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THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. IF YOU
ARE IN ANY DOUBT AS TO HOW TO DEAL WITH IT, YOU SHOULD CONSULT YOUR
DEALER, BROKER, BANK MANAGER, LAWYER OR OTHER PROFESSIONAL ADVISOR.
▇▇▇▇▇▇ COMMUNICATIONS INC.
AND ITS WHOLLY-OWNED SUBSIDIARY RWCI ACQUISITION INC.
OFFER TO PURCHASE
ALL OF THE OUTSTANDING CLASS B RESTRICTED VOTING SHARES OF
▇▇▇▇▇▇ WIRELESS COMMUNICATIONS INC.
NOT ALREADY OWNED BY ▇▇▇▇▇▇ COMMUNICATIONS INC. AND ITS AFFILIATES
IN EXCHANGE FOR 1.75 CLASS B NON-VOTING SHARES OF RCI FOR EACH CLASS B
RESTRICTED VOTING SHARE OF RWCI
THE OFFER EXPIRES AT MIDNIGHT (LOCAL TIME) ON DECEMBER 30, 2004,
UNLESS THE OFFER IS EXTENDED
This Offer (the "Offer") by ▇▇▇▇▇▇ Communications Inc. ("RCI") and its
wholly-owned subsidiary RWCI Acquisition Inc. ("RCI Subco" and, together
with RCI, the "Offerors") to purchase all of the issued and outstanding
Class B Restricted Voting Shares (the "RWCI Restricted Voting Shares") of
▇▇▇▇▇▇ Wireless Communications Inc. (the "Corporation") not already owned
by RCI and its affiliates for 1.75 Class B Non-Voting Shares ("RCI
Non-Voting Shares") of RCI for each RWCI Restricted Voting Share expires
at midnight (local time) on December 30, 2004 (the "Expiry Time"), unless
withdrawn or extended.
The Offerors reserve the right to withdraw the Offer and not purchase any
RWCI Restricted Voting Shares deposited under the Offer (the "Deposited
Shares") unless certain conditions are satisfied. See Section 4 of the
Offer to Purchase, "Conditions of the Offer".
The RWCI Restricted Voting Shares and the RCI Non-Voting Shares are listed
on the Toronto Stock Exchange (the "TSX") and the New York Stock Exchange
(the "NYSE"). On November 10, 2004, the last trading day prior to RCI's
announcement of its intention to make the Offer, the closing prices of the
RWCI Restricted Voting Shares on the TSX and the NYSE were C$43.17 and
US$36.28, respectively, and the closing prices of the RCI Non-Voting
Shares on the TSX and the NYSE were C$28.70 and US$24.05, respectively.
AFTER DUE CONSIDERATION OF THE REPORT OF THE INDEPENDENT COMMITTEE, THE
BOARD OF DIRECTORS OF THE CORPORATION (WITH ALL DIRECTORS ABSTAINING,
OTHER THAN MEMBERS OF THE INDEPENDENT COMMITTEE) HAS CONCLUDED THAT THE
OFFER IS FAIR AND REASONABLE TO HOLDERS OF RWCI RESTRICTED VOTING SHARES
(THE "SHAREHOLDERS") OTHER THAN RCI AND ITS AFFILIATES AND RECOMMENDS THAT
SHAREHOLDERS TENDER THEIR SHARES TO THE OFFER. Shareholders are urged to
evaluate carefully all information in this Offer to Purchase and Circular,
consult their own investment and income tax advisors and make their own
decision whether to deposit RWCI Restricted Voting Shares to the Offer.
See "INDEPENDENT COMMITTEE OF THE CORPORATION", "RECOMMENDATION OF THE
BOARD OF DIRECTORS OF THE CORPORATION", "VALUATION" and "ACQUISITION OF
RWCI RESTRICTED VOTING SHARES NOT DEPOSITED" in this document.
RCI has applied to list the additional RCI Non-Voting Shares to be issued
under the Offer on the TSX. In addition, RCI will apply to have the
additional RCI Non-Voting Shares to be issued under the Offer listed on
the NYSE.
Shareholders who wish to accept the Offer must properly complete and duly
execute the enclosed Letter of Acceptance and Transmittal, or a facsimile
thereof, and deposit it, together with the certificate(s) representing the
RWCI Restricted Voting Shares to be deposited and all other documents
required by the Letter of Acceptance and Transmittal, in accordance with
the instructions in the Letter of Acceptance and Transmittal.
