount of any dividend on 0.46 of a share of Class A common stock of
International (less any U.S. withholding tax thereon payable by the Company or
its subsidiaries). In the first quarter of 2003, the Company paid dividends of
$0.033545958 per Series II Preference Share. In the first quarter of 2002, the
Company paid dividends of $0.09554099 per Series II Preference Share; in the
second quarter of 2002, the Company paid dividends of $0.07644098 per Series II
Preference Share; in the third quarter of 2002, the Company paid dividends of
$0.07391001 per Series II Preference Share; and in the fourth quarter of 2002,
the Company paid dividends of $0.03464300 per Series II Preference Share.
Since their issue in 1999, the Company has paid regular quarterly dividends
of $0.175 per Series III Preference Share. Shareholders of record at the close
of business on April 22, 2003 will be entitled to receive the dividend of $0.175
per Series III Preference Share which has been declared payable on May 6, 2003
to shareholders of record at the close of business on such date.
ITEM 9. THE OFFER AND LISTING
A. LISTING
The retractable common shares, Series II Preference Shares and Series III
Preference Shares of the Company are listed on the Toronto Stock Exchange under
the symbols "HLG.C", "HLG.PR.B" and "HLG.PR.C", respectively. The following
table sets forth the range of high and low sale prices for each class of stock
as reported on the Toronto Stock Exchange during the five most recent years,
including quarterly information for the two most recent years and monthly
information for the past six months.
On June 12, 2003, the closing price of the Series III Preference Shares on
the Toronto Stock Exchange was $ 7.50.
ITEM 10. ADDITIONAL INFORMATION
Interested directors must disclose as to the nature and extent of said
directors' material interest at the time and in the manner provided by the
Canadian Business Corporations Act. The directors shall be paid such
remuneration as the directors determine from time to time by resolution. The
majority of directors may decide upon the amount of such remuneration.
A. SHARE CAPITAL
Not applicable
B. MEMORANDUM AND ARTICLES OF ASSOCIATION
DESCRIPTION OF SHARES
The Company's issued capital stock consists of Series II preference
shares, Series III preference shares and retractable common shares, each of
which is retractable at the option of the holder. On retraction, the Series II
preference shares are exchangeable into a fixed number of shares of the
Company's Class A common stock of International or, at the Company's option,
cash of equivalent value. The Series III preference shares are currently
retractable at the option of the holder for a retraction price payable in cash,
for a cash payment of $9.50 per share and provide for redemption on April 30,
2004 at $10.00 per share. The retractable common shares are retractable at any
time at the option of the holder at their retraction price (which is fixed from
time to time) in exchange for the Company's shares of International Class A
common stock of equivalent value or, at the Company's option, cash.
The holders of common shares shall be entitled to receive notice of and to
attend all meetings of shareholders of the Company, other than separate meetings
of holders of another class or series of the Company, and to vote at any such
meeting on the basis of one vote for each common share held. Except as required
by law, the holders of the Series II Preference Shares as a series shall not be
entitled as such to receive notice of, to attend, or to vote at any meeting of
the shareholders of the Company. The holders of Series III Preference Shares
shall not be entitled to vote, except as required by law or unless and until the
Company shall have failed to pay the whole amount of eight quarterly dividends
on the Series III Preference Shares, in which case, and only for so long
thereafter as any dividends on the Series III Preference Shares remain in
arrears, the holders of those shares shall be entitled to one vote per share of
the Series III Preference Shares for the election of two (2) directors to be
elected in conjunction with the holders of any other series of preference shares
which may have a similar right.
The rights, privileges, restrictions and conditions attaching to the
Preference Shares as a class may be added to, changed or removed but only with
the affirmative vote of at least 66 2/3% of the votes cast at a meeting of the
holders of Preference Shares duly called for that purpose.
The annual meeting of shareholders shall be held at the registered office
of the Company or at such other place within Canada as the directors may
determine, or at any place outside Canada specified in the articles of the
Company or agreed to by all the shareholders entitled to vote at that meeting,
at such time in each year as the directors may determine. Notice of the time and
place of a meeting of shareholders shall be given not less than 21 days nor more
than 60 days before the meeting to each holder of shares carrying voting rights
at the close of business on the record date for notice. The only persons
entitled to be present at a meeting of shareholders are those
76
entitled to vote, the directors, the auditor and other persons who are entitled
or required under any provision of the Canadian Business Corporations Act or the
articles of bylaws of the Company to attend. Any other person may be admitted
only on the invitation of the chair of the meeting or with the consent of the
meeting.
C. MATERIAL CONTRACTS
SENIOR SECURED NOTES
In March 2003, we issued US$120,000,000 of 11-7/8% Senior Secured Notes
due 2011. The Senior Secured Notes rate equally with our senior credit
facilities and are secured by a pledge of the Company's right under the support
agreement between RMI and the Company and are guaranteed by RMI and NB Inc. The
guarantees are secured (i) by NB Inc., by a first priority lien in 10,108,302
shares of Class A common stock and 14,990,000 shares of Class B common stock of
International that are held by the Company and NB Inc. and (ii) by RMI, by a
pledge by RMI of its rights under (a) the services agreement between
International and Ravelston and (b) the services agreement between HCPH Co. and
Ravelston, in each case as such agreements were assigned by Ravelston to RMI in
July 2002. The Senior Secured Notes contain customary covenants including, but
not limited to, covenants with respect to:
- granting liens;
- making restricted investments and restricted payments;
- sale leasebacks;
- mergers and amalgamations;
- sales of assets;
- transactions with affiliates;
- issuances of guaranties of indebtedness;
- limitations on issuance and sale of capital stock; and
- limitations on RMI incurrence of additional debt.
These covenants are subject to important qualifications and limitations
set forth in the Indenture, which is filed as an exhibit to this Annual Report.
REGISTRATION RIGHTS AGREEMENT
Pursuant to the Registration Rights Agreement, the Company agreed that
holders of the original Notes would be entitled to exchange the original Senior
Secured Notes for registered notes (the "Exchange Notes") with substantially
identical terms. The Exchange Notes, when issued, will be governed by the
Indenture. The Registration Rights Agreement provided that the Company would:
(i) file a registration statement by June 30, 2003 regarding the exchange of the
Original Notes for Exchange Notes; (ii) use its best efforts to have the
registration statement declared effective by November 7, 2003; and (iii)
complete the exchange offer within 30 days after the registration statement is
declared effective.
SUPPORT AGREEMENT
In March 2003, RMI and the Company entered into a support agreement.
Under the agreement, RMI is required to make an annual support payment in cash
to the Company on a periodic basis by way of contributions to capital (without
the issuance of additional shares) or subordinated debt. The annual support
payment will be equal to the greater of (1) the negative net cash flow of the
Company (as defined in the support agreement) for the relevant period, and (2)
US$14.0 million per year (less any payments of management services fees by
International directly to the Company or NB Inc. and any excess in the net
dividend amount that the Company and NB Inc. receive from
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International over US$4.65 million per year), in either case as reduced by any
permanent repayment of debt owing by Ravelston to the Company.
CONTRIBUTION AGREEMENT
In March 2003, Ravelston, RMI and the Company entered into a
contribution agreement. The contribution agreement sets out the manner in which
RMI will make the support payments described above to the Company, and provides
that such payments will be made by way of contributions to capital (without the
issuance of additional shares) or by way of loan represented by subordinated
debt, depending on specified circumstances. Ravelston guaranteed RMI's
obligations under the contribution agreement and its obligations to make support
payments to the Company under the support agreement. The Company pledged the
benefit of this guarantee as security for the Company's obligations under
certain permitted indebtedness (as such term is defined in the indenture
governing the Senior Secured Notes). The contribution agreement will terminate
upon the repayment in full of the Senior Secured Notes, the termination of the
support agreement or if the Company ceases to be a public company. The
contribution agreement, including the guarantee thereunder, may be amended or
terminated without the consent of the trustee for the Senior Secured Notes or
holders of the Senior Secured Notes.
SERVICES AGREEMENTS
RMI provides services to International and HCPH Co. pursuant to two
separate Services Agreements, each of which was assigned to RMI on July 5, 2002.
These Services Agreements govern the provision by RMI of certain advisory,
consultative, procurement and administrative services to International and HCPH
Co. The services to be provided pursuant to the Services Agreements include,
among other things, strategic advice and planning and financial services
(including advice and assistance with respect to acquisitions), and assistance
in operational matters. Each services agreement will be in effect until
terminated by either party under certain specified circumstances. The Services
Agreements may be terminated upon 180 days notice by either party.
The services fees are generally determined on an annual basis and are
subject to negotiation with and the approval of an independent committee of the
board of directors of International. The aggregate amount of the annual services
fees payable to Ravelston (and, after its assignment of the Services Agreements
to RMI in July 2002, to RMI) for 2002 was approximately $23.9 million. On
February 26, 2003, the independent committee of the board of International
approved an aggregate annual services fee for 2003 that was at a comparable
level to 2002.
D. EXCHANGE CONTROLS
There are no limitations on the right of non-residents of Canada or foreign
owners to hold or vote the Company's shares of common stock or any of its other
securities imposed by Canadian or provincial laws or any of the Company's
constating documents.
Except for the Investment Canada Act (Canada) and Canadian withholding
taxes described in "Taxation--Canadian Federal Income Tax Considerations for
United States Investors", there are no Canadian federal or provincial laws,
decrees or regulations that restrict the export or import of capital or affect
the remittance of dividends, interest or other payments to holders of any of the
Company's securities who are not residents of Canada.
E. TAXATION
BECAUSE CANADIAN AND UNITED STATES TAX CONSEQUENCES MAY DIFFER FROM ONE
HOLDER TO THE NEXT, THE DISCUSSION SET OUT BELOW DOES NOT PURPORT TO DESCRIBE
ALL OF THE TAX CONSIDERATIONS THAT MAY BE RELEVANT TO YOU AND YOUR PARTICULAR
SITUATION. ACCORDINGLY, YOU ARE ADVISED TO CONSULT YOUR OWN TAX ADVISOR AS TO
THE UNITED STATES AND CANADIAN FEDERAL, PROVINCIAL, STATE AND OTHER TAX
CONSEQUENCES OF INVESTING IN THE COMPANY'S COMMON SHARES. THE STATEMENTS OF
UNITED STATES AND CANADIAN TAX LAW SET OUT BELOW ARE BASED ON THE LAWS AND
INTERPRETATIONS IN FORCE AS OF THE DATE OF THIS ANNUAL REPORT, AND ARE SUBJECT
TO ANY CHANGES OCCURRING AFTER THAT DATE.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS FOR UNITED STATES INVESTORS
The statements of law and legal conclusions regarding the material Canadian
federal income tax considerations applicable to a person who is a U.S. holder
contained in "Canadian Federal Income Tax Considerations for United
78
States Investors" are the opinion of Torys LLP, counsel for the Company. In this
summary, a "U.S. holder" means a person who, for the purposes of the
Canada-United States Income Tax Convention (1980) (the "Convention"), is a
resident of the United States and not of Canada and who, for the purposes of the
Income Tax Act (Canada) (the "Canadian Act"):
- deals at arm's length with the Company;
- is the beneficial owner of the Company's common shares;
- holds the Company's common shares as capital property;
- does not use or hold and is not deemed to use or hold the Company's common
shares in the course of carrying on a business in Canada; and
- is not an insurer for whom the Company's common shares constitute
designated insurance property.
The Company's common shares will generally be capital property to a U.S.
holder unless it is held in the course of carrying on a business, in an
adventure in the nature of trade or as "mark-to-market" property for purposes of
the Canadian Act. This summary does not apply to a U.S. holder that is a
"financial institution" for purposes of the mark-to-market rules contained in
the Canadian Act.
This summary is based on the current provisions of the Canadian Act and the
regulations in force on the date of this Annual Report, the Convention,
counsel's understanding of the current published administrative and assessing
practices of the Canada Customs and Revenue Agency, and all specific proposals
to amend the Canadian Act and the regulations announced by the Canadian Minister
of Finance prior to the date of this Annual Report.
This summary is not exhaustive and, except for the proposed amendments to
the Canadian Act, does not take into account or anticipate changes in the law,
whether by judicial, governmental or legislative action or interpretation, nor
does it take into account tax legislation or considerations of any province or
territory of Canada. Because Canadian tax consequences may differ from one
holder to the next, this summary does not purport to describe all of the tax
considerations that may be relevant to you and your particular situation. You
are advised to consult your own tax advisor.
DIVIDENDS
Dividends paid or deemed to be paid on the Company's common shares are
subject to non-resident withholding tax under the Canadian Act at the rate of
25%, although this rate may be reduced by the provisions of an applicable income
tax treaty. Under the Convention, U.S. holders will generally be subject to a
15% withholding tax on the gross amount of dividends the Company pays on its
common shares. Also pursuant to the Convention, in the case of a U.S. holder
that is a U.S. corporation which beneficially owns at least 10% of our voting
stock, the applicable rate of withholding tax on dividends will generally be
reduced to 5%.
DISPOSITIONS
A U.S. holder will not be subject to tax under the Canadian Act in respect
of a capital gain arising on a disposition or deemed disposition of the
Company's common shares, including common shares that the Company purchases,
unless (1) the common shares constitute "taxable Canadian property" within the
meaning of the Canadian Act to the U.S. holder, and (2) the capital gain is not
exempt from taxation in Canada under the Convention. Generally, the Company's
common shares will not constitute taxable Canadian property of a U.S. holder
provided the common shares are listed on a prescribed stock exchange for
purposes of the Canadian Act, which includes the TSX, and the U.S. holder, alone
or together with persons with whom the U.S. holder does not deal at arm's
length, has not owned 25% or more of the issued shares of any class or series of
the Company's capital stock at any time within five years preceding the date of
disposition. Under the Convention, capital gains derived by a U.S. holder from
the disposition of the Company's common shares in circumstances where it
constitutes taxable Canadian property to the U.S. holder generally will not be
taxable in Canada unless the value of the common shares is derived principally
from real property situated in Canada.
79
A disposition or deemed disposition of the Company's common shares by a
U.S. holder in respect of which the Company's common shares is taxable Canadian
property and which is not exempt from capital gains taxation in Canada under the
Convention will give rise to a capital gain (or a capital loss) equal to the
amount, if any, by which the proceeds of disposition, less the reasonable costs
of disposition, exceed (or are less than) the adjusted cost base of the common
shares to the U.S. holder at the time of the actual or deemed disposition.
Generally, one-half of any capital gain realized will be required to be included
in income as a taxable capital gain and one-half of any capital loss will be
deductible, subject to certain limitations, against taxable capital gains in the
year of disposition or the three preceding years or any subsequent year in
accordance with the detailed provisions in the Canadian Act.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material United States federal income tax
considerations arising from the acquisition, ownership and disposition of the
Company's common shares by a United States holder. A United States holder is:
- an individual citizen or resident of the United States, including an alien
individual who is a lawful permanent resident of the United States or
meets the "substantial presence" test under Section 7701(b) of the
Code (as defined below);
- a corporation or other entity that is taxable as a corporation, created or
organized in or under the laws of the United States or any of its
political subdivisions;
- an estate the income of which is subject to United States federal
income taxation regardless of its source;
- a trust subject to the primary supervision of a United States court, and
one or more United States persons have the authority to control all
substantial decisions of the trust; or
- any other person that is subject to United States federal income tax on
his, her or its worldwide income.
This summary deals only with common shares that are held as a capital asset
by a United States holder, and does not address tax considerations applicable to
United States holders that may be subject to special tax rules, such as:
- a broker-dealer, a dealer in securities or foreign currency, or a
financial institution;
- a pass-through entity (e.g., a partnership) or an investor who holds the
Company's common shares through a pass-through entity (e.g., a partner in
a partnership);
- an insurance company;
- a tax-exempt organization;
- a United States holder subject to the alternative minimum tax provisions
of the Code;
- a United States holder holding the Company's common shares as part of a
hedge, straddle or other risk reduction or constructive sale transaction;
- a United States expatriate; or
- a nonresident alien or foreign corporation subject to net-basis United
States federal income tax on income or gain derived from the common shares
because such income or gain is effectively connected with the conduct of a
United States trade or business;
- United States holders that own, or are deemed for United States tax
purposes to own, 10% or more of the total combined voting power of all
classes of the Company's voting stock;
- United States holders that have a principal place of business or "tax
home" outside the United States; or
- United States holders whose "functional currency" is not the United States
dollar.
The discussion below is based upon the provisions of the United States
Internal Revenue Code of 1986 (the "Code"), as amended, and regulations, rulings
and judicial decisions as of the date of this Annual Report; any authority may
be repealed, revoked or modified, perhaps with retroactive effect, so as to
result in federal income tax consequences different from those discussed below.
The discussion below also is based upon representations that we have made, which
in turn rely upon significant assumptions as to facts and circumstances in the
future.
80
DISTRIBUTIONS
Distributions that the Company makes with respect to its common shares,
other than distributions in liquidation and distributions in redemption of stock
that are treated as exchanges, will be treated as a dividend to the extent that
the distributions do not exceed the current and accumulated earnings and profits
of the Company. The amount treated as a dividend will include any Canadian
withholding tax deducted from the distribution. Under current law, certain
dividends received by individuals are taxed at lower rates than items of
ordinary income. Distributions, if any, in excess of the current and accumulated
earnings and profits of the Company will constitute a nontaxable return of
capital to a United States holder and will be applied against and reduce the
United States holder's tax basis in the holder's common shares. To the extent
that these distributions exceed the tax basis of the United States holder in its
common shares, the excess generally will be treated as capital gain.
In the case of distributions in Canadian dollars, the amount of the
distributions generally will equal the United States dollar value of the
Canadian dollars distributed, determined by reference to the spot currency
exchange rate on the date of receipt of the distribution by the United States
holder, and the United States holder will realize separate foreign currency gain
or loss only to the extent that gain or loss arises on the actual disposition of
foreign currency received. Any foreign currency gain or loss generally will be
treated as ordinary income or loss.
Dividends that the Company pays will not be eligible for the
dividends-received deduction generally allowed to United States corporations
under the Code.
Subject to the limitations set forth in the Code, the Canadian tax withheld
or paid with respect to distributions on the Company's common shares generally
may be credited against the U.S. federal income tax liability of a United States
holder if such United States holder makes an appropriate election for the
taxable year in which such taxes are paid or accrued. Alternatively, a United
States holder who does not elect to credit any foreign taxes paid during the
taxable year may deduct such taxes in such taxable year subject to certain
requirements. Because the foreign tax credit provisions of the Code are very
complex, United States holders should consult their own tax advisors with
respect to the claiming of foreign tax credits.
SALE OR EXCHANGE
Subject to the discussion of the passive foreign investment company rules
below, upon a sale or exchange of common shares of the Company, a United States
holder will recognize gain or loss in an amount equal to the difference between
the amount realized on the sale or exchange and the United States holder's
adjusted tax basis in the common shares. Any gain or loss recognized will be
capital gain or loss and will be long-term capital gain or loss if the United
States holder has held the Company's common shares for more than one year. Under
current law, long-term capital gains of individuals are generally taxed at lower
rates than items of ordinary income.
PASSIVE FOREIGN INVESTMENT COMPANY
The Code contains special rules for the taxation of United States holders
who own shares in a "passive foreign investment company" (a "PFIC"). A PFIC is a
non-U.S. corporation that meets an income test and/or an asset test in any
taxable year. The income test is met if 75% or more of the corporation's gross
income is "passive income" (generally, dividends, interest, rents, royalties,
and gains from the disposition of assets producing passive income, such as
shares of stock, subject to certain exceptions). The asset test is met if at
least 50% of the average value of the corporation's assets produce, or are held
for the production of, passive income. For purposes of the PFIC rules, a
non-U.S. corporation that owns at least 25% of the stock of another corporation
is treated as if it held its proportionate share of the assets of the other
corporation and received directly its proportionate share of the income of the
other corporation.
If the Company is classified as a PFIC, a United States holder may be
subject to increased tax liability and an interest charge in respect of gain
recognized on the sale of such United States holder's common shares and upon the
receipt of certain distributions. Alternatively, if the Company complies with
certain information reporting requirements, a United States holder may elect to
treat the Company as a "qualified electing fund" (a "QEF"), in which case such
United States holder would be required to include in income, in each year that
the Company is a PFIC, its pro rata share of the Company's ordinary earnings and
net capital gains, whether or not distributed. However, the Company does not
currently intend to provide the information necessary to permit a United States
holder to make the QEF election. As another alternative to the foregoing rules,
if the Company's shares constitute "marketable stock" under applicable Treasury
regulations, a United States holder may make a mark-to-market election to
include in income each year as ordinary income an amount equal to the increase
in value of the United States holder's common shares for that year or to claim a
deduction for any decrease in value (but only to the extent of previous
mark-to-market gains).
As no assurance can be provided as to whether the Company is a PFIC or will
be a PFIC in the future, United States holders should consult their own tax
advisors with respect to the United States federal income tax consequences under
the PFIC rules and its potential application to their particular situation.
BACKUP WITHHOLDING TAX
Backup withholding tax at a rate of 28% may apply to payments of dividends
and to payments of proceeds of the sale or other disposition of the Company's
common shares within the United States by a non-corporate United
81
States holder, if the holder fails to furnish a correct taxpayer identification
number or otherwise fails to comply with applicable requirements of the backup
withholding tax rules. Backup withholding tax is not an additional tax and
amounts so withheld may be refunded or credited against a United States holder's
United States federal income tax liability, provided that correct information is
provided to the Internal Revenue Service.
F. DOCUMENTS ON DISPLAY
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith file
reports and other information with the SEC. These reports and other information
may be inspected and copied at prescribed rates from the public reference
facilities maintained by the SEC at its principal offices at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The public may
obtain information on the operation of the public reference room by calling the
SEC at 1-800-SEC-0330. Such material may also be accessed electronically by
means of the SEC's website on the Internet at http://www.sec.gov.
All documents that we file pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Annual Report shall be deemed to
be incorporated in this Annual Report by reference and to be a part hereof from
the respective dates of the filing of such documents. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Annual
Report to the extent that a statement contained herein or in any subsequently
filed document which also is, or is deemed to be, incorporated by reference
herein, modifies or supersedes such earlier statement. Any statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Annual Report.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Annual Report has been delivered, upon written or oral
request of any such person, a copy of any and all of the documents referred to
above which have been or may be incorporated in this Annual Report by reference,
other than exhibits to such documents which are not specifically incorporated by
reference into such documents. Requests for such copies should be directed to
the Chief Financial Officer, Hollinger Inc., at 10 Toronto Street, Toronto,
Canada M5C 2B7, telephone (416) 363-8721.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
NEWSPRINT. On a consolidated basis, newsprint expense in 2002 amounted to
$236.4 million and $316.2 million in 2001. Management believes that newsprint
prices may vary widely from time to time and could continue to show significant
price variations in the future. During the first half of 2001, newsprint prices
in North America were at their highest price per tonne since 1994 and 1995.
However, the recessional climate in 2001 caused a significant decline in
industry consumption and this, coupled with an abundant supply of competitively
priced newsprint, resulted in a downward trend in prices during the second half
of 2001. This downward trend has continued into 2002; however, there are
indications that prices on the spot market where the Chicago Group purchases its
newsprint may moderately increase from their current levels. In the United
Kingdom, average newsprint prices were less than the average prices paid in
2001. In the United Kingdom, the Company negotiates newsprint prices for
one-year periods. Rates negotiated for 2003 are about 7% lower than those for
2002. Operating divisions take steps to ensure that they have sufficient supply
of newsprint and have mitigated cost increases by adjusting pagination and page
sizes and printing and distributing practices. Based on levels of usage, during
the year ended December 31, 2002, a change in the price of newsprint of $50 per
tonne would increase or decrease the year-to-date net loss by approximately $4.6
million.
INTEREST RATES. At December 31, 2002, other than the $90.8 million
revolving credit and overdraft facility, the Company, on a non-consolidated
basis had no debt on which interest is calculated at floating rates. On March
10, 2003, the Company issued U.S. $120.0 million of Senior Secured Notes which
bear interest at a fixed rate of 11 7/8% and with part of the proceeds repaid
the $90.8 million amount outstanding under the revolving credit and overdraft
facility. Interest paid by International to the banks under the Total Return
Equity Swap was at floating rates. However, such amounts have been fully repaid
as of December 31, 2002. As a result of an interest rate swap entered into in
late December 2002, U.S.$265.0 million borrowings under Publishing's Senior
Credit Facility bear interest at fixed rates. Consequently, the borrowings under
Publishing's Senior Credit Facility are not exposed to fluctuations in interest
rates.
82
In January 2003, Publishing also purchased fixed to floating rate swaps for
U.S.$250.0 million principal amount of its U.S.$300.0 million 9% Senior Notes.
Each 1% change in interest rates will result in an increase or decrease of $3.9
million in interest expense to Publishing for which the impact on the Company's
net earnings will be $0.7 million.
FOREIGN EXCHANGE RATES. The majority of the Company's operating divisions
are outside Canada. As a result, the Company is vulnerable to changes in the
value of the Canadian dollar. Increases in the value of the Canadian dollar can
reduce the value of our foreign properties and declines can increase these
values. In the year ended December 31, 2002, the Company's operating income
(sales revenue less cost of sales and expenses and depreciation and
amortization) was $86.1 million in total. The U.K. Newspaper Group contributed
$74.8 million of operating income, the United States operations contributed
$51.5 million while the operating loss in Canada, including the Corporate Group,
totaled $40.2 million. Based on 2002 results and ownership levels and current
debt levels at December 31, 2002, a $0.05 change in the important foreign
currencies would have the following effect on the Company's reported net income
for the year ended December 31, 2002:
Currency Actual 2002 Average Net Income
-------- ------------------- ----------
Rate Effect
---- ------
United Kingdom...................................... 2.36/L $ 236,000
United States....................................... 1.57/U.S.$ $ 130,000
----------- -----------
The effects of changes in foreign exchange rates will also be affected by
many other factors, including earnings levels and amounts of borrowings in
various currencies.
In 2001, International sold participation interests in $756.8 million
principal amount of CanWest debentures to the Participation Trust at an exchange
rate of U.S. $0.6482 to each Canadian dollar, which translates into U.S.$490.5
million. At some time between May 15, 2003 and the maturity date of the CanWest
debentures, being November 15, 2010, International will be required to deliver
to the Participation Trust U.S.$490.5 million of the CanWest debentures at then
current exchange rates plus interest received. The actual date of delivery will
be established by noteholders of the Participation Trust. As noted below, up
until November 5, 2005, CanWest may elect to pay interest on the debentures in
kind or by the issuance of shares. At December 31, 2002, the liability to the
Participation Trust is US$575.7 million and the corresponding CanWest debentures
had a principal amount receivable of $888.2 million. Given that the CanWest
debentures are denominated in Canadian dollars, International entered into
forward foreign exchange contracts in 2001 to mitigate the currency exposure.
The foreign currency contracts required International to sell $666.6 million on
May 15, 2003 at a forward rate of U.S.$0.6423. In 2002, International sold
certain of its foreign currency contracts and subsequently entered into
additional foreign currency contracts. However, on September 30, 2002, all of
the outstanding contracts were unwound. During 2002 and 2001, the net loss
realized on the mark to market of both the obligation to the Participation Trust
and the hedge contract was $10.4 million and $0.7 million, respectively, and has
been included in net foreign currency losses in the consolidated statement of
earnings. This is net of cash received on the termination of the hedge of $9.9
million in 2002. The foreign exchange exposure associated with the Participation
Trust is no longer hedged, due to constraints under International's current debt
facilities.
At any time up to November 5, 2005, CanWest may elect to pay interest on
the debentures by way of additional CanWest debentures. International
anticipates that additional debentures will be received in the future as payment
in kind for the interest on the debentures. A $0.05 change in the U.S. dollar to
Canadian dollar exchange rate applied to the $888.2 million principal amount of
the CanWest debentures at December 31, 2002 would result in a U.S. $44.4 million
($70.2 million) change in the amount available to International for delivery to
the Participation Trust and a net loss or gain to the Company, after related tax
and minority interest, of $13.4 million.
On May 11, 2003, CanWest redeemed $265 million of the debentures of which
U.S.$159.8 million has been delivered to the Participation Trust and the balance
of US$27.6 million has been received by International and the Partnership, a
portion of which must be retained until November 4, 2010. This will reduce
International's obligation to the Participation Trust and hence its exposure to
changes in the U.S. dollar to Canadian dollar exchange rate.
INFLATION. During the past two years, inflation has not had a material
effect on International's newspaper business in the United States, United
Kingdom or Canada.
INTERNATIONAL SHARE PRICE. The Series II preference shares are exchangeable
at the holder's option for 0.46 of a share of International's Class A common
stock for each Series II preference share. The Company has the option to make a
cash payment of equivalent value on the redemption of any of the Series II
preference shares. The Series II preference shares represent a financial
liability of the Company and are recorded at their fair value, which will
fluctuate with the market price of International's Class A common stock. In
2002, such fluctuations had no impact
83
on the Company's net earnings as deferred unrealized losses/gains have been
designated as a hedge of the Company's investment in International common
shares. However, due to the March 2003 sale of International shares, in
settlement of amounts owing to International and the pledging of International
shares under the Trust Indenture for the Company's Senior Secured Notes, the
Series II preference shares will no longer be a hedge. As a result, beginning in
2003 the Series II preference shares will be marked to market for fluctuations
in International's share price and foreign exchange rates and unrealized
deferred gains in the amount of $11,983,000 as at December 31, 2002 will be
recognized in income. On December 31, 2002, the Series II preference shares were
retractable into 2,107,250 shares of Class A common stock of International.
Based on exchange rates as at December 31, 2002, each U.S.$1.00 increase from
the December 31, 2002 quoted market price of International's Class A common
stock, would result in an unrealized pre-tax loss of $3.3 million which must be
reflected as a charge against the Company's earnings.
COMPETITION. Revenues in the newspaper industry are dependent primarily
upon advertising revenues and paid circulation. Competition for advertising and
circulation revenue comes from the local and regional newspapers, radio,
broadcast and cable television, direct mail and other communications and
advertising media that operate in International's markets. The extent and nature
of such competition is, in large part, determined by the location and
demographics of the markets and the number of media alternatives in those
markets. Some of International's competitors are larger and have greater
financial resources than International does. In the past, newspapers which
compete in some of International's markets have chosen to reduce their cover
prices and/or decrease the price of bulk sales in efforts to increase their
circulation at the expense of International's newspapers. Price competition has
been particularly intense in the United Kingdom and in Chicago, Illinois in
recent years. These actions have in the past forced International to similarly
reduce International's cover prices and/or decrease the price of bulk sales,
which has a negative effect on its sales revenues and overall financial
performance. The Company may experience price competition from competing
newspapers and other media sources in the future that force us to make similar
reductions, which would again decrease its operating results and circulation
revenues. In addition, the use of alternative means of delivery, such as free
Internet sites, for news and other content has increased significantly in the
past few years. In the event that significant numbers of International's
customers choose to receive content using these alternative delivery sources
rather than newspapers, International may be forced to decrease the prices
International charges for newspapers or make other changes in the way
International operates, or International may face a long-term decline in
circulation, any or all of which may harm financial and operating performance.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
As of December 31, 2002, International's aggregate annual rental
payments under operating leases exceeded the amounts permitted under the
covenants to the Senior Credit Facility. International was advised by the
Administrative Agent of the Senior Credit Facility that the lenders agreed to
amend the Senior Credit Facility effective March 28, 2003, to increase the
amount permitted under the operating lease covenant and have agreed to a waiver
of any default or event of default in connection therewith. Based on the amended
covenant, International would have been in compliance as of December 31, 2002.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
None
ITEM 15. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
84
Our Chief Executive Officer and Chief Financial Officer have reviewed our
disclosure controls and procedures within 90 days prior to the filing of
this report. Based upon this review, these officers believe that our
disclosure controls and procedures are effective in ensuring that material
information related to the Company is made known to them by others within
the Company.
(b) Changes in Internal Controls.
There were no significant changes in our internal controls or in other
factors that could significantly affect these controls since the date of
our most recent evaluation.
PART III
ITEM 17. FINANCIAL STATEMENTS
Not applicable
85
ITEM 18. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
HOLLINGER INC.
Audited Consolidated Financial Statements
Report of KPMG LLP, Independent Auditors.................. F-2
Consolidated Balance Sheets as of December 31, 2001 and
2002................................................... F-4
Consolidated Statements of Earnings for the Year Ended
December 31, 2000, 2001 and 2002....................... F-5
Consolidated Statements of Deficit for the Years Ended
December 31, 2000, 2001 and 2002....................... F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 2001 and 2002....................... F-7
Notes to Consolidated Financial Statements................ F-8
F-1
AUDITORS' REPORT
To the Board of Directors of Hollinger Inc.
We have audited the consolidated balance sheets of Hollinger Inc. as at
December 31, 2001 and 2002 and the consolidated statements of earnings, deficit
and cash flows for each of the years in the three-year period ended December 31,
2002. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards and United States generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
2001 and 2002 and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 2002 in accordance with
Canadian generally accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
Toronto, Canada
April 1, 2003, except
as to note 29, which is /s/ KPMG LLP
as of June 19, 2003 Chartered Accountants
F-2
COMMENTS BY AUDITORS FOR U.S. READERS
ON CANADA -- U.S. REPORTING DIFFERENCES
In the United States, reporting standards for auditors require the addition
of an explanatory paragraph (following the opinion paragraph) when there is a
change in accounting principles that has a material effect on the comparability
of the Company's financial statements, such as the changes described in note 2,
or when there is a retroactive adjustment such as those described in note 26v),
to the consolidated financial statements as at December 31, 2001 and 2002 and
for each of the years in the three-year period ended December 31, 2002. Our
report to the shareholders dated April 1, 2003 is expressed in accordance with
Canadian reporting standards, which do not require a reference to such changes
in accounting principles in the auditors' report when the change is properly
accounted for and adequately disclosed in the financial statements.
Toronto, Canada /s/ KPMG LLP
April 1, 2003 Chartered Accountants
F-3
HOLLINGER INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
-----------------------
2001 2002
---------- ----------
(IN THOUSANDS OF
CANADIAN DOLLARS)
ASSETS
CURRENT ASSETS
Cash and cash equivalents (note 3).......................... $ 806,347 $ 188,852
Escrow deposits (note 10a))................................. -- 859,128
Accounts receivable......................................... 336,438 355,031
Prepaid expenses............................................ 17,604 28,499
Inventory................................................... 36,506 22,058
---------- ----------
1,196,895 1,453,568
INVESTMENTS (note 5)........................................ 259,435 210,145
CAPITAL ASSETS (note 6)..................................... 666,501 660,501
GOODWILL (note 7)........................................... 174,324 913,327
OTHER INTANGIBLE ASSETS (note 7)............................ 1,177,544 185,143
DEFERRED FINANCING COSTS AND OTHER ASSETS (note 8).......... 154,543 193,537
---------- ----------
$3,629,242 $3,616,221
========== ==========
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness (note 9).................................. $ 129,475 $ 90,810
Accounts payable and accrued expenses....................... 358,444 337,086
Amounts due to related parties (note 23d)).................. 45,919 79,655
Income taxes payable........................................ 463,853 476,387
Deferred revenue............................................ 65,627 67,612
Retractable preference shares (note 11)..................... -- 135,299
Deferred unrealized gain on retractable preference shares
(note 11a))............................................... -- 11,983
Senior Subordinated Notes due 2006 and 2007 (note 10a))..... -- 797,751
Current portion of long-term debt (note 10)................. 10,020 16,800
---------- ----------
1,073,338 2,013,383
LONG-TERM DEBT (note 10).................................... 1,341,606 974,770
RETRACTABLE PREFERENCE SHARES (note 11)..................... 147,472 --
DEFERRED UNREALIZED GAIN ON RETRACTABLE PREFERENCE SHARES
(note 11a))............................................... 7,670 --
FUTURE INCOME TAXES (note 18)............................... 486,937 375,479
OTHER LIABILITIES AND DEFERRED CREDITS (note 12)............ 109,761 130,648
---------- ----------
3,166,784 3,494,280
---------- ----------
MINORITY INTEREST........................................... 725,928 473,272
---------- ----------
SHAREHOLDERS' DEFICIENCY
Capital stock (note 13)..................................... 271,774 273,759
Deficit..................................................... (485,313) (605,145)
---------- ----------
(213,539) (331,386)
Equity adjustment from foreign currency translation (note
14)....................................................... (49,931) (19,945)
---------- ----------
(263,470) (351,331)
---------- ----------
$3,629,242 $3,616,221
========== ==========
Commitments (note 15)
Contingencies (note 16)
Subsequent events (notes 1, 9, 10a), 16d) and 29)
F-4
HOLLINGER INC.
CONSOLIDATED STATEMENTS OF EARNINGS
YEAR ENDED DECEMBER 31
----------------------------------------
2000 2001 2002
---------- ---------- ----------
(IN THOUSANDS OF CANADIAN DOLLARS
EXCEPT PER SHARE AMOUNTS)
REVENUE
Sales.............................................. $3,158,280 $1,822,060 $1,628,198
Investment and other income........................ 28,146 97,282 29,729
---------- ---------- ----------
3,186,426 1,919,342 1,657,927
---------- ---------- ----------
EXPENSES
Cost of sales and expenses......................... 2,586,183 1,730,108 1,453,894
Depreciation and amortization...................... 219,932 144,716 88,193
Interest on long-term debt......................... 219,970 122,701 92,625
Other interest..................................... 54,361 55,225 29,122
---------- ---------- ----------
3,080,446 2,052,750 1,663,834
---------- ---------- ----------
NET LOSS IN EQUITY-ACCOUNTED COMPANIES............... (14,115) (18,571) (1,233)
---------- ---------- ----------
NET FOREIGN CURRENCY LOSSES.......................... (12,288) (7,470) (19,741)
---------- ---------- ----------
EARNINGS (LOSS) BEFORE THE UNDERNOTED................ 79,577 (159,449) (26,881)
Unusual items (note 17)............................ 700,945 (295,434) (62,630)
Income tax (expense) recovery (note 18)............ (260,091) 89,477 (124,025)
Minority interest.................................. (331,058) 233,508 124,896
---------- ---------- ----------
NET EARNINGS (LOSS).................................. $ 189,373 $ (131,898) $ (88,640)
========== ========== ==========
EARNINGS (LOSS) PER RETRACTABLE COMMON SHARE (note
19)
Basic.............................................. $ 5.11 $ (3.91) $ (2.76)
========== ========== ==========
Diluted............................................ $ 5.05 $ (4.17) $ (2.79)
========== ========== ==========
F-5
HOLLINGER INC.
CONSOLIDATED STATEMENTS OF DEFICIT
YEAR ENDED DECEMBER 31
------------------------------------
2000 2001 2002
---------- ---------- ----------
(IN THOUSANDS OF CANADIAN DOLLARS)
DEFICIT AT BEGINNING OF YEAR
As previously reported.................................. $(180,732) $(310,988) $(485,313)
Adjustment of prior years' deficit (note 2)............. (291,004) -- --
--------- --------- ---------
As restated............................................. (471,736) (310,988) (485,313)
Net earnings (loss)....................................... 189,373 (131,898) (88,640)
--------- --------- ---------
(282,363) (442,886) (573,953)
Adjustment to deficit related to transitional impairment
charge, net of minority interest (note 1)............... -- -- (12,071)
Dividends -- retractable common shares.................... (22,177) (20,216) (19,220)
Gain (premium) on retraction of retractable common shares
(notes 13b), 13d) and 13e))............................. (6,448) (22,211) 141
Share issue costs......................................... -- -- (42)
--------- --------- ---------
DEFICIT AT END OF YEAR.................................... $(310,988) $(485,313) $(605,145)
========= ========= =========
F-6
HOLLINGER INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
-----------------------------------
2000 2001 2002
----------- --------- ---------
(IN THOUSANDS OF CANADIAN DOLLARS)
CASH PROVIDED BY (USED FOR):
OPERATING ACTIVITIES
CASH FLOWS PROVIDED BY (USED FOR) OPERATIONS BEFORE THE
UNDERNOTED (note 20a)).................................... $ 153,579 $(120,211) $ 59,628
Change in non-cash operating working capital (note 20b)).... (82,456) (144,429) 41,328
Other costs................................................. (42,188) (70,234) 48,474
----------- --------- ---------
28,935 (334,874) 149,430
----------- --------- ---------
FINANCING ACTIVITIES
Redemption and cancellation of capital stock................ (700) (273) (1,064)
Redemption and cancellation of retractable preference
shares.................................................... (5,133) (317) (277)
Premium on retirement of senior notes....................... -- -- (56,287)
Capital stock of subsidiaries purchased for cancellation by
subsidiaries.............................................. -- (71,767) (157,056)
Issue of partnership units and common shares of
subsidiaries.............................................. 8,166 10,637 6,667
Decrease in long-term debt and deferred liabilities......... (1,280,475) -- --
Redemption of HCPH Special shares........................... (140,429) -- --
Repayment of long-term debt................................. -- (176,383) (582,920)
Proceeds from long-term debt................................ -- 152,778 514,343
Proceeds from issuance of notes............................. -- -- 474,000
Payment of debt issue costs................................. -- (7,230) (24,666)
Escrow deposits and restricted cash......................... -- -- (859,128)
Dividends................................................... (22,177) (20,216) (16,031)
Dividends and distributions paid by subsidiaries to minority
interest.................................................. (127,390) (126,478) (48,721)
Other....................................................... -- (204) (249)
----------- --------- ---------
(1,568,138) (239,453) (751,389)
----------- --------- ---------
INVESTING ACTIVITIES
Proceeds on disposal of fixed assets........................ 18,813 157 17,024
Purchase of fixed assets.................................... (112,661) (91,406) (63,603)
Proceeds on sale of investment in subsidiary................ -- 31,417 38,637
Proceeds on disposal of investments......................... 87,465 919,567 7,188
Additions to investments.................................... (92,735) (99,040) (17,636)
Additions to circulation.................................... (37,667) (3,920) --
Decrease (increase) in other assets......................... 779 (1,132) (450)
Investment in newspaper operations.......................... (175,376) -- --
Proceeds on disposal of newspaper and magazine operations... 2,016,885 376,865 --
----------- --------- ---------
1,705,503 1,132,508 (18,840)
----------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................... (6,825) 14,250 3,304
----------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 159,475 572,431 (617,495)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 74,441 233,916 806,347
----------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 233,916 $ 806,347 $ 188,852
=========== ========= =========
CASH FLOW PROVIDED BY (USED FOR) OPERATIONS PER RETRACTABLE
COMMON SHARE (note 19)
SUPPLEMENTAL DISCLOSURE OF FINANCING AND INVESTING
ACTIVITIES
Interest paid............................................. $ 244,592 $ 153,972 $ 108,159
Income taxes paid......................................... $ 69,710 $ 122,087 $ 14,095
F-7
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
1. SIGNIFICANT ACCOUNTING POLICIES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles ("GAAP") in Canada, which vary in
certain significant respects from United States GAAP. A description of
significant differences, as applicable to the Company is included in note 26.
BASIS OF PREPARATION
These consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles using a basis of
presentation which assumes that the Company will continue in operation for the
foreseeable future and be able to realize its assets and discharge its
liabilities and commitments in the normal course of business. The Company is an
international holding company and its assets consist primarily of investments in
its subsidiaries and affiliated companies. As a result, the Company's ability to
meet its future financial obligations, on a non-consolidated basis, is dependent
upon the availability of cash flows from its Canadian and foreign subsidiaries
through dividends, management fees and other payments. On a non-consolidated
basis during 2002, the Company experienced a shortfall between the dividends and
fees received from its subsidiaries and its obligations to pay its operating
costs, including interest and dividends on its preference shares and such
shortfalls were expected to continue in the future. Accordingly, the Company is
dependent upon the continuing financial support of Ravelston Management Inc.
("RMI") to fund such shortfalls and, therefore, pay its liabilities as they fall
due. RMI is a wholly owned subsidiary of The Ravelston Corporation Limited
("Ravelston"), the Company's ultimate parent company.
On March 10, 2003, the date of issue of US $120,000,000 aggregate principal
amount of Senior Secured Notes due 2011, RMI entered into a Support Agreement
with the Company. Under the agreement, RMI has agreed to make annual support
payments in cash to the Company on a periodic basis by way of contributions to
the capital of the Company (without receiving any shares of the Company) or
subordinated debt. The amount of the annual support payments will be equal to
the greater of (a) the non-consolidated negative net cash flow of the Company
(which does not extend to outlays for retractions or redemptions) and (b)
US$14.0 million per year (less any future payments of services agreements fees
directly to the Company or to any of the Company's wholly owned restricted
subsidiaries, as they are defined in the indenture governing the Company's
Senior Secured Notes due 2011, and any excess in the net dividend amount
received by the Company and 504468 N.B. Inc. ("NB Inc.") on the shares of
Hollinger International Inc. ("Hollinger International") that the Company and NB
Inc. own that is over US$4.65 million per year), in either case, reduced by any
permanent repayment of debt owing by Ravelston to the Company. Initially, the
support amount to be contributed by RMI is expected to be satisfied through the
permanent repayment by Ravelston of its approximate $16.4 million of advances
from the Company resulting from the use of proceeds of the Company's offering of
Senior Secured Notes. Thereafter, all support amount contributions by RMI will
be made through contributions to the capital of the Company without receiving
any additional shares of the Company, except that, to the extent that the
support payment exceeds the negative net cash flow of the Company, the amounts
will be contributed through an interest-bearing, unsecured, subordinated loan to
the Company. The support agreement terminates upon the repayment of the Senior
Secured Notes, which mature in 2011.
RMI currently derives all of its income and operating cash flow from the
fees paid pursuant to services agreements with Hollinger International and its
subsidiaries. RMI's ability to provide the required financial support under the
Support Agreement with the Company is dependent on RMI continuing to receive
sufficient fees pursuant to those services agreements. The services agreements
may be terminated by either party by giving 180 days notice. The fees in respect
of the services agreements are negotiated annually with and approved by the
audit committee of Hollinger International. The fees to be paid to RMI for the
year ending
F-8
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
December 31, 2003 amount to approximately US$22.0 million to US$24.0 million and
were approved in February 2003. The fees in respect of the periods after
December 31, 2003 have not yet been negotiated or approved. If, in any quarterly
period after April 1, 2003, the Company fails to receive in cash a minimum
aggregate amount of at least US$4.7 million from a) payments made by RMI
pursuant to the Support Agreement and b) dividends paid by Hollinger
International on its shares held by the Company, net of dividends paid by the
Company on its Series 11 preference shares, the Company would be in default
under its Senior Secured Notes. Based on the Company's current investment in
Hollinger International and the current quarterly dividend paid by Hollinger
International of US$0.05 per share, the minimum support payment required to be
made by RMI to avoid such a default is approximately US$3.5 million per quarter
or US$14.0 million annually. This default could cause the Senior Secured Notes
to become due and payable immediately.
The Company's issued capital stock consists of Series II preference shares,
Series III preference shares and retractable common shares each of which is
retractable at the option of the holder. On retraction, the Series II preference
shares are exchangeable into a fixed number of shares of the Company's Class A
common stock of Hollinger International or at the Company's option, cash of
equivalent value. The Series III preference shares are currently retractable at
the option of the holder for a retraction price payable in cash, which
fluctuates by reference to two benchmark Government of Canada bonds having a
comparable yield and term to the shares and, after May 1, 2003, for a cash
payment of $9.50 per share. The retractable common shares are retractable at any
time at the option of the holder at their retraction price (which is fixed from
time to time) in exchange for the Company's shares of Hollinger International
Class A common stock of equivalent value or, at the Company's option, cash.
There is uncertainty regarding the Company's ability to meet future retractions
of preference shares and retractable common shares. Under corporate law, the
Company is not required to make any payment to redeem any shares in certain
circumstances, including if the Company is, or after the payment, the Company
would be, unable to pay its liabilities as they come due. If at the time of
future retractions, the Company does not have sufficient cash or sufficient
available Hollinger International shares of Class A common stock to both fund
such retractions and continue to pay its liabilities as they come due,
shareholders would not become creditors of the Company but would remain as
shareholders until such time as the retraction is able to be completed under
applicable law. On May 20, 2003, the Company concluded it was not able to
complete retractions of shares submitted after April 30, 2003, without unduly
impairing its liquidity (note 29f)).
The Company's uncertain ability to make payments on future retractions and
redemptions of shares is due to the fact that liquidity of its assets is limited
at present given that substantially all of its shares of Hollinger International
common stock were provided as security for the Senior Secured Notes.
GENERAL BUSINESS
Hollinger Inc. publishes, prints and distributes newspapers and magazines
in Canada, the United Kingdom, the United States of America, and Israel through
subsidiaries and associates. In addition, Hollinger Inc. has developed related
websites on the Internet. The consolidated financial statements include the
accounts of Hollinger Inc., its subsidiaries, other controlled entities and its
pro rata share of assets, liabilities,
F-9
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
revenue and expenses of joint ventures (collectively, the "Company"). The
Company's significant subsidiaries and controlled entities are set out below:
PERCENTAGE OWNED AS AT DECEMBER 31,
-----------------------------------
2000 2001 2002
------- ------- -------
Hollinger International Inc. ("Hollinger International").... 47.5%(3) 36.0%(3) 31.8%(3)
Hollinger International Publishing Inc. ("Publishing")...... 100.0%(1) 100.0%(1) 100.0%(1)
The Sun-Times Company....................................... 100.0%(1) 100.0%(1) 100.0%(1)
Jerusalem Post Publications Limited ("Jerusalem Post")...... 100.0%(1) 100.0%(1) 100.0%(1)
Hollinger Canadian Publishing Holdings Co. ("HCPH
Co.")(2).................................................. 100.0%(1) 100.0%(1) 100.0%(1)
The National Post Company ("National Post") (note 5c))...... 50.0%(1) -- --
Telegraph Group Limited ("Telegraph")....................... 100.0%(1) 100.0%(1) 100.0%(1)
Hollinger Canadian Newspapers, Limited Partnership
("Hollinger L.P.")........................................ 87.0%(1) 87.0%(1) 87.0%(1)
(1) Percent owned by Hollinger International.
(2) During 2001 HCPH Co. (formerly Hollinger Canadian Publishing Holdings Inc.
("HCPH")) became the successor to the operations of XSTM Holdings (2000)
Inc. (formerly Southam Inc. ("Southam")).
(3) Represents the Company's equity interest in Hollinger International. The
Company's voting percentage at December 31, 2002 is 72.8% (2001 -- 71.8% and
2000 -- 73.3%).
FOREIGN CURRENCY TRANSLATION
Monetary items denominated in foreign currency are translated to Canadian
dollars at exchange rates in effect at the balance sheet date and non-monetary
items are translated at exchange rates in effect when the assets were acquired
or obligations incurred. Revenues and expenses are translated at exchange rates
in effect at the time of the transactions. Foreign exchange gains and losses are
included in income.
The financial statements of foreign subsidiaries, all of which are
self-sustaining, are translated using the current rate method, whereby all
assets and liabilities are translated at year-end exchange rates, with items in
the consolidated statements of earnings translated at the weighted average
exchange rates for the year. Exchange gains or losses arising from the
translation of balance sheet items are deferred and disclosed separately within
shareholders' equity. These exchange gains or losses are not included in
earnings unless they are actually realized through a reduction of the Company's
net investment in the foreign subsidiary. Exchange gains or losses on the
translation of exchangeable preference shares are deferred as they have been
designated as a hedge of the Company's investment in shares of Hollinger
International Class A common stock for which they are exchangeable.
Effective January 1, 2002, the Company adopted, on a retroactive basis, The
Canadian Institute of Chartered Accountants ("CICA") amended Handbook Section
1650, "Foreign Currency Translations" ("Section 1650"), which eliminates the
deferral and amortization of foreign currency translation gains and losses on
long-term monetary items denominated in foreign currencies, with a fixed or
ascertainable life. There was no impact to the Company upon adoption of this
standard as at January 1, 2002 or any period presented.
CASH EQUIVALENTS
Cash equivalents consist of certain highly liquid investments with original
maturities of three months or less.
F-10
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
INVENTORY
Inventory, principally printing material, is valued at the lower of cost
and net realizable value. Cost is determined using the first-in, first-out
(FIFO) method.
CAPITAL ASSETS
Capital assets are stated at cost. Cost represents the cost of acquisition
or construction, including the direct costs of financing until the asset is
ready for use.
Leases which transfer substantially all of the benefits and risks of
ownership to the Company or its subsidiaries are recorded as assets, together
with the obligations, based on the present value of future rental payments,
excluding executory costs.
Capital assets, including assets under capital leases, are depreciated over
their estimated useful lives as follows:
Buildings straight line over 25 to 40 years
Machinery and equipment straight line over 4 to 20 years or 7% to
12% on the diminishing-balance basis
Leasehold interests straight line over the term of the lease
ranging from 5 to 40 years
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of acquisition costs over estimated fair
value of net assets, including definite lived intangibles, acquired in business
combinations. Until December 31, 2001, goodwill amortization was calculated
using the straight-line method over the respective estimated useful lives to a
maximum of 40 years.
Prior to January 1, 2002, circulation represented the long-term readership
of paid newspapers and the Company allocated a portion of the purchase price
discrepancy in each business acquired to the cost of circulation. In addition,
the Company capitalized costs incurred to increase the long-term readership.
Circulation was amortized on a straight-line basis over periods ranging from 10
to 40 years.
Effective January 1, 2002, the Company adopted the CICA Handbook Section
3062, "Goodwill and Other Intangible Assets" ("Section 3062") and certain
transitional provisions of CICA Handbook Section 1581, "Business Combinations"
("Section 1581"). The new standards require that goodwill and intangible assets
with indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually. The standards also specify criteria that
intangible assets must meet to be recognized and reported apart from goodwill.
In addition, Section 3062 requires that intangible assets with estimable useful
lives be amortized over their respective estimated useful lives to their
estimated residual values and reviewed for impairment by assessing the
recoverability of the carrying value.
As of the date of adoption of Section 3062 and certain transitional
provisions of Section 1581, the Company has discontinued amortization of all
existing goodwill, evaluated existing intangible assets and has reclassified
from circulation amounts in respect of non-competition agreements and subscriber
and advertiser relationships, which meet the new criteria for recognition of
intangible assets apart from goodwill. The balance of circulation has been
reclassified to goodwill effective January 1, 2002.
In connection with the Section 3062 transitional impairment evaluation, the
Company was required to assess whether goodwill was impaired as of January 1,
2002. The fair values of the Company's reporting units were determined primarily
using a multiple of maintainable normalized cash earnings. As a result of this
F-11
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
transitional impairment test, and based on the methodology adopted, the Company
has determined that the carrying amount of the Jerusalem Post was in excess of
the estimated fair value at January 1, 2002. Accordingly, the value of goodwill
attributable to the Jerusalem Post of $32.0 million has been written down in its
entirety. Such loss, net of related minority interest amounted to $12.1 million
and has been recorded as a charge to the opening deficit as at January 1, 2002.
The Company has determined that the fair value of all other reporting units is
in excess of the respective carrying amounts, both on adoption and at year end
for purposes of the annual impairment test.
In addition to the transitional goodwill impairment test as of January 1,
2002, the Company is required to test goodwill for impairment on an annual basis
for each of its reporting units. The Company is also required to evaluate
goodwill for impairment between annual tests if an event occurs or circumstances
change that would more likely than not reduce the fair value of a reporting unit
below its carrying amount. Certain indicators of potential impairment that could
impact the Company's reporting units include, but are not limited to, the
following: (a) a significant long-term adverse change in the business climate
that is expected to cause a substantial decline in advertising spending, (b) a
permanent significant decline in a reporting unit's newspaper readership, (c) a
significant adverse long-term negative change in the demographics of a reporting
unit's newspaper readership and (d) a significant technological change that
results in a substantially more cost-effective method of advertising than
newspapers.
Effective January 1, 2002, the Company had unamortized goodwill in the
amount of $873.7 million, which is no longer being amortized. This amount
reflects the transitional impairment loss of $32.0 million relating to the
Jerusalem Post.
This change in accounting policy cannot be applied retroactively and the
amounts presented for prior periods have not been restated for this change. If
this change in accounting policy were applied to the reported consolidated
statement of earnings for the years ended December 31, 2000 and 2001, the impact
of the change, in respect of goodwill and intangible assets not being amortized,
would be as follows:
2000 2001
-------- ---------
Net earnings (loss) -- as reported.......................... $189,373 $(131,898)
Add goodwill and intangible asset amortization, net of
income taxes and minority interest........................ 31,384 16,978
-------- ---------
Adjusted net earnings (loss)................................ $220,757 $(114,920)
======== =========
Basic earnings (loss) per share -- as reported.............. $ 5.11 $ (3.91)
======== =========
Basic adjusted earnings (loss) per share.................... $ 5.97 $ (3.41)
======== =========
Diluted earnings (loss) per share -- as reported............ $ 5.05 $ (4.17)
======== =========
Diluted adjusted earnings (loss) per share.................. $ 5.90 $ (3.64)
======== =========
Adjusted net earnings (loss), noted above, reflects only the reduction in
amortization expense of intangibles now classified as goodwill and does not give
effect to the impact that this change in accounting policy would have had on the
gains and losses resulting from the disposal of operations during 2000 and 2001,
nor the expensing of the costs previously capitalized to increase long-term
readership in 2000 and 2001.
INVESTMENTS
Investments are accounted for at cost, except for investments in which the
Company exercises significant influence which are accounted for by the equity
method. Investments are written down when declines in value are considered to be
other than temporary. Dividend and interest income are recognized when earned.
F-12
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
Prior to the adoption of new accounting standards for goodwill on January
1, 2002, as described above, the excess of acquisition costs over the Company's
share of the fair value of net assets at the acquisition date of an equity
method investment was amortized on a straight-line basis over its estimated
useful life. Effective January 1, 2002, such equity method goodwill is no longer
amortized. The Company recognizes a loss when there is other than a temporary
decline in the fair value of the investment below its carrying value.
DEFERRED FINANCING COSTS
Deferred financing costs consist of certain costs incurred in connection
with debt financings. Such costs are amortized on a straight-line basis over the
term of the related debt.
DERIVATIVES
The Company uses derivative financial instruments to manage risks generally
associated with interest rate and foreign currency exchange rate market
volatility. The Company does not hold or issue derivative financial instruments
for trading purposes. None of the derivatives has been designated as a hedge.
All derivatives are recorded at their fair value with changes in fair value
reflected in the consolidated statements of earnings, other than Hollinger
International's forward share purchase contracts (described in note 24b)).
STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS
The Company and certain of its subsidiaries have employee stock-based
compensation plans. Until December 31, 2001, compensation expense was not
recognized on the grant or modification of options under these plans.
Effective January 1, 2002, the Company adopted the new CICA Handbook
Section 3870, "Stock-based Compensation and Other Stock-based Payments"
("Section 3870"). Under Section 3870, the Company is required to adopt, on a
prospective basis, the fair value-based method to account for all stock-based
payments made by the Company to non-employees, including employees of Ravelston,
the parent company, and employee awards that are direct awards of stock, call
for settlement in cash or other assets, or are stock appreciation rights that
call for settlement by the issuance of equity instruments, granted on or after
January 1, 2002. For all other stock-based payments, the Company has elected to
use the settlement method of accounting, whereby cash received on the exercise
of stock options is recorded as capital stock.
Under the fair value-based method, stock options granted to employees of
Ravelston by the Company and its subsidiaries are measured at the fair value of
the consideration received, or the fair value of the equity instruments issued,
or liabilities incurred, whichever is more reliably measurable. Such fair value
determined is recorded as a dividend-in-kind in the Company's financial
statements with no impact on the Company's net earnings. Section 3870 has been
applied prospectively to all stock-based payments to non-employees granted on or
after January 1, 2002.
EMPLOYEE BENEFIT PLANS
The Company accrues its obligations under employee benefit plans and the
related costs, net of plan assets. The following policies are applied in
accounting for employee benefit plans:
- The cost of pensions and other retirement benefits earned by employees
is actuarially determined using the projected benefit method pro-rated
on service and management's best estimate of expected plan investment
performance, salary escalation, retirement ages of employees and
expected health care costs.
- For the purpose of calculating the expected return on plan assets, those
assets are valued at fair value.
F-13
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
- Past service costs from plan amendments are amortized on a straight-line
basis over the average remaining service period of employees active at
the date of amendment.
- The excess of the net actuarial gain (loss) over 10% of the greater of
the benefit obligation and the fair value of plan assets is amortized
over the average remaining service period of active employees. The
average remaining service period of the active employees covered by the
plans ranges from 8 to 17 years.
INCOME TAXES
Future income tax assets and liabilities are recognized for the future
income tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Future income tax assets and liabilities are measured
using enacted or substantively enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. A valuation allowance is recorded against any future
income tax asset if it is more likely than not that the asset will not be
realized. Income tax expense is the sum of the Company's provision for current
income taxes and the difference between opening and ending balances of future
income tax assets and liabilities. The effect on future tax assets and
liabilities for change in tax rates is recognized in income in the period that
includes the enactment date.
REVENUE RECOGNITION
The Company's principal sources of revenue comprise advertising,
circulation and job printing. As a general principle, revenue is recognized when
the following criteria are met: (a) persuasive evidence of an arrangement
exists, (b) delivery has occurred and services have been rendered, (c) the price
to the buyer is fixed or determinable, and (d) collectibility is reasonably
assured or is probable. Advertising revenue, being amounts charged for space
purchased in the Company's newspapers, is recognized upon publication of the
advertisements. Circulation revenue from subscribers, billed to customers at the
beginning of a subscription period, is recognized on a straight-line basis over
the term of the related subscription. Deferred revenue represents subscription
receipts that have not been earned. Circulation revenue from single copy sales
is recognized at the time of distribution. In both cases, circulation revenue is
recorded net of fees or commissions paid to distributors and retailers and less
an allowance for returned copies. Job printing revenue, being charges for
printing services provided to third parties, is recognized upon delivery.
LOSS PER SHARE
Basic loss per share is computed by dividing the net loss by the weighted
average shares outstanding during the year. Diluted loss per share is computed
similar to the basic loss per share except that the weighted average shares
outstanding is increased to include additional shares from the assumed exercise
of stock options of Hollinger Inc., if dilutive and the net loss is increased to
reflect the impact of additional shares of Hollinger International being issued
from the exercise of its stock options and Series E preferred shares, if
dilutive. The number of additional shares is calculated by assuming that
outstanding stock options were exercised and that the proceeds from such
exercises were used by Hollinger International to acquire shares of common stock
of Hollinger International at the average market price during the year.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of consolidated financial statements requires the Company
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenue and expenses, and related disclosure of contingent assets
and liabilities. On an ongoing basis, the Company evaluates its estimates,
including those related to bad debts, investments, intangible assets, income
taxes, restructuring, pensions and other post-
F-14
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
retirement benefits, contingencies and litigation. The Company relies on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances in making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
The Company believes the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements.
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the
financial condition of the Company's customers were to deteriorate, resulting in
an impairment of their ability to make payments, additional allowances could be
required.
The Company holds minority interests in both publicly traded and not
publicly traded Internet-related companies. Some of the publicly traded
companies have highly volatile share prices. The Company records an investment
impairment charge when it believes an investment has experienced a decline in
value that is other than temporary. Future adverse changes in market conditions
or poor operating results of underlying investments may not be reflected in an
investment's current carrying value, thereby possibly requiring an impairment
charge in the future.
The Company has significant goodwill recorded in its accounts. Certain of
its newspapers operate in highly competitive markets. The Company is required to
determine annually whether or not there has been any impairment in the value of
these assets. Changes in long-term readership patterns and advertising
expenditures may affect the value and necessitate an impairment charge. Certain
indicators of potential impairment that could impact the Company's reporting
units include, but are not limited to, the following: a) a significant long-term
adverse change in the business climate that is expected to cause a substantial
decline in advertising spending, b) a permanent significant decline in a
reporting unit's newspaper readership, c) a significant adverse long-term
negative change in the demographics of a reporting unit's newspaper readership,
and d) a significant technological change that results in a substantially more
cost-effective method of advertising than newspapers.
The Company sponsors several defined benefit pension and post-retirement
benefit plans for domestic and foreign employees. These defined benefit plans
include pension and post-retirement benefit obligations, which are calculated
based on actuarial valuations. In determining these obligations and related
expenses, key assumptions are made concerning expected rates of return on plan
assets and discount rates. In making these assumptions, the Company evaluated,
among other things, input from actuaries, expected long-term market returns and
current high-quality bond rates. The Company will continue to evaluate the
expected long-term rates of return on plan assets and discount rates at least
annually and make adjustments as necessary, which could change the pension and
post-retirement obligations and expenses in the future.
Unrecognized actuarial gains and losses in respect of pension and
post-retirement benefit plans are recognized by the Company over a period
ranging from 8 to 17 years, which represents the weighted average remaining
service life of the employee groups. Unrecognized actuarial gains and losses
arise from several factors, including experience, assumption changes in the
obligations and from the difference between expected returns and actual returns
on assets. At the end of 2002, the Company had unrecognized net actuarial losses
of $233.4 million. These unrecognized amounts could result in an increase to
pension expense in future years depending on several factors, including whether
such losses exceed the corridor in accordance with CICA Section 3461, "Employee
Future Benefits".
The Company recognized a pension valuation allowance for any excess of the
prepaid benefit cost over the expected future benefit. Increases or decreases in
global capital markets and interest rate fluctuations could increase or decrease
any excess of the prepaid benefit cost over the expected future benefit
resulting in
F-15
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
an increase or decrease to the pension valuation allowance. Changes in the
pension valuation allowance are recognized in earnings immediately.
2. CHANGE IN ACCOUNTING POLICIES
a) Earnings per share
Effective January 1, 2001, the Company adopted, retroactively with
restatement, the recommendations of the CICA Section 3500 with respect
to earnings per share. Under the revised standard, the treasury stock
method is used instead of the imputed earnings approach for determining
the dilutive effect of options, issued warrants or other similar
instruments.
The change in the method of calculation of earnings per share did not
impact the previously reported basic earnings per share for 2000.
Diluted earnings per share for 2000 were increased from $4.49 per share
to $5.05 per share.
b) Income taxes
Effective January 1, 2000, the CICA changed the accounting standard
relating to the accounting for income taxes. The new standard adopted
the liability method of accounting for future income taxes. Prior to
January 1, 2000, income tax expense was determined using the deferral
method.
The Company adopted the new income tax accounting standard retroactively
on January 1, 2000, and did not restate the financial statements of any
prior periods. As a result, the Company has recorded an increase to
deficit of $291,004,000, an increase to the future tax liability of
$516,113,000 and a decrease to minority interest of $225,109,000 as at
January 1, 2000.
c) Goodwill and other intangible assets
Effective January 1, 2002, the Company adopted CICA Handbook Section
3062, "Goodwill and Other Intangible Assets" ("Section 3062") and
certain transitional provisions of CICA Handbook Section 1581, "Business
Combinations" ("Section 1581"). The new standards must be adopted
prospectively and require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead be tested
for impairment at least annually. The standards also specify criteria
that intangible assets must meet to be recognized and reported apart
from goodwill. The impact of this change in accounting policy is
discussed under "Goodwill and Other Intangible Assets" in note 1.
3. RESTRICTED CASH
Cash and cash equivalents at December 31, 2001 included US$7,500,000
($11,944,000) of restricted cash deposited with an escrow agent under the terms
of one of Hollinger International's forward share purchase contracts (note
24b)), which were terminated in 2002.
In addition, US$5,000,000 ($7,963,000) of cash was pledged as security at
December 31, 2001 for Hollinger International's US$5,000,000 Restated Credit
Facility (note 10f)) under which no amounts were permitted to be borrowed at
December 31, 2001. At December 31, 2002, restricted cash includes US$2,000,000
($3,160,000) deposited in connection with outstanding letters of credit.
4. ACQUISITIONS AND DISPOSITIONS
a) In January 2002, the Company sold 2,000,000 shares of Hollinger
International Class A common stock to third parties for total cash
proceeds of $38.6 million. This transaction, together with the
retraction of Series II preference shares of the Company for shares of
Hollinger International
F-16
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
Class A common stock (note 11a)), resulted in a pre-tax gain on the
effective sales of the Hollinger International shares of $20.1 million
(note 17).
b) In January 2001, Hollinger L.P. completed the sale of UniMedia Company
to Gesca Limited, a subsidiary of Power Corporation of Canada, for cash
consideration. The publications sold represented the French language
newspapers of Hollinger L.P., including three paid circulation dailies
and 15 weeklies published in Quebec and Ontario. A pre-tax gain of
approximately $75.1 million was recognized on this sale (note 17).
c) In two separate transactions in July and November 2001, the Company and
Hollinger L.P. completed the sale of most of its remaining Canadian
newspapers to Osprey Media Group Inc. ("Osprey") for total cash
proceeds of approximately $255.0 million plus closing adjustments
primarily for working capital. Included in these sales were community
newspapers in Ontario such as The Kingston Whig-Standard, The Sault
Star, the Peterborough Examiner, the Chatham Daily News and The
Observer (Sarnia). Pre-tax gains of approximately $1.5 million were
recognized on these sales (note 17). The former Chief Executive Officer
of Hollinger L.P. is a minority shareholder of Osprey. Hollinger
International's independent directors have approved the terms of these
transactions.
In connection with the two sales of Canadian newspaper properties to
Osprey in 2001, to satisfy a closing condition, the Company, Hollinger
International, Lord Black of Crossharbour, PC(C), OC, KCSG and three
senior executives entered into non-competition agreements with Osprey
pursuant to which each agreed not to compete directly or indirectly in
Canada with the Canadian businesses sold to Osprey for a five-year
period, subject to certain limited exceptions, for aggregate
consideration of $7.9 million. Such consideration was paid to Lord Black
and the three senior executives and has been approved by Hollinger
International's independent directors.
d) In August 2001, the Company entered into an agreement to sell to
CanWest Global Communications Corp. ("CanWest") its 50% interest in the
National Post. In accordance with the agreement, the Company's
representatives resigned from their executive positions at the National
Post effective September 1, 2001. Accordingly, from September 1, 2001,
the Company had no influence over the operations of the National Post
and the Company no longer consolidated or recorded on an equity basis
its share of earnings or losses. The results of operations of the
National Post are included in the consolidated results to August 31,
2001. A pre-tax loss of approximately $120.7 million was recognized on
the sale and is included in unusual items (note 17).
e) During 2001, Hollinger International converted all of its Series C
Preferred Stock which was held by the Company, at the conversion ratio
of 8.503 shares of Hollinger International Class A common stock per
share of Series C Preferred Stock into 7,052,464 shares of Hollinger
International Class A common stock. The 7,052,464 shares of Class A
common stock of Hollinger International were subsequently purchased for
cancellation by Hollinger International for a total of US$92.2 million
($143.8 million). The purchase price per share was 98% of the closing
price of the shares of Hollinger International Class A common stock and
was approved by Hollinger International's independent directors. The
Company used the proceeds to reduce its bank indebtedness by $142.0
million (note 9).
On September 27, 2001, Hollinger International redeemed 40,920 shares of
its Series E preferred stock held by the Company at their stated
redemption price of $146.63 per share for a total cash payment of $6.0
million.
F-17
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
In December 2001, the Company sold 2,000,000 shares of Hollinger
International Class A common stock to third parties for total cash
proceeds of $31.4 million and reduced its bank indebtedness by the same
amount (note 9).
The above transactions, together with the retraction of retractable
common shares of the Company in exchange for shares of Hollinger
International Class A common stock (note 13d)) and the retraction of
Series II preference shares of the Company for shares of Class A common
stock of Hollinger International (note 11a)), resulted in a total
pre-tax gain on the effective sales of the Hollinger International
shares of $59.4 million (note 17).
f) During 2001, Hollinger International transferred two publications to
Horizon Publications Inc. in exchange for net working capital. Horizon
Publications Inc. is managed by former Community Group executives and
controlled by certain members of the Board of Directors of Hollinger
International. The terms of these transactions were approved by the
independent directors of Hollinger International.
g) On November 16, 2000, Hollinger International and its affiliates,
Southam and Hollinger L.P. ("Hollinger Group") completed the sale of
most of its Canadian newspapers and related assets to CanWest. Included
in the sale were the following assets of the Hollinger Group:
- a 50% interest in National Post, with Hollinger International
continuing as managing partner;
- the metropolitan and a large number of community newspapers in Canada
(including the Ottawa Citizen, The Vancouver Sun, The Province
(Vancouver), the Calgary Herald, the Edmonton Journal, The Gazette
(Montreal), The Windsor Star, the Regina Leader Post, the Star
Phoenix and the Times-Colonist (Victoria); and
- the operating Canadian Internet properties, including canada.com.
The sale resulted in the Hollinger Group receiving approximately $1.7
billion cash, approximately $425 million in voting and non-voting shares
of CanWest at fair value, and subordinated non-convertible debentures of
a holding company in the CanWest group with a fair value of
approximately $697 million. The aggregate sale price of these properties
at fair value was approximately $2.8 billion, plus closing adjustments
for working capital at August 31, 2000 and cash flow and interest for
the period September 1 to November 16, 2000 which in total was estimated
as an additional $63 million at December 31, 2000. The cash proceeds
were used to pay down outstanding debt on Hollinger International's Bank
Credit Facility (note 10). The sale resulted in a pre-tax gain of
approximately $566.0 million in 2000 which was included in unusual items
(note 17).
In 2001, certain of the closing adjustments were finalized, resulting in
an additional pre-tax gain in 2001 of approximately $29.1 million which
is included in unusual items (note 17). At December 31, 2002,
approximately $60.7 million (2001 -- $57.3 million) in respect of
closing adjustments remained due to the Company and is included in
accounts receivable. Certain closing adjustments have not yet been
finalized. Amounts due bear interest at a rate of approximately 9%. The
amount outstanding is subject to negotiation between CanWest and the
Company. Adjustments to the balance due, if any, resulting from further
negotiations will be recorded as an unusual item.
In connection with the sale to CanWest, The Ravelston Corporation
Limited ("Ravelston"), a holding company controlled by Lord Black,
entered into a management services agreement with CanWest and National
Post pursuant to which it agreed to continue to provide management
services to the Canadian businesses sold to CanWest in consideration for
an annual fee of $6 million payable by CanWest. In addition, CanWest
will be obligated to pay Ravelston a termination fee of $45 million, in
the event that CanWest chooses to terminate the management services
agreement or
F-18
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
$22.5 million, in the event that Ravelston chooses to terminate the
agreement (which cannot occur before December 31, 2002). Also, as
required by CanWest as a condition to the transaction, the Company,
Ravelston, Hollinger International, Lord Black and three senior
executives entered into non-competition agreements with CanWest pursuant
to which each agreed not to compete directly or indirectly in Canada
with the Canadian businesses sold to CanWest for a five-year period,
subject to certain limited exceptions, for aggregate consideration of
$80 million paid by CanWest in addition to the purchase price referred
to above, of which $38 million was paid to Ravelston and $42 million was
paid to Lord Black and the three senior executives. The independent
directors of Hollinger International have approved the terms of these
payments.
h) On November 1, 2000, Southam converted the convertible promissory note
in Hollinger L.P. in the principal amount of $225,753,000 into
22,575,324 limited partnership units of Hollinger L.P., thereby
increasing Hollinger International's interest in Hollinger L.P. to
87.0%.
i) During 2000, Hollinger International sold most of its remaining U.S.
community newspaper properties, including 11 paid dailies, three paid
non-dailies and 31 free distribution publications for total proceeds
of approximately US$215,000,000 ($325,166,000). Pre-tax gains
totalling $75,114,000 were recognized on these sales and were included
in unusual items in 2000 (note 17).
In connection with the sales of United States newspaper properties in
2000, to satisfy a closing condition, Hollinger International, Lord Black
and three senior executives entered into non-competition agreements with
the purchasers pursuant to which each agreed not to compete directly or
indirectly in the United States with the United States businesses sold to
the purchasers for a fixed period, subject to certain limited exceptions,
for aggregate consideration paid in 2001 of US$600,000 ($917,000). These
amounts were in addition to the aggregate consideration paid in respect
of these non-competition agreements in 2000 of US$15.0 million ($22.5
million). All such amounts were paid to Lord Black and the three senior
executives. The independent directors of Hollinger International have
approved the terms of these payments.
j) Included in the dispositions during 2000 described in note 4i),
Hollinger International sold four U.S. community newspapers for an
aggregate consideration of US$38.0 million ($56.5 million) to Bradford
Publishing Company, a Company formed by a former U.S. Community Group
executive and in which some of Hollinger International's directors are
shareholders. The terms of this transaction were approved by the
independent directors of Hollinger International.
k) On February 17, 2000, Interactive Investor International, in which
Hollinger International owned 51.7 million shares or a 47% equity
interest, completed its initial public offering ("IPO") issuing 52
million shares and raising L78,000,000 ($181,000,000). The IPO reduced
Hollinger International's equity ownership to 33% and resulted in a
dilution gain of $25,775,000 for accounting purposes. Subsequently,
Hollinger International sold five million shares of its holding,
reducing its equity interest to 28.5% and resulting in a pre-tax gain
in 2000 of $2,400,000. Both the dilution gain and gain on sale were
included in unusual items in 2000 (note 17). The balance of the
investment was sold in 2001 resulting in an additional pre-tax gain in
2001 of $14.7 million (note 17).
l) In December 2000, Hollinger International acquired four paid daily
newspapers, one paid non-daily and 12 free distribution publications
in the Chicago suburbs for total cash consideration of US$111,000,000
($166,744,000). Of the aggregate purchase price, $78,781,000 was
ascribed to circulation and $48,244,000 to goodwill.
All of the Company's acquisitions have been accounted for using the
purchase method with the results of operations included in these
consolidated financial statements from the dates of acquisition.
F-19
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
The details of the acquisitions including those detailed above are as
follows:
2000 2001 2002
-------- ---- ----
Assets acquired, at fair value
Current assets............................................ $ 19,444 $-- $--
Fixed assets.............................................. 51,724 -- --
Circulation............................................... 78,781 -- --
Goodwill and other assets................................. 57,418 -- --
-------- -- --
207,367 -- --
-------- -- --
Less liabilities assumed
Current liabilities....................................... 16,269 -- --
Long-term liabilities..................................... 15,722 -- --
-------- -- --
31,991 -- --
-------- -- --
Net cost of investments..................................... $175,376 $-- $--
======== == ==
5. INVESTMENTS
2001 2002
-------- --------
ASSOCIATED COMPANIES, AT EQUITY
The Company
Cayman Free Press Ltd. -- 40% interest................. $ 11,245 $ 11,314
Telegraph
Trafford Park Printers Limited ("Trafford Park"), West
Ferry Printers Limited ("West Ferry"), Paper Purchase
Management Limited ("PPM") and handbag.com Limited
(handbag) joint ventures -- 50% interests............ 29,110 27,763
Internet-related investments.............................. 8,205 8,012
Other..................................................... 1,490 1,886
-------- --------
50,050 48,975
-------- --------
MARKETABLE INVESTMENTS, AT COST
CanWest debentures a)..................................... 72,259 85,664
Internet-related investments.............................. 6,680 5,812
-------- --------
78,939 91,476
-------- --------
OTHER NON-MARKETABLE INVESTMENTS, AT COST
Internet and telephony-related investments................ 78,272 36,282
Other..................................................... 52,174 33,412
-------- --------
130,446 69,694
-------- --------
$259,435 $210,145
======== ========
a) The CanWest debentures were issued by a wholly owned subsidiary of
CanWest and are guaranteed by CanWest. The debentures were received on
November 16, 2000 as partial consideration for the operations sold to
CanWest. Interest on the CanWest debentures is calculated, compounded
and payable semi-annually in arrears at a rate of 12.125% per annum. At
any time prior to November 5, 2005, CanWest may elect to pay interest
on the debentures by way of non-voting shares of CanWest, debentures in
substantially the same form as the CanWest debentures, or cash.
Subsequent to November 5, 2005, interest is to be paid in cash. The
debentures are due November 15, 2010, but
F-20
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
are redeemable at any time prior to May 15, 2003 for cash at CanWest's
option at 100% of the principal amount.
CanWest debentures at December 31, 2002 had a principal face amount of
$93.0 million (2001 -- $77.2 million), including $15.8 million of
additional debentures received in 2002 (2001 -- $67.1 million) in
payment of the interest due on existing debentures held by the Company,
a portion of which related to 2001. These debentures have been recorded
at their fair value at the time they are received.
As part of Hollinger International's November 16, 2000 purchase and sale
agreement with CanWest, Hollinger International was prohibited from
selling CanWest debentures prior to May 15, 2003. In order to monetize
the debentures, Hollinger International entered into a participation
agreement in August 2001 pursuant to which it sold participation
interests in $540.0 million (US$350.0 million) principal amount of
CanWest debentures to a special purpose trust (the "Participation
Trust") administered by an arm's-length trustee. That sale of
participation interests was supplemented by a further sale of $216.8
million (US$140.5 million) in December 2001 for a total of $756.8
million (US$490.5 million). Both sales were conducted at a fixed rate of
exchange of US$0.6482 for each $1. Hollinger International remains the
record owner of the participated CanWest debentures and is required to
make payments to the Participation Trust with respect to those
debentures if and to the extent it receives payment in cash or in kind
on the debentures from CanWest. These payments are not reflected in the
Company's accounts.
Coincident with the Participation Trust's purchase of the participation
interests, the Participation Trust sold senior notes to arm's-length
third parties to finance the purchase of the participation interests.
These transactions resulted in net proceeds to Hollinger International
of $621.8 million and for accounting purposes have been accounted for as
sales of CanWest debentures. The net loss on the 2001 transactions,
including realized holding losses on the debentures, amounted to $97.4
million and has been included in unusual items (note 17). Hollinger
International believes that the participation arrangement does not
constitute a prohibited sale of debentures as legal title was not
transferred. CanWest has advised Hollinger International that it accepts
that position.
Hollinger International has not retained an interest in the
Participation Trust nor does it have any beneficial interest in the
assets of the Participation Trust. The Participation Trust and its
investors have no recourse to Hollinger International's other assets in
the event that CanWest defaults on its debentures. Under the terms of
the Participation Trust, the interest payments received by Hollinger
International in respect of the underlying CanWest debentures will be
paid to the Participation Trust. However, after May 15, 2003, Hollinger
International may be required to deliver to the Participation Trust
CanWest debentures with a face value equivalent to US$490.5 million
based on then current rates of exchange. The CanWest debentures are
denominated in Canadian dollars and, consequently, there is a currency
exposure on the debentures subject to the delivery provision. A
substantial portion of that exposure was previously hedged; however, the
hedge instrument (a forward foreign exchange contract) was terminated in
contemplation of and in conjunction with Publishing's placement of
Senior Notes (note 10a)) and amendment of Publishing's Senior Credit
Facilities (note 10b)). During 2001 and 2002, the net loss before tax,
realized on the mark to market of both the obligation to the
Participation Trust and the related hedge contract was $0.7 million and
$10.4 million, respectively, and has been included in net foreign
currency losses in the consolidated statement of earnings. In 2002, the
loss before tax is net of cash received on the termination of the hedge
of $9.9 million.
F-21
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
Pursuant to the terms of the Participation Trust, the Company is unable
to sell to an unaffiliated third party until at least November 4, 2010
the equivalent of US$50.0 million ($79.0 million at December 31, 2002)
principal amount of CanWest debentures.
b) CanWest shares at December 31, 2000 consisted of 2,700,000 multiple
voting preferred shares and 27,000,000 non-voting shares. The
non-voting shares were publicly traded and the multiple voting shares
were not publicly traded but were convertible into non-voting shares at
the rate of 0.15 non-voting share for each voting preferred share or a
total additional 405,000 non-voting shares. The non-voting shares and
voting preferred shares represented an approximate 15.6% equity
interest and 5.7% voting interest in CanWest. On November 28, 2001,
Hollinger International sold the 2,700,000 multiple voting preferred
shares and 27,000,000 non-voting shares in CanWest for total cash
proceeds of approximately $271.3 million. The sale resulted in a
realized pre-tax loss of $157.5 million which is included in unusual
items (note 17).
6. CAPITAL ASSETS
2001 2002
---------- ----------
COST
Land...................................................... $ 54,878 $ 52,050
Buildings and leasehold interests......................... 326,449 340,886
Machinery and equipment................................... 803,345 848,576
---------- ----------
1,184,672 1,241,512
---------- ----------
ACCUMULATED DEPRECIATION AND AMORTIZATION
Buildings and leasehold interests......................... 58,680 66,373
Machinery and equipment................................... 459,491 514,638
---------- ----------
518,171 581,011
---------- ----------
NET BOOK VALUE.............................................. $ 666,501 $ 660,501
========== ==========
OWNED ASSETS
Cost...................................................... $ 898,007 $ 887,484
Accumulated depreciation and amortization................. 330,240 352,956
---------- ----------
Net book value............................................ $ 567,767 $ 534,528
========== ==========
LEASED ASSETS
Cost...................................................... $ 286,665 $ 354,028
Accumulated depreciation and amortization................. 187,931 228,055
---------- ----------
Net book value............................................ $ 98,734 $ 125,973
========== ==========
Depreciation and amortization of capital assets totalled $116,760,000,
$78,450,000 and $74,352,000 in 2000, 2001 and 2002, respectively. Hollinger
International capitalized interest in 2000, 2001 and 2002 amounting to
$4,653,000, $129,000 and nil, respectively, related to the construction and
equipping of production facilities for its newspapers in Chicago.
7. GOODWILL AND OTHER INTANGIBLE ASSETS
As described in note 1 to the consolidated financial statements, the
Company adopted Section 3062 and certain transitional provisions of Section 1581
effective January 1, 2002.
F-22
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
The changes in the carrying amount of goodwill by reportable segment for
the year ended December 31, 2002 are as follows:
U.K. CANADIAN
CHICAGO COMMUNITY NEWSPAPER NEWSPAPER CONSOLIDATED
GROUP GROUP GROUP GROUP TOTAL
-------- --------- --------- ---------- ------------
Balance as at January 1,
2002........................ $234,320 $31,975 $569,013 $70,333 $905,641
Transitional impairment loss
-- Jerusalem Post (note
1).......................... -- (31,975) -- -- (31,975)
-------- ------- -------- ------- --------
Revised balance as at January
1, 2002..................... 234,320 -- 569,013 70,333 873,666
Adjustment of excess
acquisition reserves........ (19,477) -- -- -- (19,477)
Repurchase of shares of
Hollinger International
Class A common stock by
Hollinger International
(note 24b))................. 3,344 -- 8,240 -- 11,584
Foreign exchange and other.... (1,534) -- 48,809 279 47,554
-------- ------- -------- ------- --------
Balance as at December 31,
2002........................ $216,653 $ -- $626,062 $70,612 $913,327
======== ======= ======== ======= ========
Upon adoption of Section 3062, intangible assets totalling $978,569,000,
which were previously ascribed to circulation, net of $247,252,000 of deferred
taxes, were reclassified to goodwill. Intangible assets with a total net book
value at January 1, 2002 of $198,975,000 previously ascribed to circulation,
consisting of non-competition agreements of $12,195,000 net of accumulated
amortization of $8,360,000 and subscriber and advertiser relationships of
$186,780,000 net of accumulated amortization of $35,261,000 were recognized as
identifiable intangible assets apart from goodwill upon adoption of Section
3062.
The Company's amortizable other intangible assets consist of
non-competition agreements with former owners of acquired newspapers which are
amortized using the straight-line method over the term of the respective
non-competition agreements which range from three to five years, and subscribers
and advertiser relationships which are amortized using the straight-line method
over 30 years. The components of other amortizable intangible assets at December
31, 2002 are as follows:
GROSS
CARRYING ACCUMULATED NET BOOK
AMOUNT AMORTIZATION VALUE
-------- ------------ --------
Amortizable other intangible assets:
Non-competition agreements........................ $ 22,120 $15,049 $ 7,071
Subscriber and advertiser relationships........... 220,485 42,413 178,072
-------- ------- --------
$242,605 $57,462 $185,143
======== ======= ========
Amortization of non-competition agreements for the year ended December 31,
2002 was $6,689,000. Amortization of advertiser and subscriber relationships for
the year ended December 31, 2002 was $7,152,000. Future amortization of
amortizable intangible assets is as follows: 2003 -- $13,895,000, 2004 --
$7,483,000, 2005 -- $7,235,000, 2006 -- $7,195,300, and 2007 -- $7,195,000.
Amortization of goodwill and other intangible assets in total for the year
ended December 31, 2001 was $66,266,000 (2000 -- $103,172,000).
F-23
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
8. DEFERRED FINANCING COSTS AND OTHER ASSETS
2001 2002
-------- --------
Deferred pension asset (note 22)............................ $ 83,459 $123,230
Deferred finance costs, net of amortization of $38,494,000
(2001 -- $36,512,000)..................................... 52,484 52,759
Deferred foreign exchange loss on exchangeable shares....... 1,446 1,234
Other assets................................................ 17,154 16,314
-------- --------
$154,543 $193,537
======== ========
Amortization of deferred finance costs, included in other interest expense,
totalled $18,504,000, $18,648,000 and $11,347,000 in 2000, 2001 and 2002,
respectively.
9. BANK INDEBTEDNESS
2001 2002
-------- -------
The Company................................................. $129,475 $90,810
======== =======
At December 31, 2002, the Company has a bank operating line which provides
for up to $10.0 million of borrowings and a revolving bank credit facility which
provides for up to $80.8 million of borrowings. The Company's revolving bank
credit facility is secured by shares of Hollinger International Class A and
Class B common stock owned by the Company and bears interest at the prime rate
plus 2.5% or the banker's acceptance ('BA') rate plus 3.5%. Under the terms of
the revolving bank credit facility, the Company and its subsidiaries are subject
to restrictions on the incurrence of additional debt.
The revolving bank credit facility was amended and restated on August 30,
2002 and was to mature on December 2, 2002. A mandatory repayment of the
revolving bank credit facility in the amount of $50.0 million was required by
December 2, 2002 and if such payment was made, the lenders could have consented
to an extension of the maturity date to December 2, 2003 in respect of the
principal outstanding. On December 2, 2002, the lenders extended the $50.0
million principal repayment date to December 9, 2002. This repayment was not
made and on December 9, 2002, the bank credit facility was amended to require a
principal payment of $44.0 million on February 28, 2003 with the balance
maturing on December 2, 2003. As a result of the impending closing of the
Company's Senior Secured Note issue, the lenders further extended the due date
for the repayment of the $44.0 million to March 14, 2003. On March 10, 2003, the
revolving bank credit facility in the amount of $80.8 million and the bank
operating line of $10.0 million were repaid with part of the proceeds of the
Company's issue of Senior Secured Notes (note 29a)).
On October 3, 2002, Hollinger International entered into a term lending
facility and borrowed US$50.0 million ($79.6 million). As a result of Hollinger
International's borrowing under this term facility, the Company was in default
of a covenant under its revolving bank credit facility which, while in default,
resulted in the Company's borrowings being due on demand. The banks waived the
default and on December 23, 2002, Hollinger International repaid the full amount
borrowed under its term lending facility (note 10d)).
During 2001, the Company reduced its bank indebtedness by $142,000,000 with
proceeds from the sale, to Hollinger International for cancellation, of
7,052,464 million of its shares of Class A common stock (note 4e)). In December
2001, the Company sold 2,000,000 shares of Hollinger International Class A
common stock to third parties for total cash proceeds of $31,400,000 (note 4e))
and reduced bank indebtedness by the same amount. During January 2002, the
Company sold a further 2,000,000 shares of
F-24
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
Class A common stock of Hollinger International and reduced bank indebtedness by
an additional $38,600,000 (note 4a)).
10. LONG-TERM DEBT
2001 2002
---------- ----------
Hollinger International
Senior Notes due 2010 (US$300,000,000).................... $ -- $ 474,000
Senior Credit Facility (US$265,000,000)................... -- 418,698
Senior Notes due 2005 (US$5,082,000) (2001 --
US$260,000,000)........................................ 414,050 8,030
Senior Subordinated Notes due 2006 (US$239,900,000) (2001
-- US$250,000,000)..................................... 398,125 379,051
Senior Subordinated Notes due 2007 (US$265,000,000) (2001
-- US$290,000,000)..................................... 461,825 418,700
Other..................................................... 16,933 5,103
Other....................................................... 15,346 20,152
Obligations under capital leases
Printing joint ventures................................... 37,914 60,096
Other..................................................... 7,433 5,491
---------- ----------
1,351,626 1,789,321
Less:
Current portion included in current liabilities........... 10,020 16,800
Senior Subordinated Notes (note 10a))..................... -- 797,751
---------- ----------
$1,341,606 $ 974,770
========== ==========
a) On December 23, 2002, Publishing issued US$300,000,000 of 9% Senior
Notes due 2010 guaranteed by Hollinger International. Net proceeds of
the issue of US$291,700,000 plus cash on hand and borrowings under
Publishing's Senior Credit Facility (note 10b)) were used in December
2002 to retire Hollinger International's equity forward share purchase
contracts (Total Return Equity Swaps (note 24b)) and to repay amounts
borrowed under its term facility maturing December 31, 2003 (note 10d))
and in January 2003 to retire, in their entirety, Publishing's
outstanding Senior Subordinated Notes due 2006 and 2007 with the
balance available for general corporate purposes.
The Senior Notes bear interest at 9% payable semi-annually and mature on
December 15, 2010. The Senior Notes are redeemable at the option of
Publishing anytime after December 15, 2006 at 104.5% of the principal
amount, after December 15, 2007 at 102.25% of the principal amount and
after December 15, 2008 at 100% of the principal amount.
On December 23, 2002, Publishing gave notice of redemption to both the
holders of the Senior Subordinated Notes due 2006 with a principal
remaining outstanding of US$239.9 million and to the holders of the
Senior Subordinated Notes due 2007 with a principal remaining
outstanding of US$265.0 million. Such notes were retired in January 2003
with a payment of $859.1 million (US$543.8 million), including early
redemption premiums and accrued interest. At December 31, 2002, the
notes remained outstanding and have been disclosed as a current
liability. The proceeds from the December 2002 issue of Publishing's
Senior Notes and borrowings under the Senior Credit Facility used to
fund the redemption were held in escrow at December 31, 2002 and have
been disclosed as escrow deposits in current assets.
F-25
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
Unamortized deferred financing costs in the amount of $28.0 million and
the $31.1 million premium related to the retirement of the Senior
Subordinated Notes will be charged to earnings in 2003 on extinguishment
of the notes.
The Indentures relating to the 9% Senior Notes contain financial
covenants and negative covenants that limit Publishing's ability to,
among other things, incur indebtedness, pay dividends or make other
distributions on its capital stock, enter into transactions with related
companies, and sell assets, including stock of a restricted subsidiary.
The Indentures provide that upon a change of control (as defined in the
Indentures), each noteholder has the right to require Publishing to
purchase all or any portion of such noteholder's notes at a cash
purchase price equal to 101% of the principal amount of such notes, plus
accrued and unpaid interest. The Senior Credit Facility (note 10b))
restricts Publishing's ability to repurchase these notes even when
Publishing may be required to do so under the terms of the Indenture
relating to the 9% Senior Notes in connection with a change of control.
On January 22, 2003 and February 6, 2003, Publishing entered into
interest rate swaps to convert US$150.0 million and US$100.0 million,
respectively, of the 9% Senior Notes issued in December 2002 to floating
rates for the period to December 15, 2010, subject to early termination
notice.
The Trust Indenture in respect of the 9% Senior Notes contains customary
covenants and events of default, which are comparable to those under the
Senior Credit Facility.
b) On December 23, 2002, Publishing and certain of its subsidiaries
entered into a senior credit facility with an aggregate commitment of
US$310,000,000 (the "Senior Credit Facility").
The Senior Credit Facility consists of i) US$45,000,000 revolving credit
facility which matures on September 30, 2008 (the "Revolving Credit
Facility"), ii) a US$45,000,000 Term Loan A which matures on September
30, 2008 ("Term Loan A") and iii) a US$220,000,000 Term Loan B which
matures on September 30, 2009 ('Term Loan B'). Publishing and Telegraph
are the borrowers under the Revolving Credit Facility and First DT
Holdings Ltd. ("FDTH"), a wholly owned indirect U.K. subsidiary) is the
borrower under Term Loan A and Term Loan B. The Revolving Credit
Facility and Term Loans bear interest at either the Base Rate (U.S.) or
U.S. LIBOR, plus an applicable margin. Interest is payable quarterly.
At December 31, 2002, FDTH had a total US$265,000,000 of borrowings
outstanding under Term Loan A and Term Loan B.
On December 27, 2002, a United Kingdom subsidiary of the Company entered
into two cross-currency rate swap transactions to hedge principal and
interest payments on U.S. dollar borrowings under the December 23, 2002
Senior Credit Facility. The contracts have a total foreign currency
obligation notional value of US$265.0 million, fixed at a rate of
US$1.5922 to L1, convert the interest rate on such borrowing from
floating to fixed, and expire as to US$45.0 million on December 29, 2008
and as to US$220.0 million on December 29, 2009.
Publishing's borrowings under the Senior Credit Facility are guaranteed
by Publishing's material U.S. subsidiaries, while FDTH's and Telegraph's
borrowings under the Senior Credit Facility are guaranteed by Publishing
and its material U.S. and U.K. subsidiaries. Hollinger International is
also a guarantor of the Senior Credit Facility. Publishing's borrowings
under the Senior Credit Facility are secured by substantially all of the
assets of Publishing and its material U.S. subsidiaries, a pledge of all
of the capital stock of Publishing and its material U.S. subsidiaries
and a pledge of 65% of the capital stock of certain foreign
subsidiaries. FDTH's and Telegraph's borrowings under the Senior Credit
Facility are secured by substantially all of the assets of Publishing
and its material U.S. and U.K. subsidiaries and a pledge of all of the
capital stock of Publishing and its material U.S. and
F-26
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
U.K. subsidiaries. Hollinger International's assets in Canada have not
been pledged as security under the Senior Credit Facility.
The Senior Credit Facility agreement requires Publishing to comply with
certain covenants which include, without limitation and subject to
certain exceptions, restrictions on additional indebtedness; liens,
certain types of payments (including without limitation, capital stock
dividends and redemptions, payments on existing indebtedness and
intercompany indebtedness), and on incurring or guaranteeing debt of an
affiliate, making certain investments and paying management fees;
mergers, consolidations, sales and acquisitions; transactions with
affiliates; conduct of business except as permitted; sale and leaseback
transactions; changing fiscal year; changes to holding company status;
creating or allowing restrictions on taking action under the Senior
Credit Facility loan documentation; and entering into operating leases,
subject to certain basket calculations and exceptions. The Senior Credit
Facility loan agreement also contains customary events of default.
As of December 31, 2002, Hollinger International's aggregate annual
rental payments under operating leases exceeded the amounts permitted
under the covenants to the Senior Credit Facility. Hollinger
International has been advised by the Administrative Agent of the Senior
Credit Facility that the lenders have agreed to amend the Senior Credit
Facility effective March 28, 2003, to increase the amount permitted
under the operating lease covenant and have agreed to a waiver of any
default or event of default in connection therewith. Based on the
amended covenant, Hollinger International would have been in compliance
as of December 31, 2002.
c) On February 14, 2002, Publishing commenced a cash tender offer for any
and all of its outstanding 8.625% Senior Notes due 2005. The tender
offer was made upon the terms and conditions set forth in the Offer to
Purchase and Consent Solicitation Statement dated February 14, 2002.
Under the terms of the offer, Hollinger International offered to
purchase the outstanding notes at a price to be determined three
business days prior to the expiration date of the tender offer by
reference to a fixed spread of 87.5 basis points over the yield to
maturity of the 7.50% U.S. Treasury Notes due February 15, 2005, plus
accrued and unpaid interest up to, but not including the day of payment
for the notes. The purchase price totalled US$1,101.34 for each
US$1,000 principal amount of notes. Included in the purchase price was
a consent payment equal to US$40 per US$1,000 principal amount of the
notes, payable to those holders who validly consented to the proposed
amendments to the indenture governing the notes. In connection with the
tender offer, Publishing solicited consents from the holders of the
notes to amend the Indenture governing the notes by eliminating most of
the restrictive provisions. On March 15, 2002, $397.2 million (US$248.9
million) in the aggregate principal amount had been validly tendered
pursuant to the offer and on March 18, 2002, these noteholders were
paid out in full. In addition, during the year, Publishing purchased
for retirement an additional $9.6 million (US$6.0 million) in aggregate
principal amount of the 8.625% Senior Notes due 2005.
During 2002, Publishing purchased for retirement $16.1 million (US$10.1
million) in aggregate principal amount of the 9.25% Senior Subordinated
Notes due 2006 and $39.9 million (US$25.0 million) in the aggregate
principal amount of its 9.25% Senior Subordinated Notes due 2007.
The total principal amount of the above Publishing Senior and Senior
Subordinated Notes retired during 2002 was $462.8 million (US$290.0
million). The premiums paid to retire the debt totalled $43.0 million
which, together with a write-off of $13.3 million of related deferred
financing costs, have been presented as an unusual item (note 17).
F-27
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
As at December 31, 2001, Hollinger International did not meet a
financial test set out in the Trust Indentures for Publishing's Senior
Notes due 2005 and Senior Subordinated Notes. As a result, Publishing
and its subsidiaries were unable to incur additional indebtedness, make
restricted investments, make advances, pay dividends or make other
distributions on their capital stock.
d) In October 2002, Hollinger International borrowed on an unsecured basis
$79,600,000 (US$50,000,000) at 10.5% under a term facility maturing
December 31, 2003. Proceeds from Publishing's aforementioned Senior
Credit Facility and the issue of 9% Senior Notes were used, in part, to
repay these borrowings in December 2002.
e) Amounts borrowed under a former short-term credit facility of
$191,100,000 (US$120,000,000) entered into by Hollinger International
in 2001 were repaid during that year.
f) In June 2000, Publishing, HCPH, Telegraph, Southam, HIF Corp., a wholly
owned subsidiary of Publishing, and a group of financial institutions
increased the term loan component of the Fourth Amended and Restated
Credit Facility ("Restated Credit Facility") by US$100,000,000 to
US$975,000,000. On November 16, 2000, using the proceeds from the
CanWest transaction (note 4(g)) US$972,000,000 of borrowings were
repaid and the Restated Credit Facility was reduced to US$5,000,000.
The Restated Credit Facility was secured by the collateralization of
US$5,000,000 of Hollinger International's positive cash balance (note
3). At December 31, 2001, no amounts were owing under the Restated
Credit Facility. During 2002, the Restated Credit Facility was
terminated.
g) Principal amounts payable on long-term debt, excluding obligations
under capital leases, for each of the five years subsequent to December
31, 2002 are as follows:
h) Minimum lease commitments, together with the present value of
obligations under capital leases, are as follows:
2003........................................................ $ 15,044
2004........................................................ 12,245
2005........................................................ 9,454
2006........................................................ 9,084
2007........................................................ 6,379
Subsequent.................................................. 28,913
--------
Total future minimum lease payments......................... 81,119
Less imputed interest and executory costs................... (15,532)
--------
Present value of minimum lease payments discounted at an
average rate of 6.9%...................................... 65,587
Less current portion included in current liabilities........ (11,914)
--------
$ 53,673
========
F-28
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
11. RETRACTABLE PREFERENCE SHARES
2001 2002
-------- --------
4,580,979 Series II preference shares (2001 -- 5,366,979)... $ 46,000 $ 33,827
10,147,225 Series III preference shares 2001 --
10,147,225)............................................... 101,472 101,472
-------- --------
$147,472 $135,299
======== ========
a) The Series II preference shares are exchangeable non-voting preference
shares issued at $10.00 per share. On May 12, 1999, the Series II
preference shares became redeemable at the holder's option for 0.46 of
a share of Class A common stock of Hollinger International for each
Series II preference share. The Company has the option to make a cash
payment of equivalent value on the redemption of any of the Series II
preference shares. Each Series II preference share entitles the holder
to a dividend equal to the amount of any dividend on 0.46 of a share of
Class A common stock of Hollinger International (less any U.S.
withholding tax thereon payable by the Company or any subsidiary). In
2002, these retractable preference shares are included in current
liabilities since they are retractable at any time at the option of the
holder.
During 2002, 750,000 Series II preference shares were retracted in
exchange for 345,000 shares of Hollinger International Class A common
stock which, together with the Hollinger International share sale
described in note 4a), resulted in a gain on effective sale of Hollinger
International shares of $20,103,000 (note 17). In addition, 36,000
Series II preference shares were retracted for the cash equivalent value
of 0.46 of a Class A common share of Hollinger International at the time
of retraction, which totalled $277,000.
During 2001, 2,685,465 Series II preference shares were retracted in
exchange for 1,235,312 of shares of Hollinger International Class A
common stock which, together with the retraction of retractable common
shares in exchange for shares of Hollinger International Class A common
stock (note 13d)) and Hollinger International share redemptions and
sales described in note 4e), resulted in a gain on effective sale of
Hollinger International shares of $59,449,000 (note 17). In addition,
28,038 Series II preference shares were retracted for the cash
equivalent value of 0.46 of a share of Class A common stock of Hollinger
International at the time of retraction, which totalled $317,000.
During 2000, a total of 6,710,817 Series II preference shares were
retracted in exchange for 3,086,971 shares of Hollinger International
Class A common stock which, together with the
F-29
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
retraction of retractable common shares in exchange for shares of
Hollinger International common stock (note 13e)), resulted in a gain on
effective sale of Hollinger International shares of $28,450,000 (note
17). In addition, 239,435 Series II preference shares were retracted for
the cash equivalent value of 0.46 of a share of Class A common stock of
Hollinger International at the time of retraction, which totalled
$2,385,000.
The Series II preference shares represent a financial liability and are
recorded in the accounts at their fair value, being the market value of
the shares of Class A common stock of Hollinger International for which
they are exchangeable. At December 31, 2002, the market value of the
shares of Class A common stock of Hollinger International into which the
4,580,979 Series II preference shares were exchangeable was $33,827,000
or $11,983,000 less than the issue price. At December 31, 2001, the
market value of the shares of Class A common stock of Hollinger
International into which the 5,366,979 Series II preference shares are
exchangeable was $46,000,000 or $7,670,000 less than issue price.
As at December 31, 2002, the cumulative deferred unrealized gains of
$11,983,000 have been deferred as the Series II preference shares are
hedged by the Company's investment in shares of Hollinger International
Class A common stock, which it intends to deliver in future Series II
preference share retractions, if any. Delivery of shares of Hollinger
International Class A common stock on such retractions would result in a
dilution gain to the Company which would be included in unusual items.
b) The Series III preference shares provide for a mandatory redemption on
the fifth anniversary of issue being April 30, 2004 for $10.00 cash per
share (plus unpaid dividends) and an annual cumulative dividend,
payable quarterly, of $0.70 per share per annum (or 7%) during the
five-year term. The Company has the right at its option to redeem all
or any part of the Series III preference shares at any time after April
30, 2002, for $10.00 cash per share (plus unpaid dividends). Holders
have the right at any time to retract Series III preference shares for
a retraction price payable in cash which, until April 30, 2003,
fluctuates by reference to two benchmark Government of Canada bonds
having a comparable yield and term to the Series III preference shares,
and during the year ending April 30, 2004, the retraction price will be
$9.50 per share (plus unpaid dividends in each case).
During 2000, 315,000 Series III preference shares were retracted for
cash of $2,748,000. The resulting gain of $402,000 was included in
unusual items (note 17).
c) Certain of the HCPH Special shares, issued in 1997, represented a
financial liability of the Company which was hedged by the Company's
investment in shares of Class A common stock of Hollinger
International. In June 2000, the Company exercised its option to pay
cash on the mandatory exchange of these Special shares in the amount of
US$36.8 million. The previously deferred foreign exchange loss arising
from translating the U.S. dollar obligation was written off to unusual
items (note 17).
In addition, in connection with the acquisition of Southam shares in
1997, HCPH issued 6,552,425 Special shares valued at $10.00 per share at
the time of issue. In accordance with the terms of these shares,
Hollinger International was required to deliver cash or common shares of
Hollinger International upon the exchange of the Special shares and
accordingly, they did not represent a financial liability of the Company
and were presented as minority interest. These shares were exchangeable
at the option of the holder at any time prior to June 26, 2000, into
newly issued Class A subordinate voting shares of Hollinger
International. On June 12, 2000, Hollinger International exercised its
option to pay cash on the mandatory exchange of the HCPH Special shares.
Pursuant to the terms of the indenture governing the Special shares,
each Special share was
F-30
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
exchanged for cash of US$8.88 resulting in a payment to Special
shareholders by Hollinger International of US$58.2 million.
12. OTHER LIABILITIES AND DEFERRED CREDITS
2001 2002
-------- --------
Deferred gains.............................................. $ 3,189 $ 2,536
Pension obligations (note 22)............................... 8,182 12,863
Accrued post-retirement cost (note 22)...................... 62,092 60,506
Other benefit obligations................................... 35,607 18,824
Liability for amounts due to Participation Trust (notes 5a)
and 24d))................................................. 691 21,444
Liability for cross currency swap (note 24d))............... -- 14,475
-------- --------
$109,761 $130,648
======== ========
Deferred gains represent a lease inducement, which is being recognized in
income over the term of the lease, and a portion of the gain arising on the
Telegraph's transfer of certain equipment to the Trafford Park joint venture,
which is being recognized in income as the assets are depreciated and/or sold by
the joint venture.
13. CAPITAL STOCK
2001 2002
-------- --------
AUTHORIZED
Unlimited number of retractable common shares and an
unlimited number of preference shares
ISSUED AND FULLY PAID
PREFERENCE SHARES
4,580,979 Series II (2001 -- 5,366,979) (note 11)......... $ -- $ --
10,147,225 Series III (2001 -- 10,147,225) (note 11)...... -- --
RETRACTABLE COMMON SHARES
32,352,047 (2001 -- 32,068,937)........................... 271,774 273,759
-------- --------
$271,774 $273,759
======== ========
a) The retractable common shares have terms equivalent to common shares,
except that they are retractable at any time by the holder for their
retraction price, which is fixed from time to time, in exchange for the
Company's shares of Hollinger International Class A common stock of
equivalent value or, at the Company's option, cash. The retraction
price each quarter (or, in certain specific cases more frequently) is
between 90% and 100% of the Company's current value, as determined by
the Retraction Price Committee in accordance with the share conditions.
b) During 2002, 141,000 and 1,148 retractable common shares were retracted
for cash of $7.50 per share and $5.50 per share, respectively. The
total retractions in 2002 of 142,148 retractable common shares resulted
in a gain on retraction of $141,000, which has been included in the
consolidated statements of deficit.
c) In December 2002, the Company paid a stock dividend of 10 cents per
retractable common share, resulting in 425,258 retractable common
shares being issued for $3,189,000 with a corresponding amount booked
to dividends paid.
F-31
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
d) During 2001, 20,015 retractable common shares were retracted for cash
amounts ranging between $8.00 and $14.50 per share for total cash
consideration of $273,000. In addition, a further 1,809,500 and
2,476,035 retractable common shares were retracted for $14.50 and
$13.00 per share, respectively, and were settled with the delivery of
an aggregate of 2,570,002 shares of Hollinger International Class A
common stock. This, together with the retraction of Series II
preference shares for Hollinger International Class A common stock
(note 11a)) and the Hollinger International share redemptions and sales
described in note 4e), resulted in a gain on effective sale of the
Hollinger International shares of $59,449,000 (note 17). The total
retractions in 2001 of 4,305,550 retractable common shares resulted in
a premium on retraction of $22,211,000, which has been charged to
deficit.
e) During 2000, 13,210 and 33,918 retractable common shares were retracted
for cash of $10.00 per share and $16.75 per share, respectively. In
addition, a further 51,100 and 723,700 retractable common shares were
retracted for $11.50 and $16.75, respectively, and were settled with
the delivery of 554,927 shares of Hollinger International Class A
common stock. This, together with the retraction of Series II
preference shares for Hollinger International shares (note 11a)),
resulted in a gain on effective sale of the Hollinger International
shares of $28,450,000 (note 17). The total retractions in 2000 of
821,928 retractable common shares resulted in premium on retraction of
$6,448,000 which has been charged to deficit.
f) The Company and certain of its subsidiaries have stock option plans for
their employees.
i) Details of the Hollinger Inc. stock option plan are as follows:
The Company has one Executive Share Option Plan ("Plan"), under which
the Company may grant options to certain key executives of the
Company, its subsidiary or affiliated companies or its parent
company, for up to 5,560,000 retractable common shares.
These options give the holder the right to purchase, subject to the
executives' entitlement to exercise, one retractable common share of
the Company for each option held. The options are exercisable to the
extent of 25% thereof at the end of each of the first through fourth
years following granting, on a cumulative basis. Options expire six
years after the date of grant. Unexercised options expire one month
following the date of termination of the executives' employment,
except in the case of retirement at normal retirement age, death or
certain offers made to all or substantially all of the holders of
retractable common shares of the Company, in which events, all
unexercised options become exercisable in full.
Stock option activity with respect to the Company's stock options is
as follows
NUMBER
OF EXERCISE
SHARES PRICE
------- --------
Options outstanding as at December 31, 1999, 2000 and
2001.................................................... 928,000 $13.72
Options expired in 2002................................... (15,000) 13.72
------- ------
Options outstanding as at December 31, 2002............... 913,000 $13.72
======= ======
Options exercisable at December 31, 2000.................. 464,000 $13.72
======= ======
Options exercisable at December 31, 2001.................. 696,000 $13.72
======= ======
Options exercisable at December 31, 2002.................. 913,000 $13.72
======= ======
Options outstanding at December 31, 2000, 2001 and 2002 had a
remaining contractual life of four, three and two years,
respectively.
F-32
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
ii) Details of Hollinger International's stock option plan are as
follows:
Hollinger International's Incentive Plan is administered by its
independent committee ("Committee") of its Board of Directors. The
Committee has the authority to determine the employees to whom awards
will be made, the amount and type of awards, and the other terms and
conditions of the awards. In 1999, the Company adopted the 1999 Stock
Incentive Plan ("1999 Stock Plan") which superseded its previous two
plans.
The 1999 Stock Plan authorizes the grant of incentive stock options
and nonqualified stock options. The exercise price for stock options
must be at least equal to 100% of the fair market value of the shares
of Hollinger International Class A common stock on the date of grant
of such option.
Under Section 3870, stock options granted to employees of Ravelston,
the parent company of the Company, must be measured at fair value and
recorded as a dividend-in-kind by Hollinger International. On
February 5, 2002, Hollinger International granted 1,309,000 stock
options to employees of Ravelston with an exercise price of US$11.13
per share. The aggregate fair value of these options was $9,594,000
(US$6,111,000) and this has been recorded by Hollinger International
as an in-kind dividend (with no impact on the accounts of the
Company) during the year. On April 2, 2001, Hollinger International
granted 1,402,500 stock options to employees of Ravelston with an
exercise price of US$14.37 per share. The aggregate fair value of
these options was $12,090,000 (US$7,800,000) and was recorded by
Hollinger International as an in-kind dividend in 2001.
For all other series of stock options, no compensation cost has been
recognized by Hollinger International.
Stock option activity with respect to Hollinger International's stock
options is as follows:
NUMBER WEIGHTED
OF AVERAGE
SHARES EXERCISE PRICE
---------- --------------
(IN US$)
Options outstanding at December 31, 1999............ 5,149,500 $11.88
Options granted..................................... 2,559,250 10.57
Options exercised................................... (471,063) 11.67
Options cancelled................................... (536,374) 12.11
---------- ------
Options outstanding at December 31, 2000............ 6,701,313 11.38
Options granted..................................... 2,418,000 14.40
Options exercised................................... (624,162) 11.01
Options cancelled................................... (82,750) 12.33
---------- ------
Options outstanding at December 31, 2001............ 8,412,401 12.26
Options granted..................................... 2,227,000 11.14
Options exercised................................... (75,375) 10.81
Options cancelled................................... (168,688) 12.64
---------- ------
Options outstanding at December 31, 2002............ 10,395,338 $12.03
========== ======
Options exercisable at December 31, 2000............ 1,989,548 $11.51
========== ======
Options exercisable at December 31, 2001............ 3,032,682 $11.48
========== ======
Options exercisable at December 31, 2002............ 4,739,994 $11.85
========== ======
F-33
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
iii) Had the Company determined compensation expense based on the fair
value method at the grant date for stock options granted to
employees, consistent with the method prescribed under Section
3870, the Company's net earnings (loss) for the year and the
earnings (loss) per share would have been reported as the pro forma
amounts indicated below. This compensation expense takes into
account all options granted by the Company and Hollinger
International, including those granted prior to January 1, 2002.
The fair value of the options is amortized over the vesting period.
2000 2001 2002
-------- --------- --------
Net earnings (loss), as reported............ $189,373 $(131,898) $(88,640)
Stock-based compensation expense --
Hollinger Inc............................. (478) (239) (72)
Stock-based compensation expense --
Hollinger International Inc............... (4,712) (4,711) (3,985)
-------- --------- --------
Pro forma net earnings (loss)............... $184,183 $(136,848) $(92,697)
======== ========= ========
Net earnings (loss) per share:
As reported............................... $ 5.11 $ (3.91) $ (2.76)
Effect of stock-based compensation
expense................................ (0.14) (0.15) (0.13)
-------- --------- --------
Pro forma basic net earnings (loss) per
share..................................... $ 4.97 $ (4.06) $ (2.89)
======== ========= ========
Diluted net earnings (loss) per share, as
reported.................................. $ 5.05 $ (4.17) $ (2.79)
Pro forma diluted net earnings (loss) per
share..................................... $ 4.91 $ (4.32) $ (2.92)
======== ========= ========
The fair value of each Hollinger International stock option granted
during 2000, 2001 and 2002 was estimated on the date of grant for pro
forma disclosure purposes using the Black-Scholes option-pricing
model with the following weighted average assumptions used for grants
in fiscal 2000, 2001 and 2002, respectively: dividend yield of 3.4%,
4.6% and 3.6%, expected volatility of 43.3%, 55.2% and 68.3%,
risk-free interest rates of 5.1%, 5.0% and 4.5% and expected lives of
10 years. Weighted average fair value of options granted by Hollinger
International during 2000, 2001 and 2002 was $6.12 (US$4.12), $8.79
(US$5.67) and $8.87 (US$5.65), respectively.
14. EQUITY ADJUSTMENT FROM FOREIGN CURRENCY TRANSLATION
As described in note 1 under "Foreign currency translation", this amount
results principally from the accounting treatment for self-sustaining foreign
subsidiaries. The change in the amount from December 31, 2001 to December 31,
2002 primarily reflects the weakening of the Canadian dollar against the British
pound partly offset by the strengthening of the Canadian dollar against the U.S.
dollar and the recognition in unusual items (note 17) of a realized foreign
exchange gain arising on the reduction of net investments in foreign
subsidiaries. The amount at December 31, 2002 is unrealized and bears no
relationship to the underlying value of the Company's investment in foreign
subsidiaries.
F-34
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
15. COMMITMENTS
a) Future minimum lease payments subsequent to December 31, 2002 under
operating leases are as follows:
b) In connection with certain of its cost and equity investments (note 5),
Hollinger International and its subsidiaries are committed to fund
approximately $1.9 million to those investees in 2003.
16. CONTINGENCIES
a) The Telegraph has guaranteed to third parties, the joint venture
partners' share of operating lease obligations of both the West Ferry
and Trafford Park joint ventures, which amounted to $948,000 (L372,000)
at December 31, 2002. These obligations are also guaranteed jointly and
severally by each joint venture partner.
b) In connection with the Company's insurance program, letters of credit
are required to support certain projected workers' compensation
obligations. At December 31, 2002, letters of credit in the amount of
$4,384,500 were outstanding.
c) A number of libel and legal actions against the Company and its
subsidiaries are outstanding. The Company believes there are valid
defences to these proceedings or sufficient insurance to protect it
from material loss.
d) In special circumstances, the Company's newspaper operations may engage
freelance reporters to cover stories in locales that carry a high risk
of personal injury or death. Subsequent to December 31, 2002, the
Telegraph has engaged a number of journalists and photographers to
report from the Middle East. As a term of their engagement, the
Telegraph has agreed to provide a death benefit which, in the aggregate
for all freelancers engaged, amounts to $13,100,000 (L5,153,000). This
exposure is uninsured. Precautions have been taken to avoid a
concentration of the journalists and photographers in any one location.