Alternatively, Shareholders may follow the procedures for guaranteed
delivery described in Section 3 of the Offer to Purchase, "Manner of
Acceptance -- Guaranteed Delivery", using the accompanying Notice of
Guaranteed Delivery, or a facsimile thereof. A Shareholder whose RWCI
Restricted Voting Shares are registered in the name of a dealer, broker,
trust company, bank or other nominee should contact such registered holder
for assistance if the Shareholder wishes to accept the Offer.
SHAREHOLDERS WHO ARE ELIGIBLE HOLDERS ARE ELIGIBLE TO TENDER RWCI
RESTRICTED VOTING SHARES TO RCI FOR THE PURPOSE OF ACHIEVING A
TAX-DEFERRED ROLLOVER INTO RCI NON-VOTING SHARES FOR CANADIAN FEDERAL
INCOME TAX PURPOSES. SEE "MATERIAL CANADIAN FEDERAL INCOME TAX
CONSIDERATIONS" IN THIS DOCUMENT. OTHER SHAREHOLDERS THAT ACCEPT THE OFFER
WILL BE REQUIRED TO TENDER TO RCI SUBCO. SHAREHOLDERS WHO DO NOT EXPRESSLY
DESIGNATE RCI FOR THE PURPOSE OF THE PURCHASE OF THEIR RWCI RESTRICTED
VOTING SHARES IN THE SPACE PROVIDED IN THE LETTER OF ACCEPTANCE AND
TRANSMITTAL AND WHO DO NOT PROPERLY COMPLETE ANY CERTIFICATE THAT MAY BE
REQUIRED THEREBY WILL BE DEEMED TO HAVE TENDERED THEIR RWCI RESTRICTED
VOTING SHARES TO RCI SUBCO AND WILL NOT OBTAIN A TAX-DEFERRED ROLLOVER
INTO RCI NON-VOTING SHARES FOR CANADIAN FEDERAL INCOME TAX PURPOSES.
(continued on next page)
------------------------------
The Dealer Manager for the Offer is:
SCOTIA CAPITAL INC.
In Canada: In the United States:
SCOTIA CAPITAL INC. SCOTIA CAPITAL (USA) INC.
November 24, 2004
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Questions and requests for assistance in connection with the Offer may be
directed to the Dealer Manager, the Depositary or the Information Agent.
Additional copies of this document, the Letter of Acceptance and
Transmittal and the Notice of Guaranteed Delivery may be obtained without
charge on request from the Dealer Manager, the Depositary or the
Information Agent at their respective offices shown on the last page of
this document.
No person has been authorized to give any information or make any
representation other than those contained in this document and the Letter
of Acceptance and Transmittal, and if given or made, that information or
representation must not be relied upon as having been authorized by the
Offerors.
The Offer has not been approved or disapproved by any securities
regulatory authority nor has any securities regulatory authority passed
upon the fairness or merits of the Offer or upon the adequacy of the
information contained in the
Offer to Purchase and Circular. Any
representation to the contrary is unlawful.
THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION TO ANY PERSON
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. THE
OFFER IS NOT BEING MADE TO, NOR WILL DEPOSITS BE ACCEPTED FROM OR ON
BEHALF OF, SHAREHOLDERS IN ANY JURISDICTION IN WHICH THE MAKING OR
ACCEPTANCE OF THE OFFER WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH
JURISDICTION. HOWEVER, THE OFFERORS OR THEIR RESPECTIVE AGENTS MAY, IN
THEIR SOLE DISCRETION, TAKE SUCH ACTION AS IT OR THEY MAY DEEM NECESSARY
TO EXTEND THE OFFER TO SHAREHOLDERS IN ANY SUCH JURISDICTION.
RCI maintains an Internet site at ▇▇▇.▇▇▇▇▇▇.▇▇▇. Information contained in
or otherwise accessible through this Internet site is not part of the
Offer to Purchase and Circular. All references in this document to this
Internet site are inactive textual references to this URL and are for
informational purposes only.
NOTICE TO SHAREHOLDERS IN THE UNITED STATES
NEITHER THIS TRANSACTION NOR THE SECURITIES OFFERED HEREBY HAVE BEEN
APPROVED OR DISAPPROVED BY ANY CANADIAN SECURITIES COMMISSION OR
REGULATORY AUTHORITY, THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS ANY CANADIAN SECURITIES
COMMISSION OR REGULATORY AUTHORITY, THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF SUCH TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THESE DOCUMENTS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE OFFER IS MADE FOR SECURITIES OF A CANADIAN ISSUER BY CANADIAN ISSUERS
THAT ARE PERMITTED, UNDER A MULTIJURISDICTIONAL DISCLOSURE SYSTEM ADOPTED
BY THE UNITED STATES, TO PREPARE THIS DOCUMENT IN ACCORDANCE WITH THE
DISCLOSURE REQUIREMENTS OF CANADA. SHAREHOLDERS SHOULD BE AWARE THAT SUCH
REQUIREMENTS ARE DIFFERENT FROM THOSE OF THE UNITED STATES. THE FINANCIAL
STATEMENTS INCLUDED OR INCORPORATED BY REFERENCE HEREIN HAVE BEEN PREPARED
IN ACCORDANCE WITH CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
ARE SUBJECT TO CANADIAN AUDITING AND AUDITOR INDEPENDENCE STANDARDS AND,
THUS, MAY NOT BE COMPARABLE TO FINANCIAL STATEMENTS OF UNITED STATES
COMPANIES. THIS DOCUMENT WILL FORM PART OF A REGISTRATION STATEMENT ON
FORM F-10. A RECONCILIATION BETWEEN CANADIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AS THEY
RELATE TO EACH OF RCI AND THE CORPORATION ARE INCLUDED OR INCORPORATED BY
REFERENCE IN THIS DOCUMENT AND IN THE REGISTRATION STATEMENT.
THE ENFORCEMENT BY SHAREHOLDERS OF CIVIL LIABILITIES UNDER UNITED STATES
FEDERAL SECURITIES LAWS MAY BE AFFECTED ADVERSELY BY THE FACT THAT THE
CORPORATION IS GOVERNED BY THE LAWS OF CANADA, THAT THE MAJORITY OF ITS
OFFICERS AND DIRECTORS RESIDE OUTSIDE THE UNITED STATES, THAT THE DEALER
MANAGER OR SOME OF THE EXPERTS NAMED IN THE CIRCULAR RESIDE OUTSIDE THE
UNITED STATES AND THAT ALL OR A SUBSTANTIAL PORTION OF THE ASSETS OF RCI,
THE CORPORATION AND SUCH PERSONS MAY BE LOCATED OUTSIDE THE UNITED STATES.
SHAREHOLDERS MAY NOT BE ABLE TO ▇▇▇ A FOREIGN COMPANY OR ITS OFFICERS OR
DIRECTORS IN A FOREIGN COURT FOR VIOLATIONS OF UNITED STATES FEDERAL
SECURITIES LAWS. IT MAY BE DIFFICULT TO COMPEL A FOREIGN COMPANY AND ITS
AFFILIATES TO SUBJECT THEMSELVES TO A U.S. COURT'S JUDGMENT.
SHAREHOLDERS SHOULD BE AWARE THAT THE ACQUISITION OF THE RCI NON-VOTING
SHARES AS DESCRIBED HEREIN MAY HAVE TAX CONSEQUENCES BOTH IN CANADA AND
THE UNITED STATES. THE MATERIAL TAX CONSEQUENCES FOR SHAREHOLDERS WHO ARE
RESIDENT IN, OR CITIZENS OF, CANADA OR THE UNITED STATES ARE DESCRIBED IN
THIS DOCUMENT UNDER "MATERIAL CANADIAN FEDERAL INCOME TAX CONSIDERATIONS"
AND "MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS",
RESPECTIVELY. SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING
THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE ACQUISITION OF THE RCI
NON-VOTING SHARES AS DESCRIBED HEREIN.
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(ii)
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FORWARD-LOOKING STATEMENTS
This document, including documents incorporated by reference herein,
includes forward-looking statements concerning the business, operations
and financial performance and condition of RCI and the Corporation. When
used in this document the words "believe", "anticipate", "intend",
"estimate", "expect", "project" and similar expressions are intended to
identify forward-looking statements, although not all forward-looking
statements contain such words. These forward-looking statements are based
on current expectations. RCI and the Corporation caution that all forward-
looking information is inherently uncertain and actual results may differ
materially from the assumptions, estimates or expectations reflected or
contained in the forward-looking information, and that actual future
performance will be affected by a number of factors, including economic
conditions, technological change, regulatory change and competitive
factors, many of which are beyond RCI's and the Corporation's control.
Therefore, future events and results may vary significantly from what RCI
and the Corporation currently foresee. RCI is under no obligation (and
expressly disclaims any such obligation) to update or alter the
forward-looking statements whether as a result of new information, future
events or otherwise.
EXCHANGE RATE INFORMATION
RCI publishes its consolidated financial statements in Canadian dollars.
In this document, except where otherwise indicated, all references to
"dollars", Cdn.$, C$ or "$" are to Canadian dollars. The Bank of Canada
noon spot exchange rate on November 23, 2004 was Cdn.$1.1865 = U.S.$1.00.