The uninsured exposure was reduced to $3,820,000 (L2,600,000) as of
March 31, 2003.
F-35
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
17. UNUSUAL ITEMS
2000 2001 2002
-------- --------- --------
Net gain on dilution of investments......................... $ 25,775 $ -- $ --
Gain (loss) on sale of investments.......................... 47,921 (240,060) --
Gain on sales of interest in Hollinger International (notes
4a), 4e), 11a) and 13d)).................................. 28,450 59,449 20,103
Net gain (loss) on sales of Publishing interests............ 697,871 (22,963) --
Loss on retirement of Senior Notes (note 10c)).............. -- -- (56,287)
New Chicago plant pre-operating costs....................... (10,097) (7,237) (661)
Write-off of financing fees................................. (16,088) -- --
Write-off of investments.................................... (31,381) (79,943) (63,609)
Decrease in pension valuation allowance (note 22)........... -- 58,704 34,402
Realized loss on Total Return Equity Swap (note 24b))....... -- (29,646) (43,313)
Pension and post-retirement plan liability adjustment....... -- (16,823) --
Net foreign exchange gain on reduction of net investment in
foreign subsidiaries...................................... -- -- 44,548
Other income (expense), net................................. (41,506) (16,915) 2,187
-------- --------- --------
$700,945 $(295,434) $(62,630)
======== ========= ========
The income tax expense related to unusual items amounted to $229,812,000 in
2000, and an income tax recovery of $76,849,000 and $8,043,000 in 2001 and 2002,
respectively. The minority interest expense in unusual items after income taxes
amounted to $251,628,000 in 2000, and a minority interest recovery of
$144,634,000 and $48,570,000 in 2001 and 2002, respectively, resulting in net
earnings (loss) from unusual items after income taxes and minority interest of
$219,505,000, ($73,951,000) and ($6,017,000) in 2000, 2001 and 2002,
respectively.
18. INCOME TAXES
Income tax expense (recovery) attributable to income from continuing
operations consists of:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
The income tax expense (recovery) in the consolidated statements of
earnings varies from the amount that would be computed by applying the basic
federal and provincial income tax rates to loss before income taxes and minority
interest as shown in the following table:
2000 2001 2002
-------- --------- --------
Earnings (loss) before income taxes and minority
interest.......................................... $780,522 $(454,883) $(89,511)
======== ========= ========
Basic income tax rate............................... 43.95% 41.75% 41.00%
======== ========= ========
Computed income tax expense (recovery).............. $343,039 $(189,914) $(36,700)
Decrease (increase) in income tax expenses
(recovery) resulting from:
Different tax rate on earnings of
subsidiaries................................. (83,949) 22,075 17,834
Tax gain in excess of book gain................ (244,030) 24,293 949
Potential tax benefit of current year's losses
not recorded................................. 29,255 -- --
Large Corporations Tax......................... 15,531 940 1,079
Loss on Total Return Equity Swap............... -- 12,377 17,758
Change in valuation allowance.................. -- 42,841 74,043
Minority interest in earnings of Hollinger
L.P.......................................... (26,669) (2,001) (1,214)
Permanent differences.......................... 226,914 (88) 50,276
-------- --------- --------
Income tax expense (recovery)....................... $260,091 $ (89,477) $124,025
======== ========= ========
Effective tax rate.................................. 33.32% 19.67% 138.56%
======== ========= ========
The Company's Canadian subsidiaries have operating losses carried forward
for tax purposes of approximately $76,892,000, the tax benefit of which has not
been reflected in the accounts. These losses expire as follows:
The Company has recorded a valuation allowance of $74,043,000 in the
current year related to net operating loss carryforwards and other deferred tax
assets in the Canadian group. The valuation allowance in the prior year related
entirely to net operating losses of N.P. Holdings Company, a subsidiary of the
Company. As described in note 23c), this subsidiary was sold to an affiliate
during the year. The tax losses were sold at their carrying value.
F-37
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
The tax effects of temporary differences that give rise to significant
portions of the future tax assets and future tax liabilities are presented
below:
2001 2002
--------- ---------
Future tax assets:
Net operating loss carryforwards.......................... $ 127,753 $ 37,283
Compensation and accrued pension.......................... 7,459 6,952
Investments............................................... 20,717 51,676
Post-retirement benefit obligations....................... 28,044 28,050
Other..................................................... 86,046 30,933
--------- ---------
Gross future tax assets..................................... 270,019 154,894
Less valuation allowance.................................... (28,539) (74,043)
--------- ---------
Net future tax assets....................................... 241,480 80,851
--------- ---------
Future tax liabilities:
Property, plant and equipment, principally due to
differences in depreciation............................ 94,037 107,671
Intangible assets, principally due to differences in basis
and amortization....................................... 469,564 189,365
Pension assets............................................ 7,746 47,266
Long-term advances under joint venture printing
contract............................................... 20,801 20,290
Deferred gain on exchange of assets....................... 56,009 40,342
Other..................................................... 80,260 51,396
--------- ---------
Gross future tax liabilities................................ 728,417 456,330
--------- ---------
Future income tax liabilities............................... $(486,937) $(375,479)
========= =========
19. LOSS AND CASH FLOWS PER RETRACTABLE COMMON SHARE
The following tables reconcile the numerator and denominator for the
calculation of basic and diluted loss per share for the years ended December 31,
2000, 2001 and 2002:
YEAR ENDED DECEMBER 31, 2000
---------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Basic EPS
Net earnings available to common shareholders.... $189,373 37,041 $5.11
Effect of dilutive securities
Stock options of subsidiary.................... (2,161) -- (0.06)
-------- ------ -----
Diluted EPS
Net earnings available to common shareholders.... $187,212 37,041 $5.05
======== ====== =====
F-38
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
YEAR ENDED DECEMBER 31, 2001
---------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Basic EPS
Net loss available to common shareholders........ $(131,898) 33,740 $(3.91)
Effect of dilutive securities
Stock options of subsidiary.................... (8,651) -- (0.26)
--------- ------ ------
Diluted EPS
Net loss available to common shareholders........ $(140,549) 33,740 $(4.17)
========= ====== ======
YEAR ENDED DECEMBER 31, 2002
---------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Basic EPS
Net loss available to common shareholders........ $(88,640) 32,064 $(2.76)
Effect of dilutive securities
Stock options of subsidiary.................... (885) -- (0.03)
-------- ------ ------
Diluted EPS
Net loss available to common shareholders........ $(89,525) 32,064 $(2.79)
======== ====== ======
For 2000, 2001 and 2002, the effect of potentially dilutive options of the
Company were excluded from the computation of diluted loss per share as their
effect is anti-dilutive.
YEAR ENDED DECEMBER 31
----------------------
2000 2001 2002
----- ------ -----
Cash flows provided by (used for) operations per retractable
common share
Basic..................................................... $4.15 $(3.56) $1.86
Diluted................................................... $4.09 $(3.82) $1.83
Cash flows provided by (used for) operations per retractable common share
is based on the cash flows provided by (used for) operations as computed in note
20. Diluted cash flows provided by (used for) operations utilize the effect of
dilutive securities on income, as disclosed in note 19. Cash flows provided by
(used for) operations per retractable common share calculations utilize the
weighted average number of retractable common shares outstanding during the year
of 37,040,670, 33,740,182 and 32,064,151, in 2000, 2001 and 2002, respectively.
F-39
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
20. CASH FLOWS
a) Cash flows provided by (used for) operations is before any increase or
decrease in non-cash operating working capital and other costs. These
items are included in the consolidated statements of cash flows. Cash
flows provided by (used for) operations is determined as follows:
2000 2001 2002
-------- --------- --------
Net earnings (loss)................................. $189,373 $(131,898) $(88,640)
Unusual items (note 17)............................. (700,945) 295,434 62,630
Current income taxes related to unusual items....... 459,831 (15,155) 149
Items not involving cash:
Depreciation and amortization..................... 219,932 144,716 88,193
Amortization of deferred financing costs.......... 18,504 18,648 11,347
Future income taxes............................... (357,603) (145,781) 126,640
Minority interest................................. 307,079 (249,439) (131,187)
Net earnings in equity-accounted companies, net of
dividends received............................. 14,115 36,789 1,233
Non-cash interest income on CanWest debentures.... 11,463 (67,517) (9,239)
Miscellaneous..................................... (8,170) (6,008) (1,498)
-------- --------- --------
$153,579 $(120,211) $ 59,628
======== ========= ========
b) The change in non-cash operating working capital is determined as
follows:
YEAR ENDED DECEMBER 31,
-------------------------------
2000 2001 2002
--------- -------- --------
Changes in current assets and current liabilities,
net of acquisitions and dispositions:
Accounts receivable............................... $ (77,880) $ 23,666 $ 1,061
Inventory......................................... (11,152) (3,886) 14,704
Prepaid expenses.................................. 903 (2,594) (4,337)
Amounts due to related parties.................... (5,897) -- 14,775
Accounts payable and accrued expenses............. (38,678) 55,373 (26,223)
Income taxes payable.............................. 53,466 (77,980) 31,821
Deferred revenue.................................. (933) (11,726) (1,307)
Bank indebtedness................................. 10,340 (150,813) 1,094
Other............................................. (12,625) 23,531 9,740
--------- -------- --------
$ (82,456) $(144,429) $ 41,328
========= ======== ========
21. SEGMENTED INFORMATION
The Company operates principally in the business of publishing, printing
and distribution of newspapers and magazines and holds investments principally
in companies which operate in the same business as the Company. Other
investments held by the Company either do not represent a business segment or
are not sufficiently significant to warrant classification as a separate segment
and are included within Corporate and Other. HCPH Co., Hollinger L.P. and, until
August 31, 2001, National Post make up the Canadian Newspaper Group. The U.S.
Community Group includes the results of the Jerusalem Post and the last
remaining U.S. Community paper until it was sold in August 2001. The following
is a summary of the reportable segments of the Company.
F-40
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
UNITED STATES
-------------------- U.K. CANADIAN
YEAR ENDED CHICAGO COMMUNITY NEWSPAPER NEWSPAPER CORPORATE CONSOLIDATED
DECEMBER 31, 2000 GROUP GROUP GROUP GROUP AND OTHER TOTAL
----------------- -------- --------- --------- ---------- --------- ------------
Sales revenue............. $596,759 $100,104 $882,196 $1,579,200 $ 21 $3,158,280
Cost of sales and
expenses................ 504,079 85,702 684,900 1,294,975 16,527 2,586,183
-------- -------- -------- ---------- -------- ----------
Sales revenue less cost of
sales and expenses...... 92,680 14,402 197,296 284,225 (16,506) 572,097
Depreciation and
amortization............ 37,328 7,653 58,148 110,112 6,691 219,932
-------- -------- -------- ---------- -------- ----------
Operating income (loss)... $ 55,352 $ 6,749 $139,148 $ 174,113 $(23,197) $ 352,165
======== ======== ======== ========== ======== ==========
Expenditures on capital
assets.................. $ 38,177 $ 5,038 $ 24,039 $ 42,812 $ 2,595 $ 112,661
======== ======== ======== ========== ======== ==========
UNITED STATES
-------------------- U.K. CANADIAN
YEAR ENDED CHICAGO COMMUNITY NEWSPAPER NEWSPAPER CORPORATE CONSOLIDATED
DECEMBER 31, 2001 GROUP GROUP GROUP GROUP AND OTHER TOTAL
----------------- -------- --------- ---------- --------- --------- ------------
Sales revenue............. $686,266 $29,619 $ 801,053 $305,073 $ 49 $1,822,060
Cost of sales and
expenses................ 622,974 31,950 703,296 337,383 34,505 1,730,108
-------- ------- ---------- -------- -------- ----------
Sales revenue less cost of
sales and expenses...... 63,292 (2,331) 97,757 (32,310) (34,456) 91,952
Depreciation and
amortization............ 53,537 2,962 63,855 18,134 6,228 144,716
-------- ------- ---------- -------- -------- ----------
Operating income (loss)... $ 9,755 $(5,293) $ 33,902 $(50,444) $(40,684) $ (52,764)
======== ======= ========== ======== ======== ==========
Total assets.............. $973,279 $85,291 $1,257,805 $691,568 $621,299 $3,629,242
======== ======= ========== ======== ======== ==========
Expenditures on capital
assets.................. $ 19,343 $ 463 $ 48,788 $ 4,405 $ 18,407 $ 91,406
======== ======= ========== ======== ======== ==========
UNITED STATES
-------------------- U.K. CANADIAN
YEAR ENDED CHICAGO COMMUNITY NEWSPAPER NEWSPAPER CORPORATE CONSOLIDATED
DECEMBER 31, 2002 GROUP GROUP GROUP GROUP AND OTHER TOTAL
----------------- -------- --------- ---------- --------- ---------- ------------
Sales revenue............ $693,690 $20,781 $ 804,584 $109,121 $ 22 $1,628,198
Cost of sales and
expenses............... 591,628 25,259 693,895 112,723 30,389 1,453,894
-------- ------- ---------- -------- ---------- ----------
Sales revenue less cost
of sales and
expenses............... 102,062 (4,478) 110,689 (3,602) (30,367) 174,304
Depreciation and
amortization........... 42,378 3,682 35,939 1,713 4,481 88,193
-------- ------- ---------- -------- ---------- ----------
Operating income
(loss)................. $ 59,684 $(8,160) $ 74,750 $ (5,315) $ (34,848) $ 86,111
======== ======= ========== ======== ========== ==========
Total assets............. $895,917 $59,173 $1,120,023 $411,891 $1,129,217 $3,616,221
======== ======= ========== ======== ========== ==========
Expenditures on capital
assets................. $ 24,344 $ 7,888 $ 27,680 $ 3,575 $ 116 $ 63,603
======== ======= ========== ======== ========== ==========
Corporate and Other includes results of miscellaneous operations.
22. EMPLOYEE BENEFIT PLANS
DEFINED CONTRIBUTION PENSION PLANS
Hollinger International sponsors six defined contribution plans, three of
which have provisions for Hollinger International matching contributions. For
the years ended December 31, 2000, 2001 and 2002,
F-41
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
Hollinger International contributed $2,372,000, $2,402,000 and $3,330,000,
respectively. Hollinger International sponsors 11 defined contribution plans in
Canada and contributed $3,069,000, $261,500 and $241,000 to the plans in 2000,
2001 and 2002, respectively.
The Telegraph sponsors a defined contribution plan for the majority of its
employees, as well as a defined contribution plan to provide pension benefits
for senior executives. For 2000, 2001 and 2002, contributions to the defined
contribution plan are included as part of the service cost of the defined
benefit plan. For the years ended December 31, 2000, 2001 and 2002, the
Telegraph contributed $874,000, $803,000 and $835,000, respectively, to the
Telegraph Executive Pension Scheme. The Telegraph plan's assets consist
principally of U.K. and overseas equities, unit trusts and bonds.
DEFINED BENEFIT PENSION PLANS
The Company's subsidiaries have ten foreign and seven domestic
single-employer defined benefit plans and contribute to various union-sponsored,
collectively bargained multi-employer pension plans. The Company's subsidiaries'
contributions to these plans for the years ended December 31, 2000, 2001 and
2002 were:
The Telegraph has a defined benefit plan that was closed to new
participants on July 1, 1991 and provides only benefits accrued up to that date.
The liabilities of the plan have been actuarially valued as at December 31,
2002. At that date, the market value of the plan assets was $191,742,000,
representing 91% of the estimated cost of purchasing the plan's benefits from an
insurance company. The actuary assumed a discount rate of 5.6%. Increases to
pension payments are discretionary and are awarded by the trustees, with the
Telegraph's consent, from surpluses arising in the fund from time to time.
Contributions to the plan were $9,900,000 $10,034,000 and $10,616,000 in 2000,
2001 and 2002, respectively.
West Ferry and Trafford Park have defined benefit plans, the West Ferry
Printers Pension Scheme and the Trafford Park Printers Pension Scheme,
respectively, of which 50%, being the Telegraph's share in the joint venture, of
the pension costs and obligations are included in the Company's financial
statements. Pursuant to the West Ferry joint venture agreement, the Telegraph
has a commitment to fund 50% of the obligation under West Ferry's defined
benefit plan.
SINGLE-EMPLOYER PENSION PLANS
The benefits under the subsidiary companies' single-employer pension plans
are based primarily on years of service and compensation levels. These companies
fund the annual provisions which are deductible for income tax purposes. The
plans' assets consist principally of marketable equity securities and corporate
and government debt securities.
F-42
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
The components of the net period cost (benefit) for the years ended
December 31, 2000, 2001 and 2002 are as follows:
2000 2001 2002
-------- -------- --------
Service cost......................................... $ 22,076 $ 15,308 $ 15,930
Interest cost........................................ 64,590 49,433 49,541
Expected return on plan assets....................... (90,011) (56,133) (52,422)
Amortization of prior service costs.................. 900 583 782
Settlement and curtailment........................... 6,487 2,272 --
Amortization of net (gain) loss...................... (304) 1,516 6,200
Change in valuation allowance against prepaid benefit
cost............................................... 97,258 (59,106) (34,729)
-------- -------- --------
Net period cost (benefit)............................ $100,996 $(46,127) $(14,698)
======== ======== ========
The table below sets forth the reconciliation of the benefit obligation as
of December 31, 2001 and 2002:
2001 2002
--------- --------
Benefit obligation at the beginning of the year............. $ 864,839 $780,138
Adjustments to opening balance.............................. 7,243 --
Service cost................................................ 15,308 15,930
Interest cost............................................... 49,433 49,541
Participant contributions................................... 9,027 7,539
Divestitures................................................ (122,131) --
Plan amendments............................................. 28 9,629
Settlement gain............................................. (12,973) --
Exchange rate differences................................... 17,860 33,314
Changes in assumptions...................................... -- (1,000)
Actuarial loss (gain)....................................... 17,402 (21,064)
Benefits paid............................................... (65,898) (69,670)
--------- --------
Benefit obligation at the end of the year................... $ 780,138 $804,357
========= ========
The 2001 settlement gain was related to the sale of Canadian newspapers.
The 2000 curtailment and settlement gains were related to the sale of Canadian
and Community Group newspapers.
The table below sets forth the change in plan assets for the years ended
December 31, 2001 and 2002:
2001 2002
--------- --------
Fair value of plan assets at the beginning of the year...... $ 971,208 $757,751
Adjustment to opening balance............................... -- 4,897
Actual return on plan assets................................ (37,943) (67,865)
Exchange rate differences................................... 16,969 27,529
Employer contributions...................................... 15,737 20,166
Participant contributions................................... 9,027 7,539
Settlement gain............................................. (15,245) --
Divestitures................................................ (136,104) --
Benefits paid............................................... (65,898) (69,670)
--------- --------
Fair value of plan assets at the end of the year............ $ 757,751 $680,347
========= ========
F-43
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
The following table provides the amounts recognized in the consolidated
balance sheet as of December 31, 2001 and 2002:
2001 2002
-------- ---------
Plan deficit................................................ $(22,387) $(124,010)
Unrecognized net actuarial loss............................. 133,110 233,369
Unrecognized prior service cost............................. 3,699 3,039
Unrecognized net transition obligation...................... (331) 2,054
-------- ---------
Prepaid benefit cost........................................ 114,091 114,452
Valuation allowance......................................... (38,814) (4,085)
-------- ---------
Prepaid benefit cost, net of valuation allowance............ $ 75,277 $ 110,367
======== =========
The above prepaid benefit cost is classified in the consolidated balance
sheet as follows:
As a result of the 2000 sale of Canadian newspapers to CanWest, the
expected future benefits to be derived from the plan surplus at that time were
significantly reduced and a valuation allowance of $97.9 million was provided
for. Due to the reduction in the plan surplus in 2001 and 2002 as a result of a
decline in the market value of the assets in the plan, the valuation allowance
required against the pension asset has been reduced by $58.7 million and $34.4
million, respectively. This change in the valuation allowance, in respect of the
HCPH Co. pension plans, has been recognized in income in 2001 and 2002 as an
unusual item (note 17).
Approval by the various provincial pension regulatory bodies has not yet
been granted for the transfer of pension assets related to the operations
previously sold. To the extent pension surpluses are required to be transferred
for the CanWest properties, the Company is entitled to a cash payment from
CanWest for a portion of that amount. The Company anticipates that these
transfers will be made in 2003.
F-44
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
MULTI-EMPLOYER PENSION PLANS
Certain U.S. employees were covered by union-sponsored multi-employer
pension plans, all of which are defined benefit plans. Contributions were
determined in accordance with the provisions of negotiated labour contracts and
are generally based on the number of man-hours worked. Pension expense for these
plans was $1,828,000, nil and nil for the years ended December 31, 2000, 2001
and 2002, respectively. The newspaper properties participating in these
multi-employer plans were sold in 2000. The passage of the Multi-employer
Pension Plan Amendments Act of 1980 (the "Act") may, under certain
circumstances, cause Hollinger International to become subject to liabilities in
excess of the amounts provided for in the collective bargaining agreements.
Generally, liabilities are contingent upon withdrawal or partial withdrawal from
the plans. Hollinger International has not undertaken to withdraw or partially
withdraw from any of the plans as of December 31, 2002. Under the Act,
withdrawal liabilities would be based upon Hollinger International's
proportional share of each plan's unfunded vested benefits. As of the date of
the latest actuarial valuations, Hollinger International's share of the unfunded
vested liabilities of each plan was zero.
POST-RETIREMENT BENEFITS
The Company's subsidiaries sponsor two post-retirement plans that provide
post-retirement benefits to certain employees in Canada.
The components of net period post-retirement cost (benefit) for the years
ended December 31, 2000, 2001 and 2002 are as follows:
The weighted average discount rate used in determining the accumulated
post-retirement benefit obligation was 6.75%, 6.5% and 6.25% for 2000, 2001 and
2002, respectively. All benefits under the plans are paid for by contributions
to the plans. For measuring the expected post-retirement benefit obligation of
former Southam employees, an 8% annual rate of increase in the per capita claims
was assumed for 2002, 9% for 2001, and 10% for 2000.
Assumed health care cost trend rates have a significant effect on the
amounts reported for health care plans. If the health care cost trend rate was
increased 1%, the accumulated post-retirement benefit obligation as of December
31, 2001 and 2002 would have increased $3,390,000 and $2,846,000, respectively,
and the effect of this change on the aggregate of service and interest cost for
2001 and 2002 would have been an increase of $220,000 and $260,000,
respectively. If the health care cost trend rate was decreased 1%, the
accumulated post-retirement benefit obligation as of December 31, 2001 and 2002
would have decreased by $2,098,000 and $2,556,000, respectively, and the effect
of this change on the aggregate of service and interest cost for 2001 and 2002
would have been a decrease of $160,000 and $233,000, respectively.
23. RELATED PARTY TRANSACTIONS
a) Lord Black controls Ravelston and, through Ravelston and its
subsidiaries, together with his associates, he exercises control or
direction over 78.2% (2000 -- 68.6%; 2001 -- 77.8%) of the outstanding
retractable common shares of the Company.
Ravelston has rights of first refusal in respect of any retractable
common shares of the Company that may be issued on exercise of options
held to acquire retractable common shares should the holders decide to
exercise their options and dispose of the retractable common shares.
Hollinger International and its subsidiaries have entered into a
services agreement with Ravelston, whereby Ravelston acts as manager of
the Company and carries out head office and executive responsibilities.
The services agreement was assigned on July 5, 2002 to RMI, a wholly
owned subsidiary of Ravelston. Ravelston and RMI billed to Hollinger
International and its subsidiaries fees totalling $49,943,000,
$44,853,000 and $37,272,000 for 2000, 2001 and 2002, respectively,
pursuant to this agreement.
Similarly, Ravelston carries out head office and executive
responsibilities for the Company and its subsidiaries, other than
Hollinger International and its subsidiaries. In 2001 and 2002, no
amounts were charged by Ravelston for such services. In 2000, the
Company received $10.7 million, net, from Ravelston pursuant to a
services agreement which was terminated on December 31, 2000.
Expenses of the Company are net of $2.0 million and $2.4 million in 2001
and 2002, respectively, received from Ravelston and RMI as a
reimbursement of certain head office expenses incurred on behalf of
Ravelston and RMI. Such expenses were not incurred on behalf of
Ravelston in 2000.
Certain executives of Ravelston and Moffat Management and Black-Amiel
Management, affiliates of Ravelston and RMI, have separate services
agreements with certain subsidiaries of Hollinger International. Amounts
paid directly by subsidiaries of Hollinger International pursuant to
such
F-46
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
agreements were $5,436,000, $2,629,000 and $2,976,000 for 2000, 2001 and
2002, respectively. The fees under Ravelston's and RMI's services
agreement and the fees paid directly to executives and affiliates of
Ravelston, in aggregate, are negotiated with and approved by Hollinger
International's independent committee.
In addition to all of the amounts referred to above, during 2000 and
2001, there was further remuneration paid directly by subsidiaries of
Hollinger International to certain Ravelston executives of $6,293,000
and $2,592,000, respectively (2002 -- nil).
b) On July 11, 2000, Hollinger International loaned US $36,817,000 to a
subsidiary of the Company in connection with the cash purchase by the
Company of HCPH Co. Special shares. The loan is payable on demand and
to December 31, 2001 interest was payable at the rate of 13% per annum.
Effective January 1, 2002, the interest rate was adjusted to LIBOR plus
3% per annum. This loan, together with accrued interest, totalled US
$45,848,000 at December 31, 2002. On March 10, 2003, a portion of this
loan has been settled and the terms of the loan have been amended as
described in note 29c).
c) On July 3, 2002, N.P. Holdings Company ("NP Holdings"), a subsidiary of
Hollinger International, was sold for cash consideration of $5.75
million to RMI. The net assets of NP Holdings primarily included
Canadian tax losses. The tax losses, only a portion of which was
previously recognized for accounting purposes, were effectively sold at
their carrying value. Due to the inability of NP Holdings to utilize
its own tax losses prior to their expiry, as a result of its disposing
of its interest in the National Post, it sold these losses to a company
which would be able to utilize the losses. The only other potential
purchaser for these losses, CanWest, declined the opportunity to
acquire the losses. The terms of the sale of the tax losses to RMI were
approved by the independent directors of Hollinger International.
d) The Company and its subsidiaries have unsecured demand loans and
advances, including accrued interest owing to Ravelston totalling $32.2
million and $52.2 million at December 31, 2001 and 2002, respectively.
At December 31, 2000, the Company and its subsidiaries have unsecured
demand loans and advances receivable of $1.0 million. The Company has
borrowed the majority of these funds from Ravelston to partially fund
its operating costs, including interest and preference share dividend
obligations. The loans bear interest at the bankers' acceptance rate
plus 3.75% per annum or 6.68% as at December 31, 2002.
Hollinger International owes $11.6 million, $13.7 million and $5.0
million at December 31, 2000, 2001 and 2002, respectively, to Ravelston
or RMI in connection with fees payable pursuant to the services
agreement. As at December 31, 2002, HCPH Co. also owes RMI $22.5 million
in connection with the assumption by RMI, as a result of its purchase of
NP Holdings (note 23c)), of a liability of $22.5 million owing to
CanWest. This amount is due on demand and is non-interest bearing. As
described in note 29e), this debt was transferred to a related company
on April 30, 2003.
e) In response to the 1998 issuer bid, all options held by executives were
exercised. As at December 31, 2000, 2001 and 2002, included in accounts
receivable is $5,866,000, $5,843,000 and $5,892,000, respectively, due
from executives, which bears interest at the prime rate plus 1/2%. The
receivables are fully secured by a pledge of the shares held by the
executives.
f) In 1999, executive-controlled companies invested in Hollinger L.P. As
at December 31, 2000, 2001 and 2002, included in accounts receivable is
$681,000, $436,000 and $373,000 due from these companies, which bears
interest at the prime rate plus 1/2%. The receivables are partially
secured by a pledge of the units held in Hollinger L.P.
F-47
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
g) During 2000 and 2001, in connection with the sales of properties
described in note 4c), 4g) and 4i), the Company, Ravelston, Hollinger
International, Lord Black and three senior executives entered into
non-competition agreements with the purchasers in return for cash
consideration paid.
h) As described in note 4c), 4f) and 4j), during 2001, the Company sold
newspaper properties to certain related parties.
i) As described in note 4e), during 2001, Hollinger International
redeemed certain of its shares held by the Company and converted
preference shares held by the Company into shares of Hollinger
International Class A common stock. The shares of Class A common stock
were subsequently purchased by Hollinger International from the
Company for cancellation.
j) Included in Other Assets at December 31, 2002 is $6,525,000
(US$4,130,000), owing to Hollinger International from Bradford
Publishing Company ('Bradford'), a company in which certain of the
Company's and Hollinger International's directors are significant
shareholders. Such amount represents the present value of the
remaining amounts owing under a non-interest bearing note receivable
granted to Hollinger International in connection with a
non-competition agreement entered into on the sale of certain
operations to Bradford during 2000. The note receivable is unsecured,
due over the period to 2010 and is subordinated to Bradford's lenders.
k) Included in Other Assets at December 31, 2002 is $7,677,000
(US$4,859,000) owed by Horizon Publications Inc. ("Horizon"), a company
controlled by certain members of the Board of Directors of Hollinger
International and the Company. Such amount represents the unpaid
purchase price payable to Hollinger International in connection with
the sale of certain operations to Horizon during 1999. The loan
receivable is unsecured, bears interest at the lower of LIBOR plus 2%
and 8% per annum and is due in 2007.
l) During 2002, the Company paid to Horizon a management fee in the
amount of $256,000 in connection with certain administrative services
provided by Horizon. Such fee was approved by Hollinger
International's independent directors.
m) Additional related party transactions occurring subsequent to year end
are described in note 29.
24. FINANCIAL INSTRUMENTS
a) Risk management activities
i) Credit risk
The Company does not have a significant exposure to any individual
customer or counterparty. The Company is exposed to credit risk in
the event of non-performance by counterparties in connection with its
foreign currency contracts and interest rate swap agreements. The
Company does not obtain collateral or other security to support
financial instruments subject to credit risk but mitigates this risk
by dealing only with financially sound counterparties and,
accordingly, does not anticipate loss due to non-performance.
ii) Interest rate and currency risk
The Company and its subsidiaries have entered into interest rate
swaps, forward foreign exchange contracts and cross-currency rate
swaps, as described in detail in notes 24c) and 24d) below.
F-48
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
iii) Market risk
During 1999, the Company's Series II exchangeable preference shares
became exchangeable for a fixed number of shares of Hollinger
International Class A common stock. As a result, such shares are
valued at an amount equivalent to the market price of the underlying
shares of Hollinger International Class A common stock for which they
are exchangeable. While the carrying value of these exchangeable
shares will fluctuate with the market price of the shares of
Hollinger International Class A common stock, this market risk is
mitigated by the Company's holding of such Hollinger International
shares.
b) Forward share purchase contracts
At December 31, 2000, Hollinger International had arrangements with four
banks pursuant to which the banks had purchased 14,109,905 shares of
Hollinger International's Class A common stock at an average price of
US$14.17. Hollinger International had the option, quarterly, up to and
including September 30, 2000, to buy the shares from the banks at the
same cost or to have the banks resell those shares in the open market.
These arrangements were extended from time to time for periods
ultimately ending between February 28, 2003 and June 30, 2003. In the
event the banks resold the shares, any gain or loss realized by the
banks would be for Hollinger International's account. Under the
arrangements, until Hollinger International purchased the shares or the
banks resold the shares, dividends paid on shares belonged to Hollinger
International and Hollinger International paid interest to the banks,
based on their purchase price at the rate of LIBOR plus a spread.
In August 2001, Hollinger International purchased for cancellation from
one of the banks 3,602,305 shares of Class A common stock for
US$50,000,000 or US$13.88 per share. The market value of these shares on
the date of purchase was US$47,000,000 or US$13.05 per share.
In November 2001, one of the banks sold in the open market 3,556,513
shares of Hollinger International Class A common stock for US$34,200,000
or an average price of US$9.62 per share. This resulted in a loss to the
bank of US$15,800,000, which, in accordance with the arrangement, was
paid in cash by Hollinger International.
At December 31, 2001, Hollinger International had two forward equity
swap arrangements remaining with banks for a total of US$100,000,000. Of
that total, US$10,000,000 was prepaid during the course of 2002 from
available cash on hand. In October 2002, a further US$50,000,000 was
prepaid using the proceeds from borrowings in that month referred to in
note 10d). In December 2002, the forward equity swap arrangements were
terminated when Hollinger International purchased for cancellation from
the banks approximately 7.0 million shares of Class A common stock of
Hollinger International for a total cost of US$100,000,000 (including
the US$60,000,000 prepaid during 2002). The additional US$40,000,000
payment was paid from a portion of the proceeds received in December
2002 from Publishing's Senior Credit Facility and 9% Senior Notes (note
10). This resulted in a realized loss of $43,313,000, on the 2002
termination of the contracts, which has been included in unusual items
(note 17). During 2001, a realized loss of $29,646,000 on contracts
terminated in 2001 was included in unusual items (note 17).
The Total Return Equity Swaps were originally entered into as a
structure for the repurchase of Hollinger International's shares over an
extended time frame based on a price fixed at the outset of the
arrangement. Hollinger International does not presently intend to enter
into further similar arrangements.
F-49
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
c) Fair values of financial instruments
The Company has entered into various types of financial instruments in
the normal course of business. Fair value estimates are made at a
specific point in time, based on assumptions concerning the amount and
timing of estimated future cash flows and assumed discount rates
reflecting the country of origin and varying degrees of perceived risk.
The estimates are subjective in nature and involve uncertainties and
matters of significant judgment and, therefore, may not accurately
represent future realizable values.
The carrying value and estimated fair value of the Company's financial
instruments at December 31, 2001 and 2002 are as follows:
The carrying values of cash and cash equivalents, escrow deposits,
accounts receivable, bank indebtedness, accounts payable and accrued
expenses and amounts due to related parties approximate their fair
values, due to the relatively short periods to maturity of the
instruments.
The fair value of marketable securities is based on the closing market
value of such securities at the year end.
Fair values for long-term debt have been determined based on the future
contractual cash payments at the respective operation's current
borrowing rate. The fair value of the long-term debt related to the
Senior Subordinated Notes at December 31, 2002 is the value at which
they were retired in January 2003. Fair value of the retractable
preference shares is based on the market value of the shares of
Hollinger International Class A common stock or the cash proceeds for
which they are retractable or redeemable.
The fair value of the cross-currency swaps, interest rate swaps, forward
share purchase contracts, and forward foreign exchange contracts is the
estimated amount that the Company would pay or receive to terminate the
agreements. Interest rate swaps were considered a hedge until the hedged
debt was repaid in 2000. Subsequent to the debt repayment, the estimated
cost to terminate the swap has been included in income. Such swaps were
terminated in 2002. The foreign currency obligation and forward foreign
exchange contract are in connection with the sale of participations in
the CanWest debentures, which is described in note 5. The cross-currency
swap is in connection with the Service Credit Facility, as described in
note 10b). The carrying values of all other financial instruments at
December 31, 2002 and 2001 approximate their estimated fair values.
F-50
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
d) Derivative instruments
The Company may enter into various swaps, options and forward contracts
from time to time when management believes conditions warrant. Such
contracts are limited to those that relate to the Company's actual
exposure to commodity prices, interest rates and foreign currency risks.
If, in management's view, the conditions that made such arrangements
worthwhile no longer exist, the contracts may be closed. At the end of
2001, there were no material contracts or arrangements of these types,
other than the forward exchange contract related to the Participation
Trust as described in note 5. The contract was terminated as at
September 30, 2002. The contract was marked to market and the related
gains and losses included in foreign exchange losses during the year.
The cumulative loss on the Company's obligation under the Participation
Trust as at December 31, 2002 is $21,444,000 (2001 -- $691,000) and is
included in the consolidated balance sheet in other liabilities and
deferred credits (note 12).
As described in note 10b), the Company entered into two cross-currency
rate swaps to offset principal and interest payments on U.S. dollar
borrowings by a U.K. subsidiary under Publishing's December 2002 Senior
Credit Facility. The fair value of the contracts as of December 31, 2002
of $14,475,000 million is included in the consolidated balance sheet in
other liabilities and deferred credits (note 12).
25. RECENT ACCOUNTING PRONOUNCEMENTS
a) Foreign currency and hedging
In November 2001, the CICA issued Accounting Guideline 13, "Hedging
Relationships" ("AcG 13"). AcG 13 establishes new criteria for hedge
accounting and will apply to all hedging relationships in effect on or
after July 1, 2003. On January 1, 2004, the Company will reassess all
hedging relationships to determine whether the criteria are met or not
and will apply the new guidance on a prospective basis. To qualify for
hedge accounting, the hedging relationship must be appropriately
documented at the inception of the hedge and there must be reasonable
assurance, both at the inception and throughout the term of the hedge,
that the hedging relationship will be effective. The Company is in the
process of formally documenting all hedging relationships and has not
yet determined whether any of their current hedging relationships will
not meet the new hedging criteria.
b) Impairment of long-lived assets
In December 2002, the CICA issued Handbook Section 3063, "Impairment of
Long-Lived Assets" and revised Section 3475, "Disposal of Long-Lived
Assets and Discontinued Operations". These sections supersede the
write-down and disposal provision of Section 3061, "Property, Plant and
Equipment", and Section 3475, "Discontinued Operations". The new
standards are consistent with U.S. GAAP. Section 3063 establishes
standards for recognizing, measuring and disclosing impairment of
long-lived assets held for use. An impairment is recognized when the
carrying amount of an asset to be held and used exceeds the projected
future net cash flows expected from its use and disposal and is measured
as the amount by which the carrying amount of the asset exceeds its fair
value. Section 3475 provides specific criteria for and requires separate
classification for assets held for sale and for these assets to be
measured at the lower of their carrying amounts and fair value, less
costs to sell. Section 3475 also broadens the definition of discontinued
operations to include all distinguishable components of an entity that
will be eliminated from operations. Section 3063 is effective for the
Company's 2004 fiscal year; however, early application is permitted.
Revised Section 3475 is applicable to disposal activities committed to
by the Company after May 1, 2003;
F-51
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
however, early application is permitted. The Company expects that the
adoption of these standards will have no material impact on its
financial position, results of operations or cash flow at this time.
c) Disclosure of guarantees
In February 2003, the CICA issued Accounting Guideline 14, "Disclosure
of Guarantees" ("AcG 14"). AcG 14 requires certain disclosures to be
made by a guarantor in its interim and annual financial statements for
periods beginning after January 1, 2003. AcG 14 is generally consistent
with the disclosure requirements for guarantees in the U.S. (Financial
Accounting Standards Board ("FASB") Interpretation No. 45) but, unlike
the FASB's guidance, does not encompass recognition and measurement
requirements. The Company has evaluated the impact of adoption of AcG 14
and the disclosures are included in note 27h).
26. SCHEDULE OF RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP)
The following represents additional information to the consolidated
financial statements of the Company that were prepared in accordance with
Canadian GAAP. Set out below are the material adjustments (net of deferred
income taxes, minority interest and foreign exchange rate adjustments where
applicable) to net earnings (loss) for the years ended December 31, 2000, 2001
and 2002 and to shareholders' deficiency at December 31, 2001 and 2002 in order
to conform to accounting principles generally accepted in the United States
("U.S. GAAP").
YEAR ENDED DECEMBER 31,
------------------------------------------
2000 2001
(RESTATED-(V)) (RESTATED-(V)) 2002
-------------- -------------- --------
NET EARNINGS (LOSS)
Net earnings (loss) for the year based on Canadian
GAAP................................................. $ 189,373 $(131,898) $(88,640)
Capitalization of betterments, net of related
amortization(a)...................................... (4,633) 5,230 --
Gain on sale of shares, gain on subsidiary's issue of
shares or sale of assets(c)(v)....................... 13,868 30,920 4,505
Foreign exchange(d).................................... 6,406 10,086 (7,293)
Cost of acquisitions, net of amortization(e)........... 42 42 42
Compensation to employees(f)........................... (1,127) 918 --
Net earnings (loss) in equity accounted companies(g)... (7,882) 7,882 --
Adjustment to tax provision(h)(v)...................... (162,764) (41,893) --
Business combinations(i)(v)............................ 29,932 56,932 --
Financial instruments(j)............................... 2,421 9,294 8,185
Total return equity swap(k)(v)......................... (9,112) (15,316) 17,789
Valuation allowance against prepaid pension
asset(l)(v).......................................... 29,757 (14,244) (6,277)
--------- --------- --------
Net earnings (loss) for the year based on U.S. GAAP,
before accounting change, as restated(v)............. 86,281 (82,047) (71,689)
Cumulative effect of accounting change for
goodwill(q).......................................... -- -- (12,071)
--------- --------- --------
Net earnings (loss) for the year based on U.S. GAAP, as
restated(v).......................................... $ 86,281 $ (82,047) $(83,760)
========= ========= ========
F-52
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
DECEMBER 31,
---------------------------
2001 2002
--------------- ---------
(RESTATED-26V))
SHAREHOLDERS' DEFICIENCY
Shareholders' deficiency based on Canadian GAAP............. $(263,470) $(351,331)
Capitalization of betterments, net of related
amortization(a)........................................... (182,807) (195,166)
Amortization of intangible assets(b)........................ (24,175) (24,175)
Gain on sale of shares, gain on subsidiary's issue of shares
or sale of assets(c)(v)................................... 117,854 122,359
Foreign exchange(d)......................................... (1,569) (1,404)
Cost of acquisitions, net of amortization(e)................ (1,890) (1,848)
Compensation to employees(f)................................ (2,764) (2,764)
Net loss in equity accounted companies(g)................... (1,389) (1,389)
Income taxes(h)(v).......................................... 63,699 63,699
Business combinations(i)(v)................................. 4,603 4,603
Financial instruments(j).................................... 18,707 23,019
Total return equity swap(k)(v).............................. (17,789) --
Valuation allowance against prepaid pension asset(l)(v)..... 8,513 2,236
Capital stock(m)............................................ (5,843) (5,782)
Investments(n).............................................. (3,755) (839)
Minimum pension liability adjustment(o)..................... (11,552) (25,612)
--------- ---------
Shareholders' deficiency based on U.S. GAAP, as
restated(v)............................................... $(303,627) $(394,394)
========= =========
BALANCE SHEET DIFFERENCES:
The following material balance sheet differences exist between Canadian and
U.S. GAAP.
1) Other intangible assets:
DECEMBER 31,
---------------------
2001 2002
---------- --------
Canadian GAAP............................................... $1,177,544 $185,143
Adjustment for capitalization of betterments, net of related
amortization(a)........................................... (394,246) --
Adjustment for amortization(b).............................. (24,175) --
Adjustment for cost of acquisitions(e)...................... (1,876) --
Adjustment for business combinations(i)(v).................. 4,603 --
---------- --------
U.S. GAAP................................................... $ 761,850 $185,143
========== ========
F-53
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
2) Goodwill:
DECEMBER 31,
-------------------
2001 2002
-------- --------
Canadian GAAP............................................... $174,324 $913,327
Adjustment for capitalization of betterments, net of related
amortization(a)........................................... -- (424,589)
Adjustment for amortization(b).............................. -- (24,175)
Adjustment for cost of acquisitions(e)...................... -- (1,809)
Adjustment for income taxes(h)(v)........................... 63,699 63,699
Adjustment for business combinations(i)(v).................. -- 4,603
-------- --------
U.S. GAAP................................................... $238,023 $531,056
======== ========
3) Minority interest:
DECEMBER 31,
---------------------
2001 2002
--------- ---------
Canadian GAAP............................................... $ 725,928 $ 473,272
Adjustment for minority interest(v)......................... (252,886) (235,969)
--------- ---------
U.S. GAAP................................................... $ 473,042 $ 237,303
========= =========
4) Future income tax liabilities:
DECEMBER 31,
---------------------
2001 2002
--------- ---------
Canadian GAAP............................................... $ 486,937 $ 375,479
Adjustment for income taxes................................. (107,399) (122,637)
--------- ---------
U.S. GAAP................................................... $ 379,538 $ 252,842
========= =========
5) Deferred pension asset:
DECEMBER 31,
-------------------
2001 2002
-------- --------
Canadian GAAP............................................... $ 83,459 $123,230
Adjustment for change in valuation allowance against prepaid
asset(l)(v)............................................... 38,487 3,758
-------- --------
U.S. GAAP................................................... $121,946 $126,988
======== ========
6) Total return equity swap liability:
DECEMBER 31,
-------------------
2001 2002
-------- --------
Canadian GAAP............................................... $ -- $ --
Adjustment for unrealized losses(k)(v) 55,912 --
-------- --------
U.S. GAAP................................................... $ 55,912 $ --
======== ========
F-54
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
SUMMARY OF ACCOUNTING POLICY DIFFERENCES:
The areas of material difference between Canadian and U.S. GAAP and their
impact on the consolidated financial statements of the Company are set out
below:
a) Capitalization of betterments
Effective January 1, 1990, the Company capitalized as circulation the
costs incurred to increase the long-term readership of its publications
("betterments"). U.S. GAAP does not permit capitalization of these
costs. As a result of new Canadian accounting standards, effective
January 1, 2002, the Company no longer capitalizes these costs under
Canadian GAAP.
b) Amortization of intangible assets
Prior to the adoption on January 1, 2002 of new U.S. and Canadian
accounting standards for goodwill described below, U.S. GAAP required
the amortization of all intangible assets acquired on a straight-line
basis over a period not exceeding 40 years. Under Canadian GAAP, prior
to December 31, 1990, there was no requirement to amortize intangible
assets, such as circulation, that were considered to have an indefinite
life. Effective January 1, 1991, Canadian GAAP required that all
intangible assets be amortized. As a result, commencing January 1, 1990
under Canadian GAAP, the Company amortized the cost of circulation on a
straight-line basis over periods ranging from 10 to 40 years.
Effective January 1, 2002, the Company adopted new Canadian accounting
standards for Goodwill and Other Intangible Assets and certain
transitional provisions for Business Combinations. These new Canadian
standards are substantially consistent with the new U.S. accounting
standards SFAS 141 and SFAS 142, except that under U.S. GAAP, any
transitional impairment charge is recognized in earnings as a cumulative
effect of a change in accounting principle. The new standards require
that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead be tested for impairment at least
annually. The standards also specify criteria that intangible assets
must meet to be recognized and reported apart from goodwill. In
addition, the standard requires that intangible assets with estimable
useful lives be amortized over their respective estimated useful lives
to their estimated residual values, and that such assets are reviewed
for impairment by assessing the recoverability of the carrying value.
Effective January 1, 2002, the Company has discontinued amortization of
all existing goodwill, evaluated existing intangible assets and has made
the necessary reclassifications in order to conform with the new
criteria for recognition of intangible assets apart from goodwill.
Amounts previously ascribed to circulation, including costs capitalized
to increase long-term readership and certain other intangible assets
have now been reclassified to goodwill, net of the related deferred
income taxes, effective January 1, 2002.
This change in accounting policy cannot be applied retroactively and the
amounts presented for prior periods have not been restated for this
change. If this change in accounting policy were applied to the reported
net earnings (loss) under U.S. GAAP for the years ended December 31,
2000 and
F-55
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
2001, the impact of the change, in respect of the U.S. GAAP goodwill and
intangible assets with indefinite useful lives not being amortized,
would be as follows:
DECEMBER 31,
-------------------------
2000 2001
----------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE)
U.S. GAAP net earnings (loss), as reported.................. $ 86,281 $(82,047)
Add U.S. GAAP amortization, net of income tax and minority
interest.................................................. 38,668 17,548
-------- --------
Adjusted U.S. GAAP net earnings (loss)...................... $124,949 $(64,499)
======== ========
U.S. GAAP basic net earnings (loss) per share, as
reported.................................................. $ 1.52 $ (2.33)
Adjusted U.S. GAAP basic net earnings (loss) per share...... $ 2.56 $ (1.81)
U.S. GAAP diluted net earnings (loss) per share, as
reported.................................................. $ 1.42 $ (2.62)
Adjusted U.S. GAAP diluted net earnings (loss) per share.... $ 2.46 $ (2.10)
Adjusted net earnings (loss), noted above, reflects only the reduction
in amortization expense in respect of intangibles now classified as
goodwill and does not give effect to the impact that this change in
accounting policy would have had on the gains and losses resulting from
the disposal of operations during 2001 and 2000.
c) Gain on sale of shares, gain on subsidiary's issue of shares or sale of
assets
As a result of the adjustments in a) and b) above, and for periods
subsequent to January 1, 2002, as a result of adjustments (h) and (i),
the carrying value of the investments in Hollinger L.P., Southam and
Hollinger International are lower under U.S. GAAP, resulting in the gain
on sale of properties by Hollinger International, Southam and Hollinger
L.P., gains on the sale by the Company of shares of Hollinger
International, and gains on dilution of investments in Hollinger
International and Hollinger L.P., being higher under U.S. GAAP.
d) Foreign exchange
Under Canadian GAAP, a portion of the equity adjustment from foreign
currency translation, included in shareholders' deficiency, is required
to be transferred to income whenever there is a reduction in the net
investment in a foreign entity or repayment of foreign currency
denominated long-term intercompany loans. U.S. GAAP requires the
transfer of a portion of this account to income only when the reduction
in net investment is due to a sale or complete or substantially complete
liquidation. While there may be differences in the timing of the
recognition of such foreign exchange gains and losses under Canadian and
U.S. GAAP, this difference in accounting has no effect on total
shareholders' deficiency.
e) Cost of acquisitions
Under Canadian GAAP, the Company previously had a policy of including
certain internal acquisition costs as part of the purchase price of
businesses acquired. U.S. GAAP does not permit capitalization of these
costs.
f) Compensation to employees
The Company and Hollinger International have various stock option and
stock purchase plans for executives. Under Canadian GAAP, compensation
is not recognized on the grant or modification of any employee option.
In accordance with U.S. GAAP, options granted to employees of the parent
company are measured using the fair value based method and treated as a
dividend in kind with no resulting impact on either net earnings (loss)
or shareholders' deficiency. For all other employee
F-56
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
options, the compensation element is measured under U.S. GAAP using the
intrinsic value based method of accounting and is apportioned over the
period of service to which the compensation is related. As a result of a
previous reduction in the exercise price of Hollinger International's
options, compensation expense was recorded under U.S. GAAP in 2000 and a
reversal of compensation was recorded under U.S. GAAP in 2001.
g) Equity accounted companies
Under U.S. GAAP the compensation element of executive stock options
related to equity accounted companies is measured and apportioned over
the period of service to which the compensation is related. Under
Canadian GAAP, compensation is not recognized for stock options. In
addition, betterments, net of related amortization, related to equity
accounted companies were capitalized under Canadian GAAP until January
1, 2002. This is not permitted under U.S. GAAP.
As a result of the above adjustments, the carrying value of equity
accounted investments is lower under U.S. GAAP, resulting in the gain on
the disposition of these investments in 2001 being higher under U.S.
GAAP. The adjustments for 2000 and 2001 are in respect of the Company's
investment in Interactive Investor International.
h) Income taxes
Effective January 1, 2000, the Company adopted, on a retroactive basis,
new Canadian accounting standards for income taxes, which now require
income taxes to be accounted for using the asset and liability method,
consistent with U.S. GAAP. Previously, under Canadian GAAP, the deferral
method of providing for income taxes was used.
Under Canadian accounting standards for income taxes, the Company is not
required to restate its comparative figures for prior years and the
cumulative effect of this change in accounting policy of $291,004,000
(net of related minority interest) has been charged directly to retained
earnings as at January 1, 2000. Of this adjustment, $276,215,000 was
attributable to future income tax liabilities established in respect of
amounts ascribed to circulation on business acquisitions which are
largely not deductible for income tax purposes. Under U.S. GAAP, the
establishment of such future tax liabilities on business acquisitions
would have resulted in additional goodwill being recorded for an
equivalent amount. Under U.S. GAAP, the deferred tax recovery recorded
in respect of circulation amortization is fully offset by the related
goodwill amortization, with no net impact on U.S. GAAP net earnings.
Effective January 1, 2002, on the adoption of the new Canadian and U.S.
accounting standards for Goodwill and Business combinations (note b)),
amounts ascribed to circulation have been reclassified to goodwill,
which is no longer being amortized.
The new Canadian accounting standard for income taxes adopted January 1,
2000 does not require the restatement of prior years' business
acquisitions and permits the adjustment, otherwise made to goodwill
under U.S. GAAP, to be made directly to retained earnings (net of
related minority interest). As a result of not restating comparative
figures, the $276,215,000 net deferred tax impact of circulation
recorded on January 1, 2000 as a charge against retained earnings under
Canadian GAAP would have been recorded as goodwill under U.S. GAAP. This
difference, in turn, resulted in higher goodwill amortization or
write-off charges under U.S. GAAP in the amount of $162,764,000 and
$41,893,000 for the years ended December 31, 2000 and 2001,
respectively.
Accordingly, while there may not be any new material differences between
Canadian and U.S. GAAP with respect to income taxes for periods
subsequent to January 1, 2000, there will continue to be a difference
between Canadian and U.S. GAAP in respect of the remaining
F-57
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
$63.7 million of deferred taxes which will eliminate subsequent to
January 1, 2002 only when the underlying operation is sold or the
Company's interest in the underlying operations is diluted.
U.S. GAAP income tax expense would have differed from the amounts
computed by applying the basic federal and provincial income tax rates
to U.S. GAAP earnings (loss) before income taxes, minority interest and
cumulative effect of change in accounting principle as shown in the
following table:
2000 2001 2002
-------- --------- ---------
Earnings (loss) before income taxes, minority
interest and cumulative effect of change in
accounting principle............................. $896,205 $(417,688) $(140,394)
======== ========= =========
Basic income tax rate.............................. 43.95% 41.75% 41.00%
======== ========= =========
Computed income tax expense (recovery)............. $393,882 $(174,385) $ (57,562)
Change in income tax expense (recovery) resulting
from:
Different tax rate on earnings of subsidiaries..... (89,178) 19,565 15,144
Tax gain in excess of book gain.................... (82,350) 52,158 949
Potential tax benefit of current year's losses not
recorded......................................... 29,255 -- --
Large Corporations Tax............................. 15,531 940 1,079
Loss on total return equity swap................... 8,013 27,134 (4,844)
Change in valuation allowance...................... -- 42,841 74,043
Minority interest earnings in Hollinger L.P........ (26,669) (2,001) (1,214)
Permanent differences.............................. 208,778 (35,810) 56,983
-------- --------- ---------
Income tax expense (recovery)...................... $457,262 $ (69,558) $ 84,578
======== ========= =========
Effective tax rate................................. 51.02% 16.65% 60.24%
======== ========= =========
Canadian and foreign components of earnings (loss) before income taxes,
minority interest and cumulative effect of change in accounting
principle are presented below:
Under Canadian GAAP, the Company was required to treat the transfer in
1997 of the Canadian newspapers to Hollinger International as a
disposition at fair value. This resulted in the recognition of a gain to
the extent there is a minority interest in Hollinger International.
U.S. GAAP requires that the transfer of the Canadian Newspapers to a
subsidiary company be accounted for at historical values using "as-if"
pooling of interest accounting. As a result, the revenues and expenses
for the periods prior to January 1, 1997 would be restated to give
effect to the transfer of the Canadian Newspapers to Hollinger
International and the gross gain, prior to deducting expenses, of
$114,000,000 on the sale of the properties and the increase in
intangible assets of an equivalent amount would not have been recorded
for U.S. GAAP purposes. However, such gain would be recognized for U.S.
GAAP purposes as the underlying Canadian newspaper operations were sold
to third parties, or there was a further dilution in the Company's
interest in Hollinger International.
In addition, because the consideration received by the Company in 1997
included shares of Hollinger International, the Company was required to
treat this as an acquisition of an additional interest in Hollinger
International, which resulted in $20,500,000 being ascribed to
circulation and additional annual amortization expense of $932,000.
Effective January 1, 2002, upon adoption of the new Canadian and U.S.
accounting standards for Goodwill and Business Combinations (note 26b)),
amounts ascribed to circulation have been reclassified to goodwill,
which is no longer being amortized. Accordingly, there would be no
difference between Canadian and U.S. GAAP with respect to this item for
periods subsequent to January 1, 2002 unless the underlying operation is
sold, or the Company's interest in the underlying operations is diluted.
j) Financial instruments
Canadian GAAP requires the value ascribed to certain subsidiary Special
shares outstanding during 2000 to be increased over the life of the
shares to the Company's optional cash settlement amount through a
periodic charge to earnings. Under U.S. GAAP, the shares are recorded at
their fair value on the date of issue and such a charge to increase
their carrying amount is not required, until the shares were settled in
2000.
F-59
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
Under Canadian GAAP, the $11,054,000, $9,294,000, $8,185,000 of
dividends on mandatory redeemable preferred stock in 2000, 2001 and
2002, respectively, must be recorded as interest expense. Under U.S.
GAAP, such dividends are charged against shareholders' deficiency.
Under U.S. GAAP, the mark to market and foreign exchange adjustments
totalling a gain of $7,670,000 at December 31, 2001 and a gain of
$11,983,000 at December 31, 2002 to the carrying value of the Series II
preference shares, which reflect the value of the underlying Hollinger
International shares for which they are exchangeable, must be recorded
within shareholders' deficiency. Under Canadian GAAP, such adjustments
are deferred and recorded on the balance sheet outside of shareholders'
deficiency.
k) Total return equity swap
During 2000, U.S. GAAP clarified the accounting for certain derivative
financial instruments indexed to, and potentially settled, in a
company's own stock, that require a cash payment by the issuer upon the
occurrence of future events outside the control of the issuer. This new
U.S. GAAP guidance applies to new contracts entered into after September
30, 2000. Consequently, the extension of Hollinger International's
forward share purchase contracts on October 1, 2000 resulted in such
contracts being accounted for using the asset and liability method after
that date. Under this method, the derivative forward contract was marked
to market subsequent to October 1, 2000. The unrealized loss during the
period, October 1 to December 31, 2000, net of minority interest,
totalled $9,112,000 and was charged to earnings for U.S. purposes.
During 2001, the mark to market losses for the contracts totalled
$95,267,000 of which $59,920,000 of losses were realized when certain
forward share purchase contracts were settled, resulting in a U.S. GAAP
difference, net of related minority interest, of $15,316,000.
In December 2002, the total return equity swaps were settled and the
losses realized.
For Canadian GAAP, no adjustment was required to reflect the mark to
market adjustment for such forward purchase contracts and losses were
recognized only when realized upon the settlement of the contract.
l) Valuation allowance against prepaid pension asset
Canadian GAAP requires recognition of a pension valuation allowance for
any excess of the prepaid benefit expense over the expected future
benefit. Changes in the pension valuation allowance are recognized in
earnings under Canadian GAAP immediately. U.S. GAAP does not permit the
recognition of pension valuation allowances.
m) Capital stock
U.S. GAAP requires that loans receivable from employees relating to
share purchases be presented in the consolidated balance sheet as a
deduction from capital stock. Canadian GAAP permits these amounts to be
shown as assets in certain circumstances.
n) Unrealized holding gains (losses) on investments available for sale
Under Canadian GAAP, the Company accounts for all of its investments,
which consist of corporate debt and equity securities, at historical
cost. U.S. GAAP requires those investments in marketable securities
which are available for sale, other than those investments accounted for
on an equity basis, to be recorded at fair value. Unrealized holding
gains and losses, net of the related tax and minority interest effect,
on available for sale securities are excluded from earnings and are
reported as a separate component of other comprehensive income and
shareholders' equity until realized. Realized
F-60
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
gains and losses from the sale of available-for-sale securities are
determined on a specific identification basis.
o) Minimum pension liability adjustment
Under U.S. GAAP, the Company is required to record an additional minimum
pension liability for certain of its defined benefit pension plans to
reflect the excess of the accumulated benefit obligations over the fair
value of the plan assets with a corresponding charge against other
comprehensive income included in shareholders' deficiency (note 26u)).
No such adjustment is required under Canadian GAAP.
p) Interest in joint ventures
Canadian GAAP requires the proportionate consolidation of interests in
joint ventures. Proportionate consolidation is not permitted under U.S.
GAAP and interests in joint ventures are accounted for on the equity
basis.
Although the adoption of proportionate consolidation has no impact on
net earnings (loss) or shareholders' deficiency, it does increase
assets, liabilities, revenues, expenses and cash flows from operations
from those amounts otherwise reported under U.S. GAAP.
q) Change in accounting principle
Under U.S. GAAP, the transitional provisions of SFAS 142 require the
write-down resulting from the impairment test upon adoption on January
1, 2002 to be reflected in the consolidated statement of earnings as a
cumulative effect of a change in accounting principle. However, Canadian
GAAP requires the same loss to be recorded as a charge to the opening
deficit as at January 1, 2002. As described in note 1, goodwill
attributable to Jerusalem Post was written down in its entirety upon
adoption of SFAS 142.
r) Unusual items
Included in Unusual items on the consolidated statements of earnings
under Canadian GAAP are certain items which under U.S. GAAP must be
classified as either operating costs, non-operating income or
non-operating expenses. In particular, the unusual items (note 17) would
have been classified as follows: net gain on dilution of investments as
non-operating expenses, gains and losses on sale of investments and
publishing interests as non-operating income or expenses, net, gain on
effective sale of interest in Hollinger International as non-operating
income and partially non-operating expense, loss on retirement of Senior
Notes as non-operating expenses, new Chicago plant pre-operating costs
as operating costs, write-off of financing fees as non-operating
expenses, write-off of investments as non-operating expenses, realized
loss on total return equity swap as non-operating costs, pension and
post-retirement plan liability adjustment as operating costs and
redundancy, rationalization and other costs as operating costs.
F-61
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
s) Net earnings (loss) per retractable common share
YEARS ENDED DECEMBER 31
-----------------------
2000 2001 2002
----- ------ ------
(DOLLARS PER SHARE)
Basic net earnings (loss) per retractable common share:
Earnings (loss) before cumulative effect of change in
accounting principles.................................. $1.52 $(2.33) $(2.32)
Net earnings (loss) for the year.......................... $1.52 $(2.33) $(2.70)
Diluted earnings (loss) per retractable common share:
Earnings (loss) before cumulative effect of change in
accounting principles.................................. $1.42 $(2.62) $(2.35)
Net earnings (loss) for the year.......................... $1.42 $(2.62) $(2.73)
Earnings (loss) per retractable common share amounts in accordance with
U.S. GAAP are based on U.S. GAAP net earnings. The weighted average
number of outstanding shares for purposes of calculating basic and
diluted net earnings (loss) per share is the same under both Canadian
and U.S. GAAP (note 19).
Under U.S. GAAP, the change in the unrealized mark to market gain (loss)
on the Series II preference shares of ($19,048,000), $12,759,000 and
$5,431,000 as at December 31, 2000, 2001 and 2002 must be treated as an
adjustment to dividends paid for purposes of calculating basic and
diluted net earnings (loss) per share. Such adjustment is not required
under Canadian GAAP.
t) Statement of cash flows
Canadian GAAP permits the disclosure of the amount of funds provided by
operations before changes in non-cash operating working capital and
certain other items to be included in the consolidated statements of
cash flows as a subtotal.
In addition, Canadian GAAP permits the disclosure of cash flows provided
by operations per retractable common share. U.S. GAAP does not permit
disclosure of these items.
Canadian GAAP requires proportionate consolidation of interests in joint
ventures, which is not permitted under U.S. GAAP. As a result, under
U.S. GAAP, the total funds provided by operations (including the changes
in non-cash working capital and other items) for the years ended
December 31, 2000, 2001 and 2002 would have decreased by $25,280,000,
$25,102,000 and $6,282,000, respectively.
F-62
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
u) Comprehensive income (loss)
Total comprehensive income (loss) in accordance with U.S. GAAP is as
follows:
YEARS ENDED DECEMBER 31
------------------------------
2000 2001 2002
-------- -------- --------
Net earnings (loss) based on U.S. GAAP, as restated (v)..... $ 86,281 $(82,047) $(83,760)
Other comprehensive net earnings (loss), net of tax, being:
Unrealized gain (loss) on investments held for sale, net
of related tax recovery of $20,390, $29,002 and $2,372
and minority interest of $38,990, $77,542 and $5,701 in
2000, 2001 and 2002, respectively...................... (35,244) (54,066) 2,256
Reclassification adjustment for realized loss reclassified
out of accumulated comprehensive income, net of related
tax recovery of nil, $47,102 and $832 and minority
interest of nil, $118,041 and $1,384 in 2000, 2001 and
2002, respectively..................................... -- 83,005 659
-------- -------- --------
(35,244) 28,939 2,915
Change in the equity adjustment from foreign currency
translation............................................... (64,559) 10,527 24,914
Minimum pension liability adjustment, net of a related tax
recovery of nil, $11,726 and $24,897 and minority interest
of $1,570, $13,055 and $29,504 in 2000, 2001 and 2002,
respectively.............................................. (1,570) (9,982) (14,060)
-------- -------- --------
Comprehensive loss based on U.S. GAAP....................... $(15,092) $(52,563) $(69,991)
======== ======== ========
v) Restatements
Shareholder's deficiency and net earnings (loss) based on U.S. GAAP as
at December 31, 2000 and 2001 and for the years ended December 31, 2000
and 2001 differ from the amounts previously reported as follows:
i) In 2001, adjustments described in note 26k), were previously
computed without giving effect to the full amount of the realized
losses, which would have already been recognized in the net loss
for Canadian GAAP purposes. The dilution gain adjustment recorded
in 2001 (note 26c)) has also been effected as a consequence of this
adjustment. This restatement reduced the previously reported U.S.
GAAP net loss in fiscal 2001 by $20,098,000.
ii) In 2000, the Company recorded a valuation allowance against the
excess of the prepaid benefit expense for certain of its Canadian
operations, over the expected future benefit. U.S. GAAP does not
specifically address pension valuation allowances and the Company
had believed that such valuation allowance was appropriate under
U.S. GAAP. Recently U.S. regulators have interpreted there to be a
difference between Canadian and U.S. GAAP in this area. In light of
these recent developments, the Company retroactively adjusted for
the changes in the valuation allowance and the related impact on
the dilution gain, which resulted in an increase to reported U.S.
GAAP net earnings for fiscal 2000 of $29,757,000 and an increase to
reported U.S. GAAP net loss for fiscal 2001 of $5,670,000, each net
of related income tax and minority interest.
iii) In addition to giving effect to the matters noted above, certain
basic and diluted earnings per share figures for 2000, and 2001
have been restated from amounts previously reported due to an error
in the computation of the unrealized mark to market adjustment on
the Series II preference shares (note 26s)) as well as a
restatement of the dilutive effect of certain dilutive securities
of International.
F-63
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
iv) As described in note 26i), in 1997 the Company recorded for Canadian
GAAP purposes, a gain on the sale of certain Canadian newspapers to
Hollinger International. Under U.S. GAAP, no gain could be
recognized in 1997. However, such gain should have been recognized
as the underlying Canadian newspaper operations were sold to third
parties, or there was a further dilution in the Company's interest
in Hollinger International.
In the years 1998 through 2001, the Company did not appropriately
recognize such gains for U.S. GAAP purposes and has restated its U.S.
GAAP results for these years to reflect such gains. In addition, as a
result of this matter, the Company has also retroactively restated the
adjustment to the income tax provision for U.S. GAAP purposes. As a
result of these two items, the Company has retroactively decreased the
previously reported U.S. GAAP shareholder's deficiency as at December
31, 1999 by a net $21.1 million and increased reported U.S. GAAP net
earnings for fiscal 2000 by $21.1 million and increased reported U.S.
GAAP net earnings for fiscal 2001 by $40.8 million.
The net effect of all these restatements to basic and diluted net
earnings (loss) for the years ended December 31, 2000 and 2001 is
summarized below:
YEARS ENDED
DECEMBER 31
-------------------
2000 2001
-------- --------
(DOLLARS PER SHARE)
U.S. GAAP basic earnings (loss) per retractable common
share:
As previously reported.................................... $(0.12) $(3.89)
Restated.................................................. $ 1.52 $(2.33)
U.S. GAAP diluted loss per retractable common share:
As previously reported.................................... $(0.49) $(4.11)
Restated.................................................. $ 1.42 $(2.62)
w) Recent pronouncements
In June 2001, the FASB issued FAS 143, "Accounting for Asset Retirement
Obligations" ("FAS 143"), which addresses financial accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. FAS 143
requires the Company to record the fair value of an asset retirement
obligation as a liability in the period in which it incurs a legal
obligation associated with the retirement of tangible long-lived assets
that result from the acquisition, construction, development and/or normal
use of the assets. The fair value of the liability is added to the
carrying amount of the associated asset and this additional carrying
amount is depreciated over the life of the asset. Subsequent to the
initial measurement of the asset retirement obligation, the obligation
will be adjusted at the end of each period to reflect the passage of time
and changes in the estimated future cash flows underlying the obligation.
If the obligation is settled to other than the carrying amount of the
liability, the Company will recognize a gain or loss on settlement. The
Company is required to adopt the provisions of FAS 143 for the quarter
ending March 31, 2003. To accomplish this, the Company must identify all
legal obligations for asset retirement obligations, if any, and determine
the fair value of these obligations on the date of adoption. The
determination of fair value is complex and will require the Company to
gather market information and develop cash flow models. Additionally, the
Company will be required to develop processes to track and monitor these
obligations. The Company has determined that the adoption of FAS 143 does
not have a material impact on its financial statements.
F-64
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
In April 2002, the FASB issued FAS 145 which rescinded FAS 4, "Reporting
Gains and Losses from Extinguishment of Debt" ("FAS 145"). FAS 145
addresses, among other things, the income statement treatment of gains
and losses related to debt extinguishments, requiring that such expenses
no longer be treated as extraordinary items, unless the items meet the
definition of extraordinary per APB Opinion No. 30, "Reporting the
Results of Operations -- Reporting the Effects of Disposal of a Segment
of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions". Upon adoption, any gain or loss on
extinguishment of debt that was classified as an extraordinary item, in
prior periods presented, that does not meet the criteria in Opinion 30
for classification as an extraordinary item, is required to be
reclassified to non-operating expense. The Company retroactively adopted
the new presentation requirements of FAS 145 effective January 1, 2002.
The adoption of such accounting standard did not impact the Company's
U.S. GAAP net earnings as information regarding extraordinary losses
under U.S. GAAP on debt extinguishment was presented for disclosure
purposes only.
In July 2002, the FASB issued FAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("FAS 146"), which is effective for
exit or disposal activities that are initiated after December 31, 2002.
FAS 146 nullifies Emerging Issues Task Force Issue No. 94-3 ("EITF
94-3"), "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in
Restructuring)". The principal difference between FAS 146 and EITF 94-3
related to the recognition of a liability for a cost associated with an
exit or disposal activity. FAS 146 requires that a liability be
recognized for exit or disposal costs only when the liability is
incurred, whereas under EITF 94-3, the liability was recognized when a
company commits to an exit plan, and that the liability be initially
measured at fair value. The Company is currently assessing the impact of
the new standards.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities" ("VIE'S") ("FIN 46"), which requires the
companies that control another entity through interests other than
voting interest should consolidate the controlled entity. In the absence
of clear control through a voting equity interest, a company's exposure
(variable interests) to the economic risk and the potential rewards from
a VIE's assets and activities are the best evidence of a controlling
financial interest. VIE's created after January 31, 2003 must be
consolidated immediately. VIE's existing prior to February 1, 2003 must
be consolidated by the Company commencing with its third quarter 2003
financial statements. The Company has not yet determined whether it has
any VIE's which will require consolidation.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation -- Transition and Disclosure", an amendment of
FASB Statement No. 123. This Statement amends SFAS No. 123, "Accounting
for Stock-Based Compensation", to provide alternative methods of
transition for a voluntary change to the fair value method of accounting
for stock-based employee compensation. The Company plans to continue to
use the intrinsic value method for U.S. GAAP purposes. In addition, this
Statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements.
Certain of the disclosure modifications are required for fiscal years
ending after December 15, 2002 and are included in note 27e).
F-65
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
27. ADDITIONAL DISCLOSURES REQUIRED UNDER U.S. GAAP
a) Accounting policy
Issuance of a Subsidiary's Stock
The Company accounts for the issuance of a subsidiary's stock as a
dilution gain or loss which is included in the statement of earnings.
b) Marketable equity and debt securities
All marketable equity and debt securities are classified as available
for sale, recorded at fair value, and presented as non-current assets.
Available for sale securities consist of the following:
During 2001, the Company disposed of certain available-for-sale
securities resulting in gross realized losses of $139,586,000. In
computing the realized losses, cost was determined based on average
cost.
Under U.S. GAAP, FIN 44, "Accounting for Certain Transactions involving
Stock Compensation" was effective July 1, 2000 and required repriced
options to be treated as variable stock option awards. As a result, the
Company has recorded, net of minority interest, $1,127,000 of
compensation expense for 2000 and a reversal of compensation expense of
$918,000 for 2001, in respect of certain repriced options of Hollinger
International. For all other stock options granted by the Company and
its subsidiaries, no compensation cost has been recognized. Had the
Company determined compensation costs based on the fair value at the
grant date of its stock options under Statement of Financial Accounting
Standards No. 123 ("FAS 123") "Accounting for Stock-Based Compensation",
the Company's U.S. GAAP net earnings (loss) and earnings (loss) per
share would have been reduced to the pro forma amounts indicated in the
following table:
2000 2001 2002
-------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE)
Net earnings (loss) as restated (note 26v))........... $86,281 $(82,047) $(83,760)
Add compensation expense, as reported................. 1,071 (763) --
Deduct pro forma compensation expense................. (5,190) (4,950) (4,057)
------- -------- --------
Pro forma U.S. GAAP net earnings (loss)............... $82,162 $(87,760) $(87,817)
======= ======== ========
U.S. GAAP basic net earnings (loss) per share as
reported............................................ $ 1.52 $ (2.33) $ (2.70)
U.S. GAAP diluted net earnings (loss) per share as
reported............................................ $ 1.42 $ (2.62) $ (2.70)
U.S. GAAP pro forma basic net earnings (loss) per
share............................................... $ 1.41 $ (2.50) $ (2.82)
U.S. GAAP pro forma diluted net earnings (loss) per
share............................................... $ 1.30 $ (2.79) $ (2.82)
The Company has not granted any options since 1998. The weighted average
fair value of stock options granted during 2000, 2001 and 2002 by
Hollinger International was estimated to be US$4.12, US $5.67 and
US$5.65, respectively, on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions:
dividend yield 3.4%, 4.6% and 3.6%, expected volatility 43.3%, 55.2% and
68.3%, risk free interest rates of 5.1%, 5.0% and 4.5%, and expected
lives of 10 years in each of those same years.
f) Rent expense
Rent expense was $28,440,000, $22,589,000, and $26,790,000 for 2000,
2001 and 2002, respectively.
g) Derivatives
For U.S. GAAP reporting purposes, the Company adopted SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as
amended by SFAS No. 137 and SFAS No. 138
F-67
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
("SFAS No. 133") on January 1, 2001. There was no impact on results of
operations or financial position upon adoption.
The Company may enter into various swap, option and forward contracts
from time to time when management believes conditions warrant, as
described in note 24d). Such derivative contracts have not been
designated as effective hedges, and therefore the changes in their fair
value are recorded in earnings under both Canadian and U.S. GAAP.
On December 27, 2002, a United Kingdom subsidiary of the Company entered
into two cross-currency rate swap transactions to hedge principal and
interest payments on U.S. dollar borrowings under Publishing's December
2002 Senior Credit Facility. The contracts have a total foreign currency
obligation notional value of U.S.$265 million, fixed at a rate
U.S.$1.5922 to L1, convert the interest rate on such borrowing from
floating to fixed, and expire as to of U.S.$45 million on December 29,
2008 and as to U.S.$220 million on December 29, 2009.
On January 22, 2003 and February 6, 2003, Publishing entered into
interest rate swaps to convert U.S.$150 million and U.S.$100 million,
respectively, of the Publishing Notes issued in December 2002 to
floating rates for the period to December 15, 2010, subject to early
termination notice.
Changes in the value of derivatives comprising the forward exchange
contract described in note 5a) and cross-currency swaps described above
amounted to a gain of $24.3 million and a loss of $28.5 million in 2001
and 2002, respectively. The fair values of all derivative contracts are
disclosed in note 24c).
h) Guarantees
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others", which
establishes and clarifies requirements for disclosure of most guarantees
and the recognition of an initial liability for the fair value of
obligations a guarantor assumes under guarantees. The initial liability
recognition and measurement provisions are effective in respect of
guarantees entered into or modified after December 31, 2002. FIN 45
provides guidance regarding the identification of guarantees and
requires a guarantor to disclose the significant details of guarantees
that have been given regardless of whether it will have to make payments
under the guarantees.
Senior Secured Notes
In connection with the issuance in 2003 of 11 7/8% Senior Secured Notes
due 2011, the Company and certain of its subsidiaries have agreed to
indemnify its lenders against any losses or damages resulting from
inaccuracy of financial statements, environmental matters, taxes and
compliance with Securities Act. The Company and its subsidiaries also
indemnified the Noteholders against any related tax liabilities arising
from payments made with respect to the Notes, except taxes on
Noteholder's income. These indemnifications generally extend for the
term of the Senior Secured Notes and do not provide for any limit on the
maximum potential liability.
The Company is unable to estimate the maximum potential liability for
these types of indemnifications as the Notes indenture does not specify
a maximum amount and the amounts are dependent upon future contingent
events, the nature and likelihood of which cannot be determined at this
time. No amount has been accrued in the interim consolidated financial
statements with respect to these indemnifications and the Company is
unable to estimate amounts due for withholding taxes, if any, at this
time. Any such amounts will increase the future effective cost of
borrowing.
F-68
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
The Company has indemnified the lenders and their affiliates from and
against all losses as a result of any obligations of any of the
borrowers and guarantors under the Company's Senior Secured Notes.
Property Leases
A subsidiary of the Company has agreed to indemnify lessors of its
operating leases against liabilities, damages, costs, claims and actions
resulting from damaged property, violations of any lease covenants or
any accident or injury occurring on the leased premises.
The Company is unable to estimate the maximum exposure for these types
of indemnifications as the operating leases do not specify a maximum
amount and the amounts are dependent upon future contingent events, the
nature and likelihood of which cannot be determined at this time. No
amount has been accrued in the interim consolidated financial statements
with respect to these indemnifications.
Joint Ventures
The Telegraph Group Limited ("Telegraph") has guaranteed the printing
joint venture partners' share of equipment leasing obligations to third
parties, which amounted to approximately $948,000 (L372,000) at December
31, 2002. These obligations are guaranteed jointly and severally by each
joint venture partner.
Land leased by the Telegraph under a Head Lease under which the property
is held until July 2183 has been sublet to West Ferry Printers, one of
the Telegraph's printing joint ventures. The sublease is for a term of
34 years from 1987. Although the sublease has been consented to by the
landlord, it has not released Telegraph from its obligation under the
lease and, accordingly, Telegraph is contingently liable for performance
by West Ferry Printers. Annual rents under the lease are based on a
percentage of immoveable assets, currently L600,000 per year.
Pursuant to a joint venture agreement in the United Kingdom, the
Telegraph has agreed to guarantee up to L0.5 million, if required, in
connection with borrowing by the joint venture. To date, the joint
venture has made no request for the supporting guarantee.
Pursuant to the West Ferry joint venture agreement, the Telegraph has a
commitment to fund 50% of the obligation under West Ferry's defined
benefit plan.
Dispositions
In connection with certain dispositions of assets and/or businesses, the
Company has provided customary representations and warranties whose
terms range in duration and may not be explicitly defined. The Company
has also retained certain liabilities for events occurring prior to
sale, relating to tax, environmental, litigation and other matters.
Generally, the Company has indemnified the purchasers in the event that
a third party asserts a claim against the purchaser that relates to a
liability retained by the Company. These types of indemnification
guarantees typically extend for a number of years.
The Company is unable to estimate the maximum potential liability for
these indemnifications as the underlying agreements do not always
specify a maximum amount and the amounts are dependent upon the outcome
of future contingent events, the nature and likelihood of which cannot
be determined at this time.
Historically, the Company has not made any significant indemnification
payments under such agreements and no amount has been accrued in the
accompanying interim consolidated financial
F-69
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
statements with respect to these indemnification guarantees. The Company
continues to monitor the conditions that are subject to guarantees and
indemnifications to identify whether it is probable that a loss has
occurred, and would recognize any such losses under any guarantees or
indemnifications when those losses are probable and estimable.
Amended and Restated Credit Agreement
The Company and its subsidiaries also indemnified the Borrower against
any related tax liabilities arising from payments made with respect to
the revolving bank credit facility, except taxes on Borrower's income.
These indemnifications generally extended for the term of the revolving
bank credit facility and did not provide for any limit on the maximum
potential liability. The revolving bank credit facility was repaid in
March 2003.
Credit Facilities
Under Hollinger International's Senior Credit Facility, Hollinger
International has agreed to indemnify its lenders under that facility
against certain costs or losses resulting from changes in laws and
regulations which would increase the lenders' costs or reduce the rate
of return otherwise available to them in respect of the loans to
Hollinger International. Hollinger International has further agreed to
indemnify certain lenders against existing loans to the extent that such
loans impose an obligation for withholding tax or similar charge on
interest, should such tax or charge not be recoverable by the lenders.
These indemnifications generally extend for the term of the credit
facilities and do not provide for any limit on the maximum potential
liability.
Hollinger International is unable to estimate the maximum potential
liability for these types of indemnifications as the credit agreements
do not specify a maximum amount and the amounts are dependent upon
future contingent events, the nature and likelihood of which cannot be
determined at this time.
No amount has been accrued in the accompanying interim consolidated
financial statements with respect to these indemnifications.
International is unable to estimate amounts due for withholding taxes at
this time. Any such amounts will increase the future effective cost of
borrowing.
Hollinger International has indemnified the lenders and their affiliates
from and against all losses as a result of any obligations of any of the
borrowers and guarantors under its Senior Credit Facility.
Participation Trust
In connection with the participation agreement, International has agreed
to indemnify the Participation Trust and its trustee, in the event the
participation agreement entitles the issuer to fail to make payments
with respect to the debentures. Although the indemnity has not been
capped, the Company estimates the liability is limited to the amount of
participation interests sold, totalling US$490.5 million, plus accrued
interest and any further debentures received as paid-in-kind interest.
Other
The Company licenses some of the content it publishes for use by third
parties. In doing so, the Company warrants that it is entitled to
license that content and indemnifies the licensee against claims against
improper use. The number of quantum of such claims cannot be reasonably
estimated. Historically, claims of this nature have not been
significant.
In special circumstances, the Company's newspaper operations may engage
freelance reporters to cover stories in locales that carry a high risk
of personal injury or death. Telegraph has engaged a number of
journalists and photographers to report from the Middle East. As a term
of engagement,
F-70
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
Telegraph has agreed to provide a death benefit which, in the aggregate
for all freelancers engaged, amounts to L2,600,000. This exposure is
uninsured. Precautions have been taken to avoid a concentration of the
freelancers in any one location.
28. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform with the
financial statement presentation adopted in the current period.
29. SUBSEQUENT EVENTS
a) On March 10, 2003, the Company issued US$120,000,000 aggregate
principal amount of 11 7/8% Senior Secured Notes due 2011. These notes
are secured by 10,108,302 shares of Hollinger International Class A
common stock and all 14,990,000 shares of Hollinger International Class
B common stock. The total net proceeds were used to repay existing bank
indebtedness, to repay amounts due to Ravelston and make an advance to
Ravelston. The Senior Secured Notes are fully and unconditionally
guaranteed by RMI, a wholly owned subsidiary of Ravelston. The Company
and RMI entered into a support agreement, under which RMI is required
to make an annual support payment in cash to the Company on a periodic
basis by way of contributions to the capital of the Company (without
receiving any shares of the Company) or subordinated debt. The amount
of the annual support payment will be equal to the greater of a) the
non-consolidated negative net cash flow of the Company (which does not
include outlays for retractions or redemptions) and b) US$14.0 million
per year (less any future payments of services agreements fees NB Inc.
and any excess in the net dividend amount received by the Company or
any of the Company's wholly owned restricted subsidiaries, as they are
defined in the indenture governing the Company's Senior Secured Notes
due 2011, on the shares of Hollinger International that the Company and
NB Inc. own that is over US$4.65 million per year), in either case,
reduced by any permanent repayment of debt owing by Ravelston to the
Company. Initially, the support amount to be contributed by RMI is
expected to be satisfied through the permanent repayment by Ravelston
of its approximate $16.4 million of advances from the Company, which
resulted from the use of proceeds of the Company's offering of its
Senior Secured Notes. Thereafter, all support amount contributions by
RMI will be made through contributions to the capital of the Company,
without receiving any additional shares of the Company, except that, to
the extent that the minimum payment exceeds the negative net cash flow
of the Company, the amounts will be contributed through an
interest-bearing, unsecured, subordinated loan to the Company. The
support agreement terminates upon the repayment of the Senior Secured
Notes, which mature in 2011.
All aspects of this transaction have been reviewed and approved by a
special committee of the Board of Directors of the Company, comprised
entirely of independent directors.
b) On March 10, 2003, prior to the closing of the above offering, NB Inc.
sold its shares of Class A common stock and Series E redeemable
preferred stock of Hollinger International to RMI. Such shares were in
turn sold back to NB Inc. from RMI at the same price with a resulting
increase in the tax basis of the shares of Hollinger International and
a taxable gain to RMI. As the exchange of the Hollinger International
shares with RMI represents a transfer between companies under common
control, NB Inc. will record in 2003, contributed surplus of
approximately $1.4 million, being the tax benefit associated with the
increase in the tax value of the shares of Hollinger International.
c) On March 10, 2003, Hollinger International repurchased shares of its
Class A common stock and redeemed shares of Series E preferred stock
from the Company and has revised certain debt
F-71
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
arrangements it had in place with the Company. These transactions were
completed in conjunction with the Company closing a private placement
of Senior Secured Notes (note 29a)).
Contemporaneously with the closing of the issue of Senior Secured Notes,
Hollinger International:
i) repurchased for cancellation, from NB Inc., 2,000,000 shares of
Class A common stock of Hollinger International at US$8.25 per
share for total proceeds of $24.2 million (US$16.5 million); and
ii) redeemed, from NB Inc., pursuant to a redemption request, all of
the 93,206 outstanding shares of Series E redeemable convertible
preferred stock of Hollinger International at the fixed redemption
price of $146.63 per share being a total of $13.6 million (US$9.3
million).
As a result, the Company's equity and voting interest in Hollinger
International is 30.3% and 72.6%, respectively. The dilution gain
arising on this effective sale will be recorded in 2003.
Proceeds from the repurchase and redemption were offset against debt due
to Hollinger International from NB Inc. (note 23b)), resulting in net
outstanding debt due to Hollinger International of approximately $29.9
million (US$20.4 million) as of March 10, 2003. The remaining debt bears
interest at 14.25% or, if paid in additional notes, 16.5% and is
subordinated to the Company's Senior Secured Notes (so long as the Notes
are outstanding), guaranteed by Ravelston and secured by certain assets
of Ravelston.
Following a review by a special committee of the Board of Directors of
Hollinger International, comprised entirely of independent directors, of
all aspects of the transaction relating to the changes in the debt
arrangements with NB Inc. and the subordination of this remaining debt,
the special committee approved the new debt arrangements, including the
subordination.
d) On April 21, 2003, the Company made an offer to exchange its Series III
preference shares into Series IV preference shares on a share-for-share
basis. The terms of the new Series IV preference shares will provide
for a mandatory redemption on April 30, 2008 for $10.00 cash per share
(plus unpaid dividends) and an annual cumulative dividend, payable
quarterly, of $0.80 per share per annum (or 8%) during the five-year
term. As with the Series III preference shares, i) the Company will
have the right at its option to redeem all or part of the Series IV
preference shares at any time after three years for $10.00 cash per
share (plus unpaid dividends) and ii) holders will have the right at
any time to retract the Series IV preference shares for a retraction
price payable in cash which, during the first four years, will be
calculated by reference to Government of Canada bonds having a
comparable yield and term to the shares, and during the fifth year, the
retraction price will be $9.50 per share (plus unpaid dividends in each
case). The offer was conditional upon acceptance by holders of at least
50% of the outstanding Series III preference shares. The bid originally
expired on May 27, 2003 and was extended until June 9, 2003. This
condition was not met and, accordingly, the offer was terminated.
e) Effective April 30, 2003, US$15.7 million principal amount of
subordinated debt owing to Hollinger International by NB Inc. was
transferred by Hollinger International to HCPH Co., a subsidiary of
Hollinger International, and subsequently transferred to RMI by HCPH
Co. in satisfaction of a non-interest bearing demand loan due from HCPH
Co. to RMI. After the transfer, NB Inc.'s debt to Hollinger
International was approximately US$4.7 million and NB Inc.'s debt to
RMI was approximately US $15.7 million. The debts owing by NB Inc. to
RMI and owing by NB Inc. to Hollinger International each bears interest
at the rate of 14.25% if interest is paid in cash and 16.50% if it is
paid in kind, except that RMI has waived its right to receive interest
until further notice. The debts are subordinated to the Senior Secured
Notes for so long as the Senior Secured Notes are
F-72
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
outstanding, and that portion of the debt due by NB Inc. to Hollinger
International is guaranteed by RCL and the Company. Hollinger
International entered into a subordination agreement with the Company
and NB Inc. pursuant to which Hollinger International has subordinated
all payments of principal, interest and fees on the debt owed to it by
NB Inc. to the payment in full of principal, interest and fees on the
Senior Secured Notes, provided that payments with respect to principal
and interest can be made to International to the extent permitted in
the indenture governing the Senior Secured Notes. RMI has agreed to be
bound by these subordination arrangements with respect to the debt owed
from NB Inc. to RMI.
f) During the period April 1, 2003 to May 16, 2003, holders of 3,651,784
Series III preference shares, holders of 504,989 Series II preference
shares and holders of 22,500 retractable common shares submitted
retraction notices to the Company. As of May 20, 2003, the Company
completed or announced that it was able to complete the retraction of
504,989 Series II preference shares for 232,293 shares of Hollinger
International Class A common stock, 876,050 Series III preference
shares for approximately $7.7 million in cash and 22,500 retractable
common shares for cash of $124,000. This completed all retraction
notices received up to and including April 30, 2003.
On May 20, 2003, after careful deliberation, the Company concluded that
it was not able to complete the retractions of shares submitted after
April 30, 2003 without unduly impairing its liquidity. Since April 30,
2003 and up to and including June 19, 2003, the Company has received
retraction notices from holders of 2,939,593 Series III preference
shares, of which 1,281,239 retraction notices were subsequently
withdrawn, leaving retraction notices from the holders of 1,658,354
Series III preference shares, for aggregate retraction proceeds of $15.8
million, which were unable to be completed at the current time. In
addition, during the same time period, retraction notices were received
from the holders of 357,958 Series II preference shares for aggregate
retraction proceeds of 164,660 shares of Hollinger International Class A
common stock or cash of $2.5 million, which were unable to be completed
at the current time.
The Company will periodically review its liquidity position to determine
if and when further retractions can be completed. The Company will not
complete the retractions or redemptions if to do so would unduly impair
its liquidity. Retractions of Series II preferences shares and Series
III preference shares will be processed on a combined basis in order
determined by their retraction date (with equal ranking of the series)
in advance of any retractable common shares that are submitted for
retraction. Following the satisfaction of all pending retracted Series
II preference shares and Series III preference shares, retractions of
the retractable common shares will be processed in order determined by
their retraction date. Accordingly, retractions of retractable common
shares cannot be completed as long as there are pending and unsatisfied
retractions of Series II preference shares and Series III preference
shares.
g) On May 11, 2003, 3815668 Canada Inc., a subsidiary of CanWest (the
Issuer of the 12 1/8% Subordinated Debentures due 2010 received by the
Company in partial consideration on sale of the Company's Canadian
newspaper operations to CanWest in November 2000) redeemed $265.0
million principal amount of the 12 1/8% debentures, exclusive of
interest accrued to the redemption date of $8.8 million. Of the total
amount received, US$159.8 million has been delivered to the
Participation Trust and the balance of US$27.6 million has been
received by Hollinger International and Hollinger LP., a portion of
which must be retained until November 4, 2010.
h) On May 19, 2003, a shareholder of Hollinger International filed a
Schedule 13D with the U.S. Securities and Exchange Commission (the
"SEC") and amongst other things, served a demand letter on the Board of
Directors of Hollinger International (the "Board") requesting that the
Board investigate and, if determined to be advisable, take corrective
action in respect of
F-73
HOLLINGER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS ARE IN THOUSANDS OF CANADIAN DOLLARS EXCEPT WHERE NOTED)
payments made to senior executives of Hollinger International in
respect of non-competition agreements, that had been disclosed in the
financial statements. On June 11, 2003, the same shareholder filed an
Amendment to the Schedule 13D with the SEC reiterating the earlier
demands as well as requesting that the Board investigate and, if
determined to be advisable, take corrective action in respect of i) an
asset sale by Hollinger International to an entity affiliated with
certain officers and directors of Hollinger International, and (ii) the
payment of fees by Hollinger International pursuant to various
affiliated management services agreements. On June 17, 2003, in
response to these requests, the Board established a special committee
to conduct an independent review and investigation of those
allegations. The potential impact of filing and the demand letters, on
the financial statements of Hollinger International and the Company, is
not known at the current time.
i) On May 22, 2003, Hollinger International and the Company announced
that they had reached an agreement in principle, regarding a proposed
transaction with Southeastern Asset Management Inc. ("Southeastern").
Under the proposed transaction, Southeastern would purchase from the
Company between five to ten million shares (as determined by the
Company) of Hollinger International Class A common stock at a purchase
price of US$11.60 per share. The terms of the shares of Class B common
stock of Hollinger International, which currently have ten votes per
share and represent approximately 67% of the voting power of Hollinger
International, would be amended to allocate 35% of the voting power of
Hollinger International to the shares of Class B common stock for a
period of 3 1/2 years. The voting power of the shares of Class B
common stock would then be reduced to two votes per share for 18
months thereafter, after which time, the shares of Class B common
stock would be converted on a share-for-share basis into shares of
Class A common stock. Going forward, Ravelston management would be
employed and paid directly by Hollinger International. An aggregate
annual compensation level of US$20 million has received the support of
Southeastern which would have the right to nominate three directors to
the Board of Hollinger International.
Completion of the transaction is subject to various conditions,
including approval of the Board of Directors of Hollinger International
and the Company, approval by the shareholders of Hollinger International
and the execution of definitive agreements. If the requisite approvals
are obtained, it is contemplated that the transaction would close on or
before September 30, 2003.
Since the proposed transaction is in its preliminary stages and has not
yet been finalized, the Company has not yet determined the potential
impact on its financial statements.
j) In 2003, Hollinger International made a venture capital investment of
US$2.5 million in a corporation in which a director of Hollinger
International has a minority interest.
k) Commencing April 3, 2003, Hollinger International began purchasing its
own shares through the public market and holding the shares acquired as
treasury stock. During the period April 3, 2003 to May 5, 2003,
Hollinger International acquired 1,000,000 shares of its Class A common
stock at an average price of U.S.$8.79 per share for total cash
consideration of U.S.$8.8 million.
F-74
HOLLINGER INC.
SCHEDULE 1 -- CONDENSED UNCONSOLIDATED FINANCIAL
INFORMATION OF THE COMPANY
CONDENSED NON-CONSOLIDATED BALANCE SHEETS
DECEMBER 31
---------------------
2001 2002
--------- ---------
(IN THOUSANDS OF
CANADIAN DOLLARS)
ASSETS
CURRENT ASSETS
Prepaid expenses and other assets........................... $ 978 $ 1,751
Due from subsidiaries....................................... 22,620 26,616
--------- ---------
23,598 28,367
Equity investments in subsidiaries and affiliates........... 130,460 115,612
Other assets................................................ 1,446 1,234
--------- ---------
$ 155,504 $ 145,213
========= =========
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness........................................... $ 129,475 90,810
Accounts payable and accrued expenses....................... 3,003 2,278
Retractable preference shares............................... -- 135,299
Deferred unrealized gain on retractable preference shares... -- 11,983
Due to subsidiaries (note 5)................................ 107,174 210,085
Due to The Ravelston Corporation Limited.................... 23,500 46,089
--------- ---------
263,152 496,544
Retractable preference shares............................... 147,472 --
Deferred unrealized gain on retractable preference shares... 7,670 --
Future income taxes......................................... 680 --
--------- ---------
418,974 496,544
--------- ---------
SHAREHOLDERS' DEFICIENCY
Capital stock............................................... 271,774 273,759
Contributed surplus (note 2)................................ 51,797 51,797
Deficit (note 3)............................................ (537,110) (656,942)
--------- ---------
(213,539) (331,386)
Equity adjustment from foreign currency translation......... (49,931) (19,945)
--------- ---------
(263,470) (351,331)
--------- ---------
$ 155,504 $ 145,213
========= =========
See accompanying notes to condensed non-consolidated financial statements.
F-75
HOLLINGER INC.
SCHEDULE 1 -- CONDENSED UNCONSOLIDATED FINANCIAL
INFORMATION OF THE COMPANY -- (CONTINUED)
CONDENSED NON-CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31
----------------------------------
2000 2001 2002
--------- ---------- ---------
(IN THOUSANDS OF CANADIAN DOLLARS)
REVENUE
Interest income............................................. $ 183 $ 388 $ 26
-------- --------- --------
EXPENSES
General and administrative expenses......................... 1,900 2,591 3,259
Amortization of deferred finance costs...................... 1,177 1,963 2,560
Interest on exchangeable shares............................. 11,054 9,294 8,185
Interest on amounts due to The Ravelston Corporation
Limited................................................... -- -- 2,045
Other interest.............................................. 14,386 11,626 5,614
-------- --------- --------
28,517 25,474 21,663
-------- --------- --------
Net earnings (loss) in equity accounted companies........... 185,740 (165,899) (66,773)
-------- --------- --------
Net foreign currency gains (losses)......................... 74 (16) 15
-------- --------- --------
Earnings (loss) before the undernoted....................... 157,480 (191,001) (88,395)
Unusual gains (losses), net (note 4)........................ 32,969 54,670 (293)
Income tax recovery (expense)............................... (1,076) 4,433 48
-------- --------- --------
Net earnings (loss)......................................... $189,373 $(131,898) $(88,640)
======== ========= ========
See accompanying notes to condensed non-consolidated financial statements.
F-76
HOLLINGER INC.
SCHEDULE 1 -- CONDENSED UNCONSOLIDATED FINANCIAL
INFORMATION OF THE COMPANY -- (CONTINUED)
CONDENSED NON-CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
----------------------------------
2000 2001 2002
--------- ---------- ---------
(IN THOUSANDS OF CANADIAN DOLLARS)
CASH PROVIDED BY (USED FOR):
OPERATING ACTIVITIES
Net earnings (loss)......................................... $189,373 $(131,898) $(88,640)
Unusual gains (losses), net................................. (32,969) (54,670) 293
Other income (costs)........................................ 1,444 (1,964) 212
-------- --------- --------
157,848 (188,532) (88,135)
Items not involving cash:
Amortization of deferred finance costs...................... 1,177 1,963 2,560
Net (earnings) loss in equity accounted companies, net of
amounts received.......................................... (96,193) 245,738 74,472
Change in non-cash operating working capital................ (343) 23,144 (1,499)
Other....................................................... 1,677 -- --
Future income taxes......................................... -- (5,239) (680)
-------- --------- --------
64,166 77,074 (13,282)
FINANCING ACTIVITIES
Redemption and cancellation of capital stock................ (700) (273) (1,064)
Redemption and cancellation of exchangeable shares.......... (5,133) (317) (277)
Increase (decrease) in short-term borrowings................ 4,039 (32,525) (38,665)
Increase in amount due to Ravelston......................... 2,267 21,233 22,589
Change in amounts due to subsidiaries....................... 12,728 (63,713) 49,203
Dividends paid on retractable common shares................. (22,177) (20,216) (16,031)
Redemption of HCPH special shares........................... (54,482) -- --
Other....................................................... -- -- (2,473)
-------- --------- --------
(63,458) (95,811) 13,282
INVESTING ACTIVITIES
Proceeds on disposal of investments......................... -- 19,892 --
Additions to investments.................................... -- (1,155) --
Increase in other assets.................................... (708) -- --
-------- --------- --------
(708) 18,737 --
-------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ -- $ -- $ --
======== ========= ========
SUPPLEMENTAL DISCLOSURE
Dividends received from subsidiaries...................... $ 89,547 $ 79,839 $ 7,699
======== ========= ========
See accompanying notes to condensed non-consolidated financial statements.
F-77
NOTES TO CONDENSED NON-CONSOLIDATED FINANCIAL STATEMENTS
SCHEDULE 1 -- CONDENSED UNCONSOLIDATED FINANCIAL
INFORMATION OF THE COMPANY
YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
1. BASIS OF PRESENTATION:
The accompanying condensed non-consolidated financial statements include
the accounts of Hollinger Inc. and, on an equity basis, its subsidiaries and
affiliates. These financial statements should be read in conjunction with the
consolidated financial statements of the Company.
The Company is a holding company and its assets consist primarily of
investments in its wholly owned subsidiaries, including Hollinger International
and Publishing. As a result, the Company's ability to meet its future financial
obligations, including the retraction and redemption of shares, is dependent
upon the availability of cash flows from its United States and foreign
subsidiaries through dividends, intercompany advances, management fees and other
payments, as well as on the ongoing support of RMI. This is fully described in
note 1 to the Company's consolidated financial statements. As further described
in note 9 to the Company's consolidated financial statements, Publishing and its
principal United States and foreign subsidiaries are subject to statutory
restrictions and restrictions in debt agreements that limit their ability, among
other things, to incur indebtedness, pay dividends or make other distributions
on its capital stock, enter into transactions with related companies, and sell
assets, including stock of a restricted subsidiary. As a result, substantially
all of the net assets of the Company's subsidiaries are restricted.
As further described in note 9 to the Company's consolidated financial
statements, on December 23, 2002, Publishing issued senior unsecured notes and
certain of Publishing's subsidiaries entered into a Senior Credit Facility.
These debt agreements also restrict Publishing's ability and the ability of
Publishing's restricted subsidiaries, to, among other things, incur additional
debt, make advances, pay dividends or distributions on, redeem or repurchase
capital stock, make investments, enter into transactions with affiliates, issue
stock of restricted subsidiaries, engage in unrelated lines of business, create
liens to secure debt; and transfer or sell assets or merge with or into other
companies.
2. CONTRIBUTED SURPLUS:
During 2000 and 2001, the Company sold certain of its investments in its
wholly-owned subsidiaries to other wholly-owned subsidiaries, for cash,
promissory notes and share consideration. The excess of or shortfall in the cash
and promissory notes received over the historical carrying value of the
Company's investment in the wholly-owned subsidiaries sold has been reflected as
contributed surplus.
3. DEFICIT:
As described in note 1 "Significant Accounting Policies -- Goodwill and
Other Intangible Assets" to the Company's consolidated financial statements, on
adoption of new accounting standards, Hollinger International has determined
that the carrying amount of the Jerusalem Post was in excess of the estimated
fair value at January 1, 2002. The impairment write down of goodwill, net of
related minority interest has been charged to opening deficit as at January 1,
2002.
4. UNUSUAL GAINS (LOSSES), NET:
In 2000 and 2001, unusual gains (losses), net are principally comprised of
the dilution gain arising on the sale of shares of Hollinger International and
gains resulting from the delivery of shares of Hollinger International on the
exchange of Series II preference shares.
5. DUE TO SUBSIDIARIES:
The amount due to subsidiaries includes $198,311,000 at December 31, 2002
($96,195,000 at December 31, 2001) to 504468 N.B. Inc., which results from
advances made to the Company from the
F-78
SCHEDULE I
HOLLINGER INC.
NOTES TO CONDENSED NON-CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SCHEDULE 1 -- CONDENSED UNCONSOLIDATED FINANCIAL
INFORMATION OF THE COMPANY -- (CONTINUED)
proceeds from sales of shares of Hollinger International Class A common stock
and from dividends received by 504468 N.B. Inc. on its shares of Hollinger
International common stock. 504468 N.B. Inc. will declare a dividend to settle
the amount receivable from the Company and declare regular dividends in the
future to settle future funds advanced to the Company.
F-79
ITEM 19. EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
1.1a Certificate of Amalgamation and Articles of Amalgamation amalgamating Argcen Holdings
Inc., Hollinger Argus Limited and Labmin Resources Limited, dated September 17, 1985
1.1b Amalgamation Agreement between Argcen Holdings Inc., Hollinger Argus Limited and Labmin
Resources Limited, dated August 23, 1985
1.1c Certificate of Amendment and Articles of Amendment, dated June 14, 1989
1.1d Certificate of Amendment and Articles of Amendment, dated May 30, 1996
1.1e Certificate of Amendment and Articles of Amendment, dated September 11, 1997
1.1f Certificate of Amendment and Articles of Amendment, dated November 7, 1997
1.1g Certificate of Amendment and Articles of Amendment, dated June 3, 1998
1.1h Certificate of Amendment and Articles of Amendment, dated April 28, 1999
1.1i Certificate of Amendment and Articles of Amendment, dated April 22, 2003
1.2a By-Law Number A24, dated March 14, 1984
1.2b By-Law Number A25, dated June 28, 1984
1.2c By-Law Number A26, dated February 27, 2002
4.1 Trust Indenture, dated as of March 10, 2003, among Hollinger Inc., Ravelston Management
Inc., 504468 N.B. Inc. and Wachovia Trust Company, National Association, Ravelston
Corporation Limited and Sugra Limited
4.2 Registration Rights Agreement, dated as of March 5, 2003 among Hollinger Inc., Ravelston
Management Inc., 504468 N.B. Inc., and Wachovia Securities, Inc.
4.3 Form of Note
8.1 List of Subsidiaries - see Item 4f. - "Organizational Structure"
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
86
SIGNATURES
The registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and it has duly caused and authorized the undersigned to
sign this annual report on its behalf.
HOLLINGER INC. (Registrant)
By: /s/ Conrad M. Black
------------------------------------
Lord Black of Crossharbour, PC(C),
OC, KCSG
Chairman and Chief Executive Officer
87
CERTIFICATION
I, The Lord Black of Crossharbour PC(C), OC, KCSG,
certify that:
1. I have reviewed this annual report on Form 20-F of Hollinger Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: June 25, 2003
/s/ Conrad M. Black
-----------------------
The Lord Black of Crossharbour PC(C), OC, KCSG
Chairman and Chief Executive Officer
88
CERTIFICATION
I, Frederick A. Creasey,
certify that:
1. I have reviewed this annual report on Form 20-F of Hollinger Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: June 25, 2003
/s/ Frederick A. Creasey
-----------------------
Frederick A. Creasey
Vice President and Chief Financial Officer
Hollinger Inc.
89
Exhibit 1.1 a
[CANADA LOGO]
CERTIFICATE OF AMALGAMATION CERTIFICAT DE FUSION
CANADA BUSINESS LOI SUR LES SOCIETES
CORPORATIONS ACT COMMERCIALES CANADIENNES
HOLLINGER INC. 197578-1
------------------------------------------------- -----------------------
Name of corporation - Denomination de la societes Number - Numero
I hereby certify that the above- Je certifie par les presentes que la
mentioned Corporation resulted from societe mentionnee ci-haut resulte de
the amalgamation of the following la fusion des societes ci-dessous, en
Corporations under Section 179 of vertu de l'article 179 de la Loi sur
the Canada Business Corporations las societes commerciales canadiennes.
Act, as set out in the attached articles tel qu'indique dans les statuts de
of Amalgamation. fusion ci-joints.
ARGCEN HOLDINGS INC.
HOLLINGER ARGUS LIMITED
LABMIN RESOURCES LIMITED
September 17, 1985
le 17 Septembre 1985
Director-Directeur Date of Amalgamation - Date de fusion
CORPORATIONS ACT
FORM 9 [LOGO] FORMULE 9
ARTICLES OF AMALGAMATION STATUTS DE FUSION
(SECTION 179) (ARTICLE 179)
------------------------------------------------------------------------------------------------------------------------------------
1 - Name of Amalgamated Corporation Denomination de la societe issue de la fusion
LINGER INC.
------------------------------------------------------------------------------------------------------------------------------------
2 - The place within Canada where the registered office is to be situated Lieu au Canada ou doit etre situe ie siege social
Municipality of Metropolitan Toronto, Province of Ontario
------------------------------------------------------------------------------------------------------------------------------------
3 - The classes and any maximum number of shares that the corporation Categories et tout nombre maximal d'actions que la
is authorized to issue societe est autorisee a emettre
(1) Unlimited number of common shares
(2) Unlimited number of preference shares issuable in series, of which 1,850,000
shall form the first series and be designated as Floating Rate Cumulative
Convertible Preference Shares Series A.
The rights, privileges, restrictions and conditions attaching to such shares
are set forth in Appendices A and B annexed hereto.
------------------------------------------------------------------------------------------------------------------------------------
4 - Restrictions if any on share transfers Restrictions sur le transfer des actions sily a lieu
None
------------------------------------------------------------------------------------------------------------------------------------
5 - Number (or minimum and maximum number) of directors Nombre (ou nombre minimum et maximum)
(See Appendix C) d'administrateurs
------------------------------------------------------------------------------------------------------------------------------------
6 - Restrictions if any on business the corporation may carry on Limites imposees quant aux activities que la societe
peut expiorter, s'il y a lieu.
None
------------------------------------------------------------------------------------------------------------------------------------
7 - Other provisions if any Autres dispositions s'il y a lieu
N/A
------------------------------------------------------------------------------------------------------------------------------------
8 - The amalgamation agreement has been approved by special [X] La convention de fusion a ete approuvee par resolutions
resolutions of shareholders of each of the amalgamating speciales des actionnaures de chacune des societes
corporations listed in Item 10 below in accordance fusionnantes enumerecs a la rubrique 10 Ci-dessous, en
with Section 177 of the Canada Business Corporations conformite de I'article 177 de la Lor sur les societes
Act. commerciales canadiennes.
The amalgamation has been approved by a resolution of the [ ] La fusion a ete approuvee par resolution des administrateurs
directors of each of the amalgamating corporations de chacune des societes fusionnantes enumerates a la rubrique
listed in Item 10 below in accordance with Section 178 10 ci-dessous en conformite de I'article 178 de la Loi sur
of the Canada Business Corporations Act. These articles les societes commerciales canadiennes. Les presents statuts
of amalgamation are the same as the articles of de fusion aont les memes que les statuts constitutifs de
incorporation of (name the designated amalgamating (nommer la societe fusionnante designee).
corporation).
------------------------------------------------------------------------------------------------------------------------------------
9 - Name of the amalgamating corporation the by-laws of
which are to be the by-laws of the amalgamated
corporation.
Hollinger Argus Limited
------------------------------------------------------------------------------------------------------------------------------------
10 - Name of Amalgamating Corporations Corporation No. Description of Office
Denomination des societes No de la societe Signature Date Description du posie
------------------------------------------------------------------------------------------------------------------------------------
Argcen Holdings Inc. 173149-1 Sept. Secretary
17/85
------------------------------------------------------------------------------------------------------------------------------------
Hollinger Argus Limited 173617-5 Sept. Secretary
17/85
------------------------------------------------------------------------------------------------------------------------------------
Labmin Resources Limited 197565-0 Sept. Secretary
17/85
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
FOR DEPARTMENTAL USE ONLY A L'USAGE DU MINISTERE SEULEMENT
Corporation No. - No. de la societe Filed -
197578-1
September 17, 1985
APPENDIX A
PREFERENCES, RIGHTS, CONDITIONS, RESTRICTIONS, LIMITATIONS AND PROHIBITIONS
ATTACHING TO THE PREFERENCE SHARES
1. Directors' Right to Issue in One or More Series
The Preference Shares may at any time or from time to time be issued in
one or more series. Before any shares of a particular series other than the
first series are issued, the Board of Directors of the Corporation shall fix the
number of shares that will form such series and shall subject to the limitations
set out herein, by resolution determine the designation, rights, privileges,
restrictions and conditions to be attached to the Preference Shares of such
series, including, but without in any way limiting or restricting the generality
of the foregoing, the rate, amount or method of calculation of dividends
thereon, the time and place of payment of dividends, the consideration and the
terms and conditions of any purchase for cancellation, retraction or redemption
thereof, conversion rights (if any), voting rights attached thereto (if any),
and the terms and conditions of any share purchase plan or sinking fund, the
whole subject to the filing with the Director (as defined in the Canada Business
Corporations Act) of Articles of Amendment containing a description of such
series, including the designation, rights, privileges, restrictions and
conditions determined by the Board of Directors.
2. Ranking of Preference Shares
The Preference Shares of each series shall rank on a parity with the
Preference Shares of every other series with respect to accumulated dividends
and return of capital. The Preference Shares shall be entitled to preference
over the Common Shares and over any other shares ranking junior to the
Preference Shares with respect to priority in the payment of dividends and in
the distribution of assets in the event of the liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, or any other
distribution of the assets of the Corporation among its shareholders for the
purpose of winding up its affairs. If any cumulative dividends or amounts
payable on a return of capital are not paid in full, the Preference Shares of
all series shall participate rateably in respect of such dividends, including
accumulations, if any, in accordance with the sums that would be payable on such
shares if all such dividends were declared and paid in full, and in respect of
any repayment of capital in accordance with the sums that would be payable on
such repayment of capital if all sums so payable were paid in full; provided
however, that in the event of there being insufficient assets to satisfy in full
all such claims as aforesaid, the claims of the holders of the Preference Shares
with respect to repayment of capital shall first be paid and satisfied and any
assets remaining thereafter shall be applied towards the payment and
satisfaction of claims in respect dividends. The Preference Shares of any series
may also be given such other preferences not inconsistent with paragraphs 1 to 5
hereof over the Common Shares and over any other shares ranking junior to the
Preference Shares as may be determined in the case of such series of Preference
Shares.
3. Voting Rights
Except as hereinafter referred to or as required by law or in
accordance with any voting rights which may from time to time be attached to any
series of Preference Shares, the holders of the Preference Shares as a class
shall not be entitled as such to receive notice of, to attend or to vote at any
meeting of the shareholders of the Corporation.
4. Amendment with Approval of Holders of Preference Shares
The rights, privileges, restrictions and conditions attaching to the
Preference Shares as a class may be added to, changed or removed but only with
the approval of the holders of Preference Shares given as hereinafter specified.
5. Approval of Holders of Preference Shares
The approval of the holders of Preference Shares to add to, change or
remove any right, privilege, restriction or condition attaching to the
Preference Shares as a class or of any other matter requiring the consent of the
holders of the Preference Shares may be given in such manner as may then be
required by law, subject to a minimum requirement that such approval be given by
resolution passed by the affirmative vote of at least 66 2/3% of the votes cast
at a meeting of the holders of Preference Shares duly called for that purpose.
The formalities to be observed in respect of the giving of notice of
any such meeting or any adjourned meeting and the conduct thereof shall be those
from time to time prescribed in the by-laws of the Corporation with respect to
meetings of shareholders or, if not so prescribed, as required by the Canada
Business Corporations Act. On every poll taken at a meeting of holders of
Preference Shares as a class, or at a joint meeting of the holders of two or
more
series of Preference Shares, each holder of Preference Shares entitled to vote
thereat shall have one vote in respect of each $1.00 of the issue price of each
Preference Share held by him.
COMMON SHARES
The Common Shares shall carry and be subject to the following rights,
privileges, restrictions and conditions:
1. Voting Rights
The holders of the Common Shares shall be entitled to receive notice of
and to attend all meetings of shareholders of the Corporation, other than
separate meetings of the holders of another class or series of the Corporation,
and to vote at any such meeting on the basis of one vote for each Common Share
held.
2. Dividend Rights
Subject to the prior rights of the holders of the Preference Shares and
any other shares ranking senior to the Common Shares with respect to priority in
the payment of dividends, all dividends which the directors may declare in any
fiscal year of the Corporation shall be declared and paid in equal or equivalent
amounts per share on all Common Shares at the time outstanding without
preference or priority.
3. Liquidation, Dissolution or Winding Up
In the event of the liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, or in the event of any other
distribution of assets of the Corporation among its shareholders for the purpose
of winding up its affairs, the holders of the Common Shares shall be entitled,
subject to the prior right of the holders of the Preference Shares and any other
shares ranking senior to the Common Shares, to the remaining property and assets
of the Corporation.
APPENDIX B
RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS ATTACHING TO THE SERIES A
PREFERENCE SHARES
The rights, privileges, restrictions and conditions attaching to the
Series A Preference Shares (in addition to the rights, privileges, restrictions
and conditions attaching to the Preference Shares as a class) shall be as
follows:
ARTICLE 1
INTERPRETATION
1.1 Definitions.
In these conditions attaching to the Series A Preference Shares:
(a) "average prime rate" for any dividend calculation period means
the arithmetic mean (rounded to the nearest 0.01%) of the
prime rate for each day during such period:
(b) "business day" means any day other than a Saturday, Sunday or
statutory holiday in the province in which the registered
office of the Corporation is located;
(c) "close of business" means the normal closing hour of the
principal office of the transfer agent and registrar in the
city in which the registered office of the Corporation is
located;
(d) "Common Shares" means the Common Shares in the capital of the
Corporation as constituted on the Effective Date or as
subsequently consolidated, subdivided, reclassified or
otherwise changed, or any voting shares and other securities
that holders of such shares are entitled to receive as a
result of any reorganization of the capital of the
Corporation;
(e) "Conversion Ratio" at any date means the quotient obtained by
dividing the stated value per Series A Preference Share at
such date by the Current Market Price per Common Share
determined by such date;
(f) "Current Market Price per Common Share" at any date means the
weighted average closing price (expressed in Canadian dollars)
at which the Common Shares have traded on The Toronto Stock
Exchange during the 20 trading days (on each of which at least
100 Common Shares were traded in at least one board lot)
immediately preceding the fifth trading day before such date
(or if the Common Shares are not then listed on The Toronto
Stock Exchange, on such stock exchange on which such shares
are listed as may be selected for such purpose by the
Directors) and, if the Common Shares are not then listed on
any stock exchange, the "Current Market Price per Common
Share" shall be the fair market value of the Common Shares as
determined by the auditors of the Corporation (or if such
auditors are unable or unwilling to act, by a national firm of
chartered accountants selected by the Directors satisfactory
to the Holders);
(g) "Date of Conversion" has the meaning given to that expression
in Section 3.3;
(h) "Directors" means the board of directors of the Corporation,
and reference without more to action by the Directors shall
mean action by the Directors as a board or by any authorized
committee thereof;
(i) "dividend calculation period" means a period beginning on a
dividend payment date and ending on the sixth day immediately
prior to the next subsequent dividend payment date;
(j) "dividend payment date" means the first day of March, June,
September and December in each year and with respect to
partial dividends, means the date on which any such partial
dividend is payable;
(k) "dividend payment period" means a period beginning on a
dividend payment date and ending on the day immediately prior
to the next subsequent dividend payment date;
(l) "Dividend Rate" for any dividend payment period means the sum
of 2.00% plus one-half of the average prime rate for the
dividend calculation period ending on the sixth day
immediately prior to the next dividend payment date, provided
that in the event that the Directors fail to declare and pay
any dividend as provided in Section 2.2, the dividend rate for
any dividend payment period in respect of which dividends are
not declared or paid in full will be the sum of 4.00% and
one-half of the average prime rate
for the dividend calculation period ending on the sixth day
immediately prior to the dividend payment date; such dividend
rate to be effective for the dividend payment period for which
a dividend was not paid in full and the subsequent period of
time ending on the day immediately preceding the date of
payment of the dividend arrears;
(m) "Effective Date" means the date of the Certificate of
Amalgamation of the Corporation issued under the Canada
Business Corporations Act;
(n) "herein", "hereto", "hereunder", "hereof", "hereby" and
similar expressions mean or refer to these Series A Preference
Share provisions and not to any particular Section,
subsection, subdivision or portion hereof, and the expressions
"Article", "Section" and "subsection", followed by a number
and/or a letter mean and refer to the specified Article,
Section or subsection hereof;
(o) "Holder" means a registered holder of any Series A Preference
Shares;
(p) "prime rate" for any day means the rate of interest, expressed
as an annual rate, declared by the Canadian Imperial Bank of
Commerce or its successors to be the Bank's prime interest
rate for Canadian dollar commercial loans in Canada;
(q) "Notice of Redemption" means a notice in writing given, as
hereinafter provided, by the Corporation to the Holders
setting forth the Redemption Price, (as at the date of such
notice) and the place at which redemption is to take place;
(r) "Redemption Date" means the date fixed by the Directors for
redemption of Preference Shares set forth in a Notice of
Redemption;
(s) "Redemption Price" means the price per Series A Preference
Share, including all accrued and unpaid dividends, specified
in Section 5.4;
(t) "trading day" means a day on which the relevant stock exchange
referred to in paragraph (f) hereof is open for business; and
(u) "transfer agent and registrar" means the person or persons
from time to time appointed by the Directors as the transfer
agent and registrar in Canada for the Series A Preference
Shares, and failing any such appointment, means the
Corporation.