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(iii)
TABLE OF CONTENTS
PAGE
----
SUMMARY TERM SHEET.......................................... 1
GLOSSARY.................................................... 6
OFFER TO PURCHASE........................................... 10
1. The Offer.............................................. 10
2. Time for Acceptance.................................... 10
3. Manner of Acceptance................................... 10
4. Conditions of the Offer................................ 13
5. Extension and Variation of the Offer................... 14
6. Withdrawal of Deposited Shares......................... 17
7. Take Up of and Payment for Deposited Shares............ 18
8. Return of Deposited Shares............................. 19
9. Mail Service Interruption.............................. 19
10. Changes in Capitalization............................... 19
11. Notices and Delivery.................................... 19
12. Other Terms of the Offer................................ 20
CIRCULAR.................................................... 22
RCI......................................................... 22
RCI SUBCO................................................... 26
THE CORPORATION............................................. 27
SPECIAL FACTORS............................................. 31
BACKGROUND TO THE OFFER..................................... 31
INDEPENDENT COMMITTEE OF THE CORPORATION.................... 36
RECOMMENDATION OF THE BOARD OF DIRECTORS OF THE
CORPORATION............................................... 38
VALUATION................................................... 39
CERTAIN TRANSACTIONS AND RELATIONSHIPS BETWEEN RCI AND THE
CORPORATION............................................... 43
EFFECT OF THE OFFER ON THE MARKET FOR SECURITIES; PUBLIC
DISCLOSURE BY THE CORPORATION; EXCHANGE ACT
REGISTRATION.............................................. 48
ACQUISITION OF RWCI RESTRICTED VOTING SHARES NOT
DEPOSITED................................................. 48
OWNERSHIP OF SECURITIES..................................... 51
TRADING IN SECURITIES OF THE CORPORATION.................... 52
ARRANGEMENTS, AGREEMENTS OR UNDERSTANDINGS.................. 53
TREATMENT OF RWCI OPTIONS................................... 53
ACCEPTANCE AND RECOMMENDATIONS OF OTHERS.................... 53
COMMITMENTS TO ACQUIRE SECURITIES OF THE CORPORATION........ 53
BENEFITS FROM THE OFFER..................................... 53
MATERIAL CHANGES AND OTHER INFORMATION...................... 53
PREVIOUS DISTRIBUTIONS AND PURCHASES........................ 53
PRICE RANGE AND TRADING VOLUME OF RWCI RESTRICTED VOTING
SHARES.................................................... 54
PRICE RANGE AND TRADING VOLUME OF RCI NON-VOTING SHARES..... 55
MATERIAL CANADIAN FEDERAL INCOME TAX CONSIDERATIONS......... 55
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS.... 59
FINANCIAL ADVISOR, INFORMATION AGENT, DEALER MANAGER AND
DEPOSITARY................................................ 61
LEGAL MATTERS............................................... 62
STATUTORY RIGHTS............................................ 62
(iv)
PAGE
----
DIRECTORS' APPROVAL......................................... 63
CONSENTS.................................................... 64
APPROVAL AND CERTIFICATE OF ▇▇▇▇▇▇ COMMUNICATIONS INC. ..... 68
APPROVAL AND CERTIFICATE OF RWCI ACQUISITION INC. .......... 69
SCHEDULE "A" INFORMATION CONCERNING RCI..................... A-1
SCHEDULE "B" INFORMATION CONCERNING THE CORPORATION......... B-1
SCHEDULE "C" INFORMATION CONCERNING DIRECTORS AND EXECUTIVE
OFFICERS
OF RCI................................... C-1
SCHEDULE "D" VALUATION AND FAIRNESS OPINION................. D-1
SCHEDULE "E" UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS
OF RCI................................... E-1
SCHEDULE "F" UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS
OF THE CORPORATION....................... F-1
(v)
SUMMARY TERM SHEET
This summary provides important and material information about the Offer
that is described in more detail elsewhere in this document, but this summary
may not include all of the information about the Offer that is important to you.
Additional important information about the Offer is contained in the remainder
of this document and the Letter of Acceptance and Transmittal. Therefore, you
are urged to carefully read the remainder of this document and the Letter of
Acceptance and Transmittal for the Offer because the information in this summary
is not complete. We have included cross-references in this summary to other
sections of this document to direct you to the sections of this document in
which a more complete description of the topics covered in this summary appear.
Unless otherwise defined herein, capitalized terms have the respective meanings
assigned thereto in the Glossary.
WHAT IS THE OFFER?
▇▇▇▇▇▇ Communications Inc. and RWCI Acquisition Inc. are offering to
purchase all the outstanding Class B Restricted Voting Shares of ▇▇▇▇▇▇ Wireless
Communications Inc. not already held by us and our affiliates. For the purpose
of this summary "we" and similar words refer to both ▇▇▇▇▇▇ Communications Inc.
and RWCI Acquisition Inc. and the "Corporation" refers to ▇▇▇▇▇▇ Wireless
Communications Inc. We are offering to exchange 1.75 shares of Class B
Non-Voting Shares of ▇▇▇▇▇▇ Communications Inc. for each Class B Restricted
Voting Share of the Corporation not already held by us and our affiliates. The
following are some of the questions that you, as a shareholder of the
Corporation, may have and answers to those questions. We urge you to carefully
read the Circular and the accompanying Letter of Acceptance and Transmittal
because the information in this summary may not answer all of your questions and
additional important information is contained in the Circular and the
accompanying Letter of Acceptance and Transmittal.
WHO IS OFFERING TO BUY MY SECURITIES?
Our names are ▇▇▇▇▇▇ Communications Inc. and RWCI Acquisition Inc. We are
corporations organized under the laws of the Province of British Columbia, and
we are making an
offer to purchase all of the outstanding Class B Restricted
Voting Shares not already held by us and our affiliates.
As of November 22, 2004, we directly and indirectly own or control
64,911,816 of the Corporation's Class B Restricted Voting Shares, representing
approximately 80.6% of the issued outstanding Class B Restricted Voting Shares.
The holders of Class B Restricted Voting Shares are generally entitled to one
vote per share other than with respect to the election of directors and the
appointment of auditors and are entitled, voting separately as a class, to elect
three directors of the Corporation. In addition, we directly and indirectly own
or control, 62,820,371 Class A Multiple Voting Shares of the Corporation,
representing 100% of the issued and outstanding Class A Multiple Voting Shares.
The holders of the Class A Multiple Voting Shares are generally entitled to 10
votes per share. In addition, each of the Class A Multiple Voting Shares may, at
the option of the holder, be converted into a Class B Restricted Voting Share.
As a result, we directly and indirectly own or control shares representing
approximately 98% of the voting power of the Corporation.
▇▇▇▇▇▇ Communications Inc. is a diversified public Canadian communications
and media company. ▇▇▇▇▇▇ Communications Inc. is engaged in cable television,
high-speed Internet access and video retailing through Canada's largest cable
television provider, ▇▇▇▇▇▇ Cable Inc.; in wireless voice and data
communications services through the Corporation, Canada's national GSM/GPRS
cellular provider; and in radio, television broadcasting, televised shopping and
publishing businesses through ▇▇▇▇▇▇ Media Inc. ▇▇▇▇▇▇ Communications Inc. also
owns the Toronto Blue Jays Baseball Club. For the year ended December 31, 2003,
the Corporation, ▇▇▇▇▇▇ Cable Inc. and ▇▇▇▇▇▇ Media Inc. represented 46.1%,
37.3% and 17.8%, respectively, offset by corporate items and eliminations of
1.2% of our consolidated revenue and 51.1%, 44.4% and 17.2%, offset by corporate
items and eliminations of 12.8%, respectively, of ▇▇▇▇▇▇ Communications Inc.'s
consolidated operating income. See "RCI" and "SCHEDULE B -- INFORMATION
CONCERNING THE CORPORATION.
WHAT ARE THE CLASSES AND NUMBERS OF SECURITIES SOUGHT IN THE OFFER?
We are offering to purchase all of the outstanding Class B Restricted
Voting Shares not already owned by us and our affiliates.
1
HOW MUCH ARE YOU OFFERING TO PAY AND WHAT IS THE FORM OF PAYMENT?
We are offering 1.75 shares of Class B Non-Voting Shares of ▇▇▇▇▇▇
Communications Inc. in exchange for each Class B Restricted Voting Share held by
you. The consideration offered of 1.75 shares of Class B Non-Voting Shares of
▇▇▇▇▇▇ Communications Inc. was equivalent to a price of approximately $50.23 for
each Class B Restricted Voting Share based upon the closing price of ▇▇▇▇▇▇
Communication Inc.'s Class B Non-Voting Shares on the Toronto Stock Exchange on
November 10, 2004, which is the last trading day prior to the date on which we
announced our intention to make the Offer. The equivalent price of $50.23 per
share represented a premium of 13.8% to the volume weighted average of the
closing prices of Class B Restricted Voting Shares on the Toronto Stock Exchange
for the 5 trading days immediately prior to November 10, 2004. For more
information regarding the trading range of the Corporation's Class B Restricted
Voting Shares, see "PRICE RANGE AND TRADING VOLUME OF RWCI RESTRICTED VOTING
SHARES" in the Circular.