1.2 Words importing the singular number only include the plural and vice
versa and words importing any gender include all genders.
1.3 All dollar amounts referred to herein shall be in lawful money of
Canada.
1.4 The division of these Series A Preference Share provisions into
Articles, Sections, subsections, clauses, subclauses or other subdivisions and
the insertion of headings are for convenience of reference only and shall not
affect the construction or interpretation hereof.
1.5 In the event that any date upon which any dividends on the Series A
Preference Shares are payable by the Corporation, or upon or by which any other
action is required to be taken by the Corporation hereunder is not a business
day, then such dividend shall be payable or such other action shall be required
to be taken on or by the next succeeding day which is a business day.
ARTICLE 2
DIVIDENDS
2.1 Payment of Dividends. The Holders shall be entitled to receive, and,
subject to Section 2.4, the Corporation shall pay, as and when declared by the
Directors out of monies of the Corporation available for the payment of
dividends, cumulative preferential cash dividends in the amounts determined from
time to time in accordance with the provisions hereof. Dividends on the Series A
Preference Shares shall accrue from day to day from and including the date of
issue thereof to and including the day immediately preceding a dividend payment
date, and shall be payable on each dividend payment date to the Holders of
record at the close of business on the fifth business day preceding such
dividend payment date. Cheques drawn on a Canadian chartered bank and payable at
par at any branch in Canada of such bank shall be issued in respect of such
dividends to the Holders entitled thereto. The mailing of such cheques shall
satisfy and discharge all liability for such dividends to the extent of the sums
represented thereby, unless such cheques are not paid on due presentation. If on
any dividend payment date dividends payable on such date are not paid in full on
all the Series A Preference Shares then issued and outstanding, such dividends
or the unpaid part thereof shall be paid on a subsequent date or dates as
determined by the Directors. The Holders shall not be entitled to any dividends
other than or in excess of the cash dividends provided for herein. A dividend
which is represented by a cheque which has not been presented for payment within
six years after it was issued or that otherwise remains unclaimed for a period
of six years from the date it was declared to be payable and set apart for
payment shall be forfeited to the Corporation.
2.2 Amount of Dividends. Subject to the provisions hereof, the amount of
the dividend payable on any dividend payment date on any Series A Preference
Share then outstanding shall be equal to the amount, (rounded to the nearest
$0.0001) calculated by applying the Dividend Rate for the dividend payment
period ending on the day immediately prior to such dividend payment date to the
amount of $20.00 per share, and multiplying the result by a fraction of which
the numerator is the lesser of (i) the number of days such share has been
outstanding and (ii) the number of days in such dividend payment period, and of
which the denominator is the number of days in the calendar year in which such
dividend payment date falls.
2.3 Partial Dividends. The amount of the dividend payable on any Series A
Preference Share for any period which is less than a full dividend payment
period with respect to such Series A Preference Share:
(a) which is issued, redeemed, purchased or converted: or
(b) where assets of the Corporation are distributed to the Holders
pursuant to the conditions in that respect attaching to the
Preference Shares as a class;
shall be equal to the amount (rounded to the nearest $0.0001) calculated by
applying the Dividend Rate for the dividend payment period in which such issue,
redemption, purchase, conversion or distribution occurs to the amount of $20.00
per share, and multiplying the result by a fraction of which the numerator is
the number of days in the dividend payment period such share has been
outstanding (including the dividend payment date at the beginning of such period
if such share was outstanding on that date and excluding the dividend payment
date at the end of such period if such share was outstanding on that date or the
date on which such dividend became payable, as the case may be) and the
denominator is the number of days in the calendar year in which such issue,
redemption, purchase, conversion or distribution occurs.
2.4 Avoidance of Fractions. Dividend payments shall be adjusted to avoid
payments of a fraction of a cent.
2.5 Dividends on Conversion. The Holders as of the record date for any
dividend declared to be payable on the Series A Preference Shares shall be
entitled to such dividend notwithstanding that such share is converted after
such record date and before the dividend payment date of such dividend and the
registered holder of any share issued upon conversion of a Series A Preference
Share shall be entitled to any dividend declared to be payable to Holders of
such shares of record on any date after the Date of Conversion. Subject as
aforesaid, upon the conversion of any Series A Preference Share the Corporation
shall make no payment or adjustment on account of any dividends on the Series A
Preference Shares so converted or on account of any dividends on the Common
Shares issuable upon such conversion.
2.6 Notification of Dividend Rate. On or before each dividend payment date
the Corporation shall give notice to each Holder of the dividend rate for the
dividend payment period immediately preceding such dividend payment date and the
particulars of the calculation thereof.
ARTICLE 3
CONVERSION INTO COMMON SHARES
3.1 Conversion Privilege. Subject to Section 3.2, the Series A Preference
Shares shall be convertible in whole as a series at any time, and in multiples
of 250.000 Series A Preference Shares from time to time, after the close of
business on July 31, 1989 into fully paid and non-assessable Common Shares on
the basis of the Conversion Ratio in effect on the Date of Conversion.
3.2 Conversion on Default. Notwithstanding the provisions of Section 3.1,
if the Corporation has failed to pay dividends on the Series A Preference Shares
when legally entitled to do so, or is in breach or default of any of the
provisions of Sections 3.8. 3.9, 4.1, 4.2 or 5.4, each Series A Preference Share
shall be convertible into such number
of fully paid and non-assessable Common Shares as is determined by the
Conversion Ratio in effect on the Date of Conversion, at any time during the
period during which such non-payment, breach or default is continuing.
3.3 Conversion Procedure. In order to exercise the conversion right, a
Holder shall present and surrender to the transfer agent and registrar for the
Common Shares the respective certificates representing the Series A Preference
Shares in respect of which the Holder wishes to exercise his right of
conversion, together with written notice of conversion (which shall be and be
deemed to be irrevocable) signed by such Holder or his agent stating that he
elects to convert such Series A Preference Shares. Such notice of conversion
shall also state the name or names (with addresses) in which the certificate or
certificates for Common Shares which shall be issuable on such conversion shall
be issued. If any of the Common Shares into which such Series A Preference
Shares are to be converted are to be issued to a person or persons other than
the Holder, the signature of such Holder on such notice of conversion shall be
guaranteed in a manner satisfactory to the transfer agent and registrar and such
notice of conversion shall be accompanied by payment to the transfer agent and
registrar of any transfer tax which may be payable by reason thereof. The date
of receipt by the transfer agent and registrar of certificates representing such
Series A Preference Shares and such notice of conversion is herein referred to
as the "Date of Conversion" of such Series A Preference Shares.
As promptly as practicable after the Date of Conversion, the
Corporation shall issue or cause to be issued and deliver or cause to be
delivered to the Holder who has exercised the conversion right in respect of any
Series A Preference Shares, or on his written order, a certificate or
certificates in the name or names of the person or persons specified in the
applicable notice of conversion for the number of Common Shares deliverable upon
the conversion of such Series A Preference Shares and provision shall be made in
respect of any fraction of a Common Share as provided in Section 3.4. Such
conversion shall be deemed to have been effected immediately prior to the close
of business on the Date of Conversion and at such time the rights of the Holder
as Holder shall cease and the person or persons in whose name or names any
certificate or certificates for Common Shares shall be deliverable upon such
conversion shall be deemed to have thereupon become the holder or holders of
record of the Common Shares represented thereby; provided, however, that no
exercise of the conversion right on any date when the share transfer registers
for Common Shares of the Corporation shall be closed shall be effective to
constitute the person or persons entitled to receive the Common Shares upon such
conversion as the holder or holders of record of such Common Shares on such
date, but such exercise shall be effective to constitute the person or persons
entitled to receive such Common Shares as the holder or holders of record
thereof for all purposes at the close of business on the next succeeding day on
which such share transfer registers are open and such conversion shall be at the
Conversion Ratio in effect at the close of business on such next succeeding day.
Upon surrender to the transfer agent and registrar of any certificate
representing more than the number of Series A Preference Shares which are to be
converted, the Holder thereof shall be entitled to receive, without expense to
such Holder, one or more new certificates for the number of unconverted Series A
Preference Shares represented by the certificate surrendered.
3.4 Avoidance of Fractional Shares. Notwithstanding anything herein
contained, the Corporation shall in no case be required to issue a fraction of a
Common Share upon the conversion of any Series A Preference Share. If any
fractional interest in a Common Share would, except for the provisions of this
Section, be deliverable upon the conversion of any Series A Preference Share,
the Corporation shall issue or cause to be issued to the Holder of such
surrendered Series A Preference Share a non-voting and non-dividend-bearing
scrip certificate or certificates transferable by delivery entitling the Holder
thereof and of other similar certificates aggregating one full Common Share,
upon surrender of such certificates for consolidation at such place in Canada as
may be designated therein, to obtain from the Corporation a full Common Share
and to receive a share certificate therefor, as well as a further scrip
certificate representing the excess, if any, over one full Common Share of the
scrip certificates surrendered for consolidation. Such scrip certificates shall
be in such form and shall be subject to such terms and conditions as the
Corporation may determine and shall provide that the same shall be null and void
on and after a date to be fixed by the Directors, but no such date shall be less
than one year following the date of issue of the scrip certificate concerned.
3.5 Notice to Holders of Series A Preference Shares. In the event that the
Corporation shall determine to:
(a) declare on its Common Shares any cash dividend per share which
when added to the sum of the last four cash dividends per
share paid on its Common Shares would exceed the sum of such
last four cash dividends per share by more than 50%;
(b) declare on its Common Shares any dividends payable in shares
of the Corporation (other than a stock dividend in lieu of a
cash dividend paid in the ordinary course) or make any other
distribution on its Common Shares (other than a cash
dividend);
(c) offer for subscription pro rata to the holders of all or
substantially all of its Common Shares any additional
securities or shares of any class convertible into or
exchangeable for Common Shares or issue any other options,
rights or warrants to all or substantially all of such
holders;
(d) effect a reclassification or change of the Common Shares of
the nature referred to in Section 3.6 or an amalgamation or
merger of the Corporation with or into any other corporation
or a sale, transfer or other disposition of all or
substantially all of the assets of the Corporation; or
(e) proceed with a voluntary or involuntary dissolution,
liquidation or winding-up of the Corporation;
then, in each such case, the Corporation shall give notice to each Holder of the
action proposed to be taken and the date on which (i) the books of the
Corporation shall close or a record shall be taken for such dividend,
distribution, subscription rights or other options, rights or warrants, or (ii)
such reclassification, change, amalgamation, merger, sale, transfer or other
disposition, dissolution, liquidation or winding-up shall take place, as the
case may be, provided that the Corporation shall only be required to specify in
such notice such particulars of such action as shall have been fixed and
determined at the date on which such notice is given. Such notice shall also
specify the date as of which the holders of Common Shares of record shall
participate in such dividend, distribution, subscription rights or other
options, rights or warrants, or shall be entitled to exchange their Common
Shares for securities or other property deliverable upon such reclassification,
change, amalgamation, merger, sale, transfer or other disposition, dissolution,
liquidation or winding-up, as the case may be. Such written notice shall be
given with respect to the actions described in paragraphs (a), (b) and (c)
above, not less than 14 days and, with respect to the actions described in
paragraphs (d) and (e) above, not less than 30 days, in each case prior to the
record date or the date on which the Corporation's transfer books are to be
closed with respect thereto.
3.6 Substitution for Common Shares. In the event of any reclassification of
or change in the Common Shares (other than a change as a result of a subdivision
or consolidation), or in the event of any amalgamation of the Corporation with,
or merger of the Corporation into, any other corporation (other than an
amalgamation or merger in which the Corporation is the continuing corporation
and which does not result in any reclassification or change of the Common
Shares), or in the event of any sale, transfer or other disposition of all or
substantially all of the assets of the Corporation, the Holder of each Series A
Preference Share then outstanding shall be entitled to receive and shall accept
upon the conversion of a Series A Preference Share at any time on the effective
date or thereafter, in lieu of the Common Shares which he is otherwise entitled
to receive at the time he exercises the conversion right, the kind and amount of
shares and other securities and property that such holder would have been
entitled to receive as a result of such reclassification, change, amalgamation,
merger, sale, transfer or other disposition if, on the effective date thereof he
had been the registered holder of the number of Common Shares that he is
otherwise entitled to receive at the time he exercises the conversion right,
subject to such adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article. The provisions of
this Section shall similarly apply to successive reclassifications, changes,
amalgamations, mergers, sales, transfers or other dispositions.
3.7 Treatment of Converted Shares. Series A Preference Shares surrendered
upon the exercise of the conversion privilege shall be cancelled by the transfer
agent and registrar, and shall not be restored to the status of authorized but
unissued Series A Preference Shares.
3.8 Maintenance of Common Shares. So long as any of the Series A Preference
Shares are outstanding, the Corporation shall take any corporate action which
may, in the opinion of counsel, be necessary in order that the Corporation shall
have unissued and reserved the number of authorized Common Shares to which the
Holders are entitled on the full exercise of their conversion rights in
accordance with the provisions hereof.
3.9 Registration of Common Shares. If any Common Shares reserved or to be
reserved for the purpose of conversion of the Series A Preference Shares
hereunder require registration with or approval of any governmental authority
under any Canadian or provincial law before such shares may be validly issued
upon conversion, the Corporation will take such action as may be necessary to
secure such registration or approval, as the case may be.
ARTICLE 4
RESTRICTIONS ON DIVIDENDS. ISSUE AND RETIREMENT OF SHARES
4.1 Restriction. So long as any of the Series A Preference Shares are
outstanding, the Corporation shall not, without the prior approval of the
Holders given as provided in Article 7:
(a) declare, pay or set apart for payment any dividends (other
than stock dividends in shares of the Corporation ranking
junior to the Series A Preference Shares) on any shares of the
Corporation ranking junior to the Series A Preference Shares,
unless all dividends then payable on the Series A Preference
Shares and on all other shares ranking on a parity with or in
priority to the Series A Preference Shares have been declared
and paid or set apart for payment;
(b) create or issue any shares ranking prior to the Series A
Preference Shares;
(c) create or issue any shares ranking on a parity with the Series
A Preference Shares unless the consolidated net cash flow of
the Corporation for the most recently completed 12-month
fiscal period is at least equal to two times the aggregate
annual dividend requirements in respect of the Series A
Preference Shares and all shares ranking or to rank on a
parity with the Series A Preference Shares, calculated on a
pro forma basis;
(d) redeem, retract, purchase or otherwise acquire any shares of
the Corporation ranking junior to the Series A Preference
Shares, except pursuant to a sinking fund or purchase
obligation attaching to shares of the Corporation heretofore
or hereafter issued (and in the case of such sinking fund or
other mandatory purchase), not in excess of five percent, in
any 12 month period, of the value or number of such shares
outstanding at the time of such redemption, retraction,
purchase or other acquisition), or make any capital
distribution on or in respect of any other shares of the
Corporation ranking on a parity with or junior to the Series A
Preference Shares in respect of the payment of dividends and
the distribution of assets in the event of the liquidation,
dissolution or winding-up of the Corporation, whether
voluntary or involuntary, or in the event of any other
distribution of assets of the Corporation among its
shareholders for the purpose of winding up its affairs;
provided, however, that the Corporation may purchase its
Common Shares at any time and from time to time provided that
all dividends then payable on the Series A Preference Shares
and all other shares ranking on a parity with or in priority
to the Series A Preference Shares have been declared and paid
or set apart for payment; or
(e) amalgamate, consolidate or combine with, merge into or
otherwise join with any other corporation or sell, transfer or
dispose of all or substantially all of its assets unless the
resulting, successor or acquiring corporation is a corporation
incorporated under or subject to the laws of Canada or a
province thereof and the common shares of such corporation are
listed and posted for trading on at least one of The Toronto
Stock Exchange, The Montreal Exchange and the Vancouver Stock
Exchange.
4.2 Obligation. So long as any of the Series A Preference Shares are
outstanding, on, from and after July 31, 1989 the Corporation shall, except as
otherwise permitted by the Holders acting as provided in Article 7, cause its
Common Shares, or the common shares of any corporation resulting from an
amalgamation, consolidation, merger, combination or other joining by the
Corporation with any other corporation, or of any successor corporation to the
Corporation, to be listed and posted for trading on at least one of the Toronto,
Montreal or Vancouver stock exchanges.
ARTICLE 5
DIVIDEND RATE ADJUSTMENT AND OPTIONAL REDEMPTION
5.1 Interpretation. For the purposes of this Article:
(a) "Taxable Holder" means any registered Holder or, in the case
of shares registered in the name of a nominee, any beneficial
owner, of Series A Preference Shares which is a "taxable
Canadian corporation" for the purposes of the Income Tax Act
(Canada); and
(b) any reference to any statute shall be deemed to be a reference
to such statute as amended or re-enacted from time to time.
5.2 Notice of Tax Amendment. In the event that any amendment to the Income
Tax Act (Canada) or the Corporations Tax Act (Ontario) or to any Regulation
under either such statute is announced, included in a budget or Notice of Ways
and Means Motion, enacted or passed which affects the income tax treatment of
the dividends on the Series A Preference Shares received or to be received by
any Taxable Holder in such a manner that any income tax or corporation income
tax is or would be payable thereon, or in the event that any Taxable Holder is
subject to a reassessment or believes, on reasonable grounds that it will be
subject to a reassessment arising from or related to its holding of the Series A
Preference Shares, such Taxable Holder may give to the Corporation a written
notice stating that it is a Taxable Holder and that such amendment has been
announced, included in a budget or Notice of Ways and Means Motion, enacted or
passed, or that such a reassessment has occurred or has been threatened.
5.3 Effect of Share Reclassification. In the event that any securities or
property which is substituted for the Common Shares as a result of a
reclassification, change, amalgamation, merger, sale, transfer or other
disposition as contemplated by Section 3.6 are securities or property which
affects the income tax treatment of the dividends on the Series A Preference
Shares received or to be received by any Taxable Holder in such a manner that
any income tax or corporate income tax is or would be payable thereon, such
Taxable Holder may give to the Corporation a written notice stating that it is a
Taxable Holder and that such securities or property have or will have such
effect.
5.4 Redemption at Corporation's Option. Upon the giving of any notice in
accordance with Sections 5.2 or 5.3, and subject to Section 5.7, the Corporation
may, at its option, redeem at any time thereafter all of the outstanding Series
A Preference Shares in respect of which a supplement is payable under Section
5.6, on payment for each such Series A Preference Share to be redeemed of $20.00
plus all accrued and unpaid dividends.
5.5 Redemption Procedure. A Notice of Redemption shall be given by the
Corporation not less than 15 days nor more than 40 days prior to the date fixed
for redemption to each Holder of Series A Preference Shares to be redeemed.
Accidental failure or omission to give such notice to one or more of such
Holders shall not affect the validity of such redemption. On and after the
Redemption Date, the Corporation shall pay or cause to be paid to or to the
order of the Holders of the Series A Preference Shares to be redeemed the
Redemption Price on presentation and surrender at the place of redemption of the
respective certificates representing such shares. Such payment shall be made by
cheque drawn on a Canadian chartered bank and payable at par at any branch in
Canada of such bank. Such shares in respect of which the Redemption Price has
been paid as aforesaid shall thereupon be redeemed. If less than all the Series
A Preference Shares represented by any certificate shall be redeemed, a new
certificate for the balance shall be issued. From and after the Redemption Date,
the Holders of the Series A Preference Shares called for redemption shall cease
to be entitled to dividends or to exercise any of the rights of Holders in
respect thereof unless payment of the Redemption Price shall not be made in
accordance with the foregoing provisions, in which case the rights of the
Holders shall remain unimpaired. The Corporation shall have the right at any
time after mailing a Notice of Redemption to deposit the Redemption Price of the
shares thereby called for redemption, or such part thereof as at the time of
deposit has not been claimed by the persons entitled thereto, in any Canadian
chartered bank or trust company in Canada specified in the Notice of Redemption
or in a subsequent notice to the Holders in respect of which the deposit is
made, in a special account for the Holders of such shares, and upon such deposit
being made or upon the Redemption Date, whichever is later, the Series A
Preference Shares in respect of which such deposit shall have been made shall be
deemed to be redeemed and the rights of each Holder shall be limited to
receiving, without interest, his proportionate part of the Redemption Price so
deposited upon presentation and surrender of the certificate representing his
shares to be redeemed. Any interest on such deposit shall belong to the
Corporation.
5.6 Increased Dividends. If any notice is given in accordance with Sections
5.2 or 5.3, the amount of each dividend payable thereafter or at a subsequent
time specified in such notice on each Series A Preference Share held or owned by
the Taxable Holder giving notice, or by any successor Taxable Holder, shall,
subject to Section 5.8, be increased by an additional amount (the "supplement")
which, after deducting therefrom an amount equal to the tax paid or payable
thereon by such Taxable Holder, will equal the amount of tax paid or payable by
such Taxable Holder in respect of the amount of such dividend accruing after
such notice is given. For this purpose, the amount of any tax referred to herein
arising in connection with the Series A Preference Shares held or owned by any
Taxable Holder shall be conclusively determined by a report of the chartered
accountant or accountants for the time being holding appointment as auditors of
such Taxable Holder given to the Corporation no later than the 25th day after
notice is given under Sections 5.2 or 5.3 or, failing such report, by the report
of a firm of independent chartered accountants appointed by the Corporation and
approved by such Taxable Holder who will make available to such
accountants all information reasonably necessary to make such determination. If
any supplement is payable in accordance with this Section in respect of a
dividend that has otherwise been paid (whether as part of a Redemption Price or
otherwise) before the date that the amount of the supplement is determined, the
Corporation shall pay the supplement to the payee of that dividend no later than
the 10th day after the Corporation receives such accountant's report. Except as
provided in this Section or in paragraph (1) of Section 1.1. there shall be no
increase in the amount of dividends payable on any Series A Preference Share.
5.7 Limitation on Redemption. The Corporation may not redeem any of the
Series A Preference Shares at any time without the prior approval of the Holders
given in accordance with Article 7 if any pan of the Redemption Price which
constitutes a repayment of paid-up capital would, for the purposes of the Income
Tax Act (Canada) as amended or re-enacted from time to time:
(a) be deemed to have been paid as a dividend which is subject to
income tax in the hands of any such Holder, or
(b) give rise to a taxable capital gain in the hands of any such
Holder who or whose predecessor shall have continuously held
such Series A Preference Shares since their issuance;
unless at the time of giving a Notice of Redemption the Corporation delivers to
each Holder whose Series A Preference Shares are to be redeemed an undertaking
and covenant to indemnify such Holder in full for the amount of any income tax
or corporation income lax paid or payable by such Holder as a result of such
redemption.
5.8 Refunds. To the extent any of the tax relating to a supplement which
has been paid is refunded or is determined not to be payable by the Taxable
Holder in respect of whose tax liability or purported liability the supplement
was paid, the payee of the supplement shall promptly repay to the Corporation
without interest the supplement, less any unrecovered tax paid in respect of
such supplement.
5.9 Notice to Corporation. Any notice from any Taxable Holder shall be
sufficiently given if delivered or sent by registered mail, postage prepaid, to
the Corporation at its registered office addressed to the attention of the
Secretary. Any notice so mailed shall be deemed to have been given on the third
business day after the date of mailing.
ARTICLE 6
VOTING RIGHTS
6.1 General. Except as provided in the provisions attaching to the
Preference Shares as a class, the Holders shall not be entitled as such to
receive notice of or to attend or to vote at any meeting of shareholders of the
Corporation.
ARTICLE 7
MISCELLANEOUS
7.1 Modification. The rights, privileges, restrictions and conditions
attaching to the Series A Preference Shares may be repealed, altered, modified,
amended or varied in whole or in part only with the prior approval of the
Holders given in the manner provided in Section 7.2 in addition to any other
approval required by the Canada Business Corporations Act or any other
applicable statutory provision of like or similar effect, from time to time in
force.
7.2 Approval of Holders of Series A Preference Shares. The approval of the
Holders with respect to any and all matters hereinbefore referred to may be
given by at least 66 2/3% of the votes cast at a meeting of the Holders duly
called for that purpose and held upon at least 21 days' notice, at which the
Holders of a majority of the outstanding Series A Preference Shares are present
or represented by proxy. If at any such meeting the Holders of a majority of the
outstanding Series A Preference Shares are not present or represented by proxy
within 30 minutes after the time appointed for such meeting, then the meeting
shall be adjourned to such date being not less than 30 days later and to such
time and place as may be appointed by the chairman of the meeting and not less
than 21 days' notice shall be given of such adjourned meeting but it shall not
be necessary in such notice to specify the purpose for which the meeting was
originally called. At such adjourned meeting, the Holders present or represented
by proxy shall constitute a quorum and may transact the business for which the
meeting was originally called and a resolution passed thereat by not less than
66 2/3% of the votes cast at such adjourned meeting shall be effective
notwithstanding hat the Holders of a majority of the outstanding Series A
Preference Shares are not present or represented by proxy
and the conduct thereof shall be from time to time prescribed by the by-laws of
the Corporation with respect to meetings of shareholders. On every poll taken at
every such meeting or adjourned meeting every Holder shall be entitled to one
vote in respect of each Series A Preference Share held by him.
7.3 Notice. Any notice required or permitted to be given to a Holder shall
be mailed by letter, postage prepaid, or delivered to such Holder at his address
as it appears on the records of the Corporation or in the event of the address
of any such shareholder not so appearing then to the last known address of such
shareholder. The accidental failure to give notice to one or more of such
Holders shall not affect the validity of any action requiring the giving of
notice by the Corporation. Any notice given as aforesaid shall be deemed to be
given on the date upon which it is mailed or delivered.
APPENDIX C
Item 5
The Board of Directors shall consist of a minimum of 3 and a maximum of 21
directors and the number within such range shall be determined from time to time
by the Board of Directors.
PROVINCE OF ONTARIO ) IN THE MATTER OF the Canada
) Business Corporation Act and the
JUDICIAL DISTRICT OF ) Articles of Amalgamation of
) ARGCEN HOLDINGS INC., HOLLINGER
YORK ) ARGUS LIMITED and LABMIN
) RESOURCES LIMITED
TO WIT: )
I, Charles G. Cowan, of the City of Toronto, in the Province of
Ontario,
SOLEMNLY DECLARE THAT:
1. I am the Secretary of ARGCEN HOLDINGS INC. (the "Corporation") and have
knowledge of the matters herein declared.
2. There are reasonable grounds for believing that:
(i) the Corporation is and the corporation (the "Amalgamated
Corporation") resulting from the amalgamation of the
Corporation, Hol linger Argus Limited and Labmin Resources
Limited will be able to pay its liabilities as they become
due;
(ii) the realizable value of the Amalgamated Corporation's assets
will not be less than the aggregate of its liabilities and
stated capital of all classes; and
(iii) no creditor will be prejudiced by the amalgamation.
AND I make this solemn Declaration conscientiously believing it to be
true, and knowing that it is of the same force and effect as if made under oath.
SWORN BEFORE me at the )
)
City of Toronto, in the )
)
Province of Ontario )
)
this 17th day of )
)
September, 1985. )
/s/ Charles G. Cowan
-----------------------------
Charles G. Cowan
[SEAL]
PROVINCE OF ONTARIO ) IN THE MATTER OF the Canada
) Business Corporation Act and the
JUDICIAL DISTRICT OF ) Articles of Amalgamation of
) ARGCEN HOLDINGS INC., LABMIN
YORK ) RESOURCES LIMITED and
) HOLLINGER ARGUS LIMITED
TO WIT: )
I, Charles G. Cowan, of the City of Toronto, in the Province of
Ontario,
SOLEMNLY DECLARE THAT:
1. I am the Secretary of HOLLINGER ARGUS LIMITED (the "Corporation") and
have knowledge of the matters herein declared.
2. There are reasonable grounds for believing that:
(i) the Corporation is and the corporation (the "Amalgamated
Corporation") resulting from the amalgamation of the
Corporation, Argcen Holdings Inc. and Labmin Resources Limited
will be able to pay its liabilities as they become due;
(ii) the realizable value of the Amalgamated Corporation's assets
will not be less than the aggregate of its liabilities and
stated capital of all classes; and
(iii) no creditor will be prejudiced by the amalgamation.
AND I make this solemn Declaration conscientiously believing it to be
true, and knowing that it is of the same force and effect as if made under oath.
SWORN BEFORE me at the )
)
City of Toronto, in the )
)
Province of Ontario )
)
this 17th day of )
)
September, 1985. )
/s/ Charles G. Cowan
-----------------------------
Charles G. Cowan
[SEAL]
PROVINCE OF ONTARIO ) IN THE MATTER OF the Canada
) Business Corporation Act and the
JUDICIAL DISTRICT OF ) Articles of Amalgamation of
) ARGCEN HOLDINGS INC., HOLLINGER
YORK ) ARGUS LIMITED and LABMIN
) RESOURCES LIMITED
TO WIT: )
I, Charles G. Cowan, of the City of Toronto, in the Province of
Ontario,
SOLEMNLY DECLARE THAT:
1. I am the Secretary of LABMIN RESOURCES LIMITED (the "Corporation") and
have knowledge of the matters herein declared.
2. There are reasonable grounds for believing that:
(i) the Corporation is and the corporation (the "Amalgamated
Corporation") resulting from the amalgamation of the
Corporation, Argcen Holdings Inc. and Hollinger Argus Limited
will be able to pay its liabilities as they become due;
(ii) the realizable value of the Amalgamated Corporation's assets
will not be less than the aggregate of its liabilities and
stated capital of all classes; and
(iii) no creditor will be prejudiced by the amalgamation.
AND I make this solemn Declaration conscientiously believing it to be
true, and knowing that it is of the same force and effect as if made under oath.
SWORN BEFORE me at the )
)
City of Toronto, in the )
)
Province of Ontario )
)
this 17th day of )
)
September, 1985. )
/s/ Charles G. Cowan
-----------------------------
Charles G. Cowan
[SEAL]
Exhibit 1.1 b
THIS AMALGAMATION AGREEMENT made as of the 23rd day of August, 1985.
BETWEEN:
ARGCEN HOLDINGS INC.,
a corporation continued under the laws of Canada,
(hereinafter referred to as "Argcen")
OF THE FIRST PART
-- and --
HOLLINGER ARGUS LIMITED,
a corporation continued under the laws of Canada,
(hereinafter referred to as "Hollinger")
OF THE SECOND PART
-- and --
LABMIN RESOURCES LIMITED,
a corporation incorporated under the laws of the Province of
Newfoundland and to be continued under the laws of Canada,
(hereinafter referred to as "Labmin")
OF THE THIRD PART
WHEREAS Argcen is a corporation continued under the laws of Canada by
Certificate and Articles of Continuance dated July 13, 1984;
AND WHEREAS Hollinger is a corporation continued under the laws of
Canada by Certificate and Articles of Continuance dated July 24, 1984;
AND WHEREAS Labmin is a corporation incorporated under the laws of the
Province of Newfoundland by Certificate of Incorporation dated May 5, 1983 and
to be continued under the laws of Canada by Certificate and Articles of
Continuance prior to the amalgamation contemplated herein;
AND WHEREAS the authorized capital of Argcen consists of an unlimited
number of common shares ("Argcen Common Shares") and an unlimited number of
Class A Preference Shares issuable in series ("Argcen Preference Shares");
AND WHEREAS there are 13,038,312 Argcen Common Shares and no Argcen
Preference Shares issued and outstanding as fully paid and non-assessable as of
the date hereof;
AND WHEREAS the authorized capital of Hollinger consists of an
unlimited number of common shares ("Hollinger Common Shares") and an unlimited
number of preferred shares issuable in series ("Hollinger Preferred Shares") of
which 1,850,000 have been designated as the first series of Hollinger Preferred
Shares ("Hollinger Series A Preferred Shares");
AND WHEREAS there are 5,696,030 Hollinger Common Shares and 1,850,000
Hollinger Series A Preferred Shares issued and outstanding as fully paid and
non-assessable shares.
AND WHEREAS Argcen is the beneficial owner of 5,466,675 Hollinger
Common Shares as of the date hereof;
AND WHEREAS the authorized capital of Labmin consists of 5,000,000
common shares without par value ("Labmin Common Shares") of which 4,168,003 are
issued and outstanding as fully paid and non-assessable;
AND WHEREAS Hollinger is the beneficial owner of 4,130,630 Labmin
Common Shares as of the date hereof;
AND WHEREAS each party hereto has made full and complete disclosure to
the other of its known assets and liabilities;
AND WHEREAS under the authority conferred by the Canada Business
Corporations Act, the parties hereto desire and have agreed to amalgamate upon
the terms and conditions hereinafter set forth and to continue as one
corporation:
NOW THEREFORE THIS AGREEMENT WITNESSETH as follows:
1. In this agreement:
(i) "Agreement" means this Amalgamation Agreement;
(ii) "Amalgamation" means the amalgamation of the Amalgamating
Corporations as contemplated in this Agreement;
(iii) "Amalgamating Corporations" means Argcen, Hollinger and
Labmin;
(iv) "Amalgamated Corporation" means the corporation continuing
from the amalgamation of the Amalgamating Corporations;
(v) "Act" means the Canada Business Corporations Act;
(vi) "Certificate of Amalgamation" means the certificate of
amalgamation issued pursuant to the Act with respect to the
amalgamation of the Amalgamating Corporations; and
(vii) "Effective Date" means the date on which the Certificate of
Amalgamation is issued under the Act.
Words and phrases used herein and defined in the Act shall have the
same meaning herein as in the Act unless the context otherwise requires.
2. Provided that Labmin has been continued under the Act, the
Amalgamating Corporations do hereby agree to amalgamate as of the Effective Date
and to continue as one corporation upon the terms and conditions herein set out.
3. The name of the Amalgamated Corporation shall be Hollinger
Inc.
4. The head office of the Amalgamated Corporation shall be
located in The Municipality of Metropolitan Toronto, in the Province of Ontario.
The address of the head office of the Amalgamated Corporation shall be 10
Toronto Street, Toronto. Ontario, M5C 2B7.
5. The authorized capital of the Amalgamated Corporation shall be
divided into an unlimited number of common shares ("Common Shares") and an
unlimited number of preference shares ("Preference Shares") issuable in series,
of which 1,850,000 shall form the first series and be designated as Floating
Rate Cumulative Convertible Preference Shares Series A ("Series A Preference
Shares").
6. The Common Shares and the Preference Shares as a class of the
Amalgamated Corporation shall have attached thereto the rights, privileges,
restrictions and conditions set forth in Appendix A hereto. The Series A
Preference Shares of the Amalgamated Corporation shall have attached thereto the
rights, privileges, restrictions and conditions set forth in Appendix B hereto.
7. The shares in the capital of the Amalgamating Corporations
which are issued and outstanding immediately prior to the Amalgamation herein
provided for shall be convened on the Amalgamation into issued and outstanding
shares of the Amalgamated Corporation as follows:
(i) the issued and outstanding Argcen Common Shares shall be
converted into fully paid and non-assessable common shares of
the Amalgamated Corporation on the basis of one common share
of the Amalgamated Corporation for each Argcen Common Share;
(ii) the Hollinger Common Shares held by Argcen immediately prior
to the Amalgamation shall be cancelled without any repayment
of capital in respect thereof;
(iii) the issued and outstanding Hollinger Common Shares shall be
converted into fully-paid and non-assessable common shares of
the Amalgamated Corporation on the basis of 2.5 common shares
of the Amalgamated Corporation for each Hollinger Common
Share;
(iv) the issued and outstanding Hollinger Series A Preferred Shares
shall be converted into fully-paid and non-assessable Series A
Preference Shares of the Amalgamated Corporation on the basis
of one Series A Preference Share of the Amalgamated
Corporation for each Hollinger Series A Preferred Share;
(v) the Labmin Common Shares held by Hollinger immediately prior
to the Amalgamation shall be cancelled without any repayment
of capital in respect thereof; and
(vi) the issued and outstanding Labmin Common Shares shall be
converted into common shares of the Amalgamated Corporation on
the basis of 3.5 common shares of the Amalgamated Corporation
for each Labmin Common Share.
8. The stated capital of the Amalgamated Corporation shall on the
Effective Date be equal to the aggregate of the stated capitals of each of
Argcen, Hollinger and Labmin immediately before the Amalgamation becomes
effective, subject to the decrease provided for in paragraphs 7(ii) and (v) and
as a result of the purchase of fractional interests as provided for in paragraph
9. The stated capital of the Amalgamated Corporation on the Effective Date,
shall be allocated as follows:
(a) the stated capital attributable to the issued Series A
Preference Shares of the Amalgamated Corporation shall be
$37,000,000; and
(b) the balance of the stated capital of the Amalgamated
Corporation shall be attributable to the issued common shares
of the Amalgamated Corporation.
9. On and after the Effective Date, the former shareholders of
the Amalgamating Corporations shall, when requested by the Amalgamated
Corporation, surrender for cancellation the certificate(s) representing the
shares held by them in the Amalgamating Corporations and shall, if they are
entitled thereto, subject as hereinafter provided, receive certificates for
shares of the Amalgamated Corporation on the basis set forth in this
Amalgamation Agreement; provided that where a former shareholder of one of the
Amalgamating Corporations becomes entitled to a fraction of a common share of
the Amalgamated Corporation on the basis aforesaid, he shall not be entitled to
be registered on the records of the Amalgamated Corporation in respect thereof
but shall receive a cash payment in respect of such fractional interest
multiplied by the closing trading price of Argcen Common Shares on August 15,
1985.
10. The number of directors of the corporation shall be not less
than 3 and not more than 21, as may be determined from time to time by the
directors. The board of directors of the Amalgamated Corporation shall
initially, until otherwise changed in accordance with the Act, be fixed at 15
directors. The first directors of the Amalgamated Corporation shall be the
persons whose names and addresses appear below:
NAME ADDRESS
---- -------
Ralph M. Barford ..................... Toronto
Edward G. Battle ..................... Toronto
Conrad M. Black ...................... Toronto
G. Montegu Black ..................... Toronto
Edmund C. Bovey, C.M.................. Toronto
Dixon S. Chant ....................... Toronto
Charles G. Cowan, Q.C................. Toronto
Fredrik S. Eaton ..................... Toronto
P. C. Finlay, Q.C..................... Toronto
Hon. W. John McKeag .................. Winnipeg
Andre Monast, Q.C..................... Quebec
Beryl A. Plumptre .................... Ottawa
F. David Radler ...................... Vancouver
Ronald T. Riley ...................... Montreal
Trumbull Warren ...................... Puslinch
The said first directors shall hold office until the first annual
meeting of shareholders of the Amalgamated Corporation or until their successors
are elected or appointed.
11. The by-laws of the Amalgamated Corporation shall be the
by-laws of Hollinger, with such amendments thereto as may be necessary to give
effect to this Agreement, until repealed or amended.
12. The auditors of the Amalgamated Corporation shall be Thorne
Riddell until otherwise determined in accordance with the Act.
13. The transfer agent and registrar of the common shares of the
Amalgamated Corporation shall be Central Trust Company until otherwise
determined by the board of directors of the Amalgamated Corporation.
14. In addition to the borrowing powers conferred on the board of
directors of the Amalgamated Corporation under the Act, the board of directors
may, without authorization of the shareholders, from time to time, by authentic
deed, (for the purpose of securing any bonds, debentures or debenture-stock
which it is by law entitled to issue), hypothecate, mortgage or pledge any
property, movable or immovable, present or future, which it may own. For greater
certainty, the foregoing powers conferred on the directors shall be deemed to
include the powers conferred on a company by Section 27 of Division VII of the
Special Corporate Powers Act, being chapter 275 of the Revised Statutes of
Quebec, 1964 and every statutory provision that may be substituted therefor or
for any provision therein.
15. Each of Argcen, Hollinger and Labmin shall contribute to the
Amalgamated Corporation all of its assets, subject to its liabilities, as such
assets and liabilities exist immediately prior to the Effective Date.
16. All rights of creditors against the property, rights and
assets of each of the Amalgamating Corporations and all liens upon their
property, rights and assets shall be unimpaired by the Amalgamation herein
provided for and all debts, contracts, liabilities and duties of each of the
Amalgamating Corporations shall thenceforth attach to the Amalgamated
Corporation and may be enforced against it.
17. No action or proceeding by or against either of the
Amalgamating Corporations shall abate or be affected by the Amalgamation.
18. The Amalgamated Corporation shall possess all of the property,
rights, privileges and franchises and shall be subject to all of the
liabilities, contracts, disabilities and debts of each of the Amalgamating
Corporations, as such exist immediately prior to the Effective Date.
19. This Agreement may, prior to the Effective Date, be terminated
by any of the boards of directors of Argcen, Hollinger or Labmin for any reason
whatsoever, either before or after the approval of the terms and conditions
hereof by the shareholders of Argcen, Hollinger and Labmin.
20. Each of the Amalgamating Corporations may by resolution of its
board of directors authorize any amendments to this Agreement approved by the
shareholders of each of the Amalgamating Corporations.
21. Upon the shareholders of each of the Amalgamating Corporations
approving this Agreement in accordance with the Act, but subject to Sections 19
and 20 hereof, the Amalgamating Corporations shall jointly file Articles of
Amalgamation under the Act and such other documents as may be required.
22. Each of Argcen, Hollinger and Labmin covenants and agrees with
each other that it will submit this Agreement to its shareholders for approval
as provided by the Act, at a special meeting of shareholders to be held on or
before September 30, 1985.
23. This Agreement may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which when taken together
shall constitute one and the same agreement.
24. This Agreement shall be governed by and construed in
accordance with the laws of the Province of Ontario.
IN WITNESS WHEREOF this agreement has been executed by the parties
hereto under their respective seals.
ARGCEN HOLDINGS INC.
(Signed) CONRAD M. BLACK
Chairman of the Board and President
c/s
(Signed) C. G. COWAN
Secretary
HOLLINGER ARGUS LIMITED
(Signed) P. C. FINLAY
Chairman of the Board
c/s
(Signed) C. G. COWAN
Secretary
LABMIN RESOURCES LIMITED
(Signed) P. C. FINLAY
Chairman of the Board
c/s
(Signed) C. G. COWAN
Secretary
APPENDIX A
PREFERENCES, RIGHTS, CONDITIONS, RESTRICTIONS, LIMITATIONS AND PROHIBITIONS
ATTACHING TO THE PREFERENCE SHARES
1. Directors' Right to Issue in One or More Series
The Preference Shares may at any time or from time to time be issued in
one or more series. Before any shares of a particular series other than the
first series are issued, the Board of Directors of the Corporation shall fix the
number of shares that will form such series and shall, subject to the
limitations set out herein, by resolution determine the designation, rights,
privileges, restrictions and conditions to be attached to the Preference Shares
of such series, including, but without in any way limiting or restricting the
generality of the foregoing, the rate, amount or method of calculation of
dividends thereon, the time and place of payment of dividends, the consideration
and the terms and conditions of any purchase for cancellation, retraction or
redemption thereof, conversion rights (if any), voting rights attached thereto
(if any), and the terms and conditions of any share purchase plan or sinking
fund, the whole subject to the filing with the Director (as defined in the
Canada Business Corporations Act) of Articles of Amendment containing a
description of such series, including the designation, rights, privileges,
restrictions and conditions determined by the Board of Directors.
2. Ranking of Preference Shares
The Preference Shares of each series shall rank on a parity with the
Preference Shares of every other series with respect to accumulated dividends
and return of capital. The Preference Shares shall be entitled to preference
over the Common Shares and over any other shares ranking junior to the
Preference Shares with respect to priority in the payment of dividends and in
the distribution of assets in the event of the liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, or any other
distribution of the assets of the Corporation among its shareholders for the
purpose of winding up its affairs. If any cumulative dividends or amounts
payable on a return of capital are not paid in full, the Preference Shares of
all series shall participate rateably in respect of such dividends, including
accumulations, if any, in accordance with the sums that would be payable on such
shares if all such dividends were declared and paid in full, and in respect of
any repayment of capital in accordance with the sums that would be payable on
such repayment of capital if all sums so payable were paid in full; provided
however, that in the event of there being insufficient assets to satisfy in full
all such claims as aforesaid, the claims of the holders of the Preference Shares
with respect to repayment of capital shall first be paid and satisfied and any
assets remaining thereafter shall be applied towards the payment and
satisfaction of claims in respect dividends. The Preference Shares of any series
may also be given such other preferences not inconsistent with paragraphs 1 to 5
hereof over the Common Shares and over any other shares ranking junior to the
Preference Shares as may be determined in the case of such series of Preference
Shares.
3. Voting Rights
Except as hereinafter referred to or as required by law or in
accordance with any voting rights which may from time to time be attached to any
series of Preference Shares, the holders of the Preference Shares as a class
shall not be entitled as such to receive notice of, to attend or to vote at any
meeting of the shareholders of the Corporation.
4. Amendment with Approval of Holders of Preference Shares
The rights, privileges, restrictions and conditions attaching to the
Preference Shares as a class may be added to, changed or removed but only with
the approval of the holders of Preference Shares given as hereinafter specified.
5. Approval of Holders of Preference Shares
The approval of the holders of Preference Shares to add to, change or
remove any right, privilege, restriction or condition attaching to the
Preference Shares as a class or of any other matter requiring the consent of the
holders of the Preference Shares may be given in such manner as may then be
required by law, subject to a minimum requirement that such approval be given by
resolution passed by the affirmative vote of at least 66 2/3% of the votes cast
at a meeting of the holders of Preference Shares duly called for that purpose.
The formalities to be observed in respect of the giving of notice of
any such meeting or any adjourned meeting and the conduct thereof shall be those
from time to time prescribed in the by-laws of the Corporation with respect to
meetings of shareholders or, if not so prescribed, as required by the Canada
Business Corporations Act. On every poll taken at a meeting of holders of
Preference Shares as a class, or at a joint meeting of the holders of two or
more
6
series of Preference Shares, each holder of Preference Shares entitled to vote
thereat shall have one vote in respect of each $1.00 of the issue price of each
Preference Share held by him.
COMMON SHARES
The Common Shares shall carry and be subject to the following rights,
privileges, restrictions and conditions:
1. Voting Rights
The holders of the Common Shares shall be entitled to receive notice of
and to attend all meetings of shareholders of the Corporation, other than
separate meetings of the holders of another class or series of the Corporation,
and to vote at any such meeting on the basis of one vote for each Common Share
held.
2. Dividend Rights
Subject to the prior rights of the holders of the Preference Shares and
any other shares ranking senior to the Common Shares with respect to priority in
the payment of dividends, all dividends which the directors may declare in any
fiscal year of the Corporation shall be declared and paid in equal or equivalent
amounts per share on all Common Shares at the time outstanding without
preference or priority.
3. Liquidation, Dissolution or Winding Up
In the event of the liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, or in the event of any other
distribution of assets of the Corporation among its shareholders for the purpose
of winding up its affairs, the holders of the Common Shares shall be entitled,
subject to the prior right of the holders of the Preference Shares and any other
shares ranking senior to the Common Shares, to the remaining property and assets
of the Corporation.
7
APPENDIX B
RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS ATTACHING TO THE SERIES A
PREFERENCE SHARES
The rights, privileges, restrictions and conditions attaching to the
Series A Preference Shares (in addition to the rights, privileges, restrictions
and conditions attaching to the preference Shares as a class) shall be as
follows:
ARTICLE 1
INTERPRETATION
1.1 Definitions.
In these conditions attaching to the Series A Preference Shares:
(a) "average prime rate" for any dividend calculation period means
the arithmetic mean (rounded to the nearest 0.01%) of the
prime rate for each day during such period:
(b) "business day" means any day other than a Saturday. Sunday or
statutory holiday in the province in which the registered
office of the Corporation is located;
(c) "close of business" means the normal closing hour of the
principal office of the transfer agent and registrar in the
city in which the registered office of the Corporation is
located;
(d) "Common Shares" means the Common Shares in the capital of the
Corporation as constituted on the Effective Date or as
subsequently consolidated, subdivided, reclassified or
otherwise changed, or any voting shares and other securities
that holders of such shares are entitled to receive as a
result of any reorganization of the capital of the
Corporation;
(e) "Conversion Ratio" at any date means the quotient obtained by
dividing the stated value per Series A Preference Share at
such date by the Current Market Price per Common Share
determined by such date;
(f) "Current Market Price per Common Share" at any date means the
weighted average closing price (expressed in Canadian dollars)
at which the Common Shares have traded on The Toronto Stock
Exchange during the 20 trading days (on each of which at least
100 Common Shares were traded in at least one board lot)
immediately preceding the fifth trading day before such date
(or if the Common Shares are not then listed on The Toronto
Stock Exchange, on such stock exchange on which such shares
are listed as may be selected for such purpose by the
Directors) and, if the Common Shares are not then listed on
any stock exchange, the "Current Market Price per Common
Share" shall be the fair market value of the Common Shares as
determined by the auditors of the Corporation (or if such
auditors are unable or unwilling to act, by a national firm of
chartered accountants selected by the Directors satisfactory
to the Holders);
(g) "Date of Conversion" has the meaning given to that expression
in Section 3.3;
(h) "Directors" means the board of directors of the Corporation,
and reference without more to action by the Directors shall
mean action by the Directors as a board or by any authorized
committee thereof;
(i) "dividend calculation period" means a period beginning on a
dividend payment date and ending on the sixth day immediately
prior to the next subsequent dividend payment date;
(j) "dividend payment date" means the first day of March, June,
September and December in each year and with respect to
partial dividends, means the date on which any such partial
dividend is payable;
(k) "dividend payment period" means a period beginning on a
dividend payment date and ending on the day immediately prior
to the next subsequent dividend payment date;
(1) "Dividend Rate" for any dividend payment period means the sum
of 2.00% plus one-half of the average prime rate for the
dividend calculation period ending on the sixth day
immediately prior to the next dividend payment date, provided
that in the event that the Directors fail to declare and pay
any dividend as provided in Section 2.2, the dividend rate for
any dividend payment period in respect of which dividends are
not declared or paid in full will be the sum of 4.00% and
one-half of the average prime rate
8
for the dividend calculation period ending on the sixth day
immediately prior to the dividend payment date; such dividend
rate to be effective for the dividend payment period for which
a dividend was not paid in full and the subsequent period of
time ending on the day immediately preceding the date of
payment of the dividend arrears;
(m) "Effective Date" means the date of the Certificate of
Amalgamation of the Corporation issued under the Canada
Business Corporations Act;
(n) "herein", "hereto", "hereunder", "hereof", "hereby" and
similar expressions mean or refer to these Series A Preference
Share provisions and not to any particular Section,
subsection, subdivision or portion hereof, and the expressions
"Article", "Section" and "subsection", followed by a number
and/or a letter mean and refer to the specified Article,
Section or subsection hereof;
(o) "Holder" means a registered holder of any Series A Preference
Shares;
(p) "prime rate" for any day means the rate of interest, expressed
as an annual rate, declared by the Canadian Imperial Bank of
Commerce or its successors to be the Bank's prime interest
rate for Canadian dollar commercial loans in Canada;
(q) "Notice of Redemption" means a notice in writing given, as
hereinafter provided, by the Corporation to the Holders
setting forth the Redemption Price, (as at the date of such
notice) and the place at which redemption is to take place;
(r) "Redemption Date" means the date fixed by the Directors for
redemption of Preference Shares set forth in a Notice of
Redemption;
(s) "Redemption Price" means the price per Series A Preference
Share, including all accrued and unpaid dividends, specified
in Section 5.4;
(t) "trading day" means a day on which the relevant stock exchange
referred to in paragraph (f) hereof is open for business; and
(u) "transfer agent and registrar" means the person or persons
from time to time appointed by the Directors as the transfer
agent and registrar in Canada for the Series A Preference
Shares, and failing any such appointment, means the
Corporation.
1.2 Words importing the singular number only include the plural and vice
versa and words importing any gender include all genders.
1.3 All dollar amounts referred to herein shall be in lawful money of
Canada.
1.4 The division of these Series A Preference Share provisions into
Articles, Sections, subsections, clauses, subclauses or other subdivisions and
the insertion of headings are for convenience of reference only and shall not
affect the construction or interpretation hereof.
1.5 In the event that any date upon which any dividends on the Series A
Preference Shares are payable by the Corporation, or upon or by which any other
action is required to be taken by the Corporation hereunder is not a business
day, then such dividend shall be payable or such other action shall be required
to be taken on or by the next succeeding day which is a business day.
ARTICLE 2
DIVIDENDS
2.1 Payment of Dividends. The Holders shall be entitled to receive, and,
subject to Section 2.4, the Corporation shall pay, as and when declared by the
Directors out of monies of the Corporation available for the payment of
dividends, cumulative preferential cash dividends in the amounts determined from
time to time in accordance with the provisions hereof. Dividends on the Series A
Preference Shares shall accrue from day to day from and including the date of
issue thereof to and including the day immediately preceding a dividend payment
date, and shall be payable on each dividend payment date to the Holders of
record at the close of business on the fifth business day preceding such
dividend payment date. Cheques drawn on a Canadian chartered bank and payable at
par at any branch in Canada of such bank shall be issued in respect of such
dividends to the Holders entitled thereto. The mailing of such cheques shall
satisfy and discharge all liability for such dividends to the extent of the sums
9
represented thereby, unless such cheques are not paid on due presentation. If on
any dividend payment date dividends payable on such date are not paid in full on
all the Series A Preference Shares then issued and outstanding, such dividends
or the unpaid part thereof shall be paid on a subsequent date or dates as
determined by the Directors. The Holders shall not be entitled to any dividends
other than or in excess of the cash dividends provided for herein. A dividend
which is represented by a cheque which has not been presented for payment within
six years after it was issued or that otherwise remains unclaimed for a period
of six years from the date it was declared to be payable and set apart for
payment shall be forfeited to the Corporation.
2.2 Amount of Dividends. Subject to the provisions hereof, the amount of
the dividend payable on any dividend payment date on any Series A Preference
Share then outstanding shall be equal to the amount (rounded to the nearest
$0.0001) calculated by applying the Dividend Rate for the dividend payment
period ending on the day immediately prior to such dividend payment date to the
amount of $20.00 per share, and multiplying the result by a fraction of which
the numerator is the lesser of (i) the number of days such share has been
outstanding and (ii) the number of days in such dividend payment period, and of
which the denominator is the number of days in the calendar year in which such
dividend payment date falls.
2.3 Partial Dividends. The amount of the dividend payable on any Series A
Preference Share for any period which is less than a full dividend payment
period with respect to such Series A Preference Share:
(a) which is issued, redeemed, purchased or converted; or
(b) where assets of the Corporation are distributed to the Holders
pursuant to the conditions in that respect attaching to the
Preference Shares as a class;
shall be equal to the amount (rounded to the nearest $0.0001) calculated by
applying the Dividend Rate for the dividend payment period in which such issue,
redemption, purchase, conversion or distribution occurs to the amount of $20.00
per share, and multiplying the result by a fraction of which the numerator is
the number of days in the dividend payment period such share has been
outstanding (including the dividend payment date at the beginning of such period
if such share was outstanding on that date and excluding the dividend payment
date at the end of such period if such share was outstanding on that date or the
date on which such dividend became payable, as the case may be) and the
denominator is the number of days in the calendar year in which such issue,
redemption, purchase, conversion or distribution occurs.
2.4 Avoidance of Fractions. Dividend payments shall be adjusted to avoid
payments of a fraction of a cent.
2.5 Dividends on Conversion. The Holders as of the record date for any
dividend declared to be payable on the Series A Preference Shares shall be
entitled to such dividend notwithstanding that such share is converted after
such record date and before the dividend payment date of such dividend and the
registered holder of any share issued upon conversion of a Series A Preference
Share shall be entitled to any dividend declared to be payable to Holders of
such shares of record on any date after the Date of Conversion. Subject as
aforesaid, upon the conversion of any Series A Preference Share the Corporation
shall make no payment or adjustment on account of any dividends on the Series A
Preference Shares so converted or on account of any dividends on the Common
Shares issuable upon such conversion.
2.6 Notification of Dividend Rate. On or before each dividend payment date
the Corporation shall give notice to each Holder of the dividend rate for the
dividend payment period immediately preceding such dividend payment date and the
particulars of the calculation thereof.
ARTICLE 3
CONVERSION INTO COMMON SHARES
3.1 Conversion Privilege. Subject to Section 3.2, the Series A Preference
Shares shall be convertible in whole as a series at any time, and in multiples
of 250,000 Series A Preference Shares from time to time, after the close of
business on July 31,1989 into fully paid and non-assessable Common Shares on the
basis of the Conversion Ratio in effect on the Date of Conversion.
3.2 Conversion on Default. Notwithstanding the provisions of Section 3.1,
if the Corporation has failed to pay dividends on the Series A Preference Shares
when legally entitled to do so, or is in breach or default of any of the
provisions of Sections 3.8, 3.9, 4.1, 4.2 or 5.4, each Series A Preference Share
shall be convertible into such number
10
of fully paid and non-assessable Common Shares as is determined by the
Conversion Ratio in effect on the Date of Conversion, at any time during the
period during which such non-payment, breach or default is continuing.
3.3 Conversion Procedure. In order to exercise the conversion right a
Holder shall present and surrender to the transfer agent and registrar for the
Common Shares the respective certificates representing the Series A Preference
Shares in respect of which the Holder wishes to exercise his right of
conversion, together with written notice of conversion (which shall be and be
deemed to be irrevocable) signed by such Holder or his agent stating that he
elects to convert such Series A Preference Shares. Such notice of conversion
shall also state the name or names (with addresses) in which the certificate or
certificates for Common Shares which shall be issuable on such conversion shall
be issued. If any of the Common Shares into which such Series A Preference
Shares are to be converted are to be issued to a person or persons other than
the Holder, the signature of such Holder on such notice of conversion shall be
guaranteed in a manner satisfactory to the transfer agent and registrar and such
notice of conversion shall be accompanied by payment to the transfer agent and
registrar of any transfer tax which may be payable by reason thereof. The date
of receipt by the transfer agent and registrar of certificates representing such
Series A Preference Shares and such notice of conversion is herein referred to
as the "Date of Conversion" of such Series A Preference Shares.
As promptly as practicable after the Date of Conversion, the
Corporation shall issue or cause to be issued and deliver or cause to be
delivered to the Holder who has exercised the conversion right in respect of any
Series A Preference Shares, or on his written order, a certificate or
certificates in the name or names of the person or persons specified in the
applicable notice of conversion for the number of Common Shares deliverable upon
the conversion of such Series A Preference Shares and provision shall be made in
respect of any fraction of a Common Share as provided in Section 3.4. Such
conversion shall be deemed to have been effected immediately prior to the close
of business on the Date of Conversion and at such time the rights of the Holder
as Holder shall cease and the person or persons in whose name or names any
certificate or certificates for Common Shares shall be deliverable upon such
conversion shall be deemed to have thereupon become the holder or holders of
record of the Common Shares represented thereby; provided, however, that no
exercise of the conversion right on any date when the share transfer registers
for Common Shares of the Corporation shall be closed shall be effective to
constitute the person or persons entitled to receive the Common Shares upon such
conversion as the holder or holders of record of such Common Shares on such
date, but such exercise shall be effective to constitute the person or persons
entitled to receive such Common Shares as the holder or holders of record
thereof for all purposes at the close of business on the next succeeding day on
which such share transfer registers are open and such conversion shall be at the
Conversion Ratio in effect at the close of business on such next succeeding day.
Upon surrender to the transfer agent and registrar of any certificate
representing more than the number of Series A Preference Shares which are to be
converted, the Holder thereof shall be entitled to receive, without expense to
such Holder, one or more new certificates for the number of unconverted Series A
Preference Shares represented by the certificate surrendered.
3.4 Avoidance of Fractional Shares. Notwithstanding anything herein
contained, the Corporation shall in no case be required to issue a fraction of a
Common Share upon the conversion of any Series A Preference Share. If any
fractional interest in a Common Share would, except for the provisions of this
Section, be deliverable upon the conversion of any Series A Preference Share,
the Corporation shall issue or cause to be issued to the Holder of such
surrendered Series A Preference Share a non-voting and non-dividend-bearing
scrip certificate or certificates transferable by delivery entitling the Holder
thereof and of other similar certificates aggregating one full Common Share,
upon surrender of such certificates for consolidation at such place in Canada as
may be designated therein, to obtain from the Corporation a full Common Share
and to receive a share certificate therefor, as well as a further scrip
certificate representing the excess, if any, over one full Common Share of the
scrip certificates surrendered for consolidation. Such scrip certificates shall
be in such form and shall be subject to such terms and conditions as the
Corporation may determine and shall provide that the same shall be null and void
on and after a date to be fixed by the Directors, but no such date shall be less
than one year following the date of issue of the scrip certificate concerned.
3.5 Notice to Holders of Series A Preference Shares: In the event that the
Corporation shall determine to:
(a) declare on its Common Shares any cash dividend per share which
when added to the sum of the last four cash dividends per
share paid on its Common Shares would exceed the sum of such
last four cash dividends per share by more than 50%;
11
(b) declare on its Common Shares any dividends payable in shares
of the Corporation (other than a stock dividend in lieu of a
cash dividend paid in the ordinary course) or make any other
distribution on its Common Shares (other than a cash
dividend);
(c) offer for subscription pro rata to the holders of all or
substantially all of its Common Shares any additional
securities or shares of any class convertible into or
exchangeable for Common Shares or issue any other options,
rights or warrants to all or substantially all of such
holders;
(d) effect a reclassification or change of the Common Shares of
the nature referred to in Section 3.6 or an amalgamation or
merger of the Corporation with or into any other corporation
or a sale, transfer or other disposition of all or
substantially all of the assets of the Corporation; or
(e) proceed with a voluntary or involuntary dissolution,
liquidation or winding-up of the Corporation;
then, in each such case, the Corporation shall give notice to each Holder of the
action proposed to be taken and the date on which (i) the books of the
Corporation shall close or a record shall be taken for such dividend,
distribution, subscription rights or other options, rights or warrants, or (ii)
such reclassification, change, amalgamation, merger, sale, transfer or other
disposition, dissolution, liquidation or winding-up shall take place, as the
case may be provided that the Corporation shall only be required to specify in
such notice such particulars of such action as shall have been fixed and
determined at the date on which such notice is given. Such notice shall also
specify the date as of which the holders of Common Shares of record shall
participate in such dividend, distribution, subscription rights or other
options, rights or warrants, or shall be entitled to exchange their Common
Shares for securities or other property deliverable upon such reclassification,
change, amalgamation, merger, sale, transfer or other disposition, dissolution,
liquidation or winding-up, as the case may be. Such written notice shall be
given with respect to the actions described in paragraphs (a), (b) and (c)
above, not less than 14 days and, with respect to the actions described in
paragraphs (d) and (e) above, not less than 30 days, in each case prior to the
record date or the date on which the Corporation's transfer books are to be
closed with respect thereto.
3.6 Substitution for Common Shares. In the event of any reclassification of
or change in the Common Shares (other than a change as a result of a subdivision
or consolidation), or in the event of any amalgamation of the Corporation with,
or merger of the Corporation into, any other corporation (other than an
amalgamation or merger in which the Corporation is the continuing corporation
and which does not result in any reclassification or change of the Common
Shares), or in the event of any sale, transfer or other disposition of all or
substantially all of the assets of the Corporation, the Holder of each Series A
Preference Share then outstanding shall be entitled to receive and shall accept
upon the conversion of a Series A Preference Share at any time on the effective
date or thereafter, in lieu of the Common Shares which he is otherwise entitled
to receive at the time he exercises the conversion right, the kind and amount of
shares and other securities and property that such holder would have been
entitled to receive as a result of such reclassification, change, amalgamation,
merger, sale, transfer or other disposition if, on the effective date thereof he
had been the registered holder of the number of Common Shares that he is
otherwise entitled to receive at the time he exercises the conversion right,
subject to such adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article. The provisions of
this Section shall similarly apply to successive reclassifications, changes,
amalgamations, mergers, sales, transfers or other dispositions.
3.7 Treatment of Converted Shares. Series A Preference Shares surrendered
upon the exercise of the conversion privilege shall be cancelled by the transfer
agent and registrar, and shall not be restored to the status of authorized but
unissued Series A Preference Shares.
3.8 Maintenance of Common Shares. So long as any of the Series A Preference
Shares are outstanding, the Corporation shall take any corporate action which
may, in the opinion of counsel, be necessary in order that the Corporation shall
have unissued and reserved the number of authorized Common Shares to which the
Holders are entitled on the full exercise of their conversion rights in
accordance with the provisions hereof.
3.9 Registration of Common Shares. If any Common Shares reserved or to be
reserved for the purpose of conversion of the Series A Preference Shares
hereunder require registration with or approval of any governmental authority
under any Canadian or provincial law before such shares may be validly issued
upon conversion, the Corporation will take such action as may be necessary to
secure such registration or approval, as the case may be.
12
ARTICLE 4
RESTRICTIONS ON DIVIDENDS, ISSUE AND RETIREMENT OF SHARES
4.1 Restriction. So long as any of the Series A Preference Shares are
outstanding, the Corporation shall not, without the prior approval of the
Holders given as provided in Article 7:
(a) declare, pay or set apart for payment any dividends (other
than stock dividends in shares of the Corporation ranking
junior to the Series A Preference Shares) on any shares of the
Corporation ranking junior to the Series A Preference Shares,
unless all dividends then payable on the Series A Preference
Shares and on all other shares ranking on a parity with or in
priority to the Series A Preference Shares have been declared
and paid or set apart for payment;
(b) create or issue any shares ranking prior to the Series A
Preference Shares;
(c) create or issue any shares ranking on a parity with the Series
A Preference Shares unless the consolidated net cash flow of
the Corporation for the most recently completed 12-month
fiscal period is at least equal to two times the aggregate
annual dividend requirements in respect of the Series A
Preference Shares and all shares ranking or to rank on a
parity with the Series A Preference Shares, calculated on a
pro forma basis;
(d) redeem, retract, purchase or otherwise acquire any shares of
the Corporation ranking junior to the Series A Preference
Shares, except pursuant to a sinking fund or purchase
obligation attaching to shares of the Corporation heretofore
or hereafter issued (and in the case of such sinking fund or
other mandatory purchase), not in excess of five percent, in
any 12 month period, of the value or number of such shares
outstanding at the time of such redemption, retraction,
purchase or other acquisition), or make any capital
distribution on or in respect of any other shares of the
Corporation ranking on a parity with or junior to the Series A
Preference Shares in respect of the payment of dividends and
the distribution of assets in the event of the liquidation,
dissolution or winding-up of the Corporation, whether
voluntary or involuntary, or in the event of any other
distribution of assets of the Corporation among its
shareholders for the purpose of winding up its affairs;
provided, however, that the Corporation may purchase its
Common Shares at any time and from time to time provided that
all dividends then payable on the Series A Preference Shares
and all other shares ranking on a parity with or in priority
to the Series A Preference Shares have been declared and paid
or set apart for payment; or
(e) amalgamate, consolidate or combine with, merge into or
otherwise join with any other corporation or sell, transfer or
dispose of all or substantially all of its assets unless the
resulting, successor or acquiring corporation is a corporation
incorporated under or subject to the laws of Canada or a
province thereof and the common shares of such corporation are
listed and posted for trading on at least one of The Toronto
Stock Exchange, The Montreal Exchange and the Vancouver Stock
Exchange.
4.2 Obligation. So long as any of the Series A Preference Shares are
outstanding, on, from and after July 31,1989 the Corporation shall, except as
otherwise permitted by the Holders acting as provided in Article 7, cause its
Common Shares, or the common shares of any corporation resulting from an
amalgamation, consolidation, merger, combination or other joining by the
Corporation with any other corporation, or of any successor corporation to the
Corporation, to be listed and posted for trading on at least one of the Toronto,
Montreal or Vancouver stock exchanges.
ARTICLE 5
DIVIDEND RATE ADJUSTMENT AND OPTIONAL REDEMPTION
5.1 Interpretation. For the purposes of this Article:
(a) "Taxable Holder" means any registered Holder or, in the case
of shares registered in the name of a nominee, any beneficial
owner, of Series A Preference Shares which is a "taxable
Canadian corporation" for the purposes of the Income Tax Act
(Canada); and
(b) any reference to any statute shall be deemed to be a reference
to such statute as amended or re-enacted from time to time.
13
5.2 Notice of Tax Amendment. In the event that any amendment to the Income
Tax Act (Canada) or the Corporations Tax Act (Ontario) or to any Regulation
under either such statute is announced, included in a budget or Notice of Ways
and Means Motion, enacted or passed which affects the income tax treatment of
the dividends on the Series A Preference Shares received or to be received by
any Taxable Holder in such a manner that any income tax or corporation income
tax is or would be payable thereon, or in the event that any Taxable Holder is
subject to a reassessment or believes, on reasonable grounds that it will be
subject to a reassessment arising from or related to its holding of the Series A
Preference Shares, such Taxable Holder may give to the Corporation a written
notice stating that it is a Taxable Holder and that such amendment has been
announced, included in a budget or Notice of Ways and Means Motion, enacted or
passed, or that such a reassessment has occurred or has been threatened.
5.3 Effect of Share Reclassification. In the event that any securities or
property which is substituted for the Common Shares as a result of a
Reclassification, change, amalgamation, merger, sale, transfer or other
disposition as contemplated by Section 3.6 are securities or property which
affects the income tax treatment of the dividends on the Series A Preference
Shares received or to be received by any Taxable Holder in such a manner that
any income tax or corporate income tax is or would be payable thereon, such
Taxable Holder may give to the Corporation a written notice stating that it is a
Taxable Holder and that such securities or property have or will have such
effect.
5.4 Redemption at Corporation's Option. Upon the giving of any notice in
accordance with Sections 5.2 or 5.3, and subject to Section 5.7, the Corporation
may, at its option, redeem at any time thereafter all of the outstanding Series
A Preference Shares in respect of which a supplement is payable under Section
5.6, on payment for each such Series A Preference Share to be redeemed of $20.00
plus all accrued and unpaid dividends.
5.5 Redemption Procedure. A Notice of Redemption shall be given by the
Corporation not less than 15 days nor more than 40 days prior to the date fixed
for redemption to each Holder of Series A Preference Shares to be redeemed.
Accidental failure or omission to give such notice to one or more of such
Holders shall not affect the validity of such redemption. On and after the
Redemption Date, the Corporation shall pay or cause to be paid to or to the
order of the Holders of the Series A Preference Shares to be redeemed the
Redemption Price on presentation and surrender at the place of redemption of the
respective certificates representing such shares. Such payment shall be made by
cheque drawn on a Canadian chartered bank and payable at par at any branch in
Canada of such bank. Such shares in respect of which the Redemption Price has
been paid as aforesaid shall thereupon be redeemed. If less than all the Series
A Preference Shares represented by any certificate shall be redeemed, a new
certificate for the balance shall be issued. From and after the Redemption Date,
the Holders of the Series A Preference Shares called for redemption shall cease
to be entitled to dividends or to exercise any of the rights of Holders in
respect thereof unless payment of the Redemption Price shall not be made in
accordance with the foregoing provisions, in which case the rights of the
Holders shall remain unimpaired. The Corporation shall have the right at any
time after mailing a Notice of Redemption to deposit the Redemption Price of the
shares thereby called for redemption, or such part thereof as at the time of
deposit has not been claimed by the persons entitled thereto, in any Canadian
chartered bank or trust company in Canada specified in the Notice of Redemption
or in a subsequent notice to the Holders in respect of which the deposit is
made, in a special account for the Holders of such shares, and upon such deposit
being made or upon the Redemption Date, whichever is later, the Series A
Preference Shares in respect of which such deposit shall have been made shall be
deemed to be redeemed and the rights of each Holder shall be limited to
receiving, without interest, his proportionate part of the Redemption Price so
deposited upon presentation and surrender of the certificate representing his
shares to be redeemed. Any interest on such deposit shall belong to the
Corporation.
5.6 Increased Dividends. If any notice is given in accordance with Sections
5.2 or 5.3, the amount of each dividend payable thereafter or at a subsequent
time specified in such notice on each Series A Preference Share held or owned by
the Taxable Holder giving notice, or by any successor Taxable Holder, shall,
subject to Section 5.8, be increased by an additional amount (the "supplement")
which, after deducting therefrom an amount equal to the tax paid or payable
thereon by such Taxable Holder, will equal the amount of tax paid or payable by
such Taxable Holder in respect of the amount of such dividend accruing after
such notice is given. For this purpose, the amount of any tax referred to herein
arising in connection with the Series A Preference Shares held or owned by any
Taxable Holder shall be conclusively determined by a report of the chartered
accountant or accountants for the time being holding appointment as auditors of
such Taxable Holder given to the Corporation no later than the 25th day after
notice is given under Sections 5.2 or 5.3 or, failing such report, by the report
of a firm of independent chartered accountants appointed by the Corporation and
approved by such Taxable Holder who will make available to such
14
accountants all information reasonably necessary to make such determination. If
any supplement is payable in accordance with this Section in respect of a
dividend that has otherwise been paid (whether as pan of a Redemption Price or
otherwise) before the date that the amount of the supplement is determined, the
Corporation shall pay the supplement to the payee of that dividend no later than
the 10th day after the Corporation receives such accountant's report. Except as
provided in this Section or in paragraph (1) of Section 1.1, there shall be no
increase in the amount of dividends payable on any Series A Preference Share.
5.7 Limitation on Redemption. The Corporation may not redeem any of the
Series A Preference Shares at any time without the prior approval of the Holders
given in accordance with Article 7 if any part of the Redemption Price which
constitutes a repayment of paid-up capital would, for the purposes of the Income
Tax Act (Canada) as amended or re-enacted from time to time:
(a) be deemed to have been paid as a dividend which is subject to
income tax in the hands of any such Holder, or
(b) give rise to a taxable capital gain in the hands of any such
Holder who or whose predecessor shall have continuously held
such Series A Preference Shares since their issuance;
unless at the time of giving a Notice of Redemption the Corporation delivers to
each Holder whose Series A Preference Shares are to be redeemed an undertaking
and covenant to indemnify such Holder in full for the amount of any income tax
or corporation income tax paid or payable by such Holder as a result of such
redemption.
5.8 Refunds. To the extent any of the tax relating to a supplement which
has been paid is refunded or is determined not to be payable by the Taxable
Holder in respect of whose tax liability or purported liability the supplement
was paid, the payee of the supplement shall promptly repay to the Corporation
without interest the supplement, less any unrecovered tax paid in respect of
such supplement.
5.9 Notice to Corporation. Any notice from any Taxable Holder shall be
sufficiently given if delivered or sent by registered mail, postage prepaid, to
the Corporation at its registered office addressed to the attention of the
Secretary. Any notice so mailed shall be deemed to have been given on the third
business day after the date of mailing.
ARTICLE 6
VOTING RIGHTS
6.1 General. Except as provided in the provisions attaching to the
Preference Shares as a class, the Holders shall not be entitled as such to
receive notice of or to attend or to vote at any meeting of shareholders of the
Corporation.
ARTICLE 7
MISCELLANEOUS
7.1 Modification. The rights, privileges, restrictions and conditions
attaching to the Series A Preference Shares may be repealed, altered, modified,
amended or varied in whole or in part only with the prior approval of the
Holders given in the manner provided in Section 7.2 in addition to any other
approval required by the Canada Business Corporations Act or any other
applicable statutory provision of like or similar effect, from time to time in
force.
7.2 Approval of Holders of Series A Preference Shares. The approval of the
Holders with respect to any and all matters hereinbefore referred to may be
given by at least 66 2/3% of the votes cast at a meeting of the Holders duly
called for that purpose and held upon at least 21 days' notice, at which the
Holders of a majority of the outstanding Series A Preference Shares are present
or represented by proxy. If at any such meeting the Holders of a majority of the
outstanding Series A Preference Shares are not present or represented by proxy
within 30 minutes after the time appointed for such meeting, then the meeting
shall be adjourned to such date being not less than 30 days later and to such
time and place as may be appointed by the chairman of the meeting and not less
than 21 days' notice shall be given of such adjourned meeting but it shall not
be necessary in such notice to specify the purpose for which the meeting was
originally called. At such adjourned meeting, the Holders present or represented
by proxy shall constitute a quorum and may transact the business for which the
meeting was originally called and a resolution passed thereat by not less than
66 2/3% of the votes cast at such adjourned meeting shall be effective
notwithstanding that the Holders of a majority of the outstanding Series A
Preference Shares are not present or represented by proxy
15
and the conduct thereof shall be from time to time prescribed by the by-laws of
the Corporation with respect to meetings of shareholders. On every poll taken at
every such meeting or adjourned meeting every Holder shall be entitled to one
vote in respect of each Series A Preference Share held by him.
7.3 Notice. Any notice required or permitted to be given to a Holder shall
be mailed by letter, postage prepaid, or delivered to such Holder at his address
as it appearing on the records of the Corporation or in the event of the address
of any such shareholder not so appearing then to the last known address of such
shareholder. The accidental failure to give notice to one or more of such
Holders shall not affect the validity of any action requiring the giving of
notice by the Corporation. Any notice given as aforesaid shall be deemed to be
given on the date upon which it is mailed or delivered.
16
Exhibit 1.1 c
[CANADA LETTERHEAD]
Certificate of Amendment Certificat de modification
Canada Business Loi sur les societes
Corporations Act Commerciales canadiennes
HOLLINGER INC. 197578-1
NAME OF CORPORATION - DENOMINATION DE LA SOCIETE NUMBER - NUMERO
I hereby certify that the Je certifie par les presentes que
Articles of the above-mentioned les statuts dela societe
Corporation were amended mentionnee ci-haut ont ete modifies
(a) under Section 13 of the [ ] (a) en vertu de I' article 13 de la
Canada Business Corporations Loi sur les societes commerciales
Act in accordance with the canadiennes conformement a l'avis
attached notice; ci-joint;
(b) under Section 27 of the [X] (b) en vertu de l'article 27 de la
Canada Business Corporations Loi sur les societes commerciales
Act as set out in the attached canadiennes tel qu'indique dans les
Articles of Amendment clasuses modificatrices ci-joint
designating a series of shares; designant une serie d'actions;
(c)under Section 171 of the [ ] (c) en vertu de 1'article 171 de la
Canada Business Corporations Loi sur les societes commerciales
Act as set out in the attached canadiennes tel qu'indique dans les
Articles of Amendment; clauses modificatrices ci-jointes;
(d) under Section 185 of the [ ] (d) en vertu de 1'article 185 de la
Canada Business Corporations Loi sur les societes commerciales
Act as set out in the attached canadiennes tel qu'indique dans les
Articles of Reorganization; clauses de reorganisation ci-jointes;
(e) under Section 185.1 of the [ ] (e) en vertu de 1'article 185.1 de la
Canada Business Corporations Loi sur les societes commerciales
Act as set out in the attached canadiennes tel qu'indique dans les
Articles of Arrangement. clauses d'arrangement ci-jointes.
LE DIRECTEUR
JUNE 14, 1989/LE 14 JUIN 1989
DIRECTOR DATE OF AMENDMENT - DATE DE LA MODIFICATION
[CANADA LETTERHEAD]
FORM 4
ARTICLES OF AMENDMENT
(SECTION 27 OR 177)
--------------------------------------------------------------------------------
1 - NAME OF CORPORATION 2 - CORPORATION NO.
HOLLINGER INC. 197578-1
--------------------------------------------------------------------------------
3 - THE ARTICLES OF THE ABOVE-NAMED CORPORATION ARE AMENDED AS FOLLOWS:
(i) by adding to paragraph 3 thereof the following:
(k) the Directors hereby fix the number of shares for the eighth
series of Preference Shares at 725,000;
(l) the eighth series of Preference Shares is hereby designated as
Non-Voting Non-Cumulative Redeemable Retractable Convertible
Preference Shares, Series H, and shall have attached thereto
the rights, privileges, restrictions and conditions (in
addition to the rights, privileges, restrictions and
conditions attaching to the Preference Shares as a class) set
out in Schedule "A" attached hereto, which Schedule "A" is
incorporated in and forms part of this Form;
(ii) by increasing the maximum number of directors from 21 to 25.
--------------------------------------------------------------------------------
DATE SIGNATURE TITLE
June 14, 1989 Vice-President & Secretary
--------------------------------------------------------------------------------
FOR DEPARTMENTAL USE ONLY
Filed 14/6/89
--------------------------
Schedule "A"
Number of, Designation of and Rights, Privileges,
Restrictions and Conditions attaching
to the Non-Voting Non-Cumulative
Redeemable Retractable Convertible
Preference Shares, Series H
The eighth series of Preference Shares of the Corporation shall consist
of 725,000 Preference Shares which shall be designated as Non-Voting
Non-Cumulative Redeemable Retractable Convertible Preference Shares, Series H
(hereinafter referred to as the "Series H Preference Shares") and which, in
addition to the rights, privileges, restrictions and conditions attached to the
Preference Shares as a class, shall have attached thereto the following rights,
privileges, restrictions and conditions:
1. Definitions
Wherever used herein, unless there is something in the subject matter
or context inconsistent therewith, the following words and terms shall have the
respective meanings ascribed to them as follows:
"Board of Directors" means the board of directors of the corporation.
- 2 -
"Corporation" means Hollinger Inc. and any successor corporation and
any reference herein to action by the Corporation means action by or under the
authority of its Board of Directors or a duly empowered committee appointed by
the Board of Directors.
"Conversion Period" means with respect to each Series H Preference
Share the period commencing on the Date of Grant relating to such Series H
Preference Share and terminating at the earlier of the date six (6) years
thereafter or the day preceding the date of redemption of such Series H
Preference Share.
"Conversion Price" means with respect to each Series H Preference Share
the price per Share at which the Series H Preference Share may be converted into
Shares. For this purpose the price per Share is determined on the basis of the
weighted average price per share for all board lots of Shares traded on The
Toronto Stock Exchange on each of the ten (10) consecutive trading days ending
on the third trading day preceding the Date of Grant less a discount of 10% from
such average price; for the purpose of this Plan, the expression "trading day"
means a day on which shares are traded on The Toronto Stock Exchange and on
which at least one board lot of Shares is traded.
- 3 -
"Conversion Rate" means the number or fraction thereof derived by
dividing the Purchase Price by the Conversion Price subject to such further
adjustments as may be required pursuant to clause 6.8 hereof.
"Date of Grant" means with respect to each Series H Preference Share
the date of the resolution of the Board of Directors granting the Eligible
Employee the right to purchase such Series H Preference Share.
"Expiration Date" means the last day of the Conversion Period.
"Eligible Employee" means a person who is an officer and/or employee of
a Participating Company and is designated by the Board of Directors or a duly
authorized committee of the Board of Directors as being eligible to obtain a
Loan and participate in this Plan.
"Loan" means the loan or loans made at any time and from time to time
by the Corporation or a Participating Company to an Eligible Employee to be used
by the Eligible Employee for the sole purpose of enabling or assisting the
Eligible Employee to purchase fully paid Series H Preference Shares from the
Corporation.
- 4 -
"Normal Retirement" means the last day of the month in which the 65th
birthday of the Eligible Employee occurs or such later date upon which the
Eligible Employee actually retires.
"Participating Company" means with respect to each Eligible Employee,
the Corporation and any subsidiary or affiliated company of the Corporation. A
"subsidiary company" is a company in which the Corporation directly or
indirectly may exercise voting rights with respect to more than fifty percent
(50%) of the issued and outstanding voting shares. An "affiliated company" is a
company other than a subsidiary company in which the Corporation directly or
indirectly may exercise voting rights with respect to a substantial percentage
of the issued and outstanding voting shares and is designated by the Board of
Directors as an affiliated company.
"Plan" means the Executive Share Purchase Plan of the Corporation
adopted by the Board of Directors and the holders of Shares of the Corporation
on June 2, 1987, as amended.
"Purchase Price" means with respect to each Series H Preference Share
the issue price of such Series H Preference Share which issue price shall be
equal in amount to the Conversion Price of such Series H Preference Shares.
- 5 -
"Redemption Price" means with respect to each Series H Preference Share
the Purchase Price of such Series H Preference Share.
"Series H Preference Share" means the Non-Voting Non-Cumulative
Redeemable Retractable Convertible Preference Shares, Series H of the
Corporation designated, created and authorized by the Board of Directors for the
purpose of the Plan.
"Shares" means the common shares of the Corporation and any shares or
securities of the Corporation into which such common shares are changed,
converted, subdivided, consolidated or reclassified.
Words importing the singular number only shall include the plural and
vice versa; words importing the use of any gender shall include all genders.
2. Consideration for Issue
The consideration for the issue of each Series H Preference Share shall
be $13.08 (the "Paid Up Amount").
- 6 -
3. Dividends
3.1 Payment of Dividends
The holders of the Series H Preference Shares shall be entitled to
receive, and the Corporation shall pay thereon, as and when declared by the
Board of Directors of the Corporation, in its discretion out of monies of the
Corporation properly applicable to the payment of dividends, non-cumulative
preferential cash dividends in lawful money of Canada.
3.2 Method of Payment
Dividends (less any tax required to be withheld by the Corporation) on
the Series H Preference Shares shall be paid by cheque payable in lawful money
of Canada at par at any branch in Canada of the Corporation's bankers for the
time being or by any other reasonable means the Corporation deems desirable. The
mailing of such cheque from the Corporation's registered office, or from the
principal office in Toronto of the registrar for the Series H Preference Shares,
or the payment by such other reasonable means as the Corporation deems
desirable, on or before the date on which such dividend is to be paid to a
holder of Series H Preference Shares shall be deemed to be payment of
- 7 -
the dividends represented thereby and payable on such date unless the cheque is
not paid upon presentation or payment by such other means is not received.
Dividends which are represented by a cheque which has not been presented to the
Corporation's bankers for payment or that otherwise remain unclaimed for a
period of 6 years from the date on which they were declared to be payable shall
be forfeited to the Corporation.
3.3 Entitlement to Dividends
The holders of Series H Preference Shares shall not be entitled to any
dividends other than or in excess of the non-cumulative preferential cash
dividends herein provided for.
4. Redemption
4.1 Optional Redemption
Subject to applicable law the Corporation may, without giving notice,
redeem the whole or any part of the then outstanding Series H Preference Shares
held by an Eligible Employee, on the next day following the earlier of the
Expiration Date and in the case of the cessation of employment of such Eligible
Employee on the expiration of the applicable time within which the Eligible
Employee or his personal
- 8 -
representative had the right to convert the Series H Preference Shares held by
him, on payment for each share to be redeemed of the Redemption Price together
with all accrued and unpaid dividends thereon up to but excluding the date fixed
for redemption, (the whole constituting and being herein referred to as the
"Total Redemption Price").
4.2 Partial Redemption
If a part only of the Series H Preference Shares represented by any
certificate shall be redeemed, a new certificate representing the balance of
such shares shall be issued to the holder thereof at the expense of the
Corporation upon presentation and surrender of the first mentioned certificate.
4.3 Method of Redemption
On and after the date specified for redemption, the Corporation shall
pay or cause to be paid to or to the order of the registered holders of the
Series H Preference Shares to be redeemed the Total Redemption Price of such
shares upon presentation and surrender, at the registered office of the
Corporation, of the certificate or certificates representing the Series H
Preference Shares to be redeemed. Payment in respect of Series H Preference
Shares being redeemed shall be made by
- 9 -
cheque payable to the holders thereof in lawful money of Canada at par at any
branch in Canada of the Corporation's bankers for the time being or by any other
reasonable means the Corporation deems desirable and such payment shall be a
full and complete discharge of the Corporation's obligation to pay the Total
Redemption Price owed to the holders of Series H Preference Shares to be
redeemed unless the cheque is not honoured when presented for payment or payment
by such other reasonable means is not received. From and after the date
specified for redemption, the Series H Preference Shares to be redeemed shall
cease to be entitled to dividends or any other participation in the assets of
the Corporation and the holders thereof shall not be entitled to exercise any of
their other rights as shareholders in respect thereof, other than the right to
receive the Total Redemption Price, unless payment of the Total Redemption Price
shall not be made upon presentation and surrender of the certificates in
accordance with the foregoing provisions, in which case the rights of the
holders shall remain unaffected. The Corporation shall have the right at any
time to deposit an amount equal to the aggregate Total Redemption Price of the
Series H Preference Shares so redeemed, or of such of the Series H Preference
Shares which are represented by certificates which have not at the date of such
deposit been surrendered by the holders thereof in connection with such
redemption, to a special account in any chartered bank or any trust company in
Canada in respect of which the deposit is made, to be paid
- 10 -
without interest to or to the order of the respective holders of Series H
Preference Shares so redeemed upon presentation and surrender to such bank or
trust company of the certificates representing such shares. Upon such deposit
being made the Series H Preference Shares in respect of which such deposit shall
have been made shall be deemed to be redeemed and the rights of the holders
thereof shall be limited to receiving, without interest, their proportionate
part of the amount so deposited upon presentation and surrender of the
certificate or certificates representing their Series H Preference Shares being
redeemed. Any interest allowed on any such deposit shall belong to the
Corporation.
Redemption monies that are represented by a cheque which has not been
presented to the Corporation's bankers for payment or that otherwise remain
unclaimed (including monies held on deposit to a special account as provided for
above) for a period of 6 years from the date specified for redemption shall be
forfeited to the Corporation.
5. Retraction at the Option of the Holder
5.1 Right to Require Redemption
Subject to applicable law and to the rights, privileges, restrictions
or conditions attaching to any shares
- 11 -
of the Corporation, a holder of Series H Preference Shares shall be entitled to
require the Corporation to redeem only that number of outstanding Series H
Preference Shares registered in his name (the date of redemption being herein
referred to as the "Retraction Date") in respect of which the pro rata portion
of a Loan from the Corporation to the holder becomes payable by the holder, at a
price per share equal to the Redemption Price plus an amount equal to all
accrued and unpaid dividends thereon to but excluding the Retraction Date (the
whole constituting and being herein referred to as the "Retraction Price").
5.2 Retraction Procedure
In order to elect to have the Corporation redeem Series H Preference
Shares pursuant to the retraction privilege, each holder of Series H Preference
Shares who is entitled and desires to have the Corporation redeem any or all of
the Series H Preference Shares registered in his name must tender to the
transfer agent (the "Transfer Agent") for the Series H Preference Shares the
certificate or certificates representing the Series H Preference Shares which
the holder wishes to have the Corporation redeem with the retraction panel on
such share certificate or such other election form as may be designated by the
Corporation for such purposes which includes at least substantially the same
information as the retraction panel on the date of initial issue of the Series H
Preference Shares, in
- 12 -
either case duly completed by the registered holder specifying the number of
Series H Preference Shares represented by such certificate that are to be
redeemed by the Corporation on the Retraction Date and specifying the Business
Day on which the holder desires to have the Corporation redeem such Series H
Preference Shares which Business Day (which shall be the Retraction Date) shall
not be less than 10 calendar days after the day on which the notice is given to
the Corporation. Such presentation and surrender of the Series H Preference
Shares for redemption and such specification of the Retraction Date shall be
irrevocable except with respect to those Series H Preference Shares which are
not redeemed by the Corporation on the Retraction Date.
Subject to applicable law and to the rights, privileges, conditions,
restrictions or conditions attaching to any shares of the Corporation, the
Corporation shall, on the Retraction Date, redeem, at a price per Series H
Preference Share equal to the Retraction Price, the Series H Preference Shares
in respect of which the certificates have been surrendered for redemption in
accordance with the provisions of this clause 5. Payment of the Retraction Price
may be made by cheque of the Corporation or any other reasonable means the
Corporation deems desirable and such payment of the Retraction Price shall be a
full and complete discharge of the Corporation's obligation to pay the
Retraction Price owed to the holders of Series H
- 13 -
Preference Shares so presented and surrendered for redemption. Subject as
hereinafter provided, the Series H Preference Shares so presented and
surrendered for redemption shall be and be deemed to be redeemed on the
Retraction Date. From and after the Retraction Date, a holder of any Series H
Preference Share presented and surrendered for redemption shall not be entitled
to dividends or to exercise any of the rights of a holder of Series H Preference
Shares in respect thereof except the right to receive the Retraction Price,
provided that if payment of the Retraction Price is not duly made by or on
behalf of the Corporation in accordance with the provisions hereof, then the
rights of such holder shall remain unaffected.
If part only of the Series H Preference Shares represented by any
certificate are redeemed as aforesaid, a new certificate for the balance of such
shares shall be issued at the expense of the Corporation.
5.3 Retraction Subject to Applicable Law
If on the Retraction Date, the Corporation determines that it will not
be permitted, under insolvency provisions, other provisions of any applicable
law or the rights, privileges, restrictions or conditions attaching to any
shares of the Corporation, to redeem all of the Series H Preference Shares
tendered for redemption, the Corporation shall redeem, on
- 14 -
the Retraction Date, that number of Series H Preference Shares which it is then
permitted to redeem in accordance with the aforementioned provisions of law
(rounded to the next lower multiple of 1,000) and the shares so to be redeemed
shall be selected pro-rata (disregarding fractions) in proportion to the total
number of Series H Preference Shares so presented and tendered for redemption by
each holder thereof. In such case if a part only of the Series H Preference
Shares represented by any certificate shall be redeemed, a new certificate for
the Series H Preference Shares not so redeemed shall be issued at the expense of
the Corporation and held on the terms hereinafter set out.
If the Corporation shall fail to redeem, because of any of the
aforementioned provisions, all Series H Preference Shares in respect of which
the holders thereof shall have exercised the retraction privilege (such shares
not so redeemed being hereinafter referred to as the "Deposited Shares" and the
holders who shall have exercised the retraction privilege in respect thereof
being hereinafter referred to as the "Retracting Shareholders"), the Corporation
shall continue to hold the Deposited Shares and shall, as soon as possible (but
in any event within 14 days) after the Retraction Date, send a notice to each
Retracting Shareholder stating:
(i) the number of Deposited Shares of such Retracting Shareholder held by
the Corporation,
- 15 -
(ii) the intention of the Corporation to redeem on the first day of each
subsequent month of March, June, September and December in each year (a
"Subsequent Retraction Date") thereafter from all Retracting
Shareholders who tendered in respect of the Retraction Date, on a
pro-rata basis, that number of Deposited Shares as it is then permitted
by applicable law to redeem, and
(iii) the right of such Retracting Shareholder to require the Corporation to
return to him all of the Deposited Shares with the result that the
obligation of the Corporation to redeem the Deposited Shares so
returned on any Subsequent Retraction Date shall cease.
The Corporation shall, on each Subsequent Retraction Date thereafter if it is
permitted on such date by insolvency provisions and other provisions of any
applicable law and the rights, privileges, restrictions or conditions attaching
to any shares of the Corporation, redeem, on a pro-rata basis as aforesaid from
all Retracting Shareholders whose Deposited Shares have not been returned as
aforesaid, that number of Deposited Shares as it is then permitted by applicable
law to redeem at the Redemption Price per share plus an amount equal to all
accrued and unpaid dividends thereon to but excluding the Subsequent Retraction
Date. The Series H Preference Shares to
- 16 -
be redeemed on a Subsequent Retraction Date shall be redeemed in accordance with
this clause 5 save and except that payment therefor shall be accompanied by a
statement to each Retracting Shareholder setting out the number of Deposited
Shares of such Retracting Shareholder redeemed and the number of Deposited
Shares remaining in the name of such Retracting Shareholder. Except as otherwise
provided herein, Retracting Shareholders shall continue to be entitled to
exercise all of the rights of shareholders in respect of the Deposited Shares
and to receive dividends thereon except that, in order to obtain possession of
the share certificate or certificates representing the Deposited Shares, a
Retracting Shareholder must give ten days written notice to the Corporation
(given not less than 20 days prior to any Subsequent Retraction Date) requiring
the Corporation to return to him all of the Deposited Shares held in his name by
the Corporation. Upon receipt of such written notice the Corporation shall
promptly send to such Retracting Shareholder a share certificate or share
certificates for that number of Series H Preference Shares which such Retracting
Shareholder has requested the Corporation to return. Such shares shall then
cease to be Deposited Shares and such Retracting Shareholder shall cease to have
any right to receive any payment with respect thereto pursuant to this clause 5.
- 17 -
If the directors of the Corporation have acted in good faith in making
any of the determinations referred to above as to the number of Series H
Preference Shares which the corporation was permitted at any time to redeem, the
Corporation shall have no liability in the event that any such determination
proves inaccurate.
6. Conversion at the Option of the Holders
6.1 Right of Conversion
(i) General
Upon and subject to the terns and conditions hereinafter set forth,
each holder of Series H Preference Shares received on original issue from the
Corporation shall have the right, subject to clauses (ii) and (iii) of this
clause 6.1, to convert up to the following maximum number of Series H Preference
Shares into fully paid and non-assessable common shares of the Corporation at
the Conversion Rate in effect on the date of conversion:
(A) on or after the first anniversary of the Date of
Grant up to twenty-five per cent (25%) of his Series
H Preference Shares subscribed for pursuant to such
grant;
- 18 -
(B) on or after the second anniversary of the Date of
Grant up to fifty per cent (50%) of his Series H
Preference Shares subscribed for pursuant to such
grant (including those previously converted as
provided in Subclause (A));
(C) on or after the third anniversary of the Date of
Grant, up to seventy-five per cent (75%) of his
Series H Preference Shares subscribed for pursuant to
such grant (including those previously converted as
provided in Subclauses (A) and (B)); and
(D) on or after the fourth anniversary of the Date of
Grant up to one hundred per cent (100%) of his Series
H Preference Shares subscribed for pursuant to such
grant.
(ii) On Cessation of Employment
(A) Retirement - If the Eligible Employee ceases to be
employed, either by the Corporation or a
Participating Company, as a result of Normal
Retirement, the conversion rights
- 19 -
attaching to all of the Series H Preference Shares of
such holder shall be immediately and fully
exercisable. Such conversion rights may be exercised
at any time during the period which commences on the
date of Normal Retirement, and ends on the earlier of
the date which is one (1) month thereafter, or the
Expiration Date, provided that if the Eligible
Employee dies during such exercise period, the
conversion rights may be exercised by his executor or
other personal representative, in whole or in part,
at any time or from time to time, during the period
which commences on the date of death and ends on the
earlier of six (6) months from the date of death of
the Eligible Employee or the Expiration Date.
(B) Termination - If the Eligible Employee ceases to be
employed, either by the Corporation or a
Participating Company as a result of (I) his
voluntarily leaving such employment (other than by
Normal Retirement referred to in Subclause (A) above)
or (II) being dismissed for cause, the Eligible
Employee's conversion rights attaching to the Series
H
- 20 -
Preference Shares of such holder shall be limited to
the number of Preference Shares in respect of which
they are exercisable immediately prior to the time he
ceased to be employed. Such limited conversion rights
may be exercised at any time during the period which
commences on the date of termination of employment
and ends on the earlier of the date which is one (1)
month thereafter or the Expiration Date.
(C) Death - In the case of termination of employment by
the Corporation or a Participating Company caused by
the death of the Eligible Employee, the conversion
rights attaching to all of the Series H Preference
Shares of such Eligible Employee shall be immediately
and fully exercisable, and such conversion rights may
be exercised by his executor or other personal
representative, in whole or in part, at any time or
from time to time, during the period which commences
on the date of death and ends on the earlier of the
date which is six (6) months thereafter or the
Expiration Date.
- 21 -
(D) Other Termination - If the Eligible Employee ceases
to be employed either by the Corporation or a
Participating Company for any reason other than the
ones referred to in Subclauses (A), (B) or (C) above,
the conversion rights attaching to all of the Series
H Preference Shares of such Eligible Employee shall
be immediately and fully exercisable, and such
conversion rights may be exercised, in whole or in
part, at any time or from time to time during the
period which commences on the date of termination of
employment and ends on the earlier of the date which
is one (1) month thereafter or the Expiration Date.
(iii) Offer
With respect to the Series H Preference Shares, in the event that an
offer is made:
(1) to all or substantially all of the holders of the
Shares of the corporation, or
- 22 -
(2) to all or substantially all of the holders of all the
Shares of the Corporation whose last address on the
records of the Company is in Canada,
at a price at least equal to the market price of the Shares
immediately prior to the making of the Offer then the
conversion rights attaching to all of the Series H Preference
Shares held by the purchaser of such. Series H Preference
Shares on original issue from the Corporation shall become
immediately and fully exercisable during the period of such
offer notwithstanding clause (i) and such holder may exercise
such conversion rights, in whole or in part, at any time or
from time to time during the period of such offer.
The initial Conversion Rate shall be one (1) common share for each
Series H Preference Share to be converted, subject to adjustment from time to
time as hereinafter provided. For the purposes of this clause 6, "common shares"
mean common shares in the capital of the Corporation as such shares were
constituted on June 2, 1987, and shares of any other class resulting from the
reclassification or change of such common shares and "Conversion Rate" at any
time means the number of common shares of the Corporation into which at such
time one
- 23 -
Series H Preference Share shall be convertible in accordance with the
provisions of this clause 6.
6.2 Exercise of Right
The conversion right herein provided for may be exercised by notice in
writing given to the Secretary of the Corporation at its registered office or to
the transfer agent of the Corporation for the Series H Preference Shares at any
office for the transfer of Series H Preference Shares, accompanied by the
certificate or certificates representing the Series H Preference Shares in
respect of which the holder thereof is entitled and desires to exercise such
right of conversion. Such notice shall be signed by such holder or his agent and
shall specify the number of Series H Preference Shares which the holder is
entitled and desires to have converted. If less than all the Series H Preference
Shares represented by any certificate or certificates accompanying any such
notice are to be converted, the holder shall be entitled to receive, at the
expense of the Corporation, a new certificate representing the Series H
Preference Shares comprised in the certificate or certificates surrendered as
aforesaid which are not to be converted.
- 24 -
6.3 Entitlement to Dividends
The registered holder of any Series H Preference Share on the record
date for any dividend payable on such shares shall be entitled to such dividend
notwithstanding that such shares shall have been converted into common shares
after such record date and before the payment date of such dividend, and the
registered holder of a common share resulting from such conversion shall be
entitled to rank equally per common share with the registered holders of all
other common shares in respect of all dividends payable to holders of common
shares of record on any date on or after the date of such conversion.
Subject to the foregoing, upon conversion of any Series H Preference
Shares there shall be no adjustment by the Corporation or by any holder of
Series H Preference Shares on account of any dividend either on the Series H
Preference Shares so converted or on the common shares resulting from such
conversion.
6.4 Shares Called For Redemption
In the case of any Series H Preference Shares which are called for
redemption, the right of conversion thereof shall terminate on the Expiration
Date provided, however, that if the
- 25 -
Corporation shall fail to redeem such Series H Preference Shares, the right of
conversion shall thereupon be restored.
6.5 Certificates
On any conversion of Series H Preference Shares, the share certificate
or certificates representing the common shares of the Corporation resulting
therefrom shall be issued at the expense of the Corporation in the name of the
holder of the Series H Preference Shares converted, provided that such holder
shall pay any applicable security transfer taxes.
6.6 Timing
The right of a holder of Series H Preference Shares to convert the same
into common shares shall be deemed to have been exercised, and the holder of
Series H Preference Shares to be converted, or any person or persons in whose
name or names such holder of Series H Preference Shares shall have directed a
certificate or certificates representing common shares to be issued as provided
in clause 6.5, shall be deemed to have become a holder of common shares of the
Corporation for all purposes on the date or dates of receipt by the Secretary of
the Corporation or the transfer agent of the Series H Preference Shares of the
certificate or certificates representing the Series H Preference
- 26 -
Shares to be converted accompanied by notice in writing as referred to in clause
6.2, notwithstanding any delay in the delivery of the certificate or
certificates representing the common shares into which such Series H Preference
Shares have been converted.
6.7 No Fractional Shares
The Corporation shall not issue fractional shares in satisfaction of
the conversion rights herein provided for but in lieu thereof may, in respect of
any fractional interest resulting from the exercise of conversion rights, either
pay a cash adjustment or issue or cause to be issued non-voting and non-dividend
bearing scrip certificates in a form approved by the Board of Directors which
scrip certificates will, subject to the conditions thereof, entitle the holder
thereof to receive a certificate for a full common share by exchanging scrip
certificates aggregating a full common share. The amount of any cash adjustment
shall equal the Current Market Price (as defined in paragraph (d) of clause 6.8)
of such fractional interest. If scrip certificates are issued, such scrip
certificates may contain provisions to the effect that, after the expiration of
one year from their date of issuance, the Corporation may sell or cause to be
sold all the shares then represented by unsurrendered scrip certificates and the
sole rights of the holders of the scrip certificates after the expiration of
said
- 27 -
period shall be, against surrender of their scrip certificates, to receive
payment of the proportionate amounts of the net proceeds of such sale, less
taxes and costs of sale, payable by cheque in lawful money of Canada at par at
any branch in Canada of the Corporation's bankers for the time being. Such scrip
certificates shall not confer on the holders thereof any rights as a
shareholder. If a cash adjustment or a proportionate amount of the net proceeds
of a sale is to be paid pursuant to the provisions of this clause 6.7, the
mailing from the Corporation's registered office or the principal office in
Toronto of the registrar for the Series H Preference Shares to a holder of
Series H Preference Shares who has exercised his right to convert shall be
deemed to be payment of the cash adjustment or the proportionate amount of the
net proceeds of a sale, as the case may be, resulting from such fractional
interest unless the cheque is not paid upon due presentation. Cash adjustments
or proportionate amounts that are represented by a cheque which has not been
presented to the Corporation's bankers for payment or that otherwise remain
unclaimed for a period of 6 years from the date on which the same became payable
shall be forwarded to the Corporation.
6.8 Adjustment of Conversion Rate
The Conversion Rate shall be subject to adjustment from time to time as
follows:
- 28 -
(a) in case the Corporation shall
(i) subdivide its outstanding common shares into a
greater number of shares,
(ii) consolidate its outstanding common shares into a
smaller number of shares, or
(iii) issue common shares (or securities convertible into
common shares) to the holders of its outstanding
common shares by way of a stock dividend (other than
an issue of common shares to shareholders pursuant to
their exercise of options to receive dividends in the
form of common shares in lieu of cash dividends
declared payable in the ordinary course by the
Corporation on its common shares),
the Conversion Rate in effect on the effective date of such
subdivision or consolidation or on the record date for such
issue of common shares (or securities convertible into common
shares) by way of a stock dividend, as the case may be, in the
case of the events referred to in (i) and (iii) above, shall
be increased in proportion to the increase in the number of
- 29 -
outstanding common shares resulting from such subdivision or
from such stock dividend or from such distribution assuming
the issue by the Corporation of the maximum number of common
shares into which such convertible securities are convertible
or, in the case of the event referred to in (ii) above, shall
be decreased in proportion to the decrease in the number of
outstanding common shares resulting from such consolidation;
such adjustment shall be made successively whenever any event
referred to in this paragraph (a) shall occur; any such issue
of common shares by way of a stock dividend shall be deemed to
have been made on the record date for the stock dividend for
the purpose of calculating the number of outstanding common
shares under paragraphs (b) and (c) of this clause 6.8;
(b) in case the Corporation shall fix a record date for the
issuance of rights, options or warrants to all or
substantially all the holders of its outstanding common shares
entitling them, for a period expiring no more than 45 days
after such record date, to subscribe for or purchase common
shares (or securities convertible into common shares) at a
price per share (or having a conversion price per share) less
than 95% of the Current Market Price (as hereinafter defined
in
- 30 -
paragraph (d) of this clause 6.8) of a common share on such
record date, the Conversion Rate shall be adjusted immediately
after such record date so that it shall equal the rate
determined by multiplying the Conversion Rate in effect on
such record date by a fraction, of which the denominator shall
be the total number of common shares outstanding on such
record date, plus a number of common shares equal to the
number arrived at by dividing the aggregate price of the total
number of additional common shares offered for subscription or
purchase (or the aggregate conversion price of the total
number of convertible securities so offered) by the Current
Market Price per common share on such record date, and of
which the numerator shall be the total number of common shares
outstanding on such record date plus the total number of
additional common shares offered for subscription or purchase
(or into which the total number of convertible securities so
offered are convertible); any common shares owned by or held
for the account of the Corporation shall be deemed not to be
outstanding for the purpose of any such computation; such
adjustment shall be made successively whenever such a record
date is fixed; to the extent that such rights, options or
warrants are not so issued or such rights, options or warrants
are not exercised prior to the expiration thereof, the
Conversion Rate
- 31 -
shall be readjusted immediately after the expiry date for the
exercise of such rights, options or warrants to the Conversion
Rate which would then be in effect if such record date had not
been fixed, or to the Conversion Rate which would then be in
effect based upon the number of common shares (or securities
convertible into common shares) actually delivered upon the
exercise of such rights, options or warrants, as the case may
be;
(c) in case the Corporation shall fix a record date for the making
of a distribution (including a distribution by way of a stock
dividend) to all or substantially all the holders of its
outstanding shares of
(i) shares of any class other than common shares
(excluding shares convertible into common shares
referred to in paragraph (a) of this clause 6.8), or
(ii) rights, options or warrants (excluding those referred
to in paragraph (b) of this clause 6.8), or
(iii) evidences of its indebtedness (excluding indebtedness
convertible into common shares
- 32 -
referred to in paragraph (a) of this clause 6.8), or
(iv) assets (excluding common shares issued by way of a
stock dividend and cash dividends declared payable in
the ordinary course),
then in each such case the Conversion Rate shall be adjusted
immediately after such record date so that it shall equal the
rate determined by multiplying the Conversion Rate in effect
on such record date by a fraction, of which the denominator
shall be the total number of common shares outstanding on such
record date multiplied by the Current Market Price per common
share on such record date, less the fair market value (as
determined by the Board of Directors, whose determination
shall be conclusive) of such shares or rights, options or
warrants or evidences of indebtedness or assets so
distributed, and of which the numerator shall be the total
number of common shares outstanding on such record date
multiplied by such Current Market Price per common share; any
common shares owned by or held for the account of the
Corporation shall be deemed not to be outstanding for the
purpose of any such computation; such adjustment shall be made
successively whenever such a record date
- 33 -
is fixed; to the extent that such distribution is not so made,
the Conversion Rate shall be readjusted to the Conversion Rate
which would then be in effect based upon such shares or
rights, options or warrants or evidences of indebtedness or
assets actually distributed.
(d) for the purpose of any such computation under paragraphs (b)
or (c) of this clause 6.8, the "Current Market Price" for a
common share at any date shall be determined by the Board of
Directors; provided that when the common shares are listed on
The Toronto Stock Exchange or on any other stock exchange in
Canada, the "Current Market Price" per common share at any
date shall be the weighted average closing price at which the
common shares of the Corporation traded on The Toronto Stock
Exchange (or if the common shares are not then listed and
posted for trading on The Toronto Stock Exchange, on such
stock exchange in Canada on which such shares are listed and
posted for trading as may be selected for such purpose by the
Board of Directors) during the 30 trading days (on each of
which at least 100 common shares were traded in at least one
board lot) immediately preceding the fifth trading day before
such date.
- 34 -
(e) no adjustments of the Conversion Rate shall be made pursuant
to paragraphs (b) or (c) of this clause 6.8 in respect of any
rights, options or warrants if identical rights, options or
warrants are issued to the holders of the Series H Preference
Shares as though and to the same effect as if they had
converted their Series H Preference Shares into common shares
prior to the issue of such rights, options or warrants.
(f) in any case in which this clause 6.8 shall require that an
adjustment shall become effective immediately after a record
date for an event referred to herein, the Corporation may
defer, until the occurrence of such event, issuing to the
holder of any Series H Preference Shares converted after such
record date and before the occurrence of such event, the
additional common shares issuable upon such conversion by
reason of the adjustment required by such event in addition to
the common shares issuable upon such conversion before giving
effect to such adjustment, provided, however, that the
Corporation shall deliver to such holder an appropriate
instrument evidencing such holder's rights to receive such
additional common shares upon the occurrence of the event
requiring such adjustment and the right to receive any
distributions on such additional common shares declared in
favour of holders
- 35 -
of record of common shares on or after the relevant date of
conversion.
(g) in the case of any reclassification of, or other change in,
the outstanding common shares other than a subdivision or
consolidation, the right of conversion shall be adjusted
immediately after the effective date for such reclassification
or other change so that holders of Series H Preference Shares
shall be entitled to receive such number of shares as they
would have received had such Series H Preference Shares been
converted into common shares of the Corporation immediately
prior to such reclassification or other change becoming
effective.
(h) no adjustment in the Conversion Rate shall be required unless
such adjustment would require an increase or decrease of at
least 1% in the conversion Price, provided, however, that any
adjustments which by reason of this paragraph (h) are not
required to be made shall be carried forward and taken into
account in any subsequent adjustment. "Conversion Price" at
any time means an amount equal to the Purchase Price divided
by the Conversion Rate in effect at such time.
- 36 -
(i) if any question shall at any time arise with respect to the
Conversion Price or any adjustments in the amount of the
Conversion Rate or with respect to the amount of any cash
payment made in lieu of issuing a fractional share, such
question shall be conclusively determined by the auditors from
time to time of the Corporation and shall be binding upon the
Corporation and all shareholders, transfer agents and
registrars of Series H Preference Shares and of common shares.
(j) for the purpose of this clause 6.8, "dividends declared
payable in the ordinary course" shall mean dividends paid on
the common shares in any fiscal year of the Corporation,
whether in (1) cash, (2) securities of the Corporation,
including rights, options or warrants (other than rights,
options or warrants referred to in paragraph (b) of clause
6.8) to purchase any securities of the Corporation or property
or other assets of the Corporation, or (3) property or other
assets of the Corporation, to the extent that the amount or
value of such dividend together with the amount or value of
all dividends theretofore paid during such fiscal year (any
such securities, property or other assets so distributed to be
valued at the fair market value of such securities, property
or other assets, as the case may be, as determined by the
Board of Directors, which
- 37 -
determination shall be conclusive) does not exceed the greater
of:
(i) 150% of the aggregate amount or value of dividends
paid by the Corporation on the common shares in the
period of twelve consecutive months ended immediately
prior to the first day of such fiscal year; or
(ii) 100% of the consolidated net income of the
Corporation before extraordinary items for the period
of twelve consecutive months ended immediately prior
to the first day of such fiscal year less the amount
of all dividends payable in respect of such
consecutive twelve-month period on all shares ranking
prior to or on a parity with the common shares in
respect of the payment of dividends (such
consolidated net income, extraordinary items and
dividends to be shown in the audited consolidated
financial statements of the Corporation for such
period of twelve consecutive months or if there are
no audited consolidated financial statements for such
period, computed in accordance with generally
accepted accounting principles, consistent with those
applied in the preparation of the most
- 38 -
recent audited consolidated financial statements of
the Corporation); or
(iii) 300% of the arithmetic mean of the aggregate amount
and/or value of the dividends paid by the Corporation
on the common shares during the period of those
12-month periods comprising the 36 consecutive months
ended immediately prior to the first day of such
fiscal year;
and for the purposes of subclauses (i), (ii) and (iii) above,
in determining the amount or value of dividends on the common
shares there shall be included, in respect of any period prior
to September 17, 1985, the amount or value of dividends paid
by any predecessor corporation on its common shares (excluding
the amount and/or value of dividends paid by any predecessor
corporation to another predecessor corporation).
6.9 Certificate as to Adjustment
Forthwith after the occurrence of any adjustment in the
Conversion Rate pursuant to clause 6.8 hereof, the corporation shall file with
the transfer agent of the Corporation for the Series H Preference Shares a
certificate certifying as to the amount of such adjustment and, in reasonable
detail, the event
- 39 -
requiring and the manner of completing such adjustment; the Corporation shall
also at such time give written notice to the holders of Series H Preference
Shares of the Conversion Rate following such adjustment.
6.10 Notification
If the Corporation intends to take any action which would require an
adjustment of the Conversion Rate pursuant to paragraph (a), (b) or (c) of
clause 6.3 hereof (other than the subdivision or consolidation of the
outstanding common shares of the Corporation), the Corporation shall, at least
14 days prior to the earlier of any record date fixed for any action or the
effective date for such action notify the holders of Series H Preference Shares
by written notice setting forth the particulars of such action to the extent
that such particulars have been determined at the time of giving the notice.
7. Purchase for Cancellation
Subject to applicable law, the Corporation may at any time or
from time to time purchase for cancellation all or any part of the outstanding
Series H Preference Shares at any price by tender to all the holders of record
of Series H Preference Shares then outstanding or through the facilities of any
stock exchange on which the Series H Preference Shares are listed. If
- 40 -
in response to an invitation for tenders under the provisions of this clause 7,
more Series H Preference Shares are tendered at a price or prices acceptable to
the Corporation than the Corporation is prepared to purchase, then the Series H
Preference Shares to be purchased by the Corporation shall be purchased as
nearly as may be pro rata according to the number of shares tendered by each
holder who submits a tender to the Corporation, provided that when shares are
tendered at different prices, the pro rating shall be effected only with respect
to the shares tendered at the price at which more shares were tendered than the
Corporation is prepared to purchase after the Corporation has purchased all the
shares tendered at lower prices. If part only of the Series H Preference Shares
represented by a certificate shall be purchased, a new certificate for the
balance of such shares shall be issued at the expense of the Corporation.
8. Issuance of Additional Series A Preference Shares
Notwithstanding anything herein contained, the Corporation
may, without the approval of the holders of the Series H Preference Shares,
issue up to that number of additional Preference Shares having rights,
privileges, restrictions and conditions substantially similar to those attaching
to the Floating Rate Cumulative Convertible Preference
- 41 -
Shares Series A which has an aggregate issue price of not more than $23 million.
9. Voting Rights
Subject to applicable law, the holders of the Series H
Preference Shares shall not be entitled to receive notice of or to attend or to
vote at any meetings of shareholders of the Corporation.
10. Liquidation, Dissolution or Winding Up
In the event of the liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, or in the event of any other
distribution of assets of the Corporation among its shareholders for the purpose
of winding up its affairs, the holders of the Series H Preference Shares shall
be entitled to receive from the assets of the Corporation an amount per share
equal to the Redemption Price plus all accrued and unpaid dividends thereon to
but excluding the date of payment, before any amount shall be paid to, or assets
of the Corporation distributed amongst, the holders of any other shares of the
Corporation ranking as to capital junior to the Series H Preference Shares.
After payment to the holders of the Series H Preference Shares of the amounts so
payable to them, they shall
- 42 -
not be entitled to share in any further distribution of the assets of the
Corporation.
11. Interpretation
In the event that any date on which any dividend on the Series
H Preference Shares is payable by the Corporation, or on or by which any other
action is required to be taken by the Corporation hereunder, is not a Business
Day, then such dividend shall be payable, or such other action shall be required
to be taken, on or by the next succeeding day that is a Business Day.
For the purposes of these share provisions:
(a) "Business Day" means a day other than a Saturday, a Sunday or
any other day that is treated as a statutory holiday in the
jurisdiction in which the Corporation's registered office is
located; and
(b) "ranking as to capital" means ranking with respect to the
distribution of assets in the event of a liquidation,
dissolution or winding up of the Corporation, whether
voluntary or involuntary, or in the event of any other
distribution of assets of the
- 43 -
Corporation among its shareholders for the purposes of winding
up its affairs.