▇▇▇▇▇▇ Communications Inc. has two classes of shares outstanding:
(a) Our Class A Voting Shares; and
(b) Our Class B Non-Voting Shares.
Each Class A Voting Share is entitled to 50 votes per share. The holders of
▇▇▇▇▇▇ Communications Inc.'s Class B Non-Voting shares are entitled to receive
notice of and to attend meetings of shareholders but, except as required by law,
are not entitled to vote at such meetings. ▇▇▇▇▇▇ Communications Inc.'s Class A
Voting Shares may receive a dividend at an annual rate of up to $0.05 per share
only after ▇▇▇▇▇▇ Communications Inc.'s Class B Non-Voting Shares have been paid
a dividend at an annual rate of $0.05 per share. ▇▇▇▇▇▇ Communications Inc.'s
Class A Voting Shares are convertible on a one-for-one basis into Class B
Non-Voting Shares. For more information regarding our Class B Non-Voting Shares,
see "SCHEDULE A -- Information Concerning RCI -- Share Capital of RCI and
Dividend Policy -- Equity Shares" in the Circular.
WILL I HAVE TO PAY ANY FEES OR COMMISSIONS?
If you are the owner of record of your shares and you tender your shares to
the depositary or by utilizing the services of the dealer manager, you will not
have to pay brokerage fees or similar expenses. If you own your shares through a
broker or other nominee, and your broker or nominee tenders your shares on your
behalf, they may charge you a fee for doing so. You should consult your broker
or nominee to determine whether any charges will apply. See "FINANCIAL ADVISOR,
INFORMATION AGENT, DEALER MANAGER AND DEPOSITARY" in the Circular.
WHY ARE THERE TWO OFFERORS?
We are offering to purchase your shares both through ▇▇▇▇▇▇ Communications
Inc. and through RWCI Acquisition Inc. We are offering to purchase your shares
on this joint basis in order to obtain favourable Canadian tax treatment, both
for us and you. If you tender your shares to RWCI Acquisition Inc., our cost to
acquire your shares, from a Canadian tax perspective, will be equal to the fair
market value of the Class B Non-Voting Shares you receive in connection with the
exchange. On the other hand, our cost to acquire the shares, from a Canadian tax
perspective, that you tender to ▇▇▇▇▇▇ Communications Inc. generally will be
equal to tax paid-up capital, which we expect will be significantly less than
the fair market value of the Class B Non-Voting Shares you receive in connection
with the exchange. As a result, we would prefer that all of the shares tendered
in the Offer be tendered to RWCI Acquisition Inc.
Some of the holders of the Class B Restricted Voting Shares, whom we refer
to as Eligible Holders, will be subject to Canadian tax in respect of any
capital gain realized on the disposition of Class B Restricted Voting Shares
under the Offer. An Eligible Holder may achieve a tax-deferred rollover for
Canadian tax purposes, however, if the Eligible Holder tenders Class B
Restricted Voting Shares directly to ▇▇▇▇▇▇ Communications Inc. Accordingly, we
will permit Eligible Holders who want to obtain a tax-deferred rollover for
Canadian tax purposes to tender Class B Restricted Voting Shares to ▇▇▇▇▇▇
Communications Inc. An Eligible Holder choosing to tender Class B Restricted
Voting Shares to ▇▇▇▇▇▇ Communications Inc. will be required to certify, in the
Letter of Acceptance and Transmittal, that the holder is an Eligible Holder.
Holders of Class B Restricted Voting Shares who are not Eligible Holders and who
elect to participate in the Offer will be required to tender Class B Restricted
Voting Shares to RWCI Acquisition Inc., because these holders will not obtain
any additional benefit by tendering directly to ▇▇▇▇▇▇ Communications Inc.
Please see the definition of "Eligible Holder" in the
Offer to Purchase and
Circular and also see "MATERIAL CANADIAN FEDERAL INCOME TAX CONSIDERATIONS" and
"MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS" in the
Offer to
Purchase and Circular for additional information.
2
We urge you to contact your tax and legal advisors if you have any
questions regarding your tax status or if you have any questions concerning the
effect of the Offer on your tax situation.
HOW WILL CANADIAN RESIDENTS BE TAXED FOR CANADIAN FEDERAL INCOME TAX PURPOSES?
Shareholders who are Eligible Holders are eligible to tender their Class B
Restricted Voting Shares to RCI for the purpose of achieving a tax-deferred
rollover for Canadian federal income tax purposes. Other Shareholders who elect
to participate in the Offer will be required to tender to RWCI Acquisition Inc.