12. Notice
Any notice, payment, request or demand (herein collectively
called a "Notice") required or permitted to be given or made hereunder shall be
in writing and shall be sufficiently given if delivered to the Corporation or to
the shareholder, as the case may be, or if sent by prepaid registered mail,
addressed, in the case of any Notice to the Corporation, to The Secretary,
Hollinger Inc., 10 Toronto Street, Toronto, Ontario, M5C 2B7, and in the case of
the shareholder, to such shareholder at the address set forth in the share
register of the Corporation, provided that the Corporation or the shareholder
may by notice in writing change its or the shareholder's address to a different
address stipulated in the Notice. Any Notice delivered by hand shall be
considered to have been given on the date of delivery. Any Notice mailed as
aforesaid shall be deemed to have been given on the third business day following
the date of such mailing.
- 44 -
13. Mail Service Interruption
If the Corporation determines that mail service is or is
threatened to be interrupted at the time when the Corporation is required or
elects to give any notice hereunder, or is required to send any cheque or any
share certificate to the holder of any Series H Preference Share, whether in
connection with the redemption of such share or otherwise, the Corporation may,
notwithstanding the provisions hereof:
(a) give such notice by delivery thereof to the holders of Series
H Preference Shares or by publication thereof once in a daily
English language newspaper of general circulation published in
Toronto and such notice shall be deemed to have been validly
given on the day next succeeding its delivery or publication,
as the case may be; and
(b) fulfill the requirement to send such cheque or such share
certificate by arranging for the delivery thereof to such
holder by the Corporation or by the transfer agent for the
Series H Preference Shares at its principal office in the city
of Toronto, and such cheque and/or certificate shall be deemed
to have been sent on the date on which notice of such
arrangement shall have been given as provided in (a) above,
- 45 -
provided that as soon as the Corporation determines that mail
service is no longer interrupted or threatened to be
interrupted, such cheque or share certificate, if not
theretofor delivered to such holder, shall be sent by mail as
herein provided. In the event that the Corporation is required
to mail such cheque or share certificate, such mailing shall
be made by prepaid mail to the registered address of each
person who at the date of mailing is a registered holder and
who is entitled to receive such cheque or certificate.
14. Amendments
The rights, privileges, restrictions and conditions attached
to the Series H Preference Shares may be added to, changed or removed by
Articles of Amendment but only with the prior approval of the holders of the
Series H Preference Shares given as specified in clause 15 and as may then be
required by law.
- 46 -
15. Approval of Holders of Series H Preference Shares
15.1 Approval
Any approval of the holders of the Series H Preference Shares
with respect to any matters requiring the consent of the holders of the Series
H Preference Shares may be given in such manner as may then be required by law,
subject to a minimum requirement that such approval be given by resolution
signed by all the holders of outstanding Series H Preference Shares or passed
by the affirmative vote of at least 66-2/3% of the votes cast by the holders of
Series H Preference Shares who voted in respect of that resolution at a meeting
of the holders of the Series H Preference Shares duly called for that purpose
and at which a quorum as required by the by-laws of the Corporation is present.
15.2 Formalities, etc.
The proxy rules applicable to, the formalities to be observed
in respect of the giving of notice of, and the formalities to be observed in
respect of the conduct of, any meeting or any adjourned meeting of holders of
Series H Preference Shares shall be those from time to time prescribed by the
by-laws of the Corporation with respect to meetings of shareholders or, if not
so prescribed, as required by law. On
- 47 -
every poll taken at every meeting of holders of Series H Preference Shares, each
holder of Series H Preference Shares entitled to vote thereat shall have one
vote in respect of each Series H Preference Share held.
Exhibit 1.1 d
[CANADA LETTERHEAD] Industry Canada Industrie Canada
CERTIFICATE CERTIFICAT
OF AMENDMENT DE MODIFICATION
CANADA BUSINESS LOI CANADIENNE SUR
CORPORATIONS ACT LES SOCIETES PAR ACTIONS
HOLLINGER INC. 197578-1
Name of corporation-Denomination de la societe Corporation number-Numero de la societe
I hereby certify that the articles of the above-named corporation Je certifie que les statuts de la societe susmentionnee
were amended ont ete modifies :
(a) under section 13 of the Canada Business Corporations Act in [ ] a) en vertu de l'article 13 de la Loi canadienne sur les
accordance with the attached notice; societes par actions, conformement a l'avis ci-joint;
(b) under section 27 of the Canada Business Corporations Act as [ ] b) en vertu de l'article 27 de la Loi canadienne sur les
set out in the attached articles of amendment designating a societes par actions, tel qu'il est indique dans les
series of shares; clauses modificatrices ci-jointes designant une sreie
d'actions;
(c) under section 179 of the Canada Business Corporations Act as [x] c) en vertu de l'article 179 de la Loi canadienne sur les
set out in the attached articles of amendment; societes par actions, tel qu'il est indique dans les
clauses modificatrices ci-jointes;
(d) under section 191 of the Canada Business Corporations Act as [ ] d) en vertu de l'article 191 de la Loi canadienne sur les
set out in the attached articles of reorganization. societes par actions, tel qu'il est indique dans les
clauses de reorganisation ci-jointes.
MAY 30, 1996/LE 30 MAI 1996
Director - Directeur DATE OF AMENDMENT - DATE DE MODIFICATION
[CANADA LETTERHEAD]
FORM 4
ARTICLES OF AMENDMENT
(SECTION 27 OR 177)
--------------------------------------------------------------------------------
1 - NAME OF CORPORATION 2 - Corporation No.
Hollinger Inc. 197578-1
--------------------------------------------------------------------------------
3 - THE ARTICLES OF THE ABOVE-NAMED CORPORATION ARE AMENDED AS FOLLOWS:
The Articles of the Corporation be amended to change the place in which
its registered office is situated from the City of Vancouver in the
Province of British Columbia to the Municipality of Metropolitan Toronto
in the Province of Ontario.
--------------------------------------------------------------------------------
DATE SIGNATURE TITLE
/s/ Charles G. Cowan
May 29,1996 Charles G. Cowan Vice-President & Secretary
--------------------------------------------------------------------------------
FOR DEPARTMENTAL USE ONLY
Filed
--------------------------
[LETTERHEAD CANADA]
FORM 3
NOTICE OF REGISTERED OFFICE
OR NOTICE OF CHANGE
OF REGISTERED OFFICE
(SECTION 19)
--------------------------------------------------------------------------------
1 - NAME OF CORPORATION 2 - CORPORATION NO.
Hollinger Inc. 197578-1
--------------------------------------------------------------------------------
3 - PLACE IN CANADA WHERE THE REGISTERED OFFICE IS SITUATED
Municipality of Metropolitan Toronto in the Province of Ontario
4 - ADDRESS OF REGISTERED OFFICE
10 Toronto Street
Toronto, Ontario [LSARF/CBCA STAMP]
M5C 2B7
CAUTION: Address of registered office must be within place specified in
articles, otherwise an amendment is required (Form 4) in addition to this form
5 - EFFECTIVE DATE OF CHANGE
Upon the filing of articles of amendment
6 - PREVIOUS ADDRESS OF REGISTERED OFFICE
1827 West 5th Avenue
Vancouver, British Columbia
V6J IPS
--------------------------------------------------------------------------------
DATE SIGNATURE TITLE
/s/ Charles G. Cowan
May 29, 1996 Charles G.Cowan Vice-President & Secretary
--------------------------------------------------------------------------------
Filed
--------------------------
Exhibit 1.1 e
[CANADA LETTERHEAD] Industry Canada Industrie Canada
CERTIFICATE CERTIFICAT
OF AMENDMENT DE MODIFICATION
CANADA BUSINESS LOI CANADIENNE SUR
CORPORATIONS ACT LES SOCIETES PAR ACTIONS
HOLLINGER INC. 197578-1
Name of corporation-Denomination de la societe Corporation number-Numero de la societe
I hereby certify that the articles of the above-named corporation Je certifie que les statuts de la societe susmentionnee
were amended ont ete modifies :
(a) under section 13 of the Canada Business Corporations Act in [ ] a) en vertu de l'article 13 de la Loi canadienne sur les
accordance with the attached notice; societes par actions, conformement a l'avis ci-joint;
(b) under section 27 of the Canada Business Corporations Act as [ ] b) en vertu de l'article 27 de la Loi canadienne sur les
set out in the attached articles of amendment designating a societes par actions, tel qu'il est indique dans les
series of shares; clauses modificatrices ci-jointes designant une serie
d'actions;
c) under section 179 of the Canada Business Corporations Act as
set out in the attached articles of amendment; [x] c) en vertu de l'article 179 de la Loi canadienne sur
les societes par actions, tel qu'il est indique dans les
clauses modificatrices ci-jointes;
(d) under section 191 of the Canada Business Corporations Act as [ ] d) en vertu de l'article 191 de la Loi canadienne sur
set out in the attached articles of reorganization. les societes par actions, tel qu'il est indique dans les
clauses de reorganisation ci-jointes.
September 11, 1997/le 11 septembre 1997
Director - Directeur Date of Amendment - Date de modification
[CANADA LETTERHEAD]
FORM 4
ARTICLES OF AMENDMENT
(SECTION 27 OR 177)
--------------------------------------------------------------------------------
1 - NAME OF CORPORATION 2 - CORPORATION NO.
HOLLINGER INC. 197578-1
--------------------------------------------------------------------------------
3 - THE ARTICLES OF THE ABOVE-NAMED CORPORATION ARE AMENDED AS FOLLOWS:
the certificate and articles of the Corporation are amended to create the
twelfth series of Preference Shares, unlimited in number, to be designated
as Retractable Shares, and to have attached thereto the rights, privileges,
restrictions and conditions set forth in annexed Schedule A.
--------------------------------------------------------------------------------
DATE SIGNATURE TITLE
Sept. 11/97 Vice-President & Secretary
--------------------------------------------------------------------------------
FOR DEPARTMENTAL USE ONLY
Filed
--------------------------
SCHEDULE A
NUMBER AND DESIGNATION OF AND
RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS
ATTACHING TO THE RETRACTABLE SHARES
The twelfth series of Preference Shares of the Corporation
shall consist of an unlimited number of Preference Shares which shall be
designated as Retractable Shares (hereinafter referred to as the "Retractable
Shares") and which, in addition to the rights, privileges, restrictions and
conditions attached to the Preference Shares as a class, shall have attached
thereto the following rights, privileges, restrictions and conditions:
1. INTERPRETATION
1.1. DEFINITIONS
For the purposes hereof:
(a) "Act" means the Canada Business Corporations Act, as amended,
re-enacted or replaced from time to time;
(b) "Board" means the board of directors of the Corporation, the
Executive Committee thereof or any other committee
contemplated by section 3.2 hereof;
(c) "Business Day" means a day other than Saturday, Sunday or any
other day that is treated as a statutory holiday in the
jurisdiction in which the Corporation's registered office is
located;
(d) "Canadian Dollar Equivalent" means in respect of an amount
expressed in a foreign currency (the "Foreign Currency
Amount") at any date the product obtained by multiplying (A)
the Foreign Currency Amount by (B) the exchange rate for such
foreign currency in effect at 12 o'clock noon (eastern time)
on such date as posted by Canadian Imperial Bank of Commerce
or such other exchange rate on such date for such foreign
currency as may be deemed by the Board to be appropriate for
such purpose;
(e) "Class A Common Shares" means shares of Class A common stock
of Hollinger International Inc., par value U.S. $0.01 per
share, and any other securities into which such shares may be
changed or for which such shares may be exchanged (whether or
not Hollinger International Inc. shall be the issuer of such
other securities) or any other consideration which may be
received by the holders of such shares pursuant to a
recapitalization, reconstruction, reorganization or
reclassification of, or amalgamation, merger, liquidation or
similar transaction affecting, such shares;
-2-
(f) "Common Shares" means the common shares of the Corporation;
(g) "Current Class A Market Price" means in respect of a Class A
Common Share on any date, the Canadian Dollar Equivalent of
the per share closing price (or if no closing price is
recorded, the average of the bid and the ask prices) of Class
A Common Shares on the last full trading day preceding such
date as such price is reported on the NYSE Composite
Transactions Tape, or if the Class A Common Shares are not
listed on the NYSE, such other national, regional or
provincial securities exchange or automated quotation system
upon which the Class A Common Shares are listed or quoted, as
the case may be, as may be selected by the Board for such
purpose; provided, however, that if in the opinion of the
Board the public distribution or trading activity of Class A
Common Shares is inadequate to create a market that reflects
the fair market value of a Class A Common Share then the
Current Class A Market Price shall be determined by the Board
based upon the advice of such qualified independent financial
advisors as the Board may deem to be appropriate, and provided
further that any such selection, opinion or determination by
the Board shall be conclusive and binding;
(h) "Current Value" as at any date means the aggregate Fair Market
Value of all of the assets of the Corporation (including any
refundable tax previously paid by the Corporation which, in
the opinion of the Board, is refundable as at such time) less
the aggregate of:
(i) the maximum amount payable at such date by the
Corporation on its liquidation, dissolution or
winding-up in respect of any outstanding Preference
Shares other than the Retractable Shares; and
(ii) the Corporation's liabilities, including any tax
liabilities that would arise on a sale by the
Corporation of all or substantially all of its assets
which in the opinion of the Board would not be
refundable as at such date;
all as determined by the Board;
(i) "Fair Market Value" as of any date of any asset means:
(i) with respect to shares of Class B common stock of
Hollinger International Inc., the value of that
number of Class A Common Shares into which such
shares are convertible as determined below;
(ii) subject to clause (i) above, with respect to any
security listed and posted on a stock exchange, the
weighted average price at which such security traded
for the 20 trading days immediately preceding such
date (or such lesser period as the Board may
determine from time to time) on the stock exchange on
which the greatest volume of trading in the security
occurred. during such period;
-3-
(iii) subject to clause (i) above, with respect to a
security not listed and posted on a stock exchange
but traded in an over-the-counter market, the
weighted average trading price of such security on
such over-the-counter market for the 20 trading days
preceding such date or such lesser period as the
Board may determine from time to time; and
(iv) for any other asset, the fair market value thereof as
determined by the Board;
(j) "NYSE" means the New York Stock Exchange, Inc.;
(k) "Retractable Shares" means the Retractable Shares of the
Corporation; and
(l) "Retraction Price" on any date shall be 90% of the quotient
obtained by dividing the Current Value on such date by the
total number of Retractable Shares and Common Shares
outstanding on such date.
1.2. HEADINGS
The headings in these share provisions do not affect their
interpretation.
1.3. NUMBER AND GENDER
Words importing the singular include the plural and vice-versa
and words importing gender include all genders.
1.4. DATES
In the event that any date on which any dividend on the
Retractable Shares is payable by the Corporation, or on or by which any other
action is required to be taken by the Corporation or the holders of Retractable
Shares hereunder, is not a Business Day, then such dividend shall be payable, or
such other action shall be required to be taken, on or by the next succeeding
date that is a Business Day.
1.5. CURRENCY
All cash amounts paid by the Corporation in respect of the
Retractable Shares shall be made in Canadian dollars and all references herein
to monetary amounts shall be construed accordingly.
2. DIVIDENDS
The holders of the Retractable Shares shall be entitled to
receive, and the Corporation shall pay thereon, as and when declared by the
board of directors of the Corporation, subject to the insolvency provisions of
applicable law, dividends in equal or equivalent amounts
-4-
per share to any dividends which the board of directors may declare on the
Common Shares from time to time. No dividend on the Common Shares shall be
declared or paid unless an equal or equivalent dividend per share on the
Retractable Shares is contemporaneously declared or paid.
3. RETRACTION RIGHT
3.1. RIGHT OF RETRACTION
A holder of Retractable Shares shall be entitled at any time
after the earlier of December 31,1997 and the date specified by the Corporation
in a notice given in the manner set out in section 3.2(a), subject to the
provisions of the Act and in the manner hereinafter provided, to surrender for
retraction all or any of the Retractable Shares registered in the name of such
holder.
3.2. RETRACTION PRICE
(a) The Board shall determine the Retraction Price as of the end
of each fiscal quarter of the Corporation and as soon as
practicable thereafter the Corporation shall give notice
thereof (a "Retraction Price Notice") in the same manner in
which dividend notices are required to be given by law or any
stock exchange on which the Retractable Shares (or units
comprised in part of Retractable Shares) are listed for
trading from time to time. Subject to the following sentence,
the Retraction Price set out in a Retraction Price Notice
shall be in effect for all retractions subsequent to the date
on which the Retraction Price Notice is given to and including
the date on which the next Retraction Price Notice is given.
Notwithstanding the foregoing, the Board shall have the
absolute discretion to change the Retraction Price at any time
as set out below if fluctuations in the trading price of
publicly-traded securities owned by the Corporation cause a
change of more than 10% in the Current Value during a fiscal
quarter of the Corporation. To effect such a change the
Retraction Price shall be determined as of such date as is
selected by the Board and shall become effective as of the
next Business Day following the date on which a press release
is issued by the Corporation setting out the new Retraction
Price or such later date as is specified in such press
release.
(b) The Corporation shall set out in any Retraction Price Notice
the number and designation of publicly-traded securities owned
by it (other than Class A Common Shares) if fluctuations in
the trading price thereof during a fiscal quarter of the
Corporation could reasonably be expected to cause a change of
more than 10% in the Current Value during the fiscal quarter.
(c) All determinations to be made by the Board relating to the
Retraction Price may be made by the Executive Committee of the
Board of Directors of the Corporation or any other committee
of the Board of Directors to which such authority is delegated
and shall be conclusive and binding on all shareholders of the
Corporation.
-5-
3.3. RETRACTION PROCEDURE
(a) Retractable Shares may be retracted only by the registered
holder thereof presenting and surrendering at any place where
the Retractable Shares may be transferred or at such other
place or places as shall be specified in writing by the
Corporation to the holders of the Retractable Shares from time
to time, the share certificate or certificates representing
the Retractable Shares to be redeemed, duly completed and
endorsed in the manner prescribed thereon, together with a
request in writing in such form as may be acceptable to the
Corporation (in this section 3.3, the "Retraction Notice")
from such holder specifying the number of Retractable Shares
to be redeemed by the Corporation. The date on which a holder
duly tenders the documents described above is referred to
herein as the "Retraction Date."
(b) Subject to sections 3.5.2, 3.6 and Article 4 hereof, the
Corporation shall redeem the appropriate number of Retractable
Shares by sending or causing to be sent to or to the order of
the registered holder thereof not later than 14 days after the
Retraction Date a certificate representing that number of
Class A Common Shares equal to (i) the Retraction Price of the
Retractable Shares to be redeemed divided by (ii) the Current
Class A Market Price on the Retraction Date.
(c) If less than all of the Retractable Shares represented by any
certificate or certificates so endorsed are to be redeemed,
the Corporation shall issue and deliver to such holder, at the
expense of the Corporation, a new share certificate
representing the Retractable Shares which are not being
surrendered for retraction.
3.4. ELECTION IRREVOCABLE
Subject to paragraph 3.6 hereof, the election by any
registered holder of Retractable Shares to surrender any Retractable Shares for
retraction shall be irrevocable upon receipt by the Corporation or its agent of
the Retraction Notice and the certificate and certificates representing the
Retractable Shares to be redeemed; provided that the Corporation may, in its
unfettered discretion, permit withdrawal of any such election at any time prior
to payment of the Retraction Price for the Retractable Shares to be redeemed.
3.5. RELATING TO THE DELIVERY OF CLASS A COMMON SHARES
3.5.1. QUALIFICATION AND LISTING
The Corporation shall satisfy the following
conditions in respect of Class A Common Shares delivered on a
redemption of Retractable Shares:
(a) the qualification of the Class A Common Shares by
the filing of a prospectus and obtaining a final receipt
therefor from the securities regulatory authorities in each of
the provinces of Canada in which the distribution of such
Class A Common Shares occurs, unless there exists an
applicable exemption to
-6-
qualification thereunder that allows such Class A Common
Shares (other than those issued to a person who is in a
position by himself or in combination with others to
materially affect control of the Corporation) to be
immediately traded free of resale restrictions under
applicable securities legislation; and
(b) the effectiveness of a registration statement
under the U.S. Securities Act of 1933 ("U.S. Securities Act")
with respect to the delivery of such Class A Common Shares,
unless an exemption from the registration requirements of the
U.S. Securities Act is available which would allow such Class
A Common Shares to be immediately traded free of resale
restrictions; and
(c) the listing of such Class A Common Shares on each
stock exchange on which the Class A Common Shares are then
listed.
3.5.2. FRACTIONS OF CLASS A COMMON SHARES
The Corporation shall not deliver a fraction of a
Class A Common Share on a redemption of Retractable Shares. In lieu
thereof the Corporation shall make a cash payment equal to the amount
which would have been satisfied by the fraction of the Class A Common
Share.
3.6. RETRACTION LIMITATION
(a) If the redemption by the Corporation of all Retractable Shares
surrendered for retraction on a Retraction Date would be
contrary to applicable law, the Corporation shall redeem only
the maximum number of Retractable Shares which it is then
permitted to redeem selected pro rata (disregarding fractions
of shares) from the Retractable Shares surrendered for
retraction according to the number of Retractable Shares
surrendered for retraction by each holder thereof. Thereupon,
each such holder shall be entitled, by notice to the
Corporation, to withdraw all or part only of the Retractable
Shares surrendered by such holder for retraction on such
Retraction Date which have not been redeemed by the
Corporation and the Corporation shall, at its expense, issue
and deliver to each holder who exercises such right of
withdrawal a new share certificate representing the
Retractable Shares so withdrawn. Thereafter, the Corporation
shall redeem on a date or dates determined by the Board on
which the Corporation shall have sufficient assets to permit
such redemption, the maximum number of Retractable Shares as
have been surrendered for retraction and not previously
withdrawn or redeemed which the Corporation determines it is
then permitted to redeem, selected pro rata (disregarding
fractions of shares) from such Retractable Shares according to
the number of such Retractable Shares then held by each holder
thereof and so on until all such Retractable Shares have been
redeemed.
(b) If the Board has acted in good faith in making any of the
determinations referred to in paragraph 3.6(a) hereof, the
Board and the Corporation shall have no liability if such
determination proves to be inaccurate.
-7-
(c) If the Corporation does not redeem all Retractable Shares
surrendered for retraction on a Retraction Date the
Corporation shall forthwith after such date notify each holder
whose Retractable Shares have not been redeemed on such date
of such holder's right to withdraw the Retractable Shares to
surrendered and not redeemed by the Corporation.
3.7. CESSATION OF RIGHTS
The Retractable Shares redeemed pursuant to this Article 3
shall cease to be entitled to dividends or any participation in the assets of
the Corporation and the registered holder thereof shall not be entitled to
exercise any of the rights of holders of Retractable Shares in respect thereof,
unless payment therefor is not made as required herein, in which event the
rights of the registered holder of such Retractable Shares shall remain
unaffected.
4. REDEMPTION RIGHT ON RECEIPT OF RETRACTION NOTICE
4.1. RIGHT OF REDEMPTION
On receipt of a Retraction Notice duly tendered pursuant to
section 3.3 together with the share certificate or certificates representing
Retractable Shares to be redeemed, the Corporation shall be entitled to redeem
all or any part of such Retractable Shares pursuant to this Article 4 for a cash
payment equal to the Retraction Price per share on the Retraction Date in lieu
of redeeming them in the manner set out in Article 3.
4.2. CASH PAYMENT OF REDEMPTION PRICE
The Corporation shall exercise its redemption right pursuant
to this Article 4 by sending or causing to be sent to or to the order of the
registered holder of Retractable Shares to be redeemed not later than 14 days
after the Retraction Date a cheque payable at any branch of the Corporation's
bankers for the Retraction Price of such shares.
4.3. PRO RATA TREATMENT
The Corporation shall exercise its redemption right pursuant
to this Article 4 so that, subject to section 3.5.2, all holders of Retractable
Shares to be redeemed on any Retraction Date shall receive the same portion of
the Retraction Price payable to them in the form of Class A Common Shares and
cash.
4.4. PROCEDURE
The provisions of sections 3.6 and 3.7 shall apply, mutatis
mutandis, to a redemption of Retractable Shares pursuant to this Article 4.
-8-
5. VOTING RIGHTS
The holders of the Retractable Shares shall be entitled to
receive notice of and to attend at all meetings of the shareholders of the
Corporation, other than separate meetings of the holders of another class or
series of shares, and to vote at any such meeting together with the holders of
Common Shares on the basis of one vote for each Retractable Share held.
6. LIQUIDATION, DISSOLUTION OR WINDING - UP
In the event of the liquidation, dissolution or winding-up of
the Corporation, whether voluntary or involuntary, or in the event of any other
distribution of assets of the Corporation among its shareholders for the purpose
of winding up its affairs, the holders of the Retractable Shares shall be
entitled to receive from the assets of the Corporation an amount for each
Retractable Share held by them equal or equivalent to any amount per share to be
paid or distributed to holders of the Common Shares, the whole before any amount
shall be paid by the Corporation or any assets of the Corporation shall be
distributed to holders of shares of any class of the Corporation ranking with
respect to the distribution of assets in such event junior to the Retractable
Shares. After payment to the holders of the Retractable Shares of the amounts so
payable to them, they shall not be entitled to share in any further distribution
of the assets of the Corporation.
7. AMENDMENT
The rights, privileges, restrictions and conditions attached
to the Retractable Shares may be added to, changed or removed by Articles of
Amendment, but only with the approval of the holders of the Retractable Shares
given as hereinafter specified in addition to any vote or authorization required
by law.
8. APPROVAL OF HOLDERS OF THE RETRACTABLE SHARES
The approval of the holders of the Retractable Shares to add
to, change or remove any right, privilege, restriction or condition attaching to
the Retractable Shares as a series or in respect of any other matter requiring
the consent of the holders of the Retractable Shares may be given in such manner
as may then be required by law, subject to a minimum requirement that such
approval be given by resolution signed by all the holders of the Retractable
Shares or passed by the affirmative vote of at least 2/3 of the votes cast at a
meeting of the holders of the Retractable Shares duly called for that purpose.
The formalities to be observed with respect to the giving of
notice of any such meeting or any adjourned meeting, the quorum required
therefor and the conduct thereof shall be those from time to time prescribed by
the by-laws of the Corporation with respect to meetings of shareholders, or if
not so prescribed, as required by the Act as in force at the time of the meeting
or as otherwise required by law. On every poll taken at every meeting of holders
of Retractable Shares as a series, each holder of Retractable Shares entitled to
vote thereat shall have one vote in respect of each Retractable Share held.
Exhibit 1.1 f
[CANADA LETTERHEAD] Industry Canada Industrie Canada
CERTIFICATE CERTIFICAT
OF AMENDMENT DE MODIFICATION
CANADA BUSINESS LOI CANADIENNE SUR
CORPORATIONS ACT LES SOCIETES PAR ACTIONS
HOLLINGER INC. 197578-1
----------------------------------------------------------------- ----------------------------------------------------------
Name of corporation-Denomination de la societe Corporation number-Numero de la societe
I hereby certify that the articles of the above-named corporation Je certifie que les statuts de la societe susmentionnee
were amended ont ete modifies :
(a) under section 13 of the Canada Business Corporations Act in [ ] a) en vertu de l'article 13 de la Loi canadienne sur les
accordance with the attached notice; societes par actions, conformement a l'avis ci-joint;
(b) under section 27 of the Canada Business Corporations Act as [x] b) en vertu de l'article 27 de la Loi canadienne sur les
set out in the attached articles of amendment designating a societes par actions, tel qu'il est indique dans les
series of shares; clauses modificatrices ci-jointes designant une serie
d'actions;
(c) under section 179 of the Canada Business Corporations Act as [ ] c) en vertu de l'article 179 de la Loi canadienne sur les
set out in the attached articles of amendment; societes par actions, tel qu'il est indique dans les
clauses modificatrices ci-jointes;
(d) under section 191 of the Canada Business Corporations Act as [ ] d) en vertu de l'article 191 de la Loi canadienne sur les
set out in the attached articles of reorganization. societes par actions, tel qu'il est indique dans les
clauses de reorganisation ci-jointes.
NOVEMBER 7, 1997/LE 7 NOVEMBRE 1997
Director - Directeur Date of Amendment - Date de modification
Canada
[CANADA LETTERHEAD]
FORM 4
ARTICLES OF AMENDMENT
(SECTION 27 OR 177)
--------------------------------------------------------------------------------
1 - NAME OF CORPORATION 2 - CORPORATION NO.
HOLLINGER INC. 197578-1
--------------------------------------------------------------------------------
3 - THE ARTICLES OF THE ABOVE-NAMED CORPORATION ARE AMENDED AS FOLLOWS:
The certificate and articles of the Corporation are amended to create the
thirteenth series of Preference Shares, unlimited in number, to be
designated Series I Exchangeable Non-Voting Preference Shares, and the
fourteenth series of Preference Shares, unlimited in number, to be
designated Series II Exchangeable Non-Voting Preference Shares, and to have
attached thereto the rights, privileges, restrictions and conditions set
forth in annexed Schedule A.
DATE SIGNATURE TITLE
November 7, 1997 Vice-President & Secretary
--------------------------------------------------------------------------------
FOR DEPARTMENTAL USE ONLY
Filed
--------------------------
SCHEDULE A
NUMBER AND DESIGNATION OF
AND RIGHTS, PRIVILEGES, RESTRICTIONS
AND CONDITIONS ATTACHING TO
THE SERIES I PREFERENCE SHARES
The thirteenth series of Preference Shares of the Corporation
shall consist of an unlimited number of Preference Shares which shall be
designated as Exchangeable Non-Voting Preference Shares Series I (hereinafter
referred to as the "Series I Preference Shares") and which, in addition to the
rights, privileges, restrictions and conditions attached to the Preference
Shares as a class, shall have attached thereto the following rights, privileges,
restrictions and conditions:
1. CONSIDERATION FOR ISSUE
1.1. The consideration for the issue of each Series I Preference
Share shall be $4.00.
2. INTERPRETATION
2.1. DEFINITIONS
For the purpose hereof:
(a) "Act" means the Canada Business Corporations Act, as amended,
re-enacted or replaced from time to time;
(b) "Board" means the board of directors of the Corporation or the
Executive Committee thereof;
(c) "Business Day" means a day other than Saturday, Sunday or any
other day that is treated as a statutory holiday in the
jurisdiction in which the Corporation's registered office is
located;
(d) "Canadian Dollar Equivalent" means in respect of an amount
expressed in a foreign currency (the "Foreign Currency
Amount") at any date the product obtained by multiplying (A)
the Foreign Currency Amount by (B) the exchange rate for such
foreign currency in effect at 12 o'clock noon (eastern time)
on such date as posted by Canadian Imperial Bank of Commerce
or, in the event such exchange rate is not available, such
exchange rate on such date for such foreign currency as may be
deemed by the Board to be appropriate for such purpose;
- 2 -
(e) "Class A Common Shares" means shares of Class A common stock
of Hollinger International Inc., par value U.S. $0.01 per
share, and any other securities into which such shares may be
changed or for which such shares may be exchanged (whether or
not Hollinger International shall be the issuer of such other
securities) or any other consideration which may be received
by the holders of such shares pursuant to a recapitalization,
reconstruction, reorganization or reclassification of, or
amalgamation, merger, liquidation or similar transaction
affecting, such shares;
(f) "Current Class A Market Price" means in respect of a Class A
Common Share on any date, the Canadian Dollar Equivalent of
the per share closing price (or if no closing price is
recorded, the average of the bid and the ask prices) of Class
A Common Shares on the last full trading day preceding such
date as such price is reported on the NYSE Composite
Transactions Tape, or if the Class A Common Shares are not
listed on the NYSE, such other national, regional or
provincial securities exchange or automated quotation system
upon which the Class A Common Shares are listed or quoted, as
the case may be, as may be selected by the Board for such
purpose; provided, however, that if in the opinion of the
Board the public distribution or trading activity of Class A
Common Shares is inadequate to create a market that reflects
the fair market value of a Class A Common Share then the
Current Class A Market Price shall be determined by the Board
based upon the advice of such qualified independent financial
advisors as the Board may deem to be appropriate, and provided
further that any such selection, opinion or determination by
the Board shall be conclusive and binding;
(g) "Determination Date" means the fifth Business Day prior to the
Initial Period Expiry Date;
(h) "Dividend Amount" means, as at any date, an amount equal to
the full amount of all dividends and distributions declared
and unpaid on each Series I Preference Share and all dividends
and distributions declared on a Class A Common Share in
respect of which a dividend has not been declared on each
Series I Preference Share in accordance with section 3.1.2, in
each case with a record date prior to such date;
(i) "Exchange Price" means an amount per Series I Preference Share
surrendered for retraction pursuant to section 5.2 equal to
(i) the Current Class A Market Price on the Retraction Date of
the Exchange Number of Class A Common Shares plus (ii) the
Dividend Amount, if any, on the Retraction Date;
(j) "Exchange Number" means, subject to adjustment from time to
time in accordance with sections 5.8 and 5.9, the result
obtained when $4.00 is divided by (A) if the Initial Period
Expiry Date is May 6, 1998, the weighted average trading
price of the Class A Common Shares on the NYSE for the 20
consecutive trading days (whether or not Class A Common Shares
traded on such day) ending on (and
- 3 -
including) the Determination Date and (B) if the Initial
Period Expiry Date is prior to May 6, 1998, the lesser of (i)
the weighted average trading price of the Class A Common
Shares on the NYSE for the 20 consecutive trading days
(whether or not Class A Common Shares traded on such day)
ending on (and including) the Determination Date and (ii) the
weighted average trading price of the Class A Common Shares on
the NYSE on the Determination Date, provided that if the Class
A Common Shares are not listed on the NYSE on the relevant
date(s), the weighted average trading prices referred to above
shall be calculated using trading prices on any stock exchange
on which such shares are listed as the Board may select for
this purpose, or if such shares are not listed on any stock
exchange, in such over-the-counter market as the Board may
select for such purpose;
(k) "HII Dividend Declaration Date" means the date on which the
Board of Directors of Hollinger International declares any
dividend or distribution on the Class A Common Shares;
(l) "Hollinger International Capital Reorganization" has the
meaning set out in section 5.8.3;
(m) "Hollinger International" means Hollinger International Inc.,
a Delaware corporation;
(n) "Initial Period" means the period from the date of initial
issue of the Series I Preference Shares to and including the
Initial Period Expiry Date;
(o) "Initial Period Expiry Date" means May 6, 1998 unless the
Board elects pursuant to section 2.2 to select an earlier date
in which case the Initial Period Expiry Date shall be such
earlier date;
(p) "Initial Retraction Price" has the meaning set out in section
5.1;
(q) "junior share" means a share of the Corporation ranking junior
to the Series I Preference Shares with respect to the payment
of dividends or the distribution of assets in the event of the
liquidation, dissolution or winding-up of the Corporation,
whether voluntary or involuntary, or in the event of any other
distribution of assets of the Corporation among its
shareholders for the purpose of winding up its affairs;
(r) "Liquidation Event" has the meaning set out in section 8.1;
(s) "Liquidation Price" has the meaning set out in section 8.1;
(t) "NYSE" means the New York Stock Exchange;
- 4 -
(u) "ranking as to capital" means ranking with respect to the
distribution of assets in the event of a liquidation,
dissolution or winding-up of the Corporation, whether
voluntary or involuntary, or in the event of any other
distribution of assets of the Corporation among its
shareholders for the purpose of winding up its affairs;
(v) "Retraction Date" means any Business Day on which the
documents specified in section 5.3(a) are duly tendered by a
holder of Series I Preference Shares in respect of the
exercise of his or her retraction right pursuant to Article 5;
and
(w) "Retraction Notice" has the meaning set out in section 5.3(a).
2.2. ELECTION TO SHORTEN THE INITIAL PERIOD
The Board shall be entitled to select a date prior to May 6,
1998 as the Initial Period Expiry Date. If the Board elects to do so then at
least three Business Days prior to the Initial Period Expiry Date, the
Corporation shall issue a press release and on or before the Initial Period
Expiry Date the Corporation shall send by prepaid first class mail or deliver a
notice to all holders of Series I Preference Shares each of which shall set out
the Determination Date, the Initial Period Expiry Date and the Exchange Number
as of the Initial Period Expiry Date. If the Corporation intends to exercise its
redemption right pursuant to section 4.1 such press release and notice shall
also set out the information contemplated by section 4.1.2.
2.3. DATES
In the event that any date on which any dividend on the Series
I Preference Shares is payable by the Corporation, or on or by which any other
action is required to be taken by the Corporation or the holders of Series I
Preference Shares hereunder, is not a Business Day, then such dividend shall be
payable, or such other action shall be required to be taken, on or by the next
succeeding date that is a Business Day.
2.4. CURRENCY
All cash amounts paid by the Corporation in respect of the
Series I Preference Shares shall be made in Canadian dollars and all references
herein to monetary amounts shall be construed accordingly.
For greater certainty, the determination of (i) Dividend
Amount and (ii) Exchange Number, shall be based on, respectively, (i) the
Canadian Dollar Equivalent on the payment date thereof of dividends and
distributions declared on Class A Common Shares and (ii) the Canadian Dollar
Equivalent on the Determination Date of the relevant weighted average trading
price of the Class A Common Shares.
- 5 -
3. DIVIDENDS
3.1. PAYMENT OF DIVIDENDS
The holders of the Series I Preference Shares shall be
entitled to receive, and the Corporation shall pay thereon, as and when declared
by the Board, subject to the insolvency provisions of applicable law, cumulative
preferential cash dividends payable in lawful money of Canada as follows:
3.1.1. during the Initial Period, a fixed dividend of 7.00% per annum
of the issue price of $4.00 per share payable quarterly on each third
month anniversary of November 6, 1997; and
3.1.2. after the Initial Period, a dividend per share as follows:
(a) in the case of a cash dividend or distribution on
Class A Common Shares having a record date after the
Determination Date, in an amount in cash per Series I
Preference Share equal to the product of (i) the
Canadian Dollar Equivalent on the payment date
thereof of such cash dividend or distribution on each
Class A Common Share less any United States
withholding tax thereon payable by the Corporation or
any subsidiary thereof and (ii) the Exchange Number
as of the HII Dividend Declaration Date;
(b) in the case of a stock dividend or distribution
declared on a Class A Common Share to be paid in
Class A Common Shares having a record date after the
Determination Date in respect of which an adjustment
is not made pursuant to section 5.8, in that number
of Series I Preference Shares for each Series I
Preference Share equal to the product of (i) the
number of Class A Common Shares to be paid on each
Class A Common Share less any United States
withholding tax thereon payable by the Corporation or
any subsidiary thereof and (ii) the Exchange Number
as of the HII Dividend Declaration Date; or
(c) in the case of a dividend or distribution on the
Class A Common Shares to be paid in property other
than cash or Class A Common Shares, having a record
date after the Determination Date in respect of which
an adjustment is not made pursuant to section 5.8, in
such type and amount of property for each Series I
Preference Share as is the same as or economically
equivalent to (to be determined by the Board) the
type and amount of property declared as a dividend or
distribution on the Exchange Number (as of the HII
Dividend Declaration Date) of Class A Common Shares
less
- 6 -
any United States withholding tax thereon payable by
the Corporation or any subsidiary thereof.
For any period during the Initial Period which is less than a full
quarter with respect to any Series I Preference Share which is redeemed
or in respect of which assets of the Corporation are distributed to the
holders thereof pursuant to Article 8 during such quarter, dividends
shall be deemed to accrue on a daily basis and shall be equal to the
amount calculated by multiplying $0.28 by a fraction of which the
numerator is the number of days in such period and the denominator is
365.
3.2. METHOD OF PAYMENT
(a) Cheques payable in lawful money of Canada at any branch in
Canada of the Corporation's bankers shall be issued in respect
of any cash dividends or distributions on the Series I
Preference Shares (less any tax required to be withheld by the
Corporation). The mailing, by prepaid first class mail, of
such a cheque to a holder of Series I Preference Shares, shall
be deemed to be payment of the dividends represented thereby
unless the cheque is not paid upon presentation. Dividends
which are represented by a cheque which has not been presented
to the Corporation's bankers for payment or that otherwise
remain unclaimed for a period of six years from the date on
which they were declared to be payable shall be forfeited to
the Corporation.
(b) Certificates registered in the name of the registered holder
of Series I Preference Shares shall be issued or transferred
in respect of any stock dividends or other distribution on
Series I Preference Shares contemplated by section 3.2(b)
hereof and the sending of such a certificate to each-holder of
a Series I Preference Share shall satisfy the stock dividend
or other distribution of Series I Preference Shares
represented thereby.
(c) Such other type and amount of property in respect of any
dividends or distributions contemplated by section 3.2(c)
hereof shall be issued, distributed or transferred by the.
Corporation in such manner as it shall determine and the
issuance, distribution or transfer thereof by the Corporation
to each holder of a Series I Preference Share shall satisfy
the dividend or distribution represented thereby.
(d) Notwithstanding anything to the contrary herein the
Corporation shall pay to any shareholder whose latest address
as shown on the books of the Corporation is not in Canada all
dividends in United States dollars unless any such shareholder
requests payment in Canadian dollars. Any such payment in
United States dollars shall be in an amount equivalent to the
amount otherwise payable in Canadian
- 7 -
dollars converted to United States dollars at the Bank of
Canada noon rate of exchange on the applicable dividend
record date.
3.3. RECORD AND PAYMENT DATES
The record date for the determination of the holders of Series
I Preference Shares entitled to receive payment of, and the payment date for,
any dividend or distribution declared on the Series I Preference Shares under
section 3.1.2 hereof shall be the same as the record date and payment date,
respectively, for the corresponding dividend or distribution on the Class A
Common Shares.
3.4. PARTIAL PAYMENT
If on any payment date for any dividends or distributions
declared on the Series I Preference Shares under section 3.1 hereof the
dividends or distributions are not paid in full on all of the Series I
Preference Shares then outstanding, any such dividends or distributions that
remain unpaid shall be paid on a subsequent date or dates determined by the
Board on which the Corporation shall have sufficient money or other assets
properly applicable to the payment of such dividends or distributions.
4. REDEMPTION
4.1. OPTIONAL REDEMPTION AT END OF INITIAL PERIOD
4.1.1. On the 30th day following the Initial Period Expiry Date (the
"Redemption Date"), subject to the provisions of the Act, this Article
4 and to the rights, privileges, restrictions and conditions attaching
to any shares of the Corporation ranking prior to the Series I
Preference Shares, the Corporation may, upon giving notice as
hereinafter provided, redeem all or any part of the then outstanding
Series I Preference Shares on payment for each share to be redeemed of
$4.00 together with an amount equal to all dividends accrued and unpaid
thereon up to the Redemption Date (the whole constituting and being
herein referred to as the "Redemption Price"). In the case of a
redemption of less than all of the Series I. Preference Shares pursuant
to this section 4.1 the Corporation shall redeem as nearly as
practicable the same portion of Series I Preference Shares held by each
holder.
4.1.2. In case of redemption of Series I Preference Shares pursuant
to section 4.1, at least three Business Days prior to the Initial
Period Expiry Date the Corporation shall issue a press release and on
or before the Initial Period Expiry Date the Corporation shall send by
prepaid first class mail or deliver a notice to each person who at the
date of mailing or delivery is a holder of Series I Preference Shares
each of which shall state that the Corporation intends to redeem Series
I Preference Shares pursuant to this section 4.1 and set out the
Redemption Price and Redemption Date. Such notice shall be mailed or
- 8 -
delivered to each holder of Series I Preference Shares to be redeemed
at the last address of such holder as it appears on the securities
register of the Corporation, or in the event of the address of any such
holder not so appearing, then to the last address of such holder known
to the Corporation. Accidental failure or omission to give such notice
to one or more holders shall not affect the validity of such
redemption, but if such failure or omission is discovered notice as
aforesaid shall be given forthwith to such holder or holders and shall
have the same force and effect as if given in due time. The press
release shall also set out the portion of Series I Preference Shares to
be redeemed and the notice shall also set out the number of Series I
Preference Shares held by the person to whom it is addressed which are
to be redeemed and the place or places in Canada at which holders of
Series I Preference Shares may present and surrender the certificate or
certificates representing such shares for redemption.
On and after the Initial Period Expiry Date, the
Corporation shall pay or cause to be paid to or to the order of the
holders of the Series I Preference Shares to be redeemed the Redemption
Price of such shares on presentation and surrender, at the registered
office of the Corporation or any other place or places in Canada
specified in the notice of redemption, of the certificate or
certificates representing the Series I Preference Shares called for
redemption. Payment in respect of Series I Preference Shares being
redeemed shall be made by cheque payable to the respective holders
thereof in lawful money of Canada at any branch in Canada of the
Corporation's bankers. If a part only of the Series I Preference Shares
represented by any certificate shall be redeemed, a new certificate
representing the balance of such shares shall be issued to the holder
thereof at the expense of the Corporation upon presentation and
surrender of the first mentioned certificate.
The Corporation shall have the right, at any time
after the mailing or delivery of notice of its intention to redeem
Series I Preference Shares, to deposit the Redemption Price of the
Series I Preference Shares so called for redemption, or of such of the
Series I Preference Shares which are represented by certificates which
have not, at the date of such deposit, been surrendered by the holders
thereof in connection with such redemption, in a separate account in
any chartered bank or trust company in Canada named in the redemption
notice or in a subsequent notice in writing to the holders of the
Series I Preference Shares in respect of which the deposit is made, to
be paid without interest to or to the order of the respective holders
of the Series I Preference Shares called for redemption upon
presentation and surrender to such bank or trust company of the
certificates representing such shares. Upon such deposit being made or
upon the Redemption Date, whichever is the later, the Series I
Preference Shares in respect of which such deposit shall have been made
shall be deemed to be redeemed and the rights of the holders thereof
shall be limited to receiving, without interest, the Redemption Price
of their respective Series I Preference Shares being redeemed upon
presentation and surrender of the certificate or certificates
representing such shares. Any interest allowed on any such deposit
shall belong to the Corporation.
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4.2. OPTIONAL REDEMPTION RIGHT ON RECEIPT OF RETRACTION NOTICE
4.2.1. On receipt of a Retraction Notice in respect of Series I
Preference Shares duly tendered pursuant to section 5.3, the
Corporation shall be entitled to redeem all or any part of such Series
I Preference Shares for a cash payment equal to the Initial Retraction
Price or Exchange Price, as applicable. The Corporation shall exercise
this redemption right by sending or causing to be sent by prepaid first
class mail or delivering to the registered holder of Series I
Preference Shares to be redeemed not later than five days after the
Retraction Date a notice that the Corporation will redeem that number
of Series I Preference Shares specified in such notice pursuant to this
section 4.2.
4.2.2. The Corporation shall exercise this redemption right so that,
subject to rules applicable to fractional shares, all holders of Series
I Preference Shares to be redeemed on any date shall receive the same
portion of the Initial Retraction Price or Exchange Price, as
applicable, payable to them in the form of Class A Common Shares and
cash.
4.2.3. The Corporation shall redeem Series I Preference Shares
pursuant to this section 4.2 by sending or causing to be sent to or to
the order of the registered holder thereof not later than 14 days after
the Retraction Date a cheque payable at any branch of the Corporation's
bankers for the Initial Retraction Price or Exchange Price, as
applicable, of such shares.
4.3. CESSATION OF RIGHTS
Series I Preference Shares redeemed pursuant to this Article
4 shall cease to be entitled to dividends or any other participation in any
distribution of the assets of the Corporation and the holders thereof shall not
be entitled to exercise any of their other rights as shareholders in respect
thereof unless the payment to be made on redemption shall not be made as
required in which case the rights of the holders shall remain unaffected.
Redemption moneys which are represented by a cheque which has not been presented
to the Corporation's bankers for payment or that otherwise remain unclaimed
(including moneys held on deposit in a separate account as provided for above)
for a period of six years from the date specified for redemption shall be
forfeited to the Corporation.
5. RETRACTION RIGHTS
5.1. RIGHT OF RETRACTION DURING INITIAL PERIOD
At any time during the Initial Period a holder of Series I
Preference Shares shall be entitled, subject to the provisions of the Act and in
the manner hereinafter provided, to require the Corporation to redeem all or any
of the Series I Preference Shares registered in the name of such holder in
consideration for the transfer to such holder of that number of Class A Common
Shares for each Series I Preference Share to be redeemed equal to (i) $3.50 plus
accrued and
- 10 -
unpaid dividends per Series I Preference Share to and including the Retraction
Date (the "Initial Retraction Price") divided by (ii) the Current Class A Market
Price on the Retraction Date.
5.2. RIGHT OF RETRACTION AFTER INITIAL PERIOD
At any time after the Initial Period, a holder of Series I
Preference Shares shall be entitled, subject to the provisions of the Act and in
the manner hereinafter provided, to require the Corporation to redeem all or any
of the Series I Preference Shares registered in the name of the holder in
consideration for the transfer to such holder of that fraction or number of
Class A Common Shares for each Series I Preference Share to be redeemed equal to
(i) the Exchange Number in effect on the Retraction Date plus (ii) the quotient
obtained when the Dividend Amount, if any, as of the date of transfer of such
Class A Common Shares to such holder on the Hollinger International register is
divided by the Current Class A Market Price on such date.
5.3. RETRACTION PROCEDURE
(a) Series I Preference Shares may be retracted only by the
registered holder thereof presenting and surrendering to the
Corporation, at any place where the Series I Preference Shares
may be transferred or at such other place or places as shall
be specified in writing by the Corporation to the holders of
the Series I Preference Shares from time to time, the share
certificate or certificates representing the Series I
Preference Shares to be redeemed, duly completed and endorsed
in the manner prescribed thereon, together with a request in
writing in such form as may be acceptable to the Corporation
(in this section 5.3, the "Retraction Notice") from such
holder specifying the number of Series I Preference Shares to
be redeemed by the Corporation.
(b) Subject to sections 4.2 and 5.6 hereof, the Corporation shall
redeem the appropriate number of Series I Preference Shares by
sending or causing to be sent to or to the order of the
registered holder thereof not later than 14 days after the
Retraction Date a certificate representing that number of
Class A Common Shares to which the holder is entitled.
(c) If less than all of the Series I Preference Shares represented
by any certificate or certificates so endorsed are to be
redeemed, the Corporation shall issue and deliver to such
holder, at the expense of the Corporation, a new share
certificate representing the Series I Preference Shares which
are not being surrendered for retraction.
5.4. ELECTION IRREVOCABLE
Subject to paragraph 5.6 hereof, the election by a registered
holder of Series I Preference Shares to surrender any Series I Preference Shares
for retraction shall be irrevocable
- 11 -
upon receipt by the Corporation at its registered office of the Retraction
Notice and the certificate or certificates representing the Series I Preference
Shares to be redeemed; provided that the Corporation may, in its unfettered
discretion, permit withdrawal of any such election at any time prior to payment
of the Initial Retraction Price for the Series I Preference Shares to be
redeemed:
5.5. RELATING TO THE DELIVERY OF CLASS A COMMON SHARES
5.5.1. QUALIFICATION AND LISTING
The Corporation shall satisfy the following conditions in respect of
Class A Common Shares delivered on a redemption of Series I Preference
Shares:
(a) the qualification of the Class A Common Shares by the
filing of a prospectus and obtaining a final receipt
therefor from the securities regulatory authorities
in each of the provinces of Canada in which the
distribution of such Class A Common Shares occurs,
unless there exists an applicable exemption to
qualification thereunder that allows such Class A
Common Shares (other than those issued to a person
who is in a position by himself or in combination
with others to materially affect control of the
Corporation) to be immediately traded free of resale
restrictions under applicable securities legislation;
and
(b) the effectiveness of a registration statement under
the U.S. Securities Act of 1933 ("U.S. Securities
Act") with respect to the delivery of such Class A
Common Shares, unless an exemption from the
registration requirements of the U.S. Securities Act
is available which would allow such Class A Common
Shares to be immediately traded free of resale
restrictions; and
(c) the listing of such Class A Common Shares on each
stock exchange on which the Class A Common Shares are
then listed.
5.5.2. FRACTIONS OF CLASS A COMMON SHARES
The Corporation shall not deliver a fraction of a
Class A Common Share on redemption of Series I Preference Shares. In
lieu thereof, the Corporation shall make a cash payment equal to the
amount which would have been satisfied by the fraction of the Class A
Common Share.
- 12 -
5.6. RETRACTION LIMITATION
(a) If the redemption by the Corporation of all Series I
Preference Shares surrendered for retraction on a Retraction
Date would be contrary to applicable law, the Corporation
shall redeem only the maximum number of Series I Preference
Shares which it is then permitted to redeem selected pro rata
(disregarding fractions of shares) from the Series I
Preference Shares surrendered for retraction according to the
number of Series I Preference Shares surrendered for
retraction by each holder thereof. Thereupon, each such holder
shall be entitled, by notice to the Corporation to withdraw
all or part only of the Series I Preference Shares surrendered
by such holder for retraction on such Retraction Date which
have not been redeemed by the Corporation and the Corporation
shall, at its expense, issue and deliver to each holder who
exercises such right of withdrawal a new share certificate
representing the Series I Preference Shares so withdrawn.
Thereafter, the Corporation shall redeem on a date or dates
determined by the Board on which the Corporation shall have
sufficient assets to permit such redemption, the maximum
number of Series I Preference Shares as have been surrendered
for retraction and not withdrawn or redeemed which the
Corporation determines it is then permitted to redeem,
selected pro rata (disregarding fractions of shares) from such
Series I Preference Shares according to the number of such
Series I Preference Shares then held by each holder thereof
and so on until all such Series I Preference Shares have been
redeemed.
(b) If the Board has acted in good faith in making any of the
determinations referred to in paragraph 5.6(a) hereof, the
Board and the Corporation shall have no liability if such
determination proves to be inaccurate.
(c) If the Corporation does not redeem all Series I Preference
Shares surrendered for retraction on a Retraction Date the
Corporation shall forthwith after such date notify each holder
whose Series I Preference Shares have not been redeemed on
such date of such holder's right to withdraw the Series I
Preference Shares surrendered and not redeemed by the
Corporation.
5.7. CESSATION OF RIGHTS
Series I Preference Shares redeemed pursuant to this Article
5 shall cease to be entitled to dividends or any other participation in any
distribution of the assets of the Corporation and the holders thereof shall not
be entitled to exercise any of their other rights as shareholders in respect
thereof as of the date on which Class A Common Shares deliverable to them on
redemption are transferred to them on the Hollinger International register.
- 13 -
5.8. CHANGES AFFECTING THE CLASS A COMMON SHARES
5.8.1. If and whenever at any time after the Determination Date,
Hollinger International:
(a) subdivides its outstanding Class A Common
Shares into a greater number of Class A
Common Shares (including by way of a stock
dividend which the Board decides to treat as
a subdivision); or
(b) consolidates its outstanding Class A Common
Shares into a smaller number of Class A
Common Shares,
then the Exchange Number will be adjusted effective
immediately after the effective date or record date for such
event by multiplying the Exchange Number in effect immediately
prior to such effective date or record date by a fraction, the
numerator of which will be the number of Class A Common Shares
outstanding immediately after giving effect to such event and
the denominator of which will be the number of Class A Common
Shares outstanding on such effective date or record date
before giving effect to such event.
5.8.2. If and whenever at any time after the date hereof, there is a
reclassification of the Class A Common Shares at any time outstanding
or change of the Class A Common Shares into other shares or into other
securities or other capital reorganization (other than an event
described in section 5.8.1), or a consolidation, amalgamation,
arrangement or merger of Hollinger International with or into any other
corporation or other entity (other than a consolidation, amalgamation,
arrangement or merger which does not result in any reclassification of
the outstanding Class A Common Shares or a change of the Class A Common
Shares into other shares), or a transfer of the undertaking or assets
of Hollinger International as an entirety or substantially as an
entirety to another corporation or other entity in which the holders of
Class A Common Shares are entitled to receive shares, other securities
or other property (any of such events being called an "Hollinger
International Capital Reorganization"), a holder of Series I Preference
Shares will be entitled to receive on exercise of his or her retraction
right pursuant to section 5.2, and shall accept in lieu of Class A
Common Shares, the aggregate number of shares, other securities or
other property which such holder would have been entitled to receive as
a result of such Hollinger International Capital Reorganization if, on
the effective date thereof, the holder had been the registered holder
of the number of Class A Common Shares which such holder would have
received if the Retraction Date were immediately prior to such
effective date, subject in all such cases, to the Corporation's right
to redeem Series I Preference Shares pursuant to section 4.2. If
determined appropriate by the Board, appropriate adjustments will be
made as a result of any such Hollinger International Capital
Reorganization in the application of the provisions set forth in this
Article with respect to the rights and interests thereafter of holders
of Series I Preference Shares to the end that the provisions set forth
in this Article will thereafter
- 14 -
correspondingly be made applicable as nearly as may reasonably be in
relation to any shares, other securities or other property thereafter
deliverable upon the exercise of any Series I Preference Shares.
5.8.3. If and whenever at any time after the date hereof Hollinger
International takes any action affecting the Class A Common Shares
other than an action described in sections 3.1.2, 5.8.1 or 5.8.2 which
in the opinion of the Board would materially affect the rights of the
holders of Series I Preference Shares, the Exchange Number or other
terms of Article 5 will be adjusted in such manner, if any, and at such
time, by action by the Board, in their sole discretion, as they may
determine to be equitable in the circumstances, but subject in all
cases to any necessary regulatory approvals, including any approval
required by any stock exchange on which the Series I Preference Shares
may be listed. Failure of the taking of action by the Board so as to
provide for an adjustment on or prior to the effective date of any such
action will be conclusive evidence that the Board have determined that
it is equitable to make no adjustment in the circumstances.
5.9. RULES APPLICABLE TO ADJUSTMENTS
For the purposes of section 5.8:
5.9.1. The adjustments provided for in section 5.8 are cumulative and
will be made successively whenever an event referred to therein occurs,
subject to the following subsections of this section.
5.9.2. No adjustment of the Exchange Number will be required unless
such adjustment would result in a change of at least 1%; provided,
however, that any adjustments which, except for the provisions of this
subsection would otherwise have been required to be made, will be
carried forward and taken into account in any subsequent adjustment.
5.9.3. If at any time a dispute arises with respect to adjustments
such dispute will be conclusively determined by the Corporation's
auditors or if they are unable or unwilling to act, by such other firm
of independent chartered accountants as may be selected by action by
the Board and any such determination will be binding upon the
Corporation and the holders of Series I Preference Shares; such
auditors or accountants will be given access to all necessary records
of the Corporation.
5.9.4. If Hollinger International sets a record date to determine the
holders of Class A Common Shares to take any action and thereafter and
before the taking of such action, legally abandons its plan to take
such other action, then no adjustment will be required by reason of the
setting of such record date.
- 15 -
5.9.5. No adjustment need be made for a transaction referred to in
section 5.8 if holders of Series I Preference Shares participate in the
transaction on a basis and with notice that the Board determines to be
fair and appropriate in the circumstances.
6. VOTING RIGHTS
6.1. Except as herein referred to or as required by law, the
holders of the Series I Preference Shares as a series shall not be entitled as
such to receive notice of, to attend or to vote at any meeting of the
shareholders of the Corporation.
7. RESTRICTIONS ON DIVIDENDS AND RETIREMENT OF SHARES
7.1. So long as any of the Series I Preference Shares are
outstanding, the Corporation shall not, without the approval of the holders of
the Series I Preference Shares given as hereinafter specified:
7.1.1. declare, pay or set apart for payment any dividends on any
junior shares (other than dividends payable in shares of the
Corporation ranking as to capital and dividends junior to the Series I
Preference Shares);
7.1.2. call for redemption, redeem, purchase or otherwise pay off or
retire for value, or make any capital distributions in respect of, any
junior shares;
7.1.3. except in connection with the redemption of Series I
Preference Shares pursuant to Articles 4 or 5, call for redemption,
redeem, purchase or otherwise pay off or retire for value, or make any
capital distribution in respect of, less than all of the Series I
Preference Shares;
7.1.4. call for redemption, redeem, purchase or otherwise pay off or
retire for value, or make any capital distribution in respect of, any
shares ranking as to capital or dividends on a parity with the Series I
Preference Shares except in connection with the retirement thereof
pursuant to a retraction privilege attaching thereto or a redemption
right exercisable upon a retraction; or
7.1.5. issue any shares ranking as to capital or dividends prior to
or on a parity with the Series I Preference Shares;
unless, in each such case, (i) all dividends on the Series I Preference Shares
then outstanding and on all other shares of the Corporation ranking as to
dividends prior to or on a parity with the Series I Preference Shares which have
accrued up to and including the dividends payable on the immediately preceding
respective date or dates for the payment of dividends thereon shall have
- 16 -
been declared and paid or set apart for payment, (ii) the Corporation shall have
redeemed all of the Series I Preference Shares tendered for redemption pursuant
to Article 5, and (iii) the Corporation is not otherwise in default under the
rights, privileges, restrictions and conditions attached to the Series I
Preference Shares or any other shares of the Corporation ranking as to dividends
or as to capital prior to or on a parity with the Series I Preference Shares.
8. LIQUIDATION, DISSOLUTION OR WINDING-UP
8.1. In the event of the liquidation, dissolution or winding-up of
the Corporation, whether voluntary or involuntary, or in the event of any other
distribution of assets of the Corporation among its shareholders for the purpose
of winding up its affairs (any such event being herein referred to as a
"Liquidation Event"), the holders of the Series I Preference Shares shall be
entitled to receive from the assets of the Corporation the following amount:
(a) if the Liquidation Event occurs during the Initial Period, a
sum equal to $4.00 for each Series I Preference Share held by
them respectively, plus an amount equal to all dividends
accrued and unpaid thereon up to the date of payment; and
(b) if the Liquidation Event occurs after the Initial Period, an
amount per share equal to (i) the Current Class A Market Price
on the date of the Liquidation Event of the Exchange Number of
Class A Common Shares (the "Liquidation Price") which shall be
satisfied in full by the Corporation causing to be delivered
to such holder the Exchange Number of Class A Common Shares
for each Series I Preference Share or, at the option of the
Corporation, by payment in lawful money of Canada of the
Liquidation Price, plus (ii) the Dividend Amount, if any, on
the date of transfer of such Class A Common Shares to such
holder.
The whole of such amounts shall be paid before any amount shall be paid by the
Corporation or any assets of the Corporation shall be distributed to holders of
shares of any class of the Corporation ranking as to capital junior to the
Series I Preference Shares. After payment to the holders of the Series I
Preference Shares of the amounts so payable to them, they shall not be entitled
to share in any further distribution of the assets of the Corporation.
9. AMENDMENT
9.1. The rights, privileges, restrictions and conditions attached
to the Series I Preference Shares may be added to, changed or removed by
Articles of Amendment, but only with the approval of the holders of the Series I
Preference Shares given as hereinafter specified in addition to any vote or
authorization required by law.
- 17 -
10. APPROVAL OF HOLDERS OF THE SERIES I PREFERENCE SHARES
10.1. The approval of the holders of the Series I Preference Shares
to add to, change or remove any right, privilege, restriction or condition
attaching to the Series I Preference Shares as a series or in respect of any
other matter requiring the consent of the holders of the Series I Preference
Shares may be given in such manner as may then be required by law, subject to a
minimum requirement that such approval be given by resolution signed by all the
holders of the Series I Preference Shares or passed by the affirmative vote of
at least 2/3 of the votes cast at a meeting of the holders of the Series I
Preference Shares duly called for that purpose.
The formalities to be observed with respect to the giving of
notice of any such meeting or any adjourned meeting, the quorum required
therefor and the conduct thereof shall be those from time to time prescribed by
the by-laws of the Corporation with respect to meetings of shareholders or if
not so prescribed, as required by the Act in force at the time of the meeting or
as otherwise required by law. On every poll taken at every meeting of holders of
Series I Preference Shares as a series, each holder of Series I Preference
Shares entitled to vote thereat shall have one vote in respect of each Series I
Preference Share held.
- 18 -
NUMBER AND DESIGNATION OF
AND RIGHTS, PRIVILEGES, RESTRICTIONS
AND CONDITIONS ATTACHING TO
THE SERIES II PREFERENCE SHARES
The fourteenth series of Preference Shares of the Corporation
shall consist of an unlimited number of Preference Shares which shall be
designated as Exchangeable Non-Voting Preference Shares Series II (hereinafter
referred to as the "Series II Preference Shares") and which, in addition to the
rights, privileges, restrictions and conditions attached to the Preference
Shares as a class, shall have attached thereto the following rights, privileges,
restrictions and conditions:
1. CONSIDERATION FOR ISSUE
1.1. The consideration for the issue of each Series II Preference
Share shall be $10.00.
2. INTERPRETATION
2.1. DEFINITIONS
For the purpose hereof:
(a) "Act" means the Canada Business Corporations Act, as amended,
re-enacted or replaced from time to time;
(b) "Board" means the board of directors of the Corporation or the
Executive Committee thereof;
(c) "Business Day" means a day other than Saturday, Sunday or any
other day that is treated as a statutory holiday in the
jurisdiction in which the Corporation's registered office is
located;
(d) "Canadian Dollar Equivalent" means in respect of an amount
expressed in a foreign currency (the "Foreign Currency
Amount") at any date the product obtained by multiplying (A)
the Foreign Currency Amount by (B) the exchange rate for such
foreign currency in effect at 12 o'clock noon (eastern time)
on such date as posted by Canadian Imperial Bank of Commerce
or, in the event such
- 19 -
exchange rate is not available, such exchange rate on such
date for such foreign currency as may be deemed by the Board
to be appropriate for such purpose;
(e) "Class A Common Shares" means shares of Class A common stock
of Hollinger International Inc., par value U.S. $0.01 per
share, and any other securities into which such shares may be
changed or for which such shares may be exchanged (whether or
not Hollinger International shall be the issuer of such other
securities) or any other consideration which may be received
by the holders of such shares pursuant to a recapitalization,
reconstruction, reorganization or reclassification of, or
amalgamation, merger, liquidation or similar transaction
affecting, such shares;
(f) "Current Class A Market Price" means in respect of a Class A
Common Share on any date, the Canadian Dollar Equivalent of
the per share closing price (or if no closing price is
recorded, the average of the bid and the ask prices) of Class
A Common Shares on the last full trading day preceding such
date as such price is reported on the NYSE Composite
Transactions Tape, or if the Class A Common Shares are not
listed on the NYSE, such other national, regional or
provincial securities exchange or automated quotation system
upon which the Class A Common Shares are listed or quoted, as
the case may be, as may be selected by the Board for such
purpose; provided, however, that if in the opinion of the
Board the public distribution or trading activity of Class A
Common Shares is inadequate to create a market that reflects
the fair market value of a Class A Common Share then the
Current Class A Market Price shall be determined by the Board
based upon the advice of such qualified independent financial
advisors as the Board may deem to be appropriate, and provided
further that any such selection, opinion or determination by
the Board shall be conclusive and binding;
(g) "Determination Date" means the fifth Business Day prior to the
Initial Period Expiry Date;
(h) "Dividend Amount" means, as at any date, an amount equal to
the full amount of all dividends and distributions declared
and unpaid on each Series II Preference Share and all
dividends and distributions declared on a Class A Common Share
in respect of which a dividend has not been declared on each
Series II Preference Share in accordance with section 3.1.2,
in each case with a record date prior to such date;
(i) "Exchange Price" means an amount per Series II Preference
Share surrendered for retraction pursuant to section 5.2 equal
to (i) the Current Class A Market Price on the Retraction Date
of the Exchange Number of Class A Common Shares plus (ii) the
Dividend Amount, if any, on the Retraction Date;
(j) "Exchange Number" means, subject to adjustment from time to
time in accordance with sections 5.8 and 5.9, the result
obtained when $10.00 is divided
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by (A) if the Initial Period Expiry Date is November 8, 1999,
the weighted average trading price of the Class A Common
Shares on the NYSE for the 20 consecutive trading days
(whether or not Class A Common Shares traded on such day)
ending on (and including) the Determination Date and (B) if
the Initial Period Expiry Date is prior to November 8, 1999,
the lesser of (i) the weighted average trading price of the
Class A Common Shares on the NYSE for the 20. consecutive
trading days (whether or not Class A Common Shares traded on
such day) ending on (and including) the Determination Date and
(ii) the weighted average trading price of the Class A Common
Shares on the NYSE on the Determination Date, provided that if
the Class A Common Shares are not listed on the NYSE on the
relevant date(s), the weighted average trading prices referred
to above shall be calculated using trading prices on any stock
exchange on which such shares are listed as the Board may
select for this purpose, or if such shares are not listed on
any stock exchange, in such over-the-counter market as the
Board may select for such purpose;
(k) "HII Dividend Declaration Date" means the date on which the
Board of Directors of Hollinger International declares any
dividend or distribution on the Class A Common Shares;
(1) "Hollinger International Capital Reorganization" has the
meaning set out in section 5.8.3;
(m) "Hollinger International" means Hollinger International Inc.,
a Delaware corporation;
(n) "Initial Period" means the period from the date of initial
issue of the Series II Preference Shares to and including the
Initial Period Expiry Date;
(o) "Initial Period Expiry Date" means November 8, 1999 unless the
Board elects pursuant to section 2.2 to select an earlier date
in which case the Initial Period Expiry Date shall be such
earlier date;
(p) "Initial Retraction Price" has the meaning set out in section
5.1;
(q) "junior share" means a share of the Corporation ranking junior
to the Series II Preference Shares with respect to the payment
of dividends or the distribution of assets in the event of the
liquidation, dissolution or winding-up of the Corporation,
whether voluntary or involuntary, or in the event of any other
distribution of assets of the Corporation among its
shareholders for the purpose of winding up its affairs;
(r) "Liquidation Event" has the meaning set out in section 8.1;
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(s) "Liquidation Price" has the meaning set out in section 8.1;
(t) "NYSE" means the New York Stock Exchange;
(u) "ranking as to capital" means ranking with respect to the
distribution of assets in the event of a liquidation,
dissolution or winding-up of the Corporation, whether
voluntary or involuntary, or in the event of any other
distribution of assets of the Corporation among its
shareholders for the purpose of winding up its affairs;
(v) "Retraction Date" means any Business Day on which the
documents specified in section 5.3(a) are duly tendered by a
holder of Series II Preference Shares in respect of the
exercise of his or her retraction right pursuant to Article 5;
and
(w) "Retraction Notice" has the meaning set out in section 5.3(a).
2.2. ELECTION TO SHORTEN THE INITIAL PERIOD
The Board shall be entitled to select a date prior to November
8, 1999 (but not earlier than May 8, 1999) as the Initial Period Expiry Date. If
the Board elects to do so then at least three Business Days prior to the Initial
Period Expiry Date, the Corporation shall issue a press release and on or before
the Initial Period Expiry Date the Corporation shall send by prepaid first class
mail or deliver a notice to all holders of Series II Preference Shares each of
which shall set out the Determination Date, the Initial Period Expiry Date and
the Exchange Number as of the Initial Period Expiry Date. If the Corporation
intends to exercise its redemption right pursuant to section 4.1 such press
release and notice shall also set out the information contemplated by section
4.1.2.
2.3. DATES
In the event that any date on which any dividend on the
Series II Preference Shares is payable by the Corporation, or on or by which any
other action is required to be taken by the Corporation or the holders of Series
II Preference Shares hereunder, is not a Business Day, then such dividend shall
be payable, or such other action shall be required to be taken, on or by the
next succeeding date that is a Business Day.
2.4. CURRENCY
All cash amounts paid by the Corporation in respect of the
Series II Preference Shares shall be made in Canadian dollars and all references
herein to monetary amounts shall be construed accordingly.
For greater certainty, the determination of (i) Dividend
Amount and (ii) Exchange Number, shall be based on, respectively, (i) the
Canadian Dollar Equivalent on the payment date thereof of dividends and
distributions declared on Class A Common Shares and (ii) the Canadian
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Dollar Equivalent on the Determination Date of the relevant weighted average
trading price of the Class A Common Shares.
3. DIVIDENDS
3.1. PAYMENT OF DIVIDENDS
The holders of the Series II Preference Shares shall be
entitled to receive, and the Corporation shall pay thereon, as and when declared
by the Board, subject to the insolvency provisions of applicable law, cumulative
preferential cash dividends payable in lawful money of Canada as follows:
3.1.1. during the Initial Period, a fixed dividend of 7.00% per annum
of the issue price of $10.00 per share payable quarterly on each third month
anniversary of November 6, 1997; and
3.1.2. after the Initial Period, a dividend per share as follows:
(a) in the case of a cash dividend or distribution on
Class A Common Shares having a record date after the
Determination Date, in an amount in cash per Series
II Preference Share equal to the product of (i) the
Canadian Dollar Equivalent on the payment date
thereof of such cash dividend or distribution on each
Class A Common Share less any United States
withholding tax thereon payable by the Corporation or
any subsidiary thereof and (ii) the Exchange Number
as of the HII Dividend Declaration Date;
(b) in the case of a stock dividend or distribution
declared on a Class A Common Share to be paid in
Class A Common Shares having a record date after the
Determination Date in respect of which an adjustment
is not made pursuant to section 5.8, in that number
of Series II Preference Shares for each Series II
Preference Share equal to the product of (i) the
number of Class A Common Shares to be paid on each
Class A Common Share less any United States
withholding tax thereon payable by the Corporation or
any subsidiary thereof and (ii) the Exchange Number
as of the HII Dividend Declaration Date; or
(c) in the case of a dividend or distribution on the
Class A Common Shares to be paid in property other
than cash or Class A Common Shares having a record
date after the Determination Date in respect of which
an adjustment is not made pursuant to section 5.8, in
such type and amount of property for each Series II
Preference Share as is the same as or economically
equivalent to (to be determined by the Board) the
type and amount of
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property declared as a dividend or distribution on
the Exchange Number (as of the HII Dividend
Declaration Date) of Class A Common Shares less any
United States withholding tax thereon payable by the
Corporation or any subsidiary thereof.
For any period during the Initial Period which is less than a full
quarter with respect to any Series II Preference Share which is
redeemed or in respect of which assets of the Corporation are
distributed to the holders thereof pursuant to Article 8 during such
quarter, dividends shall be deemed to accrue on a daily basis and shall
be equal to the amount calculated by multiplying $0.70 by a fraction of
which the numerator is the number of days in such period and the
denominator is 365.
3.2. METHOD OF PAYMENT
(a) Cheques payable in lawful money of Canada at any branch in
Canada of the Corporation's bankers shall be issued in respect
of any cash dividends or distributions on the Series II
Preference Shares (less any tax required to be withheld by the
Corporation). The mailing, by prepaid first class mail, of
such a cheque to a holder of Series II Preference Shares,
shall be deemed to be payment of the dividends represented
thereby unless the cheque is not paid upon presentation.
Dividends which are represented by a cheque which has not been
presented to the Corporation's bankers for payment or that
otherwise remain unclaimed for a period of six years from the
date on which they were declared to be payable shall be
forfeited to the Corporation.
(b) Certificates registered in the name of the registered holder
of Series II Preference Shares shall be issued or transferred
in respect of any stock dividends or other distribution on
Series II Preference Shares contemplated by section 3.2(b)
hereof and the sending of such a certificate to each holder of
a Series II Preference Share shall satisfy the stock dividend
or other distribution of Series II Preference Shares
represented thereby.
(c) Such other type and amount of property in respect of any
dividends or distributions contemplated by section 3.2(c)
hereof shall be issued, distributed or transferred by the
Corporation in such manner as it shall determine and the
issuance, distribution or transfer thereof by the Corporation
to each holder of a Series II Preference Share shall satisfy
the dividend or distribution represented thereby.
(d) Notwithstanding anything to the contrary herein the
Corporation shall pay to any shareholder whose latest address
as shown on the books of the Corporation is not in Canada all
dividends in United States dollars unless any such shareholder
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requests payment in Canadian dollars. Any such payment in
United States dollars shall be in an amount equivalent to the
amount otherwise payable in Canadian dollars converted to
United States dollars at the Bank of Canada noon rate of
exchange on the applicable dividend record date.
3.3. RECORD AND PAYMENT DATES
The record date for the determination of the holders of Series
II Preference Shares entitled to receive payment of, and the payment date for,
any dividend or distribution declared on the Series II Preference Shares under
section 3.1.2 hereof shall be the same as the record date and payment date,
respectively, for the corresponding dividend or distribution on the Class A
Common Shares.
3.4. PARTIAL PAYMENT
If on any payment date for any dividends or distributions
declared on the Series II Preference Shares under section 3.1 hereof the
dividends or distributions are not paid in full on all of the Series II
Preference Shares then outstanding, any such dividends or distributions that
remain unpaid shall be paid on a subsequent date or dates determined by the
Board on which the Corporation shall have sufficient money or other assets
properly applicable to the payment of such dividends or distributions.
4. REDEMPTION
4.1. OPTIONAL REDEMPTION AT END OF INITIAL PERIOD
4.1.1. On the 30th day following the Initial Period Expiry Date (the
"Redemption Date"), subject to the provisions of the Act, this Article
4 and to the rights, privileges, restrictions and conditions attaching
to any shares of the Corporation ranking prior to the Series II
Preference Shares, the Corporation may, upon giving notice as
hereinafter provided, redeem all or any part of the then outstanding
Series II Preference Shares on payment for each share to be redeemed of
$10.00 together with an amount equal to all dividends accrued and
unpaid thereon up to the Redemption Date (the whole constituting and
being herein referred to as the "Redemption Price"). In the case of a
redemption of less than all of the Series II Preference Shares pursuant
to this section 4.1 the Corporation shall redeem as nearly as
practicable the same portion of Series II Preference Shares held by
each holder.
4.1.2. In case of redemption of Series II Preference Shares pursuant
to section 4.1, at least three Business Days prior to the Initial
Period Expiry Date the Corporation shall issue a press release and on
or before the Initial Period Expiry Date the Corporation shall send by
prepaid first class mail or deliver a notice to each person who at the
date of mailing or delivery is a holder of Series II Preference Shares
each of which shall state that
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the Corporation intends to redeem Series II Preference Shares pursuant
to this section 4.1 and set out the Redemption Price and Redemption
Date. Such notice shall be mailed or delivered to each holder of Series
II Preference Shares to be redeemed at the last address of such holder
as it appears on the securities register of the Corporation, or in the
event of the address of any such holder not so appearing, then to the
last address of such holder known to the Corporation. Accidental
failure or omission to give such notice to one or more holders shall
not affect the validity of such redemption, but if such failure or
omission is discovered notice as aforesaid shall be given forthwith to
such holder or holders and shall have the same force and effect as if
given in due time. The press release shall also set out the portion of
Series II Preference Shares to be redeemed and the notice shall also
set out the number of Series II Preference Shares held by the person to
whom it is addressed which are to be redeemed and the place or places
in Canada at which holders of Series II Preference Shares may present
and surrender the certificate or certificates representing such shares
for redemption.
On and after the Initial Period Expiry Date, the
Corporation shall pay or cause to be paid to or to the order of the
holders of the Series II Preference Shares to be redeemed the
Redemption Price of such shares on presentation and surrender, at the
registered office of the Corporation or any other place or places in
Canada specified in the notice of redemption, of the certificate or
certificates representing the Series II Preference Shares called for
redemption. Payment in respect of Series II Preference Shares being
redeemed shall be made by cheque payable to the respective holders
thereof in lawful money of Canada at any branch in Canada of the
Corporation's bankers. If a part only of the Series II Preference
Shares represented by any certificate shall be redeemed, a new
certificate representing the balance of such shares shall be issued to
the holder thereof at the expense of the Corporation upon presentation
and surrender of the first mentioned certificate.
The Corporation shall have the right, at any time
after the mailing or delivery of notice of its intention to redeem
Series II Preference Shares, to deposit the Redemption Price of the
Series II Preference Shares so called for redemption, or of such of the
Series II Preference Shares which are represented by certificates which
have not, at the date of such deposit, been surrendered by the holders
thereof in connection with such redemption, in a separate account in
any chartered bank or trust company in Canada named in the redemption
notice or in a subsequent notice in writing to the holders of the
Series II Preference Shares in respect of which the deposit is made, to
be paid without interest to or to the order of the respective holders
of the Series II Preference Shares called for redemption upon
presentation and surrender to such bank or trust company of the
certificates representing such shares. Upon such deposit being made or
upon the Redemption Date, whichever is the later, the Series II
Preference Shares in respect of which such deposit shall have been made
shall be deemed to be redeemed and the rights of the holders thereof
shall be limited to receiving, without interest, the Redemption Price
of their respective Series II Preference Shares being redeemed upon
presentation and
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surrender of the certificate or certificates representing such shares.
Any interest allowed on any such deposit shall belong to the
Corporation.
4.2. OPTIONAL REDEMPTION RIGHT ON RECEIPT OF RETRACTION NOTICE
4.2.1. On receipt of a Retraction Notice in respect of Series II
Preference Shares duly tendered pursuant to section 5.3, the
Corporation shall be entitled to redeem all or any part of such Series
II Preference Shares for a cash payment equal to the Initial Retraction
Price or Exchange Price, as applicable. The Corporation shall exercise
this redemption right by sending or causing to be sent by prepaid first
class mail or delivering to the registered holder of Series II
Preference Shares to be redeemed not later than five days after the
Retraction Date a notice that the Corporation will redeem that number
of Series II Preference Shares specified in such notice pursuant to
this section 4.2.
4.2.2. The Corporation shall exercise this redemption right so that,
subject to rules applicable to fractional shares, all holders of Series
II Preference Shares to be redeemed on any date shall receive the same
portion of the Initial Retraction Price or Exchange Price, as
applicable, payable to them in the form of Class A Common Shares and
cash.
4.2.3. The Corporation shall redeem Series II Preference Shares
pursuant to this section 4.2 by sending or causing to be sent to or to
the order of the registered holder thereof not later than 14 days after
the Retraction Date a cheque payable at any branch of the Corporation's
bankers for the Initial Retraction Price or Exchange Price, as
applicable, of such shares.
4.3. CESSATION OF RIGHTS
Series II Preference Shares redeemed pursuant to this Article
4 shall cease to be entitled to dividends or any other participation in any
distribution of the assets of the Corporation and the holders thereof shall not
be entitled to exercise any of their other rights as shareholders in respect
thereof unless the payment to be made on redemption shall not be made as
required in which case the rights of the holders shall remain unaffected.
Redemption moneys which are represented by a cheque which has not been presented
to the Corporation's bankers for payment or that otherwise remain unclaimed
(including moneys held on deposit in a separate account as provided for above)
for a period of six years from the date specified for redemption shall be
forfeited to the Corporation.
5. RETRACTION RIGHTS
5.1. RIGHT OF RETRACTION DURING INITIAL PERIOD
At any time during the Initial Period a holder of Series II
Preference Shares shall be entitled, subject to the provisions of the Act and in
the manner hereinafter provided, to require
- 27 -
the Corporation to redeem all or any of the Series II Preference Shares
registered in the name of such holder in consideration for the transfer to such
holder of that number of Class A Common Shares for each Series II Preference
Share to be redeemed equal to (i) $8.50 plus accrued and unpaid dividends per
Series II Preference Share to and including the Retraction Date (the "Initial
Retraction Price") divided by (ii) the Current Class A Market Price on the
Retraction Date.
5.2. RIGHT OF RETRACTION AFTER INITIAL PERIOD
At any time after the Initial Period, a holder of Series II
Preference Shares shall be entitled, subject to the provisions of the Act and in
the manner hereinafter provided, to require the Corporation to redeem all or any
of the Series II Preference Shares registered in the name of the holder in
consideration for the transfer to such holder of that fraction or number of
Class A Common Shares for each Series II Preference Share to be redeemed equal
to (i) the Exchange Number in effect on the Retraction Date plus (ii) the
quotient obtained when the Dividend Amount, if any, as of the date of transfer
of such Class A Common Shares to such holder on the Hollinger International
register is divided by the Current Class A Market Price on such date.
5.3. RETRACTION PROCEDURE
(a) Series II Preference Shares may be retracted only by the
registered holder thereof presenting and surrendering to the
Corporation, at any place where the Series II Preference
Shares may be transferred or at such other place or places as
shall be specified in writing by the Corporation to the
holders of the Series II Preference Shares from time to time,
the share certificate or certificates representing the Series
II Preference Shares to be redeemed, duly completed and
endorsed in the manner prescribed thereon, together with a
request in writing in such form as may be acceptable to the
Corporation (in this section 5.3, the "Retraction Notice")
from such holder specifying the number of Series II Preference
Shares to be redeemed by the Corporation.
(b) Subject to sections 4.2 and 5.6 hereof, the Corporation shall
redeem the appropriate number of Series II Preference Shares
by sending or causing to be sent to or to the order of the
registered holder thereof not later than 14 days after the
Retraction Date a certificate representing that number of
Class A Common Shares to which the holder is entitled.
(c) If less than all of the Series II Preference Shares
represented by any certificate or certificates so endorsed are
to be redeemed, the Corporation shall issue and deliver to
such holder, at the expense of the Corporation, a new share
certificate representing the Series II Preference Shares which
are not being surrendered for retraction.
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5.4. ELECTION IRREVOCABLE
Subject to paragraph 5.6 hereof, the election by a registered
holder of Series II Preference Shares to surrender any Series II Preference
Shares for retraction shall be irrevocable upon receipt by the Corporation at
its registered office of the Retraction Notice and the certificate or
certificates representing the Series II Preference Shares to be redeemed;
provided that the Corporation may, in its unfettered discretion, permit
withdrawal of any such election at any time prior to payment of the Initial
Retraction Price for the Series II Preference Shares to be redeemed.
5.5. RELATING TO THE DELIVERY OF CLASS A COMMON SHARES
5.5.1. QUALIFICATION AND LISTING
The Corporation shall satisfy the following conditions in respect of
Class A Common Shares delivered on a redemption of Series II Preference
Shares:
(a) the qualification of the Class A Common Shares by the
filing of a prospectus and obtaining a final receipt
therefor from the securities regulatory authorities
in each of the provinces of Canada in which the
distribution of such Class A Common Shares occurs,
unless there exists an applicable exemption to
qualification thereunder that allows such Class A
Common Shares (other than those issued to a person
who is in a position by himself or in combination
with others to materially affect control of the
Corporation) to be immediately traded free of resale
restrictions under applicable securities legislation;
and
(b) the effectiveness of a registration statement under
the U.S. Securities Act of 1933 ("U.S. Securities
Act") with respect to the delivery of such Class A
Common Shares, unless an exemption from the
registration requirements of the U.S. Securities Act
is available which would allow such Class A Common
Shares to be immediately traded free of resale
restrictions; and
(c) the listing of such Class A Common Shares on each
stock exchange on which the Class A Common Shares are
then listed.
5.5.2. FRACTIONS OF CLASS A COMMON SHARES
The Corporation shall not deliver a fraction of a
Class A Common Share on redemption of Series II Preference Shares. In
lieu thereof, the Corporation shall make a cash payment equal to the
amount which would have been satisfied by the fraction of the Class A
Common Share.
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5.6. RETRACTION LIMITATION
(a) If the redemption by the Corporation of all Series II
Preference Shares surrendered for retraction on a Retraction
Date would be contrary to applicable law, the Corporation
shall redeem only the maximum number of Series II Preference
Shares which it is then permitted to redeem selected pro rata
(disregarding fractions of shares) from the Series II
Preference Shares surrendered for retraction according to the
number of Series II Preference Shares surrendered for
retraction by each holder thereof. Thereupon, each such holder
shall be entitled, by notice to the Corporation to withdraw
all or part only of the Series II Preference Shares
surrendered by such holder for retraction on such Retraction
Date which have not been redeemed by the Corporation and the
Corporation shall, at its expense, issue and deliver to each
holder who exercises such right of withdrawal a new share
certificate representing the Series II Preference Shares so
withdrawn. Thereafter, the Corporation shall redeem on a date
or dates determined by the Board on which the Corporation
shall have sufficient assets to permit such redemption, the
maximum number of Series II Preference Shares as have been
surrendered for retraction and not withdrawn or redeemed which
the Corporation determines it is then permitted to redeem,
selected pro rata (disregarding fractions of shares) from such
Series II Preference Shares according to the number of such
Series II Preference Shares then held by each holder thereof
and so on until all such Series II Preference Shares have been
redeemed.
(b) If the Board has acted in good faith in making any of the
determinations referred to in paragraph 5.6(a) hereof, the
Board and the Corporation shall have no liability if such
determination proves to be inaccurate.
(c) If the Corporation does not redeem all Series II Preference
Shares surrendered for retraction on a Retraction Date the
Corporation shall forthwith after such date notify each holder
whose Series II Preference Shares have not been redeemed on
such date of such holder's right to withdraw the Series II
Preference Shares surrendered and not redeemed by the
Corporation.
5.7. CESSATION OF RIGHTS
Series II Preference Shares redeemed pursuant to this Article
5 shall cease to be entitled to dividends or any other participation in any
distribution of the assets of the Corporation and the holders thereof shall not
be entitled to exercise any of their other rights as shareholders in respect
thereof as of the date on which Class A Common Shares deliverable to them on
redemption are transferred to them on the Hollinger International register.
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5.8. CHANGES AFFECTING THE CLASS A COMMON SHARES
5.8.1. If and whenever at any time after the Determination Date,
Hollinger International:
(a) subdivides its outstanding Class A Common
Shares into a greater number of Class A
Common Shares (including by way of a stock
dividend which the Board decides to treat as
a subdivision); or
(b) consolidates its outstanding Class A Common
Shares into a smaller number of Class A
Common Shares,
then the Exchange Number will be adjusted effective
immediately after the effective date or record date for such
event by multiplying the Exchange Number in effect immediately
prior to such effective date or record date by a fraction, the
numerator of which will be the number of Class A Common Shares
outstanding immediately after giving effect to such event and
the denominator of which will be the number of Class A Common
Shares outstanding on such effective date or record date
before giving effect to such event.
5.8.2. If and whenever at any time after the date hereof, there is a
reclassification of the Class A Common Shares at any time outstanding
or change of the Class A Common Shares into other shares or into other
securities or other capital reorganization (other than an event
described in section 5.8.1), or a consolidation, amalgamation,
arrangement or merger of Hollinger International with or into any other
corporation or other entity (other than a consolidation, amalgamation,
arrangement or merger which does not result in any reclassification of
the outstanding Class A Common Shares or a change of the Class A Common
Shares into other shares), or a transfer of the undertaking or assets
of Hollinger International as an entirety or substantially as an
entirety to another corporation or other entity in which the holders of
Class A Common Shares are entitled to receive shares, other securities
or other property (any of such events being called an "Hollinger
International Capital Reorganization"), a holder of Series II
Preference Shares will be entitled to receive on exercise of his or her
retraction right pursuant to section 5.2, and shall accept in lieu of
Class A Common Shares, the aggregate number of shares, other securities
or other property which such holder would have been entitled to receive
as a result of such Hollinger International Capital Reorganization if,
on the effective date thereof, the holder had been the registered
holder of the number of Class A. Common Shares which such holder would
have received if the Retraction Date were immediately prior to such
effective date, subject in all such cases, to the Corporation's right
to redeem Series II Preference Shares pursuant to section 4.2. If
determined appropriate by the Board, appropriate adjustments will be
made as a result of any such Hollinger International Capital
Reorganization in the application of the provisions set forth in this
Article with respect to the rights and interests thereafter of holders
of Series II Preference Shares to the end that the provisions set forth
in this Article will thereafter
- 31 -
correspondingly be made applicable as nearly as may reasonably be in
relation to any shares, other securities or other property thereafter
deliverable upon the exercise of any Series II Preference Shares.
5.8.3. If and whenever at any time after the date hereof Hollinger
International takes any action affecting the Class A Common Shares
other than an action described in sections 3.1.2, 5.8.1 or 5.8.2 which
in the opinion of the Board would materially affect the rights of the
holders of Series II Preference Shares, the Exchange Number or other
terms of Article 5 will be adjusted in such manner, if any, and at such
time, by action by the Board, in their sole discretion, as they may
determine to be equitable in the circumstances, but subject in all
cases to any necessary regulatory approvals, including any approval
required by any stock exchange on which the Series II Preference Shares
may be listed. Failure of the taking of action by the Board so as to
provide for an adjustment on or prior to the effective date of any such
action will be conclusive evidence that the Board have determined that
it is equitable to make no adjustment in the circumstances.
5.9. RULES APPLICABLE TO ADJUSTMENTS
For the purposes of section 5.8:
5.9.1. The adjustments provided for in section 5.8 are cumulative and
will be made successively whenever an event referred to therein occurs,
subject to the following subsections of this section.
5.9.2. No adjustment of the Exchange Number will be required unless
such adjustment would result in a change of at least 1%; provided,
however, that any adjustments which, except for the provisions of this
subsection would otherwise have been required to be made, will be
carried forward and taken into account in any subsequent adjustment.
5.9.3. If at any time a dispute arises with respect to adjustments
such dispute will be conclusively determined by the Corporation's
auditors or if they are unable or unwilling to act, by such other firm
of independent chartered accountants as may be selected by action by
the Board and any such determination will be binding upon the
Corporation and the holders of Series II Preference Shares; such
auditors or accountants will be given access to all necessary records
of the Corporation.
5.9.4. If Hollinger International sets a record date to determine the
holders of Class A Common Shares to take any action and thereafter and
before the taking of such action, legally abandons its plan to take
such other action, then no adjustment will be required by reason of the
setting of such record date.
- 32 -
5.9.5. No adjustment need be made for a transaction referred to in
section 5.8 if holders of Series II Preference Shares participate in
the transaction on a basis and with notice that the Board determines to
be fair and appropriate in the circumstances.
6. VOTING RIGHTS
6.1. Except as herein referred to or as required by law, the
holders of the Series II Preference Shares as a series shall not be entitled as
such to receive notice of, to attend or to vote at any meeting of the
shareholders of the Corporation.
7. RESTRICTIONS ON DIVIDENDS AND RETIREMENT OF SHARES
7.1. So long as any of the Series II Preference Shares are
outstanding, the Corporation shall not, without the approval of the holders of
the Series II Preference Shares given as hereinafter specified:
7.1.1. declare, pay or set apart for payment any dividends on any
junior shares (other than dividends payable in shares of the
Corporation ranking as to capital and dividends junior to the Series II
Preference Shares);
7.1.2. call for redemption, redeem, purchase or otherwise pay off or
retire for value, or make any capital distributions in respect of, any
junior shares;
7.1.3. except in connection with the redemption of Series II
Preference Shares pursuant to Articles 4 or 5, call for redemption,
redeem, purchase or otherwise pay off or retire for value, or make any
capital distribution in respect of, less than all of the Series II
Preference Shares;
7.1.4. call for redemption, redeem, purchase or otherwise pay off or
retire for value, or make any capital distribution in respect of, any
shares ranking as to capital or dividends on a parity with the Series
II Preference Shares except in connection with the retirement thereof
pursuant to a retraction privilege attaching thereto or a redemption
right exercisable upon a retraction; or
7.1.5. issue any shares ranking as to capital or dividends prior to
or on a parity with the Series II Preference Shares;
unless, in each such case, (i) all dividends on the Series II Preference Shares
then outstanding and on all other shares of the Corporation ranking as to
dividends prior to or on a parity with the Series II Preference Shares which
have accrued up to and including the dividends payable on the immediately
preceding respective date or dates for the payment of dividends thereon shall
have
- 33 -
been declared and paid or set apart for payment, (ii) the Corporation shall have
redeemed all of the Series II Preference Shares tendered for redemption pursuant
to Article 5, and (iii) the Corporation is not otherwise in default under the
rights, privileges, restrictions and conditions attached to the Series II
Preference Shares or any other shares of the Corporation ranking as to dividends
or as to capital prior to or on a parity with the Series II Preference Shares.
8. LIQUIDATION, DISSOLUTION OR WINDING-UP
8.1. In the event of the liquidation, dissolution or winding-up of
the Corporation, whether voluntary or involuntary, or in the event of any other
distribution of assets of the Corporation among its shareholders for the purpose
of winding up its affairs (any such event being herein referred to as a
"Liquidation Event"), the holders of the Series II Preference Shares shall be
entitled to receive from the assets of the Corporation the following amount:
(a) if the Liquidation Event occurs during the Initial Period, a
sum equal to $10.00 for each Series II Preference Share held
by them respectively, plus an amount equal to all dividends
accrued and unpaid thereon up to the date of payment; and
(b) if the Liquidation Event occurs after the Initial Period, an
amount per share equal to (i) the Current Class A Market Price
on the date of the Liquidation Event of the Exchange Number of
Class A Common Shares (the "Liquidation Price") which shall be
satisfied in full by the Corporation causing to be delivered
to such holder the Exchange Number of Class A Common Shares
for each Series II Preference Share or, at the option of the
Corporation, by payment in lawful money of Canada of the
Liquidation Price, plus (ii) the Dividend Amount, if any, on
the date of transfer of such Class A Common Shares to such
holder.
The whole of such amounts shall be paid before any amount shall be paid by the
Corporation or any assets of the Corporation shall be distributed to holders of
shares of any class of the Corporation ranking as to capital junior to the
Series II Preference Shares. After payment to the holders of the Series II
Preference Shares of the amounts so payable to them, they shall not be entitled
to share in any further distribution of the assets of the Corporation.
9. AMENDMENT
9.1. The rights, privileges, restrictions and conditions attached
to the. Series II Preference Shares may be added to, changed or removed by
Articles of Amendment, but only with the approval of the holders of the Series
II Preference Shares given as hereinafter specified in addition to any vote or
authorization required by law.
- 34 -
10. APPROVAL OF HOLDERS OF THE SERIES I PREFERENCE SHARES
10.1. The approval of the holders of the Series II Preference Shares
to add to, change or remove any right, privilege, restriction or condition
attaching to the Series II Preference Shares as a series or in respect of any
other matter requiring the consent of the holders of the Series II Preference
Shares may be given in such manner as may then be required by law, subject to a
minimum requirement that such approval be given by resolution signed by all the
holders of the Series II Preference Shares or passed by the affirmative vote of
at least 2/3 of the votes cast at a meeting of the holders of the Series II
Preference Shares duly called for that purpose.
The formalities to be observed with respect to the giving of
notice of any such meeting or any adjourned meeting, the quorum required
therefor and the conduct thereof shall be those from time to time prescribed by
the by-laws of the Corporation with respect to meetings of shareholders or if
not so prescribed, as required by the Act in force at the time of the meeting or
as otherwise required by law. On every poll taken at every meeting of holders of
Series II Preference Shares as a series, each holder of Series II Preference
Shares entitled to vote thereat shall have one vote in respect of each Series II
Preference Share held.
Exhibit 1.1 g
[CANADA LETTERHEAD] Industry Canada Industrie Canada
CERTIFICATE CERTIFICAT
OF AMENDMENT DE MODIFICATION
CANADA BUSINESS LOI CANADIENNE SUR
CORPORATIONS ACT LES SOCIETES PAR ACTIONS
HOLLINGER INC. 197578-1
---------------------------------------------------- -------------------------------------------
Name of corporation-Denomination de la societe Corporation number-Numero de la societe
I hereby certify that the articles of the above- Je certifie que les statuts de la societe
named corporation were amended susmentionnee ont ete modifies :
(a) under section 13 of the Canada Business [ ] a) en vertu de l'article 13 de la Loi
Corporations Act in accordance with the attached canadienne sur les societes par actions,
notice; conformement a l'avis ci-joint;
(b) under section 27 of the Canada Business [X] b) en vertu de l'article 27 de la Loi
Corporations Act as set out in the attached articles canadienne sur les societes par actions, tel
of amendment designating a series of shares; qu'il est indique dans les clauses
modificatrices ci-jointes designant une serie
d'actions;
(c) under section 179 of the Canada Business [X] c) en vertu de l'article 179 de la Loi
Corporations Act as set out in the attached articles canadienne sur les societes par actions, tel
of amendment; qu'il est indique dans les clauses
modificatrices ci-jointes;
(d) under section 191 of the Canada Business [ ] d) en vertu de l'article 191 de la Loi
Corporations Act as set out in the attached articles canadienne sur les societes par actions, tel
of reorganization. qu'il est indique dans les clauses de
reorganisation ci-jointes.
JUNE 3, 1998/LE 3 JUIN 1998
Director - Directeur Date of Amendment - Date de modification
CONSUMER AND
CORPORATE AFFAIRS CANADA
FORM 4
CANADA BUSINESS ARTICLES OF AMENDMENT
CORPORATIONS ACT (SECTION 27 OR 177)
--------------------------------------------------------------------------------
1 - Name of corporation 2 - Corporation No.
HOLLINGER INC. 197578-1
--------------------------------------------------------------------------------
3 - THE ARTICLES OF THE ABOVE-NAMED CORPORATION ARE AMENDED AS FOLLOWS:
The Corporation is hereby authorized to apply for a
certificate of amendment under the Canada Business Corporations Act to amend its
articles to:
1. change the designation of its common shares to retractable common
shares and amend the rights, privileges, restrictions and conditions of
the common shares to those set out in the annexed Schedule I;
2. change each Retractable Share into one retractable common share having
the rights, privileges, restrictions and conditions set out in the
annexed Schedule I; and
3. (i) provide for a consolidation, on a one for 31 basis, of its
retractable common shares and (ii) delete the rights, privileges,
restrictions and conditions of the following series of preference
shares: Floating Rate Cumulative Convertible Preference Shares Series
A, Floating Rate Cumulative Redeemable Convertible Preference Shares
Series B, Floating Rate Cumulative Redeemable Retractable Convertible
Preference Shares Series C, Non-Voting Non-Cumulative Redeemable
Retractable Convertible Preference Shares Series D, Non-Voting
Non-Cumulative Redeemable Retractable Convertible Preference Shares
Series E, Non-Voting Non-Cumulative Redeemable Retractable Convertible
Preference Shares Series F, Floating Rate Cumulative Redeemable
Convertible Perpetual Preference Shares Series G, Non-Voting Non-
Cumulative Redeemable Retractable Convertible Preference Shares Series
H, Non-Voting Non-Cumulative Redeemable Retractable Convertible
Preference Shares Series I, Non-Voting Non-Cumulative Redeemable
Retractable Convertible Preference Shares Series J, Non-Voting Non-
Cumulative Redeemable Retractable Convertible Preference Shares Series
K and Retractable Shares.
--------------------------------------------------------------------------------
DATE SIGNATURE TITLE
May 27, 1998 Vice-President and Secretary
--------------------------------------------------------------------------------
FOR DEPARTMENTAL USE ONLY
FILED
----------------------------
SCHEDULE I
NUMBER AND DESIGNATION OF AND
RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS
ATTACHING TO THE RETRACTABLE COMMON SHARES
The retractable common shares of the Corporation (hereinafter
referred to as the "retractable common shares") shall be unlimited in and shall
have attached thereto the following rights, privileges, restrictions and
conditions:
1. INTERPRETATION
1.1 DEFINITIONS
For the purposes hereof:
(a) "Act" means the Canada Business Corporations Act, as amended,
re-enacted or replaced from time to time;
(b) "Board" means the board of directors of the Corporation, the
Executive Committee thereof or any other committee
contemplated by section 3.2 hereof;
(c) "Business Day" means a day other than Saturday, Sunday or any
other day that is treated as a statutory holiday in the
jurisdiction in which the Corporation's registered office is
located;
(d) "Canadian Dollar Equivalent" means in respect of an amount
expressed in a foreign currency (the "Foreign Currency
Amount") at any date the product obtained by multiplying (A)
the Foreign Currency Amount by (B) the exchange rate for such
foreign currency in effect at 12 o'clock noon (eastern time)
on such date as posted by Canadian Imperial Bank of Commerce
or such other exchange rate on such date for such foreign
currency as may be deemed by the Board to be appropriate for
such purpose;
(e) "Class A Common Shares" means shares of Class A common stock
of Hollinger International Inc., par value U.S. $0.01 per
share, and any other securities into which such shares may be
changed or for which such shares may be exchanged (whether or
not Hollinger International Inc. shall be the issuer of such
other securities) or any other consideration which may be
received by the holders of such
- 2 -
shares pursuant to a recapitalization, reconstruction,
reorganization or reclassification of, or amalgamation,
merger, liquidation or similar transaction affecting, such
shares;
(f) "Current Class A Market Price" means in respect of a Class A
Common Share on any date, the Canadian Dollar Equivalent of
the per share closing price (or if no closing price is
recorded, the average of the bid and the ask prices) of Class
A Common Shares on the last full trading day preceding such
date as such price is reported on the NYSE Composite
Transactions Tape, or if the Class A Common Shares are not
listed on the NYSE, such other national, regional or
provincial securities exchange or automated quotation system
upon which the Class A Common Shares are listed or quoted, as
the case may be, as may be selected by the Board for such
purpose; provided, however, that if in the opinion of the
Board the public distribution or trading activity of Class A
Common Shares is inadequate to create a market that reflects
the fair market value of a Class A Common Share then the
Current Class A Market Price shall be determined by the Board
based upon the advice of such qualified independent financial
advisors as the Board may deem to be appropriate, and provided
further that any such selection, opinion or determination by
the Board shall be conclusive and binding;
(g) "Current Value" as at any date means the aggregate Fair Market
Value of all of the assets of the Corporation (including any
refundable tax previously paid by the Corporation which, in
the opinion of the Board, is refundable as at such time) less
the aggregate of:
(i) the maximum amount payable at such date by the
Corporation on its liquidation, dissolution or
winding-up in respect of any outstanding Preference
Shares; and
(ii) the Corporation's liabilities, including any tax
liabilities that would arise on a sale by the
Corporation of all or substantially all of its assets
which in the opinion of the Board would not be
refundable as at such date;
all as determined by the Board;
(h) "Fair Market Value" as of any date of any asset means:
(i) with respect to shares of Class B common stock of
Hollinger International Inc., the value (as
determined below) of that number of Class A Common
Shares into which such shares are convertible;
- 3 -
(ii) subject to clause (i) above, with respect to any
security listed and posted on a stock exchange, the
weighted average price at which such security traded
for the 20 trading days immediately preceding such
date (or such lesser period as the Board may
determine from time to time) on the stock exchange on
which the greatest volume of trading in the security
occurred during such period;
(iii) subject to clause (i) above, with respect to a
security not listed and posted on a stock exchange
but traded in an over-the-counter market, the
weighted average trading price of such security on
such over-the-counter market for the 20 trading days
preceding such date or such lesser period as the
Board may determine from time to time; and
(iv) for any other asset, the fair market value thereof as
determined by the Board;
(i) "NYSE" means the New York Stock Exchange, Inc.;
(j) "Preference Shares" means the Preference Shares of the
Corporation;
(k) "retractable common shares" means the retractable common
shares of the Corporation; and
(l) "Retraction Price" on any date shall be such amount as
determined by the Board which is not less than 90%, and not
more than 100%, of the quotient obtained by dividing the
Current Value on such date by the total number of retractable
common shares outstanding on such date.
1.2. HEADINGS
The headings in these share provisions do not affect their
interpretation.
1.3. NUMBER AND GENDER
Words importing the singular include the plural and vice-versa
and words importing gender include all genders.
- 4 -
1.4. DATES
In the event that any date on which any dividend on the
retractable common shares is payable by the Corporation, or on or by which any
other action is required to be taken by the Corporation or the holders of
retractable common shares hereunder, is not a Business Day, then such dividend
shall be payable, or such other action shall be required to be taken, on or by
the next succeeding date that is a Business Day.
1.5. CURRENCY
All cash amounts paid by the Corporation in respect of the
retractable common shares shall be made in Canadian dollars and all references
herein to monetary amounts shall be construed accordingly.
2. DIVIDENDS
Subject to the prior rights of the holders of the Preference
Shares and any other shares ranking senior to the retractable common shares with
respect to priority in the payment of dividends and to the insolvency provisions
of applicable law, all dividends which the Board may declare in any fiscal year
of the Corporation shall be declared and paid in equal or equivalent amounts per
share on all retractable common shares at the time outstanding without
preference or priority.
3. RETRACTION RIGHT
3.1. RIGHT OF RETRACTION
A holder of retractable common shares shall be entitled at
any time, subject to the provisions of the Act and in the manner hereinafter
provided, to surrender for retraction all or any of the retractable common
shares registered in the name of such holder.
3.2. RETRACTION PRICE
(a) The Board shall determine the Retraction Price as of the end
of each fiscal quarter of the Corporation and as soon as
practicable thereafter the Corporation shall give notice
thereof (a "Retraction Price Notice") in the same manner in
which dividend notices are required to be given by law or any
stock exchange on which the retractable common shares are
listed for trading from time to time. Subject to the following
sentence, the Retraction Price set out in a Retraction Price
Notice shall be
- 5 -
in effect for all retractions subsequent to the date on which
the Retraction Price Notice is given to and including the date
on which the next Retraction Price Notice is given.
Notwithstanding the foregoing, the Board shall have the
absolute discretion to change the Retraction Price at any time
as set out below if fluctuations in the trading price of
publicly-traded securities owned by the Corporation cause a
change of more than 10% in the Current Value during a fiscal
quarter of the Corporation. To effect such a change the new
Retraction Price shall be determined as of such date as is
selected by the Board and shall become effective as of the
next Business Day following the date on which a press release
is issued by the Corporation setting out the new Retraction
Price or such later date as is specified in such press
release.
(b) The Corporation shall set out in any Retraction Price Notice
the number and designation of publicly-traded securities owned
by it (other than Class A Common Shares) if fluctuations in
the trading price thereof during a fiscal quarter of the
Corporation could reasonably be expected to cause a change of
more than 10% in the Current Value during the fiscal quarter.
(c) All determinations to be made by the Board relating to the
Retraction Price may be made by the Executive Committee of the
Board of Directors of the Corporation or any other committee
of the Board of Directors to which such authority is delegated
and shall be conclusive and binding on all shareholders of the
Corporation.
3.3. RETRACTION PROCEDURE
(a) Retractable common shares may be retracted only by the
registered holder thereof presenting and surrendering at any
place where the retractable common shares may be transferred
or at such other place or places as shall be specified in
writing by the Corporation to the holders of the retractable
common shares from time to time, the share certificate or
certificates representing the retractable common shares to be
redeemed, duly completed and endorsed in the manner prescribed
thereon, together with a request in writing in such form as
may be acceptable to the Corporation (in this section 3.3, the
"Retraction Notice") from such holder specifying the number of
retractable common shares to be redeemed by the Corporation.
The date on which a holder duly tenders the documents
described above is referred to herein as the "Retraction
Date."
(b) Subject to sections 3.5.2, 3.6 and Article 4 hereof, the
Corporation shall redeem the appropriate number of retractable
common shares by sending or causing to be sent to or to the
order of the registered holder thereof not later than 14 days
after the Retraction Date a certificate representing that
number of Class A Common Shares equal to (i) the Retraction
Price on the Retraction Date of the retractable common
- 6 -
shares to be redeemed divided by (ii) the Current Class A
Market Price on the Retraction Date.
(c) If less than all of the retractable common shares represented
by any certificate or certificates so endorsed are to be
redeemed, the Corporation shall issue and deliver to such
holder, at the expense of the Corporation, a new share
certificate representing the retractable common shares which
are not being surrendered for retraction.
3.4. ELECTION IRREVOCABLE
Subject to paragraph 3.6 hereof, the election by any
registered holder of retractable common shares to surrender any retractable
common shares for retraction shall be irrevocable upon receipt by the
Corporation or its agent of the Retraction Notice and the certificate and
certificates representing the retractable common shares to be redeemed; provided
that the Corporation may, in its unfettered discretion, permit withdrawal of any
such election at any time prior to payment of the Retraction Price for the
retractable common shares to be redeemed.
3.5. RELATING TO THE DELIVERY OF CLASS A COMMON SHARES
3.5.1. QUALIFICATION AND LISTING
The Corporation shall satisfy the following
conditions in respect of Class A Common Shares delivered on a
redemption of retractable common shares:
(a) the qualification of the Class A Common Shares by the filing
of a prospectus and obtaining a final receipt therefor from
the securities regulatory authorities in each of the provinces
of Canada in which the distribution of such Class A Common
Shares occurs, unless there exists an applicable exemption to
qualification thereunder that allows such Class A Common
Shares (other than those issued to a person who is in a
position by himself or in combination with others to
materially affect control of the Corporation) to be
immediately traded free of resale restrictions under
applicable securities legislation; and
(b) the effectiveness of a registration statement under the U.S.
Securities Act of 1933 ("U.S. Securities Act") with respect to
the delivery of such Class A Common Shares, unless an
exemption from the registration requirements of the U.S.
Securities Act is available which would allow such Class A
Common Shares to be immediately traded free of resale
restrictions; and
- 7 -
(c) the listing of such Class A Common Shares on each stock
exchange on which :he Class A Common Shares are then listed.
3.5.2. FRACTIONS OF CLASS A COMMON SHARES
The Corporation shall not deliver a fraction of a
Class A Common Share on a redemption of retractable common shares. In
lieu thereof the Corporation shall make a cash payment equal to the
amount which would have been satisfied by the fraction of the Class A
Common Share.
3.6. RETRACTION LIMITATION
(a) If the redemption by the Corporation of all retractable common
shares surrendered for retraction on a Retraction Date would
be contrary to applicable law, the Corporation shall redeem
only the maximum number of retractable common shares which it
is then permitted to redeem selected pro rata (disregarding
fractions of shares) from the retractable common shares
surrendered for retraction according to the number of
retractable common shares surrendered for retraction by each
holder thereof. Thereupon, each such holder shall be entitled,
by notice to the Corporation, to withdraw all or part only of
the retractable common shares surrendered by such holder for
retraction on such Retraction Date which have not been
redeemed by the Corporation and the Corporation shall, at its
expense, issue and deliver to each holder who exercises such
right of withdrawal a new share certificate representing the
retractable common shares so withdrawn. Thereafter, the
Corporation shall redeem on a date or dates determined by the
Board on which the Corporation shall have sufficient assets to
permit such redemption, the maximum number of retractable
common shares as have been surrendered for retraction and not
previously withdrawn or redeemed which the Corporation
determines it is then permitted to redeem, selected pro rata
(disregarding fractions of shares) from such retractable
common shares according to the number of such retractable
common shares then held by each holder thereof and so on until
all such retractable common shares have been redeemed.
(b) If the Board has acted in good faith in making any of the
determinations referred to in paragraph 3.6(a) hereof, the
Board and the Corporation shall have no liability if such
determination proves to be inaccurate.
(c) If the Corporation does not redeem all retractable common
shares surrendered for retraction on a Retraction Date the
Corporation shall forthwith after such date notify each holder
whose retractable common shares have not been redeemed on such
date
- 8 -
of such holder's right to withdraw the retractable common
shares to surrendered and not redeemed by the Corporation.
3.7. CESSATION OF RIGHTS
The retractable common shares redeemed pursuant to this
Article 3 shall cease to be entitled to dividends or any participation in the
assets of the Corporation and the registered holder thereof shall not be
entitled to exercise any of the rights of holders of retractable common shares
in respect thereof, unless payment therefor is not made as required herein, in
which event the rights of the registered holder of such retractable common
shares shall remain unaffected.
4. REDEMPTION RIGHT ON RECEIPT OF RETRACTION NOTICE
4.1. RIGHT OF REDEMPTION
On receipt of a Retraction Notice duly tendered pursuant to
section 3.3 together with the share certificate or certificates representing
retractable common shares to be redeemed, the Corporation shall be entitled to
redeem all or any part of such retractable common shares pursuant to this
Article 4 for a cash payment equal to the Retraction Price per share on the
Retraction Date in lieu of redeeming them in the manner set out in Article 3.
4.2. CASH PAYMENT OF REDEMPTION PRICE
The Corporation shall exercise its redemption right pursuant
to this Article 4 by sending or causing to be sent to or to the order of the
registered holder of retractable common shares to be redeemed not later than 14
days after the Retraction Date a cheque payable at any branch of the
Corporation's bankers for the Retraction Price of such shares.
4.3. PRO RATA TREATMENT
The Corporation shall exercise its redemption right pursuant
to this Article 4 so that, subject to section 3.5.2, all holders of retractable
common shares to be redeemed on any Retraction Date shall receive the same
portion of the Retraction Price payable to them in the form of Class A Common
Shares and cash.
- 9 -
4.4. PROCEDURE
The provisions of sections 3.6 and 3.7 shall apply, mutatis
mutandis, to a of retractable common shares pursuant to this Article 4.
5. VOTING RIGHTS
The holders of the retractable common shares shall be entitled
to receive notice of and to attend at all meetings of the shareholders of the
Corporation, other than separate meetings of the holders of another class or
series of shares, and to vote at any such meeting on the basis of one vote for
each retractable common share held.
6. LIQUIDATION, DISSOLUTION OR WINDING-UP
In the event of the liquidation, dissolution or winding-up of
the Corporation, whether voluntary or involuntary, or in the event of any other
distribution of assets of the Corporation among its shareholders for the purpose
of winding up its affairs, the holders of the retractable common shares shall be
entitled, subject to the prior rights of the holders of the Preference Shares
and any other shares ranking senior to the retractable common shares, to the
remaining property and assets of the Corporation.
Exhibit 1.1 h
[CANADA LETTERHEAD]
CERTIFICATE CERTIFICAT
OF AMENDMENT DE MODIFICATION
CANADA BUSINESS LOI CANADIENNE SUR
CORPORATIONS ACT LES SOCIETES PAR ACTIONS
HOLLINGER INC. 197578-1
Name of corporation-Denomination de la societe Corporation number-Numero de la societe
I hereby certify that the articles of the Je certifie que les statuts de la societe
above-named corporation were amended susmentionnde ont 6te modifies :
(a) under section 13 of the Canada [ ] a) en vertu de 1'article 13 de la Loi
Business Corporations Act in accordance canadienne sur les societes par
with the attached notice; actions, conformement a 1'avis ci-joint;
(b) under section 27 of the Canada [X] b) en vertu de 1'article 27 de la Loi
Business Corporations Act as set out in the canadienne sur les societes par
attached articles of amendment designating actions, tel qu'il est indique dans les
a series of shares; clauses modificatrices ci-jointes
designant une serie d'actions;
(c) under section 179 of the Canada [X] c) en vertu de 1'article 179 de la Loi
Business Corporations Act as set out in the canadienne sur les societes par
attached articles of amendment; actions, tel qu'il est indique dans les
clauses modificatrices ci-jointes;
(d) under section 191 of the Canada [ ] d) en vertu de 1'article 191 de la Loi
Business Corporations Act as set out in the canadienne sur les societes par
attached articles of reorganization. actions, tel qu'il est indique dans les
clauses de reorganisation ci-jointes.
APRIL 28,1999 / LE 28 AVRIL 1999
Director - Directeur Date of Amendment - Date de modification
[CANADA LETTERHEAD]
FORM 4
ARTICLES OF AMENDMENT
(SECTION 27 OR 177)
1 - Name of corporation 2 - Corporation No.
HOLLINGER INC. 197578-1
3 - The articles of the above-named corporation are amended as follows:
The certificate and articles of the Corporation are amended to
create the third series of Preference Shares, unlimited in number, to be
designated Series III Retractable Non-Voting Preference Shares, and to have
attached thereto the rights, privileges, restrictions and conditions set forth
in annexed Schedule A.