The sale of Class B Restricted Voting Shares to RWCI Acquisition Inc. will be a
taxable disposition for Canadian federal income tax purposes. You are urged to
consult your own tax advisor as to the particular tax consequences to you of the
Offer. See "MATERIAL CANADIAN FEDERAL INCOME TAX CONSIDERATIONS" in the
Circular.
HOW WILL U.S. TAXPAYERS BE TAXED FOR U.S. FEDERAL INCOME TAX PURPOSES?
In general, a United States holder who holds Class B Restricted Voting
Shares as capital assets will recognize a gain or loss for United States federal
income tax purposes in an amount equal to the difference, if any, between (1)
the U.S. dollar equivalent of the fair market value of the Class B Non-Voting
Shares received and any Canadian dollar cash payment received on any fractional
shares, determined based on the spot rate of exchange on the date we take up and
pay for the Class B Restricted Voting Shares and (2) the United States holder's
adjusted tax basis in the Class B Restricted Voting Shares. This gain or loss
generally will be a capital gain or loss and generally will be a long-term
capital gain or loss if the United States holder has held the Class B Restricted
Voting Shares for more than one year at the time of the exchange. You are urged
to consult your own tax advisor as to the particular tax consequences to you of
the offer. See "MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS" in the
Circular.
WHAT ARE THE MOST IMPORTANT CONDITIONS TO THE OFFER?
The Offer is subject to several conditions, including:
(a) the lack of any material adverse change or any development involving
any prospective material adverse change in the business of the
Corporation; and
(b) the receipt of all necessary approvals from government bodies or
regulatory agencies on terms satisfactory to us having been obtained.
See "OFFER TO PURCHASE -- Section 4 -- Conditions of the Offer".
HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER TO THE OFFER?
You will have until midnight, local time, on December 30, 2004 to decide
whether to tender your Class B Restricted Voting Shares to the Offer unless the
Offer is extended. Further, if you cannot deliver everything that is required in
order to make a valid tender by that time, you may be able to use a guaranteed
delivery procedure, which is described in the Circular. See "OFFER TO PURCHASE
-- Section 3 -- Manner of Acceptance."
CAN THE OFFER BE EXTENDED?
We can elect at any time to extend the Offer. If we extend the Offer, we
will inform Computershare Investor Services Inc., the depositary for the Offer,
of that fact and will make a public announcement of the extension, not later
than 9:00 a.m., Toronto time, on the next business day after the day on which
the Offer was scheduled to expire. See "OFFER TO PURCHASE -- Section 5 --
Extension and Variation of the Offer."
HOW DO I TENDER MY SHARES?
To tender your Class B Restricted Voting Shares, you must deliver the
certificates evidencing your shares, together with a completed Letter of
Acceptance and Transmittal, to Computershare Investor Services Inc., the
depositary for the Offer, not later than the time the Offer expires. If your
shares are held in street name (that is, through a broker, dealer or other
nominee), please contact your broker, dealer or other nominee. If you cannot get
all required documents to the depositary by the expiry of the Offer, you may get
a little extra time to do so by having a broker, bank or other fiduciary who is
a member of the Securities Transfer Agent Medallion Program or other eligible
institution guarantee that the necessary documents will be received by the
depositary within three Toronto Stock Exchange trading days. However, the
depositary must receive the necessary documents within that three trading day
period. See "OFFER TO PURCHASE -- Section 3 -- Manner of Acceptance."
3
UNTIL WHAT TIME CAN I WITHDRAW PREVIOUSLY TENDERED SHARES?
You can withdraw previously tendered Class B Restricted Voting Shares:
(a) at any time until we take up your shares;
(b) up until the tenth day following the day we file a notice announcing
we have changed or varied our Offer unless, among other things, prior
to filing the notice we had taken up your shares or the change in our
Offer consists solely of an increase in the consideration we are
offering; and
(c) if after taking up your shares, we do not pay for them within three
business days.
See "OFFER TO PURCHASE -- Section 6 -- Withdrawal of Deposited Shares."
HOW DO I WITHDRAW PREVIOUSLY TENDERED SHARES?
To withdraw shares that have been tendered you must deliver a written
notice of withdrawal, or a facsimile of one, with the required information to
the depositary while you still have the right to withdraw the shares. See "OFFER
TO PURCHASE -- Section 6 -- Withdrawal of Deposited Shares."
WHAT DOES THE CORPORATION'S BOARD OF DIRECTORS THINK OF THE OFFER?