Signature Title
April 26, 1999 Vice-President & Secretary
FOR DEPARTMENTAL USE ONLY
Filed
SCHEDULE A
NUMBER AND DESIGNATION OF
AND RIGHTS, PRIVILEGES, RESTRICTIONS
AND CONDITIONS ATTACHING TO
THE SERIES III PREFERENCE SHARES
The series of Preference Shares of the Corporation shall
consist of an unlimited number of Preference Shares which shall be designated as
Retractable Non-Voting Preference Shares Series III (hereinafter referred to as
the "Series III Preference Shares") and which, in addition to the rights,
privileges, restrictions and conditions attached to the Preference Shares as a
class, shall have attached thereto the following rights, privileges,
restrictions and conditions:
1. INTERPRETATION
1.1. DEFINITIONS
For the purpose hereof:
(a) "Act" means the Canada Business Corporations Act, as amended,
re-enacted or replaced from time to time;
(b) "Benchmark Price" on any Retraction Date means an amount equal
to $10 multiplied by the quotient obtained when (i) the simple
average of the End-of-Day Price for each of the 20 business
days preceding that Retraction Date of the Two Series of
Government of Canada Bonds is divided by (ii) the simple
average of the End-of-Day Price for each of the 20 business
days preceding April 30, 1999 of the Two Series of Government
of Canada Bonds;
(c) "Board" means the board of directors of the Corporation or the
Executive Committee thereof;
(d) "Business Day" means a day other than Saturday, Sunday or any.
other day that is treated as a statutory holiday in the
jurisdiction in which the Corporation's registered office is
located;
(e) "End-of-Day Price" means the bid-side price for each of the
Two Series of Government of Canada Bonds as published in the
National Post; provided that in the event that the National
Post newspaper fails to provide a published quote for a bond
on a date during the relevant 20 business day period, then the
bid.-side price for such bond on such day shall be obtained
from a major Canadian investment dealer chosen by the
Corporation;
(f) "junior share" means a share of the Corporation ranking junior
to the Series III Preference Shares with respect to the
payment of dividends or the distribution of assets in the
event of the liquidation, dissolution or winding-up of the
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Corporation, whether voluntary or involuntary, or in the event
of any other distribution of assets of the Corporation among
its shareholders for the purpose of winding up its affairs;
(g) "Mandatory Redemption Date" has the meaning set out in section
3.2;
(h) "Optional Redemption Date" has the meaning set out in section
3.1;
(i) "ranking as to capital" means ranking with respect to the
distribution of assets in the event of a liquidation,
dissolution or winding-up of the Corporation, whether
voluntary or involuntary, or in the event of any other
distribution of assets of the Corporation among its
shareholders for the purpose of winding up its affairs;
(j) "Retraction Date" means any Business Day on which the
documents specified in section 4.1 are duly tendered by a
holder of Series III Preference Shares in respect of the
exercise of his or her retraction right pursuant to Article 4;
(k) "Retraction Notice" has the meaning set out in section 4.1;
and
(1) "Retraction Price" of the Series III Preference Shares means:
(i) on or before April 30, 2003, 92 1/2% of the Benchmark
Price on the Retraction Date plus any accrued and
unpaid dividends on the Series III Preference Shares
up to and including the Retraction Date;
(ii) after April 30, 2003, $9.50 plus accrued and unpaid
dividends on the Series III Preference Shares up to
and including the Retraction Date; and
(m) "Two Series of Government of Canada Bonds" means the 7 1/2%
series of Government of Canada bonds due on December 1, 2003
and the 6 1/2% series of Government of Canada bonds due on
June 1, 2004.
1.2. DATES
In the event that any date on which any dividend on the Series
III Preference Shares is payable by the Corporation, or on or by which any other
action is required to be taken by the Corporation or the holders of Series III
Preference Shares hereunder, is not a Business Day, then such dividend shall be
payable, or such other action shall be required to be taken, on or by the next
succeeding date that is a Business Day.
1.3. CURRENCY
All cash amounts paid by the Corporation in respect of the
Series III Preference Shares shall be made in Canadian dollars and all
references herein to monetary amounts shall be construed accordingly.
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2. DIVIDENDS
2.1. PAYMENT OF DIVIDENDS
The holders of the Series III Preference Shares shall be
entitled to receive, and the Corporation shall pay thereon, as and when declared
by the Board, subject to the insolvency provisions of applicable law, an annual
cumulative preferential cash dividend in lawful money of Canada of $0.70 per
share payable quarterly in four equal amounts of $0.175 on each third month
anniversary of May 6, 1999.
2.2. METHOD OF PAYMENT
(a) Cheques payable in lawful money of Canada at any branch in
Canada of the Corporation's bankers shall be issued in respect
of any cash dividends or distributions on the Series III
Preference Shares (less any tax required to be withheld by the
Corporation). The mailing, by prepaid first class mail, of
such a cheque to a holder of Series III Preference Shares,
shall be deemed to be payment of the dividends represented
thereby unless the cheque is not paid upon presentation.
Dividends which are represented by a cheque which has not been
presented to the Corporation's bankers for payment or that
otherwise remain unclaimed for a period of six years from the
date on which they were declared to be payable shall be
forfeited to the Corporation.
(b) Notwithstanding anything to the contrary herein the
Corporation shall pay to any shareholder whose latest address
as shown on the books of the Corporation is not in Canada all
dividends in United States dollars unless any such shareholder
requests payment in Canadian dollars. Any such payment in
United States dollars shall be in an amount equivalent to the
amount otherwise payable in Canadian dollars converted to
United States dollars at the Bank of Canada noon rate of
exchange on the applicable dividend record date.
2.3. PARTIAL PAYMENT
If on any payment date for any dividends or distributions
declared on the Series III Preference Shares under section 2.1 hereof the
dividends or distributions are not paid in full on all of the Series III
Preference Shares then outstanding, any such dividends or distributions that
remain unpaid shall be paid on a subsequent date or dates determined by the
Board on which the Corporation shall have sufficient money or other assets
properly applicable to the payment of such dividends or distributions.
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3. REDEMPTION
3.1. OPTIONAL REDEMPTION AFTER APRIL 30,2002
After April 30, 2002, subject to the provisions of the Act,
this Article 3 and to the rights, privileges, restrictions and conditions
attaching to any shares of the Corporation ranking prior to the Series III
Preference Shares, the Corporation may, upon giving notice as hereinafter
provided, redeem all or any part of the then outstanding Series III Preference
Shares on payment for each share to be redeemed of $10.00 together with an
amount equal to all dividends accrued and unpaid thereon up to and including the
redemption date (the "Optional Redemption Date") (the whole of such payment
constituting and being herein referred to as the "Redemption Price"). In the
case of a redemption of less than all of the Series III Preference Shares
pursuant to this section 3.1 the Corporation shall redeem as nearly as
practicable the same portion of Series III Preference Shares held by each
holder.
In case of a redemption of Series III Preference Shares
pursuant to this section 3.1, at least three Business Days prior to the Optional
Redemption Date the Corporation shall issue a press release and not less than 30
days and not more than 60 days prior to the Optional Redemption Date, the
Corporation shall send by prepaid first class mail or deliver a notice in
writing to each person who at the date of mailing or delivery is a holder of
Series III Preference Shares each of which shall state that the Corporation
intends to redeem Series III Preference Shares pursuant to this section 3.1 and
set out the Redemption Price and Optional Redemption Date. Such notice shall be
mailed or delivered to each holder of Series III Preference Shares to be
redeemed at the last address of such holder as it appears on the securities
register of the Corporation, or in the event of the address of any such holder
not so appearing, then to the last address of such holder known to the
Corporation. Accidental failure or omission to give such notice to one or more
holders shall not affect the validity of such redemption, but if such failure or
omission is discovered notice as aforesaid shall be given forthwith to such
holder or holders and shall have the same force and effect as if given in due
time. The press release shall also set out the portion of Series III Preference
Shares to be redeemed and the notice shall also set out the number of Series III
Preference Shares held by the person to whom it is addressed which are to be
redeemed and the place or places in Canada at which holders of Series III
Preference Shares may present and surrender the certificate or certificates
representing such shares for redemption.
In case of redemption of Series III Preference Shares
pursuant to this section 3.1 the Corporation shall pay or cause to be paid to or
to the order of the holders of the Series III Preference Shares to be redeemed
the Redemption Price of such shares on presentation and surrender, at the
registered office of the Corporation or any other place or places in Canada
specified in the notice of redemption, of the certificate or certificates
representing the Series III Preference Shares called for redemption. Payment in
respect of Series III Preference Shares being redeemed shall be made by cheque
payable to the respective holders thereof in lawful money of Canada at an}'
branch in Canada of the Corporation's bankers. If a part only of the Series III
Preference Shares represented by any certificate shall be redeemed, a new
certificate
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representing the balance of such shares shall be issued to the holder thereof
at the expense of the Corporation upon presentation and surrender of the first
mentioned certificate.
The Corporation shall have the right, at any time after the
mailing or delivery of notice of its intention to redeem Series III Preference
Shares, to deposit the Redemption Price of the Series III Preference Shares so
called for redemption, or of such of the Series III Preference Shares which are
represented by certificates which have not, at the date of such deposit, been
surrendered by the holders thereof in connection with such redemption, in a
separate account in any chartered bank or trust company in Canada named in the
redemption notice or in a subsequent notice in writing to the holders of the
Series III Preference Shares in respect of which the deposit is made, to be paid
without interest to or to the order of the respective holders of the Series III
Preference Shares called for redemption upon presentation and surrender to such
bank or trust company of the certificates representing such shares. Upon such
deposit being made or upon the Optional Redemption Date, whichever is the later,
the Series III Preference Shares in respect of which such deposit shall have
been made shall be deemed to be redeemed and the rights of the holders thereof
shall be limited to receiving, without interest, the Redemption Price of their
respective Series III Preference Shares being redeemed upon presentation and
surrender of the certificate or certificates representing such shares. Any
interest allowed on any such deposit shall belong to the Corporation.
3.2. MANDATORY REDEMPTION ON APRIL 30,2004
On April 30, 2004 (the "Mandatory Redemption Date"), subject
to the provisions of the Act, this Article 3 and to the rights, privileges,
restrictions and conditions attaching to any shares of the Corporation ranking
prior to the Series III Preference Shares, the Corporation shall redeem all of
the then outstanding Series III Preference Shares on payment for each share to
be redeemed of $10.00 together with an amount equal to all dividends accrued and
unpaid thereon up to and including the Mandatory Redemption Date (the whole of
such payment constituting and being herein referred to as the "Redemption
Price").
In case of a redemption of Series III Preference Shares
pursuant to this section 3.2, on or before the Mandatory Redemption Date the
Corporation shall not less than 30 days and not more than 60 days prior to the
Mandatory Redemption Date send by prepaid first class mail or deliver a notice
to each person who at the date of mailing or delivery is a holder of Series III
Preference Shares each of which shall state that the Corporation shall redeem
Series III Preference Shares pursuant to this section 3.2 and set out the
Redemption Price and Mandatory Redemption Date. Such notice shall be mailed or
delivered to each holder of Series III Preference Shares to be redeemed at the
last address of such holder as it appears on the securities register of the
Corporation, or in the event of the address of any such holder not so appearing,
then to the last address of such holder known to the Corporation. Accidental
failure or omission to give such notice to one or more holders shall not affect
the validity of such redemption, but if such failure or omission is discovered
notice as aforesaid shall be given forthwith to such holder or holders and shall
have the same force and effect as if given in due time. The notice shall set
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out the place or places in Canada at which holders of Series III Preference
Shares must present and surrender the certificate or certificates representing
such shares for redemption.
In case of a redemption of Series III Preference Shares
pursuant to this section 3.2, the Corporation shall pay or cause to be paid to
or to the order of the holders of the Series III Preference Shares to be
redeemed the Redemption Price of such shares on presentation and surrender, at
the registered office of the Corporation or any other place or places in Canada
specified in the notice of redemption, of the certificate or certificates
representing the Series III Preference Shares called for redemption. Payment in
respect of Series III Preference Shares being redeemed shall be made by cheque
payable to the respective holders thereof in lawful money of Canada at any
branch in Canada of the Corporation's bankers.
The Corporation shall have the right to deposit the
Redemption Price of the Series III Preference Shares so called for redemption,
or of such of the Series III Preference Shares which are represented by
certificates which have not, at the date of such deposit, been surrendered by
the holders thereof in connection with such redemption, in a separate account in
any chartered bank or trust company in Canada named in the redemption notice or
in a subsequent notice in writing to the holders of the Series III Preference
Shares in respect of which the deposit is made, to be paid without interest to
or to the order of the respective holders of the Series III Preference Shares
called for redemption upon presentation and surrender to such bank or trust
company of the certificates representing such shares. Upon such deposit being
made or upon the Mandatory Redemption Date, whichever is the later, the Series
III Preference Shares in respect of which such deposit shall have been made
shall be deemed to be redeemed and the rights of the holders thereof shall be
limited to receiving, without interest, the Redemption Price of their respective
Series III Preference Shares being redeemed upon presentation and surrender of
the certificate or certificates representing such shares. Any interest allowed
on any such deposit shall belong to the Corporation.
3.3. CESSATION OF RIGHTS
Series III Preference Shares redeemed pursuant to this
Article 3 shall cease to be entitled to dividends or any other participation in
any distribution of the assets of the Corporation and the holders thereof shall
not be entitled to exercise any of their other rights as shareholders in respect
thereof unless the payment to be made on redemption shall not be made as
required in which case the rights of the holders shall remain unaffected.
Redemption moneys which are represented by a cheque which has not been presented
to the Corporation's bankers for payment or that otherwise remain unclaimed
(including moneys held on deposit in a separate account as provided for above)
for a period of six years from the date specified for redemption shall be
forfeited to the Corporation.
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4. RETRACTION RIGHTS
4.1. RIGHT OF RETRACTION
At any time, a holder of Series III Preference Shares shall be
entitled, subject to the provisions of the Act and in the manner hereinafter
provided, to require the Corporation to redeem all or any of the Series III
Preference Shares registered in the name of such holder on payment for each
share to be redeemed of the Retraction Price.
The Corporation shall pay or cause to be paid to or to the
order of the holders of the Series III Preference Shares to be redeemed the
Retraction Price of such shares on presentation and surrender, at the registered
office of the Corporation or any other place or places in Canada specified in
the notice of redemption, of the certificate or certificates representing the
Series III Preference Shares called for redemption. Payment in respect of Series
III Preference Shares being redeemed shall be made by cheque payable to the
respective holders thereof in lawful money of Canada at any branch in Canada of
the Corporation's bankers. If a part only of the Series III Preference Shares
represented by any certificate shall be redeemed, a new certificate representing
the balance of such shares shall be issued to the holder thereof at the expense
of the Corporation upon presentation and surrender of the first mentioned
certificate.
Series III Preference Shares may be retracted only by the
registered holder thereof presenting and surrendering to the Corporation, at any
place where the Series III Preference Shares may be transferred or at such other
place or places as shall be specified in writing by the Corporation to the
holders of the Series III Preference Shares from time to time, the share
certificate or certificates representing the Series III Preference Shares to be
redeemed, duly completed and endorsed in the manner prescribed thereon, together
with a request in writing in such form as may be acceptable to the Corporation
(in this section 4.1, the "Retraction Notice") from such holder specifying the
number of Series III Preference Shares to be redeemed by the Corporation.
4.2. ELECTION IRREVOCABLE
Subject to paragraph 4.4 hereof, the election by a registered
holder of Series III Preference Shares to surrender any Series III Preference
Shares for retraction shall be irrevocable upon receipt by the Corporation at
its registered office of the Retraction Notice and the certificate or
certificates representing the Series III Preference Shares to be redeemed;
provided that the Corporation may, in its unfettered discretion, permit
withdrawal of any such election at any time prior to payment for the Series III
Preference Shares to be redeemed.
4.3. RETRACTION LIMITATION
(a) If the redemption by the Corporation of all Series III
Preference Shares surrendered for retraction on a Retraction
Date would be contrary to applicable law, the Corporation
shall redeem only the maximum number of Series III Preference
Shares which it is then permitted to redeem selected pro rata
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(disregarding fractions of shares) from the Series III
Preference Shares surrendered for retraction according to the
number of Series III Preference Shares surrendered for
retraction by each holder thereof. Thereupon, each such holder
shall be entitled, by notice to the Corporation to withdraw
all or part only of the Series III Preference Shares
surrendered by such holder for retraction on such Retraction
Date which have not been redeemed by the Corporation and the
Corporation shall, at its expense, issue and deliver to each
holder who exercises such right of withdrawal a new share
certificate representing the Series III Preference Shares so
withdrawn. Thereafter, the Corporation shall redeem on a date
or dates determined by the Board on which the Corporation
shall have sufficient assets to permit such redemption, the
maximum number of Series III Preference Shares as have been
surrendered for retraction and not withdrawn or redeemed which
the Corporation determines it is then permitted to redeem,
selected pro rata (disregarding fractions of shares) from such
Series III Preference Shares according to the number of such
Series III Preference Shares then held by each holder thereof
and so on until all such Series III Preference Shares have
been redeemed.
(b) If the Board has acted in good faith in making any of the
determinations referred to in paragraph 4.3(a) hereof, the
Board and the Corporation shall have no liability if such
determination proves to be inaccurate.
(c) If the Corporation does not redeem all Series III Preference
Shares surrendered for retraction on a Retraction Date the
Corporation shall forthwith after such date notify each holder
whose Series III Preference Shares have not been redeemed on
such date of such holder's right to. withdraw the Series III
Preference Shares surrendered and not redeemed by the
Corporation.
4.4. CESSATION OF RIGHTS
Series III Preference Shares redeemed pursuant to this Article
4 shall cease to be entitled to dividends or any other participation in any
distribution of the assets of the Corporation and the holders thereof shall not
be entitled to exercise any of their other rights as shareholders in respect
thereof unless the payment to be made on redemption shall not be made as
required in which case the rights of the holders shall remain unaffected.
Redemption moneys which are represented by a cheque which has not been presented
to the Corporation's bankers for payment or that otherwise remain unclaimed
(including moneys held on deposit in a separate account as provided for above)
for a period of six years from the date specified for redemption shall be
forfeited to the Corporation.
5. VOTING RIGHTS
5.1. Except as herein referred to or as required by law, the
holders of the Series III Preference Shares as a series shall not be entitled as
such to receive notice of, to attend or to vote at
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any meeting of the shareholders of the Corporation unless and until the
Corporation at any time or from time to time has failed to pay in full eight
dividends payable on the dividend payment dates on the Series III Preference
shares as contemplated by Article 2, whether or not such eight dividend payment
dates are consecutive and whether or not such dividends have been declared and
whether or not there are any monies of the Corporation properly applicable to
the payment of dividends. Thereafter, but only so long as any dividends on the
Series III Preference Shares remain in arrears, the holders of the Series III
Preference Shares shall be entitled to receive notice of, to attend and to vote
at all meetings of shareholders of the Corporation, other than any meetings of
the holders of any other class or series of shares of the Corporation held
separately as a class or series, on the basis of one vote for each Series III
Preference Share held for the election of two directors to the board of
directors of the Corporation in conjunction with the holders of any other series
of preference shares which have a similar right.
6. PURCHASE FOR CANCELLATION
Subject to the provisions of Article 7 and to the rights,
privileges, restrictions and conditions attaching to any shares of the
Corporation ranking prior to the Series III Preference Shares, the Corporation
may purchase for cancellation at any time all or from time to time any part of
the outstanding Series III Preference Shares in the open market (including,
without limitation, purchase through or from an investment dealer or firm
holding membership or trading privileges on a stock exchange or which the Series
III Preference Shares are listed for trading) by invitation for tenders
addressed to all the holders of Series III Preference Shares then outstanding or
by private agreement. If, in response to an invitation for tenders under the
provisions of this Article 6, more Series III Preference Shares are tendered at
a price or prices acceptable to the Corporation than the Corporation is prepared
to purchase, then the Series III Preference Shares to be purchased by the
Corporation shall be purchased as nearly as may be pro rata according to the
number of shares tendered by each holder who submits a tender to the
Corporation, provided that when shares are tendered at different prices, the pro
rating shall be effected only with respect to the shares tendered at the price
at which more shares were tendered than the Corporation is prepared to purchase
after the Corporation has purchased all the shares tendered at lower prices.
7. RESTRICTIONS ON DIVIDENDS AND RETIREMENT OF SHARES
7.1. So long as any of the Series III Preference Shares are
outstanding, the Corporation shall not, without the approval of the holders of
the Series III Preference Shares given as hereinafter specified:
7.1.1. declare, pay or set apart for payment any dividends on any
junior shares (other than dividends payable in shares of the
Corporation ranking as to capital and dividends junior to the Series
III Preference Shares);
7.1.2. call for redemption, redeem, purchase or otherwise pay off or
retire for value, or make any capital distributions in respect of, any
junior shares except in connection with the
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procurement thereof pursuant to a retraction privilege attaching
thereto or a redemption right exercisable upon a retraction;
7.1.3. except in connection with the redemption of Series III
Preference Shares pursuant to Articles 3 or 4, call for redemption,
redeem, purchase or otherwise pay off or retire for value, or make any
capital distribution in respect of, less than all of the Series III
Preference Shares;
7.1.4. call for redemption, redeem, purchase or otherwise pay off or
retire for value, or make any capital distribution in respect of, any
shares ranking as to capital or dividends on a parity with the Series
III Preference Shares except hi connection with the retirement thereof
pursuant to a retraction privilege attaching thereto or a redemption
right exercisable upon a retraction; or
7.1.5. issue any shares ranking as to capital or dividends prior to
or on a parity with the Series III Preference Shares;
unless, in each such case, (i) all dividends on the Series III Preference Shares
then outstanding and on all other shares of the Corporation ranking as to
dividends prior to or on a parity with the Series III Preference Shares which
have accrued up to and including the dividends payable on the immediately
preceding respective date or dates for the payment of dividends thereon shall
have been declared and paid or set apart for payment, (ii) the Corporation shall
have redeemed all of the Series III Preference Shares tendered for redemption
pursuant to Article 4, and (iii) the Corporation is not otherwise in default
under the rights, privileges, restrictions and conditions attached to the Series
III Preference Shares or any other shares of the Corporation ranking as to
dividends or as to capital prior to or on a parity with the Series III
Preference Shares.
8. LIQUIDATION, DISSOLUTION OR WINDING-UP
8.1. In the event of the liquidation, dissolution or winding-up of
the Corporation, whether voluntary or involuntary, or in the event of any other
distribution of assets of the Corporation among its shareholders for the purpose
of winding up its affairs, the holders of the Series III Preference Shares shall
be entitled to receive from the assets of the Corporation a sum equal to $10.00
for each Series III Preference Share held by them respectively, plus an amount
equal to all dividends accrued and unpaid thereon up to the date of payment.
8.2. The whole of such amounts shall be paid before any amount
shall be paid by the Corporation or any assets of the Corporation shall be
distributed to holders of shares of any class of the Corporation ranking as to
capital junior to the Series III Preference Shares. After payment to the holders
of the Series III Preference Shares of the amounts so payable to them, they
shall not be entitled to share in any further distribution of the assets of the
Corporation.
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9. AMENDMENT
9.1. The rights, privileges, restrictions and conditions attached
to the Series III Preference Shares may be added to, changed or removed by
Articles of Amendment, but only with the approval of the holders of the Series
III Preference Shares given as hereinafter specified in addition to any vote or
authorization required by law.
10. APPROVAL OF HOLDERS OF THE SERIES III PREFERENCE SHARES
10.1. The approval of the holders of the Series III Preference
Shares to add to, change or remove any right, privilege, restriction or
condition attaching to the Series III Preference Shares as a series or in
respect of any other matter requiring the consent of the holders of the Series
III Preference Shares may be given in such manner as may then be required by
law, subject to a minimum requirement that such approval be given by resolution
signed by all the holders of the Series III Preference Shares or passed by the
affirmative vote of at least 2/3 of the votes cast at a meeting of the holders
of the Series III Preference Shares duly called for that purpose.
The formalities to be observed with respect to the giving of
notice of any such meeting or any adjourned meeting, the quorum required
therefor and the conduct thereof shall be those from time to time prescribed by
the by-laws of the Corporation with respect to meetings of shareholders or if
not so prescribed, as required by the Act in force at the time of the meeting or
as otherwise required by law. On every poll taken at every meeting of holders of
Series III Preference Shares as a series, each holder of Series III Preference
Shares entitled to vote thereat shall have one vote in respect of each Series
III Preference Share held.
Exhibit 1.1 i
[CANADA LETTERHEAD]
CERTIFICATE CERTIFICAT
OF AMENDMENT DE MODIFICATION
CANADA BUSINESS LOI CANADIENNE SUR
CORPORATIONS ACT LES SOCIETES PAR ACTIONS
HOLLINGER INC. 197578-1
Name of corporation-Denomination de la societe Corporation number-Numero de la societe
I hereby certify that the articles of the Je certifie que les statuts de la societe
above-named corporation were amended: susmentionnee ont ete modifies:
a) under section 13 of the Canada Business [ ] a) en vertu de I'article 13 de la Loi
Corporations Act in accordance with the canadienne sur les societes par actions,
attached notice; conformement a I'avis ci-joint;
b) under section 27 of die Canada Business [ ] b) en vertu de I'article 27 de la Loi canadienne
Corporations Act as set out in the attached sur les societes par actions, tel qu'il est
articles of amendment designating a series indique dans les clauses modificatrices
of shares; ci-jointes designant une serie d'actions;
c) under section 179 of the Canada Business [X] c) en vertu de I'article 179 de la Loi
Corporations Act as set out in the attached canadienne sur les societes par actions, tel
articles of amendment; qu'il est indique dans les clauses
modificatrices ci-jointes;
d) under section 191 of the Canada Business [ ] d) en vertu de I'article 191 de la Loi canadienne
Corporations Act as set out in the attached sur les societes par actions, tel qu'il est
articles of reorganization; indique dans les clauses de reorganisation
ci-jointes;
APRIL 22,2003 / LE 22 AVRIL 2003
Director - Directeur Date of Amendment - Date de modification
[CANADA LETTERHEAD]
FORM 4 FORMULE 4
ARTICLES OF AMENDMENT CLAUSES MODIFICATRICES
(SECTION 27 OR 177) (ARTICLES 27 OU 177)
1 - Name of the Corporation 2 - Corporation No. - N' de la societe
- Denomination societe de la societe
HOLLINGER INC. 197578-1
3 - The articles of the above-named Les status de la societe mentionnec
corporation are amended as follows: ci-dessus sont modifies de la facon
suivante:
The new series of Preference Shares of the Corporation shall consist of an
unlimited number of Preference Shares designated as Retractable Non-Voting
Preference Shares Series IV, having the rights, privileges, restrictions and
conditions set forth in annexed Schedule A.
Date Signature 4- Capacity of - En qualite de
April 22,2003 /s/ Charles G. Cowan Vice-President and Secretary
For Departmental Printed Name -
Use Only
Charles G. Cowan
SCHEDULE A
NUMBER AND DESIGNATION OF
AND RIGHTS, PRIVILEGES, RESTRICTIONS
AND CONDITIONS ATTACHING TO
THE SERIES IV PREFERENCE SHARES
The series of Preference Shares of the Corporation shall
consist of an unlimited number of Preference Shares which shall be designated as
Retractable Non-Voting Preference Shares Series IV (hereinafter referred to as
the "Series IV Preference Shares") and which, in addition to the rights,
privileges, restrictions and conditions attached to the Preference Shares as a
class, shall have attached thereto the following rights, privileges,
restrictions and conditions:
1. INTERPRETATION
1.1. DEFINITIONS
For the purpose hereof:
(a) "Act" means the Canada Business Corporations Act, as amended,
re-enacted or replaced from time to time;
(b) "Benchmark Price" on any Retraction Date means an amount
equal to $10 multiplied by the quotient obtained when (i) the
simple average of the End-of-Day Price for each of the 20
business days preceding that Retraction Date of the Two Series
of Government of Canada Bonds is divided by (ii) the simple
average of the End-of-Day Price for each of the 20 business
days preceding April 30, 2003 of the Two Series of Government
of Canada Bonds;
(c) "Board" means the board of directors of the Corporation or the
Executive Committee thereof;
(d) "Business Day" means a day other than Saturday, Sunday or any
other day that is treated as a statutory holiday in the
jurisdiction in which the Corporation's registered office is
located;
(e) "End-of-Day Price" means the bid-side price for each of the
Two Series of Government of Canada Bonds as published in the
National Post; provided that in the event that the National
Post newspaper fails 10 provide a published quote for a bond
on a date during the relevant 20 business day period, then the
bid-side price for such bond on such day shall be obtained
from a major Canadian investment dealer chosen by the
Corporation;
(f) "junior share" means a share of the Corporation ranking junior
to the Series IV Preference Shares with respect to the payment
of dividends or the distribution of
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assets in the event of the liquidation, dissolution or
winding-up of the Corporation, whether voluntary or
involuntary, or in the event of any other distribution of
assets of the Corporation among its shareholders for the
purpose of winding up its affairs;
(g) "Mandatory Redemption Date" has the meaning set out in section
3.2;
(h) "Optional Redemption Date" has the meaning set out in section
3.1;
(i) "ranking as to capital" means ranking with respect to the
distribution of assets in the event of a liquidation,
dissolution or winding-up of the Corporation, whether
voluntary or involuntary, or in the event of any other
distribution of assets of the Corporation among its
shareholders for the purpose of winding up its affairs;
(j) "Retraction Date" means any Business Day on which the
documents specified in section 4.1 are duly tendered by a
holder of Series IV Preference Shares in respect of the
exercise of his at her retraction right pursuant to Article 4;
(k) "Retraction Notice" has the meaning set out in section 4.1;
and
(1) "Retraction Price" of the Series IV Preference Shares means:
(i) on or before April 30, 2007, 95% of the Benchmark
Price on the Retraction Date plus any accrued and
unpaid dividends on the Series IV Preference Shares
up to and including the Retraction Date;
(ii) after April 30, 2007, $9.50 plus accrued and unpaid
dividends on the Series IV Preference Shares up to
and including the Retraction Date; and
(m) "Two Series of Government of Canada Bonds" means the 6% series
of Government of Canada bonds due on June I, 2008 and the 10%
series of Government of Canada bonds due on June 1, 2008.
1.2. DATES
In the event that any date on which any dividend on the Series
IV Preference Shares is payable by the Corporation, or on or by which any other
action is required to be taken by the Corporation or the holders of Series IV
Preference Shares hereunder, is not a Business Day, then such dividend shall be
payable, or such other action shall be required to be taken, on or by the next
succeeding date that is a Business Day.
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1.3. CURRENCY
All cash amounts paid by the Corporation in respect of the
Series IV Preference Shares shall be made in Canadian dollars and all references
herein to monetary amounts shall be construed accordingly.
2. DIVIDENDS
2.1. PAYMENT OF DIVIDENDS
The holders of the Series IV Preference Shares shall be
entitled to receive, and the Corporation shall pay thereon, as and when declared
by the Board, subject to the insolvency provisions of applicable law, an annual
cumulative preferential cash dividend in lawful money of Canada of $0.80 per
share payable quarterly in four equal amounts of $0.20 on each third month
anniversary of May 6, 2003 commencing with a dividend of $0.20 per share payable
on August 6, 2003.
2.2. METHOD OF PAYMENT
(a) Cheques payable in lawful money of Canada at any branch in
Canada of the Corporation's bankers shall be issued in respect
of any cash dividends or distributions on the Series IV
Preference Shares (less any tax required to be withheld by the
Corporation). The mailing, by prepaid first class mail, of
such a cheque to a holder of Series IV Preference Shares,
shall be deemed to be payment of the dividends represented
thereby unless the cheque is not paid upon presentation.
Dividends which are represented by a cheque which has not been
presented to the Corporation's bankers for payment or that
otherwise remain unclaimed for a period of six years from the
date on which they were declared to be payable shall be
forfeited to the Corporation.
(b) Notwithstanding anything to the contrary herein the
Corporation shall pay to any shareholder whose latest address
as shown on the books of the Corporation is not in Canada all
dividends in United States dollars unless any such shareholder
requests payment in Canadian dollars. Any such payment in
United States dollars shall be in an amount equivalent to the
amount otherwise payable in Canadian dollars converted to
United States dollars at the Bank of Canada noon rate of
exchange on the applicable dividend record date.
2.3. PARTIAL PAYMENT
If on any payment date for any dividends or distributions
declared on the Series IV Preference Shares under section 2.1 hereof the
dividends or distributions are not paid in full on all of the Series IV
Preference Shares then outstanding, any such dividends or distributions that
remain unpaid shall be paid on a subsequent date or dates determined by the
Board on which the
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Corporation shall have sufficient money or other assets properly applicable to
the payment of such dividends or distributions.
3. REDEMPTION
3.1. OPTIONAL REDEMPTION AFTER APRIL 30, 2006
After April 30, 2006, subject to the provisions of the Act,
this Article 3 and to the rights, privileges, restrictions and conditions
attaching to any shares of the Corporation ranking prior to the Series IV
Preference Shares, the Corporation may, upon giving notice as hereinafter
provided, redeem all or any part of the then outstanding Series IV Preference
Shares on payment for each share to be redeemed of $10.00 together with an
amount equal to all dividends accrued and unpaid thereon up to and including the
redemption date (the "Optional Redemption Date") (the whole of such payment
constituting and being herein referred to as the "Redemption Price"). In the
case of a redemption of less than all of the Series IV Preference Shares
pursuant to this section 3.1 the Corporation shall redeem as nearly as
practicable the same portion of Series IV Preference Shares held by each holder.
In case of a redemption of Series IV Preference Shares
pursuant to this section 3.1, at least three Business Days prior to the Optional
Redemption Date the Corporation shall issue a press release and not less than 30
days and not more than 60 days prior to the Optional Redemption Date, the
Corporation shall send by prepaid first class mail or deliver a notice in
writing to each person who at the date of mailing or delivery is a holder of
Series IV Preference Shares each of which shall state that the Corporation
intends to redeem Series IV Preference Shares pursuant to this section 3,1 and
set out the Redemption Price and Optional Redemption Date. Such notice shall be
mailed or delivered to each holder of Series IV Preference Shares to be redeemed
at the last address of such holder as it appears on the securities register of
the Corporation, or in the event of the address of any such holder not so
appearing, then to the last address of such holder known to the Corporation.
Accidental failure or omission to give such notice to one or more holders shall
not affect the validity of such redemption, but if such failure or omission is
discovered notice as aforesaid shall be given forthwith to such holder or
holders and shall have the same force and effect as if given in due time. The
press release shall also set out the portion of Series TV Preference Shares to
be redeemed and the notice shall also set out the number of Series IV
Preference Shares held by the person to whom it is addressed which are to be
redeemed and the place or places in Canada at which holders of Series IV
Preference Shares may present and surrender the certificate or certificates
representing such shares for redemption.
In case of redemption of Series IV Preference Shares pursuant
to this section 3.1 the Corporation shall pay or cause to be paid to or to the
order of the holders of the Series IV Preference Shares to be redeemed the
Redemption Price of such shares on presentation and surrender, at the registered
office of the Corporation or any other place or places in Canada specified in
the notice of redemption, of the certificate or certificates representing the
Series IV Preference Shares called for redemption. Payment in respect of Series
IV Preference Shares
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being redeemed shall be made by cheque payable to the respective holders thereof
in lawful money of Canada at any branch in Canada of the Corporation's bankers.
If a part only of the Series IV Preference Shares represented by any certificate
shall be redeemed, a new certificate representing the balance of such shares
shall be issued to the holder thereof at the expense of the Corporation upon
presentation and surrender of the first mentioned certificate.
The Corporation shall have the right, at any time after the
mailing or delivery of notice of its intention to redeem Series IV Preference
Shares, to deposit the Redemption Price of the Series IV Preference Shares so
called for redemption, or of such of the Series IV Preference Shares which are
represented by certificates which have not, at the date of such deposit, been
surrendered by the holders thereof in connection with such redemption, in a
separate account in any chartered bank or trust company in Canada named in the
redemption notice or in a subsequent notice in writing to the holders of the
Series IV Preference Shares in respect of which the deposit is made, to be paid
without interest to or to the order of the respective holders of the Series IV
Preference Shares called for redemption upon presentation and surrender to such
bank or trust company of the certificates representing such shares. Upon such
deposit being made or upon the Optional Redemption Date, whichever is the later,
the Series IV Preference Shares in respect of which such deposit shall have been
made shall be deemed to be redeemed and the rights of the holders thereof shall
be limited to receiving, without interest, the Redemption Price of their
respective Series IV Preference Shares being redeemed upon presentation and
surrender of the certificate or certificates representing such shares. Any
interest allowed on any such deposit shall belong to the Corporation.
3.2. MANDATORY REDEMPTION ON APRIL 30, 2008
On April 30, 2008 (the "Mandatory Redemption Date"), subject
to the provisions of the Act, this Article 3 and to the rights, privileges,
restrictions and conditions attaching to any shares of the Corporation ranking
prior to the Series IV Preference Shares, the Corporation shall redeem all of
the then outstanding Series IV Preference Shares on payment for each share to be
redeemed of $10.00 together with an amount equal to all dividends accrued and
unpaid thereon up to and including the Mandatory Redemption Date (the whole of
such payment constituting and being herein referred to as the "Redemption
Price").
In case of a redemption of Series IV Preference Shares
pursuant to this section 3.2, on or before the Mandatory Redemption Date the
Corporation shall not less than 30 days and not more than 60 days prior to the
Mandatory Redemption Date send by prepaid first class mail or deliver a, notice
to each person who at the date of mailing or delivery is a holder of Series IV
Preference Shares each of which shall state that the Corporation shall redeem
Series IV Preference Shares pursuant to this section 3.2 and set out the
Redemption Price and Mandatory Redemption Date. Such notice shall be mailed or
delivered to each holder of Series IV Preference Shares to be redeemed at the
last address of such holder as it appears on the securities register of the
Corporation, or in the event of the address of any such holder not so appearing,
then to the last address of such holder known to the Corporation. Accidental
failure or omission to give such notice to one or more holders shall not affect
the validity of such redemption, but if
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such failure or omission is discovered notice as aforesaid shall be given
forthwith to such holder or holders and shall have the same force and effect as
if given in due time. The notice shall set out the place or places in Canada at
which holders of Series IV Preference Shares must present and surrender the
certificate or certificates representing such shares for redemption.
In case of a redemption of Series IV Preference Shares
pursuant to this section 3.2, the Corporation shall pay or cause to be paid to
or to the order of the holders of the Series IV Preference Shares to be redeemed
the Redemption Price of such shares on presentation and surrender, at the
registered office of the Corporation or any other place or places in Canada
specified in the notice of redemption, of the certificate or certificates
representing the Series IV Preference Shares called for redemption. Payment in
respect of Series IV Preference Shares being redeemed shall be made by cheque
payable to the respective holders thereof in lawful money of Canada at any
branch in Canada of the Corporation's bankers,
The Corporation shall have the right to deposit the Redemption
Price of the Series IV Preference Shares so called for redemption, or of such of
the Series IV Preference Shares which are represented by certificates which have
not, at the date of such deposit, been surrendered by the holders thereof in
connection with such redemption, in a separate account in any chartered bank or
trust company in Canada named in the redemption notice or in a subsequent notice
in writing to the holders of the Series IV Preference Shares in respect of which
the deposit is made, to be paid without interest to or to the order of the
respective holders of the Series IV Preference Shares called for redemption upon
presentation and surrender to such bank or trust company of the certificates
representing such shares. Upon such deposit being made or upon the Mandatory
Redemption Date, whichever is the later, the Series IV Preference Shares in
respect of which such deposit shall have been made shall be deemed to be
redeemed and the rights of the holders thereof shall be limited to receiving,
without interest, the Redemption Price of their respective Series IV Preference
Shares being redeemed upon presentation and surrender of the certificate or
certificates representing such shares. Any interest allowed on any such deposit
shall belong to the Corporation.
3.3. CESSATION OF RIGHTS
Series IV Preference Shares redeemed pursuant to this Article
3 shall cease to be entitled to dividends or any other participation in any
distribution of the assets of the Corporation and the holders thereof shall not
be entitled to exercise any of their other rights as shareholders in respect
thereof unless the payment to be made on redemption shall not be made as
required in which case the rights of the holders shall remain unaffected.
Redemption moneys which are represented by a cheque which has not been presented
to the Corporation's bankers for payment or that otherwise remain unclaimed
(including moneys held on deposit in a separate account as provided for above)
for a period of six years from the date specified for redemption shall be
forfeited to the Corporation.
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4. RETRACTION BIGHTS
4.1. RIGHT OF RETRACTION
At any time, a holder of Series IV Preference Shares shall be
entitled, subject to the provisions of the Act and in the manner hereinafter
provided, to require the Corporation to redeem all or any of the Series IV
Preference Shares registered in the name of such holder on payment for each
share to be redeemed of the Retraction Price.
The Corporation shall pay or cause to be paid to or to the
order of the holders of the Series IV Preference Shares to be redeemed the
Retraction Price of such shares on presentation and surrender, at the registered
office of the Corporation or any other place or places in Canada specified in
the notice of redemption, of the certificate or certificates representing the
Series IV Preference Shares called for redemption. Payment in respect of Series
IV Preference Shares being redeemed shall be made by cheque payable to the
respective holders thereof in lawful money of Canada at any branch in Canada of
the Corporation's bankers. If a part only of the Series IV Preference Shares
represented by any certificate shall be redeemed, a new certificate representing
the balance of such shares shall be issued to the holder thereof at the expense
of the Corporation upon presentation and surrender of the first mentioned
certificate.
Series IV Preference Shares may be retracted only by the
registered holder thereof presenting and surrendering to the Corporation, at any
place where the Series IV Preference Shares may be transferred or at such other
place or places as shall be specified in writing by the Corporation to the
holders of the Series IV Preference Shares from time to time, the share
certificate or certificates representing the Series IV Preference Shares to be
redeemed, duly completed and endorsed in the manner prescribed thereon, together
with a request in writing in such form as may be acceptable to the Corporation
(in this section 4,1, the "Retraction Notice") from such holder specifying the
number of Series IV Preference Shares to be redeemed by the Corporation.
4.2. ELECTION IRREVOCABLE
Subject to paragraph 4.4 hereof, the election by a registered
holder of Series IV Preference Shares to surrender any Series IV Preference
Shares for retraction shall be irrevocable upon receipt by the Corporation at
its registered office of the Retraction Notice and the certificate or
certificates representing the Series IV Preference Shares to be redeemed;
provided that the Corporation may, in its unfettered discretion, permit
withdrawal of any such, election at any time prior to payment for the Series IV
Preference Shares to be redeemed.
4.3. RETRACTION LIMITATION
(a) If the redemption by the Corporation of all Series IV
Preference Shares surrendered for retraction on a Retraction
Date would be contrary to applicable law, the Corporation
shall redeem only the maximum number of Series IV Preference
Shares which it is then permitted to redeem selected pro rata
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(disregarding fractions of shares) from the Series IV
Preference Shares surrendered for retraction according to the
number of Series IV Preference Shares surrendered for
retraction by each holder thereof. Thereupon, each such holder
shall be entitled, by notice to the Corporation to withdraw
all or part only of the Series IV Preference Shares
surrendered by such holder for retraction on such Retraction
Date which have not been redeemed by the Corporation and the
Corporation shall, at its expense, issue and deliver to each
holder who exercises such right of withdrawal a new share
certificate representing the Series IV Preference Shares so
withdrawn. Thereafter, the Corporation shall redeem on a date
or dates determined by The Board on which the Corporation
shall have sufficient assets to permit such redemption, the
maximum number of Series IV Preference Shares as have been
surrendered for retraction and not withdrawn or redeemed which
the Corporation determines it is then permitted to redeem,
selected pro rata (disregarding fractions of shares) from such
Series IV Preference Shares according to the number of such
Series IV Preference Shares then held by each holder thereof
and so on until all such Series IV Preference Shares have been
redeemed.
(b) If the Board has acted in good faith in making any of the
determinations referred to in paragraph 4.3(a) hereof, the
Board and the Corporation shall have no liability if such
determination proves to be inaccurate.
(c) If the Corporation does not redeem all Series IV Preference
Shares surrendered for retraction on a Retraction Date the
Corporation shall forthwith after such date notify each holder
whose Series IV Preference Shares have not been redeemed on
such date of such holder's right to withdraw the Series IV
Preference Shares surrendered and not redeemed by the
Corporation,
4.4. CESSATION OF RIGHTS
Series IV Preference Shares redeemed pursuant to this Article
4 shall cease to be entitled to dividends or any other participation in any
distribution of the assets of the Corporation and the holders thereof shall not
be entitled to exercise any of their other rights as shareholders in respect
thereof unless the payment to be made on redemption shall not be made as
required in which case the rights of the holders shall remain unaffected.
Redemption moneys which are represented by a cheque which has not been presented
to the Corporation's bankers for payment or that otherwise remain unclaimed
(including moneys held on deposit in a separate account as provided for above)
for a period of six years from the date specified for redemption shall be
forfeited to the Corporation.
5. VOTING RIGHTS
5.1. Except as herein referred to or as required by law, the
holders of the Series IV Preference Shares as a series shall not be entitled as
such to receive notice of, to attend or to vote at
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any meeting of the shareholders of the Corporation unless and until the
Corporation at any time or from time to time has failed to pay in full eight
dividends payable on the dividend payment dates on the Series IV Preference
shares as contemplated by Article 2, whether or not such eight dividend payment
dates are consecutive and whether or not such dividends have been declared and
whether or not there are any monies of the Corporation properly applicable to
the payment of dividends. Thereafter, but only so long as any dividends on the
Series IV Preference Shares remain in arrears, the holders of the Series IV
Preference Shares shall be entitled to receive notice of, to attend and to vote
at all meetings of shareholders of the corporation, other than any meetings of
the holders of any other class or series of shares of the Corporation held
separately as a class or series, on the basis of one vote for each Series IV
Preference Share held for the election of two directors to the board of
directors of the Corporation in conjunction with the holders of any other series
of preference shares which have a similar right.
6. PURCHASE FOR CANCELLATION
Subject to the provisions of Article 7 and to the rights,
privileges, restrictions and conditions attaching to any shares of the
Corporation ranking prior to the Series IV Preference Shares, the Corporation
may purchase for cancellation at any time all or from time to time any part of
the outstanding Series IV Preference Shares in the open market (including,
without limitation, purchase through or from an investment dealer or firm
holding membership or trading privileges on a stock exchange or which the Series
IV Preference Shares are listed for trading) by invitation for tenders addressed
to all the holders of Series IV Preference Shares then outstanding or by private
agreement. If, in response to an invitation for tenders under the provisions of
this Article 6, more Series IV Preference Shares are tendered at a price or
prices acceptable to the Corporation than the Corporation is prepared to
purchase, then the Series IV Preference Shares to be purchased by the
Corporation shall be purchased as nearly as may be pro rata according to the
number of shares tendered by each holder who submits a tender to the
Corporation, provided that when shares are tendered at different prices, the pro
rating shall be effected only with respect to the shares tendered at the price
at which more shares were tendered than the Corporation is prepared to purchase
after the Corporation has purchased all the shares tendered at lower prices.
7. RESTRICTIONS ON DIVIDENDS AND RETIREMENT OF SHARES
7.1. So long as any of The Series IV Preference Shares are
outstanding, the Corporation shall not, without the approval of the holders of
the Series IV Preference Shares given a$ hereinafter specified;
7.1.1. declare, pay or set apart for payment any dividends on any
junior shares (other than dividends payable in shares of the
Corporation ranking as to capital and dividends junior to the Series IV
Preference Shares);
7.1.2. call for redemption, redeem, purchase or otherwise pay off or
retire for value, or make any capital distributions in respect of, any
junior shares except in connection with the
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retirement thereof pursuant to a retraction privilege attaching thereto
or a redemption right exercisable upon a retraction;
7.1.13. except in connection with the redemption of Series IV
Preference Shares pursuant to Articles 3 or 4, call for redemption,
redeem, purchase or otherwise pay off or retire for value, or make any
capital distribution in respect of, less than all of the Series IV
Preference Shares;
7.1.4. call for redemption, redeem, purchase or otherwise pay off or
retire for value, or make any capital distribution in respect of, any
shares ranking as to capital or dividends on a parity with the Series
IV Preference Shares except in connection with the retirement thereof
pursuant to a retraction privilege attaching thereto or a redemption
right exercisable upon a retraction; or
7.1.5. issue any shares ranking as to capital or dividends prior to
or on a parity with the Series IV Preference Shares;
unless, in each such case, (i) all dividends on the Series IV Preference Shares
then outstanding and on all other shares of the Corporation ranking as to
dividends prior to or on a parity with the Series IV Preference Shares which
have accrued up to and including the dividends payable on the immediately
preceding respective date or dates for the payment of dividends thereon shall
have been declared and paid or set apart for payment, (ii) the Corporation shall
have redeemed all of the Series IV Preference Shares tendered for redemption
pursuant to Article 4, and (IV) the Corporation is not otherwise in default
under the rights, privileges, restrictions and conditions attached to the Series
IV Preference Shares or any other shares of the Corporation ranking as to
dividends or as to capital prior to or on a parity with the Series IV Preference
Shares.
8. LIQUIDATION, DISSOLUTION OR WINDING-UP
8.1. In the event of the liquidation, dissolution or winding-up of
the Corporation, whether voluntary or involuntary, or in the event of any other
distribution of assets of the Corporation among its shareholders for the purpose
of winding up its affairs, the holders of the Series IV Preference Shares shall
be entitled to receive from the assets of the Corporation a sum equal to $10.00
for each Series IV Preference Share held by them respectively, plus an amount
equal to all dividends accrued and unpaid thereon up to the date of payment.
8.2. The whole of such amounts shall be paid before any amount
shall be paid by the Corporation or any assets of the Corporation shall be
distributed to holders of shares of any class of the Corporation ranking as to
capital junior to the Series IV Preference Shares. After payment to the holders
of the Series IV Preference Shares of the amounts so payable to them, they shall
not be entitled to share in any further distribution of the assets of the
Corporation.
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9. AMENDMENT
9.1. The rights, privileges, restrictions and conditions attached
to the Series IV Preference Shares may be added to, changed or removed by
Articles of Amendment, but only with the approval of the holders of the Series
IV Preference Shares given as hereinafter specified in addition to any vote or
authorization required by law.
10. APPROVAL OF HOLDERS OF THE SERIES IV PREFERENCE SHARES
10.1. The approval of the holders of the Series IV Preference Shares
to add to, change or remove any right, privilege, restriction or condition
attaching to the Series IV Preference Shares as a series or in respect of any
other matter requiring the consent of the holders of the Series IV Preference
Shares may he given in such manner as may then be required by law, subject to a
minimum requirement that such approval be given by resolution signed by all the
holders of the Series IV Preference Shares or passed by the affirmative vote of
at least 2/3 of me votes cast at a meeting of the holders of the Series IV
Preference Shares duly called for that purpose.
The formalities to be observed with respect to the giving of
notice of any such meeting or any adjourned meeting, the quorum required
therefor and the conduct thereof shall be those from time to time prescribed by
the by-laws of the Corporation with respect to meetings of shareholders or if
not so prescribed, as required by the Act in force at the time of the meeting or
as otherwise required by law. On every poll taken at every meeting of holders of
Series IV Preference Shares as a series, each holder of Series IV Preference
Shares entitled to vote thereat shall have one vote in respect of each Series IV
Preference Share held.
Exhibit 1.2 a
BY-LAW NUMBER A24
A BY-LAW RELATING GENERALLY TO THE
TRANSACTION OF THE BUSINESS AND
AFFAIRS OF
HOLLINGER ARGUS LIMITED
TABLE OF CONTENTS
ARTICLE DESCRIPTION
I Interpretation
II Business of the Corporation
III Directors
IV Committees of the Board
V Officers
VI Protection of Directors, Officers and Others
VII Shares
VIII Dividends and Rights
IX Meetings of Shareholders
X Notices
XI Effective Date
BE IT MADE as a by-law of the Hollinger Argus Limited as follows:
ARTICLE I
INTERPRETATION
1.01 DEFINITIONS. In the by-laws and special resolutions of the Corporation,
unless the context otherwise requires:
(a) "Act" means the Business Corporations Act, 1982, Statutes of
Ontario, 1982, Chapter 4, and any statute that may be
substituted therefor, as from time to time amended, and any
reference to a particular provision of the Act shall be deemed
also to be a reference to any similar provision resulting from
the amendment or replacement thereof:
(b) "appoint" includes "elect" and vice versa:
(c) "articles" shall, in respect of the Corporation, have the
meaning attributed to it by the Act:
(d) "Board" means the Board of Directors of the Corporation:
(e) "by-laws" means this by-law and all other by-laws of the
Corporation from time to time in force and effect:
(f) "committee" means a committee of Directors appointed by the
Board:
(g) "Corporation" means HOLLINGER ARGUS LIMITED:
(h) "Director" means a director of the Corporation:
(i) "meeting of shareholders" includes an annual meeting of
shareholders and a special meeting of shareholders:
(j) "non-business day" means any day that is a Saturday, Sunday or
any other day that is a holiday as defined in the
Interpretation Act, Revised Statutes of Ontario, 1980, Chapter
219, and any statute that may be substituted therefor, as from
time to time amended:
(k) "officer" means an officer of the Corporation:
(l) "recorded address" means.
(i) in the case of a shareholder, his latest address as
shown in the records of the Corporation or its
transfer agent.
(ii) in the case of an officer or auditor of the
Corporation, his address as shown in the records of
the Corporation, and
(iii) in the case of a Director of the Corporation, the
latest address as shown in the records of the
Corporation or in the most recent notice filed by the
Corporation under the Corporations Information Act.
Revised Statutes of Ontario, 1980, Chapter 96, and
any statute that may be substituted therefor, as from
time to time amended, whichever is the more current:
(m) "signing officer" means, in relation to any instrument, any
person authorized to sign the same on behalf of the
Corporation by section 2.04 hereof or by a resolution passed
pursuant thereto:
(n) "shareholders" means shareholders of the Corporation.
1.02 Subject to section 1.01 hereof, words and expressions defined in the
Act have the same meanings when used in the by-laws and special resolutions of
the Corporation.
1.03 Words in the by-laws and special resolutions of the Corporation
importing the singular number include the plural and vice versa: words importing
gender include the masculine and feminine and neuter genders: and words
importing persons include individuals, bodies corporate, partnerships, trusts
and unincorporated organizations.
ARTICLE II
BUSINESS OF THE CORPORATION
2.01 REGISTERED OR HEED OFFICE. The Board may from time to time fix by
resolution the location of the registered office of the Corporation at a place
within Ontario where the articles provide that the registered office or head
office of the Corporation is to be located.
2.02 CORPORATE SEAL. The Corporation shall have a seal which shall be
adopted and may be changed by resolution of the Directors.
2.03 FINANCIAL YEAR. Until changed by the Board, the financial year of the
Corporation shall end on the last day of December in each year.
2.04 EXECUTION OF INSTRUMENTS. Contracts and engagements on behalf of the
Corporation may be made and bills of exchange and promissory notes on behalf of
the Corporation may be made, drawn, accepted and endorsed and deeds, transfers,
mortgages, charges, hypothecs, leases, assignments and all other documents may
be executed on-behalf of the Corporation (i) by the following officers: any one
of the Chairman of the Board, the Vice-Chairman of the Board, the President, any
Executive Vice-President or any Vice-President together with any one of the
Secretary, the Treasurer, any Assistant Secretary or any Assistant Treasurer, or
(ii) by any one of the foregoing officers together with any one Director:
provided nevertheless that the Board may appoint any other person or persons
from time to time to make contracts and engagements on behalf of the
Corporation, to draw, accept and endorse bills of exchange and promissory notes
on behalf of the Corporation, and to execute deeds, transfers, mortgages,
charges, hypothecs, leases, assignments and all other documents on behalf of the
Corporation. The Corporation's seal may be affixed to such documents as require
the same by any of the persons executing such documents in accordance with the
foregoing provisions of this section.
2.05 BANKING ARRANGEMENTS. The Corporation's bank accounts shall be kept in
such bank or banks, trust company or trust companies or other depositories as
the Board may from time to time determine. All cheques, drafts, notes,
acceptances or orders for the payment of money shall be signed on behalf of the
Corporation (i) by any one of the Chairman of the Board, the Vice-Chairman of
the Board, the President, any Executive Vice-President or any Vice-President
together with any one of the Secretary, the Treasurer, any Assistant Secretary
or any Assistant Treasurer, (ii) by any one of the foregoing officers together
with any one Director, or (iii) by such other officer or officers or such other
person or persons as the Board may from time to time appoint: provided that
bills of exchange, promissory notes, or cheques or orders for the payment of
money may be endorsed for deposit to the credit of the Corporation's bank
account by any one of the following, viz: the Chairman of the Board, the
Vice-Chairman of the Board, the President, any Executive Vice-President, any
Vice-President, the Secretary, the Treasurer, any Assistant Secretary, any
Assistant Treasurer, or such other person or persons as the Board may from time
to time appoint for that purpose, or, if the Board so determines, by means of a
rubber stamp. If authorized by resolution of the Board, the signature of any
officer or other person authorized to sign cheques,
drafts, notes, acceptances or orders for the payment of money may he engraved,
lithographed or otherwise mechanically reproduced in facsimile thereon and in
such event every such facsimile signature for all purposes shall be deemed to be
the signature of the officer or person whose signature it reproduces and shall
be binding upon the Corporation notwithstanding that any signing officer or
person whose signature is so produced may have ceased to hold office at the date
of delivery or issue of such cheques, drafts, notes, acceptances or orders for
the payment of money.
2.06 VOTING RIGHTS IN OTHER BODIES CORPORATE. Any security carrying voting
rights of any firm or other body corporate held from time to time by the
Corporation shall be voted at such meeting or meetings of security holders of
such firm or other body corporate and in such manner and by such person or
persons as may be specified in a resolution passed by the Board. In the absence
of such a resolution, the signing officers of the Corporation may from time to
time execute and deliver for and on behalf of the Corporation proxies and/or
arrange for the issuance of voting certificates and/or other evidence of the
right to vote in such names including their own as they may determine without
the necessity of a resolution or other action by the Board.
2.07 VOTING AT MUNICIPAL ELECTIONS. The Chairman of the Board, the
Vice-Chairman of the Board, the President, an Executive Vice-President, a
Vice-President. the Secretary or the Treasurer, or any person named, in writing
for that purpose by any two of the aforementioned officers, is hereby authorized
and empowered to vote for and on behalf of the Corporation in any municipal
election held in any municipality in which the Corporation is entitled to vote.
ARTICLE III
DIRECTORS
3.01 QUORUM OF DIRECTORS. The quorum at any meeting of Directors shall be
two-fifths of the minimum number of Directors provided for in the articles or
such greater number of Directors as the Directors may determine. A majority of
the Directors shall be resident Canadians and at least one-third of the
Directors shall not be officers or employees of the Corporation or any of its
affiliates.
3.02 QUALIFICATION. The following persons are disqualified from being a
Director of the Corporation:
(a) a person who is less than eighteen years of age:
(b) a person who is of unsound mind and has been so found by a
court in Canada or elsewhere:
(c) a person who is not an individual: and
(d) a person who has the status of a bankrupt.
Unless the articles otherwise provide, a Director shall not be required to hold
shares issued by the Corporation.
3.03 ELECTION AND TERM. Unless the articles otherwise provide, a Director
not elected for an expressly stated term shall cease to hold office at the close
of the First annual meeting of shareholders following his election. The election
of Directors shall take place at each annual meeting of shareholders and all
Directors then in office shall retire but, if qualified, shall be eligible for
re-election. The election may be by a show of hands or by resolution of the
shareholders or, if a ballot is required or demanded, by ballot. If an election
of Directors is not held at the proper time, the incumbent Directors shall
continue in office until their successors are duly elected.
3.04 REMOVAL OF DIRECTORS. Subject to the provisions of the Act, the
shareholders may by ordinary resolution passed at a meeting of shareholders
remove any Director from office and the vacancy created by such removal may be
filled at the same meeting, failing which it may be filled by a quorum of the
Directors. Where the holders of any class or series of shares of the Corporation
have an exclusive right to elect one or more Directors, a Director so elected
may only be removed by an ordinary resolution passed at a meeting of the
shareholders of that class or series.
3.05 VACATION OF OFFICE.
(a) A Director ceases to hold office when (i) he dies or, subject
to subsection 3.05(b) of this by-law, he resigns, (ii) he is
removed from office in accordance with the provisions of the
Act or the by-laws, or (iii) he becomes disqualified from
being a Director under the Act.
(b) A Director may resign his office as a Director by giving the
Corporation his written resignation, which resignation shall
become effective at the later of (i) the time at which such
resignation is received by the Corporation, and (ii) the time
specified in the resignation.
3.06 VACANCIES. Subject to the provisions of the Act and the articles, a
quorum of the Board may fill a vacancy in the Board. In the absence of a quorum
of the Board, the Board shall forthwith call a meeting of shareholders to
fill the vacancy. If the Board fails to call such meeting or if there are no
Directors then in office, any shareholder may call the meeting. A Director
appointed or elected to fill a vacancy holds office for the unexpired term of
his predecessor.
3.07 DUTIES AND CONDUCT OF BUSINESS. The Board shall manage or supervise the
management of the business and affairs of the Corporation. The powers of the
Board may be exercised by a meeting at which a quorum of Directors is present
and, subject to the exceptions permitted by the Act, at which a majority of the
Directors present are resident Canadians, or by resolution in writing signed by
all the Directors entitled to vote on that resolution at a meeting of the Board
if such Directors constitute a quorum. Where there is a vacancy in the Board,
the remaining Directors may exercise all the powers of the Board so long as a
quorum remains in office.
3.08 PLACE OF MEETINGS. Meetings of the Board or of a committee of the Board
may be held at any place within or outside Ontario, provided that in any
financial year of the Corporation a majority of the meetings shall be held at
a place within Canada.
3.09 CALLING OF MEETINGS. Meetings of the Board may be called by the
Chairman of the Board, the Vice-Chairman of the Board, the President or by an
Executive Vice-President or a Vice-President who is a Director or by the
Secretary or by any two Directors.
3.10 NOTICE OF MEETING. Except as hereinafter provided, notice of the time
and place of every meeting of the Board shall be given in the manner provided in
Article X to each Director (a) not less than 48 hours before the time when the
meeting is to be held if the notice is mailed, or (b) not less than 12 hours
before the time when the meeting is to be held if the notice is given personally
or is delivered or is sent by any means of transmitted or recorded
communication: provided that a meeting of the Board may be held at any time on
shorter notice or without notice to any or all Directors and proceedings thereat
shall not thereby be invalidated if all the Directors are present or if those
absent have (i) been given notice of the holding of such meeting or (ii) in any
manner and at any time waived notice of such meeting. No notice of meeting need
be given to a Director in respect of the meeting at which he was elected or
appointed to the Board to fill a vacancy thereon. A notice of a meeting of
Directors need not specify the purpose of or the business to be transacted at
the meeting except where the Act requires such purpose or business to be
specified. A Director may in any manner waive notice of or otherwise consent to
a meeting of the Board.
3.11 FIRST MEETING OF NEW BOARD. Provided a quorum of Directors is present
and, subject to the Act, a majority of Directors present are resident Canadians,
each newly elected Board may without notice hold its first meeting immediately
following the meeting of shareholders at which such Board is elected.
3.12 ADJOURNED MEETING. Notice of an adjourned meeting of the Board is not
required if the time and place of the adjourned meeting is announced at the
original meeting.
3.13 REGULAR MEETINGS. The Board may appoint a day or days in any month or
months for regular meetings of the Board at a place and hour to be named. A copy
of any resolution of the Board fixing the place and time of such regular
meetings shall be sent to each Director forthwith after being passed, but no
other notice shall be required for any such regular meeting except where the
Act requires the purpose thereof or the business to be transacted thereat to be
specified.
3.14 CHAIRMAN. The chairman of any meeting of the Board shall be the
Chairman of the Board or, in his absence or at his request, the Vice-Chairman of
the Board or, in his absence or at his request or that of the Chairman of the
Board, the President. If no such person is present, the Directors present shall
choose one of their number to be chairman.
3.15 PROCEDURE AT MEETINGS. At all meetings of the Board every question
shall be decided by a majority of the votes cast on the question. In case of an
equality of votes the chairman of the meeting shall be entitled, in addition to
his original vote, to a second or casting vote. Notwithstanding the foregoing,
where all the Directors present at or participating in the meeting consent, a
meeting of the Board or of a committee of the Directors may be held by means
of such telephone, electronic or other communication facilities as permit all
persons participating in the meeting to communicate with each other
simultaneously and instantaneously, and a Director participating in such a
meeting is deemed to be present at such meeting.
3.16 INTEREST OF DIRECTORS. No Director shall be disqualified by reason of
his being a Director from, directly or indirectly, contracting with the
Corporation, but shall make such disclosure as required by the Act and shall
refrain from voting where required by the Act.
3.17 REMUNERATION AND EXPENSES. The Directors may fix the remuneration of
the Directors, officers and
employees of the Corporation. The Directors shall be reimbursed as the Board may
from time to time determine in respect of their out-of-pocket expenses incurred
in attending Board, committee or shareholders meetings or otherwise in respect
of the performance by them of their duties. No confirmation by the shareholders
of any such reimbursement shall be required. If any Director or officer shall be
employed by or shall perform services for the Corporation otherwise than as a
Director or officer or shall be a member of a firm or a shareholder, director or
officer of a body corporate which is employed by or performs services for the
Corporation, the fact of his being a Director or officer of the Corporation
shall not, subject to the Act, disentitle such Director or officer or such firm
or body corporate, as the case may be, from receiving proper remuneration for
such services.
ARTICLE IV
COMMITTEES OF THE BOARD
4.01 COMMITTEES. The Directors may from time to time appoint from their
number one or more committees of Directors (including, without limitation, an
executive committee) and, subject to the Act, may delegate to any such committee
any of the powers of the Directors. A majority of the members of any such
committee shall be resident Canadians. The functions of any such committee may,
but need not, be advisory only.
4.02 AUDIT COMMITTEE. The Corporation shall have an audit committee to be
composed of not fewer than three Directors qualified in accordance with the
provisions of the Act to hold office until the next annual meeting of the
shareholders, which committee shall exercise the powers of an audit committee as
provided in the Act.
4.03 PROCEDURE. Unless otherwise determined by the Board, each committee of
the Board shall have power to fix its quorum at not less than a majority of its
members, to elect its chairman and vice-chairman and to regulate its procedure.
4.04 INTERPRETATION. Subject to the Act, any power of or conferred on the
Board or the Directors, whether under the by-laws or otherwise, may be delegated
by the Board to any committee or officer. Nothing in the by-laws shall be
construed as in any way limiting the powers which the Directors may delegate to
any committee, officer or other person.
ARTICLE V
OFFICERS
5.01 APPOINTMENT. There shall be a Chairman of the Board, a Vice-Chairman of
the Board and a President, all of whom shall be Directors of the Corporation,
and one or more Vice-Presidents (to which title may be added words indicating
seniority or function), a Secretary, a Treasurer and such other officers as the
Board may determine, including one or more assistants to any of the officers so
appointed. The Board may specify the duties of and, in accordance with the
by-laws and subject to the provisions of the Act, delegate to such officers
powers to manage the business and affairs of the Corporation.
5.02 CHAIRMAN OF THE BOARD. The Chairman of the Board shall have such duties
as may be assigned to him from time to time by the Board and the by-laws.
5.03 VICE-CHAIRMAN OF THE BOARD. During the absence or inability of the
Chairman of the Board, his powers and duties shall devolve upon the
Vice-Chairman of the Board. If the Vice-Chairman of the Board exercises any such
power or duty the absence or inability of the Chairman of the Board with
reference thereto shall be presumed. The Vice-Chairman of the Board shall also
perform such other duties and exercise such other powers as the Board may from
time to time prescribe or as the Chairman of the Board may delegate to him.
5.04 PRESIDENT. The President shall, subject to the authority of the Board,
have general supervision of the business of the Corporation. The President shall
have such other powers and duties as the Board may specify.
5.05 VICE-PRESIDENT. A Vice-President shall have such powers and duties as
the Board may specify.
5.06 SECRETARY. The Secretary shall attend and be the secretary of all
meetings of the Board, shareholders and committees of the Board and shall enter
or cause to be entered in records kept for that purpose minutes of all
proceedings thereat: he shall give or cause to be given as and when instructed
all notices to shareholders. Directors, officers, auditors and members of
committees of the Board: he shall be the custodian of the stamp or mechanical
device generally used for affixing the corporate seal of the Corporation and of
all books, papers, records, documents and instruments belonging to the
Corporation, except when some other officer or agent has been appointed for
those purposes. The Secretary shall have such other powers and duties as the
Board may specify.
5.07 TREASURER. The Treasurer, under the direction of the Board, shall
control the deposit of money, the safekeeping of securities and the disbursement
of funds of the Corporation. The Treasurer shall render to the Board whenever
required an account of all of his transactions as Treasurer and report to and
advise the Board on the financial position and requirements of the Corporation.
The Treasurer shall have such other powers and duties as the Board may specify.
5.08 POWERS AND DUTIES OF OTHER OFFICERS. The powers and duties of all other
officers shall be such as the terms of their engagement call for or as the Board
may specify. Any of the powers and duties of an officer to whom an assistant has
been appointed may be exercised and performed by such assistant, unless the
Board otherwise directs.
5.09 VARIATION OF POWERS AND DUTIES. The Board may from time to time and
subject to the provisions of the Act vary, add to or limit the powers and duties
of any officer.
5.10 TERM OF OFFICE. The Board, in its discretion, may remove any officer of
the Corporation, without prejudice to such officer's rights under any employment
contract. Otherwise, each officer appointed by the Board shall hold office until
his successor is appointed or until his earlier resignation.
5.11 TERMS OF EMPLOYMENT AND REMUNERATION. The terms of employment and the
remuneration of an officer appointed by the Board shall be settled by the Board
from time to time. The Board may fix the remuneration of the officers from time
to time.
5.12 INTEREST OF OFFICERS. No officer shall be disqualified by reason of his
being an officer from, directly or indirectly, contracting with the Corporation,
but shall disclose his interest in any material contract or proposed material
contract with the Corporation as required by the Act.
5.13 AGENTS AND ATTORNEYS. The Board may from time to time appoint agents or
attorneys for the Corporation in or outside Ontario with such powers of
management or otherwise (including the powers to subdelegate) as may be thought
fit.
5.14 FIDELITY BONDS. The Board may require such officers, employees and
agents of the Corporation as the Board deems advisable to furnish bonds for the
faithful discharge of their powers and duties, in such form and with such surety
as the Board may from time to time determine.
ARTICLE VI
PROTECTION OF DIRECTORS, OFFICERS AND OTHERS
6.01 STANDARD OF CARS. Every Director and officer in exercising his powers
and discharging his duties shall (a) act honestly and in good faith with a view
to the best interests of the Corporation, and (b) exercise the care, diligence
and skill that a reasonably prudent person would exercise in comparable
circumstances.
6.02 LIABILITY FOR ACTS OF OTHERS. Subject to the provisions of section 6.01
of this by-law, no Director or officer shall be liable for the acts, receipts,
neglects or defaults of any other Director or officer or employee or for joining
in any receipt or other act for conformity or for any loss, damage, or expense
happening to the Corporation through the insufficiency or deficiency of title to
any property acquired by order of the Board for or on behalf of the Corporation
or for the insufficiency or deficiency of any security in or upon which any of
the moneys of or belonging to the Corporation shall be placed out or invested,
or for any loss or damage arising from the bankruptcy, insolvency, or tortious
act of any person, firm or body corporate with whom or which any moneys,
securities or effects of the Corporation shall be lodged or deposited or for any
loss occasioned by any error of judgment or oversight on his part, or for any
loss, conversion, misapplication or misappropriation of or damage resulting from
any dealings with any moneys, securities or other assets belonging to the
Corporation or for any other loss, damage or misfortune whatsoever which may
happen in the execution of the duties of his respective office or trust or in
relation thereto, unless the same are occasioned by his own wilful neglect or
default: provided that nothing herein shall relieve any Director or officer from
the duty to act in accordance with the Act or from liability for any breach
thereof.
6.03 INDEMNIFICATION BY CORPORATION.
(a) Subject to the limitations contained in the Act, the
Corporation shall indemnify a Director or officer, a former
Director or officer or a person who acts or acted at the
Corporation's request as a director or officer of a body
corporate of which the Corporation is or was a shareholder or
creditor, and his heirs and legal representatives, against all
costs, charges and expenses, including an amount paid to
settle an
action or satisfy a judgment, reasonably incurred by him in
respect of any civil, criminal or administrative action or
proceeding to which he is made a party by reason of being or
having been a Director or officer of the Corporation or such
body corporate, if (i) he acted honestly and in good faith
with a view to the best interests of the Corporation, and (ii)
in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, he had
reasonable grounds for believing that his conduct was lawful.
The Corporation may from time to time enter into agreements
pursuant to which the Corporation agrees to indemnify one or
more persons in accordance with the provisions of this
section.
(b) The Corporation shall, with any approval required by law,
indemnify a person referred to in subsection 6.03(a) of this
by-law in respect of an action by or on behalf of the
Corporation or a body corporate to procure a judgment in its
favour, to which he is made a party by reason of being or
having been a Director or an officer of the Corporation or
body corporate, against all costs, charges and expenses
reasonably incurred by him in connection with such action if
he fulfills the conditions set out in clauses 6.03(a)(i) and
6.03(a)(ii) of this by-law.
6.04 INSURANCE. The Corporation may purchase and maintain insurance for the
benefit of any person referred to in subsection 6.03(a) of this by-law against
any liability incurred by him (a) in his capacity as a Director or officer,
except where the liability relates to his failure to act honestly and in good
faith with a view to the best interests of the Corporation, or (b) in his
capacity as a director or officer of another body corporate where he acts or
acted in that capacity at the Corporation's request, except where the liability
relates to his failure to act honestly and in good faith with a view to the best
interests of the body corporate.
ARTICLE VII
SHARES
7.01 ISSUE. The Board may from time to time issue, or grant options to
purchase, the whole or any part of the authorized and unissued shares of the
Corporation in such manner and on such terms and to such person or persons or
class of persons and for such consideration as the Board shall by resolution
determine or authorize, provided that no share shall be issued until it is fully
paid as provided by the Act.
7.02 COMMISSIONS. The Board may from time to time authorize the Corporation
to pay a commission to any person in consideration of his purchasing or agreeing
to purchase shares of the Corporation, whether from the Corporation or from any
other person, or procuring or agreeing to procure purchasers for any such
shares.
7.03 REGISTRATION OF TRANSFERS. Subject to the provisions of the Act, no
transfer of shares shall be registered in a securities register of the
Corporation except upon presentation of the certificate representing such shares
with an endorsement, which complies with the Act, made thereon or delivered
therewith duly executed by an appropriate person as provided by the Act,
together with such reasonable assurance that the endorsement is genuine and
effective as the Board may from time to time prescribe, upon payment of all
applicable taxes and any fees prescribed by the Board, upon compliance with such
restrictions on transfer as are authorized by the articles and upon satisfaction
of any lien referred to in section 7.05 of this by-law.
7.04 TRANSFER AGENTS AND REGISTRARS. The Board may from time to time appoint
one or more agents to maintain, in respect of each class of securities of the
Corporation issued by it in registered form, a central securities register and
one or more branch securities registers. Such a person may be designated as
transfer agent or registrar according to his functions and one person may be
designated both transfer agent and registrar. The Board may at any time
terminate such appointment.
7.05 LIEN FOR INDEBTEDNESS. If the articles provide that the Corporation
shall have a lien on shares registered in the name of a shareholder indebted to
the Corporation, such lien may be enforced, subject to any other provision of
the articles, by the sale of the shares thereby affected or by any other action,
suit, remedy or proceeding authorized or permitted by law or by equity and,
pending such enforcement, the Corporation may refuse to register a transfer of
the whole or any pan of such shares.
7.06 NON-RECOGNITION OF TRUSTS. Subject to the provisions of the Act, the
Corporation may treat as absolute owner of any share the person in whose name
the share is registered in the securities register as if that person had full
legal capacity and authority to exercise all rights of ownership, irrespective
of any indication to the contrary through knowledge or notice or description in
the Corporation's records or on the share certificate.
7.07 SHARE CERTIFICATES. Every holder of one or more shares of the
Corporation shall be entitled, at his option, to a share certificate, or to a
non-transferable written acknowledgement of his right to obtain a share
certificate.
stating the number and class or series of shares held by him as shown on the
securities register. The Board may from time to time by resolution provide for
the charging of a fee not in excess of that authorized by the Act for every
share certificate issued, except for certificates issued in respect of an issue
of shares. Share certificates and acknowledgements of a shareholder's right to a
share certificate, respectively, shall be in such form as the Board shall from
time to time approve and shall be signed manually by at least one Director or
officer or by or on behalf of a registrar, transfer agent, branch transfer agent
or issuing or other authenticating agent of the Corporation, or by a trustee who
certifies it in accordance with a trust indenture, and any additional signatures
required on a share certificate may be printed or otherwise mechanically
reproduced thereon. If a share certificate contains a printed or mechanically
reproduced signature of a person, the Corporation may issue the certificate
notwithstanding that the person has ceased to be a Director or officer, and the
share certificate shall be as valid as if he were a Director or officer at the
date of its issue.
7.08 REPLACEMENT OF SHARE CERTIFICATES. The Board or any officer or agent
designated by the Board may in its or his discretion direct the issue of a new
share certificate in lieu of and upon cancellation of a share certificate that
has been mutilated or in substitution for a share certificate claimed to have
been lost, destroyed or wrongfully taken on such terms as to indemnity,
reimbursement of expenses and evidence of loss and of title as the Board may
from time to time prescribe, whether generally or in any particular case.
7.09 JOINT SHAREHOLDERS. If two or more persons are registered as joint
holders of any share, the Corporation shall not be bound to issue more than one
certificate in respect thereof and delivery of such certificate to one of such
persons shall be sufficient delivery to all of them. Any of such persons may
give an effectual receipt for the certificate issued in respect thereof or for
any dividend, bonus, return of capital or other money payable or warrant
issuable in respect of such share.
7.10 DECEASED SHAREHOLDERS. In the event of the death of a holder or of one
of the joint holders of any share, the Corporation shall not be required to make
any entry in the securities register in respect thereof or to make payment of
any dividends thereon except upon production of all such documents as may be
required by law and upon compliance with the reasonable requirements of the
Corporation and its transfer agents.
ARTICLE VIII
DIVIDENDS AND RIGHTS
8.01 DIVIDENDS. Subject to the provisions of the Act and the articles, the
Board may from time to time declare dividends payable to the shareholders
according to their respective rights and interests in the Corporation. Dividends
may be paid in money or property or by issuing fully paid shares of the
Corporation or options or rights to acquire fully paid shares of the
Corporation. Any dividend unclaimed for a period of 6 years from the date on
which the same has been declared to be payable shall be forfeited and shall
revert to the Corporation.
8.02 DIVIDEND CHEQUES. A dividend payable in cash shall be paid by cheque
drawn on the Corporation's bankers or one of them to the order of each
registered holder of shares of the class or series in respect of which it has
been declared and mailed by prepaid ordinary mail to such registered holder at
his recorded address, unless such holder otherwise directs. In the case of
joint holders the cheque shall, unless such joint holders otherwise directs, be
made payable to the order of all of such joint holders and mailed to them at
their recorded address. The mailing of such cheque as aforesaid, unless the same
is not paid on due presentation, shall satisfy and discharge the liability for
the dividend to the extent of the sum represented thereby plus the amount of any
tax which the Corporation is required to and does withhold.
8.03 NON-RECEIPT OF CHEQUES. In the event of non-receipt of any dividend
cheque by the person to whom it is sent as aforesaid, the Corporation shall
issue to such person a replacement cheque for a like amount on such terms as to
indemnity, reimbursement of expenses and evidence of non-receipt and of title as
the Board may from time to time prescribe, whether generally or in any
particular case.
8.04 RECORD DATE FOR DIVIDENDS AND RIGHTS. The Board may fix in advance a
date, preceding by not more than 50 days the date for the payment of any
dividend or the date for the issue of any warrant or other evidence of the right
to subscribe for securities of the Corporation, as a record date for the
determination of the persons entitled to receive payment of such dividend or to
receive such warrant or other evidence of right to subscribe for such
securities. In every such case only such persons as shall be shareholders of
record at the close of business on the record date so fixed shall be entitled to
receive payment of such dividend or other evidence of right to subscribe for
securities of the Corporation, notwithstanding the transfer or issue of any
shares after the record date so fixed.
If no record date is so fixed, the record date for the determination of the
persons entitled 10 receive payment of any dividend or to exercise the right to
subscribe for securities of the Corporation shall be at the close of business on
the day on which the resolution relating to such dividend or right to subscribe
is passed by the Board.
ARTICLE IX
MEETINGS OF SHAREHOLDERS
9.01 ANNUAL MEETINGS. Subject to the Act, the annual meeting of the
shareholders shall be held at such place and on such date and at such time as
the Board or the Chairman of the Board, the Vice-Chairman of the Board, the
President or an Executive Vice-President or a Vice-President who is a Director
may appoint.
9.02 SPECIAL MEETINGS. The Board on its own motion or the Chairman of the
Board, the Vice-Chairman of the Board, the President or an Executive
Vice-President or a Vice-President who is a Director may at any time call a
special meeting of the shareholders for the transaction of any business.
9.03 NOTICE OF MEETINGS. Notice of the time and place of each meeting of
shareholders shall be given in the manner provided in Article X of this by-law
not less than 21 and not more than 50 days before the date of the meeting to
each Director, to the auditor of the Corporation and to each shareholder who at
the close of business on the record date for notice is entered in the register
of shareholders as the holder of one or more shares carrying the right to vote
at the meeting.
9.04 RECORD DATE FOR NOTICE. The Board may fix in advance a time and date,
preceding the date of any meeting of shareholders by not more than 50 days and
not less than 21 days, as the record date for the determination of the
shareholders entitled to receive notice of the meeting. If no such record date
for notice is fixed by the Board in connection with any meeting of
shareholders, the record date for the determination of the shareholders entitled
to receive notice of the meeting shall be at the close of business on the day
immediately preceding the day on which notice is given.
9.05 RECORD DATE FOR FINANCIAL STATEMENTS. The Board may fix in advance a
time and date, preceding the date of any annual meeting of shareholders by not
more than 50 days and not less than 21 days, as the record date for the
determination of the shareholders entitled to receive the financial statements
of the Corporation pursuant to the Act. If no such record date for the
determination of such shareholders is fixed by the Board, the record date for
such determination shall be the record date determined under section 9.04 of
this by-law in connection with such annual meeting.
9.06 MEETINGS WITHOUT NOTICE. Subject to the Act, a meeting of shareholders
may be held at any time without notice to the Directors, the auditor or any or
all shareholders entitled thereto or on shorter notice than that provided for
herein and proceedings thereat shall not thereby be invalidated if all such
persons as receive no notice or short notice in any manner and at any time waive
notice of such meeting, and attendance of any such person or representation by
proxy is a waiver of notice of the meeting.
9.07 CHAIRMAN, SECRETARY AND SCRUTINEER. At any meeting of shareholders, the
Chairman of the Board or, in his absence, the Vice-Chairman of the Board or, in
their absence, the President or, in their absence, a Vice-President who is a
Director shall be chairman. If no such officer is present within 15 minutes from
the time fixed for holding the meeting, the persons present and entitled to vote
shall choose one of their number to be chairman. If a ballot is demanded on the
election of such a chairman it shall be taken forthwith, without adjournment. If
the Secretary of the Corporation is absent, the chairman shall appoint some
person, who need not be a shareholder, to act as secretary of the meeting. One
or more scrutineers, who need not be shareholders, may be appointed by the
chairman.
9.08 PERSONS ENTITLED TO BE PRESENT. The only persons entitled to attend a
meeting of shareholders shall be those entitled to vote thereat, the Directors,
the officers of the Corporation, the auditor of the Corporation and others who
although not entitled to vote, are entitled or required under any provision of
the Act or the articles or by-laws to be present at the meeting. Any other
person may be admitted only on the invitation of the chairman of the meeting or
with the consent of the meeting.
9.09 QUORUM. Subject to section 9.20 of this by-law, a quorum for the
transaction of business at any meeting of shareholders shall be 2 persons
present in person, each being a shareholder entitled to vote thereat or a duly
appointed proxy or proxyholder for an absent shareholder so entitled, holding or
representing in the aggregate not less than 10% of the issued shares of the
Corporation enjoying voting rights at such meeting.
9.10 RIGHT TO VOTE. Subject to the Act, at any meeting of shareholders a
person named in the list of shareholders entitled to receive notice of the
meeting, prepared in accordance with the Act, shall be entitled to vote the
shares shown opposite his name on such list at the meeting to which the list
relates. except to the extent that
(a) such person has transferred any of his shares after the record
date for the determination of the shareholders entitled to
receive notice of the meeting determined under section 9.04 of
this by-law, and
(b) the transferee of those shares.
(i) produces properly endorsed share certificates, or
(ii) otherwise establishes that he owns the shares, and
demands, not later than such time before the meeting
as the Board may from time to time prescribe, that
his name be included in the list before the meeting,
in which case the transferee is entitled to vote his
shares at the meeting.
9.11 PROXIES. Every shareholder entitled to vote at a meeting of
shareholders may by means of a proxy appoint a proxy holder or one or more
alternate proxyholders, who need not be shareholders, as his nominee to attend
and act for him at the meeting in the manner, to the extent and with the
authority conferred by the proxy. A proxy shall be executed by the shareholder
or his attorney authorized in writing or, if the shareholder is a body
corporate, by an officer or attorney thereof duly authorized. Subject to the
requirements of the Act, a proxy shall be in such form as the Corporation may
from time to time require. A proxy ceases to be valid one year from its date.
9.12 TIME FOR DEPOSIT OF PROXIES. The Board may by resolution fix a time,
not exceeding 48 hours, excluding non-business days, preceding any meeting or
adjourned meeting of shareholders before which time proxies to be used at that
meeting must be deposited. A proxy shall be acted upon only if, prior to the
time so fixed and specified in the notice calling the meeting, it shall have
been deposited with the Corporation or an agent thereof or, if no such time is
specified in such notice, unless it has been received by the Secretary of the
Corporation or by the chairman of the meeting or any adjournment thereof prior
to the time of voting.
9.13 PERSONAL REPRESENTATIVE. If a shareholder of record is deceased, his
personal representative, upon compliance with the requirements of the
Corporation, shall be entitled to exercise the same voting rights at any meeting
of shareholders as the shareholder of record would have been entitled to
exercise if he were living and for the purposes of the meeting shall be
considered a shareholder. If there is more than one personal representative, the
provisions of section 9.14 of this by-law shall apply.
9.14 JOINT SHAREHOLDERS. If shares are held jointly by 2 or more persons,
any one of them present in person or represented by proxy at a meeting of
shareholders may, in the absence of the other or others, vote the shares: but
if more than one of them shall be present in person or represented by proxy,
they shall vote together as one on the shares jointly held by them.
9.15 VOTES TO GOVERN. At any meeting of shareholders every question posed
for the consideration of the shareholders entitled to vote thereat shall, unless
otherwise required by the articles or the by-laws, be determined by the majority
of the votes cast on the question. In case of an equality of votes either upon a
show of hands or upon a ballot, the chairman of the meeting shall have, in
addition to any vote or votes he may have as a shareholder, a second or casting
vote.
9.16 SHOW OF HANDS. Subject to the provisions of the Act, voting at a
meeting of shareholders shall be decided by a show of hands except where a
ballot is required or demanded as hereinafter provided. Upon a show of hands
every person who is present and entitled to vote shall have one vote. Whenever a
vote by show of hands shall have been taken upon a question, unless a ballot is
so required or demanded, an entry in the minutes of a meeting of shareholders to
the effect that the chairman of the meeting declared a motion to be carried is
prima facie proof of the fact without proof of the number or proportion of the
votes recorded in favour of or against the motion.
9.17 BALLOTS. On any question proposed for consideration at a meeting of
shareholders, and whether or not a show of hands has been taken thereon, the
chairman may require or any person entitled to vote on the question may demand a
ballot thereon. A ballot so required or demanded shall be taken in such manner
and at such time as the chairman shall direct. A requirement or demand for a
ballot may be withdrawn at any time prior to the taking of the ballot and, if
withdrawn, shall be deemed not to have been required or demanded. Upon a ballot
each person present shall be entitled, in respect of the shares which he is
entitled to vote at the meeting upon the question, to that number of votes
provided for by the Act or the articles, and the result of the ballot so taken
shall be the decision of the shareholders upon the question.
9.18 ADJOURNMENT. The chairman presiding at a meeting of shareholders may,
subject to the Act, with consent
of the meeting and subject to such conditions as the meeting decides, adjourn
the meeting from time to time and from place to place. If a ballot is demanded
on the question of adjournment it shall be taken forthwith without adjournment.
9.19 ACTION IN WRITING BY SHAREHOLDERS. Subject to the Act, a resolution in
writing signed by all the shareholders entitled to vote on that resolution at a
meeting of shareholders is as valid as if it had been passed at a meeting of -
the shareholders so entitled.
9.20 ONLY ONE SHAREHOLDER. Where the Corporation has only one holder of any
class or series of shares of the Corporation that shareholder present in person
or by proxy constitutes a meeting.
9.21 MEETINGS OF THE HOLDERS OF ONE OR MORE CLASSES OR SERIES OF SHARES OF
THE CORPORATION. Subject to the Act and the articles, the provisions of the
by-laws applicable to meetings of shareholders shall apply to any meetings of
the holders of one or more classes or series of shares of the Corporation.
9.22 INTERPRETATION. Nothing in the by-laws shall be construed as conferring
upon any shareholder the right, or entitling any shareholder, to receive notice
of or attend or vote in respect of any shares of the Corporation held by him at
any meeting of shareholders, if such shareholder would not have such right or
entitlement under the provisions of the Act or the articles.
ARTICLE X
NOTICES
10.01 METHOD OF GIVING NOTICES. Any notice (which term includes any
communication or document) to be given, sent, delivered or served pursuant to
the Act, the articles, the by-laws or otherwise to or upon a shareholder.
Director, officer, auditor of the Corporation or member of a committee shall be
sufficiently given, sent, delivered or served, as the case may be, if delivered
personally to the person to whom it is to be given or if delivered to his
recorded address or if mailed to him at his recorded address by prepaid mail, or
if sent to him at his recorded address by means of wire, wireless, telex or any
other form of prepaid transmitted or recorded communication. A notice so
delivered shall be deemed to have been given, sent, delivered or served, as the
case may be, when it is delivered personally or at the recorded address as
aforesaid: a notice so mailed shall be deemed to have been given, sent,
delivered or served, as the case may be, on the date of mailing and shall be
deemed to have been received by the addressee on the fifth day after mailing:
and a notice sent by means of wire, wireless, telex or other form of transmitted
or recorded communication shall be deemed to have been given, sent, delivered or
served, as the case may be, when dispatched or delivered to the appropriate
communication company or agency or its representative for dispatch. The
Secretary may change or cause to be changed the recorded address of any
shareholder. Director, officer, auditor or member of a committee in accordance
with any information believed by him to be reliable. A certificate of any
signing officer of the Corporation in office at the time of making the
certificate or of an executive or officer of any registrar or transfer agent or
branch registrar or transfer agent of shares of any class of the Corporation as
to facts in relation to the delivery or mailing or service of any notice or
other document to any shareholder. Director, officer or auditor or publication
of any notice of other documents shall be conclusive evidence thereof and shall
be binding on every shareholder. Director, officer and the auditor of the
Corporation.
10.02 NOTICE TO JOINT SHAREHOLDERS. If two or more persona are registered as
joint holders of any share or shares, notice to one of such persons shall be
sufficient notice to all of them. Any notice shall be addressed to all of such
joint holders and the address to be used for the purposes of section 10.01 shall
be the address appearing on the securities register in respect of such joint
holding, or the first address so appearing if there is more than one.
10.03 COMPUTATION OF TIME. Where a period of days is required to be
calculated, the period of days shall be deemed to commence the day following the
event that began the period and shall be deemed to terminate at midnight of
the last day of the period except that if the last day of the period falls on a
Sunday or holiday the period shall terminate at midnight of the day next
following that is not a Sunday or holiday.
10.04 OMISSIONS AND ERRORS. The accidental omission to give any notice to any
shareholder. Director, officer, auditor or member of a committee, or the
non-receipt of any notice by any such person or any error in any notice not
affecting the substance thereof, shall not invalidate any action taken at any
meeting held pursuant to such notice or otherwise founded thereon.
10.05 PERSONS ENTITLED BY DEATH OR OPERATION OF LAW. Subject to the Act,
every person who, by operation of law, transfer, death of a shareholder or any
other means whatsoever, shall become entitled to any share of the
Corporation shall be bound by every notice or other document in respect of such
share which, prior to his name and address being entered on the securities
register of the Corporation, shall have been duly given to a person from whom he
derives his title to such share, whether such notice or other document was given
before or after the happening of the event upon which he became so entitled.
10.06 WAIVER OF NOTICE. Any shareholder (or his duly appointed proxyholder),
Director, officer, auditor or member of a committee may at any time waive any
notice or waive or abridge the time for the giving or sending of any notice or
document required to be given or sent to him under any provision of the Act. the
articles, the by-laws or otherwise and such waiver or abridgement shall cure any
default in the giving or sending of such notice or document, as the case may be.
ARTICLE XI
EFFECTIVE DATE
11.01 EFFECTIVE OATS. This by-law shall come into force on the date of its
confirmation by the shareholders in accordance with the Act.
11.02 REPEAL. All previous by-laws of the Corporation are repealed as of the
coming into force of this by-law, provided that such repeal shall not affect the
previous operation of any by-law so repealed or the validity of any act done or
right, privilege, obligation or liability acquired or incurred under, or the
validity of any contract or agreement made pursuant to any such by-law prior to
its repeal. All officers and persons acting under any by-law, so repealed shall
continue to act as if appointed under the provisions of this by-law and all
resolutions of the shareholders or Board with continuing effect passed under any
repealed by-law shall continue as good and valid except to the extent
inconsistent with this by-law and until amended or repealed.
MADE by the Board the 14th day of March, 1984.
"P.C Finlay" "C.G. Cowan"
Chairman of the Board Secretary
(Corporate Seal)
Confirmed by the Shareholders on May 10, 1984.
Exhibit 1.2 b
HOLLINGER ARGUS LIMITED
BY-LAW NUMBER A25
A BY-LAW AMENDING BY-LAW NUMBER A24 OF HOLLINGER ARGUS LIMITED
Whereas it is desirable that By-law Number A24 of the Corporation be
amended upon the continuance of the Corporation under the provisions of the
Canada Business Corporations Act.
Now therefore be it made as a by-law of the Corporation as follows:
1. By-law Number A24 of the Corporation as made by the Directors on March
14, 1984 and confirmed by the shareholders of the Corporation on May
10. 1984 is hereby amended by repealing subsection (a) of section 1.01
thereof and substituting therefor the following:
"Act" means the Canada Business Corporations Act. Statutes of
Canada l974-75-76. Chapter 33. and any statute that may be
substituted therefor, as from time to time amended and any
reference to a particular provision of the Act shall be deemed
also to be a reference to any similar provision resulting from
the amendment or the replacement thereof:
2. No act. thing, document or deed voluntarily done, made or executed
under any section of By-law Number A24 as hereby amended prior to this
By-law Number A25 becoming effective shall be prejudiced or
invalidated by the amendment of such section.
3. By-law Number A24 of the Corporation, as hereinbefore amended, is
hereby confirmed as a by-law of the Corporation.
4. This By-law Number A25 shall come into force on its confirmation by
the shareholders of the Corporation and the issuance of a Certificate
of Continuance of the Corporation under the Canada Business
Corporations Act.
Made by the Board the 28th day of June, 1984.
"P.C. Finlay" "C.G. Cowan"
Chairman of the Board Secretary
(Corporate Seal)
Confirmed by the Shareholders on July 24, 1984
Exhibit 1.2 c
EXHIBIT I
BY-LAW NO. A26
of
HOLLINGER INC.
(the "Corporation")
1. REGISTERED OFFICE
1.1. REGISTERED OFFICE
The registered office of the Corporation shall be in the province or
territory of Canada specified in the articles of the Corporation and at such
location in that province or territory as the directors may from time to time
determine.
2. CORPORATE SEAL
2.1. CORPORATE SEAL
The Corporation shall have a corporate seal which shall be adopted and
may be changed by resolution of the directors.
3. DIRECTORS
3.1. NUMBER AND QUORUM
The number of directors shall be determined by the directors but shall
be not fewer than the minimum and not more than the maximum provided in the
articles. At least two directors shall not be officers or employees of the
Corporation or of any of its affiliates. Two-fifths of the minimum number of
directors provided for in the articles or such greater or lesser number as the
directors may from time to time determine shall constitute a quorum for the
transaction of business at any meeting of directors.
3.2. QUALIFICATION
No person shall be qualified to be a director if that person is less
than eighteen years of age, is of unsound mind and has been so found by a court
in Canada or elsewhere, or has the status of a bankrupt. At least twenty-five
per cent of the directors shall be resident Canadians.
3.3. ELECTION AND TERM OF OFFICE
The directors shall be elected at each annual meeting of shareholders
of the Corporation and each director shall hold office until the close of the
first annual meeting following the director's election; provided that if an
election of directors is not held at an annual meeting of shareholders, the
directors then in office shall continue in office until their successors are
elected. Retiring directors, are eligible for re-election.
3.4. VACATION OF OFFICE
A director ceases to hold office if the director dies, is removed from
office by the shareholders, ceases to be qualified for election as a director or
resigns by a written resignation received by the Corporation. A written
resignation of a director becomes effective at the time it is received by the
Corporation, or at the time specified in the resignation, whichever is later.
3.5. REMOVAL OF DIRECTORS
The shareholders may by ordinary resolution at a special meeting of
shareholders remove any director or directors from office provided that where
the holders of any class or series of shares have an exclusive right to elect
one or more directors, a director so elected may only be removed by an ordinary
resolution at a meeting of the shareholders of that class or series. A vacancy
created by the removal of a director may be filled at the meeting of the
shareholders at which the director is removed.
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3.6. VACANCIES
Subject to the Act, a quorum of directors may fill a vacancy among the
directors. A director appointed or elected to fill a vacancy holds office for
the unexpired term of the director's predecessor.
3.7. ACTION BY DIRECTORS
The directors shall manage, or supervise the management of, the
business and affairs of the Corporation. Subject to sections 3.8. and 3.9, the
powers of the directors may be exercised at a meeting at which a quorum is
present or by resolution in writing signed by all the directors entitled to vote
on that resolution at a meeting of the directors. Where there is a vacancy in
the board of directors the remaining directors may exercise all the powers of
the board so long as a quorum remains in office.
3.8. CANADIAN RESIDENTS REQUIRED AT MEETINGS
The directors shall not transact business at a meeting other than
filling a vacancy in the board unless at least twenty-five per cent of the
directors (the "required number") present are resident Canadians or if a
resident Canadian director who is unable to be present approves in writing or by
telephonic, electronic or other communication facility the business transacted
at the meeting and the required number of resident Canadians would have been
present had that director been present at the meeting.
3.9. MEETING BY TELEPHONIC OR ELECTRONIC FACILITY
If all the directors of the Corporation consent, a meeting of directors
or of a committee of directors may be held by means of a telephonic, electronic
or other communication facility that permits all persons participating in the
meeting to communicate adequately with each other, and a director participating
in a meeting by such means is deemed to be present at that meeting.
3.10. PLACE OF MEETINGS
Meetings of directors may be held at any place within or outside of
Canada.
3.11. CALLING OF MEETINGS
Meetings of the directors shall be held at such time and place as the
Chairman of the Board, the President or any two directors may determine.
3.12. NOTICE OF MEETING
Notice of the time and place of each meeting of directors shall be
given to each director by telephone not less than 48 hours before the time of
the meeting or by written notice not less than four days before the day of the
meeting and, except as provided in the Act, need not specify the purpose of or
the business to be transacted at the meeting. Meetings of the directors may be
held at any time without notice if all the directors have waived or are deemed
to have waived notice.
3.13. FIRST MEETING OF NEW BOARD
No notice shall be necessary for the first meeting of newly-elected
directors held immediately following their election at a meeting of
shareholders.
3.14. ADJOURNED MEETING
Notice of an adjourned meeting of directors is not required if the time
and place of the adjourned meeting is announced at the original meeting.
3.15. REGULAR MEETINGS
The directors may appoint a day or days in any month or months for
regular meetings and shall designate the place and time at which such meetings
are to be held. A copy of any resolution of directors fixing the place and time
of regular meetings of the board shall be sent to each director forthwith after
being passed, and no other notice shall be required for any such regular
meeting.
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3.16. CHAIRMAN
The Chairman of the Board, or in the Chairman's absence, the Deputy
Chairman, or in their absence, the Vice-Chairman, or in the their absence, the
President, or in their absence, a Vice-President, who is a director, to be
selected on the basis of seniority amongst the other Vice-Presidents present,
who are directors, shall be the Chairman of any meeting of directors. If no such
person is present, the directors present shall choose one of their number to be
Chairman.
3.17. VOTING AT MEETINGS
Questions arising at any meeting of directors shall be decided by a
majority of votes. In the case of an equality of votes, the chair of the
meeting, in addition to the chair's original vote, shall have a second or
casting vote.
3.18. CONFLICT OF INTEREST
A director or officer who is a party to, or who is a director or
officer or is acting in a similar capacity of, or has a material interest in, a
party to a material contract or material transaction, whether entered into or
proposed, with the Corporation shall disclose the nature and extent of the
director's or officer's interest at the time and in the manner provided by the
Act.
3.19. REMUNERATION AND EXPENSES
The directors shall be paid such remuneration as the directors may from
time to time by resolution determine. The directors shall also be entitled to be
paid their travelling and other expenses properly incurred by them in going to,
attending and returning from meetings of directors or committees of directors. A
director or officer of the Corporation may be employed by or perform services
for the Corporation otherwise than as a director or officer, and may be a member
of a firm or a shareholder, director or officer of a body corporate which is
employed by or performs services for the Corporation, and such a director,
officer, firm or body corporate may receive proper remuneration for this
employment or services.
4. COMMITTEES
4.1. COMMITTEES OF DIRECTORS
The directors may appoint from among their number one or more
committees of directors and delegate to them any of the powers of the directors
except those which under the Act a committee of directors has no authority to
exercise.
4.2. AUDIT COMMITTEE
The directors shall appoint from among their number an audit committee
composed of not fewer than three directors, a majority of whom are not officers
or employees of the Corporation or any affiliate of the Corporation. The audit
committee shall review the financial statements of the Corporation and shall
report thereon to the directors of the Corporation before such financial
statements are approved by the directors. The auditor of the Corporation is
entitled to receive notice of every meeting of the audit committee and, at the
expense of the Corporation, to attend and be heard thereat; and, if so requested
by a member of the audit committee, shall attend every meeting of the committee
held during the term of office of the auditor. The auditor of the Corporation or
any member of the audit committee may call a meeting of the committee.
4.3. TRANSACTION OF BUSINESS
Subject to section 3.9, the powers of a committee appointed by the
directors may be exercised at a meeting at which a quorum is present or by
resolution in writing signed by all members of the committee entitled to vote on
that resolution at a meeting of the committee. Meetings of a committee may be
held at any place in or outside Canada.
4.4. PROCEDURE
Unless otherwise determined by the directors, a majority of committee
members shall constitute a quorum for the transaction of business at any
committee meeting and the procedure for committee meetings shall be governed by
the provisions of this by-law that govern the meetings of directors.
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5. OFFICERS
5.1. GENERAL
The directors may from time to time appoint a Chairman of the Board, a
Deputy Chairman of the Board, a Vice-Chairman of the Board and a President all
of whom shall be directors of the Corporation and one or more Vice-Presidents, a
Secretary, a Treasurer and such other officers as the directors may determine,
including one or more assistants to any of the officers so appointed. The
officers so appointed may but need not be members of the board of directors
except as provided in sections 5.3 and 5.4.
5.2. TERM OF OFFICE
Any officer may be removed by the directors at any time but such
removal shall not affect the rights of that officer under any contract of
employment with the Corporation. Otherwise, each officer shall hold office until
the officer's successor is appointed or until the officer's earlier resignation.
5.3. THE CHAIRMAN OF THE BOARD
The Chairman of the Board, if any, shall be appointed from among the
directors and shall, when present, be chair of meetings of shareholders and
directors and shall have such other powers and duties as the directors may
determine.
5.4. THE DEPUTY CHAIRMAN OF THE BOARD
During the absence or inability of the Chairman of the Board, the
Chairman's powers and duties shall devolve upon the Deputy Chairman of the
Board. If the Deputy Chairman of the Board exercises any such power or duty, the
absence or inability of the Chairman of the Board with reference thereto shall
be presumed. The Deputy Chairman of the Board shall also perform such other
duties and exercise such other powers as the Board may from time to time
prescribe or as the Chairman of the Board may delegate to the Deputy Chairman.
5.5. THE VICE-CHAIRMAN OF THE BOARD
During the absence or inability of the Chairman and the Deputy Chairman
of the Board, the Chairman's powers and duties shall devolve upon the
Vice-Chairman of the Board. If the Vice-Chairman of the Board exercises any such
power or duty, the absence or inability of the Chairman and the Deputy Chairman
of the Board with reference thereto shall be presumed. The Vice-Chairman of the
Board shall also perform such other duties and exercise such other powers as the
Board may from time to time prescribe or as the Chairman of the Board may
delegate to the Vice-Chairman.
5.6. THE PRESIDENT
The President shall, subject to the authority of the Board, have
general supervision of the business of the Corporation. The President shall have
such other powers and duties as the Board may specify.
5.7. VICE-PRESIDENT
A Vice-President shall have such powers and duties as the directors may
determine.
5.8. SECRETARY
The Secretary shall give, or cause to be given, all notices required to
be given to shareholders, directors, auditors and members of committees; shall
attend and be secretary of all meetings of shareholders, directors and
committees appointed by the directors and shall enter or cause to be entered in
books kept for that purpose minutes of all proceedings at such meetings; shall
be the custodian of the corporate seal of the Corporation and of all records,
books, documents and other instruments belonging to the Corporation; and shall
have such other powers and duties as the directors may determine.
5.9. TREASURER
The Treasurer shall keep proper books of account and accounting records
with respect to all financial and other transactions of the Corporation; shall
be responsible for the deposit of money, the safe-keeping of securities and the
disbursement of the funds of the Corporation; shall render to the directors when
required an account of all the
4
Treasurer's transactions and of the financial position of the Corporation; and
the Treasurer shall have such other powers and duties as the directors may
determine.
5.10. OTHER OFFICERS
The powers and duties of all other officers shall be such as the terms
of their engagement call for or as the directors may determine. Any of the
powers and duties of an officer to whom an assistant has been appointed may be
exercised and performed by such assistant, unless the directors otherwise
direct.
5.11. VARIATION OF DUTIES
The directors may, from time to time, vary, add to or limit the powers
and duties of any officer.
5.12. CONFLICT OF INTEREST
An officer shall disclose the officer's interest in any material
contract or material transaction, whether entered into or proposed, in
accordance with section 3.18.
5.13. AGENTS AND ATTORNEYS
The directors shall have power from time to time to appoint agents or
attorneys for the Corporation within or outside Canada with such powers
(including the power to sub-delegate) of management, administration or otherwise
as the directors may specify.
6. PROTECTION OF DIRECTORS, OFFICERS AND OTHERS
6.1. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Corporation shall indemnify a director or officer, a former
director or officer or a person who acts or acted at the Corporation's request
as a director or officer, or in a similar capacity of another entity, and the
heirs and legal representatives of such a person to the extent permitted by the
Act.
6.2. INSURANCE
The Corporation may purchase and maintain insurance for the benefit of
any person referred to in section 6.1 to the extent permitted by the Act.
7. MEETINGS OF SHAREHOLDERS
7.1. ANNUAL MEETINGS
The annual meeting of the shareholders shall be held at the registered
office of the Corporation or at such other place within Canada as the directors
may determine, or at any place outside Canada specified in the articles of the
Corporation or agreed to by all the shareholders entitled to vote at that
meeting, at such time in each year as the directors may determine, for the
purpose of receiving the reports and statements required to be placed before the
shareholders at an annual meeting, electing directors, appointing an auditor or
auditors, and for the transaction of such other business as may properly be
brought before the meeting.
7.2. OTHER MEETINGS
The directors shall have power at any time to call a special meeting of
shareholders to be held at such place within Canada as the directors may
determine, or at any place outside Canada specified in the articles of the
Corporation or agreed to by all the shareholders entitled to vote at that
meeting, at such time as may be determined by the board of directors.
7.3. NOTICE OF MEETINGS
Notice of the time and place of a meeting of shareholders shall be
given not less than 21 days nor more than 60 days before the meeting to each
holder of shares carrying voting rights at the close of business on the record
date for notice, to each director and to the auditor of the Corporation. Notice
of a meeting of shareholders at which special business is to be transacted shall
state the nature of that business in sufficient detail to permit the shareholder
to form a reasoned judgment thereon and shall include the text of any special
resolution to be submitted to the meeting. All business transacted at a special
meeting of shareholders and all business transacted at an annual
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meeting of shareholders, except consideration of the financial statements,
auditor's report, election of directors and reappointment of the incumbent
auditor, shall be deemed to be special business.
7.4. RECORD DATE FOR NOTICE
For the purpose of determining shareholders entitled to receive notice
of a meeting of shareholders, the directors may fix in advance a date as the
record date for such determination of shareholders, but the record date shall
not precede by more than 60 days or by less than 21 days the date on which the
meeting is to be held. Where no record date is fixed, the record date for the
determination of shareholders entitled to receive notice of a meeting of
shareholders shall be at the close of business on the day immediately preceding
the day on which the notice is given, or, if no notice is given, shall be the
day on which the meeting is held. If a record date is fixed, unless notice of
the record date is waived in writing by every holder of a share of the class or
series affected whose name is set out in the securities register at the close of
business on the day the directors fix the record date, notice thereof shall be
given, not less than seven days before the date so fixed, by advertisement in a
newspaper published or distributed in the place where the Corporation has its
registered office and in each place in Canada where it has a transfer agent or
where a transfer of its shares may be recorded and by written notice to each
stock exchange in Canada on which the shares of the Corporation are listed for
trading.
7.5. RECORD DATE FOR VOTING
For the purpose of determining shareholders entitled to vote at a
meeting of shareholders, the directors may fix in advance a date as the record
date for such determination of shareholders, but the record date shall not
precede by more than 60 days or by less than 21 days the date on which the
meeting is to be held. If a record date is fixed, unless notice of the record
date is waived in writing by every holder of a share of the class or series
affected whose name is set out in the securities register at the close of
business on the day the directors fix the record date, notice thereof shall be
given, not less than seven days before the date so fixed, by advertisement in a
newspaper published or distributed in the place where the Corporation has its
registered office and in each place in Canada where it has a transfer agent or
where a transfer of its shares may be recorded and by written notice to each
stock exchange in Canada on which the shares of the Corporation are listed for
trading.
7.6. PERSONS ENTITLED TO BE PRESENT
The only persons entitled to be present at a meeting of shareholders
shall be those entitled to vote thereat, the directors, the auditor and other
persons who are entitled or required under any provision of the Act or the
articles or by-laws of the Corporation to attend a meeting of shareholders of
the Corporation. Any other person may be admitted only on the invitation of the
chair of the meeting or with the consent of the meeting.
7.7. CHAIRMAN
The Chairman of the Board, or in the Chairman's absence, the Deputy
Chairman, or in their absence, the Vice-Chairman, or in their absence, the
President, or in their absence a Vice-President who is a director shall be the
Chairman. If no such officer is present within 15 minutes from the time fixed
for holding the meeting, a person chosen by a vote at the meeting shall be the
Chairman of meetings of shareholders.
7.8. SCRUTINEERS
At each meeting of shareholders one or more scrutineers, who need not
be shareholders, may be appointed by a resolution or by the chair with the
consent of the meeting.
7.9. QUORUM
Two persons present in person and each being entitled to vote thereat
shall constitute a quorum for the transaction of business at any meeting of
shareholders.
7.10. RIGHT TO RECEIVE NOTICE
The Corporation shall prepare a list of shareholders entitled to
receive notice of a meeting, arranged in alphabetical order and showing the
number of shares held by each shareholder, which list shall be prepared,
7.10.1. if a record date for notice is fixed under section 7.4, not
later than ten days after that record date; and
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7.10.2. if no record date for notice is fixed under section 7.4, on
the record date for notice established under section 7.4.
7.11. RIGHT TO VOTE
The Corporation shall prepare a list of shareholders entitled to vote
at a meeting, arranged in alphabetical order and showing the number of shares
held by each shareholder, which list shall be prepared,
7.11.1. if a record date for voting is fixed under section 7.5, not
later than ten days after that record date; and
7.11.2. if no record date for voting is fixed, not later than 10 days
after the record date for notice fixed under section 7.4 or, if no
record date for notice was so fixed, then not later than the record
date for notice established under section 7.4, and in both cases the
list shall be prepared as of the record date for notice.
A shareholder whose name appears in the list prepared under this
section 7.11 is entitled to vote the shares shown opposite that shareholder's
name at the meeting to which the list relates.
7.12. JOINT SHAREHOLDERS
Where two or more persons hold shares jointly, one of those holders
present at a meeting of shareholders may in the absence of the others vote the
shares, but if two or more of those persons are present, in person or by proxy,
they shall vote as one on the shares jointly held by them.
7.13. REPRESENTATIVES
Where a body corporate or association is a shareholder of the
Corporation, the Corporation shall recognize any individual authorized by a
resolution of the directors or governing body of the body corporate or
association to represent it at meetings of shareholders of the Corporation. An
individual so authorized may exercise on behalf of the body corporate or
association the individual represents all the powers it could exercise if it
were an individual shareholder.
7.14. EXECUTORS AND OTHERS
An executor, administrator, committee of a mentally incompetent person,
guardian or trustee and, where a corporation is such executor, administrator,
committee, guardian or trustee of a testator, intestate, mentally incompetent
person, ward or cestui que trust, any duly appointed representative of such
corporation, upon filing with the secretary of the meeting sufficient proof of
the person's appointment, shall represent the shares in the person's or its
hands at all meetings of shareholders of the Corporation and may vote
accordingly as a shareholder in the same manner and to the same extent as the
shareholder of record. If there be more than one executor, administrator,
committee, guardian or trustee, the provisions of this by-law respecting joint
shareholders shall apply.
7.15. PROXYHOLDERS
Every shareholder entitled to vote at a meeting of shareholders may by
means of a proxy appoint a proxyholder or one or more alternate proxyholders,
who need not be shareholders, as the shareholder's nominee to attend and act at
the meeting in the manner, to the extent and with the authority conferred by the
proxy. A proxyholder or an alternative proxyholder has the same rights as the
shareholder who appointed the proxyholder to speak at a meeting of shareholders
in respect of any matter, to vote by way of ballot at the meeting and, except
where a proxyholder or an alternative proxyholder has conflicting instructions
from more than one shareholder, to vote at such meeting in respect of any matter
by way of any show of hands. A proxy shall be executed by the shareholder or the
shareholder's attorney authorized in writing or, if the shareholder is a body
corporate, by an officer or attorney thereof duly authorized and shall be valid
only at the meeting in respect of which it is given or any adjournment thereof.
A proxy shall be in such form as may be prescribed from time to time by the
directors or in such other form as the chair of the meeting may accept and as
complies with all applicable laws and regulations.
7.16. TIME FOR DEPOSIT OF PROXIES
The directors may by resolution fix a time not exceeding forty-eight
hours, excluding Saturdays and holidays, preceding any meeting or adjourned
meeting of shareholders before which time proxies to be used at that meeting
must be deposited with the Corporation or an agent thereof, and any period of
time so fixed shall be specified in the notice calling the meeting.
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7.17. VOTES TO GOVERN
Subject to the Act and the articles of the Corporation, at all meetings
of shareholders every question shall be decided, either on a show of hands (or
its functional equivalent) or by ballot, by a majority of the votes cast on the
question. In case of an equality of votes, the chair of the meeting shall have a
second or casting vote.
7.18. ELECTRONIC MEETINGS AND VOTING
If the directors call a meeting of shareholders, they may determine
that the meeting of shareholders shall be held entirely by means of a
telephonic, electronic or other communication facility that permits all
participants to communicate adequately with each other during the meeting, and
any vote at that meeting of shareholders shall be held entirely by means of that
communication facility. A meeting of shareholders may also be held at which
some, but not all, persons entitled to attend may participate and vote by means
of such a communication facility, if the Corporation makes one available. A
person participating in a meeting by such means is deemed to be present at the
meeting. Any vote at a meeting of shareholders may be also held entirely by
means of a telephonic, electronic or other communication facility, if the
Corporation makes one available, even if none of the persons entitled to attend
otherwise participates in the meeting by means of a communication facility. For
the purpose of voting, a communication facility that is made available by the
Corporation must enable the votes to be gathered in a manner that permits their
subsequent verification and permits the tallied votes to be presented to the
Corporation without it being possible for the Corporation to identify how each
shareholder or group of shareholders voted.
7.19. SHOW OF HANDS
Voting at a meeting of shareholders shall be by show of hands, or the
functional equivalent of a show of hands by means of electronic, telephonic or
other communication facility, except where a ballot is demanded by a
shareholder or proxyholder entitled to vote at the meeting or where required by
the chair. A ballot may be demanded either before or after any vote by show of
hands, or its functional equivalent. Upon a show of hands, or its functional
equivalent, every person who is present and entitled to vote shall have one
vote. Whenever a vote by show of hands, or its functional equivalent, shall have
been taken upon a question, unless a ballot thereon be required or demanded, an
entry in the minutes of a meeting of shareholders to the effect that the chair
declared a motion to be carried is admissible in evidence as prima facie proof
of the fact without proof of the number or proportion of the votes recorded in
favour of or against the motion. A demand for a ballot may be withdrawn at any
time prior to taking of a poll on the ballot.
7.20. BALLOTS
If a ballot is demanded or required, the vote upon the question shall
be taken in such manner as the chair of the meeting shall direct, or as provided
by the electronic, telephonic or other communication facility through which
votes may be cast. Each person present and entitled to vote at the meeting
shall, unless the articles of the Corporation otherwise provide, be entitled to
one vote for each share in respect of which that person is entitled to vote at
the meeting.
7.21. ADJOURNMENT
The chair of any meeting of shareholders may, with the consent of the
meeting and subject to such conditions as the meeting may decide, adjourn the
same from time to time and from place to place. If a meeting of shareholders is
adjourned for less than thirty days it is not necessary to give notice of the
adjourned meeting other than by announcement at the earliest meeting that is
adjourned. If a meeting of shareholders is adjourned by one or more adjournments
for an aggregate of thirty days or more, notice of the adjourned meeting shall
be given as for an original meeting. Any business may be brought before or dealt
with at any adjourned meeting which might have been brought before or dealt with
at the original meeting in accordance with the notice calling such original
meeting.
7.22. RESOLUTION IN LIEU OF MEETING
A resolution in writing signed by all the shareholders entitled to vote
on that resolution at a meeting of shareholders is as valid as if it had been
passed at a meeting of shareholders except where a written statement in respect
thereof has been submitted by a director or where representations in writing are
submitted by the auditor of the Corporation, in either case, in accordance with
the Act.
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8. SHARES
8.1. ISSUE
Subject to the Act and the articles of the Corporation, shares of the
Corporation may be issued at such times and to such persons and for such
consideration as the directors may determine, provided that no shares may be
issued until it is fully paid as provided in the said Act.
8.2. COMMISSIONS
The directors may authorize the Corporation to pay a reasonable
commission to any person in consideration of the person purchasing or agreeing
to purchase shares of the Corporation from the Corporation or from any other
person, or procuring or agreeing to procure purchasers for any such shares.
8.3. SHARE CERTIFICATE
Every shareholder is entitled at the shareholder's option to a share
certificate in respect of the shares held by the shareholder that complies with
the Act or to a non-transferable written acknowledgement ("written
acknowledgement") of the shareholder's right to obtain a share certificate from
the Corporation in respect of the shares of the Corporation held by the
shareholder, but the Corporation is not bound to issue more than one share
certificate or written acknowledgement in respect of a share or shares held
jointly by several persons and delivery of a share certificate or written
acknowledgement to one of several joint holders is sufficient delivery to all.
Written acknowledgements shall be in such form or forms as the directors shall
from time to time by resolution determine. The Corporation may charge a fee in
accordance with the Act for a share certificate issued in respect of a transfer.
Subject to the provisions of the Act and to the requirements of any stock
exchange on which shares of the Corporation may be listed, share certificates
shall be in such form or forms as the directors shall from time to time approve.
Unless otherwise determined by the directors, share certificates shall be signed
by the Chairman of the Board or the President and by the Secretary or an
Assistant Secretary and need not be under the corporate seal and certificates
for shares in respect of which a transfer agent and/or registrar has been
appointed shall not be valid unless countersigned on behalf of such transfer
agent and/or registrar. Share certificates shall be signed manually, or
signatures shall be printed or otherwise mechanically reproduced on the
certificate, and shall include the signature of at least one director or officer
of the Corporation or by or on behalf of a registrar, transfer agent or branch
transfer agent of the Corporation. If a share certificate contains a printed or
mechanically reproduced signature of a person, the Corporation may issue the
share certificate, even though the person has ceased to be a director or an
officer of the Corporation, and the share certificate is as valid as if the
person were a director or an officer at the date of its issue.
8.4. TRANSFER AGENTS AND REGISTRARS
For each class of shares issued by it, the Corporation may appoint one
or more agents to keep the securities register and the register of transfers and
one or more branch registers. Such an agent may be designated as a transfer
agent or registrar according to functions and one agent may be designated both
transfer agent and registrar. The securities register, the register of transfers
and the branch register or registers (the "registers") shall be kept at the
registered office of the Corporation or at such other place inside or outside
Canada designated by the directors. If the registers are kept outside Canada,
the Corporation will make them available for inspection in compliance with the
Act.
8.5. TRANSFER OF SHARES
Subject to the Act, no transfer of a share shall be registered except
upon presentation of the certificate representing such share with an endorsement
which complies with the Act, together with such reasonable assurance that the
endorsement is genuine and effective as the directors may prescribe, upon
payment of all applicable taxes and fees and upon compliance with the articles
of the Corporation.
8.6. NON-RECOGNITION OF TRUST
Subject to the Act, the Corporation may treat the registered holder of
any share as the person exclusively entitled to vote, to receive notices, to
receive any dividend or other payment in respect of the share, and to exercise
all the rights and powers of an owner of the share.
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8.7. REPLACEMENT OF SHARE CERTIFICATES
Where the owner of a share certificate claims that the share
certificate has been lost, apparently destroyed or wrongfully taken, the
Corporation shall issue or cause to be issued a new certificate in place of the
original certificate if the owner (i) so requests before the Corporation has
notice that the share certificate has been acquired by a bona fide purchaser,
(ii) files with the Corporation an indemnity bond sufficient in the
Corporation's opinion to protect the Corporation and any transfer agent,
registrar or other agent of the Corporation from any loss that it or any of them
may suffer by complying with the request to issue a new share certificate; and
(iii) satisfies any other reasonable requirements imposed from time to time by
the Corporation.
9. DIVIDENDS AND RIGHTS
9.1. DECLARATION OF DIVIDENDS
Subject to the Act, the directors may from time to time declare
dividends payable to the shareholders according to their respective rights and
interest in the Corporation.
9.2. CHEQUES
A dividend payable in money shall be paid by cheque to the order of
each registered holder of shares of the class or series in respect of which it
has been declared and mailed by prepaid ordinary mail to such registered holder
at the address of such holder in the Corporation's securities register, unless
such holder otherwise directs. In the case of joint holders the cheque shall,
unless such joint holders otherwise direct, be made payable to the order of all
such joint holders and mailed to them at their address in the Corporation's
securities register. The mailing of such cheque as aforesaid, unless the same is
not paid on due presentation, shall satisfy and discharge the liability for the
dividend to the extent of the sum represented thereby plus the amount of any tax
which the Corporation is required to and does withhold.
9.3. NON-RECEIPT OF CHEQUES
In the event of non-receipt of any dividend cheque by the person to
whom it is sent as aforesaid, the Corporation shall issue to such person a
replacement cheque for a like amount on such-terms as to indemnity,
reimbursement of expenses and evidence of non-receipt and of title as the
directors may from time to time prescribe, whether generally or in any
particular case.
9.4. RECORD DATE FOR DIVIDENDS AND RIGHTS
The directors may fix in advance a date, preceding by not more than 60
days, the date for payment of any dividend or the date for the issue of any
warrant or other evidence of the right to subscribe for securities of the
Corporation, as a record date for the determination of the persons entitled to
receive payment of such dividend or to exercise the right to subscribe for such
securities, and notice of any such record date shall be given not less than
seven days before such record date in the manner provided by the Act. If no
record date is so fixed, the record date for the determination of the persons
entitled to receive payment of any dividend or to exercise the right to
subscribe for securities of the Corporation shall be at the close of business on
the day on which the resolution relating to such dividend or right to subscribe
is passed by the directors.
9.5. UNCLAIMED DIVIDENDS
Any dividend unclaimed after a period of six years from the date on
which the same has been declared to be payable shall be forfeited and shall
revert to the Corporation.
10. NOTICES
10.1. GENERAL
A notice or document required by the Act, the regulations thereunder,
the articles or the by-laws of the Corporation to be sent to a shareholder or
director of the Corporation may be sent by prepaid mail addressed to, or may be
delivered personally to, the shareholder or director at the shareholder's or
director's latest address as shown in the records of the Corporation. A notice
or document if mailed to a shareholder or director of the Corporation shall be
deemed to have been received at the time it would be delivered in the ordinary
course of mail unless there
10
are reasonable grounds for believing that the shareholder or director did not
receive the notice or the document at that time or at all.
10.2. ELECTRONIC DELIVERY
Provided the addressee has consented in writing or electronically in
accordance with the Act and the regulations thereunder, the Corporation may
satisfy the requirement to send any notice or document referred to in section
10.1 by creating and providing an electronic document in compliance with the Act
and the regulations under the Act. An electronic document is deemed to have been
received when it enters the information system designated by the addressee or,
if the document is posted on or made available through a generally accessible
electronic source, when the addressee receives notice in writing of the
availability and location of that electronic document, or, if such notice is
sent electronically, when it enters the information system designated by the
addressee.
10.3. UNDELIVERED NOTICES
If the Corporation sends a notice or document to a shareholder in
accordance with this section and the notice or document is returned on two
consecutive occasions because the shareholder cannot be found, the Corporation
is not required to send any further notices or documents to the shareholder
until the shareholder informs the Corporation in writing of the shareholder's
new address.
10.4. COMPUTATION OF TIME
In computing the time when a notice or document must be given or sent
under any provision requiring a specified number of days' notice of any meeting
or other event, the day on which the notice or document is given or sent shall
be excluded and the day on which the meeting or other event occurs shall be
included.
10.5. OMISSION AND ERRORS
The accidental omission to give any notice or send any document to any
shareholder, director or other person or the non-receipt of any notice or
document by any shareholder, director or other person or any error in any notice
or document not affecting the substance thereof shall not invalidate any action
taken at any meeting held pursuant to such notice or otherwise founded on such
notice or document.
10.6. NOTICE TO JOINT SHAREHOLDERS
All notices or documents with respect to any shares registered in more
than one name may, if more than one address appears on the securities register
of the Corporation in respect of such joint holding, be given to such joint
shareholders at the first address so appearing, and all notices so given or
documents so sent shall be sufficient notice to all the holders of such shares.
10.7. PROOF OF SERVICE
A certificate of the Secretary or other duly authorized officer of the
Corporation, or of any agent of the Corporation, as to facts in relation to the
mailing or delivery or sending of any notice or document to any shareholder or
director of the Corporation or to any other person or publication of any such
notice or document, shall be conclusive evidence thereof and shall be binding on
every shareholder or director or other person as the case may be.
10.8. SIGNATURE TO NOTICE
The signature to any notice or document given by the Corporation, if
not in electronic form, may be printed or otherwise mechanically reproduced
thereon or partly printed or otherwise mechanically reproduced thereon.
10.9. WAIVER OF NOTICE
Notice may be waived or the time for the sending of a notice or
document may be waived or abridged at any time with the consent in writing of
the person entitled thereto. Attendance of any director at a meeting of the
directors or of any shareholder at a meeting of shareholders is a waiver of
notice of such meeting, except where the director or shareholder attends for the
express purpose of objecting to the transaction of any business on the grounds
that the meeting is not lawfully called.
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11. BUSINESS OF THE CORPORATION
11.1. VOTING SHARES AND SECURITIES IN OTHER CORPORATIONS
All of the shares or other securities carrying voting rights of any
other body corporate or bodies corporate held from time to time by the
Corporation may be voted at any and all meetings of holders of such securities
of such other body corporate or bodies corporate in such manner and by such
person or persons as the directors of the Corporation shall from time to time
determine or failing such determination the proper signing officers of the
Corporation may also from time to time execute and deliver for and on behalf of
the Corporation instruments of proxy and arrange for the issue of voting
certificates and other evidence of the right to vote in such names as they may
determine.
11.2. BANK ACCOUNTS, CHEQUES, DRAFTS AND NOTES
The Corporation's bank accounts shall be kept in such chartered bank or
banks, trust company or trust companies or other firm or corporation carrying on
a banking business as the directors may by resolution from time to time
determine. Cheques on bank accounts, drafts drawn or accepted by the
Corporation, promissory notes given by it, acceptances, bills of exchange,
orders for the payment of money and other instruments of a like nature may be
made, signed, drawn, accepted or endorsed, as the case may be, on behalf of the
Corporation (i) by any of the Chairman of the Board, the Vice-Chairman of the
Board, the President, any Executive Vice-President or any Vice-President
together with any one of the Secretary, the Treasurer, any Assistant Secretary
or any Assistant Treasurer, (ii) by any one of the foregoing officers together
with any one director, or (iii) by such other officer or officers, person or
persons as the directors may by resolution from time to time name for that
purpose. Cheques, promissory notes, bills of exchange, orders for the payment of
money and other negotiable paper may be endorsed for deposit to the credit of
any one of the Corporation's bank accounts by such officer or officers, person
or persons, as the directors may by resolution from time to time name for that
purpose, or they may be endorsed for such deposit by means of a stamp bearing
the Corporation's name.
11.3. EXECUTION OF INSTRUMENTS
The Chairman of the Board, the Deputy Chairman of the Board, the
Vice-Chairman of the Board, the President, a Vice-President or any director,
together with the Secretary, the Controller, the Treasurer, Assistant Secretary,
Assistant Treasurer or any other director, shall have authority to sign in the
name and on behalf of the Corporation all instruments in writing and any
instruments in writing so signed shall be binding upon the Corporation without
any further authorization or formality. The board of directors shall have power
from time to time by resolution to appoint any other officer or officers or any
person or persons on behalf of the Corporation either to sign instruments in
writing generally or to sign specific instruments in writing. Any signing
officer may affix the corporate seal to any instrument requiring the same. The
term "instruments in writing" as used herein shall, without limiting the
generality thereof, include contracts, documents, powers of attorney, deeds,
mortgages, hypothecs, charges, conveyances, transfers and assignments of
property (real or personal, immovable or movable), agreements, tenders,
releases, receipts and discharges for the payment of money or other obligations,
conveyances, transfers and assignments of shares, stocks, bonds, debentures or
other securities, instruments of proxy and all paper writing.
11.4. FISCAL YEAR
Until changed by resolution of the directors the fiscal year of the
Corporation shall terminate on the last day of December in each year.
12. INTERPRETATION
12.1. GENERAL
In this by-law, wherever the context requires or permits, the singular
shall include the plural and the plural the singular, the word "person" shall
include firms and corporations, and masculine gender shall include the feminine
and neuter genders. Wherever reference is made to any determination or other
action by the directors such shall mean determination or other action by or
pursuant to a resolution passed at a meeting of the directors, or by or pursuant
to a resolution consented to by all the directors as evidenced by their
signatures thereto. Wherever reference is made to the "Canada Business
Corporations Act" or the "Act", it shall mean the Canada Business Corporations
Act, R.S.C. 1985, c. C-44 and every other act or statute incorporated therewith
or amending the same,
12
or any act or statute substituted therefor. Unless the context otherwise
requires, all words used in this by-law shall have tie meanings given to such
words in the Act.
12.2. COMING INTO FORCE
This "by-law shall come into force on the date of its confirmation by
the shareholders in accordance with the Act.
12.3. REPEAL OF PREVIOUS BY-LAWS
All previous by-laws of the Corporation are repealed as of the coming
into force of this by-law provided that such repeal shall not affect the
previous operation of any by-law so repealed or the validity of any act done or
right, privilege, obligation or liability acquired or incurred under, or the
validity of any contract or agreement made pursuant to any such by-law prior to
its repeal. All officers and persons acting under any by-law so repealed shall
continue to act as if appointed under the provisions of this by-law and all
resolutions of the shareholders or Board with continuing effect passed under any
repealed by-law shall continue as good and valid except to the extent
inconsistent with this by-law and until amended or repealed.
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Exhibit 4.1
EXECUTION COPY
HOLLINGER INC.
11.875% Senior Secured Notes due 2011
Unconditionally Guaranteed by
RAVELSTON MANAGEMENT INC. and
504468 N.B. INC.
INDENTURE
Dated as of March 10, 2003
WACHOVIA TRUST COMPANY, NATIONAL ASSOCIATION,
Trustee
THE RAVELSTON CORPORATION LIMITED
SUGRA LIMITED
TABLE OF CONTENTS
Page
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PARTIES......................................................................................................... 1
RECITALS........................................................................................................ 1
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.01. Definitions....................................................................................... 1
SECTION 1.02. Other Definitions................................................................................. 28
SECTION 1.03. Compliance Certificates and Opinions.............................................................. 29
SECTION 1.04. Form of Documents Delivered to Trustee............................................................ 30
SECTION 1.05. Acts of Holders................................................................................... 30
SECTION 1.06. Notices, etc., to Trustee and the Company......................................................... 31
SECTION 1.07. Notice to Holders; Waiver......................................................................... 31
SECTION 1.08. Conflict with Trust Indenture Act................................................................. 32
SECTION 1.09. Effect of Headings and Table of Contents.......................................................... 32
SECTION 1.10. Successors and Assigns............................................................................ 32
SECTION 1.11. Separability Clause............................................................................... 32
SECTION 1.12. Benefits of Indenture............................................................................. 32
SECTION 1.13. GOVERNING LAW..................................................................................... 32
SECTION 1.14. Legal Holidays.................................................................................... 32
SECTION 1.15. Schedules and Exhibits............................................................................ 33
SECTION 1.16. Counterparts...................................................................................... 33
SECTION 1.17. Jurisdiction and Service of Process............................................................... 33
SECTION 1.18. Judgment Currency................................................................................. 33
ARTICLE II
FORM OF NOTE
SECTION 2.01. Form Generally.................................................................................... 34
SECTION 2.02. Form of Trustee's Certificate of Authentication................................................... 35
SECTION 2.03. Form of Guarantees................................................................................ 35
ARTICLE III
THE NOTES
SECTION 3.01. Execution, Authentication, Delivery and Dating.................................................... 36
SECTION 3.02. Temporary Notes................................................................................... 37
SECTION 3.03. Registration, Registration of Transfer and Exchange............................................... 38
SECTION 3.04. Global Note Provisions............................................................................ 39
SECTION 3.05. Legends........................................................................................... 40
SECTION 3.06. Special Transfer Provisions....................................................................... 40
i
SECTION 3.07. Mutilated, Destroyed, Lost or Stolen Notes........................................................ 43
SECTION 3.08. Payment of Interest; Interest Rights Preserved.................................................... 43
SECTION 3.09. Persons Deemed Owners............................................................................. 45
SECTION 3.10. Cancellation...................................................................................... 45
SECTION 3.11. Computation of Interest........................................................................... 45
SECTION 3.12. [Reserved]........................................................................................ 45
SECTION 3.13. Additional Interest Under Registration Rights Agreements.......................................... 45
ARTICLE IV
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 4.01. Company's Option to Effect Defeasance or Covenant Defeasance...................................... 46
SECTION 4.02. Defeasance and Discharge.......................................................................... 46
SECTION 4.03. Covenant Defeasance............................................................................... 46
SECTION 4.04. Conditions to Defeasance or Covenant Defeasance................................................... 47
SECTION 4.05. Deposited Money and U.S. Government Obligations to be Held in Trust;
Other Miscellaneous Provisions.................................................................. 49
SECTION 4.06. Reinstatement..................................................................................... 49
ARTICLE V
REMEDIES
SECTION 5.01. Events of Default................................................................................. 50
SECTION 5.02. Acceleration of Maturity; Rescission and Annulment................................................ 52
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee................................... 53
SECTION 5.04. Trustee May File Proofs of Claim.................................................................. 54
SECTION 5.05. Trustee May Enforce Claims Without Possession of Notes............................................ 55
SECTION 5.06. Application of Money Collected.................................................................... 55
SECTION 5.07. Limitation on Suits............................................................................... 55
SECTION 5.08. Unconditional Right of Holders to Receive Principal, Premium and Interest......................... 56
SECTION 5.09. Restoration of Rights and Remedies................................................................ 56
SECTION 5.10. Rights and Remedies Cumulative.................................................................... 56
SECTION 5.11. Delay or Omission Not Waiver...................................................................... 56
SECTION 5.12. Control by Holders................................................................................ 57
SECTION 5.13. Waiver of Past Defaults........................................................................... 57
SECTION 5.14. Undertaking for Costs............................................................................. 57
SECTION 5.15. Waiver of Stay, Extension or Usury Laws........................................................... 57
SECTION 5.16. Remedies Subject to Applicable Law................................................................ 58
ARTICLE VI
THE TRUSTEE
SECTION 6.01. Duties of Trustee................................................................................. 58
SECTION 6.02. Notice of Defaults................................................................................ 59
ii
SECTION 6.03. Certain Rights of Trustee......................................................................... 59
SECTION 6.04. Trustee Not Responsible for Recitals, Dispositions of Notes or Application
of Proceeds Thereof............................................................................. 60
SECTION 6.05. Trustee and Agents May Hold Notes; Collections; etc............................................... 61
SECTION 6.06. Money Held in Trust............................................................................... 61
SECTION 6.07. Compensation and Indemnification of Trustee and Its Prior Claim................................... 61
SECTION 6.08. Conflicting Interests............................................................................. 62
SECTION 6.09. Corporate Trustee Required; Eligibility........................................................... 62
SECTION 6.10. Resignation and Removal; Appointment of Successor Trustee......................................... 62
SECTION 6.11. Acceptance of Appointment by Successor............................................................ 64
SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business....................................... 64
SECTION 6.13. Preferential Collection of Claims Against the Company............................................. 65
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND THE COMPANY
SECTION 7.01. Company to Furnish Trustee Names and Addresses of Holders......................................... 65
SECTION 7.02. Disclosure of Names and Addresses of Holders...................................................... 65
SECTION 7.03. Reports by Trustee................................................................................ 65
SECTION 7.04. Reports by the Company............................................................................ 66
ARTICLE VIII
CONSOLIDATION, MERGER, SALE OF ASSETS
SECTION 8.01. Company May Merge, Consolidate, etc., Only on Certain Terms....................................... 67
SECTION 8.02. Successor Substituted............................................................................. 69
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.01. Supplemental Indentures and Agreements Without Consent of Holders................................. 69
SECTION 9.02. Supplemental Indentures and Agreements with Consent of Holders.................................... 70
SECTION 9.03. Execution of Supplemental Indentures and Agreements............................................... 72
SECTION 9.04. Effect of Supplemental Indentures................................................................. 72
SECTION 9.05. Conformity with Trust Indenture Act............................................................... 72
SECTION 9.06. Reference in Notes to Supplemental Indentures..................................................... 72
SECTION 9.07. Record Date....................................................................................... 72
ARTICLE X
COVENANTS
SECTION 10.01. Payment of Principal, Premium and Interest....................................................... 73
SECTION 10.02. Maintenance of Office or Agency.................................................................. 73
SECTION 10.03. Money for Note Payments to be Held in Trust...................................................... 73
iii
SECTION 10.04. Corporate Existence.............................................................................. 74
SECTION 10.05. Payment of Taxes and Other Claims................................................................ 75
SECTION 10.06. Maintenance of Properties........................................................................ 75
SECTION 10.07. Insurance........................................................................................ 75
SECTION 10.08. Limitation on Indebtedness....................................................................... 76
SECTION 10.09. Limitation on Restricted Payments................................................................ 76
SECTION 10.10. Limitation on Transactions with Affiliates....................................................... 80
SECTION 10.11. Limitation on Liens.............................................................................. 81
SECTION 10.12. Limitation on Issuances of Guarantees of Indebtedness............................................ 82
SECTION 10.13. Limitation on Sale of Assets..................................................................... 83
SECTION 10.14. Purchase of Notes upon a Change of Control....................................................... 89
SECTION 10.15. Limitation on Issuance and Sale of Capital Stock of Restricted
Subsidiaries..................................................................................... 92
SECTION 10.16. Limitation on Dividends and Other Payment Restrictions Affecting
Restricted Subsidiaries.......................................................................... 92
SECTION 10.17. Provision of Financial Statements................................................................ 93
SECTION 10.18. Statement by Officers as to Default.............................................................. 93
SECTION 10.19. Waiver of Certain Covenants...................................................................... 94
SECTION 10.20. Limitation on the Designation of Unrestricted Subsidiaries....................................... 94
SECTION 10.21. Additional Amounts............................................................................... 94
SECTION 10.22. Covenants of RMI, RCL and Sugra.................................................................. 96
SECTION 10.23. Limitation on RMI's Business Activities.......................................................... 96
ARTICLE XI
REDEMPTION OF NOTES
SECTION 11.01. Right of Redemption.............................................................................. 97
SECTION 11.02. Applicability of Article......................................................................... 98
SECTION 11.03. Election to Redeem; Notice to Trustee............................................................ 98
SECTION 11.04. Selection by Trustee of Notes to be Redeemed..................................................... 98
SECTION 11.05. Notice of Redemption............................................................................. 98
SECTION 11.06. Deposit of Redemption Price...................................................................... 99
SECTION 11.07. Notes Payable on Redemption Date................................................................. 99
SECTION 11.08. Notes Redeemed or Purchased in Part.............................................................. 100
ARTICLE XII
SATISFACTION AND DISCHARGE
SECTION 12.01. Satisfaction and Discharge of Indenture.......................................................... 100
SECTION 12.02. Application of Trust Money....................................................................... 101
iv
ARTICLE XIII
GUARANTEES
SECTION 13.01. Guarantees....................................................................................... 101
SECTION 13.02. Continuing Guarantee; No Right of Set-Off; Independent Obligation................................ 102
SECTION 13.03. Guarantees Absolute.............................................................................. 102
SECTION 13.04. Right to Demand Full Performance................................................................. 104
SECTION 13.05. Waivers.......................................................................................... 105
SECTION 13.06. Note Guarantors Remain Obligated in Event the Company Is No Longer
Obligated to Discharge Indenture Obligations..................................................... 105
SECTION 13.07. Waiver of Rights................................................................................. 105
SECTION 13.08. Guarantees Are in Addition to Other Security..................................................... 106
SECTION 13.09. Release of Security Interests.................................................................... 106
SECTION 13.10. No Bar to Further Actions........................................................................ 106
SECTION 13.11. Failure to Exercise Rights Shall Not Operate as a Waiver; No Suspension of Remedies.............. 106
SECTION 13.12. Trustee's Duties; Notice to Trustee.............................................................. 107
SECTION 13.13. Successors and Assigns........................................................................... 107
SECTION 13.14. Release of Guarantee............................................................................. 107
SECTION 13.15. Execution of Guarantees.......................................................................... 108
SECTION 13.16. Payment Permitted by Note Guarantors if No Default............................................... 108
ARTICLE XIV
SECURITY
SECTION 14.01. Security......................................................................................... 108
SECTION 14.02. Additional Security.............................................................................. 109
SECTION 14.03. Recording and Opinions........................................................................... 109
SECTION 14.04. Release and Disposition of Collateral............................................................ 110
SECTION 14.05. Enforcement of Claims Against Collateral......................................................... 112
SECTION 14.06. Authorization of Actions To Be Taken by the Trustee.............................................. 112
SIGNATURES...................................................................................................... 114
SCHEDULE 1 - Permitted Indebtedness
EXHIBIT A - Form of Note
EXHIBIT B - Form of Transfer Certificate for Transfer to QIB
EXHIBIT C - Form of Certificate to be Delivered in Connection with Transfers
Pursuant to Regulation S
EXHIBIT D - Form of Rule 144 Certification
EXHIBIT E - Form of Intercreditor Agreement
EXHIBIT F - International Subordination Agreement
EXHIBIT G - RMI Subordination Agreement
EXHIBIT H - Security Agreement
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
a part of this Indenture.
vi
INDENTURE, dated as of March 10, 2003, among HOLLINGER INC., a
corporation incorporated under the Canada Business Corporation Act (as more
fully defined below, the "Company"), RAVELSTON MANAGEMENT INC., a corporation
incorporated under the laws of the Province of Ontario, as guarantor ("RMI"),
504468 N.B. INC., an indirect wholly owned subsidiary of the Company organized
under the laws of the Province of New Brunswick, as guarantor ("NBI" and,
together with RMI, as more fully defined below, the "Note Guarantors"), THE
RAVELSTON CORPORATION LIMITED, a corporation incorporated under the laws of the
Province of Ontario ("RCL"), SUGRA LIMITED, a wholly owned subsidiary of the
Company organized under the laws of the Province of Ontario ("Sugra"), and
WACHOVIA TRUST COMPANY, NATIONAL ASSOCIATION, as trustee (the "Trustee").
RECITALS
The Company has duly authorized the execution and delivery of
this Indenture to provide for the issuance of its senior secured notes, to be
issued pursuant to Articles II and III hereof or a supplemental indenture (each
a "Note" and collectively the "Notes").
Each of the Note Guarantors has duly authorized the issuance
of a guarantee (the "Guarantee") of the Notes, of substantially the tenor as
hereinafter set forth, and to provide therefor, each of the Note Guarantors has
duly authorized the execution and delivery of this Indenture in its capacity as
a Note Guarantor hereunder.
Each of RCL and Sugra has duly authorized the execution and
delivery of this Indenture to provide certain covenants with respect to the
Notes.
This Indenture is subject to, and shall be governed by, the
provisions of the Trust Indenture Act that are required to be part of and to
govern indentures qualified under the Trust Indenture Act.
All acts and things necessary have been done to make (i) the
Notes, when executed by the Company and authenticated and delivered hereunder
and duly issued by the Company, the valid obligations of the Company and (ii)
this Indenture a valid agreement of the Company, RCL, Sugra and the Note
Guarantors in accordance with the terms of this Indenture.
NOW, THEREFORE, in consideration of the premises and the
purchase of the Notes by the Holders thereof, it is mutually covenanted and
agreed, for the equal and proportionate benefit of all Holders, as follows:
ARTICLE I
Definitions and Other Provisions of General Application
SECTION 1.01. Definitions. For all purposes of this Indenture,
except as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(b) all other terms used herein which are defined in the
Trust Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
(c) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with GAAP;
(d) the words "herein", "hereof" and "hereunder" and
other words of similar import refer to this Indenture as a whole and
not to any particular Article, Section or other subdivision; and
(e) all references to Cdn. $ shall refer to the lawful
currency of Canada and all references to $, including U.S. dollars or
United States dollars, shall refer to the lawful currency of the United
States of America. In all events, all payments to be made hereunder
shall be made in United States dollars.
The following terms shall have the meanings set forth in this
Section:
"Acceleration Right" means a right, which at the time is
immediately exercisable (without further notice or lapse of time), by the
holders or a trustee to cause the acceleration of the maturity of Indebtedness
of the Company or a Restricted Subsidiary having an aggregate principal amount
outstanding of at least $2,500,000.
"Acquired Indebtedness" means Indebtedness of a Person
(including an Unrestricted Subsidiary) (i) existing at the time such Person
becomes a Restricted Subsidiary or (ii) assumed in connection with the
acquisition of assets from such Person, in each case, other than Indebtedness
Incurred in connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary or such acquisition. Acquired Indebtedness will be deemed
to be Incurred on the date of the related acquisition of assets from any Person
or the date the acquired Person becomes a Restricted Subsidiary.
"Additional Note Board Resolutions" means resolutions that are
duly adopted by the Board of Directors of the Company and delivered to the
Trustee in an Officers' Certificate providing for the issuance of Additional
Notes.
"Additional Note Supplemental Indenture" means a supplement to
this Indenture duly executed and delivered by the Company, the Note Guarantors,
RCL, Sugra and the Trustee pursuant to Article IX providing for the issuance of
Additional Notes.
"Additional Notes" means additional Notes of up to an amount
equal to the difference between (i) $150 million and (ii) the aggregate
principal amount of Notes originally issued as of the Issue Date, such
difference to exclude the aggregate principal amount of any replacement Notes
and any Exchange Notes as specified in the relevant Additional Note Board
Resolutions or Additional Note Supplemental Indenture issued therefor in
accordance with this Indenture.
2
"Adjusted Net Cash Flow" means, for any period, the Net Cash
Flow plus the Annual Support Amount.
"Affiliate" means, with respect to any specified Person, (i)
any other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person or (ii) any other
Person that owns, directly or indirectly, 10% or more of such Person's equity
ownership or Voting Stock or any officer or director of any such Person, or
other Person or, with respect to any natural Person, any person having a
relationship with such Person by blood, marriage or adoption not more remote
than first cousin. For the purposes of this definition, "control" when used with
respect to any specified Person means the power to direct the management and
policies of such Person directly or indirectly, whether through ownership of
voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agent" means the relevant agent bank under any Credit
Facility established by the Company, and such agent bank's successors and
assigns.
"Annual Support Amount" has the meaning set forth in the
Support Agreement.
"Asset Sale" means any sale, issuance, conveyance, transfer,
lease or other disposition (including, without limitation, by way of merger,
amalgamation, consolidation or sale and leaseback transaction but not the grant
of a pledge or security interest) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of (i) any Capital Stock
of any Restricted Subsidiary; (ii) all or substantially all of the properties
and assets of any division or line of business of the Company or any of its
Restricted Subsidiaries; or (iii) any other properties or assets (other than
cash) of the Company or any Restricted Subsidiary, other than in the ordinary
course of business. For the purposes of this definition, the term "Asset Sale"
shall not include (A) any transfer of properties and assets, in a single
transaction or series of related transactions, that is governed by the
provisions of Article VIII, (B) any transfer of properties and assets from any
Restricted Subsidiary to the Company in accordance with the terms of this
Indenture, (C) any transfer of properties and assets, in a single transaction or
series of related transactions, having a market value of less than $1,000,000
(it being understood that, if the market value of the properties or assets being
transferred exceeds $1,000,000, the entire value and not just the portion in
excess of $1,000,000 shall be deemed to have been the subject of an Asset Sale),
(D) any transfer of properties and assets which are obsolete (in the case of
equipment) to the Company's and its Restricted Subsidiaries' businesses, (E) any
transfer of properties and assets to any Restricted Subsidiary, (F) any transfer
of properties and assets from any Restricted Subsidiary to any other Restricted
Subsidiary, and (G) any release of the Senior Notes Collateral permitted under
and made in accordance with the provisions hereof or of the Security Documents.
"Average Life to Stated Maturity" means, as of the date of
determination with respect to any Indebtedness, the quotient obtained by
dividing (i) the sum of the product of (a) the number of years from the date of
determination to the date or dates of each successive scheduled principal
payment of such Indebtedness multiplied by (b) the amount of each such principal
payment by (ii) the sum of all such principal payments.
3
"Bankruptcy Law" means Title Eleven of the United States Code,
as amended, or any similar United States federal or state or foreign law
(including, without limitation, the Bankruptcy and Insolvency Act (Canada) and
the Companies' Creditors Arrangement Act (Canada)) relating to bankruptcy,
insolvency, receivership, winding-up, liquidation, consolidation, reorganization
or relief of debtors or any amendment to, succession to or change in any such
law.
"Board of Directors" means the board of directors of the
Company or any duly authorized committee of such board.
"Board Resolution" means a copy of a resolution certified by
an Officer of the Company to have been duly adopted by such Board of Directors
of the Company or a duly authorized committee of such board and to be in full
force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in The City of New
York, or the city in which the principal corporate trust office of the Trustee
is located (initially Wilmington, Delaware), are authorized or obligated by law
or executive order to close.
"Business Opportunities Agreement" means the Business
Opportunities Agreement dated as of February 7, 1996, between the Company and
Hollinger International and any amendment, modification or supplement thereto or
restatement thereof and any similar agreements entered into after the date of
the original issuance of the Notes in accordance with the terms of this
Indenture.
"Capital Lease Obligation" of any Person means any obligation
of such Person and its subsidiaries on a consolidated basis under any capital
lease of real or personal property, which, in accordance with GAAP, has been
recorded as a capitalized lease obligation.
"Capital Stock" of any Person means any and all shares,
interests, participations or other equivalents (however designated) of such
Person's capital stock and options, warrants or other rights to acquire such
Person's capital stock.
"Cash Equivalents" means (i) any evidence of Indebtedness with
a maturity of 180 days or less issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof); (ii) certificates of deposit or acceptances with a
maturity of 180 days or less of any financial institution that is a member of
the Federal Reserve System having combined capital and surplus and undivided
profits of not less than $500,000,000; (iii) commercial paper with a maturity of
180 days or less issued by a corporation that is not an Affiliate of the Company
organized under the laws of any state of the United States or the District of
Columbia and rated A-1 (or higher) according to S&P or P-1 (or higher) according
to Moody's or at least an equivalent rating category of another nationally
recognized securities rating agency; (iv) any money market deposit accounts
issued or offered by a domestic commercial bank having capital and surplus in
excess of $500,000,000; and (v) repurchase agreements and reverse repurchase
agreements relating to marketable direct obligations issued or
4
unconditionally guaranteed by the government of the United States of America or
issued by any agency thereof and backed by the full faith and credit of the
United States of America, in each case maturing within 180 days from the date of
acquisition; provided that the terms of such agreements comply with the
guidelines set forth in the Federal Financial Agreements of Depository
Institutions with Securities Dealers and Others, as adopted by the Comptroller
of the Currency on October 31, 1985.
"Certificated Note" means any Note issued in registered
certificated form (other than a Global Note), which shall be substantially in
the form of Exhibit A, with appropriate legends as specified in Section 3.05 and
Exhibit A.
"Change of Control" means the occurrence of any of the
following:
(a) there is a report filed on Schedule 13D, 14D-1 or
14D-1F (or any successor schedule, form or report) pursuant to the
Exchange Act, disclosing that any person (for purposes of this
definition, as the term "person" is used in Section 13(d)(3) or Section
14(d)(2) of the Exchange Act or any successor provision to either of
the foregoing), other than any person consisting solely of Lord Black
(or his heirs, executors or legal representatives) and his Affiliates,
has become the beneficial owner (as the term "beneficial owner" is
defined under Rule 13d-3 or any successor rule or regulation
promulgated under the Exchange Act) of Voting Stock representing 50% or
more of the total voting power attached to all Voting Stock of the
Company or RMI then outstanding; provided, however, that a person shall
not be deemed to be the beneficial owner of, or to own beneficially,
(i) any securities tendered pursuant to a tender or exchange offer made
by or on behalf of such person or any of such person's Affiliates until
such tendered securities are accepted for purchase or exchange
thereunder, or (ii) any securities if such beneficial ownership (A)
arises solely as a result of a revocable proxy delivered in response to
a proxy or consent solicitation made pursuant to applicable law, and
(B) is not also then reportable on Schedule 13D (or any successor
schedule) under the Exchange Act;
(b) there is a report filed or required to be filed with
any securities commission or securities regulatory authority in Canada,
disclosing (expressly or otherwise) that any offeror (as the term
"offeror" is defined in Section 89(1) of the Securities Act (Ontario)
for the purpose of Section 101 of such Securities Act or any successor
provision of the foregoing and which term shall include, for greater
certainty, any person who directly or indirectly acquires beneficial
ownership within the meaning of such Securities Act of, or control or
direction over, voting or equity securities of the Company), other than
any person consisting solely of Lord Black (or his heirs, executors or
legal representatives) and his Affiliates, has directly or indirectly
acquired beneficial ownership (within the meaning of the Securities Act
(Ontario)) of, or the power to exercise control or direction over,
voting or equity securities, or securities convertible into voting or
equity securities, of the Company that together with such offeror's
securities (as the term "offeror's securities" is defined in Section
89(1) of the Securities Act (Ontario) or any successor provision
thereto in relation to the voting or equity shares of the Company)
would constitute Voting Stock of the Company representing 50% or
5
more of the total voting power attached to all Voting Stock of the
Company then outstanding;
(c) any person, other than any person consisting solely
of Lord Black (or his heirs, executors or legal representatives) and
his Affiliates, directly or indirectly acquires beneficial ownership
(within the meaning of the Securities Act (Ontario)) of, or the power
to exercise control or direction over, voting or equity securities, or
securities convertible into voting or equity securities, of RMI that
together with such person's securities (the term "person's securities"
to have the same meaning as "offeror's securities" as defined in
Section 89(1) of the Securities Act (Ontario) or any successor
provision thereto in relation to the voting or equity shares of the
RMI) would constitute Voting Stock of RMI representing 50% or more of
the total voting power attached to all Voting Stock of RMI then
outstanding;
(d) there is consummated a consolidation (involving a
business combination), merger or amalgamation of the Company or RMI, as
the case may be, (i) in which the Company or RMI, as the case may be,
is not the continuing or surviving corporation or (ii) pursuant to
which any Voting Stock of the Company or RMI, as the case may be, would
be reclassified, changed or converted into or exchanged for cash,
securities or other property, other than (in each case) a
consolidation, merger or amalgamation of the Company or RMI, as the
case may be, in which the holders of the Voting Stock of the Company or
RMI, as the case may be, immediately prior to the consolidation, merger
or amalgamation have, directly or indirectly, 50% or more of the Voting
Stock of the continuing or surviving corporation immediately after such
transaction;
(e) during any period of 12 consecutive months,
individuals who at the beginning of such period constituted the Board
of Directors of the Company or RMI (together with any new directors
whose election by such Board of Directors, or whose nomination for
election by the stockholders of the Company or RMI, as the case may be,
was approved by a vote of at least a majority of the directors then
still in office who were either directors at the beginning of such
period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of such Board
of Directors then in office; or
(f) Lord Black (or his heirs, executors and legal
representatives) and his Affiliates cease to beneficially own and
control the voting of, directly or indirectly, Voting Stock of the
Company or RMI representing a greater percentage of the total voting
power attached to the Voting Stock of the Company or RMI than the
percentage beneficially owned and controlled, directly or indirectly,
by any other single shareholder of the Company or RMI together with its
Affiliates (a "Designated Transaction") and there shall occur a Rating
Decline.
For purposes hereof, "Rating Decline" means an event that will
be deemed to have occurred if, on any date within the period (the "Rating
Period") beginning on the date (the "Reference Date") of the earlier to occur of
(A) the first public announcement by the Company or any other Person of an
intention to effect any Designated Transaction and (B) the occurrence of such
Designated Transaction, and ending on the date 90 days thereafter, either of the
6
following events has occurred: (1) the Notes (or any other securities of the
Company which are rated by a Rating Agency on the date which is 61 days prior to
the Reference Date (the "Rating Date")) shall be rated by any Rating Agency at
any time during the Rating Period at a rating which is lower than the rating of
the Notes (or such other securities of the Company, as the case may be) by such
Rating Agency on the Rating Date by one or more gradations (including gradations
within Rating Categories as well as between Rating Categories) or (2) any Rating
Agency shall have withdrawn its rating of the Notes (or such other securities of
the Company, as the case may be) during the Rating Period.
"Class A Common Stock" means the Class A common stock, par
value $0.01 per share, of Hollinger International.
"Class B Common Stock" means the Class B common stock, par
value $0.01 per share, of Hollinger International.
"Class B Shares" means the 14,990,000 shares of Class B Common
Stock pledged pursuant to the Security Agreement as security for the Company's
obligations under the Notes and NBI's obligations under the NBI Guarantee, as
such number may be adjusted from time to time as permitted by this Indenture or
the Security Agreement.
"Code" means the Internal Revenue of 1986, as amended.
"Collateral" means any property, assets, proceeds or other
items that may be pledged as security for the Notes, whether pursuant to Section
10.11, Article XIV or otherwise.
"Collateral Account" means a collateral account established by
the Company with the Collateral Agent or another financial institution pursuant
to and in accordance with the Security Agreement.
"Collateral Agent" means the collateral agent under the
Indenture, the Intercreditor Agreement and the Security Agreement, which
initially shall be the Trustee, acting in its capacity as Collateral Agent under
such agreements on behalf of and for the benefit of the Trustee and the Holders.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or, if at any
time after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Company" means Hollinger Inc., a corporation incorporated
under the Canada Business Corporation Act, until a successor Person shall have
become such pursuant to Article VIII of this Indenture and thereafter "Company"
shall mean such successor Person. To the extent necessary to comply with the
requirements of the provisions of Trust Indenture Act Sections 310 through 317
as they are applicable to the Company, the term "Company" shall include any
other obligor with respect to the Notes for purposes of complying with such
provisions, including any Note Guarantor.
7
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by any one of its Chairman of the
Board, its Vice Chairman, its President or a Vice President (regardless of Vice
Presidential designation), and by any one of its Treasurer, an Assistant
Treasurer, its Secretary or an Assistant Secretary, and in form and substance
reasonably satisfactory to the Trustee and delivered to the Trustee.
"Consolidated Assets" means, with respect to the Company, the
total assets shown on the balance sheet of the Company and its Restricted
Subsidiaries, as determined on a consolidated basis in accordance with GAAP, as
of the Company's latest full fiscal quarter.
"Consolidated Interest Expense" means, with respect to any
period, the sum of (i) the interest expense of the Company and the Restricted
Subsidiaries for such period, determined on a Consolidated basis in accordance
with GAAP (other than any dividends paid by the Company on the Series II
Preferred Shares and Series III Preferred Shares or any Capital Stock issued in
replacement therefor), including, without limitation, (a) amortization of debt
discount, (b) the net payments, if any, under interest rate contracts (including
amortization of discounts), (c) the interest portion of any deferred payment
obligation and (d) accrued interest, plus (ii) the interest component of Capital
Lease Obligations paid, accrued and/or scheduled to be paid or accrued by the
Company and the Restricted Subsidiaries during such period, and all capitalized
interest of the Company and the Restricted Subsidiaries, in each case as
determined on a Consolidated basis in accordance with GAAP.
"Consolidated Net Worth" means the common and preferred
stockholders' equity of the Company and its Restricted Subsidiaries (exclusive
of any redeemable capital stock), as determined on a Consolidated basis and in
accordance with GAAP.
"Consolidation" means, with respect to any Person, the
consolidation of the accounts of such Person and each of its subsidiaries if and
to the extent the accounts of such Person and each of its subsidiaries would
normally be consolidated with those of such Person, all in accordance with GAAP;
provided, however, that the accounts of any Unrestricted Subsidiary shall not be
consolidated with the Company but instead the interest of the Company or any
Restricted Subsidiary therein will be accounted for as an investment on an
equity basis. The term "Consolidated" shall have a correlative meaning.
"Contribution Agreement" means the contribution agreement
among RCL, RMI and the Company to be dated the date hereof.
"Corporate Trust Office" means the office of the Trustee or an
affiliate or agent thereof at which at any particular time the corporate trust
business for the purposes of this Indenture shall be principally administered,
which office at the date of execution of this Indenture is located at 920 King
Street, Suite 102, Wilmington, DE 19801.
"Coverage Ratio" means, with respect to the Company and its
Restricted Subsidiaries, the ratio of (x) the sum of Adjusted Net Cash Flow and
Consolidated Interest Expense, to (y) the Consolidated Interest Expense for the
preceding four quarter period.
"Credit Facility" means an agreement that the Company and NBI
may enter into with one or more Canadian chartered banks and other financial
institutions with respect to a
8
credit facility providing for up to Cdn. $15 million in borrowings by the
Company and NBI on a revolving line of credit basis, which borrowings may (i) at
the option of the Company and subject to such conditions as may be set forth in
such agreement, be converted into a term loan having an Average Life to Stated
Maturity and Stated Maturity sooner than those of the Notes, provided that at
the time of such conversion no Default or Event of Default under the Notes or
the Credit Facility has occurred and is continuing, and (ii) be secured by a
first priority lien on any of the assets, properties and rights of the Company
or NBI not pledged as collateral for the Notes pursuant to the Security
Agreement, as such credit agreement may be amended, amended and restated,
renewed, extended, substituted, refinanced, restructured, replaced,
supplemented, waived, deferred or otherwise modified from time to time, in each
case whether with the same and/or different lenders, and also including all
related guarantees, security or pledge arrangements, hedging arrangements and
other instruments and agreements executed in connection therewith; provided
further that the Agent, any collateral agent and each lender under such Credit
Facility shall, concurrently with the execution and delivery of such credit
agreement have executed and delivered an Intercreditor Agreement.
"Currency Agreements" means one or more of the following
agreements which shall be entered into with one or more financial institutions:
foreign exchange contracts, currency swap agreements or other similar agreements
or arrangements designed to protect against fluctuations in currency values.
"Current Market Price" means, with respect to any share of
Class A Common Stock or Class B Common Stock of Hollinger International on any
date, the simple average of the daily closing prices for the 45 consecutive
Trading Days ending on the date of determination or the date on which any of the
Pledged Share Collateral is to be released as permitted under Section
14.04(a)(ii) or (v) of this Indenture, as the context requires. The closing
price for each day shall be the last reported sales price of the Class A Common
Stock or, in case no such reported sale takes place on such date, the average of
the reported closing bid and asked prices of the Class A Common Stock in either
case on the New York Stock Exchange (the "NYSE") or, if the Class A Common Stock
is not listed or admitted to trading on the NYSE, on the principal national
securities exchange on which the Class A Common Stock is listed or admitted to
trading or, if not listed or admitted to trading on any national securities
exchange, the closing sales price of the Class A Common Stock as quoted by
NASDAQ or, in case no reported sale takes place, the average of the closing bid
and asked prices as quoted by NASDAQ or any comparable system or, if the Class A
Common Stock is not quoted on NASDAQ or any comparable system, the closing sales
price or, in case no reported sale takes place, the average of the closing bid
and asked prices, as furnished by any two members of the National Association of
Securities Dealers, Inc. selected from time to time by the Company for that
purpose. If no such prices are available, the Current Market Price per share
shall be the fair value of a share of Class A Common Stock as determined by the
Independent Directors of the Company.
"Default" means any event which is, or after notice or passage
of time or both would be, an Event of Default.
"Designated Class A Shares" means the 10,108,302 Class A
Common Stock pledged as security for the Company's obligations under the Notes
pursuant to the Security
9
Agreement, as such number may be adjusted from time to time as permitted by this
Indenture or the Security Agreement.
"Designated Transaction" shall have the meaning assigned to
such term in paragraph (f) of the "Change of Control" definition.
"Distribution Compliance Period" means, in respect of any
Regulation S Global Note, the 40 consecutive days beginning on and including the
later of (a) the day on which any Notes represented thereby are offered to
persons other than distributors (as defined in Regulation S under the Securities
Act) pursuant to Regulation S and (b) the issue date for such Notes.
"Dividend Offset Amount" means the excess of any Net Dividend
Amount received by the Company and NBI in the relevant fiscal year over $4.65
million.
"Dollar Equivalent" means, with respect to any monetary amount
in a currency other than U.S. dollars, at any time of determination thereof, the
amount of U.S. dollars obtained by converting such foreign currency involved in
such computation into U.S. dollars at the spot rate for the purchase of U.S.
dollars with the applicable foreign currency as published in The Wall Street
Journal in the "Exchange Rates" column under the heading "Currency Trading" on
the date two Business Days prior to such determination.
"DTC" means The Depository Trust Company, its nominees and
their respective successors and assigns, or such other depositary institution
hereinafter appointed by the Company that is a clearing agency registered under
the Exchange Act.
"Event of Default" has the meaning specified in Article V.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Notes" means debt securities of the Company,
guaranteed by Hollinger International, substantially identical in all material
respects to the Notes (except that the additional interest provisions and the
transfer restrictions pertaining to the Notes will be modified or eliminated, as
appropriate), to be issued pursuant to this Indenture.
"Exchange Offer Registration Statement" shall have the meaning
assigned to such term in the Issue Date Registration Rights Agreement and any
other Registration Rights Agreement.
"Floor Amount" means $14,000,000 in each fiscal year, less (i)
the aggregate amount of management fees paid in cash by Hollinger International
and its subsidiaries directly to the Company or to its Wholly Owned Restricted
Subsidiaries in such fiscal year, and (ii) any Dividend Offset Amount in such
fiscal year. With respect to any period that is less than a fiscal year, the
Floor Amount shall be calculated pro rata by reference to the number of days in
such period, computed on the basis of a 360-day year of twelve 30-day months.
"Generally Accepted Accounting Principles" or "GAAP" means
generally accepted accounting principles in Canada, consistently applied, which
are in effect on the date of this Indenture.
10
"Global Note" means any Note issued in registered certificated
form to DTC (or its nominee), as depositary for the beneficial owners thereof,
which shall be substantially in the form of Exhibit A, with appropriate legends
as specified in Section 3.05 and Exhibit A.
"Guaranteed Debt" of any Person means, without duplication,
all Indebtedness of any other Person referred to in the definition of
"Indebtedness" guaranteed directly or indirectly in any manner by such Person,
or in effect guaranteed directly or indirectly by such Person through an
agreement (i) to pay or purchase such Indebtedness or to advance or supply funds
for the payment or purchase of such Indebtedness (or to indemnify another Person
for the costs thereof), (ii) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose of enabling
the debtor to make payment of such Indebtedness or to assure the holder of such
Indebtedness against loss, (iii) to supply funds to, or in any other manner
invest in, the debtor (including any agreement to pay for property or services
without requiring that such property be received or such services be rendered),
(iv) to maintain working capital or equity capital of the debtor, or otherwise
to maintain the net worth, solvency or other financial condition of the debtor,
or (v) otherwise to assure a creditor against loss, provided that the term
"guarantee" shall not include endorsements for collection or deposit, in either
case in the ordinary course of business.
"Guarantee Obligations" means the obligations of the
Guarantors under the Indenture, the Notes and the Guarantees to pay principal,
premium, if any, and interest when due and payable, and all other amounts due or
to become due under or in connection with this Indenture and the Notes, and the
performance of all other obligations to the Trustee, the Paying Agent and the
Holders under this Indenture and the Notes, according to the terms thereof.
"Guarantees" means the RMI Guarantee and the NBI Guarantee
and, if the context requires, the guarantee by any Restricted Subsidiary of the
Indenture Obligations.
"HCPH" means Hollinger Canadian Publishing Holdings Co., a
subsidiary of Hollinger International organized under the laws of the Province
of Nova Scotia.
"Holder" means a Person in whose name a Note is registered in
the Note Register.
"Hollinger International" means Hollinger International Inc.,
a corporation incorporated under the laws of Delaware.
"Incur" means create, issue, assume, guarantee or otherwise in
any manner become directly or indirectly liable for or with respect to or
otherwise incur.
"Indebtedness" means, with respect to any Person, without
duplication, (i) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services (or other obligations to former
owners of acquired businesses), excluding any trade payables and other accrued
current liabilities arising in the ordinary course of business, but including,
without limitation, all obligations, contingent or otherwise, of such Person in
connection with any letters of credit issued under letter of credit facilities,
acceptance facilities or other similar facilities and in connection with any
agreement to purchase, redeem, exchange, convert or otherwise acquire for value
any Capital Stock of such Person, or any warrants, rights or options to acquire
such Capital Stock, now or hereafter outstanding, (ii) all obligations of such
11
Person evidenced by bonds, notes, debentures or other similar instruments, (iii)
all indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even if
the rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property), but
excluding trade payables arising in the ordinary course of business, (iv) all
obligations under Interest Rate Agreements and Currency Agreements of such
Person related to the settlement or termination of those agreements as of the
date of determination, (v) all Capital Lease Obligations of such Person, (vi)
all Indebtedness referred to in clauses (i) through (v) above of other Persons
and all dividends of other Persons, the payment of which is secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien, upon or with respect to property
(including, without limitation, accounts and contract rights) owned by such
Person, even though such Person has not assumed or become liable for the payment
of such Indebtedness, (vii) all Guaranteed Debt of such Person, (viii) all
Redeemable Capital Stock and (without duplication) all Preferred Stock of
Restricted Subsidiaries other than Preferred Stock held by Restricted
Subsidiaries or the Company, valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued and unpaid dividends,
and (ix) any amendment, supplement, modification, deferral, renewal, extension,
refunding or refinancing of any Indebtedness of the types referred to in clauses
(i) through (viii) above. For purposes hereof, the "maximum fixed repurchase
price" of any Redeemable Capital Stock or Preferred Stock which does not have a
fixed repurchase price shall be calculated in accordance with the terms of such
Redeemable Capital Stock or Preferred Stock as if such Redeemable Capital Stock
or Preferred Stock were purchased on any date on which Indebtedness shall be
required to be determined pursuant to this Indenture, and if such price is based
upon, or measured by, the fair market value of such Redeemable Capital Stock or
Preferred Stock, such fair market value to be determined in good faith by the
Board of Directors of such Person.
"Indenture" means this instrument as originally executed
(including all exhibits and schedules hereto) and as it may from time to time be
supplemented or amended by one or more indentures supplemental hereto entered
into pursuant to the applicable provisions hereof and shall include the terms of
the Notes established as contemplated by Section 2.01.
"Indenture Obligations" means the obligations of the Company
under this Indenture or under the Notes to pay principal, premium, if any, and
interest when due and payable, and all other amounts due or to become due under
or in connection with this Indenture and the Notes, and the performance of all
other obligations to the Trustee, the Paying Agent and the Holders under this
Indenture and the Notes, according to the terms thereof.
"Independent Director" means a member of the board of
directors of a Person that is not an officer, employee or former officer or
employee of such Person or one of its Affiliates and, with respect to any
transaction or series of related transactions, a member of the board of
directors who does not have any material direct or indirect financial interest
in or with respect to such transaction or series of related transactions
(including for such purpose the interest of any other Person with respect to
whom such director is also a director, officer or employee).
"Intercreditor Agreement" means an intercreditor agreement
among the Trustee, the Collateral Agent, the Agent, and any collateral agent and
lenders under the Credit Facility, substantially in the form attached as Exhibit
E to this Indenture; provided, however that (i) any
12
variations from Exhibit E, taken as a whole, shall not be materially less
favorable to the Trustee, Collateral Agent and the Holders than the terms and
conditions reflected in Exhibit E and (ii) the Company and the Note Guarantors
shall, at the time such Intercreditor Agreement is entered into, have delivered
to the Trustee and the Collateral Agent an Opinion of Counsel confirming the
matters set forth in clause (i) of this proviso and such other matters as this
Indenture may require and as the Trustee or Collateral Agent may request.
"Interest Payment Date" means the Stated Maturity of a regular
installment of interest on the Notes or the Special Payment Date with respect to
Defaulted Interest.
"Interest Rate Agreements" means one or more of the following
agreements which shall be entered into from time to time with one or more
financial institutions: interest rate protection agreements (including, without
limitation, interest rate swaps, caps, floors, collars and similar agreements)
and/or other types of interest rate hedging agreements.
"International Intercompany Note" means that certain Amended
Promissory Note dated as of the Issue Date from NBI to Hollinger International
in the principal amount of $20,349,216.49 (being the Indebtedness owed by NBI
after giving effect to the offset, in the form of the purchase price payable by
Hollinger International to NBI in respect of the Share Cancellation Transaction,
against the original amount of Indebtedness owed by NBI to Hollinger
International prior to the Issue Date, plus accrued and unpaid interest thereon
through the Issue Date). The International Intercompany Note (x) shall (i) be
deemed to include any promissory note(s) issued by NBI to Hollinger
International from time to time in payment of interest accrued on the Amended
Promissory Note (and on any such notes previously issued in payment of interest)
and (ii) have (A) a Stated Maturity occurring later than the Stated Maturity of
the Notes and (B) an Average Life to Stated Maturity greater than the Average
Life to Stated Maturity of the Notes, and (y) may be assigned by Hollinger
International to any of its Affiliates, provided that no such assignment may be
made as an offset against any payments due by Hollinger International or HCPH to
RMI under the Services Agreements, provided further that any such Affiliate
assignee of the International Intercompany Note shall agree to be bound by the
International Subordination Agreement with the same effect as if it had
originally been a party thereto.
"International Subordination Agreement" means a Subordination
Agreement in the form attached hereto as Exhibit F whereby the Company, NBI and
Hollinger International (or, as applicable, any transferee Affiliate of
Hollinger International to the extent permitted under the definition of
"International Intercompany Note") agree that any Indebtedness owed by the
Company and NBI to Hollinger International (or such transferee) under or in
respect of the International Intercompany Note shall be expressly subordinated
in right of payment to the Notes.
"Investment" means, with respect to any Person, directly or
indirectly, any advance, loan (including guarantees), or other extension of
credit or capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others), or any purchase, acquisition or ownership by such Person of any
Capital Stock, bonds, notes, debentures or other securities issued or owned by,
any other
13
Person and all other items that are or would be classified as investments on a
balance sheet prepared in accordance with GAAP.
"Issue Date" means the first date of issuance of Notes under
this Indenture.
"Issue Date Notes" means the $120,000,000 aggregate principal
amount of Notes originally issued on the Issue Date, and any replacement Notes,
Private Exchange Notes and Exchange Notes issued therefor in accordance with
this Indenture.
"Issue Date Registration Rights Agreement" means the
Registration Rights Agreement dated March 5, 2003 by and among the Company, the
Note Guarantors and Wachovia Securities, Inc., as initial purchaser.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired.
"Lord Black" means Lord Black of Crossharbour, PC(C), OC,
KCSG.
"Material Restricted Subsidiary" means each Restricted
Subsidiary of the Company which (i) for the most recent fiscal year of the
Company accounted for more than 5% of the Consolidated revenues of the Company
and its Restricted Subsidiaries or (ii) at the end of such fiscal year was the
owner (beneficial or otherwise) of more than 5% of the Consolidated Assets of
the Company and its Restricted Subsidiaries, all as shown on the Company's
Consolidated financial statements for such fiscal year.
"Maturity" when used with respect to any Note means the date
on which the principal of such Note becomes due and payable as therein provided
or as provided in this Indenture, whether at Stated Maturity, the Purchase Date
or the Redemption Date and whether by declaration of acceleration, Offer in
respect of Excess Proceeds, Change of Control, call for redemption or otherwise.
"NBI" means 504468 N.B. Inc., an indirect wholly owned
subsidiary of the Company organized under the laws of the Province of New
Brunswick.
"NBI Guarantee" means the guarantee by NBI of the Indenture
Obligations.
"Negative Net Cash Flow" means Net Cash Flow that is less than
zero.
"Net Cash Flow" means, for any period, Net Income plus,
without duplication, (i) the amount of all non-cash items reducing Net Income,
(ii) all amounts deducted in the calculation of Net Income on account of
depreciation and amortization, and (iii) all taxes provided for in the
calculation of Net Income, less, without duplication, (iv) any non-cash items
increasing Net Income, (v) all taxes paid in cash during such period, (vi) all
capital expenditures made in cash during such period, and (vii) all dividends
(excluding dividends on the Company's retractable common shares) made during
such period; all calculated in accordance with GAAP as of the last day of any
period. The Net Cash Flow of the Company will be calculated in U.S.
14
dollars; any monetary amount in a currency other than U.S. dollars will be
converted into U.S. dollars at the average exchange rate prevailing during the
relevant period.
"Net Cash Proceeds" means (a) with respect to any Asset Sale
by any Person, the proceeds thereof in the form of cash or Cash Equivalents
including payments of principal and interest in respect of deferred payment
obligations when received in the form of, or stock or other assets when disposed
of for, cash or Cash Equivalents (except to the extent that such obligations are
financed or sold with recourse to the Company or any Restricted Subsidiary) net
of (i) brokerage commissions and other reasonable fees and expenses (including
fees and expenses of counsel and investment bankers) related to such Asset Sale,
(ii) provisions for all taxes payable as a result of such Asset Sale, (iii)
payments made to retire indebtedness where payment of such indebtedness is
secured by the assets or properties the subject of such Asset Sale, (iv) amounts
required to be paid to any Person (other than the Company or any Restricted
Subsidiary) owning a beneficial interest in the assets subject to the Asset Sale
and (v) appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as determined
and reflected in an Officers' Certificate delivered to the Trustee, and (b) with
respect to any issuance or sale of Capital Stock or options, warrants or rights
to purchase Capital Stock, or debt securities or Capital Stock that has been
converted into or exchanged for Capital Stock, as referred to in Section 10.09,
the proceeds of such issuance or sale in the form of Cash Equivalents, including
payments in respect of deferred payment obligations when received in the form
of, or stock or other assets when disposed of for, Cash Equivalents (except to
the extent that such obligations are financed or sold with recourse to the
Company or any Restricted Subsidiary), net of attorneys' fees, accountants' fees
and brokerage, consultation, underwriting and other fees and expenses actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Net Dividend Amount" means the net cash dividend amount
received by the Company and NBI in the relevant fiscal year on the shares of
Class A Common Stock and Class B Common Stock held by them (including, without
limitation, any such shares pledged to the Collateral Agent as Pledged Share
Collateral), after deducting (i) any withholding taxes or income taxes paid or
payable in cash by the Company or NBI in respect of such dividends, and (ii) any
dividends received by the Company or NBI on such number of shares of Hollinger
International held by the Company or NBI that corresponds to the number of
shares of Class A Common Stock into which the Series II Preferred Shares are
exchangeable.
"Net Income" of the Company means, for any period, the
unconsolidated net income (or loss (and treating a loss as a negative number))
of the Company for such period, adjusted by excluding, without duplication, to
the extent included in calculating such net income (or loss), (i) all
extraordinary gains and losses, (ii) the net income (or loss) of any Person
acquired during the specified period attributable to any period prior to the
date of such acquisition, (iii) any gain or loss realized upon the termination
of any employee pension benefit plan, (iv) aggregate gains and losses (less all
fees and expenses relating thereto) in respect of dispositions of assets other
than in the ordinary course of business (provided that any sale of
15
Capital Stock of Hollinger International for cash would be considered a
disposition in the ordinary course of business), (v) any gain from the
collection of proceeds of life insurance policies and (vi) any gain or loss
arising from the acquisition of any securities of the Company, or the
extinguishment, under GAAP, of any Indebtedness of the Company. The Net Income
of the Company will be calculated in U.S. dollars; any monetary amount in a
currency other than U.S. dollars will be converted into U.S. dollars at the
average exchange rate prevailing during the relevant period.
"Note Custodian" means the custodian with respect to any
Global Note appointed by DTC, or any successor Person thereto, and shall
initially be the Trustee.
"Note Guarantors" means RMI and NBI and, if the context
requires, any Restricted Subsidiary guarantor of the Indenture Obligations.
"Notes" means any of the Company's 11.875% Senior Secured
Notes due 2011 issued and authenticated pursuant to this Indenture.
"Officer" when used with respect to the Company means the
Chairman of the Board, Vice Chairman, President or a Vice President (regardless
of Vice Presidential designation), Treasurer, Secretary or an Assistant
Secretary of the Company.
"Officers' Certificate" means a certificate signed by the
Chairman of the Board, Vice Chairman, President or a Vice President (regardless
of Vice Presidential designation), and by the Treasurer, Secretary or an
Assistant Secretary, of the Company, in form and substance reasonably
satisfactory to, and delivered to, the Trustee.
"Opinion of Counsel" means a written opinion of counsel, in
form and substance reasonably satisfactory to the Trustee, who may be counsel
for the Company or the Trustee, and who shall be reasonably acceptable to the
Trustee, including but not limited to an Opinion of Independent Counsel.
"Opinion of Independent Counsel" means a written opinion, in
form and substance reasonably satisfactory to the Trustee, by someone who is not
an employee or former employee of the Company and who shall be reasonably
acceptable to the Trustee.
"Outstanding" when used with respect to Notes means, as of the
date of determination, all Notes theretofore authenticated and delivered under
this Indenture, except:
(a) Notes theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(b) Notes, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore
irrevocably deposited with the Trustee or any Paying Agent (other than
the Company) in trust or set aside and segregated in trust by the
Company (if the Company shall act as its own Paying Agent) for the
Holders; provided that, if the Notes are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or provision
therefor reasonably satisfactory to the Trustee has been made;
16
(c) Notes, except to the extent provided in Sections 4.02
and 4.03, with respect to which the Company has effected defeasance or
covenant defeasance as provided in Article IV; and
(d) Notes in exchange for or in lieu of which other Notes
have been authenticated and delivered pursuant to this Indenture, other
than any such Notes in respect of which there shall have been presented
to the Trustee and the Company proof reasonably satisfactory to each of
them that such Notes are held by a bona fide purchaser in whose hands
the Notes are valid obligations of the Company;
provided, however, that, in determining whether the Holders of the requisite
principal amount of Outstanding Notes have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Notes owned by
the Company or any other obligor upon the Notes or any Affiliate of the Company
or such other obligor shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be protected in relying
upon any such request, demand, authorization, direction, notice, consent or
waiver, only Notes which the Trustee actually knows to be so owned shall be so
disregarded. Notes so owned which have been pledged in good faith may be
regarded as outstanding if the pledgee establishes to the reasonable
satisfaction of the Trustee the pledgee's right so to act with respect to such
Notes and that the pledgee is not the Company or any other obligor upon the
Notes or any Affiliate of the Company or such other obligor.
"Pari Passu Indebtedness" means any Indebtedness of the
Company that is pari passu in right of payment with the Notes.
"Paying Agent" means any Person authorized by the Company to
pay the principal, premium, if any, or interest on any Notes on behalf of the
Company. The Company initially authorizes the Trustee to act as Paying Agent for
the Notes on its behalf. The Company may at any time and from time to time
authorize one or more Persons to act as Paying Agent in addition to or in place
of the Trustee with respect to any Notes issued under this Indenture.
"Permitted Distribution" means a distribution of an aggregate
of $44.1 million by the Company to RCL on or about the Issue Date, by way of
repayment of a loan of $32.6 million owed by the Company to RCL and a loan of
$11.5 million by the Company to RCL, which aggregate amount shall be promptly
applied by RCL to repay all outstanding amounts under the RCL Credit Agreement.
"Permitted Indebtedness" means the following:
(i) Indebtedness of the Company (including as guarantor
of NBI) or NBI under a Credit Facility to be established by the Company
in a maximum aggregate principal amount at any one time outstanding
(including any refinancings thereof) not to exceed Cdn. $15,000,000;
provided that, if any portion of the Credit Facility is comprised of
term loans (defined as loans with an amortizing schedule of principal
repayment), such maximum amount shall be reduced to the extent of any
permanent repayment of any Indebtedness under such term loans pursuant
to Section 10.13 of this Indenture;
17
(ii) Indebtedness of the Company pursuant to the Notes and
Indebtedness of any Restricted Subsidiary constituting a Guarantee of
the Notes;
(iii) Indebtedness of the Company or any Restricted
Subsidiary outstanding on the date hereof and listed on Schedule 1
hereto, provided that with respect to any Indebtedness of the Company
and NBI under or in respect of the International Intercompany Note,
none of such Indebtedness shall be deemed to be permitted hereunder
unless Hollinger International, the Company and NBI shall have entered
into the International Subordination Agreement on or prior to the Issue
Date, provided further that in the event Hollinger International
assigns the International Intercompany Note to an Affiliate, such
Affiliate agrees in writing to be bound by the terms of the
International Subordination Agreement as if it had originally been a
party thereto;
(iv) Indebtedness (a) of the Company owing to a Restricted
Subsidiary, or (b) of a Restricted Subsidiary owing to another
Restricted Subsidiary or the Company; provided that any such
Indebtedness is made pursuant to an intercompany note setting forth the
principal amount, interest rate and payment dates, the maturity or
similar terms and, in the case of Indebtedness of the Company owing to
a Restricted Subsidiary, is subordinated in right of payment from and
after such time as the Notes shall become due and payable (whether at
Stated Maturity, acceleration or otherwise) to the payment and
performance of the Company's obligations under the Notes; provided
further that (x) any disposition, pledge or transfer of any such
Indebtedness to a Person (other than (A) to the Company or a Restricted
Subsidiary or (B) a pledge of such Indebtedness to secure Indebtedness
existing at such time under, and pursuant to the terms of, the Credit
Facility) will be deemed to be an Incurrence of such Indebtedness by
the obligor not permitted by this clause (iv) and (y) any transaction
pursuant to which any Restricted Subsidiary that has Indebtedness owing
to the Company or any other Restricted Subsidiary ceases to be a
Restricted Subsidiary will be deemed to be the Incurrence of
Indebtedness by the Company or such other Restricted Subsidiary that is
not permitted by this clause (iv);
(v) obligations of the Company or any Restricted
Subsidiary pursuant to Interest Rate Agreements or Currency Agreements
designed to protect the Company or any Restricted Subsidiary against
fluctuations in interest rates or currency exchange rates in respect of
Indebtedness of the Company or any of its Restricted Subsidiaries, the
notional amount of which (in the case of Interest Rate Agreements) and
the notional or exchange amount of which (in the case of Currency
Agreements) do not exceed the aggregate principal amount of such
Indebtedness;
(vi) guarantees by Restricted Subsidiaries of Indebtedness
of the Company otherwise permitted to be Incurred under the definition
of "Permitted Indebtedness" and in accordance with the provisions of
Section 10.12 of this Indenture;
(vii) Redeemable Capital Stock or Preferred Stock issued by
the Company from time to time to finance retractions or redemptions of
(a) its outstanding Retractable Common Shares and Series II Preferred
Shares (other than any such shares held by Affiliates of the Company)
and (b) any Series III Preferred Shares not retracted or
18
redeemed with proceeds of Subordinated Indebtedness incurred as
permitted under clause (ix) below;
(viii) any renewals, extensions, substitutions, refundings,
refinancings or replacements (collectively, a "refinancing") of any
Indebtedness Incurred as described in paragraphs (ii), (iii), (vi),
(ix) and (x) of this definition of "Permitted Indebtedness," by the
Company or by the obligor of such Permitted Indebtedness, including any
successive refinancings, so long as (a) such refinancing does not
increase the aggregate principal amount of Indebtedness represented
thereby and, in the case of Pari Passu Indebtedness or Subordinated
Indebtedness, such refinancing does not reduce the Average Life to
Stated Maturity or the Stated Maturity of such Indebtedness and (b) any
such refinancing Indebtedness shall not be senior in right of payment
to the Indebtedness so refinanced;
(ix) Subordinated Indebtedness of the Company incurred to
finance the redemption price at maturity of the Series III Preferred
Shares, so long as (a) such Indebtedness is not in an aggregate
principal amount greater than the aggregate redemption price of such
Series III Preferred Shares and (b) not more than 50% in principal
amount of such Indebtedness has a Stated Maturity occurring earlier
than that of the Notes;
(x) Indebtedness of the Company or any Restricted
Subsidiary in an aggregate amount at any time outstanding not to exceed
$1,000,000 in respect of purchase money obligations, provided (a) such
Indebtedness is Incurred within 180 days of the purchase of the
relevant assets, (b) such Indebtedness does not exceed the actual
purchase price of such assets and (c) any related Liens do not extend
to any assets other than those being purchased;
(xi) Subordinated Indebtedness of the Company owing to
RMI, where the loans representing such Subordinated Indebtedness have
been made by RMI to the Company pursuant to the terms of, and RMI's
obligations under, the Support Agreement, provided that such
Indebtedness has a Stated Maturity occurring after the Maturity of the
Notes and such Indebtedness is expressly subordinated in right of
payment to the Notes in accordance with the RMI Subordination
Agreement;
(xii) Subordinated Intercompany Loans of the Company owed
to RCL or RMI, representing amounts received by the Company from RCL or
RMI, respectively, through voluntary cash contributions by RCL or RMI
to the Company after the Issue Date; and
(xiii) Additional Notes of up to $30,000,000 principal
amount in one or more issuances such that, when all such issuances are
aggregated with the Notes originally issued on the date of this
Indenture (the "Original Notes"), the maximum aggregate principal
amount of Notes would not exceed $150,000,000, provided that: (a) the
Coverage Ratio must be greater than or equal to 150% on the date of
such issuance (before taking into account any Additional Notes to be
issued), (b) the Coverage Ratio must be greater than or equal to 125%
pro forma for such Additional Notes issuance, (c) the aggregate Current
Market Price of the Pledged Share Collateral on the date of such
issuance (before taking into account any Additional Notes to be issued)
is at least 200%
19
of the principal amount of Notes outstanding prior to such issuance
(excluding any Cash Collateralized Notes), (d) the Company deposits an
amount of additional Class A Common Stock and/or Class B Common Stock
of Hollinger International with the Collateral Agent such that the
Current Market Price of the additional common stock is at least 200% of
the principal amount of the Additional Notes to be issued, (e) the
Additional Notes are issued at an issue price to investors of not less
than 99.377%, (f) the Floor Amount pursuant to the Support Agreement is
increased proportionately by multiplying the reference to $14,000,000
in the definition of "Floor Amount" by a fraction the numerator of
which is the aggregate principal amount of Notes outstanding after such
issuance and the denominator of which is the aggregate principal amount
of Original Notes, (g) the Company and RMI enter into a supplemental
Support Agreement, or amend the Support Agreement with the Trustee and
Collateral Agent in order to effect such increase, (h) the Company
delivers an Opinion of Independent Counsel to the Trustee as to the
validity and enforceability of such supplement or amendment to the
Support Agreement, and (i) the Company delivers an Officers'
Certificate attaching the express written consent of Hollinger
International to the subordination of the International Intercompany
Note to any such Additional Notes to the same extent as the Notes
issued on the Issue Date.
For purposes of determining compliance with any U.S. dollar denominated
restriction on the Incurrence of Indebtedness where the Indebtedness Incurred is
denominated in a different currency, the amount of such Indebtedness will be the
Dollar Equivalent determined on the date of the Incurrence of such Indebtedness;
provided, however, that, if any such Indebtedness denominated in a different
currency is subject to a Currency Agreement with respect to U.S. dollars
covering all principal, premium, if any, and interest payable on such
Indebtedness, the amount of such Indebtedness expressed in U.S. dollars will be
as provided in such Currency Agreement. The principal amount of any refinancing
Indebtedness Incurred in the same currency as the Indebtedness being refinanced
will be the Dollar Equivalent of the Indebtedness refinanced, except to the
extent that (i) such Dollar Equivalent was determined based on a Currency
Agreement, in which case the refinancing Indebtedness will be determined in
accordance with the preceding sentence, and (ii) the principal amount of the
refinancing Indebtedness exceeds the principal amount of the Indebtedness being
refinanced, in which case the Dollar Equivalent of such excess will be
determined on the date such refinancing Indebtedness is Incurred.
"Permitted Investment" means any of the following:
(i) Investments in any Restricted Subsidiary or the
Company or Investments in a Person if as a result of such Investment
(A) such Person becomes a Restricted Subsidiary or (B) such Person is
merged, consolidated or amalgamated with or into, or transfers or
conveys substantially all of its assets to, or is liquidated into, the
Company or any Restricted Subsidiary;
(ii) Investments in the Notes;
(iii) Indebtedness owing to a Restricted Subsidiary or the
Company as described under clause (iv) of the definition of "Permitted
Indebtedness";
20
(iv) Temporary Cash Investments;
(v) Investments acquired by the Company or any Subsidiary
in connection with an Asset Sale permitted under Section 10.13 to the
extent such Investments are non-cash consideration as permitted under
such covenant;
(vi) Investments in existence on the date of this
Indenture; and
(vii) in addition to the Investments described in clauses
(i) through (vi) of this definition of "Permitted Investment,"
Investments in any Unrestricted Subsidiary or in any joint venture or
other entity in an amount not to exceed $500,000 in the aggregate since
the date of this Indenture.
"Permitted Liens" means:
(i) Liens for taxes, assessments, governmental charges or
claims that are not yet delinquent or are being contested in good faith
by appropriate legal proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate provision, if
any, as shall be required in conformity with GAAP shall have been made;
(ii) statutory and common law Liens of landlords and
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or
other similar Liens (including maritime Liens) arising in the ordinary
course of business and with respect to amounts not yet delinquent or
being contested in good faith by appropriate legal proceedings promptly
instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made;
(iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation,
unemployment insurance and other types of social security;
(iv) Liens incurred or deposits made to secure the
performance of tenders, bids, leases, statutory or regulatory
obligations, bankers' acceptances, surety and appeal bonds, government
contracts, performance and return-of-money bonds and other obligations
of a similar nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money);
(v) easements, rights-of-way, municipal and zoning
ordinances and similar charges, encumbrances, title defects or other
irregularities that do not materially interfere with the ordinary
course of business of the Company or any of its Restricted
Subsidiaries;
(vi) Liens (including extensions, renewals and
replacements thereof) upon real or personal property, including Capital
Stock, acquired after the Issue Date; provided, that (a) such Lien is
created solely for the purpose of securing Indebtedness Incurred in
accordance with clause (x) of the definition of "Permitted
Indebtedness";
(vii) Liens on property of, or on shares of Capital Stock
or Indebtedness of, any Person existing at the time such Person
becomes, or becomes a part of, any Restricted
21
Subsidiary; provided that such Liens do not extend to or cover any
property or assets of the Company or any Restricted Subsidiary other
than the property or assets acquired;
(viii) Liens in favor of the Company or any Restricted
Subsidiary;
(ix) Liens securing reimbursement obligations with respect
to letters of credit that encumber documents and other property
relating to such letters of credit and the products and proceeds
thereof;
(x) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties in
connection with the importation of goods;
(xi) Liens encumbering customary initial deposits and
margin deposits, and other Liens that are within the general parameters
customary in the industry and incurred in the ordinary course of
business, in each case, securing Indebtedness under Interest Rate
Agreements and Currency Agreements;
(xii) Liens arising out of conditional sale, title
retention, consignment or similar arrangements for the sale of goods
entered into by the Company or any of its Restricted Subsidiaries in
the ordinary course of business; and
(xiii) Liens granted by the Company on or after the date of
this Indenture in favor of Hollinger International in and to the
Company's rights under the guarantee by RCL of RMI's obligations to the
Company under the Contribution Agreement and the Support Agreement.
"Permitted Transfer" means an assignment (duly consented to by
the Note Guarantors) to (a) the Company or (b) any other existing or new direct
or indirect Subsidiary of RCL provided that such entity is (i) formed under the
laws of Canada or any province thereof or the United States of America or any
state thereof, (ii) has a Consolidated Net Worth at least equal to that of RMI
and (iii) has no greater Indebtedness or other liabilities required to be
recorded on its balance sheet (as reflected on the most recently available
financial statements of such entity) by GAAP or United States Generally Accepted
Accounting Principles, as applicable, or contingent obligations than those
reflected on RMI's most recent balance sheet.
"Person" means any individual, corporation, limited liability
company, limited or general partnership, joint venture, association, joint stock
company, trust, unincorporated organization or government or any agency or
political subdivisions thereof.
"Pledged Agreements" means (i) the fee and other contract
rights under the Services Agreements pledged as security for the obligations of
RMI under its Guarantee pursuant to the Security Agreement and (ii) the support
payment and other contract rights under the Support Agreement pledged as
security for the Company's obligations under the Notes pursuant to the Security
Agreement.
"Pledged Share Collateral" means the Designated Class A Shares
and the Class B Shares.
22
"Predecessor Note" of any particular Note means every previous
Note evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 3.07 in exchange for a mutilated Note
or in lieu of a lost, destroyed or stolen Note shall be deemed to evidence the
same debt as the mutilated, lost, destroyed or stolen Note.
"Preferred Stock" means, with respect to any Person, any
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over the Capital Stock of any other class in such Person.
"Private Exchange Notes" shall have the meaning assigned to
such term in the Issue Date Registration Rights Agreement and any other
Registration Rights Agreement.
"Public Equity Offering" means a public offering of Qualified
Capital Stock of the Company.
"QIB" means any "qualified institutional buyer" (as defined in
Rule 144A).
"Qualified Capital Stock" of any Person means any and all
Capital Stock of such Person other than Redeemable Capital Stock.
"Rating Agency" means Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. and its successors ("S&P") and
Moody's Investors Service, Inc. and its successors ("Moody's") or, if S&P and
Moody's or both shall not make a rating of the Notes publicly available, a
nationally recognized United States statistical rating agency or agencies
substituted for S&P or Moody's or both, as the case may be.
"Rating Category" means each major rating category symbolized
by (a) in the case of S&P, AAA, AA, A, BBB, BB, B, CCC, CC and C and each such
Rating Category shall include pluses or minuses ("gradations") modifying such
capital letters; and (b) in the case of Moody's, Aaa, Aa, A, Baa, Ba, B, Caa, Ca
and C and each such Rating Category shall include added numerals such as 1, 2 or
3 ("gradations") modifying such letters.
"RCL" means The Ravelston Corporation Limited, a corporation
incorporated under the laws of the Province of Ontario, and any successor
Person.
"RCL Credit Agreement" means the credit agreement dated as of
July 6, 1999 among RCL, each financial institution from time to time signatory
therein, and the lead arranger and administrative agent, syndication agent and
documentation agent named therein, as amended through February 24, 2003.
"RCL Repayment Amount" means, for any period, any permanent
repayment of the principal amount of Indebtedness owing by RCL to the Company
that is received by the Company during such period.
"Redeemable Capital Stock" means any Capital Stock that,
either by its terms or by the terms of any security into which it is convertible
or otherwise exchangeable, would, upon
23
the happening of an event or passage of time, be required to be redeemed in cash
prior to any Stated Maturity of the principal of the Notes. For the avoidance of
doubt, "Redeemable Capital Stock" shall not be deemed to include any Capital
Stock of the Company that is retractable or redeemable at the option of the
holder thereof for cash or Class A Common Stock at any time prior to any such
Stated Maturity, or is convertible into or exchangeable for debt securities at
any time prior to any such Stated Maturity at the option of the holder thereof,
solely for so long as the Company continues to qualify as a "mutual fund
corporation" under the Income Tax Act (Canada).
"Redemption Date" when used with respect to any Note to be
redeemed pursuant to any provision in this Indenture means the date fixed for
such redemption by or pursuant to this Indenture.
"Redemption Price" when used with respect to any Note to be
redeemed pursuant to any provision in this Indenture means the price at which it
is to be redeemed pursuant to this Indenture.
"Registered Exchange Offer" means an exchange offer by the
Company registered under the Securities Act pursuant to which Notes originally
issued pursuant to an exemption from registration under the Securities Act are
exchanged for Notes of like principal amount not bearing the Private Placement
Legend.
"Registration Rights Agreement" means any registration rights
agreement between the Company, the Note Guarantors and one or more investment
banks acting as initial purchasers in connection with any issuance of Notes
under this Indenture, including the Issue Date Registration Rights Agreement.
"Registration Statement" means an effective Exchange Offer
Registration Statement or Shelf Registration Statement.
"Regular Record Date" for the interest payable on any Interest
Payment Date relating to a particular Note means the date specified in the Board
Resolution or supplemental indenture relating to such Note.
"Resale Restriction Termination Date" means, for any
Restricted Note that is an Issue Date Note (or beneficial interest therein), two
years (or such other period specified in Rule 144(k) under the Securities Act)
from the Issue Date or, for any Additional Notes (or beneficial interests
therein) that are Restricted Notes, two years (or such other period specified in
Rule 144(k)) from the latest such original issue date of such Additional Notes.
"Responsible Officer" when used with respect to the Trustee
means any officer assigned to the Corporate Trust Division of the Trustee or any
agent of the Trustee appointed hereunder, including the president, any vice
president, any assistant vice president, the secretary, any assistant secretary,
the treasurer, any assistant treasurer, any trust officer or assistant trust
officer or any other officer of the Trustee customarily performing functions
similar to those performed by any of the above designated officers or any other
officer appointed hereunder to whom any corporate trust matter is referred
because of his or her knowledge of and familiarity with the particular subject.
24
"Restricted Investment" means any Investment other than a
Permitted Investment.
"Restricted Note" means any Issue Date Note (or beneficial
interest therein) or any Additional Note (or beneficial interest therein) not
originally issued and sold pursuant to an effective registration statement under
the Securities Act until such time as:
(i) such Issue Date Note (or beneficial interest therein)
or Additional Note (or beneficial interest therein) has been exchanged
for a corresponding Exchange Note pursuant to an Exchange Offer
Registration Statement or has been transferred pursuant to a Shelf
Registration Statement;
(ii) the Resale Restriction Termination Date therefor has
passed;
(iii) such Note is a Regulation S Global Note and the
Distribution Compliance Period therefor has terminated; or
(iv) the Private Placement Legend therefor has otherwise
been removed pursuant to Section 3.06(d), in the case of a beneficial
interest in a Global Note, or such beneficial interest has been
exchanged for an interest in a Global Note not bearing a Private
Placement Legend.
"Restricted Subsidiary" means any Subsidiary other than an
Unrestricted Subsidiary.
"RMI" means Ravelston Management Inc., a corporation
incorporated under the laws of the Province of Ontario, and any successor
Person.
"RMI Guarantee" means the guarantee by RMI of the Indenture
Obligations.
"RMI Subordination Agreement" means the subordination
agreement attached as Exhibit G to this Indenture whereby the Company and RMI
agree that any Indebtedness owed by the Company to RMI under the Support
Agreement shall be expressly subordinated in right of payment to the Notes.
"Rule 144A" means Rule 144A under the Securities Act (or any
successor rule).
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" means the Security Agreement dated the
date hereof (attached as Exhibit G to this Indenture) between the Company, RMI,
NBI and the Trustee and the Collateral Agent governing (i) the first priority
security interest granted by RMI over the Services Agreements in favor of the
Collateral Agent, (ii) the first priority pledge granted by the Company and NBI
over the Pledged Share Collateral in favor of the Collateral Agent and (iii) the
first priority security interest granted by the Company in the Support Agreement
in favor of the Collateral Agent.
"Security Documents" means the Security Agreement and all
other agreements, instruments and documents entered into by the Company and the
Note Guarantors from time to
25
time for the purpose of creating and perfecting the security interests in favor
of the Collateral Agent in the Senior Notes Collateral.
"Senior Notes Collateral" means the Pledged Share Collateral,
the Pledged Agreements, any amounts on deposit in the Collateral Account and all
other collateral securing the Notes and the Guarantees from time to time as
described in the Security Agreement.
"Series II Preferred Shares" means the series of preference
shares of the Company designated as Exchangeable Non-Voting Preference Shares
Series II.
"Series III Preferred Shares" means the series of preference
shares of the Company designated as Retractable Non-Voting Preference Shares
Series III.
"Services Agreements" means (1) the Services Agreement dated
as of January 1, 1998 between Hollinger International and RCL, as assigned by
RCL to RMI pursuant to the Transfer and Consent Agreement dated July 5, 2002,
and (2) the Amended and Restated Services Agreement dated as of December 1, 1999
between HCPH (successor in interest to Southam Inc.) and RCL, as assigned by RCL
to RMI pursuant to the Transfer and Consent Agreement dated July 5, 2002, and,
in each case, as the same may be amended in accordance with the terms of the
Security Agreement.
"Share Cancellation Transaction" means the cancellation of
2,000,000 shares of Class A Common Stock by way of the repurchase of such shares
by Hollinger International from the Company, NBI and/or their nominees and the
redemption of 93,206 shares of Hollinger International's Series E preferred
stock by NBI.
"Shelf Registration Statement" shall have the meaning assigned
to such term in the Issue Date Registration Rights Agreement and any other
Registration Rights Agreement.
"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 3.08.
"Stated Maturity" when used with respect to any Indebtedness
or any installment of interest thereon, means the dates specified in such
Indebtedness as the fixed dates on which the principal of such Indebtedness or
such installment of interest, as the case may be, is due and payable.
"Subordinated Indebtedness" means (i) in the case of any
Person other than the Company, Indebtedness of such Person that is expressly
subordinate in right of payment to any other Indebtedness of such Person
pursuant to a written agreement, and (ii) in the case of the Company,
Indebtedness of the Company that is expressly subordinate in right of payment to
the Notes.
"Subordinated Intercompany Loans" means Subordinated
Indebtedness of the Company that, in accordance with its terms, is not required
to be repaid (including, without limitation, with respect to any principal,
premium, redemption amount or interest), and may not be declared due and payable
by the lender, at any time prior to the Stated Maturity of the Notes, such that
no cash payment is required to be made by the Company in respect of such
26
Indebtedness (including, without limitation, in respect of interest) for so long
as any Notes are outstanding.
"Subsidiary" means any Person a majority of the equity
ownership of the Voting Stock of which is at the time owned, directly or
indirectly, by the Company or by one or more Subsidiaries, or by the Company and
one or more other Subsidiaries.
"Sugra" means Sugra Limited, a wholly owned subsidiary of the
Company organized under the laws of the Province of Ontario.
"Support Agreement" means the support agreement between RMI
and the Company to be dated the Issue Date, as amended or supplemented from time
to time in accordance with this Indenture.
"Temporary Cash Investments" means (i) any evidence of
Indebtedness, maturing not more than one year after the date of acquisition,
issued by the United States of America, or an instrumentality or agency thereof,
and guaranteed fully as to principal, premium, if any, and interest by the
United States of America, (ii) any certificate of deposit, maturing not more
than one year after the date of acquisition, issued by, or time deposit of, the
Trustee or a commercial banking institution that is a member of the Federal
Reserve System and that has combined capital and surplus and undivided profits
of not less than $500,000,000, whose debt has a rating, at the time as of which
any investment therein is made, of "P-1" (or higher) according to Moody's or
"A-1" (or higher) according to S&P, (iii) commercial paper, maturing not more
than one year after the date of acquisition, issued by a corporation (other than
an Affiliate or Restricted Subsidiary of the Company) organized and existing
under the laws of the United States of America with a rating, at the time as of
which any investment therein is made, of "P-1" (or higher) according to Moody's
or "A-1" (or higher) according to S&P, and (iv) any money market deposit
accounts issued or offered by the Trustee or a domestic commercial bank having
capital and surplus in excess of $500,000,000.
"Trading Day" means, with respect to a security, each Monday,
Tuesday, Wednesday, Thursday and Friday, other than any day on which securities
are not generally traded on the exchange or market on which such security is
traded.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture, until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended.
"Unrestricted Subsidiary" means (a) as of the date of this
Indenture, Hollinger International and its Subsidiaries and Domgroup Ltd.
(excluding NBI, Sugra and 10 Toronto Street Inc.) and (b) any Subsidiary that is
designated by the Board of Directors as an Unrestricted Subsidiary after the
date of this Indenture pursuant to a Board Resolution in accordance with Section
10.20 of this Indenture; provided, however, that a Person may not be designated
as an Unrestricted Subsidiary unless (i) the creditors of such Person have no
direct or indirect recourse (including, but not limited to, recourse with
respect to the payment of principal or interest on Indebtedness of such
Subsidiary) to the Company or a Restricted Subsidiary and (ii) a default by
27
such Person on any of its Indebtedness will not result in, or permit any holder
of Indebtedness of the Company or a Restricted Subsidiary to declare, a default
on such Indebtedness of the Company or a Restricted Subsidiary or cause the
payment thereof to be accelerated or payable prior to its Stated Maturity. Any
subsidiary of an Unrestricted Subsidiary shall be an Unrestricted Subsidiary for
purposes of this Indenture (other than, in the case of Domgroup Ltd., NBI, Sugra
and 10 Toronto Street Inc.).
"Voting Stock" means stock of the class or classes pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of a corporation (irrespective of whether or not at the time stock
of any other class or classes shall have or might have voting power by reason of
the happening of any contingency).
"Wholly Owned Restricted Subsidiary" means a Restricted
Subsidiary all the outstanding Capital Stock (other than directors' qualifying
shares) of which is owned by the Company or another Wholly Owned Restricted
Subsidiary.
SECTION 1.02. Other Definitions.
Defined in
Term Section
---- -----------
"Act" 1.05
"Additional Amounts" 10.21(b)
"Agent Members" 3.04
"Authorized Agent" 1.17
"Allocated Proceeds" 10.13
"Cash Collateralized Note Amount" 14.04
"Cash Collateralized Notes" 14.04
"Change of Control Offer" 10.14
"Change of Control Purchase Date" 10.14
"Change of Control Purchase Notice" 10.14
"Change of Control Purchase Price" 10.14
"covenant defeasance" 4.03
"Defaulted Interest" 3.08
"defeasance" 4.02
"Defeasance Redemption Date" 4.04
"Defeased Notes" 4.01
"Deficiency" 10.13
"Event of Default" 5.01
"Excess Proceeds" 10.13
"Excluded Holder" 10.21(b)
"Excluded Taxes" 10.21(b)
"Issuance Proceeds" 10.13(f)
"Judgment Currency" 1.18
"Non-U.S. Person" 3.06
"Note Amount" 10.13
SECTION 1.03. Compliance Certificates and Opinions. Upon any
application or request by the Company to the Trustee to take any action under
any provision of this Indenture, the Company shall furnish to the Trustee an
Officers' Certificate to the effect that all conditions precedent, if any,
provided for in this Indenture (including any covenant compliance with which
constitutes a condition precedent) relating to the proposed action have been
complied with and an Opinion of Counsel to the effect that in the opinion of
such counsel all such conditions precedent, if any, have been complied with,
except that, in the case of any such application or request as to which the
furnishing of any certificates and/or opinions is specifically required by any
provision of this Indenture relating to such particular application or request,
no additional certificate or opinion need be furnished.
Every certificate or Opinion of Counsel with respect to
compliance with a condition or covenant provided for in this Indenture shall
include:
(a) a statement to the effect that each individual or
firm signing such certificate or opinion has read and understands such
covenant or condition and the definitions herein relating thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement to the effect that, in the opinion of
each such individual or such firm, he has made such examination or
investigation as is necessary to enable him or
29
them to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(d) a statement as to whether, in the opinion of each
such individual or such firm, such condition or covenant has been
complied with.
SECTION 1.04. Form of Documents Delivered to Trustee. In any
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
Any certificate or opinion of an Officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such Officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any certificate or opinion of such an Officer or of counsel may be
based, insofar as it relates to factual matters, upon a certificate or opinion
of, or representations by, an Officer or Officers of the Company with respect to
such factual matters and which contains a statement to the effect that the
information with respect to such factual matters is in the possession of the
Company, unless such Officer or counsel knows that the certificate or opinion or
representations with respect to such matters are erroneous. Opinions of Counsel
required to be delivered to the Trustee may have qualifications customary for
opinions of the type required and counsel delivering such Opinions of Counsel
may rely on certificates of the Company or government or other officials
customary for opinions of the type required, including certificates certifying
as to matters of fact, including that various financial covenants have been
complied with.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
SECTION 1.05. Acts of Holders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Holders of any Notes may be embodied in
and evidenced by one or more instruments of substantially similar tenor signed
by such Holders in person or by an agent duly appointed in writing; and, except
as herein otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Trustee and, where it is
hereby expressly required, to the Company. Such instrument or instruments (and
the action embodied therein and evidenced thereby) are herein sometimes referred
to as the "Act" of the Holders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Indenture and conclusive in favor of the
Trustee and the Company, if made in the manner provided in this Section.
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(b) The ownership of Notes shall be proved by the Note
Register.
(c) Any request, demand, authorization, direction,
notice, consent, waiver or other Act by the Holder of any Note shall bind every
future Holder of the same Note or the Holder of every Note issued upon the
transfer thereof or in exchange therefor or in lieu thereof, in respect of
anything done, suffered or omitted to be done by the Trustee, any Paying Agent
or the Company in reliance thereon, whether or not notation of such action is
made upon such Note.
(d) The fact and date of the execution by any Person of
any such instrument or writing may be proved by the affidavit of a witness of
such execution or by a certificate of a notary public or other officer
authorized by law to take acknowledgments of deeds, certifying that the
individual signing such instrument or writing acknowledged to him the execution
thereof. Where such execution is by a signer acting in a capacity other than his
individual capacity, such certificate of affidavit shall also constitute
sufficient proof of his authority. The fact and date of the execution of any
such instrument or writing, or the authority of the Person executing the same,
may also be proved in any other manner which the Trustee deems sufficient.
SECTION 1.06. Notices, etc., to Trustee and the Company. Any
request, demand, authorization, direction, notice, consent, waiver or Act of
Holders or other document provided or permitted by this Indenture to be made
upon, given or furnished to, or filed with:
(a) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed, in writing, by first-class mail postage prepaid (return receipt
requested) or delivered in person or by recognized overnight courier to
or with the Trustee at its Corporate Trust Office, Attention: Corporate
Trust Division, or at any other address furnished in writing prior
thereto to the Holders and the Company by the Trustee; or
(b) the Company, RMI or NBI shall be sufficient for every
purpose (except as provided in Section 5.01(c)) hereunder if in writing
and mailed, first-class postage prepaid, or delivered by recognized
overnight courier, to the Company, addressed to it at: 10 Toronto
Street, Toronto, Canada M5C 2B7, Attn: Chief Financial Officer, or at
any other address previously furnished in writing to the Trustee by the
Company, as the case may be.
SECTION 1.07. Notice to Holders; Waiver. Where this Indenture
or the Notes provide for notice to Holders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class postage prepaid, to each Holder affected by such event,
at such Holder's address as it appears in the Note Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Holders is given by mail, neither
the failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders. Any notice when mailed to a Holder in the aforesaid manner shall
be conclusively deemed to have been received by such Holder whether or not
actually received by such Holder. Where this Indenture or the Notes provide for
notice in any manner, such notice may be waived in writing by the Person
entitled to receive such notice, either before or after the event, and such
waiver shall be the equivalent of such
31
notice. Waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case, by reason of the suspension of regular mail service
or by reason of any other cause, it shall be impracticable to mail notice of any
event as required by any provision of this Indenture, then any method of giving
such notice as shall be reasonably satisfactory to the Trustee or the Company,
as applicable, shall be deemed to be a sufficient giving of such notice.
SECTION 1.08. Conflict with Trust Indenture Act. If any
provision hereof limits, qualifies or conflicts with any provision of the Trust
Indenture Act or another provision which is required or deemed to be included in
this Indenture by any of the provisions of the Trust Indenture Act, the
provision or requirement of the Trust Indenture Act shall control. If any
provision of this Indenture modifies or excludes any provision of the Trust
Indenture Act that may be so modified or excluded, such provision of the Trust
Indenture Act shall be deemed to apply to this Indenture as so modified or to be
excluded, as the case may be.
SECTION 1.09. Effect of Headings and Table of Contents. The
Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 1.10. Successors and Assigns. All covenants and
agreements in this Indenture by the Company or any Note Guarantor shall bind its
successors and assigns, whether so expressed or not.
SECTION 1.11. Separability Clause. In case any provision in
this Indenture or in the Notes shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 1.12. Benefits of Indenture. Nothing in this Indenture
or in the Notes, express or implied, shall give to any Person (other than the
parties hereto and their successors hereunder, any Paying Agent and the Holders)
any benefit or any legal or equitable right, remedy or claim under this
Indenture.
SECTION 1.13. GOVERNING LAW. THIS INDENTURE, THE NOTES AND THE
GUARANTEES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES
THEREOF).
SECTION 1.14. Legal Holidays. In any case where any Interest
Payment Date, Redemption Date or Stated Maturity of any Note shall not be a
Business Day, then (notwithstanding any other provision of this Indenture or of
the Notes) payment of interest or principal or premium, if any, need not be made
on such date, but may be made on the next succeeding Business Day with the same
force and effect as if made on the Interest Payment Date or Redemption Date, or
at Maturity or the Stated Maturity, and no interest shall accrue with respect to
such payment for the period from and after such Interest Payment Date,
Redemption Date, Maturity or Stated Maturity, as the case may be, to the next
succeeding Business Day.
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SECTION 1.15. Schedules and Exhibits. All schedules and
exhibits attached hereto are by this reference made a part hereof with the same
effect as if herein set forth in full.
SECTION 1.16. Counterparts. This Indenture may be executed in
any number of counterparts, each of which shall be an original; but such
counterparts shall together constitute but one and the same instrument.
SECTION 1.17. Jurisdiction and Service of Process. Any legal
action or proceeding with respect to this Indenture or the Notes may be brought
in the courts of the State of New York or the federal courts of the United
States located in The City of New York, and each of the Company and the Note
Guarantors consents to the jurisdiction of such courts. Each of the Company and
the Note Guarantors irrevocably waives any objection, including any objection to
the laying of venue or based on forum non conveniens, which it may have to the
bringing of any action or proceeding in such jurisdiction with respect to this
Indenture, the Notes, the Security Agreement or any other document related
thereto. Notwithstanding the foregoing, (1) the Trustee and/or the Collateral
Agent shall have the right to bring any action or proceeding against the
Company, the Note Guarantors and their property in the courts of any other
jurisdiction the Trustee and/or the Collateral Agent deem necessary or
appropriate in order to enforce the obligations of the Company and the Note
Guarantors or to realize upon the Senior Notes Collateral or other security for
those obligations and (2) each of the Company and the Note Guarantors
acknowledges that any appeals from the courts described in the preceding
sentence may have to be heard by a court located outside those jurisdictions.
Each party agrees that any service of process or other legal
summons in connection with any proceeding may be served on it by mailing a copy
thereof by registered mail, or a form of mail substantially equivalent thereto,
postage prepaid, addressed to the served party at its address as provided for in
Section 1.06 hereof. Nothing in this Section shall affect the right of the
parties to serve process in any other manner permitted by law. Each of the
Company and the Note Guarantors has appointed Paul Healy at Hollinger
International Inc., 712 Fifth Avenue, 18th Floor, New York, NY 10019 as its
authorized agent in New York City (the "Authorized Agent," which term, as used
herein, includes any successor in such capacity) upon whom process may be served
in any such action, suit or proceeding arising out of or relating to this
Agreement or any of the transactions contemplated hereby which may be instituted
in any federal or state court in the State of New York by the Trustee or by any
person who controls the Trustee.
To the extent allowed by any applicable requirement of law,
each of the Company and the Note Guarantors waives personal service of any and
all process upon it and consents that all such service of process may be made by
registered mail (return receipt requested) directed to such party at its address
set forth in this Indenture and service so made shall be deemed to be completed
five days after the same shall have been so posted in the United States (or
Canada, as applicable), postage prepaid. Nothing contained in this Section 1.17
shall affect the right of the Trustee and/or the Collateral Agent to serve legal
process by any other manner permitted by law.
SECTION 1.18. Judgment Currency. If for the purpose of
obtaining judgment in any court or for the purpose of determining, pursuant to
the obligations of the Company or any Note Guarantor, the amounts owing
hereunder, it is necessary to convert an amount due
33
hereunder in U.S. dollars into a currency other than U.S. dollars (the "Judgment
Currency"), the rate of exchange applied shall be that at which, in accordance
with normal banking procedures, the Trustee or Collateral Agent could purchase,
in the New York foreign exchange market, U.S. dollars with the Judgment Currency
on the date that is two Business Days preceding that on which judgment is given
or any other payment is due hereunder. Each of the Company and the Note
Guarantors agrees that its respective obligation in respect of any U.S. dollars
due from it to the Holders hereunder shall, notwithstanding any judgment or
payment in the Judgment Currency, be discharged only to the extent that, on the
Business Day following the date the Trustee or Collateral Agent receives payment
of any sum so adjudged or owing to be due hereunder in the Judgment Currency,
the Trustee or Collateral Agent may, in accordance with normal banking
procedures, purchase, in the New York foreign exchange market U.S. dollars with
the amount of the Judgment Currency so paid; and if the amount of U.S. dollars
so purchased, or which could have been so purchased, is less than the amount
originally due in U.S. dollars, each of the Company and the Note Guarantors
agrees as a separate obligation and notwithstanding any such payment or judgment
to indemnify the Trustee or Collateral Agent against such loss. The term "rate
of exchange" in this Section 1.18 means the spot rate at which the Trustee or
Collateral Agent, in accordance with normal banking practices is able on the
relevant date to purchase U.S. dollars with the Judgment Currency and includes
any premium and costs of exchange payable in connection with such purchase.
No provision of this Indenture, individually or collectively,
shall have the effect of requiring the Company to pay interest (as such term is
defined in section 347 of the Criminal Code of Canada) at a rate in excess of
60% per annum, taking into account all other amounts which must be taken into
account for the purpose thereof and, to such extent, the Company's obligation to
pay interest hereunder shall be so limited.
ARTICLE II
Form of Note
SECTION 2.01. Form Generally. (a) The Notes will be issued in
registered form without coupons, and in denominations of $1,000 and any integral
multiple thereof.
(b) The terms and provisions of the Notes, the form of
which is in Exhibit A hereto, shall constitute, and are hereby expressly made, a
part of this Indenture, and, to the extent applicable, the Company, the Note
Guarantors and the Trustee, by their execution and delivery of this Indenture
expressly agree to such terms and provisions and to be bound thereby. Except as
otherwise expressly permitted in this Indenture, all Notes shall be identical in
all respects. Notwithstanding any differences among them, all Notes issued under
this Indenture shall vote and consent together on all matters as one class.
(c) The Notes may have notations, legends or endorsements
as specified in Section 3.05 or as otherwise required by law, stock exchange
rule or DTC rule or usage. The Company and the Trustee shall approve the form of
the Notes and any notation, legend or endorsement on them. Each Note shall be
dated the date of its authentication.
34
(d) Notes originally offered and sold to QIBs in reliance
on Rule 144A will be issued in the form of one or more permanent Global Notes
(each, a "Rule 144A Global Note").
(e) Notes originally offered and sold outside the United
States of America will be issued in the form of one or more permanent Global
Notes (each, a "Regulation S Global Note").
SECTION 2.02. Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication shall be included on the form of the
face of the Notes substantially in the following form:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
This is one of the Notes referred to in the within-mentioned
Indenture.
WACHOVIA TRUST COMPANY,
NATIONAL ASSOCIATION, as Trustee
By _____________________________
Authorized Signatory
SECTION 2.03. Form of Guarantees. (a) The form of Guarantee of
RMI shall be set forth on the Notes substantially as follows:
GUARANTEE OF RAVELSTON MANAGEMENT INC.
For value received, RAVELSTON MANAGEMENT INC., a corporation
incorporated under the laws of the Province of Ontario, hereby absolutely,
unconditionally and irrevocably guarantees to the Holder of this Note and the
Trustee, as if Ravelston Management Inc. were the principal debtor, the punctual
payment, on demand, of principal of, premium, if any, and interest on this Note
in the amounts and at the time when due and interest on the overdue principal
and interest, if any, of this Note, if lawful, and the payment or performance of
all other obligations of the Company under this Indenture or the Notes, to the
Holder of this Note and the Trustee, all in accordance with and subject to the
terms and limitations of this Note and Article Thirteen of this Indenture. This
Guarantee will not become effective until the Trustee duly executes the
certificate of authentication on this Note.
RAVELSTON MANAGEMENT INC.
Attest: _________________________ By _____________________________
Authorized Signatory
(b) The form of Guarantee of NBI shall be set forth on
the Notes substantially as follows:
35
GUARANTEE OF 504468 N.B. INC.
For value received, 504468 N.B. INC., a company organized
under the laws of the Province of New Brunswick, hereby absolutely,
unconditionally and irrevocably guarantees to the Holder of this Note and the
Trustee, as if 504468 N.B. Inc. were the principal debtor, the punctual payment,
on demand, of principal of, premium, if any, and interest on this Note in the
amounts and at the time when due and interest on the overdue principal and
interest, if any, of this Note, if lawful, and the payment or performance of all
other obligations of the Company under this Indenture or the Notes, to the
Holder of this Note and the Trustee, all in accordance with and subject to the
terms and limitations of this Note and Article Thirteen of this Indenture. This
Guarantee will not become effective until the Trustee duly executes the
certificate of authentication on this Note.
504468 N.B. INC.
Attest: _________________________ By _____________________________
Authorized Signatory
ARTICLE III
The Notes
SECTION 3.01. Execution, Authentication, Delivery and Dating.
(a) The Notes shall be executed on behalf of the Company by one of its Chairman
of the Board, Vice-Chairman, President or one of its Vice Presidents under its
corporate seal reproduced thereon attested by its Secretary or one of its
Assistant Secretaries. The signature of any of these officers on the Notes may
be manual or facsimile.
(b) Notes bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Notes or did
not hold such offices on the date of such Notes.
(c) At any time and from time to time after the execution
and delivery of this Indenture, the Company may deliver Notes executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Notes; and the Trustee in accordance with
such Company Order shall authenticate and deliver such Notes as provided in this
Indenture and not otherwise. The aggregate principal amount of Notes that may be
authenticated and delivered under this Indenture is limited to $150,000,000.
(d) Each Note shall be dated the date of its
authentication.
(e) No Note shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on such
Note a certificate of authentication substantially in the form provided for
herein duly executed by the Trustee by manual signature of an authorized
signatory, and such certificate upon any Note shall be conclusive evidence, and
the
36
only evidence, that such Note has been duly authenticated and delivered
hereunder and is entitled to the benefits of this Indenture.
(f) In case the Company, pursuant to Article VIII, shall
be consolidated or merged with or into any other Person or shall sell, convey,
assign, transfer, lease or otherwise dispose of substantially all of its
properties and assets to any Person, and the successor Person resulting from
such consolidation, or surviving such merger, or into which the Company shall
have been merged or consolidated, or the successor Person which shall have
received a conveyance, transfer, lease or other disposition as aforesaid, shall
have executed an indenture supplemental hereto with the Trustee pursuant to
Article VIII, any of the Notes authenticated or delivered prior to such
consolidation, merger, conveyance, transfer, lease or other disposition may,
from time to time, at the request of the successor Person, be exchanged for
other Notes executed in the name of the successor Person with such changes in
phraseology and form as may be appropriate, but otherwise in substance of like
tenor as the Notes surrendered for such exchange and of like principal amount;
and the Trustee, upon a Company Request of the successor Person, shall
authenticate and deliver Notes as specified in such order for the purpose of
such exchange. If Notes shall at any time be authenticated and delivered in any
new name of a successor Person pursuant to this Section in exchange or
substitution for or upon registration of transfer of any Notes, such successor
Person, at the option of a Holder but without expense to such Holder, shall
provide for the exchange of all Notes at the time Outstanding held by such
Holder for Notes authenticated and delivered in such new name.
(g) The Trustee may appoint an authenticating agent
reasonably acceptable to the Company to authenticate Notes on behalf of the
Trustee. Unless limited by the terms of such appointment, an authenticating
agent may authenticate Notes whenever the Trustee may do so. Each reference in
this Indenture to authentication by the Trustee includes authentication by such
agent. An authenticating agent has the same rights as any Note Registrar or
Paying Agent to deal with the Company and its Affiliates.
SECTION 3.02. Temporary Notes. Pending the preparation of
definitive Notes, the Company may execute, and upon a Company Order the Trustee
shall authenticate and deliver, temporary Notes which are printed, lithographed,
typewritten or otherwise produced, in any authorized denomination, substantially
of the tenor of the definitive Notes in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Notes may determine, as conclusively evidenced by
their execution of such Notes.
If temporary Notes are issued, the Company will cause
definitive Notes to be prepared without unreasonable delay. After the
preparation of definitive Notes, the temporary Notes shall be exchangeable for
definitive Notes upon surrender of the temporary Notes at the office or agency
of the Company designated for such purpose pursuant to Section 10.02 (or in
accordance with Section 3.01, in the case of the initial Notes), without charge
to the Holders thereof. Upon surrender for cancellation of any one or more
temporary Notes, the Company shall execute and upon a Company Order the Trustee
shall authenticate and deliver in exchange therefor a like principal amount of
definitive Notes of authorized denominations. Until so exchanged the temporary
Notes shall in all respects be entitled to the same benefits under this
Indenture as definitive Notes.
37
SECTION 3.03. Registration, Registration of Transfer and
Exchange. The Company shall cause to be kept at the Corporate Trust Office of
the Trustee, or such other office as the Trustee may designate, a register (the
register maintained in such office and in any other office or agency designated
pursuant to Section 10.02 being herein sometimes referred to as the "Note
Register") in which, subject to such reasonable regulations as the Note
Registrar may prescribe, the Company shall provide for the registration of Notes
and of transfers of Notes. The Trustee or an agent thereof or of the Company
shall initially be the "Note Registrar" for the purpose of registering Notes and
transfers of Notes as herein provided. The Company may appoint one or more
co-registrars, but there shall be only one Note Register.
Upon surrender for registration of transfer of any Note at the
office or agency of the Company designated pursuant to Section 10.02, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Notes of any
authorized denomination or denominations, of a like aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other
Notes of any authorized denomination or denominations, of a like aggregate
principal amount, upon surrender of the Notes to be exchanged at such office or
agency. Whenever any Notes are so surrendered for exchange, the Company shall
execute, and the Trustee shall authenticate and deliver, the Notes which the
Holder making the exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange
of Notes shall be the valid obligations of the Company, evidencing the same
Indebtedness, and entitled to the same benefits under this Indenture, as the
Notes surrendered upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of
transfer, or for exchange or redemption, shall (if so required by the Company or
the Trustee) be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Company, the Trustee and the Note
Registrar, duly executed by the Holder thereof or such Holder's attorney duly
authorized in writing.
No service charge shall be made to a Holder for any
registration of transfer, exchange or redemption of Notes, but the Company may
require payment of a sum sufficient to pay any tax or other governmental charges
that may be imposed in connection with any registration of transfer, exchange or
redemption of Notes (other than any such governmental charges payable upon
exchange or transfer pursuant to a Registered Exchange Offer or pursuant to
Section 3.01, 3.02, 3.07, 9.06, 10.14, 10.15 or 11.08 not involving any
transfer).
The Company shall not be required (a) to issue, register the
transfer of or exchange any Note during a period beginning at the opening of
business 15 days before the mailing of a notice of redemption of the Notes
selected for redemption under Section 11.04 and ending at the close of business
on the day of such mailing, or (b) to register the transfer of or exchange any
Note so selected for redemption in whole or in part, except the unredeemed
portion of Notes being redeemed in part.
38
None of the Company, the Trustee, any agent of the Trustee,
any Paying Agent or the Note Registrar will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in a Global Note or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
SECTION 3.04. Global Note Provisions (a) Each Global Note
initially shall: (i) be registered in the name of DTC or the nominee of DTC,
(ii) be delivered to the Note Custodian, and (iii) bear the appropriate legend,
as set forth in Section 3.05 and Exhibit A. Any Global Note may be represented
by more than one certificate. The aggregate principal amount of each Global Note
may from time to time be increased or decreased by adjustments made on the
records of the Note Custodian, as provided in this Indenture.
(b) Members of, or participants in, DTC ("Agent Members")
shall have no rights under this Indenture with respect to any Global Note held
on their behalf by DTC or by the Note Custodian under such Global Note, and DTC
may be treated by the Company, the Trustee, the Paying Agent and the Note
Registrar and any of their agents as the absolute owner of such Global Note for
all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall
prevent the Company, the Trustee, the Paying Agent or the Note Registrar or any
of their agents from giving effect to any written certification, proxy or other
authorization furnished by DTC or impair, as between DTC and its Agent Members,
the operation of customary practices of DTC governing the exercise of the rights
of an owner of a beneficial interest in any Global Note. The registered Holder
of a Global Note may grant proxies and otherwise authorize any person, including
Agent Members and persons that may hold interests through Agent Members, to take
any action that a Holder is entitled to take under this Indenture or the Notes.
(c) Except as provided below, owners of beneficial
interests in Global Notes will not be entitled to receive Certificated Notes.
Certificated Notes shall be issued to all owners of beneficial interests in a
Global Note in exchange for such interests if:
(i) DTC notifies the Company that it is unwilling or
unable to continue as depositary for such Global Note or DTC ceases to
be a clearing agency registered under the Exchange Act, at a time when
DTC is required to be so registered in order to act as depositary, and
in each case a successor depositary is not appointed by the Company
within 90 days of such notice,
(ii) the Company executes and delivers to the Trustee and
Note Registrar an Officers' Certificate stating that such Global Note
shall be so exchangeable, or
(iii) an Event of Default has occurred and is continuing
and the Note Registrar has received a request from DTC.
In connection with the exchange of an entire Global Note for Certificated Notes
pursuant to this paragraph (c), such Global Note shall be deemed to be
surrendered to the Trustee for cancellation, and the Company shall execute, and
upon Company Order the Trustee shall authenticate and deliver, to each
beneficial owner identified by DTC in exchange for its beneficial interest in
such Global Note, an equal aggregate principal amount of Certificated Notes of
authorized denominations.
39
(d) In connection with the exchange of a portion of a
Certificated Note for a beneficial interest in a Global Note, the Trustee shall
cancel such Certificated Note, and the Company shall execute, and the Trustee
shall authenticate and deliver to the exchanging Holder, a new Certificated Note
representing the principal amount not so exchanged unless such principal amount
is to be exchanged for a beneficial interest in a Global Note pursuant to
Section 3.06(d).
SECTION 3.05. Legends. (a) Each Global Note shall bear the
legend specified therefor in Exhibit A on the face thereof.
(b) Each Restricted Note shall bear the private placement
legend specified therefor in Exhibit A on the face thereof ("Private Placement
Legend").
SECTION 3.06. Special Transfer Provisions. (a) The following
provisions shall apply with respect to any proposed transfer of an interest in a
Rule 144A Global Note that is a Restricted Note: If (1) the owner of a
beneficial interest in a Rule 144A Global Note wishes to transfer such interest
(or portion thereof) to a non-U.S. person ("Non-U.S. Person") pursuant to
Regulation S and (2) such Non-U.S. Person wishes to hold its interest in the
Notes through a beneficial interest in the Regulation S Global Note,
(i) upon receipt by the Note Custodian and Note Registrar
of:
(A) instructions from the Holder of the Rule
144A Global Note directing the Note Custodian and Note
Registrar to credit or cause to be credited a beneficial
interest in the Regulation S Global Note equal to the
principal amount of the beneficial interest in the Rule 144A
Global Note to be transferred, and
(B) a certificate in the form of Exhibit C from
the transferor, and
(ii) subject to the rules and procedures of DTC, the Note
Custodian and Note Registrar shall increase the Regulation S Global
Note and decrease the Rule 144A Global Note by such amount in
accordance with the foregoing.
(b) If the owner of an interest in a Regulation S Global
Note wishes to transfer such interest (or any portion thereof) to a QIB pursuant
to Rule 144A prior to the expiration of the Distribution Compliance Period
therefor,
(i) upon receipt by the Note Custodian and Note Registrar
of:
(A) instructions from the Holder of the
Regulation S Global Note directing the Note Custodian and Note
Registrar to credit or cause to be credited a beneficial
interest in the Rule 144A Global Note equal to the principal
amount of the beneficial interest in the Regulation S Global
Note to be transferred, and
(B) a certificate in the form of Exhibit B duly
executed by the transferor, and
40
(ii) in accordance with the rules and procedures of DTC,
the Note Custodian and Note Registrar shall increase the Rule 144A
Global Note and decrease the Regulation S Global Note by such amount in
accordance with the foregoing.
(c) Other Transfers. Any transfer of Restricted Notes not
described above (other than a transfer of a beneficial interest in a Global Note
that does not involve an exchange of such interest for a Certificated Note or a
beneficial interest in another Global Note, which must be effected in accordance
with applicable law and the rules and procedures of DTC, but is not subject to
any procedure required by this Indenture) shall be made only upon receipt by the
Note Registrar of such opinions of counsel, certificates and/or other
information reasonably required by and satisfactory to it in order to ensure
compliance with the Securities Act or in accordance with Section 3.06(d).
(d) Use and Removal of Private Placement Legends. Upon
the transfer, exchange or replacement of Notes (or beneficial interests in a
Global Note) not bearing (or not required to bear upon such transfer, exchange
or replacement) a Private Placement Legend, the Note Custodian and Note
Registrar shall exchange such Notes (or beneficial interests) for beneficial
interests in a Global Note (or Certificated Notes if they have been issued
pursuant to Section 3.04(c)) that does not bear a Private Placement Legend. Upon
the transfer, exchange or replacement of Notes (or beneficial interests in a
Global Note) bearing a Private Placement Legend, the Note Custodian and Note
Registrar shall deliver only Notes (or beneficial interests in a Global Note)
that bear a Private Placement Legend unless:
(i) such Notes (or beneficial interests) are exchanged in
a Registered Exchange Offer;
(ii) such Notes (or beneficial interests) are transferred
pursuant to a Shelf Registration Statement;
(iii) such Notes (or beneficial interests) are transferred
pursuant to Rule 144 under the Securities Act upon delivery to the Note
Registrar of a certificate of the transferor in the form of Exhibit D
and an Opinion of Counsel reasonably satisfactory to the Note
Registrar;
(iv) such Notes (or beneficial interests) are transferred,
replaced or exchanged after the Resale Restriction Termination Date
therefor; or
(v) in connection with such transfer, exchange or
replacement the Note Registrar shall have received an Opinion of
Counsel and other evidence reasonably satisfactory to it and the
Company to the effect that neither such Private Placement Legend nor
the related restrictions on transfer are required in order to maintain
compliance with the provisions of the Securities Act.
The Private Placement Legend on any Note shall be removed at the request of the
Holder on or after the Resale Restriction Termination Date therefor. The Holder
of a Global Note may exchange an interest therein for an equivalent interest in
a Global Note not bearing a Private Placement Legend (other than a Regulation S
Global Note) upon transfer of such interest pursuant to any of clauses (i)
through (v) of this paragraph (d). The Company shall deliver to the
41
Trustee an Officers' Certificate promptly upon effectiveness, withdrawal or
suspension of any Registration Statement.
(e) Consolidation of Global Notes and Exchange of
Certificated Notes for Beneficial Interests in Global Notes. If a Global Note
not bearing a Private Placement Legend (other than a Regulation S Global Note)
is Outstanding at the time of a Registered Exchange Offer, any interests in a
Global Note exchanged in such Registered Exchange Offer shall be exchanged for
interests in such Outstanding Global Note.
(f) Retention of Documents. The Note Registrar shall
retain copies of all letters, notices and other written communications received
pursuant to this Article III. The Company shall have the right to inspect and
make copies of all such letters, notices or other written communications at any
reasonable time upon the giving of reasonable written notice to the Note
Registrar.
(g) Execution, Authentication of Notes, etc. Subject to
the other provisions of this Section, when Notes are presented to the Note
Registrar with a request to register the transfer of such Notes or to exchange
such Notes for an equal principal amount of Notes of other authorized
denominations, the Note Registrar shall register the transfer or make the
exchange as requested if its requirements for such transaction are met; provided
that any Notes presented or surrendered for registration of transfer or exchange
shall be duly endorsed or accompanied by a written instrument of transfer in
form satisfactory to the Note Registrar, duly executed by the Holder thereof or
his attorney duly authorized in writing. To permit registrations of transfers
and exchanges and subject to the other terms and conditions of this Article III,
the Company will execute and upon Company Order, the Trustee will authenticate
Certificated Notes and Global Notes at the Note Registrar's request. In
accordance with the Issue Date Registration Rights Agreement, upon the
effectiveness of any Exchange Offer Registration Statement, the Company will
execute and upon Company Order, the Trustee will authenticate Exchange Notes or
Private Exchange Notes, as the case may be, in exchange for Issue Date Notes. In
accordance with a Registration Rights Agreement in respect of Additional Notes,
upon the effectiveness of any Exchange Offer Registration Statement in respect
of such Additional Notes, the Company will execute and upon Company Order, the
Trustee will authenticate Exchange Notes in exchange for such Additional Notes.
(h) No Obligation of the Trustee.
(i) The Trustee shall have no responsibility or
obligation to any beneficial owner of an interest in a Global Note, a
member of, or a participant in, DTC or other Person with respect to the
accuracy of the records of DTC or its nominee or of any participant or
member thereof, with respect to any ownership interest in the Notes or
with respect to the delivery to any participant, member, beneficial
owner or other Person (other than DTC) of any notice (including any
notice of redemption) or the payment of any amount or delivery of any
Notes (or other security or property) under or with respect to such
Notes. All notices and communications to be given to the Holders and
all payments to be made to Holders in respect of the Notes shall be
given or made only to or upon the order of the registered Holders
(which shall be DTC or its nominee in the case of a Global Note). The
rights of beneficial owners in any Global Note shall be exercised
42
only through DTC subject to the applicable rules and procedures of DTC.
The Trustee may rely and shall be fully protected in relying upon
information furnished by DTC with respect to its members, participants
and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to
monitor, determine or inquire as to compliance with any restrictions on
transfer imposed under this Indenture or under applicable law with
respect to any transfer of any interest in any Note (including any
transfers between or among DTC participants, members or beneficial
owners in any Global Note) other than to require delivery of such
certificates and other documentation or evidence as are expressly
required by, and to do so if and when expressly required by, the terms
of this Indenture, and to examine the same to determine substantial
compliance as to form with the express requirements hereof.
SECTION 3.07. Mutilated, Destroyed, Lost or Stolen Notes. If
(a) any mutilated Note is surrendered to the Trustee, or (b) the Company and the
Trustee receive evidence to their satisfaction of the destruction, loss or theft
of any Note, and there is delivered to the Company or the Trustee, such security
and/or indemnity, in each case as may be required by them to save each of them
harmless, then, in the absence of notice to the Company or the Trustee that such
Note has been acquired by a bona fide purchaser, the Company shall execute and
upon receipt of a Company Order the Trustee shall authenticate and deliver, in
exchange for any such mutilated Note or in lieu of any such destroyed, lost or
stolen Note, a replacement Note of like tenor and principal amount, bearing a
number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Note has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a replacement Note, pay such Note.
Upon the issuance of any replacement Notes under this Section,
the Company may require the payment of a sum sufficient to pay all documentary,
stamp or similar issue or transfer taxes or other governmental charge that may
be imposed in relation thereto and any other expenses (including the fees and
expenses of the Trustee and its agents and counsel) connected therewith.
Every replacement Note issued pursuant to this Section in lieu
of any destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled to
all benefits of this Indenture equally and proportionately with any and all
other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 3.08. Payment of Interest; Interest Rights Preserved.
Interest on any Note which is payable, and is punctually paid or duly provided
for, on the Stated Maturity of such interest shall be paid to the Person in
whose name that Note is registered at the close of business on the Regular
Record Date for such interest payment.
43
Any interest on any Note which is payable, but is not paid or
duly provided for on the Stated Maturity of such interest (or within 15 days
after the Stated Maturity of such interest) and interest on such defaulted
interest at the then applicable interest rate borne by the Notes, to the extent
lawful (such defaulted interest and interest thereon herein collectively called
"Defaulted Interest"), shall forthwith cease to be payable to the Holder in
whose name such Note is registered as of the Regular Record Date; and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in Subsection (a) or (b) below:
(a) the Company may elect to make payment of any
Defaulted Interest to the Persons in whose names the Notes are
registered at the close of business on a Special Record Date for the
payment of such Defaulted Interest, which shall be fixed in the
following manner.
The Company shall notify the Trustee in writing of the amount
of Defaulted Interest proposed to be paid on each Note and the date of
the proposed payment (the "Special Payment Date"), and at the same time
the Company shall irrevocably deposit with the Trustee an amount of
money equal to the aggregate amount proposed to be paid in respect of
such Defaulted Interest or shall make arrangements satisfactory to the
Trustee for such deposit prior to the Special Payment Date, such money
when deposited to be held in trust for the benefit of the Persons
entitled to such Defaulted Interest as in this Subsection provided.
Such notice shall be received by the Trustee no less than 30 days prior
to the Special Payment Date. Thereupon the Trustee shall fix a Special
Record Date for the payment of such Defaulted Interest which Special
Record Date shall be not more than 15 days and not less than 10 days
prior to the Special Payment Date and not less than 10 days after the
receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the Company in writing of such Special
Record Date. In the name and at the expense of the Company, the Trustee
shall cause notice of the proposed payment of such Defaulted Interest
and the Special Record Date and Special Payment Date therefor to be
mailed, certified or registered (return receipt requested) first-class
postage prepaid, to each Holder at his address as it appears in the
Note Register, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been so mailed, such Defaulted
Interest shall be paid to the Persons in whose names the Notes are
registered on such Special Record Date and shall no longer be payable
pursuant to the following Subsection (b).
(b) the Company may make payment to the Persons in whose
name the Notes are registered at the close of business on the Special
Record Date of any Defaulted Interest in any other lawful manner not
inconsistent with the requirements of any securities exchange on which
the Notes may be listed, and upon such notice as may be required by
such exchange, unless, after written notice given by the Company to the
Trustee of the proposed payment pursuant to this Subsection, such
manner of payment shall not be deemed practicable by the Trustee
(acting reasonably). The Trustee shall give prompt written notice to
the Company of any such determination.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall
44
carry the rights to interest accrued and unpaid, and to accrue, which were
carried by such other Note.
SECTION 3.09. Persons Deemed Owners. Prior to due presentment
of a Note for registration of transfer, the Company, the Trustee and any agent
of the Company or the Trustee may treat the Person in whose name any Note is
registered on the Note Register as the owner of such Note for the purpose of
receiving payment of principal of, premium, if any, and (subject to Section
3.08) interest on such Note and for all other purposes whatsoever, whether or
not such Note is overdue, and none of the Company, the Trustee or any agent of
the Company or the Trustee shall be affected by notice to the contrary.
None of the Company, the Trustee, any Paying Agent or the Note
Registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in a Global Note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
SECTION 3.10. Cancellation. All Notes surrendered for payment,
purchase, redemption, registration of transfer or exchange shall be delivered to
the Trustee and, if not already canceled, shall be promptly canceled by it. The
Company or any Restricted Subsidiary may at any time deliver to the Trustee for
cancellation any Notes previously authenticated and delivered hereunder which
the Company or any such Restricted Subsidiary may have acquired in any manner
whatsoever, and all Notes so delivered shall upon receipt of a Company Order be
promptly canceled by the Trustee. No Notes shall be authenticated in lieu of or
in exchange for any Notes canceled as provided in this Section, except as
expressly permitted by this Indenture. All canceled securities held by the
Trustee shall, unless by a Company Order received by the Trustee prior to such
destruction the Company shall direct that the canceled Notes be returned to it,
be destroyed in accordance with its customary procedures and certification of
their destruction delivered to the Company. The Trustee shall provide the
Company a list of all Notes that have been canceled from time to time as
requested by the Company.
SECTION 3.11. Computation of Interest. Interest on the Notes
shall be computed on the basis of a 360-day year of twelve 30-day months.
Whenever interest to be paid hereunder is to be calculated on the basis of a
year of three hundred and sixty (360) days, the yearly rate of interest to which
the rate determined pursuant to such calculation is equivalent is the rate so
determined multiplied by the actual number of days in the calendar year in which
the same is to be ascertained and divided by three hundred and sixty (360). The
foregoing is disclosed herein solely for the purpose of providing the disclosure
required under the Interest Act (Canada).
SECTION 3.12. [Reserved]
SECTION 3.13. Additional Interest Under Registration Rights
Agreements. Under certain circumstances, the Company may be obligated to pay
additional interest to Holders, all as and to the extent set forth in the Issue
Date Registration Rights Agreement or any Registration Rights Agreement
applicable to Additional Notes. The terms thereof are hereby incorporated herein
by reference and such additional interest is deemed to be interest for purposes
of this Indenture.
45
ARTICLE IV
Defeasance and Covenant Defeasance
SECTION 4.01. Company's Option to Effect Defeasance or
Covenant Defeasance. The Company may, at its option by Board Resolution, at any
time, with respect to any Notes, elect to have either Section 4.02 or Section
4.03 be applied to all of the Outstanding Notes (the "Defeased Notes"), this
Indenture and the Security Agreement, upon compliance with the conditions set
forth below in this Article IV.
SECTION 4.02. Defeasance and Discharge. Upon the Company's
exercise under Section 4.01 of the option applicable to this Section, the
Company shall be deemed to have been discharged from its obligations with
respect to the Defeased Notes on the date the conditions set forth below are
satisfied (hereinafter, "defeasance") and each Note Guarantor shall be deemed to
be discharged from its obligations with respect to its Guarantee relating to the
Defeased Notes. For this purpose, such defeasance means that the Company and any
Note Guarantor shall be deemed to have paid and discharged the entire
indebtedness represented by the Defeased Notes, which shall thereafter be deemed
to be "Outstanding" only for the purposes of Section 4.05 and the other Sections
of this Indenture referred to in clauses (a) and (b) below, and to have
satisfied all its other obligations under such Notes and this Indenture insofar
as such Notes are concerned (and the Trustee, at the expense of the Company and
upon written request, shall execute proper instruments acknowledging the same),
except for the following which shall survive until otherwise terminated or
discharged hereunder: (a) the rights of Holders of Defeased Notes to receive,
solely from the trust fund described in Section 4.04 and as more fully set forth
in such Section, payments in respect of the principal of, premium, if any, and
interest on such Notes when such payments are due, (b) the Company's obligations
with respect to such Defeased Notes under Sections 3.02, 3.03, 3.07, 10.02 and
10.03, (c) the rights, powers, trusts, duties, indemnities and immunities of the
Trustee hereunder, and (d) this Article IV. Subject to compliance with this
Article IV, the Company may exercise its option under this Section
notwithstanding the prior exercise of its option under Section 4.03 with respect
to the Notes.
SECTION 4.03. Covenant Defeasance. Upon the Company's exercise
under Section 4.01 of the option applicable to this Section, the Company shall
be released from its obligations under any covenant or provision contained in
Sections 10.05 through 10.18, inclusive, with respect to the Defeased Notes on
and after the date the conditions set forth below are satisfied (hereinafter,
"covenant defeasance"), and the Defeased Notes shall thereafter be deemed to be
not "Outstanding" for the purposes of any direction, waiver, consent or
declaration or Act of Holders (and the consequences of any thereof) in
connection with such covenants and provisions, but shall continue to be deemed
"Outstanding" for all other purposes hereunder. For this purpose, such covenant
defeasance means that, with respect to the Defeased Notes, the Company may omit
to comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such Section or Article, whether directly or
indirectly, by reason of any reference elsewhere herein or in such Defeased
Notes to any such Section or Article or by reason of any reference in any such
Section or Article to any other provision herein or in any other document and
such omission to comply shall not constitute a Default or an Event of Default
under Section 5.01(c), (d) or (f) but, except as specified above, the remainder
of this Indenture and such Defeased Notes shall be unaffected thereby.
46
SECTION 4.04. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either Section 4.02 or
Section 4.03 to the Defeased Notes:
(1) The Company shall irrevocably have deposited or
caused to be deposited with the Trustee as trust funds in trust for the
purpose of making the following payments, specifically pledged as
security for, and dedicated solely to, the benefit of the Holders of
Notes, (a) United States dollars, (b) U.S. Government Obligations
(which through the scheduled payment of principal and interest in
respect thereof in accordance with their terms will provide, not later
than one day before the due date of any payment, sufficient money), or
(c) a combination thereof, in such amounts as will be sufficient, as
reflected in the written report of a nationally recognized firm of
independent public accountants or a nationally recognized investment
banking firm delivered to the Trustee, to pay and discharge (and which
shall be applied by the Trustee to pay and discharge) the principal of,
premium, if any, and interest on, the Defeased Notes on (x) the Stated
Maturity thereof or (y) any date selected by the Company on which the
Defeased Notes may be redeemed in whole at the option of the Company
(such date being referred to as the "Defeasance Redemption Date"), if
(in the case of clause (y)) when electing either defeasance or covenant
defeasance, the Company has delivered to the Trustee an irrevocable
notice to redeem all of the outstanding Notes on the Defeasance
Redemption Date; provided that the Trustee (or such qualifying trustee)
shall have been irrevocably instructed to apply such United States
dollars or the proceeds of such U.S. Government obligations to said
payments with respect to the Notes. For this purpose, "U.S. Government
Obligations" means securities that are (i) direct obligations of the
United States of America for the timely payment of which its full faith
and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United
States of America the timely payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United States
of America, which, in either case, are not callable or redeemable at
the option of the issuer thereof, and shall also include a depository
receipt issued by a bank (as defined in Section 3(a)(2) of the
Securities Act), as custodian with respect to any such U.S. Government
Obligation or a specific payment of principal of or interest on any
such U.S. Government Obligation held by such custodian for the account
of the holder of such depository receipt; provided that (except as
required by law) such custodian is not authorized to make any deduction
from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the U.S. Government
Obligation or the specific payment of principal of or interest on the
U.S. Government Obligation evidenced by such depository receipt.
(2) In the case of an election under Section 4.02, the
Company shall have delivered to the Trustee an opinion of Independent
Counsel in the United States to the effect that (A) the Company has
received from, or there has been published by, the Internal Revenue
Service a ruling or (B) since the date of this Indenture, there has
been a change in the applicable Federal income tax law, in either case
to the effect that the Holders of the Outstanding Notes will not
recognize income, gain or loss for Federal income tax purposes as a
result of such defeasance and will be subject to Federal income
47
tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance had not occurred.
(3) In the case of an election under Section 4.03, the
Company shall have delivered to the Trustee an opinion of Independent
Counsel in the United States to the effect that the Holders of the
Outstanding Notes will not recognize income, gain or loss for Federal
income tax purposes as a result of such covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such covenant
defeasance had not occurred.
(4) In the case of an election under Section 4.02 and
Section 4.03, the Company shall have delivered to the Trustee an
opinion of Canadian counsel stating that the Company has received from,
or there has been published by, the Canada Customs and Revenue Agency a
ruling, in either case to the effect that, and based thereon such
opinion shall confirm that, the Holders of the outstanding Notes will
not recognize income, gain or loss for Canadian federal, provincial or
territorial income tax or other tax purposes as a result of such
deposit and defeasance and will be subject to Canadian federal,
provincial or territorial income tax or other tax on the same amounts,
in the same manner and at the same times as would have been the case if
such deposit and defeasance had not occurred (and for the purposes of
such opinion, such Canadian counsel shall assume that Holders include
Holders who are not resident in Canada).
(5) No Default or Event of Default shall have occurred
and be continuing on the date of such deposit or insofar as Sections
5.01(g) and 5.01(h) are concerned, at any time during the period ending
on the 121st day after the date of deposit.
(6) Any election under Section 4.02 or Section 4.03 shall
not cause the Trustee to have a conflicting interest with respect to
any securities of the Company.
(7) Any election under Section 4.02 or Section 4.03 shall
not result in a breach or violation of, or constitute a Default under,
this Indenture or a breach or violation of any provision of any
agreement relating to any Indebtedness.
(8) The Company shall have delivered to the Trustee an
Opinion of Independent Counsel in the United States to the effect that
after the 121st day following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally.
(9) The Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders over the other
creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding creditors of the Company.
(10) No event or condition shall exist that would prevent
the Company from making payments of the principal of, premium, if any,
and interest on the Notes on the date of such deposit or at any time
ending on the 121st day after the date of such deposit.
48
(11) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Independent Counsel, each to
the effect that all conditions precedent provided for relating to
either the defeasance under Section 4.02 or the covenant defeasance
under Section 4.03 (as the case may be) have been complied with as
contemplated by this Section.
Opinions of Counsel required to be delivered under this
Section may have qualifications customary for opinions of the type required and
counsel delivering such Opinions of Counsel may rely on certificates of the
Company or government or other officials customary for opinions of the type
required, which certificates shall be limited to matters of fact, including that
various financial covenants have been complied with.
SECTION 4.05. Deposited Money and U.S. Government Obligations
to be Held in Trust; Other Miscellaneous Provisions. Subject to the provisions
of the last paragraph of Section 10.03, all United States dollars and U.S.
Government Obligations (including the proceeds thereof) deposited with the
Trustee pursuant to Section 4.04 in respect of the Defeased Notes shall be held
in trust and applied by the Trustee, in accordance with the provisions of such
Notes and this Indenture, to the payment, either directly or through any Paying
Agent as the Trustee may determine, to the Holders of such Notes of all sums due
and to become due thereon in respect of principal, premium, if any, and
interest, but such money need not be segregated from other funds except to the
extent required by law.
The Company shall fully pay and indemnify the Trustee against
any tax, fee or other charge imposed on or assessed against the U.S. Government
Obligations deposited pursuant to Section 4.04 or the principal and interest
received in respect thereof, other than any such tax, fee or other charge which
by law is for the account of the Holders of the Defeased Notes.
Anything in this Article IV to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon a Company
Request any United States dollars or U.S. Government Obligations held by it as
provided in Section 4.04 which, in the opinion of a nationally recognized firm
of independent public accountants or nationally recognized investment banking
firm expressed in a written report delivered to the Trustee, are in excess of
the amount thereof which would then be required to be deposited to effect
defeasance or covenant defeasance. In the event of an error in any calculation
resulting in a withdrawal hereunder, the Company shall deposit an amount equal
to the amount erroneously withdrawn as promptly as practicable after becoming
aware of such error.
SECTION 4.06. Reinstatement. If the Trustee or Paying Agent is
unable to apply any United States dollars or U.S. Government Obligations in
accordance with Section 4.02 or 4.03, as the case may be, by reason of any order
or judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, then the Company's obligations under
this Indenture and the Notes shall be revived and reinstated as though no
deposit had occurred pursuant to Section 4.02 or 4.03, as the case may be, until
such time as the Trustee or Paying Agent is permitted to apply all such United
States dollars or U.S. Government Obligations in accordance with Section 4.02 or
4.03, as the case may be; provided, however, that (a) if the Company makes any
payment to the Trustee or Paying Agent of principal, premium, if
49
any, or interest on any Note following the reinstatement of its obligations, the
Trustee or Paying Agent shall promptly pay any such amount to the Holders of the
Notes and the Company shall be subrogated to the rights of the Holders of such
Notes to receive such payment from the United States dollars and U.S. Government
Obligations held by the Trustee or Paying Agent and (b) the Trustee or Paying
Agent shall return all such United States dollars and U.S. Government
Obligations to the Company promptly after receiving a Company Request therefor
at any time, if the Trustee or Paying Agent receives written notice from the
Company that such reinstatement of the Company's obligations has occurred and
continues to be in effect at such time.
ARTICLE V
Remedies
SECTION 5.01. Events of Default. "Event of Default", wherever
used herein, means with respect to any Notes any one of the following events
(whatever the reason for such Event of Default and whether it shall be voluntary
or involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) there shall be a default in the payment of any
interest on any Note when it becomes due and payable, and such default
shall continue for a period of 30 days;
(b) there shall be a default in the payment of the
principal of (or premium, if any, on) any Note when and as the same
shall become due and payable at its Maturity (upon acceleration,
optional or mandatory redemption, required repurchase or otherwise);
(c) (i) there shall be a default in the performance, or
breach, of any covenant or agreement of the Company under this
Indenture (other than a default in the performance, or breach, of a
covenant or agreement which is specifically dealt with in Section
5.01(a) or (b) or in clauses (ii) or (iii) of this Section 5.01(c)),
and such default or breach shall continue for a period of 30 days after
written notice has been given, by certified mail, (x) to the Company by
the Trustee or (y) to the Company and the Trustee by the Holders of at
least 25% in aggregate principal amount of the Outstanding Notes; (ii)
there shall be a default in the performance or breach of the provisions
of Article VIII; or (iii) the Company shall have failed to make or
consummate a Change of Control Offer in accordance with the provisions
of Section 10.14;
(d) (i) one or more defaults shall have occurred under
any agreements, indentures or instruments under which the Company, a
Note Guarantor or any Restricted Subsidiary of the Company then has
outstanding indebtedness (other than the Series III Preferred Shares)
in excess of $2,500,000 in the aggregate and, if not already matured at
its final maturity in accordance with its terms, such Indebtedness
shall have been accelerated or (ii) one or more defaults shall have
occurred under any agreements, indentures or instruments under which
Hollinger International or any of its Subsidiaries then has outstanding
Indebtedness in excess of $7,500,000 in the aggregate and, if not
50
already matured at its final maturity in accordance with its terms,
such Indebtedness shall have been accelerated;
(e) any Guarantee relating to the Notes shall for any
reason cease to be, or be asserted in writing by any Note Guarantor or
the Company not to be, in full force and effect, enforceable in
accordance with its terms, except to the extent contemplated by this
Indenture and any such Guarantee;
(f) one or more final judgments, orders or decrees
(including execution, writ of seizure and sale, sequestration, levy,
assessment, injunction or attachment or other process of court) for the
payment of money shall be entered against (A) the Company, a Note
Guarantor or any Restricted Subsidiary or any of their respective
properties, either individually or in the aggregate, in an amount
exceeding $2,500,000, or (B) Hollinger International or any of its
Subsidiaries or any of their respective properties, either individually
or in the aggregate, in an amount exceeding $7,500,000 and, in each
case, shall not be discharged and either (i) enforcement proceedings
shall have been commenced upon such judgment, order or decree or (ii)
there shall have been a period of 60 consecutive days during which a
stay of enforcement of such judgment or order, by reason of an appeal
or otherwise, shall not be in effect;
(g) there shall have been the entry by a court of
competent jurisdiction of (i) a decree or order for relief in respect
of the Company, any Note Guarantor or any Material Restricted
Subsidiary in an involuntary case or proceeding under any applicable
Bankruptcy Law or (ii) a decree or order adjudging the Company, any
Note Guarantor or any Material Restricted Subsidiary bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company, any Note Guarantor or any
Material Restricted Subsidiary under any applicable Federal, provincial
or state law, or appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator, administrator, monitor or similar
official of the Company, any Note Guarantor or any Material Restricted
Subsidiary or of any substantial part of its property, or ordering the
winding up or liquidation of its affairs, and any such decree or order
for relief shall continue to be in effect, or any such other decree or
order shall be unstayed and in effect, for a period of 60 consecutive
days;
(h) (i) the Company, any Note Guarantor or any Material
Restricted Subsidiary commences a voluntary case or proceeding under
any applicable Bankruptcy Law or any other case or proceeding to be
adjudicated bankrupt or insolvent, (ii) the Company, any Note Guarantor
or any Material Restricted Subsidiary consents to the entry of a decree
or order for relief in respect of the Company, any Note Guarantor or
such Material Restricted Subsidiary in an involuntary case or
proceeding under any applicable Bankruptcy Law or to the commencement
of any bankruptcy or insolvency case or proceeding against it, (iii)
the Company, any Note Guarantor or any Material Restricted Subsidiary
files a petition, proposal, notice of intention to file a proposal or
answer or consent seeking reorganization or relief which seeks to stay
or has the effect of staying any creditor under any applicable Federal,
provincial or state law, (iv) the Company, any Note Guarantor or any
Material Restricted Subsidiary (x) consents to the filing of such
petition, proposal, notice of intention to file a proposal or the
appointment
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of, or taking possession by, a custodian, receiver, liquidator,
assignee, trustee, sequestrator, administrator, monitor or similar
official of the Company, any Note Guarantor or such Material Restricted
Subsidiary or of any substantial part of its property, (y) makes an
assignment for the benefit of creditors or (z) admits in writing its
inability to pay its debts generally as they become due or (v) the
Company, any Note Guarantor or any Material Restricted Subsidiary takes
any corporate action in furtherance of any such actions in this
paragraph (h);
(i) the Trustee, Collateral Agent and the Holders cease
to have a perfected first priority security interest in any of the
Senior Notes Collateral in accordance with the terms of the Security
Agreement;
(j) the Pledged Agreements shall for any reason cease to
be, or be asserted in writing by any party thereto or the Company not
to be, in full force and effect, or the Pledged Agreements are
terminated, suspended or repudiated by any party thereto, except to the
extent contemplated by this Indenture and the Pledged Agreements;
(k) in any quarterly period after April 1, 2003, the
Company fails to receive in cash a minimum aggregate amount of at least
$4.7 million from (i) payments made by RMI during such quarter pursuant
to the terms of the Support Agreement, (ii) any management fees paid by
Hollinger International and its Subsidiaries directly to the Company or
its Wholly Owned Restricted Subsidiaries during such quarter, and (iii)
the Net Dividend Amount paid by Hollinger International on its Capital
Stock held by the Company and its Wholly Owned Restricted Subsidiaries
during such quarter (provided that with respect to any period that is
less than a fiscal quarter, the minimum aggregate amount of $4.7
million shall be reduced pro rata by reference to the number of days in
such period, calculated on the basis of a 360-day year of twelve 30-day
months); or
(l) immediately prior to making any repurchase,
redemption, defeasance, retirement, acquisition for value or payment of
redemption amount of the Company's Series III Preferred Shares pursuant
to paragraph (b)(viii) of Section 10.09, the amount to be paid in
connection therewith would, after giving effect to such payment, exceed
the RP Available Amount.
SECTION 5.02. Acceleration of Maturity; Rescission and
Annulment. If an Event of Default (other than an Event of Default specified in
Sections 5.01(g) and (h) with respect to the Company) occurs and is continuing
with respect to the Notes, the Trustee or the Holders of not less than 25% in
aggregate principal amount of the Outstanding Notes may, and the Trustee upon
the request of the Holders of not less than 25% in aggregate principal amount of
the Outstanding Notes shall, declare the principal amount of all the Notes to be
due and payable immediately in an amount equal to the principal amount of the
Notes, together with accrued and unpaid interest, if any, to the date the Notes
shall have become due and payable, by a notice in writing to the Company (and to
the Trustee, if given by Holders) and, if a Credit Facility is in effect, to the
relevant Agent under the Credit Facility in accordance with the terms of the
Intercreditor Agreement, and upon any such declaration such amount shall become
immediately due and payable. If an Event of Default specified in Sections
5.01(g) or (h) occurs with respect to the Company and is continuing, then all
the Notes shall ipso facto become and be
52
immediately due and payable, in an amount equal to the principal amount of the
Notes, together with accrued and unpaid interest, if any, to the date the Notes
become due and payable, without any declaration or other act on the part of the
Trustee or any Holder.
At any time after such declaration or acceleration has been
made with respect to the Notes, and before a judgment or decree for payment of
the money due has been obtained by the Trustee as provided hereinafter in this
Article, the Holders of at least a majority in aggregate principal amount of the
Outstanding Notes, by written notice to the Company and the Trustee, may rescind
and annul such declaration and its consequences if:
(a) the Company has paid or irrevocably deposited with
the Trustee a sum sufficient to pay
(i) all sums paid or advanced by the Trustee
under Section 6.07 and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel;
(ii) all overdue interest on all Notes;
(iii) the principal and the premium, if any, on
any Notes which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate
or rates presented therefor by the terms of the Notes, to the
extent that payment of such interest is lawful; and
(iv) interest upon overdue interest at the rate
or rates presented therefor by the terms of the Notes, to the
extent that payment of such interest is lawful; and
(b) all Events of Default with respect to the Notes,
other than the nonpayment of principal of the Notes which have become
due solely by such declaration of acceleration, have been cured or
waived as provided in Section 5.13.
No such rescission shall affect any subsequent Default or impair any right
consequent thereon.
SECTION 5.03. Collection of Indebtedness and Suits for
Enforcement by Trustee. The Company covenants that if
(a) default is made in the payment of any interest on any
Note when such interest becomes due and payable and such default
continues for a period of 30 days, or
(b) default is made in the payment of the principal of
(or premium, if any, on) any Note at the Stated Maturity (upon
acceleration, optional or mandatory redemption, required repurchase or
otherwise) thereof,
The Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Notes the whole amount then due and payable on such Notes for
principal and premium, if any, and interest, with interest upon the overdue
principal and premium, if any, and, to the extent that
53
payment of such interest shall be legally enforceable, upon overdue installments
of interest, at the rate or rates as may be presented therefor by the terms of
any such Note.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and unpaid
and may prosecute such proceeding to judgment or final decree, and may enforce
the same against the Company or any other obligor upon the Notes and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon such Notes, wherever
situated.
If an Event of Default with respect to any Notes occurs and is
continuing, the Trustee may in its discretion proceed to protect and enforce its
rights and the rights of the Holders of Notes under this Indenture by such
appropriate private or judicial proceedings as the Trustee shall deem most
effectual to protect and enforce such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein or therein, or to enforce any other proper
remedy.
The rights and remedies under this Section are in addition to
the other rights and remedies under this Article V or Article XIII.
SECTION 5.04. Trustee May File Proofs of Claim. In case of the
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other similar judicial
proceeding relative to the Company or the property of the Company, the Trustee
(irrespective of whether the principal of the Notes shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective of
whether the Trustee shall have made any demand on the Company for the payment of
overdue principal or interest) shall be entitled and empowered, by intervention
in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of
principal, and premium, if any, and interest owing and unpaid in
respect of the Notes and to file such other papers or documents as may
be necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and
of the Holders allowed in such judicial proceeding; and
(b) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 6.07.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment, composition or other
similar arrangement affecting the Notes or the rights of any
54
Holder thereof, or to authorize the Trustee to vote in respect of the claim of
any Holder in any such proceeding.
SECTION 5.05. Trustee May Enforce Claims Without Possession of
Notes. All rights of action and claims under this Indenture or the Notes may be
prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any such
proceeding instituted by the Trustee shall be brought in its own name and as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Holders of the Notes in respect of which such judgment has been recovered.
SECTION 5.06. Application of Money Collected. Any money
collected by the Trustee with respect to the Notes pursuant to this Article or
otherwise on behalf of the Holders or the Trustee pursuant to this Article or
through any proceeding or any arrangement or restructuring in anticipation or in
lieu of any proceeding contemplated by this Article shall be applied, subject to
applicable law, in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal,
premium, if any, or interest, upon presentation of the Notes and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 6.07;
SECOND: To the payment in full of the amounts then due and
unpaid upon the Notes for principal, premium, if any, and interest, in
respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Notes for principal,
premium, if any, and interest; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto as a court of competent jurisdiction shall direct, or to the
Company; provided that all sums due and owing to the Holders and the
Trustee have been paid in full as required by this Indenture.
SECTION 5.07. Limitation on Suits. No Holder of any Notes
shall have any right to institute any proceeding, judicial or otherwise, with
respect to this Indenture or the Notes, or for the appointment of a receiver or
trustee, or for any other remedy hereunder, unless
(a) such Holder has previously given written notice to
the Trustee of a continuing Event of Default with respect to Notes;
(b) the Holders of not less than 25% in principal amount
of the outstanding Notes shall have made written request to the Trustee
to institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(c) such Holder or Holders have offered, and if requested
have provided, to the Trustee an indemnity satisfactory to the Trustee
in its sole discretion against the costs, expenses and liabilities that
may be incurred in compliance with such request;
55
(d) the Trustee for 60 days after its receipt of such
notice, request and offer (and if requested, provision) of indemnity
has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request
has been given to the Trustee during such 60-day period by the Holders
of a majority in principal amount of the Outstanding Notes;
it being understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders of such Notes, or to obtain or to seek to obtain priority or preference
over any other Holders or to enforce any right under this Indenture, except in
the manner provided in this Indenture and for the equal and ratable benefit of
all the Holders of all Notes.
SECTION 5.08. Unconditional Right of Holders to Receive
Principal, Premium and Interest. Notwithstanding any other provision in this
Indenture, the Holder of any Note shall have the right on the terms stated
herein, which is absolute and unconditional, to receive payment of the principal
of, premium, if any, and (subject to Section 3.08) interest on such Note on the
respective Stated Maturities expressed in such Note (or, in the case of
redemption, on the Redemption Date) and to institute suit for the enforcement of
any such payment, and such rights shall not be impaired without the consent of
such Holder.
SECTION 5.09. Restoration of Rights and Remedies. If the
Trustee or any Holder has instituted any proceeding to enforce any right or
remedy under this Indenture and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to the Trustee or to
such Holder, then and in every such case, subject to any determination in such
proceeding, (a) the Company, the Trustee and the Holders shall be restored
severally and respectively to their former positions hereunder, and (b)
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 5.10. Rights and Remedies Cumulative. Except as
provided in Section 3.07, no right or remedy herein conferred upon or reserved
to the Trustee or to the Holders is intended to be exclusive of any other right
or remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 5.11. Delay or Omission Not Waiver. No delay or
omission of the Trustee or of any Holder of any Note to exercise any right or
remedy accruing upon any Event of Default shall impair any such right or remedy
or constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or to the
Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders, as the case may be.
56
SECTION 5.12. Control by Holders. The Holders of not less than
a majority in aggregate principal amount of the Outstanding Notes shall have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee; provided that:
(a) such direction shall not be in conflict with any rule
of law or with this Indenture (including, without limitation, Section
5.07) or expose the Trustee to personal liability; and
(b) subject to the provisions of Section 315 of the Trust
Indenture Act, the Trustee may take any other action deemed proper by
the Trustee which is not inconsistent with such direction.
SECTION 5.13. Waiver of Past Defaults. The Holders of not less
than a majority in aggregate principal amount of the Outstanding Notes may on
behalf of the Holders of all the Notes waive any past Default hereunder and its
consequences, except a Default
(a) in the payment of the principal of, premium, if any,
or interest on any Notes, or
(b) in respect of a covenant or provision hereof which
under Article IX cannot be modified or amended without the consent of
the Holder of each Outstanding Note affected by such modification or
amendment.
Upon any such waiver, such Default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereon.
SECTION 5.14. Undertaking for Costs. All parties to this
Indenture agree, and each Holder of any Note by his acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Trustee for any action taken, suffered or omitted by it as Trustee,
the filing by any party litigant in such suit of an undertaking to pay the costs
of such suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant; but the provisions of this Section shall not apply to any
suit instituted by the Trustee, to any suit instituted by any Holder, or group
of Holders, holding in the aggregate more than 10% in principal amount of the
Outstanding Notes to which the suit relates, or to any suit instituted by any
Holder for the enforcement of the payment of the principal of, premium, if any,
or interest on any Note on or after the respective Stated Maturities expressed
in such Note (or, in the case of redemption, on or after the Redemption Date).
SECTION 5.15. Waiver of Stay, Extension or Usury Laws. The
Company (to the extent that it may lawfully do so) covenants that it will not at
any time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury or other similar
law wherever enacted, now or at any time hereafter in force, which
57
would prohibit or forgive the Company from paying all or any portion of the
principal of, premium, if any, or interest on the Notes contemplated herein or
in the Notes or which may affect the covenants or the performance of this
Indenture; and the Company (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
SECTION 5.16. Remedies Subject to Applicable Law. All rights,
remedies and powers provided by this Article may be exercised only to the extent
that the exercise thereof does not violate any applicable provision of law in
the premises, and all the provisions of this Indenture are intended to be
subject to all applicable mandatory provisions of law which may be controlling
in the premises and to be limited to the extent necessary so that they will not
render this Indenture invalid, unenforceable or not entitled to be recorded,
registered or filed under the provisions of any applicable law.
ARTICLE VI
The Trustee
SECTION 6.01. Duties of Trustee. (a) If a Default or an Event
of Default with respect to any Notes actually known to the Trustee has occurred
and is continuing, the Trustee shall exercise such of the rights and powers
vested in it by this Indenture and use the same degree of care and skill in its
exercise thereof as a prudent person would exercise or use under the
circumstances in the conduct of his own affairs. The Trustee shall not be
charged with knowledge of any Default or Event of Default with respect to any
Notes, Asset Sale or Change of Control unless written notice thereof shall have
been delivered to a Responsible Officer by the Company or any other Person.
(b) Except during the continuance of a Default or an
Event of Default with respect to any Notes actually known to the Trustee:
(1) the Trustee need perform only those duties as are
specifically set forth in this Indenture and no covenants or
obligations shall be implied in this Indenture that are adverse to the
Trustee; and
(2) in the absence of bad faith or wilful misconduct on
its part, the Trustee may with respect to any Notes, conclusively rely,
as to the truth of the statements and the correctness of the opinions
expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for
its own negligent action, its own negligent failure to act, or its own wilful
misconduct, except that:
(1) this paragraph does not limit the effect of paragraph
(b) of this Section;
58
(2) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it is
proved that the Trustee was negligent in ascertaining the pertinent
facts; and
(3) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction of the Holders of a majority in principal amount of
Outstanding Notes relating to the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising
any trust or power confirmed upon the Trustee under this Indenture.
(d) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any loss, expense,
fees or financial liability in the performance of any of its duties hereunder or
in the exercise of any of its rights or powers if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or loss, expense, fees or financial liability is not reasonably
assured to it.
(e) Whether or not therein expressly so provided, every
provision of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), (c) and (d) of this Section.
(f) The Trustee shall not be liable for interest on any
money or assets received by it except as the Trustee may agree with the Company.
Assets held in trust by the Trustee need not be segregated from other assets
except to the extent required by law.
SECTION 6.02. Notice of Defaults. Within 30 days after a
Responsible Officer of the Trustee receives notice of the occurrence of any
Default with respect to any Notes, the Trustee shall, at the Company's expense,
transmit by mail to all Holders of such Notes or any other persons entitled to
receive reports pursuant to Trust Indenture Act Section 313(c), as their names
and addresses appear in the Note Register, notice of such Default, unless such
Default shall have been cured or waived; provided, however, that, except in the
case of a Default in the payment of the principal of, premium, if any, or
interest on any Note, the Trustee shall be protected in withholding such notice
if and so long as a Responsible Officer of the Trustee in good faith determines
that the withholding of such notice is in the interest of the Holders of such
Notes.
SECTION 6.03. Certain Rights of Trustee. Subject to the
provisions of Trust Indenture Act Sections 315(a) through 315(d):
(a) the Trustee may rely conclusively and shall be
protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned
herein shall be sufficiently evidenced by a Company Request or Company
Order and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
59
(c) wherever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to the taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) in
the absence of bad faith on its part, may rely conclusively, upon an
Officers' Certificate and/or an Opinion of Counsel;
(d) the Trustee may consult with counsel and any written
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon in accordance with such advice or Opinion of Counsel;
(e) notwithstanding any other provisions contained in
this Indenture, the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the
request or direction of any of the Holders pursuant to this Indenture,
unless such Holders shall have offered to the Trustee security or
indemnity satisfactory to the Trustee in its sole discretion against
the costs, expenses and liabilities which might be incurred therein or
thereby in compliance with such request or direction;
(f) the Trustee shall not be liable for any action taken
or omitted by it in good faith and believed by it to be authorized or
within the discretion, rights or powers conferred upon it by this
Indenture other than any liabilities arising out of the negligence or
wilful misconduct of the Trustee;
(g) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, approval, appraisal, bond, debenture, note,
coupon, security or other paper or document; but the Trustee in its
discretion may make such further inquiry or investigation in accordance
with any of the provisions of this Indenture into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine such
relevant books, records and premises of the Company as may be
reasonable, personally or by agent or attorney;
(h) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder; and
(i) no provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights and powers.
SECTION 6.04. Trustee Not Responsible for Recitals,
Dispositions of Notes or Application of Proceeds Thereof. The recitals contained
herein and in the Notes, except the Trustee's certificates of authentication,
shall be taken as the statements of the Company, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Indenture or the Notes, except that the
Trustee represents that
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it is duly authorized to execute and deliver this Indenture, authenticate the
Notes and perform its obligations hereunder and that the statements made by it
in a Statement of Eligibility and Qualification on Form T-1 supplied to the
Company are true and accurate subject to the qualifications set forth therein.
The Trustee shall not be accountable for the use or application by the Company
of Notes or the proceeds thereof.
SECTION 6.05. Trustee and Agents May Hold Notes; Collections;
etc. The Trustee, any Paying Agent, Note Registrar or any other agent of the
Company, in its individual or any other capacity, may become the owner or
pledgee of Notes, with the same rights it would have if it were not the Trustee,
Paying Agent, Note Registrar or such other agent and, subject to Trust Indenture
Act Sections 310 and 311, may otherwise deal with the Company and receive,
collect, hold and retain collections from the Company with the same rights it
would have if it were not the Trustee, Paying Agent, Note Registrar or such
other agent.
SECTION 6.06. Money Held in Trust. All moneys received by the
Trustee shall, until used or applied as herein provided, be held in trust for
the purposes for which they were received, but need not be segregated from other
funds except to the extent required by mandatory provisions of law. Except for
funds or securities deposited with the Trustee pursuant to Article IV, the
Trustee shall only be required to invest moneys received by the Trustee, until
used or applied as herein provided, in Temporary Cash Investments in accordance
with the directions of the Company.
SECTION 6.07. Compensation and Indemnification of Trustee and
Its Prior Claim. The Company covenants and agrees to pay to the Trustee from
time to time, and the Trustee shall be entitled to, reasonable compensation for
all services rendered by it hereunder (which, to the extent lawful, shall not be
limited by any provision of law in regard to the compensation of a trustee of an
express trust) and the Company covenants and agrees to pay or reimburse the
Trustee and each predecessor Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by or on behalf of it in
accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its counsel and of
all agents and other persons not regularly in its employ) except any such
expense, disbursement or advance as may arise from its negligence, bad faith or
wilful misconduct. When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 5.01(g) or Section
5.01(h), the expenses (including the reasonable compensation and the expenses
and disbursements of its counsel) and the compensation for the services are
intended to constitute expenses of administration under any applicable Federal
or state bankruptcy, insolvency or other similar law. The Company also covenants
to indemnify the Trustee and each predecessor Trustee, and their respective
officers, agents and employees for, and to hold them harmless against, any
claim, loss, liability, tax, assessment or other governmental charge (other than
taxes applicable to the Trustee's compensation hereunder) or expense incurred
without negligence, bad faith or wilful misconduct on its part, arising out of
or in connection with the acceptance or administration of this Indenture or the
trusts hereunder and its duties hereunder, including enforcement of this Section
and also including any liability which the Trustee may incur as a result of
failure to withhold, pay or report any tax, assessment or other governmental
charge, and the costs and expenses of defending itself against or investigating
any claim of liability in the premises. The obligations of the Company under
this Section to compensate and indemnify the Trustee and each predecessor
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Trustee and to pay or reimburse the Trustee and each predecessor Trustee for
expenses, disbursements and advances shall constitute an additional obligation
hereunder and shall survive the satisfaction and discharge of this Indenture and
the resignation or removal of the Trustee and each predecessor Trustee. As
security for the performance of the obligations of the Company under this
Section, the Trustee shall have a lien prior to the Notes upon all property and
funds held or collected by the Trustee as such, except funds held in trust for
the benefit of Holders of particular Notes.
SECTION 6.08. Conflicting Interests. The Trustee shall comply
with the provisions of Section 310(b) of the Trust Indenture Act. Nothing herein
shall prevent the Trustee from filing with the Commission the application
referred to in the second to last paragraph of Section 310(b) of the Trust
Indenture Act.
SECTION 6.09. Corporate Trustee Required; Eligibility. There
shall at all times be a Trustee hereunder which shall be eligible to act as
Trustee under the Trust Indenture Act Section 310(a)(1) and which shall have a
combined capital and surplus of at least $100,000,000, and have a Corporate
Trust Office in The City of New York to the extent there is such an institution
eligible and willing to serve. If the Trustee does not have an office in The
City of New York, the Trustee shall appoint an agent in The City of New York
reasonably acceptable to the Company to conduct any activities which the Trustee
is required under this Indenture to conduct in The City of New York. The Trustee
may not rescind any such agency without the consent of the Company, which
consent may not be unreasonably withheld, unless the Trustee appoints a
satisfactory replacement or has a Corporate Trust Office in The City of New
York. If such corporation publishes reports of condition at least annually,
pursuant to law or to the requirements of Federal, state, territorial or
District of Columbia supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, the Trustee shall
resign immediately in the manner and with the effect hereinafter specified in
this Article.
SECTION 6.10. Resignation and Removal; Appointment of
Successor Trustee. (a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee under
Section 6.11.
(b) The Trustee, or any trustee or trustees hereafter
appointed, may at any time resign with respect to any Notes by giving written
notice thereof to the Company. Upon receiving such notice of resignation, the
Company shall use its best efforts to promptly appoint a successor Trustee by
Board Resolution or written instrument executed by authority of the Board of
Directors, a copy of which shall be delivered to the resigning Trustee and a
copy to the successor Trustee. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee within 30 days after the
giving of such notice of resignation, the resigning Trustee may, or any Holder
who has been a bona fide Holder of a Note for at least six months may, on behalf
of himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Trustee. Such court may
thereupon, after such notice, if any, as it may deem proper, appoint a successor
Trustee.
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(c) The Trustee may be removed with respect to any Notes
at any time by an Act of the Holders of not less than a majority in aggregate
principal amount of the Outstanding Notes, delivered to the Trustee and to the
Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions
of Trust Indenture Act Section 310(b) with respect to any Notes after
written request therefor by the Company or by any Holder who has been a
bona fide Holder of a Note for at least six months, or
(2) the Trustee shall cease to be eligible under Section
6.09 with respect to any Notes and shall fail to resign after written
request therefor by the Company or by any such Holder, or
(3) the Trustee shall become incapable of acting with
respect to any Notes or shall be adjudged a bankrupt or insolvent, or a
receiver of the Trustee or of its property shall be appointed or any
public officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation,
then, in any case, (i) the Company by a Board Resolution may remove the Trustee,
with respect to any Notes or in the case of bankruptcy or insolvency or
receivership pursuant to clause (3) above, with respect to all Notes, or (ii)
subject to Section 5.14, any Holder of any Note who has been a bona fide Holder
of a Note for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee with respect to the
Notes, or in the case of bankruptcy or insolvency or receivership pursuant to
clause (3) above, with respect to all Notes. Such court may thereupon, after
such notice, if any, as it may deem proper, remove the Trustee and appoint a
successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting with respect to any Notes, or if a vacancy shall occur in
the office of Trustee with respect to any Notes for any cause, the Company, by a
Board Resolution or written instrument executed by authority of the Board of
Directors, shall use its best efforts to promptly appoint a successor Trustee
for such Notes and shall comply with the applicable requirements of Section
6.11. If, within one year after such resignation, removal or incapability, or
the occurrence of such vacancy, the Company or a court of competent jurisdiction
has not appointed a successor Trustee, a successor Trustee with respect to such
Notes shall be appointed by Act of the Holders of a majority in principal amount
of the Outstanding Notes delivered to the Company and the retiring Trustee, and
the successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee with respect to such Notes and
supersede the successor Trustee appointed by the Company with respect to such
Notes. If no successor Trustee shall have been so appointed by the Company or
the Holders of such Notes and accepted appointment in the manner hereinafter
provided, any Holder of a Note who has been a bona fide Holder of a Note for at
least six months may, subject to Section 5.14, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to such Notes.
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(f) The Company shall give notice of each resignation and
each removal of the Trustee with respect to any Notes and each appointment of a
successor Trustee with respect to any Notes by mailing written notice of such
event by first-class mail, postage prepaid, to the Holders of Notes as their
names and addresses appear in the Note Register. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office or
agent hereunder.
SECTION 6.11. Acceptance of Appointment by Successor. In case
of the appointment hereunder of a successor Trustee with respect to the Notes,
every such successor Trustee so appointed shall execute, acknowledge and deliver
to the Company and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee under this Indenture with respect to any such
Notes; but, nevertheless, on the written request of the Company or the successor
Trustee, upon payment of its charges then unpaid, such retiring Trustee shall
pay over to the successor Trustee all moneys at the time held by it hereunder
with respect to any such Notes and shall execute and deliver an instrument
transferring to such successor Trustee all such rights, powers, duties and
obligations.
Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights and powers. Any Trustee
ceasing to act shall, nevertheless, retain a prior claim upon all property or
funds held or collected by such Trustee or such successor Trustee to secure any
amounts then due such Trustee pursuant to the provisions of Section 6.07.
No successor Trustee with respect to the Notes shall accept
appointment as provided in this Section unless at the time of such acceptance
such successor Trustee shall be eligible to act as Trustee under the provisions
of Trust Indenture Act Section 310(a) and this Article VI and shall have a
combined capital and surplus of at least $100,000,000 and have a Corporate Trust
Office or an agent selected in accordance with Section 6.09 in The City of New
York.
Upon acceptance of appointment by any successor Trustee as
provided in this Section, the Company shall give notice thereof to the Holders
of the Notes, by mailing such notice to such Holders at their addresses as they
shall appear on the Note Register. If the acceptance of appointment is
substantially contemporaneous with the resignation, then the notice called for
by the preceding sentence may be combined with the notice called for by Section
6.10. If the Company fails to give such notice within 10 days after acceptance
of appointment by the successor Trustee, the successor Trustee shall cause such
notice to be given at the expense of the Company.
SECTION 6.12. Merger, Conversion, Consolidation or Succession
to Business. Any Person into which the Trustee may be merged or converted or
with which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any Person
succeeding to all or substantially all of the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, without the execution
or filing of any paper or any further act on the part of any of the parties
hereto; provided such
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Person shall be eligible under Trust Indenture Act Section 310(a) and this
Article VI and shall have a combined capital and surplus of at least
$100,000,000.
In case at the time such successor to the Trustee shall
succeed to the trusts created by this Indenture any of the Notes shall have been
authenticated but not delivered, any such successor to the Trustee may adopt the
certificate of authentication of any predecessor Trustee and deliver such Notes
so authenticated; and, in case at that time any of the Notes shall not have been
authenticated, any successor to the Trustee may authenticate such Notes either
in the name of any predecessor hereunder or in the name of the successor
Trustee. In all such cases such certificates shall have the full force and
effect which this Indenture provides for the certificate of authentication of
the Trustee; provided that the right to adopt the certificate of authentication
of any predecessor Trustee or to authenticate Notes in the name of any
predecessor Trustee shall apply only to its successor or successors by merger,
amalgamation, conversion or consolidation.
SECTION 6.13. Preferential Collection of Claims Against the
Company. If and when the Trustee shall be or become a creditor of the Company,
the Trustee shall be subject to the provisions of the Trust Indenture Act
regarding the collection of claims against the Company.
ARTICLE VII
Holders' Lists and Reports by Trustee and the Company
SECTION 7.01. Company to Furnish Trustee Names and Addresses
of Holders. The Company will furnish or cause to be furnished to the Trustee:
(a) semiannually, not more than 10 days after each
Regular Record Date, a list, in such form as the Trustee may reasonably
require, of the names and addresses of the Holders of Notes as of such
Regular Record Date; and
(b) at such other times as the Trustee may reasonably
request in writing, within 30 days after receipt by the Company of any
such request, a list of similar form and content to that in subsection
(a) hereof as of a date not more than 15 days prior to the time such
list is furnished;
provided, however, that if and so long as the Trustee shall be the Note
Registrar for Notes, no such list need be furnished with respect to such Notes.
SECTION 7.02. Disclosure of Names and Addresses of Holders.
Every Holder of Notes, by receiving and holding the same, agrees with the
Company and the Trustee that neither the Company nor the Trustee or any agent of
either of them shall be held accountable by reason of the disclosure of any
information as to the names and addresses of the Holders in accordance with
Trust Indenture Act Section 312, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable or
liable by reason of mailing any material pursuant to a request made under Trust
Indenture Act Section 312.
SECTION 7.03. Reports by Trustee. (a) Within 60 days after May
15 of each year commencing with the first May 15 after the issuance of Notes,
the Trustee shall transmit by
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mail, at the Company's expense, to all Holders, as their names and addresses
appear in the Note Register, as provided in Trust Indenture Act Section 313(c),
a brief report dated as of such May 15 in accordance with and with respect to
the matters required by Trust Indenture Act Section 313(a).
(b) The Trustee shall promptly transmit to the Company a
copy of any report it transmits to Holders of such Notes pursuant to this
Section.
SECTION 7.04. Reports by the Company. The Company shall do the
following:
(a) file with the Trustee, in accordance with Section
10.17 hereof, and in any event within 30 days after the Company is
required to file the same with the Commission, copies of the annual
reports and of the information, documents and other reports (or copies
of such portions of any of the foregoing as the Commission may from
time to time by rules and regulations prescribe) which the Company is
required to file with the Commission separately or together with the
Note Guarantors pursuant to Section 13 or Section 15(d) of the Exchange
Act; or, if the Company is not required to file information, documents
or reports pursuant to either of said Sections, then it shall (i)
deliver to the Trustee annual audited financial statements of the
Company and its Restricted Subsidiaries, prepared on a Consolidated
basis in conformity with GAAP, within 120 days after the end of each
fiscal year of the Company, and (ii) file with the Trustee and the
Commission, in accordance with, and so long as not prohibited by, the
rules and regulations prescribed from time to time by the Commission,
such of the supplementary and periodic information, documents and
reports which may be required pursuant to Section 13 of the Exchange
Act in respect of a security listed and registered on a national
securities exchange as may be prescribed from time to time in such
rules and regulations;
(b) file with the Trustee and the Commission, in
accordance with the rules and regulations prescribed from time to time
by the Commission, such additional information, documents and reports
with respect to compliance by the Company with the conditions and
covenants of this Indenture as is required from time to time by such
rules and regulations (including such rules and regulations, if any,
referred to in Trust Indenture Act Section 314(a)); and
(c) transmit by mail to all Holders or any other persons
entitled to receive a report pursuant to Trust Indenture Act Section
313(c), within 30 days after the filing thereof with the Trustee, in
the manner and to the extent provided in Trust Indenture Act Section
313(c), such summaries of any information, documents and reports
required to be filed by the Company pursuant to Section 10.17 hereunder
and subsections (a) and (b) of this Section as are required and not
prohibited by rules and regulations prescribed from time to time by the
Commission.
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ARTICLE VIII
Consolidation, Merger, Sale of Assets
SECTION 8.01. Company May Merge, Consolidate, etc., Only on
Certain Terms. (a) The Company shall not, in a single transaction or a series of
related transactions, consolidate with, amalgamate or merge with or into any
other Person or sell, assign, convey, transfer, lease or otherwise dispose of
all or substantially all of its properties and assets to any Person or group of
Affiliated Persons, or permit any of its Restricted Subsidiaries to enter into
any such transaction or transactions (other than, in the case of a Restricted
Subsidiary, such a consolidation, amalgamation, merger or transfer with or to
one or more Restricted Subsidiaries) if such transaction or transactions, in the
aggregate, would result in a sale, assignment, conveyance, transfer, lease or
disposition of all or substantially all of the properties and assets of the
Company and its Restricted Subsidiaries on a Consolidated basis to any other
Person or group of Affiliated Persons, unless at the time and after giving
effect thereto:
(i) either (a) the Company shall be the continuing
corporation or (b) the Person (if other than the Company) formed by
such consolidation or into which the Company is merged or amalgamated
or the Person which acquires by sale, assignment, conveyance, transfer,
lease or disposition all or substantially all of the properties and
assets of the Company and its Restricted Subsidiaries on a Consolidated
basis (the "Surviving Entity") shall be a corporation duly organized
and validly existing under the laws of Canada or any province thereof
or of the United States of America, any state thereof or the District
of Columbia and shall expressly assume, by a supplemental Indenture
hereto (and to the extent necessary, a supplemental Security
Agreement), executed and delivered to the Trustee, in form and
substance reasonably satisfactory to the Trustee, all the obligations
of the Company under the Notes and this Indenture and the Security
Agreement, and this Indenture and the Security Agreement (and the
Trustee's security interest in the Senior Notes Collateral) will remain
in full force and effect;
(ii) immediately before and immediately after giving
effect to such transaction on a pro forma basis, no Default or Event of
Default shall have occurred and be continuing;
(iii) immediately after giving effect to the transaction on
a pro forma basis, the Consolidated Net Worth of the Surviving Entity
is not less than the Consolidated Net Worth of the Company and the
Restricted Subsidiaries immediately prior to the transaction;
(iv) if any of the property or assets of the Company or
any of its Restricted Subsidiaries would thereupon become subject to
any Lien, the provisions of Section 10.11 are complied with; and
(v) the Company or the Surviving Entity shall have
delivered, or caused to be delivered, to the Trustee, in form and
substance reasonably satisfactory to the Trustee, an Officers'
Certificate and an Opinion of Counsel, each to the effect that such
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consolidation, merger, amalgamation, transfer, sale, assignment, lease
or other transaction and the supplemental Indenture in respect thereof
comply with the provisions described in this Section 8.01(a) and that
all conditions precedent herein provided for in this Section 8.01(a)
relating to such transaction have been complied with.
(b) None of the Note Guarantors will, in a single
transaction or series of related transactions, consolidate with or merge or
amalgamate with or into any other Person (other than the Company, in which case
the requirements of the foregoing paragraph would apply), or sell, assign,
convey, transfer, lease or otherwise dispose of all or substantially all of its
properties and assets on a Consolidated basis to any Person (other than the
Company) if such transaction or transactions, in the aggregate, would result in
a sale, assignment, conveyance, transfer, lease or disposition of all or
substantially all of the properties and assets of any such Note Guarantor to any
other Person or group of Affiliated Persons, unless at the time and after giving
effect thereto:
(i) either (a) such Note Guarantor shall be the
continuing corporation or (b) the Person (if other than such Note
Guarantor) formed by such consolidation or into which any such Note
Guarantor is merged or amalgamated or the Person which acquires by
sale, assignment, conveyance, transfer, lease or disposition all or
substantially all of the properties and assets of such Note Guarantor
shall be a corporation duly organized and validly existing under the
laws of Canada or any province thereof or the United States of America,
any state thereof or the District of Columbia and shall (except where
the Note Guarantor is the continuing corporation) expressly assume, by
a supplemental Indenture hereto (and, to the extent necessary, a
supplemental Security Agreement and supplemental Support Agreement),
executed and delivered to the Trustee, in form and substance reasonably
satisfactory to the Trustee, all the obligations of such Note Guarantor
under the Notes, this Indenture, the Security Agreement and the Support
Agreement (as applicable), and this Indenture, the Security Agreement
(and the Trustee's security interest in the Senior Notes Collateral)
and Support Agreement (as applicable) shall remain in full force and
effect;
(ii) immediately before and immediately after giving
effect to such transaction on a pro forma basis, no Default or Event of
Default shall have occurred and be continuing; and
(iii) such Note Guarantor shall have delivered, or caused
to be delivered, to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger, amalgamation,
sale, assignment, conveyance, transfer, lease or other transaction and
the supplemental Indenture in respect thereof (and, to the extent
necessary, such supplemental Security Agreement and supplemental
Support Agreement) comply with the provisions described in this Section
8.01(b), and that all conditions precedent herein provided for in this
Section 8.01(b) relating to such transactions have been complied with.
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(c) Notwithstanding anything in this Article Eight to the
contrary, any Guarantee by a Restricted Subsidiary of the Notes may be released
in accordance with the provisions of Section 10.12(b).
SECTION 8.02. Successor Substituted. Upon any consolidation,
amalgamation or merger, or any sale, assignment, conveyance, transfer, lease or
disposition of all or substantially all of the properties and assets on a
Consolidated basis of the Company or any Note Guarantor in accordance with
Section 8.01 with respect to which the Company or any Note Guarantor is not the
continuing corporation, the successor Person formed by such consolidation or
into which the Company or such Note Guarantor is merged or the successor Person
to which such sale, assignment, conveyance, transfer, lease or disposition is
made shall succeed to, and be substituted for, and may exercise every right and
power of, the Company or such Note Guarantor, as the case may be, under this
Indenture, with the same effect as if such successor had been named as the
Company or a Note Guarantor, as the case may be, herein. When a successor
assumes all the obligations and covenants of its predecessor under this
Indenture or the Notes, the predecessor shall be released from those obligations
and covenants; provided that, in the case of a transfer by lease, the
predecessor shall not be released from the payment of principal and interest on
the Notes or, in the case of a Note Guarantor, its Guarantee.
Any successor to the Company described in the foregoing
paragraph may cause to be signed, and may issue either in its own name or in the
name of the Company, any or all of the Notes issuable hereunder which
theretofore shall not have been signed by the Company and delivered to the
Trustee; and, upon the order of such successor, instead of the Company, and
subject to all the terms, conditions and limitations in this Indenture
prescribed, the Trustee shall authenticate and shall deliver any Notes which
previously shall have been signed and delivered by the officers of the Company
to the Trustee for authentication, and any Notes which such successor thereafter
shall cause to be signed and delivered to the Trustee for that purpose. All the
Notes so issued shall in all respects have the same legal rank and benefit under
this Indenture as the Notes theretofore or thereafter issued in accordance with
the terms of this Indenture as though all of such Notes had been issued at the
date of the execution of this Indenture.
ARTICLE IX
Supplemental Indentures
SECTION 9.01. Supplemental Indentures and Agreements Without
Consent of Holders. Without the consent of any Holders of the Notes, the
Company, each Note Guarantor and the Trustee, at any time and from time to time,
may enter into one or more Indentures supplemental hereto, in form and substance
reasonably satisfactory to the Trustee, for any of the following purposes:
(a) to cure any ambiguity or to correct or supplement any
provision in this Indenture or the Notes which may be defective or
inconsistent with any other provision in this Indenture or the Notes;
69
(b) to evidence the succession of another Person to the
Company or any Note Guarantor, and the assumption by any such successor
of the covenants of the Company or such Note Guarantor, as the case may
be, herein and in the Notes;
(c) to provide for uncertificated Notes in addition to or
in place of certificated Notes;
(d) to add Guarantees with respect to the Notes or
release Guarantees as provided by the terms of this Indenture;
(e) to mortgage, pledge, hypothecate or grant a security
interest in favor of the Trustee for the benefit of the Holders as
additional security, pursuant to the requirements of Section 10.11,
Article XIV, the Security Agreement or otherwise, for the payment and
performance of the Indenture Obligations, in any property or assets,
including any which are required to be mortgaged, pledged or
hypothecated, or in which a security interest is required to be
granted, to the Trustee pursuant to this Indenture, the Security
Agreement or otherwise;
(f) to add to the covenants of the Company or its
Restricted Subsidiaries, as applicable, for the benefit of the Holders
of the Notes (and if such covenants or the surrender of such right or
power are to be for the benefit of less than all Notes, stating that
such covenants are expressly being included or such surrenders are
expressly being made solely for the benefit of one or more specified
Notes), or to surrender any right or power conferred upon the Company
or its Restricted Subsidiaries by this Indenture or the Notes;
(g) to comply with the requirements of the Commission in
order to effect or maintain the qualification of this Indenture under
the Trust Indenture Act, as contemplated by Section 9.05 or otherwise;
(h) if necessary, to effect any addition or release of
Senior Notes Collateral permitted under this Indenture or the Security
Agreement;
(i) to evidence and provide the acceptance of the
appointment of a successor Trustee hereunder;
(j) to clarify or make any other provisions with respect
to matters or questions arising under this Indenture or the Notes;
provided that, in each case, such clarification or provision thus made
shall not adversely affect the interests of the Holders; and
(k) to establish any form of Note, as provided in Article
Two, and to provide for the issuance of any Notes as provided in
Article Three and to set forth the terms thereof, and/or to add to the
rights of the Holders of the Notes.
SECTION 9.02. Supplemental Indentures and Agreements with
Consent of Holders. Except as permitted by Section 9.01, with the consent of the
Holders of not less than a majority in aggregate principal amount of the
Outstanding Notes affected by such supplemental indenture or indentures, by Act
of said Holders delivered to the Company and the Trustee, the
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Company and each Note Guarantor (if a party thereto) and the Trustee may (i)
enter into an indenture or indentures supplemental hereto, in form and substance
reasonably satisfactory to the Trustee, for the purpose of adding any provisions
to or amending, modifying or changing in any manner or eliminating any of the
provisions of this Indenture or the Notes (including, but not limited to, for
the purpose of modifying in any manner the rights of the Holders of the Notes
under this Indenture), (ii) modify or amend the Intercreditor Agreement, the
Support Agreement, and the Security Agreement (except as otherwise provided
therein) or (iii) waive compliance with any provision in this Indenture, the
Notes (other than waivers of past Defaults covered by Section 5.13 and waivers
of covenants which are covered by Section 10.19), the Intercreditor Agreement,
the Support Agreement and the Security Agreement; provided, however, that no
such supplemental indenture, agreement or instrument shall, without the consent
of the Holder of each outstanding Note affected thereby:
(a) change the Stated Maturity of the principal of, or
any installment of interest on, any Notes or waive a default in the
payment of the principal or interest on any Note or reduce the
principal amount thereof or the rate of interest thereon or any premium
payable upon the redemption thereof, or change the coin or currency in
which the principal of any Note or any premium or the interest thereon
is payable, or impair the right to institute suit for the enforcement
of any such payment after the Stated Maturity thereof;
(b) amend, change or modify the obligation of the Company
to make and consummate a Change of Control Offer in the event of a
Change of Control in accordance with Section 10.14, including amending,
changing or modifying any of the provisions or definitions with respect
thereto;
(c) reduce the percentage in principal amount of the
Outstanding Notes, the consent of whose Holders is required for any
such supplemental indenture or the consent of whose Holders is required
for any waiver of compliance with certain provisions of this Indenture
or certain Defaults hereunder and their consequences provided for in
this Indenture or for any modifications or amendments to the
Intercreditor Agreement, the Support Agreement or the Security
Agreement;
(d) modify any of the provisions of this Section or
Section 5.13 or 10.19, except to increase the percentage of Outstanding
Notes required for such actions or to provide that certain other
provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Note affected thereby;
(e) except as otherwise permitted under Article VIII,
consent to the assignment or transfer by the Company or RMI of any of
its respective rights and obligations under this Indenture; or
(f) amend or modify any of the provisions of (i) this
Indenture relating to the ranking of the Notes or any guarantee in any
manner adverse to the Holders or (ii) the International Subordination
Agreement or the RMI Subordination Agreement relating to the
Indebtedness of NBI and the Company under or in respect of the
International
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Intercompany Note and of the Company under the Support Agreement,
respectively, in any manner adverse to the Holders.
Upon the written request of the Company, accompanied by a copy
of a Board Resolution authorizing the execution of any such supplemental
indenture, and upon the filing with the Trustee of evidence of the consent of
Holders as aforesaid, the Trustee shall join with the Company in the execution
of such supplemental indenture.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture or
agreement, but it shall be sufficient if such Act shall approve the substance
thereof.
SECTION 9.03. Execution of Supplemental Indentures and
Agreements. In executing, or accepting the additional trusts created by, any
supplemental indenture, agreement or instrument permitted by this Article or the
modifications thereby of the trusts created by this Indenture, the Trustee shall
be entitled to receive, and (subject to Trust Indenture Act Section 315(a)
through 315(d) and Section 6.03 hereof) shall be fully protected in relying
upon, an Opinion of Counsel and an Officers' Certificate to the effect that the
execution of such supplemental indenture, agreement or instrument is authorized
or permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture, agreement or instrument which
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
SECTION 9.04. Effect of Supplemental Indentures. Upon the
execution of any supplemental indenture under this Article, this Indenture shall
be modified in accordance therewith, and such supplemental indenture shall form
a part of this Indenture for all purposes; and every Holder of Notes theretofore
or thereafter authenticated and delivered hereunder shall be bound thereby.
SECTION 9.05. Conformity with Trust Indenture Act. Every
supplemental indenture executed pursuant to this Article shall conform to the
requirements of the Trust Indenture Act as then in effect.
SECTION 9.06. Reference in Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article IX may, and shall if required by the Trustee,
bear a notation in form approved by the Trustee as to any matter provided for in
such supplemental indenture. If the Company shall so determine, new Notes
modified so as to conform to any such supplemental indenture, in the opinion of
the Trustee and the Board of Directors, may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
outstanding Notes.
SECTION 9.07. Record Date. If the Company shall solicit from
the Holders of any Notes any request, demand, authorization, direction, notice,
consent, waiver or other Act, the Company may, but shall not be obligated to,
fix a record date for the purpose of determining the Holders of the Notes
entitled to consent to any supplemental indenture, agreement or instrument or
any waiver, and shall promptly notify the Trustee of any such record date. If a
record date is fixed, those Persons who were Holders of the Notes at such record
date (or their duly designated
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proxies), and only those Persons, shall be entitled to consent to such
supplemental indenture, agreement or instrument or waiver or to revoke any
consent previously given, whether or not such Persons continue to be Holders
after such record date. The record date shall be a date no more than 30 days
prior to the first solicitation of Holders generally in connection therewith and
no later than the date such solicitation is completed. No such consent shall be
valid or effective for more than six months after such record date. Subject to
applicable law, until any supplemental indenture, agreement, instrument or
waiver becomes effective, or a consent to it by a Holder of a Note shall cease
to be valid and effective as set forth in the preceding sentence, such consent
is a continuing consent by the Holder and every subsequent Holder of a Note or
portion of a Note that evidences the same debt as the consenting Holder's Note.
ARTICLE X
Covenants
SECTION 10.01. Payment of Principal, Premium and Interest.
With respect to each Note, the Company will duly and punctually pay the
principal of, premium, if any, and interest on such Note in accordance with the
terms of such Note and this Indenture.
SECTION 10.02. Maintenance of Office or Agency. The Company
will maintain in The City of New York an office or agency where Notes may be
presented or surrendered for payment, where Notes may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company in respect of the Notes and this Indenture may be served. The office
of the Trustee at 40 Broad Street, 5th Floor, New York, NY 10004, shall be such
office or agency of the Company, unless the Company shall designate and maintain
some other office or agency for one or more of such purposes. The Company will
give prompt written notice to the Trustee of any change in the location of any
such office or agency. If at any time the Company shall fail to maintain any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands.
The Company may from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Notes may
be presented or surrendered for any or all such purposes, and may from time to
time rescind such designation; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to maintain
an office or agency in The City of New York for such purposes. The Company will
give prompt written notice to the Trustee of any such designation or rescission
and any change in the location of any such office or agency.
SECTION 10.03. Money for Note Payments to be Held in Trust.
The Company will, on or before Noon, New York time, on each due date of the
principal of, premium, if any, or interest on, the Notes, deposit with a Paying
Agent (which shall not be the Company) a sum in same-day funds sufficient to pay
the principal, premium, if any, or interest so becoming due, such sum to be held
in trust for the benefit of the Persons entitled to such principal, premium or
73
interest, and (unless such Paying Agent is the Trustee) the Company will
promptly notify the Trustee of such action or any failure so to act.
The Company will cause each Paying Agent other than the
Trustee to execute and deliver to the Trustee an instrument in which such Paying
Agent shall agree with the Trustee, subject to the provisions of this Section,
that such Paying Agent will:
(a) hold all sums held by it for the payment of the
principal of, premium, if any, or interest on, the Notes in trust for
the benefit of the Persons entitled thereto until such sums shall be
paid to such Persons or otherwise disposed of as herein provided;
(b) give the Trustee notice of any Default by the Company
(or any other obligor upon the Notes) in the making of any payment of
principal, premium, if any, or interest on the Notes;
(c) at any time during the continuance of any such
Default, upon the written request of the Trustee, forthwith pay to the
Trustee all sums so held in trust by such Paying Agent; and
(d) acknowledge, accept and agree to comply in all
aspects with the provisions of this Indenture relating to the duties,
rights and liabilities of such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture with respect to the Notes or for
any other purpose, by the Company Order direct any Paying Agent to pay to the
Trustee all sums held in trust by such Paying Agent in respect of the Notes as
to which it seeks to discharge this Indenture or, if for any other purpose, all
sums so held in trust by the Company in respect of all Notes, such sums to be
held by the Trustee upon the same trusts as those upon which such sums were held
by such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent in
trust for the payment of the principal of, premium, if any, or interest on any
Note and remaining unclaimed for two years after such principal and premium, if
any, or interest has become due and payable shall promptly be paid to the
Company upon Company Request; and the Holder of such Note shall thereafter, as
an unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such payment to the Company, may at the expense of the
Company cause to be published once, in The New York Times and The Wall Street
Journal (national edition), notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days from the
date of such notification or publication, any unclaimed balance of such money
then remaining will promptly be repaid to the Company.
SECTION 10.04. Corporate Existence. Subject to Article VIII,
the Company will do or cause to be done all things necessary to preserve and
keep in full force and effect its
74
corporate existence and related rights and franchises (charter and statutory) of
the Company and each Restricted Subsidiary; provided, however, that the Company
shall not be required to preserve any such right or franchise or the corporate
existence of any such Restricted Subsidiary if the Board of Directors shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and its Restricted Subsidiaries as a whole and that
the loss thereof would not reasonably be expected to have a material adverse
effect on the ability of the Company to perform its obligations hereunder; and
provided further, however, that the foregoing shall not prohibit a sale,
transfer or conveyance of a Restricted Subsidiary or any of its assets in
compliance with the terms of this Indenture.
SECTION 10.05. Payment of Taxes and Other Claims. The Company
will pay or discharge or cause to be paid or discharged, on or before the date
the same shall become due and payable, (a) all material taxes, assessments and
governmental charges levied or imposed upon the Company or any Restricted
Subsidiary shown to be due on any tax return of the Company or any Restricted
Subsidiary or otherwise assessed or upon the income, profits or property of the
Company or any Restricted Subsidiary and (b) all material lawful claims for
labor, materials and supplies, which, if unpaid, would by law become a Lien upon
the property of the Company or any Restricted Subsidiary, except for any Lien
permitted to be Incurred under Section 10.11; provided, however, that the
Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings properly
instituted and diligently conducted and in respect of which appropriate reserves
(in the good-faith judgment of management of the Company) are being maintained
in accordance with GAAP consistently applied.
SECTION 10.06. Maintenance of Properties. The Company will
cause all material properties owned by the Company or any Restricted Subsidiary
or used or held for use in the conduct of its business or the business of any
Restricted Subsidiary to be maintained and kept in good condition, repair and
working order (ordinary wear and tear excepted) and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be consistent with sound business practice and reasonably
necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section shall prevent the Company from discontinuing the
maintenance of any of such properties if such discontinuance is, in the judgment
of the Company, desirable in the conduct of the business of the Company and its
Restricted Subsidiaries and not reasonably expected to have a material adverse
effect on the ability of the Company to perform its obligations hereunder.
SECTION 10.07. Insurance. The Company will at all times keep
all of its and its Restricted Subsidiaries' properties which are of an insurable
nature reasonably self-insured or insured with insurers, believed by the Company
to be responsible, against loss or damage to the extent that property of similar
character is usually so insured by corporations similarly situated and owning
like properties in the same general geographic areas in which the Company and
its Restricted Subsidiaries operate, except where the failure to do so would not
reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), earnings, business affairs or prospects of the Company
and its Restricted Subsidiaries, taken as a whole.
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SECTION 10.08. Limitation on Indebtedness. The Company will
not, and will not permit any of its Restricted Subsidiaries to, Incur any
Indebtedness, including any Acquired Indebtedness, but excluding any Permitted
Indebtedness.
SECTION 10.09. Limitation on Restricted Payments. (a) The
Company will not, and will not permit any Restricted Subsidiary to, directly or
indirectly:
(i) declare or pay any dividend or make any other
distribution or payment on or in respect of the Company's Capital Stock
(including dividends or distributions of the Capital Stock of any
Subsidiary), or make any other payment to the direct or indirect
holders (in their capacities as such) of the Company's Capital Stock
(other than (x) the Permitted Distribution and (y) dividends or
distributions payable in shares of the Company's Qualified Capital
Stock or in options, warrants or other rights to acquire such Qualified
Capital Stock);
(ii) purchase, redeem or otherwise acquire or retire for
value, directly or indirectly, any Capital Stock of the Company or any
Capital Stock of any Affiliate of the Company (other than Capital Stock
of any Restricted Subsidiary or Capital Stock of a Person that is, or
immediately following such repurchase will become, a Restricted
Subsidiary), or options, warrants or other rights to acquire such
Capital Stock;
(iii) make any principal payment on, or repurchase, redeem,
defease, retire or otherwise acquire for value, prior to any scheduled
principal payment, sinking fund payment or maturity, any Subordinated
Indebtedness (other than Subordinated Indebtedness owing by the Company
to any Restricted Subsidiary, by any Restricted Subsidiary to the
Company or by any Restricted Subsidiary to any other Restricted
Subsidiary) or make any cash interest payment on the International
Intercompany Note;
(iv) declare or pay any dividend or distribution on any
Capital Stock of any Restricted Subsidiary to any Person (other than
(x) dividends and distributions on Preferred Stock of Restricted
Subsidiaries or (y) dividends and distributions made to any Person on a
pro rata basis consistent with the ownership interests in such Capital
Stock to the owners of such Capital Stock, except that, in the case of
the Capital Stock of a Restricted Subsidiary that has provided a
Guarantee, (i) no Default or Event of Default shall have occurred and
be continuing; and (ii) no holders of any other Indebtedness of the
Company or any Restricted Subsidiary shall have an Acceleration Right);
(v) Incur, create or assume any guarantee of Indebtedness
of any Affiliate of the Company (other than a Restricted Subsidiary of
the Company);
(vi) make any Restricted Investment in any Person; or
(vii) designate any Restricted Subsidiary as an
Unrestricted Subsidiary;
(any of the payments described in paragraphs (i) through (vii) above, other than
any such action that is a Permitted Payment (as defined below), collectively,
"Restricted Payments") unless at the time of and after giving effect to the
proposed Restricted Payment (the amount of any such Restricted Payment, if other
than cash, as determined by the Board of Directors, whose
76
determination shall be conclusive and evidenced by a Board Resolution), (1) no
Default or Event of Default shall have occurred and be continuing; (2) no
holders of any other Indebtedness of the Company or any Restricted Subsidiary
shall have an Acceleration Right; and (3) the aggregate amount expended by the
Company and its Restricted Subsidiary (provided that, in the case of a
Restricted Payment by a Restricted Subsidiary, such Restricted Payment is
calculated for the purposes of this paragraph (3) by multiplying the amount of
the Restricted Payment by the percentage of the Company's common equity interest
in such Restricted Subsidiary at the time of such Restricted Payment) in
connection with all Restricted Payments made subsequent to the Issue Date, taken
together with any payments made pursuant to paragraph (b)(viii) below, shall not
exceed the sum of (without duplication):
(A) 50% of the aggregate cumulative Adjusted Net Cash
Flow of the Company and its Restricted Subsidiaries accrued during the
period (treated as a single accounting period) beginning on the first
day of the Company's fiscal quarter commencing prior to the date of
this Indenture and ending on the last day of the Company's last fiscal
quarter ending prior to the date of the Restricted Payment; plus
(B) the aggregate Net Cash Proceeds received after the
date of this Indenture by the Company from the issuance or sale (other
than to any of its Restricted Subsidiaries) of its Qualified Capital
Stock or any options, warrants or rights to purchase such Qualified
Capital Stock (except, in each case, to the extent such proceeds are
used to purchase, redeem or otherwise retire Capital Stock or
Subordinated Indebtedness of the Company as set forth in (b)(iv) and
(b)(v) below); plus
(C) the aggregate Net Cash Proceeds received after the
date of this Indenture by the Company (other than from any of its
Restricted Subsidiaries) upon the exercise of any options or warrants
to purchase Qualified Capital Stock of the Company subsequent to the
Issue Date (except to the extent such proceeds are used to purchase,
redeem or otherwise retire Capital Stock or Subordinated Indebtedness
of the Company as set forth in (b)(iv) and (b)(v) below); plus
(D) the aggregate amount by which any Permitted
Indebtedness of the Company or any Restricted Subsidiary is reduced
after the date of this Indenture as a result of the conversion or
exchange of debt securities or Redeemable Capital Stock of the Company
that has been converted into or exchanged for Qualified Capital Stock
of the Company to the extent such debt securities or Redeemable Capital
Stock plus the aggregate Net Cash Proceeds received by the Company at
the time of any such conversion or exchange were originally sold for
cash; plus
(E) the aggregate Net Cash Proceeds received after the
Issue Date by the Company from cash capital contributions made to the
Company (other than from a Restricted Subsidiary, and other than cash
capital contributions made pursuant to the Support Agreement); plus
(F) the aggregate Net Cash Proceeds of any (x) sale or
other disposition of Restricted Investments (which Investment was made
after the Issue Date) made by the Company or a Restricted Subsidiary,
(y) dividends or other distributions, whether
77
liquidating or otherwise, from, or the sale of capital stock of, an
Unrestricted Subsidiary, or (z) dividends or other distributions,
whether liquidating or otherwise, from Restricted Investments (which
Investment was made after the Issue Date); plus
(G) with respect to any Unrestricted Subsidiary that is
redesignated by the Board of Directors as a Restricted Subsidiary, an
amount equal to the lower of (x) the fair market value (as determined
by a majority of the Independent Directors of the Board of Directors
and evidenced by a Board Resolution) of the Company's or a Restricted
Subsidiary's interest in such Unrestricted Subsidiary or (y) the amount
of the original Investment by the Company or such Restricted Subsidiary
in such Unrestricted Subsidiary plus any additional Investment made in
such Unrestricted Subsidiary after the date such Subsidiary was so
designated; provided that in determining the amount of the Investment
by the Company or such Restricted Subsidiary in (1) any Subsidiary
designated as an Unrestricted Subsidiary as of the date of this
Indenture, such amount shall be the fair market value of such
Unrestricted Subsidiary as at the date of this Indenture, (2) any
Restricted Subsidiary that is designated as an Unrestricted Subsidiary
after the date of this Indenture, such amount shall be the fair market
value of such Unrestricted Subsidiary as at the date of such
designation, and (3) any Investment made in an Unrestricted Subsidiary
after the date such Subsidiary was so designated, such amount shall be
equal to the cash amount so invested or the fair market value of any
property contributed; plus
(H) Cdn. $30,000,000.
The sum of the amounts provided for in clauses (3)(A) through (3)(H) above, less
the aggregate amount of Restricted Payments made by the Company and its
Restricted Subsidiaries, is referred to in this Indenture as the "RP Available
Amount."
(b) Notwithstanding the foregoing (and, in the case of
clauses (ii) through (viii) below, so long as (1) no Default or Event of Default
shall have occurred and be continuing or shall occur as a consequence of the
actions or payments set forth therein and (2) no holders of any other
Indebtedness of the Company or any Restricted Subsidiary have an Acceleration
Right), the foregoing provisions will not prohibit the following actions
(clauses (i) through (viii) of this subsection (b) being referred to as
"Permitted Payments"):
(i) the payment of any dividend or distribution within 60
days after the date of declaration thereof, if at such date of
declaration such payment would be permitted by the provisions of
paragraph (a) of this Section and such payment will be deemed to have
been paid on such date of declaration for purposes of the calculation
required by paragraph (a) of this Section;
(ii) the payment of any dividend or distribution on (1)
the Series II Preferred Shares (and any Capital Stock issued in
connection with the purchase, redemption, retirement or other
refinancing of the Series II Preferred Shares permitted under this
Indenture), in an amount not to exceed the aggregate dividends paid by
Hollinger International to the Company on Class A Common Stock that
corresponds to the number of shares of Class A Common Stock into which
the Series II Preferred Shares are
78
exchangeable and (2) the Series III Preferred Shares (and any Capital
Stock issued in connection with the purchase, redemption, retirement or
other refinancing of the Series III Preferred Shares permitted under
this Indenture), in an amount not to exceed Cdn. $9 million in any
calendar year;
(iii) the payment of any dividend or distribution on the
retractable common shares of the Company in an amount not to exceed the
aggregate cash amount received by the Company from RCL or RMI after the
Issue Date in the form of a Subordinated Intercompany Loan;
(iv) any repurchase, redemption or other acquisition or
retirement of any shares of Capital Stock of the Company in exchange
for (including any such exchange pursuant to the exercise of a
conversion right or privilege in connection with which cash is paid in
lieu of the issuance of fractional shares or scrip), or out of the Net
Cash Proceeds of a substantially concurrent issue and sale for cash
(other than to a Restricted Subsidiary) of, (A) other Qualified Capital
Stock of the Company or (B) in the case of a retraction of the
Company's retractable Capital Stock, shares of Class A common stock of
Hollinger International; provided that the Net Cash Proceeds from the
issuance of such shares of Qualified Capital Stock are excluded from
clauses (B) and (C) of paragraph (a) of this Section;
(v) any repurchase, redemption, defeasance, retirement or
acquisition for value or payment of principal of any Subordinated
Indebtedness in exchange for, or out of the net proceeds of, a
substantially concurrent issuance and sale for cash (other than to any
Restricted Subsidiary of the Company) of, any Qualified Capital Stock
of the Company; provided that the Net Cash Proceeds from the issuance
of such Qualified Capital Stock are excluded from clauses (B) and (C)
of paragraph (a) of this Section;
(vi) the repurchase, redemption, defeasance, retirement,
refinancing, acquisition for value or payment of principal of any
Subordinated Indebtedness (other than Redeemable Capital Stock) (a
"refinancing") through the issuance of new Subordinated Indebtedness of
the Company; provided that any such new Subordinated Indebtedness (1)
shall be in a principal amount that does not exceed the principal
amount so refinanced (or, if the Subordinated Indebtedness so
refinanced provides for an amount less than the principal amount
thereof to be due and payable upon a declaration or acceleration
thereof, then such lesser amount as of the date of determination), plus
the amount of any premium required to be paid in connection with such
refinancing pursuant to the terms of such refinanced Indebtedness and
any reasonable out-of-pocket expenses of the Company Incurred in
connection with such refinancing; (2) has an Average Life to Stated
Maturity greater than the remaining Average Life to Stated Maturity of
the Notes; (3) has a Stated Maturity for its final scheduled principal
payment later than the Stated Maturity for the final scheduled
principal payment of the Notes; and (4) is expressly subordinated in
right of payment to the Notes at least to the same extent as the
Indebtedness to be refinanced;
(vii) the repurchase, redemption, defeasance, retirement,
refinancing, acquisition for value or payment of redemption amount of
the Company's Series III
79
Preferred Shares through the issuance of either (1) new Subordinated
Indebtedness of the Company of which not more than 50% in principal
amount of such Subordinated Indebtedness has a Stated Maturity
occurring earlier than that of the Notes, (2) new Redeemable Capital
Stock of the Company, or (3) a combination of clauses (1) and (2)
above; provided, in each case, that such new Subordinated
Indebtedness or Redeemable Capital Stock or combination thereof shall
be in an aggregate principal amount or redemption amount, as the case
may be, that does not exceed the redemption amount of the Series III
Preferred Shares so refinanced plus any reasonable out-of-pocket
expenses of the Company Incurred in connection with such refinancing;
and
(viii) the repurchase, redemption, defeasance, retirement,
acquisition for value or payment of redemption amount of the Company's
Series III Preferred Shares (1) on the mandatory redemption date of
such shares on April 30, 2004 or (2) pursuant to the exercise by the
holder of such shares of the retraction right attached to such shares.
(c) For purposes of this Section, if the Board of
Directors designates a Restricted Subsidiary as an Unrestricted Subsidiary, a
"Restricted Payment" shall be deemed to have been made in an amount equal to the
fair value of the Investment of the Company and its other Restricted
Subsidiaries in such Unrestricted Subsidiary as determined by the Board of
Directors with the concurrence of a majority of the Independent Directors (there
being at least one Independent Director), whose good faith determination shall
be conclusive. If a particular Restricted Payment involves a non-cash payment,
including a distribution of assets, then such Restricted Payment shall be deemed
to be in an amount equal to the fair market value of the non-cash portion of
such Restricted Payment as determined by the Board of Directors, whose good
faith determination shall be conclusive.
SECTION 10.10. Limitation on Transactions with Affiliates. The
Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, enter into or suffer to exist any transaction or series
of related transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or services) with any Affiliate of the
Company (other than the Company or a Restricted Subsidiary) unless (a) such
transaction or series of related transactions is on terms that are no less
favorable to the Company or such Restricted Subsidiary, as the case may be, than
would be available in a comparable transaction in arm's-length dealings with an
unrelated third party and (b) with respect to any transaction or series of
related transactions involving aggregate payments in excess of $1,000,000, the
Company delivers an Officers' Certificate to the Trustee certifying that such
transaction or series of related transactions complies with clause (a) above and
such transaction or series of related transactions has been approved by a
majority of the Independent Directors of the Board of Directors (or, if the
Company ceases to be a public company, by a majority of the members of the Board
of Directors); provided that any transaction or series of related transactions
otherwise permitted under this paragraph (other than any transaction or series
of related transactions with respect to the making of any Restricted Payment
permitted pursuant to Section 10.09) pursuant to which the Company or any
Restricted Subsidiary shall receive or render value exceeding $5,000,000 shall
not be permitted unless, prior to the consummation of any such transaction or
series of related transactions, the Company shall have received an opinion, from
an independent nationally recognized investment banking firm or firm experienced
in the appraisal or similar
80
review of similar types of transactions, that such transaction is fair to the
Company from a financial point of view; provided further that this covenant
shall not apply to:
(i) transactions or agreements as in effect or securities
outstanding on the date of this Indenture (provided that any amendment
to any existing agreement, and any transaction pursuant to the Business
Opportunities Agreement, shall require approval pursuant to this
covenant; notwithstanding the foregoing, any amendment to the Services
Agreement or the Business Opportunities Agreement shall only require
the approval of a majority of the Independent Directors of the Board of
Directors);
(ii) directors' fees approved by the Board of Directors;
(iii) any employee benefit plan or arrangement entered into
or made available to officers or other employees of the Company or the
Restricted Subsidiaries in the ordinary course of business;
(iv) the performance by RMI, RCL, the Company and any
Restricted Subsidiary of their respective obligations under the Support
Agreement (and the related Contribution Agreement), the Security
Documents and this Indenture or the contribution by RMI or RCL of any
voluntary support amounts to the Company;
(v) for so long as the Company is a public company, any
sale to Hollinger International of shares of Capital Stock of Hollinger
International held by the Company or its Restricted Subsidiaries for
fair value (as determined by a majority of the Independent Directors of
the Board of Directors); and
(vi) a purchase by RMI or its Affiliates from the Company
or any of its Restricted Subsidiaries and substantially concurrent sale
in an arm's-length transaction by RMI or its Affiliates to a third
party (other than an Affiliate of the Company or RMI) or to Hollinger
International of shares of Capital Stock of Hollinger International
where the purchase and sale were undertaken at the same price and RMI
delivers an Officers' Certificate to the Trustee certifying that such
purchase and sale of such shares were undertaken at the same price.
SECTION 10.11. Limitation on Liens. (a) The Company will not,
and will not permit any Restricted Subsidiary to, create, incur, assume or
suffer to exist any Lien on any of its assets or properties of any character, or
any shares of Capital Stock or Indebtedness of any Restricted Subsidiary,
without making effective provision for all of the Notes and all other amounts
due under this Indenture to be directly secured equally and ratably with (or, if
the obligation or liability to be secured by such Lien is subordinated in right
of payment to the Notes, prior to) the obligation or liability secured by such
Lien.
(b) The foregoing limitation does not apply to:
(i) Liens (other than on the Capital Stock of NBI (until
and unless the NBI Guarantee shall have been released in accordance
with this Indenture) or any of the Senior Notes Collateral) securing
Indebtedness incurred under the Credit Facility that is permitted to be
incurred under the definition of "Permitted Indebtedness";
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(ii) Liens existing on the Issue Date;
(iii) Liens granted after the Issue Date on any assets or
Capital Stock of the Company or its Restricted Subsidiaries created in
favor of the Holders;
(iv) Liens with respect to the assets of a Restricted
Subsidiary granted by such Restricted Subsidiary to the Company or a
Restricted Subsidiary to secure Indebtedness owing to the Company or
such other Restricted Subsidiary;
(v) Liens securing Indebtedness which is Incurred to
refinance secured Indebtedness which is permitted to be Incurred under
clause (viii) of the definition of "Permitted Indebtedness"; provided
that such Liens do not extend to or cover any property or assets of the
Company or any Restricted Subsidiary other than the property or assets
securing the Indebtedness being refinanced;
(vi) Liens on any property or assets or capital stock of a
Restricted Subsidiary securing Indebtedness of such Restricted
Subsidiary permitted under the definition of "Permitted Indebtedness";
or
(vii) Permitted Liens.
SECTION 10.12. Limitation on Issuances of Guarantees of
Indebtedness. (a) The Company will not permit any Restricted Subsidiary (other
than NBI), directly or indirectly, to guarantee, assume or in any other manner
become liable with respect to any Indebtedness of the Company (other than
pursuant to a Credit Facility) unless such Restricted Subsidiary simultaneously
executes and delivers a supplemental indenture to this Indenture providing for a
senior Guarantee of the Notes and if such Indebtedness of the Company is by its
terms pari passu with or expressly subordinated to the Notes, any such
assumption, guarantee or other liability of such Restricted Subsidiary with
respect to such Indebtedness shall be pari passu with or subordinated to such
Restricted Subsidiary's Guarantee to the same extent as such Indebtedness is
pari passu with or subordinated to the Notes.
(b) Notwithstanding the foregoing, any Guarantee by a
Restricted Subsidiary of the Notes that is provided pursuant to the foregoing
paragraph may provide by its terms that it shall be automatically and
unconditionally released and discharged (i) upon any sale, exchange or transfer,
to any Person not an Affiliate of the Company, of all of the Company's Capital
Stock in, or all or substantially all the assets of, such Restricted Subsidiary,
which sale, exchange or transfer is in compliance with this Indenture, (ii) if
the Restricted Subsidiary issuing such Guarantee ceases to be a Restricted
Subsidiary or (iii) upon the release by the holders of the Indebtedness of the
Company described in paragraph (a) above of their guarantee by such Restricted
Subsidiary (including any deemed release upon payment in full of all obligations
under such Indebtedness), at a time when (A) no other Indebtedness of the
Company or any Restricted Subsidiary has been guaranteed by such Restricted
Subsidiary or (B) the holders of all such other Indebtedness which is guaranteed
by such Restricted Subsidiary also release their guarantee by such Restricted
Subsidiary (including any deemed release upon payment in full of all obligations
under such Indebtedness).
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SECTION 10.13. Limitation on Sale of Assets. (a) The Company
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, consummate an Asset Sale unless:
(i) at least 75% of the proceeds from such Asset Sale are
received in cash (provided that the amount of (A) any Pari Passu
Indebtedness of the Company or Indebtedness of any such Restricted
Subsidiary that is pari passu with any guarantee of the Notes (as shown
on the Company's or such Restricted Subsidiary's most recent balance
sheet or in the notes thereto) of the Company or any such Restricted
Subsidiary that is assumed by the transferee of any asset in connection
with any Asset Sale and (B) any deferred payment obligations received
by the Company or any such Restricted Subsidiary as proceeds of an
Asset Sale that are concurrently with the Asset Sale converted into
cash without recourse to the Company or any of its Restricted
Subsidiaries shall be deemed to be cash for purposes of this provision;
provided further that for purposes of this clause (i), "cash" shall
include any cash proceeds received from the sale of securities received
in an Asset Sale as long as, at the time of such Asset Sale, the
Company or its Restricted Subsidiary, as applicable, has entered into a
legally binding agreement for the sale of such securities and such
securities are sold within 90 days of such Asset Sale; and provided
further that this clause (i) shall not apply to
(x) any contribution, sale or other disposition
of shares of Capital Stock of Hollinger International held by
the Company or its Restricted Subsidiaries (other than the
Pledged Share Collateral) to Hollinger International or its
Subsidiaries in satisfaction of such portion of any
Indebtedness owed by the Company or any of its Restricted
Subsidiaries to Hollinger International or its Subsidiaries
under the International Intercompany Note as is no less than
90% of the aggregate Current Market Price of the shares of
Capital Stock of Hollinger International so contributed, sold
or disposed of, so long as and to the extent that the
repayment of such Indebtedness would be permitted under the
provisions of Section 10.09 and Section 10.10, or
(y) any sale of an interest in the Company's
newspaper businesses in the Cayman Islands held through Holcay
Holdings Ltd., or in Costa Rica held through 172847 Canada
Limited, to Hollinger International or its Subsidiaries in
satisfaction of such portion of any Indebtedness owed by the
Company or any of its Restricted Subsidiaries to Hollinger
International or its Subsidiaries under the International
Intercompany Note as is equal to the fair market value of the
shares or assets so sold, so long as and to the extent that
the repayment of such Indebtedness would be permitted under
the provisions of Section 10.09 and Section 10.10; and
(ii) The Company or such Restricted Subsidiary receives
consideration at the time of such Asset Sale at least equal to the fair
market value of the shares or assets sold (as determined by the Board
of Directors of the Company and evidenced by a Board Resolution). The
value of any properties or assets (other than cash) received pursuant
to an Asset Sale shall be determined by the Board of Directors of the
Company and evidenced by a Board Resolution; provided, that if the
value of the asset which is the
83
subject of the Asset Sale is in excess of $5,000,000, the value of the
properties or assets received shall be determined by an independent
nationally recognized investment banking firm or firm experienced in
the appraisal or similar review of similar types of assets.
(b) The Company will, and will cause its Restricted
Subsidiaries to, apply 100% of the Net Cash Proceeds of any Asset Sale:
(i) first, (A) to the extent the Company elects, to the
reinvestment by the Company or such Restricted Subsidiary in properties
and assets that (as determined by the Board of Directors) replace the
properties and assets that were the subject of the Asset Sale or in
properties and assets that will be used in the businesses of the
Company or its Restricted Subsidiaries existing on the date of this
Indenture or in businesses reasonably related thereto or (B) to the
extent the Company elects to the making of an offer to purchase (an
"Offer"), out of such amount of the Net Cash Proceeds as the Company
shall determine to allocate for such purpose (the "Allocated
Proceeds"), a principal amount of Notes equal to the Notes Amount (as
defined in clause (c) below) and (to the extent so required by the
terms of the debt instrument governing such Indebtedness) a principal
amount of Pari Passu Indebtedness equal to the Pari Passu Amount (as
defined in clause (c) below), any such Offer pursuant to this clause
(b)(i)(B) to be conducted in accordance with the procedures set forth
in clause (c) below (substituting the term "Allocated Proceeds" in
place of any reference therein with "Excess Proceeds") and in this
Indenture (with any Deficiency (as defined in clause (c) below)
occurring after such Offer to be excluded from the calculation of
Excess Proceeds and treated the same as a Deficiency occurring after an
Offer made using Excess Proceeds), any such application pursuant to
clauses (A) and (B) to be made within 12 months of receipt of such Net
Cash Proceeds;
(ii) second, to the extent of the balance of such Net Cash
Proceeds after application in accordance with clause (i) above, to make
an Offer to purchase Notes pursuant to and subject to the conditions
set forth below; provided, however, that if the Company elects (or is
required by the terms of any Pari Passu Indebtedness), such Offer may
be made ratably to purchase the Notes and any Pari Passu Indebtedness
of the Company (any Net Cash Proceeds from Asset Sales (excluding any
Deficiency resulting from an Offer made using Allocated Proceeds
pursuant to clause (b)(i)(B)) that are not applied as provided in
clause (i) above shall constitute "Excess Proceeds"); and
(iii) third, to the extent of the balance of any Excess
Proceeds after application in accordance with clauses (i) and (ii)
above, for any general corporate purpose permitted pursuant to the
terms of this Indenture;
provided, however, that in connection with any prepayment, repayment or purchase
of Indebtedness pursuant to clauses (i)(B) and (ii) above, the Company or such
Restricted Subsidiary will retire such Indebtedness and (in the case of the
Credit Facility, to the extent of any borrowings thereunder that have been
converted to a term loan as permitted under this Indenture) will cause the
related loan commitment (if any) to be permanently reduced in an amount equal to
the principal amount so prepaid, repaid or purchased.
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(c) When the aggregate amount of Excess Proceeds equals
or exceeds $5,000,000, the Company shall apply the Excess Proceeds to the
repayment of the Notes and any Pari Passu Indebtedness required to be
repurchased under the instrument governing such Pari Passu Indebtedness as
follows: (i) the Company shall make an offer to purchase (an "Offer") from all
Holders, in accordance with the procedures set forth in this Indenture, in the
maximum principal amount (expressed as a multiple of $1,000) of Notes that may
be purchased out of an amount (the "Note Amount") equal to the product of such
Excess Proceeds multiplied by a fraction, the numerator of which is the
outstanding principal amount of the Notes, and the denominator of which is the
sum of the outstanding principal amount of the Notes and such Pari Passu
Indebtedness (subject to proration in the event such amount is less than the
aggregate Offered Price (as defined herein) of all Notes tendered) and (ii) to
the extent required by such Pari Passu Indebtedness to permanently reduce the
principal amount of such Pari Passu Indebtedness, the Company shall make an
offer to purchase or otherwise repurchase or redeem Pari Passu Indebtedness (a
"Pari Passu Offer") in an amount (the "Pari Passu Debt Amount") equal to the
excess of the Excess Proceeds over the Note Amount; provided that in no event
shall the Pari Passu Debt Amount exceed the principal amount of such Pari Passu
Indebtedness plus the amount of any premium required to be paid to repurchase
such Pari Passu Indebtedness. The offer price shall be payable in cash in an
amount equal to 100% of the principal amount of the Notes plus accrued and
unpaid interest, if any, to the date (the "Purchase Date") such Offer is
consummated (the "Offered Price"), in accordance with the procedures set forth
below. To the extent that the aggregate Offered Price of the Notes tendered
pursuant to the Offer is less than the Note Amount relating thereto or the
aggregate amount of Pari Passu Indebtedness that is purchased is less than the
Pari Passu Debt Amount (the amount of such shortfall, if any, constituting a
"Deficiency"), the Company may use such Deficiency for any purpose not otherwise
prohibited by this Indenture. Upon completion of the purchase of all Notes
tendered pursuant to an Offer and repurchase of the Pari Passu Indebtedness
pursuant to a Pari Passu Offer, the amount of Excess Proceeds, if any, shall be
reset at zero.
(d) Whenever the aggregate amount of Excess Proceeds
received by the Company exceeds $5,000,000, such Excess Proceeds shall, prior to
the purchase of Notes or any Pari Passu Indebtedness described in paragraph (c)
above, be set aside by the Company in a separate account pending (i) deposit
with the depository or a Paying Agent of the amount required to purchase the
Notes or Pari Passu Indebtedness tendered in an Offer or a Pari Passu Offer and
(ii) delivery by the Company of the Offered Price to the Holders or holders of
Pari Passu Indebtedness tendered in an Offer or a Pari Passu Offer. Such Excess
Proceeds may be invested in Temporary Cash Investments; provided that the
maturity date of any such investment made after the amount of Excess Proceeds
equals or exceeds $5,000,000 shall not be later than the Purchase Date. The
Company shall be entitled to any interest or dividends accrued, earned or paid
on such Temporary Cash Investments; provided that the Company shall not be
entitled to such interest and shall not withdraw such interest from the separate
account, if an Event of Default has occurred and is continuing.
(e) If the Company becomes obligated to make an Offer
pursuant to paragraph (c) above, the Notes shall be purchased by the Company, at
the option of the Holders thereof, in whole or in part in integral multiples of
$1,000, on a date that is not earlier than 30 days and not later than 60 days
from the date the notice is given to Holders, or such later date as may be
necessary for the Company to comply with the requirements under the Exchange
Act,
85
subject to proration in the event the Note Amount is less than the aggregate
Offered Price of all Notes tendered.
(f) Notwithstanding any other provision hereof, with
respect to the proceeds of an Asset Sale arising from the issuance of Capital
Stock of a Restricted Subsidiary ("Issuance Proceeds"):
(i) Prior to the day following the fifth anniversary of
the original issuance of the Notes, the Company shall not be required
to use Issuance Proceeds to make an Offer to purchase Notes in an
amount in excess of 25% of the original aggregate principal amount of
the Notes. For greater certainty, the maximum amount of the Issuance
Proceeds that may be applied to make an Offer to purchase Notes that
has a date of purchase prior to the day following the fifth anniversary
of the original issuance of the Notes is 25% of the original aggregate
principal amount of the Notes less the aggregate principal amount of
Notes previously purchased pursuant to a purchase offer using Issuance
Proceeds. To the extent the aggregate amount of Notes tendered exceeds
the permitted amount of the Offer, the tendered Notes shall be selected
for repurchase on a pro-rata basis.
(ii) Promptly after the fifth anniversary of the original
issuance of the Notes, the Company shall be required to make an Offer
to purchase Notes in accordance with the requirements set out in
paragraph (c) above, in an aggregate amount equal to the aggregate
amount of Issuance Proceeds in excess of 25% of the principal amount of
the Notes that was not applied to purchase Offers pursuant to the
provisions of this paragraph.
(g) The Company shall comply with the applicable tender
offer rules, including Rule 14e-1 under the Exchange Act, and any other
applicable securities laws or regulations in connection with an Offer.
(h) The Company shall not, and shall not permit any
Restricted Subsidiary to, create or permit to exist or become effective any
restriction that would expressly impair the ability of the Company to make an
Offer to purchase the Notes or, if such Offer is made, to pay for the Notes
tendered for purchase.
(i) Notwithstanding anything to the contrary herein,
until and unless the NBI Guarantee shall have been released in accordance with
this Indenture, the Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, consummate an Asset Sale in respect of
any of the Capital Stock or assets and properties of either Sugra or NBI to the
extent that any such Asset Sale would impair the Lien in favor of the Collateral
Agent in the Pledged Share Collateral.
(j) Within 30 days after the date on which the amount of
Excess Proceeds equals or exceeds $5,000,000, the Company shall send by
first-class mail, postage prepaid, to the Trustee and to each Holder of the
Notes, at such Holder's address appearing in the Note Register, a notice stating
or including:
86
(i) that the Holder of such Notes has the right to
require the Company to repurchase, subject to proration, part or all of
such Holder's Notes at the Offered Price;
(ii) the Purchase Date;
(iii) the instructions a Holder of such Notes must follow
in order to have its Notes purchased in accordance with paragraph (c)
of this Section;
(iv) (A) the most recently filed annual report on Form
20-F or Form 40-F, as applicable (including audited consolidated
financial statements), of the Company, and any report on Form 6-K of
the Company furnished subsequent to such annual report, other than
reports describing Asset Sales otherwise described in the offering
materials (or corresponding successor reports) (or in the event the
Company is not required to prepare any of the foregoing Forms, the
comparable information required pursuant to Section 10.17), (B) a
description of material developments in the Company's business
subsequent to the date of the latest of such reports, (C) if material,
appropriate pro forma financial information, and (D) such other
information, if any, concerning the business of the Company and its
Restricted Subsidiaries which the Company in good faith believes will
enable such Holders to make an informed investment decision regarding
the Offer;
(v) the Offered Price;
(vi) the names and addresses of the Paying Agent and the
offices or agencies referred to in Section 10.02;
(vii) that Notes must be surrendered at least three
Business Days prior to the Purchase Date to the Paying Agent or to an
office or agency referred to in Section 10.02 to collect payment;
(viii) that any Notes not tendered will continue to accrue
interest and that unless the Company defaults in the payment of the
purchase price, any Note accepted for payment pursuant to the offer
shall cease to accrue interest on and after the Purchase Date; and
(ix) the procedures for withdrawing a tender.
(k) Holders electing to have the Notes purchased
hereunder will be required to surrender such Notes at the address specified in
the notice at least three Business Days prior to the Purchase Date. Holders will
be entitled to withdraw their election to have their Notes purchased pursuant to
this Section if the Company receives, not later than three Business Days prior
to the Purchase Date, a telegram, telex, facsimile transmission or letter
setting forth (1) the name of the Holder, (2) the certificate number of the Note
in respect of which such notice of withdrawal is being submitted, (3) the
principal amount of the Note (which shall be $1,000 or an integral multiple
thereof) delivered for purchase by the Holder as to which his election is to be
withdrawn, (4) a statement that such Holder is withdrawing such Holder's
election to have such principal amount of such Note purchased, and (5) the
principal amount, if any, of such Note (which shall be $1,000 or an integral
multiple thereof) that remains subject to the original notice of the Offer and
that has been or will be delivered for purchase by the Company.
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(l) the Company shall (i) not later than the Purchase
Date, accept for payment Notes or portions thereof tendered pursuant to the
Offer, (ii) not later than 11:00 a.m. (New York time) on the Purchase Date,
deposit with the Trustee or with a Paying Agent an amount of money in same day
funds (or New York Clearing House funds if such deposit is made prior to the
Purchase Date) sufficient to pay the aggregate Offered Price of all the Notes or
portions thereof which are to be purchased on that date and (iii) not later than
11:00 a.m. (New York time) on the Purchase Date, deliver to the Paying Agent an
Officers' Certificate stating the Notes or portions thereof have been accepted
for payment by the Company.
The Trustee and the Paying Agent shall return to the Company
any cash that remains unclaimed, together with interest, if any, thereon, held
by them for the payment of the Offered Price; provided, however, that (x) to the
extent that the aggregate amount of cash deposited by the Company with the
Trustee or a Paying Agent in respect of an Offer exceeds the aggregate Offered
Price of the Notes or portions thereof to be purchased, then the Trustee or a
Paying Agent shall hold such excess for the Company and (y) unless otherwise
directed by the Company in writing, promptly after the Business Day following
the Purchase Date the Trustee or a Paying Agent shall return any such excess to
the Company together with interest or dividends, if any, thereon.
(m) Notes to be purchased shall, on the Purchase Date,
become due and payable at the Offered Price and from and after such date (unless
the Company shall default in the payment of the Offered Price) such Notes shall
cease to bear interest. The Offered Price shall be paid to such Holder promptly
following the later of the Purchase Date and the time of delivery of such Note
to the relevant Paying Agent at the office of such Paying Agent by the Holder
thereof in the manner required. Upon surrender of any such Note for purchase in
accordance with the foregoing provisions, such Note shall be paid by the Company
at the Offered Price; provided, however, that installments of interest whose
Stated Maturity is on or prior to the Purchase Date shall be payable to the
Holders of such Notes, or one or more Predecessor Notes, registered as such on
the relevant Regular Record Dates according to the terms and the provisions of
Section 3.08; provided further that Notes to be purchased are subject to
proration in the event the Excess Proceeds are less than the aggregate Offered
Price of all Notes tendered for purchase, with such adjustments as may be deemed
appropriate by the Trustee so that only Notes in denominations of $1,000 or
integral multiples thereof shall be purchased. If any Note tendered for purchase
in accordance with the terms of this Section shall not be so paid upon surrender
thereof by deposit of funds with the Trustee or a Paying Agent in accordance
with paragraph (j) above, the principal thereof (and premium, if any, thereon)
shall, until paid, bear interest from the Purchase Date at the rate borne by
such Note. Any Note that is to be purchased only in part shall be surrendered to
a Paying Agent in accordance with the terms of this Section at the office of
such Paying Agent (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or such Holder's
attorney duly authorized in writing), and the Company shall execute and pursuant
to a Company Order the Trustee shall authenticate and deliver to the Holder of
such Note, without service charge, one or more new Notes of any authorized
denomination as requested by such Holder in an aggregate principal amount equal
to, and in exchange for, the portion of the principal amount of the Note so
surrendered that is not purchased.
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SECTION 10.14. Purchase of Notes upon a Change of Control. (a)
If a Change of Control shall occur at any time, each Holder with respect to
Notes shall have the right to require that the Company purchase such Holder's
Notes, pursuant to an offer described in subsection (b) of this Section (a
"Change of Control Offer"), in whole or in part in integral multiples of $1,000,
at a purchase price (the "Change of Control Purchase Price") in cash in an
amount equal to 101% of the principal amount of such Notes, plus accrued and
unpaid interest, if any, to the date of purchase (the "Change of Control
Purchase Date"), in accordance with the procedures set forth in paragraphs (b),
(c), (d) and (e) of this Section.
(b) Within 30 days following any Change of Control, the
Company shall notify the Trustee thereof and give written notice (a "Change of
Control Purchase Notice") of such Change of Control to each Holder by
first-class mail, postage prepaid, to the Trustee and to each Holder at his
address appearing in the Note Register, stating or including:
A. that a Change of Control has occurred, the date of
such event, and that such Holder has the right to require the Company
to repurchase such Holder's Notes at the Change of Control Purchase
Price;
B. the circumstances and relevant facts regarding such
Change of Control (including but not limited to information with
respect to pro forma historical income, cash flow and capitalization
after giving effect to such Change of Control, if any);
C. that the Change of Control Offer is being made
pursuant to Section 10.14(a) and that all Notes properly tendered
pursuant to the Change of Control Offer will be accepted for payment at
the Change of Control Offer Purchase Price;
D. the Change of Control Purchase Date, which shall be a
Business Day no earlier than 30 days nor later than 60 days from the
date such notice is mailed or such later date as may be necessary for
the Company to comply with the requirements under the Exchange Act;
E. (i) the most recently filed annual report on Form
20-F or Form 40-F, as applicable (including audited consolidated
financial statements), of the Company, and any report on Form 6-K of
the Company furnished subsequent to such annual report (or in the event
the Company is not required to prepare any of the foregoing Forms, the
comparable information required to be prepared by the Company pursuant
to Section 10.17), (ii) a description of material developments in the
Company's business subsequent to the date of the latest of such reports
and (iii) such other information, if any, concerning the business of
the Company and its Restricted Subsidiaries which the Company in good
faith believes will enable such Holders to make an informed investment
decision regarding the Change of Control Offer;
F. the Change of Control Purchase Price;
G. the names and addresses of the Paying Agent and the
offices or agencies referred to in Section 10.02;
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H. that Notes must be surrendered at least three
Business Days prior to the Change of Control Purchase Date to the
Paying Agent at the Office of the Paying Agent or to an office or
agency referred to in Section 10.02 to collect payment;
I. that the Change of Control Purchase Price for any
Note which has been properly tendered and not withdrawn will be paid
promptly following the Change of Control Purchase Date;
J. the procedures for withdrawing a tender of Notes and
Change of Control Purchase Notice;
K. that any Note not tendered will continue to accrue
interest; and
L. that, unless the Company defaults in the payment of
the Change of Control Purchase Price, any Note accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Purchase Date.
(c) Upon receipt by the Company of the proper tender of
Notes, each Holder of a Note in respect of which such proper tender was made
shall (unless the tender of such Note is properly withdrawn) thereafter be
entitled to receive solely the Change of Control Purchase Price with respect to
such Note. Upon surrender of any such Note for purchase in accordance with the
foregoing provisions, such Note shall be paid by the Company at the Change of
Control Purchase Price; provided, however, that installments of interest whose
Stated Maturity is on or prior to the Change of Control Purchase Date shall be
payable to the Holders of such Notes, or one or more Predecessor Notes,
registered as such on the relevant Regular Record Dates according to the terms
and the provisions of Section 3.08. If any Note tendered for purchase in
accordance with the provisions of this Section shall not be so paid upon
surrender thereof by deposit of funds with the Paying Agent in accordance with
paragraph (d) below, the principal thereof (and premium, if any, thereon) shall,
until paid, bear interest from the Change of Control Purchase Date at the rate
borne by such Note. Holders electing to have such Notes purchased will be
required to surrender such Notes to the Paying Agent at the address specified in
the notice at least three Business Days prior to the Change of Control Purchase
Date. Any such Notes that are to be purchased only in part shall be surrendered
to a Paying Agent in accordance with the provisions of this Section at the
office of such Paying Agent (with, if the Company or the Trustee so requires,
due endorsement by, or a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed by, the Holder thereof or such
Holder's attorney duly authorized in writing), and the Company shall execute and
pursuant to a Company Order the Trustee shall authenticate and deliver to the
Holder of such Note, without service charge, one or more new Notes of any
authorized denomination as requested by such Holder in an aggregate principal
amount equal to, and in exchange for, the portion of the principal amount of the
Note so surrendered that is not purchased.
(d) The Company shall (i) not later than the Change of
Control Purchase Date, accept for payment of Notes or portion thereof tendered
pursuant to the Change of Control Offer, (ii) not later than 11:00 a.m. (New
York time) on the Change of Control Purchase Date, deposit with the Paying Agent
an amount of cash sufficient to pay the aggregate Change of Control Purchase
Price of all the Notes or portions thereof which are to be purchased as of the
Change of
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Control Purchase Date and (iii) not later than 11:00 a.m. (New York time) on the
Change of Control Purchase Date, deliver to the Paying Agent an Officers'
Certificate stating the Notes or portions thereof accepted for payment by the
Company. The Paying Agent shall promptly mail or deliver to Holders of Notes so
accepted payment in an amount equal to the Change of Control Purchase Price of
the Notes purchased from each such Holder. Any Notes not so accepted shall be
promptly mailed or delivered by the Paying Agent at the Company's expense to the
Holder thereof. The Company will publicly announce the results of the Change of
Control Offer on the Change of Control Purchase Date. For purposes of this
Section, the Company shall choose a Paying Agent which shall not be the Company.
(e) A tender made in response to a Change of Control
Purchase Notice may be withdrawn before or after delivery by the Holder to the
Paying Agent at the office of the Paying Agent of the Notes to which such Change
of Control Purchase Notice relates, by means of a written notice of withdrawal
delivered by the Holder to the Paying Agent at the office of the Paying Agent or
to the office or agency referred to in Section 10.02 to which the related Change
of Control Purchase Notice was delivered not later than three Business Days
prior to the Change of Control Purchase Date specifying as applicable:
(1) the name of the Holder;
(2) the certificate number of the Note in respect of
which such notice of withdrawal is being submitted;
(3) the principal amount of the Note (which shall be
$1,000 or an integral multiple thereof) delivered for purchase by the
Holder as to which such notice of withdrawal is being submitted;
(4) a statement that such Holder is withdrawing such
Holder's election to have such principal amount of such Note purchased;
and
(5) the principal amount, if any, of such Note (which
shall be $1,000 or an integral multiple thereof) that remains subject
to the original Change of Control Purchase Notice and that has been or
will be delivered for purchase by the Company.
(f) As provided in the Notes, the Trustee and the Paying
Agent shall return to the Company any cash that remains unclaimed, together with
interest or dividends, if any, thereon, held by either of them for the payment
of the Change of Control Purchase Price; provided, however, that (x) to the
extent that the aggregate amount of cash deposited by the Company pursuant to
clause (ii) of paragraph (d) above exceeds the aggregate Change of Control
Purchase Price of the Notes or portions thereof to be purchased, then the
Trustee or the Paying Agent shall hold such excess for the Company and (y)
unless otherwise directed by the Company in writing, promptly after the Business
Day following the Change of Control Purchase Date, the Trustee or the Paying
Agent shall return any such excess to the Company together with interest, if
any, thereon.
(g) The Company shall comply with the applicable tender
offer rules, including Rule 14e-1 under the Exchange Act, and any other
applicable securities laws or regulations in connection with a Change of Control
Offer.
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(h) Notwithstanding the occurrence of a Change of
Control, the Company shall not be obligated to repurchase the Notes pursuant to
a Change of Control Offer, or otherwise comply with this Section, if the Company
has elected to redeem all of the Notes in accordance with Article XI.
The Company shall not, and shall not permit any Subsidiary to,
create or permit to exist or become effective any restriction that would
expressly impair the ability of the Company to make a Change of Control Offer to
purchase the Notes or, if such Change of Control Offer is made, to pay for the
Notes tendered for purchase.
SECTION 10.15. Limitation on Issuance and Sale of Capital
Stock of Restricted Subsidiaries. The Company will not permit:
(a) any Restricted Subsidiary to issue any Capital Stock
(other than to the Company or any Restricted Subsidiary); or
(b) any Person (other than the Company or a Restricted
Subsidiary) to acquire any Capital Stock of any Restricted Subsidiary
from the Company or any Restricted Subsidiary,
except if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would continue to be a Restricted Subsidiary or if,
immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer be a Restricted Subsidiary and the Company's
Investment in such Person after giving effect to such issuance or sale would
have been permitted to be made under the provisions of Section 10.09 as if made
on the date of such issuance or sale (and such Investment shall be deemed to be
an Investment made for the purposes of Section 10.09). The proceeds of any
issuance or sale of such Capital Stock permitted hereby will be treated as Net
Cash Proceeds from an Asset Sale and must be applied in accordance with the
terms of Section 10.13 (including the limitation noted in paragraph (f)
thereof). Notwithstanding the foregoing, no issuance or sale of any Capital
Stock of NBI (other than to the Company or any other Restricted Subsidiary)
shall be permitted.
SECTION 10.16. Limitation on Dividends and Other Payment
Restrictions Affecting Restricted Subsidiaries. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, create
or otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to (a) pay dividends or
make any other distribution on its Capital Stock to the Company or any other
Restricted Subsidiary, (b) pay any Indebtedness owed to the Company or any other
Restricted Subsidiary, (c) make any Investment in the Company or (d) transfer
any of its properties or assets to the Company or any Restricted Subsidiary,
except (i) any encumbrance or restriction pursuant to or in connection with any
agreement as in effect on the date of this Indenture, (ii) any encumbrance or
restriction, with respect to a Restricted Subsidiary that is not a Restricted
Subsidiary of the Company on the date of this Indenture, in existence at the
time such Person becomes a Restricted Subsidiary of the Company and not Incurred
in connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary, (iii) customary provisions restricting subletting or assignment of
any lease governing a leasehold interest of the Company or any Restricted
Subsidiary and (iv) any encumbrance or restriction existing under
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any amendments, modifications, restatements, renewals, supplements, replacements
or refinancings of the agreements containing the encumbrances or restrictions in
the foregoing clauses (i) and (ii); provided that the terms and conditions of
any such encumbrances or restrictions, taken as a whole, are not materially less
favorable to the Holders than those under or pursuant to the agreement
evidencing the Indebtedness so extended, renewed, refinanced or replaced.
SECTION 10.17. Provision of Financial Statements. Whether or
not the Company or RMI is subject to Section 13(a) or 15(d) of the Exchange Act,
the Company and RMI will, to the extent permitted under the Exchange Act, file
with, or furnish to, the Commission the annual reports and other documents that
they would have been required to file with, or furnish to, the Commission
pursuant to such Section 13(a) or 15(d), including any information relating to
the Company and RMI as may be required by Regulation S-X under the Exchange Act
or by the Commission, if they were so subject, such documents to be filed with,
or furnished to, the Commission on or prior to the respective dates (the
"Required Filing Dates") by which they would have been required so to file, or
to furnish, such documents if they were so subject; provided that if and for so
long as RMI is no longer subject to Section 13(a) or 15(d) of the Exchange Act,
RMI may satisfy its obligations under this paragraph through the inclusion in
the Company's annual reports and other documents filed with or furnished to the
Commission pursuant to Section 13(a) or 15(d) of the Exchange Act (or these
provisions of this Indenture) of audited annual and unaudited quarterly
financial statements for RMI prepared in accordance with GAAP, and reconciled to
United States GAAP; provided further that at such time as RMI may become a 100%
owned Restricted Subsidiary of the Company, RMI may satisfy its obligations
under this paragraph through the inclusion in a footnote to the Company's
consolidated financial statements of financial information for RMI, any other
Guarantors of the Notes that are Subsidiaries of the Company and any
non-Guarantor Subsidiaries, equivalent to that which would be required under
Rule 3-10 of Regulation S-X. The Company will in any event (x) within 15 days of
such Required Filing Date (i) transmit by mail to all Holders, as their names
and addresses appear in the Note Register, without cost to such Holders and (ii)
file with the Trustee copies of the annual reports and other documents
(including the audited annual market value financial statements described above)
which the Company and RMI would have been required to file with, or to furnish
to, the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act if
they were subject to such Sections (subject to the proviso set forth in the
immediately preceding sentence) and (y) if filing or furnishing such documents
by the Company or RMI with the Commission is not permitted under the Exchange
Act, promptly upon written request and payment of the reasonable cost of
duplication and delivery, supply copies of such documents to any prospective
Holders at the Company's cost.
SECTION 10.18. Statement by Officers as to Default. (a) The
Company and RMI will deliver to the Trustee, on or before a date not more than
45 days after the end of each fiscal quarter and not more than 90 days after the
end of each fiscal year of the Company and RMI ending after the date hereof, a
written statement signed by two executive officers of each of the Company and
RMI, one of whom shall be the principal executive officer, principal financial
officer or principal accounting officer of the Company and RMI, as applicable,
stating whether or not, after a review of the activities of the Company and RMI
during such year or such quarter and of the Company's and RMI's performance
under this Indenture, to the best knowledge, based on such review, of the
signers thereof, each of the Company and RMI has fulfilled all its
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respective obligations and is in compliance with all conditions and covenants
under this Indenture throughout such year or quarter, as the case may be, and,
if there has been a Default, specifying each Default and the nature and status
thereof.
(b) When any Default or Event of Default has occurred and
is continuing, or if the Trustee or any Holder or the trustee for or the holder
of any other evidence of Indebtedness of the Company or any Restricted
Subsidiary gives any notice or takes any other action with respect to a claimed
default, the Company shall deliver to the Trustee by registered or certified
mail or by telegram, telex or facsimile transmission followed by hard copy an
Officers' Certificate specifying such Default, Event of Default, notice or other
action, the status thereof and what action the Company is taking or proposes to
take with respect thereto, within five Business Days of its occurrence.
SECTION 10.19. Waiver of Certain Covenants. The Company may
omit in any particular instance to comply with any covenant or condition set
forth in Sections 10.05 through 10.13 and Sections 10.15 through 10.18 if,
before or after the time for such compliance, the Holders of not less than a
majority in aggregate principal amount of the Notes at the time Outstanding
waive such compliance in such instance with such covenant or condition, but no
such waiver shall extend to or affect such covenant or condition except to the
extent so expressly waived, and, until such waiver shall become effective, the
obligations of the Company and the duties of the Trustee in respect of any such
covenant or condition shall remain in full force and effect.
SECTION 10.20. Limitation on the Designation of Unrestricted
Subsidiaries. (a) The Board of Directors may designate any Restricted Subsidiary
as an Unrestricted Subsidiary if (i) such action is in compliance with Section
10.09 of this Indenture and (ii) such action complies with the definition of
"Unrestricted Subsidiaries."
(b) The Board of Directors may not designate any
Unrestricted Subsidiary as a Restricted Subsidiary unless any additional
Indebtedness incurred as a result of giving effect to such action (and treating
any Acquired Indebtedness as having been incurred at the time of such action)
would constitute Permitted Indebtedness.
SECTION 10.21. Additional Amounts. (a) All payments made by
the Company or any of the Note Guarantors under or with respect to the Notes
shall be made free and clear of and without withholding or deduction for or on
account of any present or future tax, duty, levy, impost, assessment or other
governmental charge (including penalties, interest and other liabilities related
thereto) (hereinafter "Taxes") imposed or levied by or on behalf of the
government of Canada or any political subdivision or any authority or agency
therein or thereof having power to tax, or within any other jurisdiction in
which the Company or any such Note Guarantor is organized or is otherwise
resident for tax purposes or any jurisdiction from or through which payment is
made (each a "Relevant Taxing Jurisdiction"), unless it is required to withhold
or deduct Taxes by law or by the interpretation or administration thereof.
(b) If the Company or any Note Guarantor is so required
to withhold or deduct any amount for or on account of Taxes imposed by a
Relevant Taxing Jurisdiction from any payment made under or with respect to the
Notes, it will be required to pay such additional
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amounts ("Additional Amounts") as may be necessary so that the net amount
received by Holders (including Additional Amounts) after such withholding or
deduction will not be less than the amount that such Holders would have received
if such Taxes had not been withheld or deducted; provided, however, that the
foregoing obligation to pay Additional Amounts does not apply (1) with respect
to a payment made to a Holder (an "Excluded Holder") (A) with which the Company
or such Note Guarantor does not deal at arm's length (within the meaning of the
Income Tax Act (Canada)) at the time of making such payment, or (B) which is
subject to any Taxes by reason of the existence of any present or former
connection between the relevant Holder (or between a fiduciary, settlor,
beneficiary, member or shareholder of, or possessor of power over the relevant
Holder, if the relevant Holder is an estate, nominee, trust or corporation) and
the Relevant Taxing Jurisdiction (other than the mere receipt of such payment or
the ownership or holding outside of Canada of such Note); or (2) to any estate,
inheritance, gift, sales, excise, transfer, personal property tax or similar
tax, assessment or governmental charge ("Excluded Taxes"); nor will the Company
or any Note Guarantor pay Additional Amounts if the payment could have been made
without such deduction or withholding if the beneficiary of the payment had
presented the Note for payment within 30 days after the date on which such
payment or such Note became due and payable or the date on which payment thereof
is duly provided for, whichever is later (except to the extent that the Holder
would have been entitled to Additional Amounts had the Note been presented on
the last day of such 30-day period).
(c) The Company and each Note Guarantor will also (i)
make such withholding or deduction and (ii) remit the full amount deducted or
withheld to the relevant authority in accordance with applicable law. The
Company and each Note Guarantor will furnish to the Holders, within 30 days
after the date the payment of any Taxes is due pursuant to applicable law,
certified copies of tax receipts evidencing such payment by the Company or such
Note Guarantor. The Company and each Note Guarantor will indemnify and hold
harmless each Holder (other than an Excluded Holder or with respect to Excluded
Taxes) and upon written request will reimburse each such Holder for the amount
of (1) any Taxes so levied or imposed and paid by such Holder as a result of
payments made under or with respect to the Notes and (2) any Taxes levied or
imposed and paid by such Holder with respect to any reimbursement under clause
(1), but excluding any such Taxes on such Holder's income or net income.
(d) At least 30 days prior to each date on which any
payment under or with respect to the Notes is due and payable, if the Company or
the Note Guarantors will be obligated to pay Additional Amounts with respect to
such payment, the Company and the Note Guarantors will deliver to the Trustee an
Officers' Certificate stating the fact that such Additional Amounts will be
payable and the amounts so payable, and will set forth such other information
necessary to enable the Trustee to pay such Additional Amounts to Holders on the
payment date.
(e) Whenever in this Indenture there is mentioned, in any
context: (1) the payment of principal; (2) purchase prices in connection with a
purchase of Notes; (3) interest; or (4) any other amount payable on or with
respect to any of the Notes, such reference shall be deemed to include payment
of Additional Amounts as described under this heading to the extent that, in
such context, Additional Amounts are, were or would be payable in respect
thereof.
(f) The Company and the Note Guarantors will pay any
present or future stamp, court or documentary taxes or any other excise or
property taxes, charges or similar levies
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that arise in any jurisdiction from the execution, delivery, enforcement or
registration of the Notes, this Indenture or any other document or instrument in
relation thereof, or the receipt of any payments with respect to the Notes,
excluding such taxes, charges or similar levies imposed by any jurisdiction
outside of Canada, the jurisdiction of incorporation of any successor of the
Company or any of the Note Guarantors or any jurisdiction in which a paying
agent is located, and the Company and the Note Guarantors will agree to
indemnify the Holders for any such taxes paid by such Holders.
(g) The obligations of the Company and the Note
Guarantors under this Section 10.21 will survive any termination, defeasance or
discharge of this Indenture and will apply mutatis mutandis to any jurisdiction
in which any successor Person to the Company or any Note Guarantor, as
applicable, is organized or any political subdivision or taxing authority or
agency thereof or therein.
SECTION 10.22. Covenants of RMI, RCL and Sugra. (a) RMI hereby
covenants not to assign the Services Agreement to any other party, other than
(i) pursuant to the pledge of the Services Agreements to the Trustee and the
Collateral Agent under this Indenture and the Security Documents or (ii) a
Permitted Transfer. Additionally, RMI hereby covenants that, for so long as any
of the Notes is outstanding, RMI will not form any other vehicle that would be
used to provide the same services to Hollinger International and its
Subsidiaries as those currently provided under the Services Agreements.
(b) RCL hereby covenants to vote its Capital Stock in
RMI, and cause any subsequent holder of Capital Stock of RMI to vote such stock,
so as to cause RMI to comply with its obligations under this Indenture, its
Guarantee, the Support Agreement, the Security Documents and other transaction
agreements. Additionally, RCL hereby covenants that, for so long as any of the
Notes is outstanding, RCL will not form any other vehicle that would be used to
provide the same services to Hollinger International and its Subsidiaries as
those currently provided under the Services Agreements. These covenants of RCL
will not be deemed to be a guarantee by RCL of the Notes.
(c) Sugra hereby covenants that, until and unless the NBI
Guarantee shall have been released in accordance with this Indenture, it will
not create, Incur, assume or suffer to exist any Lien on any of its shares of
Capital Stock of NBI. This covenant of Sugra will not be deemed to be a
guarantee by Sugra of the Notes.
SECTION 10.23. Limitation on RMI's Business Activities. RMI
shall not:
(a) Incur any Indebtedness other than its Guarantee of
the Notes (and any refinancings or replacements thereof permitted under
the definition of "Permitted Indebtedness");
(b) Create, Incur, assume or suffer to exist any Lien on
any of its assets or properties of any character; or
(c) engage in any business activities other than (i) the
issuance of the RMI Guarantee, (ii) the performance of its obligations
and pursuit of its rights under the Services Agreements, the Support
Agreement and the Contribution Agreement or its
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rights and obligations existing on the date hereof, (iii) the
transactions contemplated in paragraph (vi) of Section 10.10, and (iv)
activities incidental to those described in this clause (c).
ARTICLE XI
Redemption of Notes
SECTION 11.01. Right of Redemption. The Notes may be redeemed,
at the election of the Company:
(a) as a whole or in part, at any time on or after March
1, 2007, subject to the conditions and at the Redemption Prices
specified in the form of Note or in this Indenture and any Indenture
supplemental hereto with respect to the Notes as provided in Exhibit A,
together with accrued and unpaid interest, if any, to the Redemption
Date (subject to the right of Holders of record of the Notes on
relevant Regular Record Dates and Special Record Dates to receive
interest due on relevant Interest Payment Dates) to the extent that
this Article does not conflict with the terms of the form of Note;
(b) prior to March 1, 2006, on one or more occasions to
redeem the Notes in an aggregate principal amount not to exceed 35% of
the aggregate principal amount of the Notes originally issued at a
Redemption Price (expressed as a percentage of principal amount) of
111.875%, plus accrued and unpaid interest to the Redemption Date, with
the net cash proceeds contributed to the Company from one or more
Public Equity Offerings; and
(c) as a whole and not in part, upon not less than 30 nor
more than 60 days' notice, at any time, at a Redemption Price equal to
the principal amount thereof plus accrued interest to the date fixed
for redemption only if, as a result of (1) any change in or amendment
to the laws of Canada (or of any political subdivision or taxing
authority therein or thereof) or any regulations or rulings promulgated
thereunder or any change in the official interpretation or official
application of such laws, regulations or rulings (including a judgment,
holding or order by a court of competent jurisdiction), or (2) any
change in the official application or interpretation (including a
judgment, holding or order by a court of competent jurisdiction) of, or
any execution of or amendment to, any treaty or treaties affecting
taxation to which Canada (or such political subdivision or taxing
authority) is a party, which change, amendment or treaty becomes
effective on or after the date of this Indenture:
(i) the Company is or would be required on the
next succeeding due date for a payment with respect to the
Notes to pay any Additional Amounts with respect to the Notes
pursuant to Section 10.21, or
(ii) with respect to any payment due or to become
due under the Guarantees or this Indenture, RMI or NBI is, or
on the next succeeding due date with respect to the Notes
would be, required to pay any Additional Amounts pursuant to
Section 10.21.
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SECTION 11.02. Applicability of Article. Redemption of Notes
at the election of the Company or otherwise, as permitted or required by any
provision of this Indenture, shall be made in accordance with such provision and
this Article.
SECTION 11.03. Election to Redeem; Notice to Trustee. The
election of the Company to redeem any Notes pursuant to Section 11.01 shall be
evidenced by a Company Order and an Officers' Certificate stating that the
Company is entitled to effect such redemption and setting forth a statement of
facts showing that the conditions precedent to the right of redemption have
occurred. In case of any redemption at the election of the Company, the Company
shall, not less than 30 nor more than 60 days prior to the Redemption Date fixed
by the Company (unless a shorter notice period shall be satisfactory to the
Trustee), notify the Trustee in writing of such Redemption Date and of the
principal amount of the Notes to be redeemed.
SECTION 11.04. Selection by Trustee of Notes to be Redeemed.
(a) If less than all the Notes are to be redeemed, the portions of the Notes to
be redeemed shall be selected not more than 60 days prior to the Redemption Date
by the Trustee (or such shorter period as the Trustee may agree upon), from the
Outstanding Notes not previously called for redemption, by lot or such other
method as the Trustee shall deem fair and reasonable, and the amounts to be
redeemed may be equal to $1,000 or any integral multiple thereof, unless
otherwise provided in the terms of the Notes.
(b) The Trustee shall promptly notify the Company and the
Note Registrar in writing of the Notes selected for redemption and, in the case
of Notes selected for partial redemption, the principal amount thereof to be
redeemed.
(c) For all purposes of this Indenture, unless the
context otherwise requires, all provisions relating to redemption of Notes shall
relate, in the case of any Note redeemed or to be redeemed only in part, to the
portion of the principal amount of such Note which has been or is to be
redeemed.
SECTION 11.05. Notice of Redemption. (a) Notice of redemption
shall be given by first-class mail, postage prepaid, mailed not less than 30 nor
more than 60 days prior to the Redemption Date, to each Holder of Notes to be
redeemed, at his address appearing in the Note Register. All notices of
redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) if less than all the Outstanding Notes are to be
redeemed, the identification of the particular Notes to be redeemed;
(iv) in the case of a Note to be redeemed in part, the
principal amount of such Note to be redeemed and that after the
Redemption Date upon surrender of such Note, a new Note or Notes in the
aggregate principal amount equal to the unredeemed portion thereof will
be issued;
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(v) that Notes called for redemption must be surrendered
to the Paying Agent to collect the Redemption Price;
(vi) that on the Redemption Date the Redemption Price will
become due and payable upon each such Note or portion thereof to be
redeemed, and that (unless the Company shall default in payment of the
Redemption Price) interest thereon shall cease to accrue on and after
said date;
(vii) the place or places where such Notes are to be
surrendered for payment of the Redemption Price; and
(viii) the CUSIP number, if any, relating to such Notes.
(b) Notice of redemption of Notes to be redeemed at the
election of the Company shall be given by the Company or at the Company's
written request, by the Trustee in the name and at the expense of the Company.
If the Company elects to give notice of redemption, it shall provide the Trustee
with a certificate stating that such notice has been given in compliance with
the requirements of this Section.
(c) Such notice if mailed in the manner herein provided
shall be conclusively presumed to have been given, whether or not the Holder
receives such notice. In any case, failure to give such notice by mail or any
defect in the notice to the Holder of any Note designated for redemption as a
whole or in part shall not affect the validity of the proceedings for the
redemption of any other Note.
SECTION 11.06. Deposit of Redemption Price. Prior to 11:00
a.m., New York City time, on any Redemption Date, the Company shall irrevocably
deposit with the Trustee or with a Paying Agent an amount of money in same day
funds sufficient to pay the Redemption Price of, and, except if the Redemption
Date shall be an Interest Payment Date, accrued interest on, all the Notes or
portions thereof which are to be redeemed on that date. The Trustee or the
Paying Agent shall hold in trust for, and return to, the Company promptly after
the Business Day following the Redemption Date any interest or dividends, if
any, earned on amounts deposited with the Trustee or the Paying Agent remaining
after the payment of the aggregate Redemption Price for all Notes to be
redeemed; provided that neither the Trustee nor the Paying Agent shall be under
any obligation to place or invest such funds in an interest bearing account.
SECTION 11.07. Notes Payable on Redemption Date. (a) Notice of
redemption having been given as aforesaid, the Notes so to be redeemed shall, on
the Redemption Date, become due and payable at the Redemption Price therein
specified and from and after such date (unless the Company shall not have
deposited funds in accordance with Section 11.06 in respect of the payment of
the Redemption Price and accrued interest) such Notes shall cease to bear
interest. Upon surrender of any such Note for redemption in accordance with said
notice, such Note shall be paid by the Company at the Redemption Price together
with accrued interest to the Redemption Date; provided, however, that
installments of interest whose Stated Maturity is on or prior to the Redemption
Date shall be payable to the Holders of such Notes, or one or more Predecessor
Notes, registered as such on the relevant Regular Record Dates according to the
terms and the provisions of Section 3.08.
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(b) If any Note called for redemption shall not be so
paid upon surrender thereof for redemption, by deposit or segregation of funds
in accordance with Section 11.06, the principal and premium, if any, shall,
until paid, bear interest from the Redemption Date at the rate then borne by
such Note.
SECTION 11.08. Notes Redeemed or Purchased in Part. Any Note
which is to be redeemed or purchased only in part shall be surrendered to the
Paying Agent at the office or agency maintained for such purpose pursuant to
Section 10.02 (with, if the Company, the Note Registrar or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company, the Note Registrar or the Trustee as the case may
be, duly executed by the Holder thereof or such Holder's attorney duly
authorized in writing), and the Company shall execute, and pursuant to a Company
Order the Trustee shall authenticate and deliver to the Holder of such Note
without service charge, a new Note or Notes, of any authorized denomination as
requested by such Holder in aggregate principal amount equal to, and in exchange
for, the unredeemed portion of the principal of the Note so surrendered that is
not redeemed or purchased.
ARTICLE XII
Satisfaction and Discharge
SECTION 12.01. Satisfaction and Discharge of Indenture. This
Indenture shall cease to be of further effect (except as to surviving rights of
registration of transfer or exchange of the Notes herein expressly provided for)
and the Trustee, on demand of and at the expense of the Company, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture,
when
(a) either:
(i) all the Notes theretofore authenticated and
delivered (other than (x) lost, stolen or destroyed Notes
which have been replaced or paid as provided in Section 3.07
and (y) Notes for whose payment United States dollars have
theretofore been irrevocably deposited in trust by the Company
and thereafter repaid to the Company or discharged from such
trust, as provided in Section 10.03) have been delivered to
the Trustee for cancellation; or
(ii) all Notes not theretofore delivered to the
Trustee for cancellation
(x) have become due and payable, or
(y) will become due and payable at
their Stated Maturity within one year, or
(z) are to be called for redemption
within one year under arrangements satisfactory to
the Trustee for the giving of notice of redemption by
the Trustee in the name, and at the expense, of the
Company,
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and the Company has irrevocably deposited or caused to be
deposited with the Trustee as trust funds in trust an amount
sufficient to pay and discharge the entire indebtedness on the
Notes not theretofore delivered to the Trustee for
cancellation, including principal of, premium, if any, and
accrued interest on the Notes at such Maturity, Stated
Maturity or Redemption Date;
(b) the Company has paid all other sums payable hereunder
by the Company; and
(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each to the effect that all
conditions precedent herein provided for relating to the satisfaction
and discharge of this Indenture have been complied with and that such
satisfaction and discharge will not result in a breach or violation of,
or constitute a default under, this Indenture.
Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company to the Trustee under Section 6.07 and,
if United States dollars shall have been deposited with the Trustee pursuant to
subclause (ii) of Subsection (a) of this Section, the obligations of the Trustee
under Section 12.02 and the last paragraph of Section 10.03 shall survive.
SECTION 12.02. Application of Trust Money. Subject to the
provisions of the last paragraph of Section 10.03, all United States dollars
deposited with the Trustee pursuant to Section 12.01 shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent as the
Trustee may determine, to the Persons entitled thereto, of the principal of,
premium, if any, and interest on the Notes for whose payment such United States
dollars have been deposited with the Trustee.
ARTICLE XIII
Guarantees
SECTION 13.01. Guarantees. (a) For value received, RMI, in
accordance with this Article XIII, hereby absolutely, unconditionally and
irrevocably guarantees to the Trustee and the Holders, as if RMI were the
principal debtor, the punctual payment and performance, on demand, when due of
all Indenture Obligations (which for purposes of this Guarantee shall also be
deemed to include all commissions, fees, charges, costs and other expenses
(including reasonable legal fees and disbursements of one counsel) arising out
of or incurred by the Trustee or the Holders in connection with the enforcement
of this Guarantee).
(b) For value received, NBI, in accordance with this
Article XIII, hereby absolutely, unconditionally and irrevocably guarantees to
the Trustee and the Holders, as if NBI were the principal debtor, the punctual
payment and performance, on demand, when due of all Indenture Obligations (which
for purposes of this Guarantee shall also be deemed to include all commissions,
fees, charges, costs and other expenses (including reasonable legal fees and
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disbursements of one counsel) arising out of or incurred by the Trustee or the
Holders in connection with the enforcement of this Guarantee).
SECTION 13.02. Continuing Guarantee; No Right of Set-Off;
Independent Obligation. (a) Each of the Guarantees shall be a continuing
guarantee of the payment and performance of all Indenture Obligations and shall
remain in full force and effect until the payment in full of all of the
Indenture Obligations and shall apply to and secure any ultimate balance due or
remaining unpaid to the Trustee (including the fees and expenses of its agents
and counsel) or the Holders; and neither of the Guarantees shall be considered
as wholly or partially satisfied by the payment or liquidation at any time or
from time to time of any sum of money for the time being due or remaining unpaid
to the Trustee or the Holders. Each of the Note Guarantors covenants and agrees
to comply with all obligations, covenants, agreements and provisions applicable
to it in this Indenture including those set forth in Article VIII and Section
10.17. Without limiting the generality of the foregoing, each of the Note
Guarantors' liability shall extend to all amounts which constitute part of the
Indenture Obligations and would be owed by the Company under this Indenture and
the Notes but for the fact that they are unenforceable, reduced, limited,
impaired, suspended or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving the Company.
(b) Each of the Note Guarantors hereby guarantees that
the Indenture Obligations will be paid to the Trustee without set-off or
counterclaim or other reduction whatsoever (whether for taxes, withholding or
otherwise) in lawful currency of the United States of America.
(c) Each of the Note Guarantors guarantees that the
Indenture Obligations shall be paid strictly in accordance with their terms
regardless of any law, regulation or order now or hereafter in effect in any
jurisdiction affecting any of such terms or the rights of the Holders.
(d) Each of the Note Guarantors' liability to pay or
perform or cause the performance of the Indenture Obligations under the
Guarantees shall arise forthwith after demand for payment or performance by the
Trustee has been given to such Note Guarantor in accordance with the terms
hereof and in the manner prescribed in Section 1.06 hereof.
(e) Except as provided herein, the provisions of this
Article XIII cover all agreements between the parties hereto relative to the
Guarantees and none of the parties shall be bound by any representation,
warranty or promise made by any Person relative thereto which is not embodied
herein; and it is specifically acknowledged and agreed that the Guarantees have
been delivered by each of the Note Guarantors free of any conditions whatsoever
and that no representations, warranties or promises have been made to any of the
Note Guarantors affecting their liabilities hereunder, and that the Trustee
shall not be bound by any representations, warranties or promises now or at any
time hereafter made by the Company to either of the Note Guarantors.
SECTION 13.03. Guarantees Absolute. The obligations of each of
the Note Guarantors hereunder are independent of the obligations of the Company
under the Notes and this Indenture and a separate action or actions may be
brought and prosecuted against any of the
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Note Guarantors whether or not an action or proceeding is brought against the
Company and whether or not the Company is joined in any such action or
proceeding. The liability of each of the Note Guarantors hereunder is
irrevocable, absolute and unconditional and (to the extent permitted by law) the
liability and obligations of the Note Guarantors hereunder shall not be
released, discharged, mitigated, waived, impaired or affected in whole or in
part by:
(a) any defect or lack of validity or enforceability in
respect of any Indebtedness or other obligation of the Company or any
other Person under this Indenture or the Notes, or any agreement or
instrument relating to any of the foregoing;
(b) any grants of time, renewals, extensions,
indulgences, releases, discharges or modifications which the Trustee or
the Holders may extend to, or make with, the Company, the Note
Guarantors or any other Person, or any change in the time, manner or
place of payment of, or in any other term of, all or any of the
Indenture Obligations, or any other amendment or waiver of, or any
consent to or departure from, this Indenture or the Notes, including
any increase or decrease in the Indenture Obligations;
(c) the taking of security from the Company, the Note
Guarantors or any other Person, and the release, discharge or
alteration of, or other dealing with, such security;
(d) the occurrence of any change in the laws, rules,
regulations or ordinances of any jurisdiction by any present or future
action of any governmental authority or court amending, varying,
reducing or otherwise affecting, or purporting to amend, vary, reduce
or otherwise affect, any of the Indenture Obligations and the
obligations of the Note Guarantors hereunder;
(e) the abstention from taking security from the Company,
the Note Guarantors or any other Person or from perfecting, continuing
to keep perfected or taking advantage of any security;
(f) any loss, diminution of value or lack of
enforceability of any security received from the Company, the Note
Guarantors or any other Person, and including any other guarantees
received by the Trustee;
(g) any other dealings with the Company, the Note
Guarantors or any other Person, or with any security;
(h) the Trustee's or the Holders' acceptance of or
entering into any composition with the Company or the Note Guarantors;
(i) the application by the Holders or the Trustee of all
monies at any time and from time to time received from the Company, the
Note Guarantors or any other Person on account of any indebtedness and
liabilities owing by the Company or the Note Guarantors to the Trustee
or the Holders, in such manner as the Trustee or the Holders deem best
and the changing of such application in whole or in part and at any
time or from time to time, or any manner of application of collateral,
or proceeds thereof, to all or any of the Indenture Obligations, or the
manner of sale of any Collateral;
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(j) the release or discharge of the Company or the Note
Guarantors or of any other Guarantor of the Notes or of any Person
liable directly as surety or otherwise by operation of law or otherwise
for the Notes, other than an express release in writing given by the
Trustee, on behalf of the Holders, of the liability and obligations of
the Note Guarantors hereunder;
(k) any change in the name, business, capital structure
or governing instrument of the Company or the Note Guarantors or any
refinancing or restructuring of any of the Indenture Obligations;
(l) the sale of the Company's or the Note Guarantors'
business or any part thereof;
(m) subject to Section 13.14, any merger, amalgamation or
consolidation, arrangement or reorganization of the Company, the Note
Guarantors, any Person resulting from the merger, amalgamation or
consolidation of the Company or the Note Guarantors with any other
Person or any other successor to such Person or merged, amalgamated or
consolidated Person or any other change in the corporate existence,
structure or ownership of the Company or the Note Guarantors;
(n) the insolvency, bankruptcy, liquidation, winding-up,
dissolution, receivership or distribution of the assets of the Company
or its assets or any resulting discharge of any obligations of the
Company (whether voluntary or involuntary) or of a Note Guarantor or
the loss of corporate existence;
(o) subject to Section 13.14, any arrangement or plan of
reorganization affecting the Company or the Note Guarantors;
(p) any other circumstance (including any statute of
limitations) that might otherwise constitute a defense available to, or
discharge of, the Company or the Note Guarantors; or
(q) any modification, compromise, settlement or release
by the Trustee, or by operation of law or otherwise, of the Indenture
Obligations or the liability of the Company or any other obligor under
the Notes, or of any Collateral, in whole or in part, and any refusal
of payment by the Trustee, in whole or in part, from any other obligor
or other guarantor in connection with any of the Indenture Obligations,
whether or not with notice to, or further assent by, or any reservation
of rights against, the Note Guarantors.
SECTION 13.04. Right to Demand Full Performance. In the event
of any demand for payment or performance by the Trustee from any of the Note
Guarantors hereunder, the Trustee or the Holders shall have the right to demand
their full claim and to receive all dividends or other payments in respect
thereof until the Indenture Obligations shall have been paid in full, and the
Note Guarantors shall continue to be liable hereunder for any balance which may
be owing to the Trustee (including the fees and expenses of its agent and
counsel) or the Holders by the Company under this Indenture and the Notes. The
retention by the Trustee or the Holders of any security, prior to the
realization by the Trustee or the Holders of their rights to such security upon
foreclosure thereon, shall not, as between the Trustee and the Note
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Guarantors, be considered as a purchase of such security, or as payment,
satisfaction or reduction of the Indenture Obligations due to the Trustee or the
Holders by the Company or any part thereof.
SECTION 13.05. Waivers. (a) Each of the Note Guarantors hereby
expressly waives (to the extent permitted by law) notice of the acceptance of
this Guarantee and notice of the existence, renewal, extension or the
nonperformance, nonpayment, or nonobservance on the part of the Company of any
of the terms, covenants, conditions and provisions of this Indenture or the
Notes or any other notice whatsoever to or upon the Company or the Note
Guarantors with respect to the Indenture Obligations. Each of the Note
Guarantors hereby acknowledges communication to it of the terms of this
Indenture and the Notes and all of the provisions therein contained and consents
to and approves the same. Each of the Note Guarantors hereby expressly waives
(to the extent permitted by law) diligence, presentment, protest, and any right
to require a proceeding first against the Company.
(b) Without prejudice to any of the rights or recourses
which the Trustee or the Holders may have against the Company, each of the Note
Guarantors hereby expressly waives (to the extent permitted by law) any right to
require the Trustee or the Holders to:
(i) initiate or exhaust any rights, remedies or recourse
against the Company, the Note Guarantors or any other Person;
(ii) value, realize upon, or dispose of any security of
the Company or any other Person held by the Trustee or the Holders; or
(iii) initiate or exhaust any other remedy which the
Trustee or the Holders may have in law or equity;
before requiring or becoming entitled to demand payment from any Note Guarantor
under this Guarantee.
SECTION 13.06. Note Guarantors Remain Obligated in Event the
Company Is No Longer Obligated to Discharge Indenture Obligations. It is the
express intention of the Trustee and the Note Guarantors that if for any reason
the Company has no legal existence, is or becomes under no legal obligation to
discharge the Indenture Obligations owing to the Trustee or the Holders by the
Company or if any of the Indenture Obligations owing by the Company to the
Trustee or the Holders becomes irrecoverable from the Company by operation of
law or for any reason whatsoever, the Guarantees and the covenants, agreements
and obligations of the Note Guarantors contained in this Article XIII shall
nevertheless be binding upon the Note Guarantors, as principal debtors, until
such time as all such Indenture Obligations have been paid in full to the
Trustee and all Indenture Obligations owing to the Trustee or the Holders by the
Company have been discharged, or such earlier time as Section 4.02 shall apply
to the Notes and the Note Guarantors shall be responsible for the payment
thereof to the Trustee or the Holders upon demand.
SECTION 13.07. Waiver of Rights. Each of the Note Guarantors
agrees (to the extent permitted by law) that it hereby waives and will not in
any manner whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, exoneration, contribution,
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indemnity or subrogation (whether contractual, under Section 509 of Title Eleven
of the United States Code, under common law or otherwise) or any similar rights
or "claims" (as such term is defined under Title Eleven of the United States
Code), against the Company or any Restricted Subsidiary arising from the
existence of, or performance by, the Note Guarantors under this Guarantee, until
such time as the Indenture Obligations have been paid in full.
SECTION 13.08. Guarantees Are in Addition to Other Security.
The Guarantees shall be in addition to and not in substitution for any other
guarantees or other security which the Trustee may now or hereafter hold in
respect of the Indenture Obligations owing to the Trustee or the Holders by the
Company and (except as may be required by law) the Trustee shall be under no
obligation to marshal in favor of the Note Guarantors any other guarantees or
other security or any moneys or other assets which the Trustee may be entitled
to receive or upon which the Trustee or the Holders may have a claim.
SECTION 13.09. Release of Security Interests. Without limiting
the generality of the foregoing and except as otherwise provided in this
Indenture, each of the Note Guarantors hereby consents and agrees, to the
fullest extent permitted by applicable law, that the rights of the Trustee
hereunder, and the liability of each of the Note Guarantors hereunder, shall not
be affected by any and all releases for any purpose of any Collateral, if any,
from the Liens and security interests created by any document relating thereto
and that this Guarantee shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any of the Indenture Obligations is
rescinded or must otherwise be returned by the Trustee upon the insolvency,
bankruptcy or reorganization of the Company or otherwise, all as though such
payment had not been made. Notwithstanding any of the foregoing, NBI shall be
released from its obligations as Note Guarantor upon the Company's request if
all of the Designated Class A Shares and Class B Shares owned by NBI and pledged
as part of the Pledged Share Collateral have been released from the security
interest in favor of the Collateral Agent as permitted by and in accordance with
the provisions of this Indenture and/or the Security Agreement.
SECTION 13.10. No Bar to Further Actions. Except as provided
by law, no action or proceeding brought or instituted under this Article XIII
and this Guarantee and no recovery or judgment in pursuance thereof shall be a
bar or defense to any further action or proceeding which may be brought under
this Article XIII and this Guarantee by reason of any further default or
defaults under this Article XIII and this Guarantee or in the payment of any of
the Indenture Obligations owing by the Company.
SECTION 13.11. Failure to Exercise Rights Shall Not Operate as
a Waiver; No Suspension of Remedies. (a) No failure to exercise and no delay in
exercising, on the part of the Trustee or the Holders, any right, power,
privilege or remedy under this Article XIII and this Guarantee shall operate as
a waiver thereof, nor shall any single or partial exercise of any rights, power,
privilege or remedy preclude any other or further exercise thereof, or the
exercise of any other rights, powers, privileges or remedies. The rights and
remedies herein provided for are cumulative and not exclusive of any rights or
remedies provided in law or equity.
(b) Nothing contained in this Article XIII shall limit
the right of the Trustee or the Holders to take any action to accelerate the
maturity of the Notes pursuant to Article V or to pursue any rights or remedies
hereunder or under applicable law.
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SECTION 13.12. Trustee's Duties; Notice to Trustee. (a) Any
provision in this Article XIII or elsewhere in this Indenture allowing the
Trustee to request any information or to take any action authorized by, or on
behalf of a Note Guarantor, shall be permissive and shall not be obligatory on
the Trustee except as the Holders may direct in accordance with the provisions
of this Indenture.
(b) The Trustee shall not be required to inquire into the
existence, powers or capacities of the Company, the Note Guarantors or the
officers, directors or agents acting or purporting to act on their respective
behalf.
(c) Notwithstanding the provisions of this Article XIII
or any other provision of this Indenture, the Trustee shall not be charged with
knowledge of the existence of any facts which would prohibit the making of any
payment to or by the Trustee in respect of the Notes, unless and until the
Trustee shall have received written notice thereof from a Note Guarantor; and,
prior to the receipt of any such written notice, the Trustee, subject to the
provisions of Section 6.01, shall be entitled in all respects to assume that no
such facts exist; provided, however, that if the Responsible Officer of the
Trustee shall not have received any such notice from a Note Guarantor at least
three Business Days prior to the date upon which by the terms hereof any money
may become payable for any purpose (including, without limitation, the payment
of the principal of, premium, if any, or interest on any Note), then, anything
herein contained to the contrary notwithstanding, the Trustee shall have full
power and authority to receive such money and to apply the same to the purpose
for which such money was received and shall not be affected by any notice to the
contrary which may be received by it within three Business Days prior to such
date; nor shall the Trustee be charged with knowledge of the curing of any such
default or the elimination of the act or condition preventing any such payment
unless and until the Responsible Officer of the Trustee shall have received an
Officers' Certificate to such effect.
(d) In the case at any time any Paying Agent other than
the Trustee shall have been appointed by the Company and be then acting
hereunder, the term "Trustee" as used in this Article XIII shall in such case
(unless the context otherwise requires) be construed as extending to and
including such Paying Agent within its meaning as fully for all intents and
purposes as if such Paying Agent were named in this Article XIII in addition to
or in place of the Trustee; provided, however, that this Section shall not apply
to the Company or any Affiliate of the Company if the Company or such Affiliate
acts as Paying Agent.
SECTION 13.13. Successors and Assigns. All terms, agreements
and conditions of this Article XIII shall extend to and be binding upon each
Note Guarantor and its successors and permitted assigns and shall enure to the
benefit of and may be enforced by the Trustee and its successors and assigns;
provided, however, that neither Note Guarantor may assign any of its rights or
obligations hereunder other than in accordance with Article VIII.
SECTION 13.14. Release of Guarantee. Concurrently with the
payment in full of all of the Indenture Obligations, the Note Guarantors shall
be released from and relieved of its obligations under this Article XIII. Upon
the delivery by the Company to the Trustee of an Officers' Certificate and, if
requested by the Trustee, an Opinion of Counsel to the effect that the
transaction giving rise to the release of the Guarantees was made by the Company
in accordance
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with the provisions of this Indenture and the Notes, the Trustee shall execute
any documents reasonably required in order to evidence the release of each Note
Guarantor from its obligations under the Guarantees. If any of the Indenture
Obligations are revived and reinstated after the termination of the Guarantees,
then all of the obligations of the Note Guarantors under this Guarantee shall be
revived and reinstated as if this Guarantee had not been terminated until such
time as the Indenture Obligations are paid in full, and the Note Guarantors
shall enter into an amendment to this Guarantee, reasonably satisfactory to the
Trustee, evidencing such revival and reinstatement.
SECTION 13.15. Execution of Guarantees. To evidence the
Guarantees, each of the Note Guarantors hereby agrees to execute a guarantee
substantially in the form set forth in Exhibit A, to be endorsed on each Note
authenticated and delivered by the Trustee and that this Indenture shall be
executed on behalf of such Note Guarantor by its Chairman of the Board, its
President or one of its Vice Presidents, under its corporate seal reproduced
thereon attested by its Secretary or one of its Assistant Secretaries. The
signature of any of these officers on the Notes may be manual or facsimile.
SECTION 13.16. Payment Permitted by Note Guarantors if No
Default. Nothing contained in this Article XIII, elsewhere in this Indenture or
in any of the Notes shall prevent a Note Guarantor from making payments at any
time of principal of, premium, if any, or interest on the Notes.
ARTICLE XIV
Security
SECTION 14.01. Security. In order to secure the due and
punctual payment of the Indenture Obligations and the Guarantee Obligations,
when and as the same shall be due and payable, whether on an interest payment
date, at maturity, by acceleration, call for redemption or otherwise, and
performance of all other obligations of the Company and Note Guarantors, to the
Holders or the Trustee under this Indenture and in respect of the Notes,
according to the terms hereof or thereof:
(a) RMI will grant a first priority security interest
over its right, title and interest in and to the Service Agreements,
(b) the Company will grant a first priority security
interest over its right, title and interest in and to the Support
Agreement, and
(c) each of the Company and NBI will grant a first
priority security interest over its right, title and interest in and to
the Pledged Share Collateral,
to the Collateral Agent on behalf of the Trustee and the Holders pursuant to the
Security Documents and to the extent therein provided, no later than the Issue
Date.
At the time the Security Documents are executed:
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(i) RMI will have full right, power and lawful authority
to grant, bargain, sell, release, convey, hypothecate, assign,
mortgage, transfer and confirm, absolutely, its rights and interests
under the Service Agreements,
(ii) the Company will have full right, power and lawful
authority to grant, bargain, sell, release, convey, hypothecate,
assign, mortgage, transfer and confirm, absolutely, its rights and
interests under the Support Agreement, and
(iii) the Company and NBI will have full right, power and
lawful authority to grant, bargain, sell, release, convey, hypothecate,
assign, mortgage, transfer and confirm, absolutely, the property
constituting the Pledged Share Collateral,
each in the manner and form done, or intended to be done, in the Security
Documents, free and clear of all Liens whatsoever, and each of the Company, RMI
and NBI will: (a) for so long as the Notes and the Guarantees are outstanding,
warrant and defend the title to the same against the claims of all Persons
whatsoever (unless the Senior Notes Collateral is released as provided herein,
in the Security Documents or in the Intercreditor Agreement), (b) execute,
acknowledge and deliver to the Collateral Agent and the Trustee such further
assignments, transfers, assurances or other instruments as the Collateral Agent
or the Trustee may require or request and (c) do or cause to be done all such
acts and things as may be necessary or proper, or as may be required by the
Collateral Agent or the Trustee, to assure and confirm to the Collateral Agent
and the Trustee the security interest in the Senior Notes Collateral
contemplated hereby and by the Security Documents, or any part thereof, as from
time to time constituted, so as to render the same available for the security
and benefit of this Indenture and of the Guarantees secured hereby, according to
the intent and purposes herein expressed. The Security Documents will create a
direct and valid Lien on the property constituting the Senior Notes Collateral
as set forth in the Security Documents.
The Senior Notes Collateral shall secure the Indenture
Obligations and the obligations under the Guarantees, and performance of all
other obligations of the Company and Note Guarantors, up to the amount
outstanding from time to time under the Notes. The claims of Holders against the
Senior Notes Collateral will be subject to the Intercreditor Agreement. The
Holders hereby authorize and direct the Trustee, or a Co-Trustee appointed by
the Trustee, to enter into the Intercreditor Agreement on their behalf.
SECTION 14.02. Additional Security. To the extent (i) any
Additional Notes are issued as permitted by this Indenture or (ii) as otherwise
provided in the Indenture or Security Agreement, the assets, properties and
contract rights constituting the Senior Notes Collateral may in the future be
expanded in accordance with the terms of the Security Agreement.
SECTION 14.03. Recording and Opinions. The Company and each of
the Note Guarantors will cause, at their own expense, the Security Documents,
this Indenture and all amendments or supplements thereto to be registered,
recorded and filed or re-recorded, re-filed and renewed in such manner and in
such place or places, if any, as may be required by law in order fully to
preserve and protect the Liens created by the Security Documents on all parts of
the Senior Notes Collateral and to effectuate and preserve the security of the
Holders and all rights of the Trustee and the Collateral Agent.
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The Company and each of the Note Guarantors shall furnish to
the Trustee:
(a) promptly after the execution and delivery of the
Security Documents, an Opinion of Counsel either (i) stating that, in
the opinion of such counsel, this Indenture and the assignment of the
Senior Notes Collateral intended to be made by the Security Documents
and all other instruments of further assurance or amendment have been
properly recorded, registered and filed to the extent necessary to make
effective the Lien intended to be created by the Security Documents,
and reciting the details of such action or referring to prior opinions
of counsel in which such details are given, and stating that as to the
Security Documents such recording, registering and filing are the only
recordings, registrations and filings necessary to give notice thereof
and that no re-recordings, re-registrations or re-filings are necessary
to maintain such notice, and further stating that all financing
statements, continuation statements (or the equivalent thereof under
the laws of Canada and any other relevant jurisdictions) and other
instruments of further assurance have been executed and filed that are
necessary fully to preserve and protect the rights of the Collateral
Agent on behalf of the Holders and the Trustee hereunder and under the
Security Documents, or (ii) stating that, in the opinion of such
counsel, no such action is necessary to make such Lien and assignment
effective; and
(b) within 30 days after July 1 in each year beginning
with July 1, 2003, an Opinion of Counsel, dated as of such date, either
(a) stating that, in the opinion of such counsel, such action has been
taken with respect to the recording, registering, filing, re-recording,
re-registering and re-filing of all supplemental indentures, financing
statements, continuation statements (or the equivalent thereof under
the laws of Canada and any other relevant jurisdictions) or other
instruments of further assurance as is necessary to maintain the Lien
of the Security Documents and reciting the details of such action or
referring to prior opinions of counsel in which such details are given,
and stating that all financing statements and continuation statements
or the equivalent thereof under the laws of Canada and any other
relevant jurisdiction have been executed and filed that are necessary
fully to preserve and protect the rights of the Collateral Agent on
behalf of the Holders and the Trustee hereunder and under the Security
Documents, or (b) stating that, in the opinion of such counsel, no such
action is necessary to maintain such Lien and assignment.
SECTION 14.04. Release and Disposition of Collateral. (a) (a)
The Senior Notes Collateral shall be subject to release solely as permitted
below or in the Security Documents:
(i) upon the payment of all principal, premium, if any,
and interest under this Indenture and the Notes, the Security Documents
shall terminate and the Senior Notes Collateral shall be released from
the Lien created by this Indenture and the Security Documents;
(ii) with respect to any of the Pledged Share Collateral,
in the event of a redemption or repurchase in part of the Notes that is
permitted or required by this Indenture, such number of Designated
Class A Shares and/or Class B Shares shall be released from the
security interest in favor of the Collateral Agent upon the Company's
request in writing to the Collateral Agent and the Trustee, together
with any Officers'
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Certificate and Opinion of Counsel required under this Indenture, as
bears the same proportion to the total number of Designated Class A
Shares and Class B Shares comprising the Pledged Share Collateral as of
the Issue Date as the proportion of the principal amount of Notes
redeemed or repurchased to the original principal amount of Notes
issued on the Issue Date, provided that the total number of Designated
Class A Shares and Class B Shares comprising the Pledged Share
Collateral after any portion thereof is released from the Lien under
this Indenture and the Security Documents shall have an aggregate
Current Market Price on the date of such release that is not less than
200 percent of the principal amount of Notes remaining Outstanding
after giving effect to such redemption or repurchase;
(iii) with respect to any of the shares of Class A Common
Stock included in the Designated Class A Shares pledged by either of
the Company or NBI as part of the Pledged Share Collateral, such number
of shares of Class A Common Stock out of the Designated Class A Shares
so pledged shall be released from the security interest in favor of the
Collateral Agent as the Company or NBI may request in writing to the
Collateral Agent and the Trustee, together with any Officers'
Certificate required under this Indenture, provided that, concurrent
with the release of such shares, either the Company or NBI deposits
with the Collateral Agent, free and clear of any Liens whatsoever, a
number of shares of Class A Common Stock equal to the number of shares
of Class A Common Stock released pursuant to this provision, in
substitution of the shares of Class A Common Stock so released, such
that after giving effect to this substitution, the total number of
Designated Class A Shares included within the Pledged Share Collateral
immediately prior to such release shall be the same as the number of
Designated Class A Shares immediately after such release, provided
further that the Company delivers to the Trustee and the Collateral
Agent (a) an Officers' Certificate confirming that the shares of Class
A Common Stock of Hollinger International delivered to the Collateral
Agent in substitution of the shares of Class A Common Stock requested
to be released are free and clear of any Liens whatsoever, and (b) an
Opinion of Counsel that (i) the Collateral Agent has a valid, perfected
security interest in the substitute shares of Class A Common Stock, and
(ii) either (x) such action has been taken as is necessary to maintain
the continuing validity of the security interest in favor of the
Collateral Agent in the Designated Class A Shares not so substituted or
(y) no such action is necessary to maintain such security interest;
(iv) upon a redemption of all of the Notes effected by the
Company in accordance with Article XI, or legal defeasance effected by
the Company in accordance with Article IV or upon a satisfaction and
discharge effected by the Company in accordance with Article XII, all
of the Senior Notes Collateral shall be released;
(v) upon the deposit by the Company in the Collateral
Account with the Collateral Agent, as security for the Company's
payment obligations with respect to that portion of the outstanding
principal amount of the Notes (the "Cash Collateralized Notes")
specified in a notice to the Trustee, cash in United States dollars,
U.S. Government Obligations, or a combination thereof, in such amounts
(the "Cash Collateralized Note Amount") as will be sufficient, in the
opinion of a recognized firm of independent public accountants
nationally recognized in the United States or in Canada,
111
to pay and discharge the principal of, premium, if any, and interest on
the Cash Collateralized Notes on the Stated Maturity, such number of
Designated Class A Shares and/or Class B Shares as the Company may
request in writing to the Trustee and the Collateral Agent, together
with any Officers' Certificate and Opinion of Counsel required under
this Indenture, shall be released from the Lien under this Indenture
and the Security Documents in favor of the Collateral Agent as bears
the same proportion to the total number of Designated Class A Shares
and Class B Shares comprising the Pledged Share Collateral as of the
Issue Date as the proportion of the aggregate principal amount of the
Cash Collateralized Notes to the original principal amount of Notes
issued on the Issue Date, provided that the total number of Designated
Class A Shares and Class B Shares comprising the Pledged Share
Collateral after any portion thereof is released pursuant to this
provision shall have an aggregate Current Market Price on the date of
such release that is not less than 200 percent of the aggregate
principal amount of Notes outstanding (excluding the Cash
Collateralized Notes); or
(vi) by consent of Holders of 90% or more of the
outstanding principal amount of the Notes, the Holders may elect to
consent to the release of their Lien in the Senior Notes Collateral.
(b) The release of any portion of the Senior Notes
Collateral from the Lien under this Indenture and the Security Documents
pursuant to the terms hereof and of the Security Documents will not be deemed
to impair the security interest under this Indenture in contravention of the
provisions hereof. To the extent applicable, the Company and the Note
Guarantors shall cause Trust Indenture Act Section 314(d) relating to the
release of property from the Lien under the Security Documents to be complied
with. Any certificate or opinion required by Trust Indenture Act Section 314(d)
may be made by an Officer of the Company, except in cases in which Trust
Indenture Act Section 314(d) requires that such certificate or opinion be made
by an independent Person.
SECTION 14.05. Enforcement of Claims Against Collateral. If
the Notes become due and payable prior to their final Stated Maturity for any
reason or are not paid in full at the final Stated Maturity and no payment has
been made following a demand on either of the Guarantees, the Collateral Agent
and the Trustee have the right to foreclose or otherwise realize upon the
relevant Collateral in accordance with instructions from Holders of a majority
in aggregate principal amount of the Notes. The proceeds received by the
Collateral Agent and the Trustee upon a foreclosure or realization will be
applied by the Collateral Agent and the Trustee first to pay the expenses of
such foreclosure or realization and fees and other amounts then payable to the
Collateral Agent and the Trustee under this Indenture, the Intercreditor
Agreement and the Security Documents, and thereafter, to pay all amounts owing
to Holders under this Indenture, the Notes and the Security Documents. Any
remaining proceeds will be payable to the Company or as may otherwise be
required.
SECTION 14.06. Authorization of Actions To Be Taken by the
Trustee. Subject to the provisions of the Security Documents and the
Intercreditor Agreement, the Trustee shall have power to institute and to
maintain such suits and proceedings as it may deem expedient to prevent any
impairment of the Senior Notes Collateral by any acts which may be unlawful or
in violation of the Security Documents and the Intercreditor Agreement, or this
Indenture, and such
112
suits and proceedings as the Trustee may deem expedient to preserve or protect
its interests and the interests of the Holders in the Senior Notes Collateral
(including power to institute and maintain suits or proceedings to restrain the
enforcement of or compliance with any legislative or governmental enactment,
rule, or order that may be unconstitutional or otherwise invalid if the
enforcement of, or compliance with, such enactment, rule or order would impair
the security hereunder or be prejudicial to the interest of the Holders or the
Trustee). Notwithstanding anything herein or in any of the Security Documents to
the contrary, subject to Article VI hereof, the Trustee assumes no
responsibility for the validity, perfection, priority or enforceability of the
security interest in any of the Senior Notes Collateral and shall have no
obligation to take any action to procure or maintain such validity, perfection,
priority or enforceability.
* * * *
113
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, all as of the day and year first above written.
HOLLINGER INC.
By: /s/ P. Y. Atkinson
-------------------------------
Name: Peter Y. Atkinson
Title: Executive Vice President
and Director
Attest: /s/ H. Maki
------------------------
Name: Helgi Maki
Title:
RAVELSTON MANAGEMENT INC.,
solely in its capacity as Guarantor
By: /s/ P. Y. Atkinson
-------------------------------
Name: Peter Y. Atkinson
Title: Executive Vice President
and Director
Attest: /s/ H. Maki
------------------------
Name: Helgi Maki
Title:
504468 N.B. INC., solely in its capacity as
Guarantor
By: /s/ P. Y. Atkinson
-------------------------------
Name: Peter Y. Atkinson
Title: Executive Vice President
and Director
Attest: /s/ H. Maki
------------------------
Name: Helgi Maki
Title:
THE RAVELSTON CORPORATION LIMITED
By: /s/ P. Y. Atkinson
-------------------------------
Name: Peter Y. Atkinson
Title: Executive Vice President
and Director
Attest: /s/ H. Maki
------------------------
Name: Helgi Maki
Title:
114
SUGRA LIMITED
By: /s/ P. Y. Atkinson
-------------------------------
Name: Peter Y. Atkinson
Title: Executive Vice President
and Director
Attest: /s/ H. Maki
------------------------
Name: Helgi Maki
Title:
WACHOVIA TRUST COMPANY,
NATIONAL ASSOCIATION, not in its
individual capacity, but solely as Trustee
hereunder
By: /s/ Amy L. Martin
-------------------------------
Name: Amy L. Martin
Title: Assistant Vice President
115
SCHEDULE 1
PERMITTED INDEBTEDNESS
DEBTOR CREDITOR AMOUNT
------ -------- ------
Hollinger Inc. Domgroup Ltd. Cdn. $9,927,102
Sugra Limited The Ravelston Corporation Limited Cdn. $7,632,661
Sugra Limited 3016296 Nova Scotia Company Cdn. $1,090,000
Sugra Limited Sugra (Bermuda) Limited Cdn. $ 776,012
Sugra Limited Hollinger Canadian Publishing Holdings Co. Cdn. $ 17,371
Hollinger Inc. Hollinger Canadian Publishing Holdings Co. Cdn. $ 5,717
Holcay Holdings Ltd. Domgroup Ltd. Cdn. $2,288,052
JP Publishing International Inc. Domgroup Ltd. Cdn. $ 20,521
EXHIBIT A
FORM OF NOTE
EXHIBIT B
FORM OF TRANSFER CERTIFICATE FOR TRANSFER TO QIB
[Date]
Wachovia Trust Company, National Association
Corporate Trust Administration
920 King Street, Suite 102
Wilmington, DE 19801
Re: 11.875% Senior Secured Notes due 2011 (the "Notes") of
Hollinger Inc. (the "Company")
Ladies and Gentlemen:
Reference is hereby made to the Indenture, dated as of March 10, 2003
(as amended and supplemented from time to time, the "Indenture"), among the
Company, Ravelston Management Inc., 504468 N.B. Inc., The Ravelston Corporation
Limited, Sugra Limited and Wachovia Trust Company, National Association, as
Trustee. Capitalized terms used but not defined herein shall have the meanings
given them in the Indenture.
This letter relates to the transfer of $________ aggregate principal
amount of Notes [in the case of a transfer of an interest in a Regulation S
Global Note: which represents an interest in a Regulation S Global Note
beneficially owned] by the undersigned (the "Transferor"), to effect the
transfer of such Notes in exchange for an equivalent beneficial interest in the
Rule 144A Global Note.
In connection with such request, and with respect to such Notes, the
Transferor does hereby certify that such Notes are being transferred in
accordance with Rule 144A under the Securities Act of 1933, as amended ("Rule
144A"), to a transferee that the Transferor reasonably believes is purchasing
the Notes for its own account or an account with respect to which the transferee
exercises sole investment discretion, and the transferee, as well as any such
account, is a "qualified institutional buyer" within the meaning of Rule 144A,
in a transaction meeting the requirements of Rule 144A and in accordance with
applicable securities laws of any state of the United States or any other
jurisdiction.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
Very truly yours,
[Name of Transferor]
By:_________________
Authorized Signature
EXHIBIT C
FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH
TRANSFERS PURSUANT TO REGULATION S
[Date]
Wachovia Trust Company, National Association
Corporate Trust Administration
920 King Street, Suite 102
Wilmington, DE 19801
Re: 11.875% Senior Secured Notes due 2011 (the "Notes") of
Hollinger Inc. (the "Company")
Ladies and Gentlemen:
Reference is hereby made to the Indenture, dated as of March 10, 2003
(as amended and supplemented from time to time, the "Indenture"), among the
Company, Ravelston Management Inc., 504468 N.B. Inc., The Ravelston Corporation
Limited, Sugra Limited and Wachovia Trust Company, National Association, as
Trustee. Capitalized terms used but not defined herein shall have the meanings
given them in the Indenture.
In connection with the proposed sale of $________ aggregate principal
amount of the Notes [in the case of a transfer of an interest in a Rule 144A
Global Note: which represents an interest in a Rule 144A Global Note
beneficially owned] by the undersigned (the "Transferor"), we confirm that such
sale has been effected pursuant to and in accordance with Regulation S under the
Securities Act of 1933, as amended ("Regulation S"), and, accordingly, we
represent that:
(a) the offer of the Notes was not made to a person in
the United States;
(b) either (i) at the time the buy order was originated,
the transferee was outside the United States or we and any person
acting on our behalf reasonably believed that the transferee was
outside the United States or (ii) the transaction was executed in, on
or through the facilities of a designated off-shore securities market
and neither we nor any person acting on our behalf knows that the
transaction has been pre-arranged with a buyer in the United States;
(c) no directed selling efforts have been made in the
United States in contravention of the requirements of Rule 903(b) or
Rule 904(b) of Regulation S, as applicable;
(d) the transaction is not part of a plan or scheme to
evade the registration requirements of the Securities Act; and
(e) we are the beneficial owner of the principal amount
of Notes being transferred.
In addition, if the sale is made during a Distribution Compliance
Period and the provisions of Rule 904(b)(1) or Rule 904(b)(2) of Regulation S
are applicable thereto, we confirm that such sale has been made in accordance
with the applicable provisions of Rule 904(b)(1) or Rule 904(b)(2), as the case
may be.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this letter have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:_________________
Authorized Signature
EXHIBIT D
FORM OF RULE 144 CERTIFICATION
[Date]
Wachovia Trust Company, National Association
Corporate Trust Administration
920 King Street, Suite 102
Wilmington, DE 19801
Re: 11.875% Senior Secured Notes due 2011 (the "Notes") of
Hollinger Inc. (the "Company")
Ladies and Gentlemen:
Reference is hereby made to the Indenture, dated as of March 10, 2003
(as amended and supplemented from time to time, the "Indenture"), among the
Company, Ravelston Management Inc., 504468 N.B. Inc., The Ravelston Corporation
Limited, Sugra Limited and Wachovia Trust Company, National Association, as
Trustee. Capitalized terms used but not defined herein shall have the meanings
given them in the Indenture.
In connection with the proposed sale of $________ aggregate principal
amount of the Notes [in the case of a transfer of an interest in a Rule 144A
Global Note: which represents an interest in a Rule 144A Global Note
beneficially owned] by the undersigned (the "Transferor"), we confirm that such
sale has been effected pursuant to and in accordance with Rule 144 under the
Securities Act.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
Very truly yours,
[Name of Transferor]
By:_________________
Authorized Signature
EXHIBIT E
FORM OF INTERCREDITOR AGREEMENT
EXHIBIT F
INTERNATIONAL SUBORDINATION AGREEMENT
EXHIBIT G
RMI SUBORDINATION AGREEMENT
EXHIBIT H
SECURITY AGREEMENT
Exhibit 4.2
EXECUTION COPY
Hollinger Inc.
$120,000,000
11.875% Senior Secured Notes due 2011
REGISTRATION RIGHTS AGREEMENT
March 5, 2003
Wachovia Securities, Inc.
One Wachovia Center
301 South College Street
Charlotte, North Carolina 28288-0604
Ladies and Gentlemen:
This Registration Rights Agreement (the "Agreement") is
entered into by and among Hollinger Inc., a Canadian corporation (the
"Company"), Ravelston Management Inc., an Ontario corporation, and 504468 N.B.
Inc., a New Brunswick corporation (together, the "Note Guarantors"), and
Wachovia Securities, Inc. (the "Initial Purchaser").
This Agreement is entered into in connection with the purchase
agreement, dated March 5, 2003, by and among the Company, the Note Guarantors
and the Initial Purchaser (the "Purchase Agreement"), which provides for the
issuance and sale by the Company to the Initial Purchaser of $120,000,000
aggregate principal amount of the Company's 11.875% Senior Secured Notes due
2011 (the "Notes") to be unconditionally guaranteed on a senior secured basis by
the Note Guarantors (the "Note Guarantees"). In order to induce the Initial
Purchaser to enter into the Purchase Agreement, the Company and the Note
Guarantors have agreed to provide the registration rights set forth in this
Agreement for the benefit of the Initial Purchaser and its direct and indirect
transferees. The parties hereby agree as follows:
1. Definitions. Capitalized terms used herein without
definition shall have their respective meanings set forth in the Purchase
Agreement. As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Additional Interest" has the meaning set forth in Section 4
hereto.
1
"Affiliate" means, with respect to any specified person, any
other person that, directly or indirectly, is in control of, is controlled by,
or is under common control with, such specified person. For purposes of this
definition, control of a person means the power, direct or indirect, to direct
or cause the direction of the management and policies of such person whether by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Agreement" has the meaning set forth in the preamble hereto.
"Business Day" means any day excluding Saturday, Sunday or any
other day which is a legal holiday under the laws of New York, New York or is a
day on which banking institutions therein located are authorized or required by
law or other governmental action to close.
"Commission" means the Securities and Exchange Commission.
"Consummate" means, with respect to a Registered Exchange
Offer, the occurrence of (a) the filing and effectiveness under the Act of the
Exchange Offer Registration Statement relating to the Exchange Notes to be
issued in the Registered Exchange Offer, (b) the maintenance of such
Registration Statement continuously effective and the keeping of the Registered
Exchange Offer open for a period not less than the minimum period required
pursuant to Section 2(c)(ii) hereof, (c) the Company's acceptance for exchange
of all Transfer Restricted Notes duly tendered and not validly withdrawn
pursuant to the Registered Exchange Offer and (d) the delivery of Exchange Notes
by the Company to the registrar under the Indenture in the same aggregate
principal amount as the aggregate principal amount of Transfer Restricted Notes
duly tendered and not validly withdrawn by Holders thereof pursuant to the
Registered Exchange Offer and the delivery of such Exchange Notes to such
Holders. The term "Consummation" has a meaning correlative to the foregoing.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated thereunder.
"Exchange Notes" means debt securities of the Company,
guaranteed by the Note Guarantors, substantially identical in all material
respects to the Notes other than issue date (except that the Additional Interest
provisions and the transfer restrictions pertaining to the Notes will be
modified or eliminated, as appropriate), to be issued under the Indenture.
"Exchange Offer Registration Period" means the 180-day period
following the Consummation of the Registered Exchange Offer, exclusive of any
period during which any stop order shall be in effect suspending the
effectiveness of the Exchange Offer Registration Statement or during which the
Company has suspended the use of the Prospectus contained therein pursuant to
Section 2(d); provided, however, that in the event that all resales of Exchange
Notes (including, subject to the time periods set forth herein, any resales by
Participating Broker-Dealers) covered by such Exchange Offer Registration
Statement have been made, the Exchange Offer Registration Statement need not
thereafter remain continuously effective for such period.
"Exchange Offer Registration Statement" means a registration
statement of the Company and the Note Guarantors on an appropriate form under
the Act with respect to the
2
Registered Exchange Offer, all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.
"Filing Date" has the meaning set forth in Section 2 hereto.
"Holder" means any holder from time to time of Transfer
Restricted Notes or Exchange Notes (including the Initial Purchaser).
"Indenture" means the indenture relating to the Notes and the
Exchange Notes, to be dated as of March 10, 2003, among the Company, the Note
Guarantors, The Ravelston Corporation Limited, Sugra Limited and Wachovia Trust
Company, National Association, as trustee, as the same may be amended,
supplemented, waived or otherwise modified from time to time in accordance with
the terms thereof.
"Initial Purchaser" has the meaning set forth in the preamble
hereto.
"Issue Date" means March 10, 2003.
"Losses" has the meaning set forth in Section 8(d) hereto.
"Majority Holders" means the Holders of a majority of the
aggregate principal amount of Transfer Restricted Notes registered under a
Registration Statement.
"Managing Underwriters" means the investment banker or
investment bankers and manager or managers that shall administer an underwritten
offering under a Shelf Registration Statement.
"Notes" has the meaning set forth in the preamble hereto.
"Participating Broker-Dealer" means any Holder (which may
include the Initial Purchaser) that is a broker-dealer electing to exchange
Notes acquired for its own account as a result of market-making activities or
other trading activities for Exchange Notes.
"Private Exchange Notes" has the meaning set forth in Section
2(g) hereof.
"Prospectus" means the prospectus included in any Registration
Statement (including a prospectus that discloses information previously omitted
from a prospectus filed as part of an effective registration statement in
reliance upon Rule 430A under the Act or any similar rule that may be adopted by
the Commission), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Transfer Restricted
Notes covered by such Registration Statement, and all amendments and supplements
to the Prospectus.
"Purchase Agreement" has the meaning set forth in the preamble
hereto.
3
"Registered Exchange Offer" means the proposed offer to the
Holders to issue and deliver to such Holders, in exchange for the Notes, a like
aggregate principal amount of Exchange Notes.
"Registration Statement" means any Exchange Offer Registration
Statement or Shelf Registration Statement that covers any of the Transfer
Restricted Notes (including the Note Guarantees) pursuant to the provisions of
this Agreement, amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto, and all material incorporated by
reference therein.
"Shelf Registration" means a registration of Transfer
Restricted Notes with the Commission effected pursuant to Section 3 hereof.
"Shelf Registration Period" has the meaning set forth in
Section 3(c) hereof.
"Shelf Registration Statement" means a "shelf" registration
statement of the Company and the Note Guarantors filed pursuant to the
provisions of Section 3 hereof, which covers some or all of the Transfer
Restricted Notes, as applicable, on an appropriate form under Rule 415 under the
Act, or any similar rule that may be adopted by the Commission, and which may be
in the format of an amendment to the Exchange Offer Registration Statement if
permitted by the Commission, all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.
"Transfer Restricted Notes" means each Note upon original
issuance thereof and at all times subsequent thereto, each Exchange Note as to
which Section 3(a)(iii) or Section 3(a)(iv) apply upon original issuance and at
all times subsequent thereto, until in the case of any such Note or Exchange
Note, as the case may be, the earliest to occur of (i) the date on which such
Note has been exchanged by a person other than a Participating Broker-Dealer for
an Exchange Note (other than with respect to an Exchange Note as to which
Section 3(a)(iii) or Section 3(a)(iv) apply), (ii) with respect to Exchange
Notes received by Participating Broker-Dealers in the Registered Exchange Offer,
the date on which such Exchange Note has been sold by such Participating
Broker-Dealer by means of the Prospectus contained in the Exchange Offer
Registration Statement, (iii) a Shelf Registration Statement covering such Note
or Exchange Note, as the case may be, has been declared effective by the
Commission and such Note or Exchange Note, as the case may be, has been disposed
of in accordance with such effective Shelf Registration Statement, (iv) the date
on which such Note or Exchange Note, as the case may be, can be sold without any
limitations under clauses (c), (e), (f) or (h) of Rule 144 under the Act or any
similar rule that may be adopted by the Commission, or (v) such Note or Exchange
Note, as the case may be, ceases to be outstanding for purposes of the
Indenture.
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended.
"Trustee" means the trustee with respect to the Notes or
Exchange Notes, as applicable, under the Indenture.
4
2. Registered Exchange Offer; Resales of Exchange Notes by
Participating Broker-Dealers; Private Exchange. (a) The Company and the Note
Guarantors shall prepare and, not later than 110 days from the Issue Date (or,
if such 110th day is not a Business Day, by the first Business Day thereafter),
shall file with the Commission the Exchange Offer Registration Statement with
respect to the Registered Exchange Offer (the date of such filing hereinafter
referred to as the "Filing Date"). The Company and the Note Guarantors shall use
their reasonable best efforts (i) to cause the Exchange Offer Registration
Statement to be declared effective under the Act within 240 days from the Issue
Date (or, if such 240th day is not a Business Day, by the first Business Day
thereafter), and (ii) to Consummate the Registered Exchange Offer within 30 days
from the date the Exchange Offer Registration Statement becomes effective.
(b) The objective of such Registered Exchange Offer is to
enable each Holder electing to exchange Transfer Restricted Notes for Exchange
Notes (assuming that such Holder (x) is not an "affiliate" of the Company or any
of the Note Guarantors within the meaning of the Act, (y) is not a broker-dealer
that acquired the Transfer Restricted Notes in a transaction other than as a
part of its market-making or other trading activities and (z) if such Holder is
not a broker-dealer, acquires the Exchange Notes in the ordinary course of such
Holder's business, is not participating in the distribution of the Exchange
Notes and has no arrangements or intentions with any person to make a
distribution of the Exchange Notes) to resell such Exchange Notes from and after
their receipt without any limitations or restrictions under the Act and without
material restrictions under the securities laws of a substantial proportion of
the several states of the United States. Each Holder participating in the
Registered Exchange Offer shall be required to represent to the Company and the
Note Guarantors that at the time of the Consummation of the Registered Exchange
Offer each of the items listed in subsections (x), (y) and (z) of this Section
2(b) is true.
(c) In connection with the Registered Exchange Offer, the
Company and the Note Guarantors shall:
(i) mail to each Holder a copy of the Prospectus forming
part of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(ii) keep the Registered Exchange Offer open for
acceptance for not less than 30 days (or longer if required by
applicable law) after the date notice thereof is mailed to Holders;
(iii) permit Holders to withdraw tendered Notes at any time
prior to 5:00 p.m. New York City time on the last Business Day on which
the Registered Exchange Offer shall remain open;
(iv) utilize the services of a depositary for the
Registered Exchange Offer with an address in the Borough of Manhattan,
The City of New York; and
(v) comply in all material respects with all applicable
laws relating to the Registered Exchange Offer.
5
(d) The Company and the Note Guarantors may suspend the use of
the Prospectus for a period not to exceed 30 days in any six-month period or an
aggregate of 45 days in any twelve-month period for valid business reasons (not
including avoidance of their obligations hereunder) to avoid premature public
disclosure of a pending corporate transaction, including pending acquisitions or
divestitures of assets, mergers and combinations and similar events; provided
that (i) the Company and the Note Guarantors promptly thereafter comply with the
requirements of Section 5(k) hereof, if applicable; (ii) the period during which
the Registration Statement is required to be effective and usable shall be
extended by the number of days during which such Registration Statement was not
effective or usable pursuant to the foregoing provisions; and (iii) the
Additional Interest shall accrue on the Notes as provided in Section 4 hereof.
(e) As soon as practicable after the Consummation of the
Registered Exchange Offer, the Company and the Note Guarantors shall:
(i) accept for exchange all the Notes validly tendered and not
withdrawn pursuant to the Registered Exchange Offer;
(ii) deliver to the Trustee for cancellation all of the Notes
so accepted for exchange; and
(iii) cause the Trustee promptly to authenticate and deliver
to each Holder Exchange Notes equal in principal amount to the Transfer
Restricted Notes of such Holder so accepted for exchange.
(f) The Initial Purchaser, the Company and the Note Guarantors
acknowledge that, pursuant to interpretations by the staff of the Commission of
Section 5 of the Act, and in the absence of an applicable exemption therefrom,
each Participating Broker-Dealer is required to deliver a Prospectus in
connection with a sale of any Exchange Notes received by such Participating
Broker-Dealer pursuant to the Registered Exchange Offer in exchange for Transfer
Restricted Notes acquired for its own account as a result of market-making
activities or other trading activities. Accordingly, the Company and the Note
Guarantors will allow Participating Broker-Dealers and other persons, if any,
with similar prospectus delivery requirements to use the Prospectus contained in
the Exchange Offer Registration Statement during the Exchange Offer Registration
Period in connection with the resale of such Exchange Notes and shall:
(i) include the information set forth in (a) Annex A
hereto on the cover of the Prospectus forming a part of the Exchange
Offer Registration Statement; (b) Annex B hereto in the forepart of the
Exchange Offer Registration Statement in a section setting forth
details of the Registered Exchange Offer; (c) Annex C hereto in the
plan of distribution section of the Prospectus forming a part of the
Exchange Offer Registration Statement, and (d) Annex D hereto in the
letter of transmittal delivered pursuant to the Registered Exchange
Offer; and
(ii) use reasonable best efforts to keep the Exchange
Offer Registration Statement continuously effective (subject to Section
2(d)) under the Act during the Exchange Offer Registration Period for
delivery of the Prospectus included therein by
6
Participating Broker-Dealers in connection with sales of Exchange Notes
received pursuant to the Registered Exchange Offer, as contemplated by
Section 5(h) below.
(g) In the event that the Initial Purchaser determines that it
is not eligible to participate in the Registered Exchange Offer with respect to
the exchange of Transfer Restricted Notes constituting any portion of an unsold
allotment, upon the effectiveness of the Shelf Registration Statement as
contemplated by Section 3 hereof and at the request of the Initial Purchaser,
the Company and the Note Guarantors shall issue and deliver to the Initial
Purchaser, or to the party purchasing Transfer Restricted Notes registered under
the Shelf Registration Statement from the Initial Purchaser, in exchange for
such Transfer Restricted Notes, a like principal amount of Exchange Notes to the
extent permitted by applicable law (the "Private Exchange Notes"). The Company
and the Note Guarantors shall use their reasonable best efforts to cause the
CUSIP Service Bureau to issue the same CUSIP number for such Exchange Notes as
for Exchange Notes issued pursuant to the Registered Exchange Offer.
3. Shelf Registration. (a) If (i) the Company and the Note
Guarantors are not permitted to file the Exchange Offer Registration Statement
or to Consummate the Registered Exchange Offer because the Registered Exchange
Offer is not permitted by applicable law or Commission policy, (ii) for any
other reason the Registered Exchange Offer is not Consummated within 30 days (or
if such 30th day is not a Business Day, by the first Business Day thereafter) of
the date the Exchange Offer Registration Statement has become effective, (iii)
the Initial Purchaser so requests with respect to Notes which have not been
resold acquired by it directly from the Company and the Note Guarantors on or
prior to the 30th day (or if such 30th day is not a Business Day, by the first
Business Day thereafter) following the Consummation of the Registered Exchange
Offer, (iv) any Holder notifies the Company and the Note Guarantors on or prior
to the 30th day (or if such 30th day is not a Business Day, by the first
Business Day thereafter) following the Consummation of the Registered Exchange
Offer that (A) such Holder is not eligible to participate in the Registered
Exchange Offer, due to applicable law or Commission policy, (B) the Exchange
Notes such Holder would receive would not be freely tradable, (C) such Holder is
a Participating Broker-Dealer that cannot publicly resell the Exchange Notes
that it acquires in the Registered Exchange Offer without delivering a
Prospectus and the Prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for resales following the completion
of the Registered Exchange Offer, or (D) the Holder is a broker-dealer and owns
Notes it has not exchanged and that it acquired directly from the Company, one
of its Affiliates or any Note Guarantor, or (v) in the case where the Initial
Purchaser participates in the Registered Exchange Offer or acquires Private
Exchange Notes pursuant to Section 2(g) hereof, the Initial Purchaser does not
receive freely tradable Exchange Notes in exchange for Notes constituting any
portion of an unsold allotment and the Initial Purchaser notifies the Company
and the Note Guarantors on or prior to the 30th day following the Consummation
of the Registered Exchange Offer (it being understood that, for purposes of this
Section 3, (x) the requirement that the Initial Purchaser deliver a Prospectus
containing the information required by Item 9.B (Plan of Distribution) and/or
Item 9.D (Selling Shareholders) of Form 20-F under the Act in connection with
sales of Exchange Notes acquired in exchange for such Transfer Restricted Notes
shall result in such Exchange Notes being not "freely tradable" and (y) the
requirement that a Participating Broker-Dealer deliver a Prospectus in
connection with sales of Exchange Notes acquired in the Registered Exchange
Offer in exchange for Transfer Restricted Notes acquired as a result of
market-making activities or other
7
trading activities shall not result in such Exchange Notes being not "freely
tradable"), the following provisions shall apply:
(b) The Company and the Note Guarantors shall use their
reasonable best efforts to prepare and file with the Commission a Shelf
Registration Statement prior to the 30th day (or if such 30th day is not a
Business Day, by the first Business Day thereafter) following the earliest to
occur of (i) the date on which the Company and the Note Guarantors determine
that they are not permitted to file the Exchange Offer Registration Statement or
to Consummate the Exchange Offer; (ii) 30 days (or if such 30th day is not a
Business Day, by the first Business Day thereafter) after the Exchange Offer
Registration Statement has been declared effective if the Registered Exchange
Offer has not been Consummated by such date and (iii) the date notice is given
pursuant to Section (a)(iii), (iv) or (v) above (or if either such 30th day is
not a Business Day, by the first Business Day thereafter) and shall use their
reasonable best efforts to cause the Shelf Registration Statement to be declared
effective by the Commission within 90 days thereafter (or if such 90th day is
not a Business Day, by the first Business Day thereafter). With respect to
Exchange Notes received by the Initial Purchaser in exchange for Notes
constituting any portion of an unsold allotment, the Company and the Note
Guarantors may, if permitted by current interpretations by the Commission's
staff, file a post-effective amendment to the Exchange Offer Registration
Statement containing the information required by Form 20-F Item 9.B (Plan of
Distribution) and/or Item 9.D (Selling Shareholders), as applicable, in
satisfaction of their obligations under this paragraph (b) with respect thereto,
and any such Exchange Offer Registration Statement, as so amended, shall be
referred to herein as, and governed by the provisions herein applicable to, a
Shelf Registration Statement.
(c) The Company and the Note Guarantors shall use their
reasonable best efforts to keep such Shelf Registration Statement continuously
effective (subject to Section 3(d)) in order to permit the Prospectus forming a
part thereof to be usable by Holders until the earliest of (i) such time as the
Notes or Exchange Notes covered by the Shelf Registration Statement can be sold
without any limitations under clauses (c), (e), (f) and (h) of Rule 144 or
similar rule adopted by the Commission, (ii) two years from the date the Shelf
Registration Statement has been declared effective exclusive of any period
during which any stop order shall be in effect suspending the effectiveness of
the Shelf Registration Statement or during which the Company has suspended the
use of the Prospectus contained therein pursuant to Section 3(d) and (iii) such
date as of which all the Transfer Restricted Notes have been sold pursuant to
the Shelf Registration Statement (in any such case, such period being called the
"Shelf Registration Period"). The Company and the Note Guarantors shall be
deemed not to have used their reasonable best efforts to keep the Shelf
Registration Statement effective during the Shelf Registration Period if they
voluntarily take any action that would result in Holders of Transfer Restricted
Notes covered thereby not being able to offer and sell such notes during that
period, unless such action is (x) required by applicable law or (y) pursuant to
Section 3(d) hereof, and, in either case, so long as the Company and the Note
Guarantors promptly thereafter comply with the requirements of Section 5(k)
hereof, if applicable.
(d) The Company and the Note Guarantors may suspend the use of
the Prospectus for a period not to exceed 30 days in any six-month period or an
aggregate of 45 days in any twelve-month period for valid business reasons (not
including avoidance of their obligations hereunder) to avoid premature public
disclosure of a pending corporate transaction,
8
including pending acquisitions or divestitures of assets, mergers and
combinations and similar events; provided that (i) the Company and the Note
Guarantors promptly thereafter comply with the requirements of Section 5(k)
hereof, if applicable; (ii) the period during which the Registration Statement
is required to be effective and usable shall be extended by the number of days
during which such Registration Statement was not effective or usable pursuant to
the foregoing provisions; and (iii) the Additional Interest shall accrue on the
Notes as provided in Section 4 hereof.
(e) No Holder of Transfer Restricted Notes may include any of
its Transfer Restricted Notes in any Shelf Registration Statement pursuant to
this Agreement unless and until such Holder furnishes to the Company and the
Note Guarantors in writing, within 20 days after receipt of a request therefor,
such information as the Company and the Note Guarantors may reasonably request
for use in connection with any Shelf Registration Statement or Prospectus or
preliminary Prospectus included therein. No Holder of Transfer Restricted Notes
shall be entitled to Additional Interest pursuant to Section 4 hereof unless and
until such Holder shall have used its reasonable best efforts to provide all
such reasonably requested information. Each Holder of Transfer Restricted Notes
as to which any Shelf Registration Statement is being effected agrees to furnish
promptly to the Company and the Note Guarantors all information required to be
disclosed in order to make the information previously furnished to the Company
and the Note Guarantors by such Holder not misleading.
4. Additional Interest.
(a) The parties hereto agree that Holders of Transfer
Restricted Notes will suffer damages if the Company or the Note Guarantors fail
to perform their obligations under Section 2 or Section 3 hereof and that it
would not be feasible to ascertain the extent of such damages. Accordingly, in
the event that (i) the applicable Registration Statement is not filed with the
Commission on or prior to the date specified herein for such filing, (ii) the
applicable Registration Statement has not been declared effective by the
Commission on or prior to the date specified herein for such effectiveness after
such obligation arises, (iii) if the Registered Exchange Offer is required to be
Consummated hereunder, the Registered Exchange Offer has not been Consummated by
the Company and the Note Guarantors within the time period set forth in Section
2(a) hereof, (iv) prior to the end of the Exchange Offer Registration Period or
the Shelf Registration Period, the Commission shall have issued a stop order
suspending the effectiveness of the Exchange Offer Registration Statement or the
Shelf Registration Statement, as the case may be, or proceedings have been
initiated with respect to the Registration Statement under Section 8(d) or 8(e)
of the Act, or (v) the Company and the Note Guarantors shall have initiated a
suspension period pursuant to Section 2(d) or 3(d) (each such event referred to
in clauses (i) through (v), a "Registration Default"), then additional interest
with respect to the Transfer Restricted Notes ("Additional Interest") will
accrue with respect to the first 90-day period immediately following the
occurrence of such Registration Default in an amount equal to 0.5% per annum per
$1,000 principal amount of such Notes and will increase by an additional 0.5%
per annum per $1,000 principal amount of such Notes for each subsequent 90-day
period until such Registration Default has been cured, up to an aggregate
maximum amount of Additional Interest of 1.0% per annum per $1,000 principal
amount of Notes for all Registration Defaults. Following the cure of a
Registration Default, the accrual of Additional Interest with respect to such
Registration Default will cease and upon the cure of all Registration Defaults
the
9
accrual of all Additional Interest will cease. Notwithstanding anything to the
contrary in this Section 4(a), the Company and the Note Guarantors shall not be
required to pay Additional Interest to a Holder of Transfer Restricted Notes if
such Holder failed to comply with its obligations to make the representations
set forth in the second sentence of Section 2(b).
(b) The Company shall notify the Trustee and paying agent
under the Indenture (or the trustee and paying agent under such other indenture
under which any Transfer Restricted Notes are issued) immediately upon the
happening of each and every Registration Default. The Company and the Note
Guarantors shall pay the Additional Interest due on the Transfer Restricted
Notes by depositing with the paying agent (which shall not be the Company or the
Note Guarantors for these purposes) for the Transfer Restricted Notes, in trust,
for the benefit of the Holders thereof, prior to 11:00 a.m. on the next interest
payment date specified in the Indenture (or such other indenture), sums
sufficient to pay the Additional Interest then due. The Additional Interest due
shall be payable on each interest payment date specified by the Indenture (or
such other indenture) to the record holders entitled to receive the interest
payment to be made on such date. Each obligation to pay Additional Interest
shall be deemed to accrue from and include the date of the applicable
Registration Default to, but excluding, the relevant interest payment date.
(c) The parties hereto agree that the Additional Interest
provided for in this Section 4 constitutes a reasonable estimate of the damages
that will be suffered by holders of Transfer Restricted Notes by reason of the
happening of any Registration Default and are intended to constitute the sole
remedy for damages that will be suffered by the Holders of the Transfer
Restricted Notes by reason of any of the failures listed in Section 4(a).
(d) All of the Company's and the Note Guarantors' obligations
set forth in this Section 4 which are outstanding with respect to any Transfer
Restricted Note at the time such Note ceases to be covered by an effective
Registration Statement shall survive until such time as all such obligations
with respect to such Note have been satisfied in full (notwithstanding
termination of this Agreement).
5. Registration Procedures. In connection with any Exchange
Offer Registration Statement, and, to the extent applicable, any Shelf
Registration Statement the following provisions shall apply:
(a) The Company and the Note Guarantors shall furnish to the
Initial Purchaser, prior to the filing thereof with the Commission, a copy of
any Registration Statement, and each amendment thereof and each amendment or
supplement, if any, to the Prospectus included therein and shall reflect in each
such document, when so filed with the Commission, such comments as the Initial
Purchaser reasonably may propose in a timely fashion.
(b) The Company and the Note Guarantors shall ensure that:
(i) any Registration Statement and any amendment thereto
and any Prospectus contained therein and any amendment or supplement
thereto complies in all material respects with the Act;
10
(ii) any Registration Statement and any amendment thereto
does not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and
(iii) any Prospectus forming part of any Registration
Statement, including any amendment or supplement to such Prospectus,
does not include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
provided that no representation or agreement is made hereby with respect to
information with respect to the Initial Purchaser, any underwriter or any Holder
required to be included in any Registration Statement or Prospectus pursuant to
the Act or provided by the Initial Purchaser, any Holder or any underwriter
specifically for inclusion in any Registration Statement or Prospectus.
(c) (1) The Company and the Note Guarantors shall advise the
Initial Purchaser and, in the case of a Shelf Registration Statement, the
Holders of Transfer Restricted Notes covered thereby, and, if requested by the
Initial Purchaser or any such Holder, confirm such advice in writing:
(i) when a Registration Statement and any amendment
thereto has been filed with the Commission and when the Registration
Statement or any post-effective amendment thereto has become effective;
and
(ii) of any request by the Commission for amendments or '
supplements to the Registration Statement or the Prospectus included
therein or for additional information.
(2) The Company and the Note Guarantors shall advise the
Initial Purchaser and, in the case of a Shelf Registration Statement, the
Holders of Transfer Restricted Notes covered thereby, and, in the case of an
Exchange Offer Registration Statement, any Participating Broker-Dealer that has
provided in writing to the Company a telephone or facsimile number and address
for notices, and, if requested by the Initial Purchaser or any such Holder or
Participating Broker-Dealer, confirm such advice in writing:
(i) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
(ii) of the receipt by the Company or any Note Guarantor
of any notification with respect to the suspension of the qualification
of the Transfer Restricted Notes included in any Registration Statement
for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; and
(iii) of the happening of any event that requires the
making of any changes in the Registration Statement or the Prospectus
so that, as of such date, the statements therein are not misleading and
do not omit to state a material fact required to be stated therein or
necessary to make the statements therein (in the case of the
Prospectus, in light
11
of the circumstances under which they were made) not misleading (which
advice shall be accompanied by an instruction to suspend the use of the
Prospectus until the requisite changes have been made).
(d) The Company and the Note Guarantors shall use their
reasonable best efforts to obtain the withdrawal of any order suspending the
effectiveness of any Registration Statement at the earliest possible time.
(e) The Company and the Note Guarantors shall furnish to each
Holder of Transfer Restricted Notes included within the coverage of any Shelf
Registration Statement, without charge, at least one copy of such Shelf
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, and, if the Holder so requests in writing,
all exhibits thereto (including those incorporated by reference).
(f) The Company and the Note Guarantors shall, during the
Shelf Registration Period, deliver to each Holder of Transfer Restricted Notes
included within the coverage of any Shelf Registration Statement, without
charge, as many copies of the Prospectus (including any preliminary Prospectus)
included in such Shelf Registration Statement and any amendment or supplement
thereto as such Holder may reasonably request; and the Company and the Note
Guarantors consent to the use of the Prospectus (including any preliminary
Prospectus) or any amendment or supplement thereto by each of the selling
Holders of Transfer Restricted Notes in connection with the offering and sale of
the Transfer Restricted Notes covered by the Prospectus or any amendment or
supplement thereto.
(g) The Company and the Note Guarantors shall furnish to each
Participating Broker-Dealer that so requests, without charge, at least one copy
of the Exchange Offer Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, any documents
incorporated by reference therein and, if the Participating Broker-Dealer so
requests in writing, all exhibits thereto (including those incorporated by
reference).
(h) The Company and the Note Guarantors shall, during the
Exchange Offer Registration Period and pursuant to the requirements of the Act
for the resale of the Exchange Notes during the period in which a prospectus is
required to be delivered under the Act (including any Commission no-action
letters relating to the Registered Exchange Offer), deliver to each
Participating Broker-Dealer, without charge, as many copies of the Prospectus
(including any preliminary Prospectus) included in such Exchange Offer
Registration Statement and any amendment or supplement thereto as such
Participating Broker-Dealer may reasonably request; and the Company and the Note
Guarantors consent to the use of the Prospectus (including any preliminary
Prospectus) or any amendment or supplement thereto by any such Participating
Broker-Dealer in connection with the offering and sale of the Exchange Notes, as
provided in Section 2(f) above.
(i) Prior to the Registered Exchange Offer or any other
offering of Transfer Restricted Notes pursuant to any Registration Statement,
the Company and the Note Guarantors shall use reasonable best efforts to
register, qualify or cooperate with the Holders of Transfer Restricted Notes
included therein and their respective counsel in connection with the
registration or qualification of such Transfer Restricted Notes for offer and
sale under the securities or blue
12
sky laws of such states as any such Holders reasonably request in writing and
do any and all other acts or things necessary or advisable to enable the offer
and sale in such jurisdictions of the Transfer Restricted Notes covered by such
Registration Statement; provided, however, neither the Company nor the Note
Guarantors will be required to qualify generally to do business in any
jurisdiction in which it is not then so qualified, to file any general consent
to service of process or to take any action which would subject it to general
service of process or to taxation in any such jurisdiction where it is not then
so subject.
(j) The Company and the Note Guarantors shall cooperate with
the Holders to facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Notes to be sold pursuant to any Registration
Statement free of any restrictive legends and in denominations authorized by the
Indenture and registered in such names as Holders may request prior to sales of
Transfer Restricted Notes pursuant to such Registration Statement.
(k) Upon the occurrence of any event contemplated by Section
2(d), 3(d) or paragraph (c)(2)(iii) of this Section 5, the Company and the Note
Guarantors shall promptly prepare and file a post-effective amendment to any
Registration Statement or an amendment or supplement to the related Prospectus
or any other required document so that, as thereafter delivered to purchasers of
the Transfer Restricted Notes included therein, the Prospectus will not include
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(l) The Company and the Note Guarantors shall use their
reasonable best efforts to cause The Depository Trust Company ("DTC") on the
first Business Day following the effective date of any Registration Statement
hereunder or as soon as possible thereafter to remove (i) from any existing
CUSIP number assigned to the Transfer Restricted Notes or Exchange Notes, as the
case may be, any designation indicating that such notes are "restricted
securities," which efforts shall include delivery to DTC of a letter executed by
the Company substantially in the form of Annex E hereto and (ii) any other stop
or restriction on DTC's system with respect to the Transfer Restricted Notes or
Exchange Notes, as the case may be. In the event the Company and the Note
Guarantors are unable to cause DTC to take actions described in the immediately
preceding sentence, the Company and the Note Guarantors shall take such actions
as the Initial Purchaser may reasonably request to provide, as soon as
practicable, a new CUSIP (if not already obtained) number for the Transfer
Restricted Notes or Exchange Notes registered under such Registration Statement
and to cause such CUSIP number to be assigned to the Transfer Restricted Notes
or Exchange Notes (or to the maximum aggregate principal amount of the
securities to which such number may be assigned).
(m) The Company and the Note Guarantors shall use their
reasonable best efforts to comply with all applicable rules and regulations of
the Commission and shall make generally available to the security holders as
soon as practicable after the effective date of the applicable Registration
Statement an earnings statement satisfying the provisions of Section 11(a) of
the Act and Rule 158 promulgated thereunder.
(n) The Company and the Note Guarantors shall use reasonable
best efforts to cause the Indenture to be qualified under the Trust Indenture
Act in a timely manner.
13
(o) The Company and the Note Guarantors may require each
Holder of Transfer Restricted Notes to be sold pursuant to any Shelf
Registration Statement to furnish to the Company and the Note Guarantors such
information regarding the Holder and the distribution of such Transfer
Restricted Notes as may, from time to time, be reasonably required by the Act,
and the obligations of the Company and the Note Guarantors to any Holder
hereunder shall be expressly conditioned on the compliance of such Holder with
such request.
(p) The Company and the Note Guarantors shall, if requested,
promptly incorporate in a Prospectus supplement or post-effective amendment to a
Shelf Registration Statement (i) such information as the Majority Holders
provide or, if the Transfer Restricted Notes are being sold in an underwritten
offering, as the Managing Underwriters and the Majority Holders reasonably agree
should be included therein and, in either case, provided to the Company or the
Note Guarantors in writing for inclusion in the Shelf Registration Statement, or
Prospectus, and (ii) such information as a Holder may provide from time to time
to the Company or the Note Guarantors in writing for inclusion in a Prospectus
or any Shelf Registration Statement, in the case of clause (i) or (ii) above,
concerning such Holder and/or underwriter and the distribution of such Holder's
Transfer Restricted Notes and, in either case, shall make all required filings
of such Prospectus supplement or post-effective amendment as soon as practicable
after being notified in writing of the matters to be incorporated in such
Prospectus supplement or post-effective amendment.
(q) In the case of any Shelf Registration Statement, the
Company and the Note Guarantors shall enter into such agreements (including
underwriting agreements) and take all other customary and appropriate actions as
may be reasonably requested in order to expedite or facilitate the registration
or the disposition of any Transfer Restricted Notes, and in connection
therewith, if an underwriting agreement is entered into, cause the same to
contain indemnification provisions and procedures no less favorable than those
set forth in Section 8 (or such other provisions and procedures reasonably
acceptable to the Majority Holders and the Managing Underwriters, if any, with
respect to all parties to be indemnified pursuant to Section 8).
(r) In the case of any Shelf Registration Statement, the
Company and the Note Guarantors shall:
(i) make reasonably available for inspection by the
Holders of Transfer Restricted Notes to be registered thereunder, any
Managing Underwriter participating in any disposition pursuant to such
Shelf Registration Statement, and any attorney, accountant or other
agent retained by the Holders or any such Managing Underwriter, all
relevant financial and other records, pertinent corporate documents and
properties of the Company and any of its subsidiaries;
(ii) cause the Company's and the Note Guarantors'
officers, directors and employees to supply all relevant information
reasonably requested by the Holders or any such Managing Underwriter,
attorney, accountant or agent in connection with any such Registration
Statement as is customary for similar due diligence examinations;
provided, however, that any information that is designated in writing
by the Company and the Note Guarantors as confidential at the time of
delivery of such information shall be kept
14
confidential by the Holders or any such Managing Underwriter, attorney,
accountant or agent, unless (x) disclosure thereof is made in
connection with a court proceeding or required by law; provided that
each Holder and any such Managing Underwriter, attorney, accountant or
agent will, upon learning that disclosure of such information is sought
in a court proceeding or required by law, give notice to the Company
and the Note Guarantors with enough time to allow the Company and the
Note Guarantors to undertake appropriate action to prevent disclosure
at the Company's and the Note Guarantors' sole expense, or (y) such
information has previously been made or becomes available to the public
generally through the Company, the Note Guarantors or through a third
party without an accompanying obligation of confidentiality;
(iii) make such representations and warranties to the
Holders of Transfer Restricted Notes registered thereunder and the
Managing Underwriters, if any, in form, substance and scope as are
customarily made by the Company and the Note Guarantors to Managing
Underwriters and covering matters including, but not limited to, those
set forth in the Purchase Agreement;
(iv) obtain opinions of counsel to the Company and the
Note Guarantors and updates thereof (which counsel and opinions, in
form, scope and substance, shall be reasonably satisfactory to the
Managing Underwriters, if any) addressed to each selling Holder and the
Managing Underwriters, if any, covering such matters as are customarily
covered in opinions requested in underwritten offerings and such other
matters as may be reasonably requested by such Holders and Managing
Underwriters;
(v) obtain "cold comfort" letters and updates thereof
from the independent certified public accountants of the Company and
the Note Guarantors (and, if necessary, any other independent certified
public accountants of any subsidiary of the Company or of any business
acquired by the Company for which financial statements and financial
data are, or are required to be, included in the Registration
Statement), addressed to each selling Holder of the Transfer Restricted
Notes covered by such Shelf Registration Statement (provided such
Holder furnishes the accountants with such representations as the
accountants customarily require in similar situations) and the Managing
Underwriters, if any, in customary form and covering matters of the
type customarily covered in "cold comfort" letters in connection with
primary underwritten offerings; and
(vi) deliver such documents and certificates as may be
reasonably requested by the Majority Holders and the Managing
Underwriters, if any, including those to evidence compliance with
Section 5(i) and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company
and the Note Guarantors.
The foregoing actions set forth in this Section 5(r) shall be
performed at (i) the effectiveness of such Shelf Registration Statement and each
post-effective amendment thereto and (ii) each closing under any underwriting or
similar agreement as and to the extent required thereunder.
15
(s) The Company and the Note Guarantors shall, if and to the
extent required under the Act and/or the Trust Indenture Act and the rules and
regulations thereunder in order to register the Note Guarantees under the Act
and qualify the Indenture under the Trust Indenture Act, cause each guarantor,
if any, to sign any Registration Statement and take all other action necessary
to register the Note Guarantees under the applicable Registration Statement.
6. Registration Expenses. The Company and the Note Guarantors
shall bear all reasonable fees and expenses (including the reasonable fees and
expenses, if any, of Shearman & Sterling, counsel for the Initial Purchaser,
incurred in connection with the Registered Exchange Offer) incurred in
connection with the performance of their obligations under Sections 2, 3, 4 and
5 hereof (other than brokers', dealers' and underwriters' discounts and
commissions and brokers', dealers' and underwriters' counsel fees) and, in
connection with the Shelf Registration Statement, shall reimburse the Holders
for the reasonable fees and disbursements of one firm or counsel designated by
the Majority Holders to act as counsel for the Holders in connection therewith.
7. Rules 144 and 144A. The Company and the Note Guarantors
shall use reasonable best efforts to file the reports required to be filed by
them under the Act and the Exchange Act in a timely manner and, if at any time
the Company or the Note Guarantors are not required to file such reports, the
Company will, upon the request of any Holder of Transfer Restricted Notes, make
publicly available other information so long as necessary to permit sales of
their securities pursuant to Rules 144 and 144A (or any successor rule adopted
by the Commission). The Company covenants that it will take such further action
as any Holder of Transfer Restricted Notes may reasonably request, all to the
extent required from time to time to enable such Holder to sell Transfer
Restricted Notes without registration under the Securities Act within the
limitation of the exemptions provided by Rules 144 and 144A (including the
requirements of Rule 144A(d)(4) if applicable). The Company will provide a copy
of this Agreement to prospective purchasers of Transfer Restricted Notes
identified to the Company by the Initial Purchaser upon request. Upon the
request of any Holder of Transfer Restricted Notes, the Company shall deliver to
such Holder a written statement as to whether it has complied with such
requirements.
8. Indemnification and Contribution.
(a) (i) In connection with any Registration Statement, the
Company and the Note Guarantors, jointly and severally, agree to
indemnify and hold harmless each Holder of Transfer Restricted Notes
covered thereby, the directors, officers, employees and agents of each
such Holder and each person who controls any such Holder within the
meaning of either the Act or the Exchange Act against any and all
losses, claims, damages or liabilities, joint or several, to which they
or any of them may become subject under the Act, the Exchange Act or
other Federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in
the Registration Statement as originally filed or in any amendment
thereof, in any preliminary Prospectus or Prospectus or in any
amendment thereof or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact
required to be stated therein or
16
necessary to make the statements therein not misleading, and agree to
reimburse each such indemnified party, as incurred, for any legal or
other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company and the Note Guarantors
will not be liable in any case to the extent that any such loss, claim,
damage or liability arises out of or is based upon (A) any such untrue
statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written
information relating to the Holder furnished to the Company and the
Note Guarantors by or on behalf of any such Holder specifically for
inclusion therein, (B) use of a Registration Statement or the related
Prospectus during a period when a stop order has been issued in respect
of such Registration Statement or any proceedings for that purpose have
been initiated or use of a Prospectus when use of such Prospectus has
been suspended pursuant to Section 2(d), 3(d) or 5(c)(2); provided,
further, in each case, that Holders received prior notice of such stop
order, initiation of proceedings or suspension or (C) if the Holder is
required to but does not deliver a Prospectus or the then-current
Prospectus. This indemnity agreement will be in addition to any
liability which the Company and the Note Guarantors may otherwise have.
(ii) The Company and the Note Guarantors also agree to
indemnify or contribute to Losses, as provided in Section 8(d), of any
Managing Underwriters of Transfer Restricted Notes registered under a
Registration Statement, their officers and directors and each person
who controls such Managing Underwriters on substantially the same basis
as that of the indemnification of the selling Holders provided in this
Section 8(a) and shall, if requested by any Holder, enter into an
underwriting agreement reflecting such agreement, as provided in
Section 5(q) hereof.
(b) Each Holder of Transfer Restricted Notes covered by a
Registration Statement severally agrees to indemnify and hold harmless the
Company and the Note Guarantors and their respective directors, officers,
employees and agents and each person who controls either of the Company or the
Note Guarantors within the meaning of either the Act or the Exchange Act to the
same extent as the foregoing indemnity from the Company and the Note Guarantors
to each such Holder, but only with reference to written information relating to
such Holder furnished to the Company and the Note Guarantors by or on behalf of
such Holder specifically for inclusion in the documents referred to in the
foregoing indemnity. This indemnity agreement will be in addition to any
liability which any such Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraph (a) or (b) above unless and
to the extent it did not otherwise learn of such action and such failure results
in the forfeiture by the indemnifying party of substantial rights and defenses
and (ii) will not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification obligation
provided in paragraph (a) or (b) above. The indemnifying party shall be entitled
to appoint counsel of the indemnifying party's choice at the indemnifying
party's expense to represent the indemnified party in any action for which
indemnification is sought (in which case the indemnifying party
17
shall not thereafter be responsible for the fees and expenses of any separate
counsel retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be reasonably satisfactory to the
indemnified party. The indemnified party will not settle or compromise or
consent to the entry of judgment with respect to any such action without the
consent of the indemnifying party (which consent shall not be unreasonably
withheld). Notwithstanding the indemnifying party's election to appoint counsel
to represent the indemnified party in an action, the indemnified party shall
have the right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees, costs and expenses of such
separate counsel (and local counsel) if (i) the use of counsel chosen by the
indemnifying party to represent the indemnified party would present such counsel
with a conflict of interest, (ii) the actual or potential defendants in, or
targets of, any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded,
based on the advice of outside counsel, that there may be legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, (iii) the indemnifying
party shall not have employed counsel reasonably satisfactory to the indemnified
party to represent the indemnified party within a reasonable time after notice
of the institution of such action or (iv) the indemnifying party shall have
authorized the indemnified party to employ separate counsel at the expense of
the indemnifying party; provided further, that the indemnifying party shall not
be responsible for the fees and expenses of more than one separate counsel
(together with appropriate local counsel) representing all the indemnified
parties under paragraph (a) or paragraph (b) above. An indemnifying party will
not, without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any pending
or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a)
or (b) of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall have a joint and several
obligation to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending same) (collectively "Losses") to which such
indemnified party may be subject in such proportion as is appropriate to reflect
the relative benefits received by such indemnifying party, on the one hand, and
such indemnified party, on the other hand, from the Registration Statement which
resulted in such Losses. If the allocation provided by the immediately preceding
sentence is unavailable for any reason, the indemnifying party and the
indemnified party shall contribute in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of such
indemnifying party, on the one hand, and such indemnified party, on the other
hand, in connection with the statements or omissions which resulted in such
Losses as well as any other relevant equitable considerations. The relative
fault of the parties shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or such Holder or such other indemnified
person, as the case may be, on the other, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. Benefits received by the Company
18
and the Note Guarantors shall be deemed to be equal to the sum of (x) the
aggregate principal amount of the Notes and (y) the total amount of Additional
Interest which the Company and the Note Guarantors were not required to pay as a
result of registering the Transfer Restricted Notes covered by the Registration
Statement which resulted in such Losses. Benefits received by any Holder shall
be deemed to be equal to the value of receiving Transfer Restricted Notes
registered under the Act. Benefits received by any Managing Underwriter shall be
deemed to be equal to the total underwriting discounts and commissions, as set
forth on the cover page of the Prospectus forming a part of the Registration
Statement which resulted in such Losses. Relative fault shall be determined by
reference to, among other things, whether any alleged untrue statement or
omission relates to information provided by the indemnifying party, on the one
hand, or by the indemnified party, on the other hand. The amount paid by an
indemnified party as a result of the losses, claims, damages or liabilities
referred to in the first sentence of this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any action or claim which is
the subject of this subsection (d). Notwithstanding any other provision of this
Section 8(d), the Holders of the Transfer Restricted Notes shall in no case be
required to contribute any amount in excess of the amount by which the net
proceeds received by such Holders from the sale of the Transfer Restricted Notes
pursuant to a Registration Statement exceeds the amount of damages which such
Holders have otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission and in no case shall any
Managing Underwriter be responsible for any amount in excess of the underwriting
discount or commission applicable to the Transfer Restricted Notes purchased by
such Managing Underwriter under the Registration Statement which resulted in
such Losses. The parties agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method of
allocation which does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this paragraph (d), no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person who
controls an indemnified party within the meaning of either the Act or the
Exchange Act and each director, officer, employee and agent of such indemnified
party shall have the same rights to contribution as such indemnified party, and
each person who controls the Company or the Note Guarantors within the meaning
of either the Act or the Exchange Act and each director, officer, employee and
agent of the Company or the Note Guarantors shall have the same rights to
contribution as the Company and the Note Guarantors, subject in each case to the
applicable terms and conditions of this paragraph (d).
(e) The provisions of this Section 8 will remain in full force
and effect, regardless of any investigation made by or on behalf of any Holder,
the Company, the Note Guarantors or any of the officers, directors or
controlling persons referred to in Section 8 hereof, and will survive the sale
by a Holder of Transfer Restricted Notes covered by a Registration Statement.
9. Underwritten Registrations.
If any of the Transfer Restricted Notes covered by any Shelf
Registration Statement are to be sold in an underwritten offering, the Managing
Underwriter that will administer the offering will be selected by the Majority
Holders of such Transfer Restricted Notes included in such offering, subject to
the consent of the Company not to be unreasonably
19
withheld; it being expressly agreed that Wachovia Securities, Inc. is an
acceptable Managing Underwriter to the Company and such Holders shall be
responsible for all underwriting commissions and discounts in connection
therewith.
No person may participate in any underwritten registration
hereunder unless such person (i) agrees to sell such person's Transfer
Restricted Notes on the basis reasonably provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
10. Miscellaneous.
(a) No Inconsistent Agreements. The Company and the Note
Guarantors have not, as of the date hereof, entered into nor shall they, on or
after the date hereof, enter into any agreement that is inconsistent with the
rights granted to the Holders herein or otherwise conflicts with the provisions
hereof.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, qualified,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Company and the Note Guarantors
have obtained the written consent of the Majority Holders. Notwithstanding the
foregoing, a waiver or consent to departure from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders whose
Transfer Restricted Notes are being sold pursuant to a Shelf Registration
Statement or whose Notes are being exchanged pursuant to an Exchange Offer
Registration Statement, as the case may be, and which does not directly or
indirectly affect the rights of other Holders may be given by such Holders,
determined on the basis of Notes being sold rather than registered.
Notwithstanding any of the foregoing, no amendment, modification, supplement,
waiver or consents to any departure from the provisions of Section 8 hereof
shall be effective as against any Holder of Transfer Restricted Notes unless
consented to in writing by such Holder.
(c) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, first-class
mail, telex, telecopier, or air courier guaranteeing overnight delivery:
(i) if to the Initial Purchaser, as follows:
Wachovia Securities, Inc.
One Wachovia Center
301 South College Street
Charlotte, North Carolina 28288-0604
Attention: High Yield Origination
(ii) if to any other Holder, at the most current address
given by such Holder to the Company and the Note Guarantors in
accordance with the provisions of this Section 10(c), which address
initially is, with respect to each Holder, the address of such Holder
20
maintained by the registrar under the Indenture, with a copy in like
manner to the Initial Purchaser; and
(iii) if to the Company or the Note Guarantors, as follows:
Hollinger Inc.
10 Toronto Street
Toronto, Canada M5C 2B7
Attention: Chief Financial Officer
All such notices and communications shall be deemed to have
been duly given when received, if delivered by hand or air courier, and when
sent, if sent by first-class mail, telex or telecopier.
The Company and the Note Guarantors by notice to the others
may designate additional or different addresses for subsequent notices or
communications.
(d) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including, without the need for an express assignment or any consent by
the Company or the Note Guarantors thereto, subsequent Holders. The Company and
the Note Guarantors hereby agree to extend the benefits of this Agreement to any
Holder and any such Holder may specifically enforce the provisions of this
Agreement as if an original party hereto.
(e) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) Governing Law and Consent to Jurisdiction. This agreement
shall be governed by and construed in accordance with the laws of the State of
New York. The Company and the Note Guarantors (x) submit to the nonexclusive
jurisdiction of the courts of the State of New York and of the United States
sitting in the Borough of Manhattan in respect of any action, claim or
proceeding ("Proceeding") arising out of or relating to this Agreement or the
transactions contemplated hereby, (y) irrevocably waive, to the fullest extent
permitted by applicable law, any objection that it may now or hereafter have to
the laying of venue of any Proceeding in the Supreme Court of the State of New
York, County of New York, or the United States District Court for the Southern
District of New York, and any claim that any Proceeding in any such court has
been brought in an inconvenient forum, and (z) agree that any service of process
or other legal summons in connection with any Proceeding may be served on it by
mailing a copy thereof by registered mail, or a form of mail substantially
equivalent thereto, postage prepaid, addressed to the served party at its
address as provided for in Section 10(c). Nothing in this section shall affect
the right of the parties to serve process in any other manner permitted by law.
21
(h) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired
or affected thereby, it being intended that all of the rights and privileges of
the parties shall be enforceable to the fullest extent permitted by law.
(i) Notes Held by the Company, etc. Whenever the consent or
approval of Holders of a specified percentage of principal amount of Transfer
Restricted Notes or Exchange Notes is required hereunder, Transfer Restricted
Notes or Exchange Notes held by the Company, the Note Guarantors or any of their
respective Affiliates (other than subsequent Holders of Transfer Restricted
Notes or Exchange Notes if such subsequent Holders are deemed to be Affiliates
solely by reason of their holdings of such Notes) shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage.
(j) Agent for Service of Process. Each of the Company and the
Note Guarantors agrees that, prior to the Issue Date, it will have appointed
Paul Healy at Hollinger International Inc., 712 Fifth Avenue, 18th Floor, New
York, NY 10019 as its authorized agent in New York City (the "Authorized Agent",
which term, as used herein, includes any successor in such capacity) upon whom
process may be served in any such action, suit or proceeding arising out of or
relating to this Agreement or any of the transactions contemplated hereby which
may be instituted in any federal or state court in the State of New York by the
Initial Purchaser or Holders, as the case may be.
(k) Judgment Currency. If for the purpose of obtaining
judgment in any court or for the purpose of determining, pursuant to the
obligations of the Company or any Note Guarantor, any amounts owing hereunder,
it is necessary to convert an amount due hereunder in U.S. dollars into a
currency other than U.S. dollars (the "Judgment Currency"), the rate of exchange
applied shall be that at which, in accordance with normal banking procedures,
the Initial Purchaser or Holder, as the case may be, could purchase in the New
York foreign exchange market U.S. dollars with the Judgment Currency on the date
that is two business days preceding that on which judgment is given or any other
payment is due hereunder. Each of the Company and the Note Guarantors agrees
that its respective obligation in respect of any U.S. dollars due from it to the
Initial Purchaser or Holder, as the case may be, hereunder shall,
notwithstanding any judgment or payment in the Judgment Currency, be discharged
only to the extent that, on the business day following the date the Initial
Purchaser or Holder receives payment of any sum so adjudged or owing to be due
hereunder in the Judgment Currency, the Initial Purchaser or Holder may, in
accordance with normal banking procedures, purchase in the New York foreign
exchange market U.S. dollars with the amount of the Judgment Currency so paid;
and if the amount of U.S. dollars so purchased or that could have been so
purchased is less than the amount originally due in U.S. dollars, each of the
Company and the Note Guarantors agrees as a separate obligation and
notwithstanding any such payment or judgment to indemnify the Initial Purchaser
or Holder, as the case may be, against such loss. The term "rate of exchange" in
this paragraph means the spot rate at which the Initial Purchaser or Holder, as
the case may be, in accordance with normal banking practices is able on the
relevant date to purchase U.S. dollars with the Judgment Currency and includes
any premium and costs of exchange payable in connection with such purchase.
22
(l) Waiver of Immunity. To the extent that the Company, any
Note Guarantor or any of their properties, assets or revenues may have or may
hereafter become entitled to, or have attributed to it, any right of immunity,
on the grounds of sovereignty or otherwise, from (i) any legal action, suit or
proceeding, (ii) setoff or counterclaim, (iii) the jurisdiction of any court,
(iv) service of process, (v) attachment upon or prior to judgment, (vi)
attachment in aid of execution of judgment, (vii) execution of judgment, or
(viii) other legal process or proceeding for the giving of any relief or for the
enforcement of any judgment, in any jurisdiction in which any action, suit or
proceeding may at any time be commenced with respect to its obligations,
liabilities or any other matter under or arising out of or relating to this
Agreement, each of the Company and the Note Guarantors, to the fullest extent it
may effectively do so under applicable law, hereby irrevocably and
unconditionally waives, and agrees not to plead or claim, any such immunity and
consents to such relief and enforcement.
23
Please confirm that the foregoing correctly sets forth the
agreement between and among the Company, the Note Guarantors and the Initial
Purchaser.
Very truly yours,
HOLLINGER INC.
By: /s/ P. Y. Atkinson
--------------------------------
Name: Peter Y. Atkinson
Title: Executive Vice President and
Director
RAVELSTON MANAGEMENT INC.
By: /s/ P. Y. Atkinson
--------------------------------
Name: Peter Y. Atkinson
Title: Executive Vice President and
Director
504468 N.B. INC.
By: /s/ P. Y. Atkinson
--------------------------------
Name: Peter Y. Atkinson
Title: Executive Vice President and
Director
The foregoing Agreement is hereby
acknowledged and accepted as of
the date first written above.
WACHOVIA SECURITIES, INC.
By: /s/ David Haase
-----------------------------
Name: David Haase
Title: Managing Director
24
ANNEX A
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Registered Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer during the Exchange Offer
Registration Period in connection with resales of Exchange Notes received in
exchange for Notes where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. The Company and
the Note Guarantors have
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