The board of directors of the Corporation has concluded that the offer is
fair and reasonable to shareholders and recommends that they tender their shares
to the offer. The board of directors of the Corporation has received an opinion
and valuation from an independent valuator. The opinion states that the
consideration offered is fair, from a financial point of view, to shareholders
(other than ▇▇▇▇▇▇ Communications Inc. and its affiliates). The independent
valuator determined, pursuant to the valuation that, subject to the assumptions
and qualifications set forth in the valuation, the fair market value of the RWCI
Restricted Voting Shares is in the range of $46 to $54 per share.
IS ▇▇▇▇▇▇ COMMUNICATIONS INC. ATTEMPTING TO ACQUIRE ALL OF THE CORPORATION?
We are making the Offer in order to acquire all of the outstanding Class B
Restricted Voting Shares not owned by us. If we complete the Offer but do not
then own 100% of the Corporation, we currently intend, depending on the number
of Class B Restricted Voting Shares we have acquired, to acquire all remaining
Class B Restricted Voting Shares not then owned by us through a second-step
transaction as described below.
If more than 90% of the outstanding Class B Restricted Voting Shares not
currently owned by us are purchased by us in the Offer, we intend to execute a
compulsory acquisition. A compulsory acquisition would not require a shareholder
vote of the Corporation. If a compulsory acquisition is not available but we own
90% or more of the outstanding Class B Restricted Voting Shares, we currently
intend to effect a subsequent acquisition transaction, such as an amalgamation,
arrangement or share consolidation. Such a subsequent acquisition transaction
would require the approval of a simple majority of the votes cast by holders of
such Class B Restricted Voting Shares, other than us, except if we own 90% or
more of such shares and a dissent and appraisal remedy is available. In the
event we do not acquire sufficient Class B Restricted Voting Shares in order to
carry out a subsequent acquisition transaction, but we become the holder of 90%
or more of the outstanding Class B Restricted Voting Shares, we may at that time
decide to initiate a subsequent acquisition transaction.
Shareholders who do not tender their Class B Restricted Voting Shares in
the Offer will receive the same amount of consideration per share in any
second-step transaction (if it is carried out immediately following the Offer)
that they would have received had they tendered their shares to the Offer,
subject to their right to pursue appraisal and dissent rights under the laws of
Canada. Therefore, if the second-step transaction occurs and you do not exercise
your appraisal and dissent rights, the only differences to you between tendering
your Class B Restricted Voting Shares and not tendering your Class B Restricted
Voting Shares are that you will be paid earlier if you tender your Class B
Restricted Voting Shares and different tax treatments may apply. See "BACKGROUND
TO THE OFFER -- Structure of the Transaction", "ACQUISITION OF RWCI RESTRICTED
VOTING SHARES NOT DEPOSITED" and "MATERIAL CANADIAN FEDERAL INCOME TAX
CONSIDERATIONS" and "MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS"
in the Circular.
FOLLOWING THE OFFER, WILL THE CORPORATION CONTINUE AS A PUBLIC COMPANY?
If a second-step transaction described above takes place, the Corporation
will no longer be publicly owned. Even if a second-step transaction does not
take place, if we purchase all the tendered shares, there may be so few
remaining
4
shareholders and publicly held Class B Restricted Voting Shares that the Class B
Restricted Voting Shares will no longer be eligible to be traded on the Toronto
Stock Exchange or the New York Stock Exchange or other securities markets. As a
result, there may not be a public trading market for such shares and the
Corporation may cease being required to comply with Canadian and SEC rules
governing publicly held companies. See "EFFECT OF THE OFFER ON THE MARKET FOR
SECURITIES; PUBLIC DISCLOSURE BY THE CORPORATION; EXCHANGE ACT REGISTRATION" in
the Circular.
IF I DECIDE NOT TO TENDER, HOW WILL THE OFFER AFFECT MY SHARES?
If a second-step transaction described above takes place, shareholders not
tendering to the Offer will receive the same consideration as under the Offer or
the fair value of the shares as determined by a court. If for some reason no
second-step transaction takes place, the number of the Corporation's
shareholders and of Class B Restricted Voting Shares that are still in the hands
of the public may be so small that there will no longer be an active public
trading market for the Class B Restricted Voting Shares. Also, as described
above, the Corporation may cease being required to comply with Canadian and SEC
rules relating to publicly held companies. See "EFFECT OF THE OFFER ON THE
MARKET FOR SECURITIES; PUBLIC DISCLOSURE BY THE CORPORATION; EXCHANGE ACT
REGISTRATION" in the Circular.
WILL I HAVE THE RIGHT TO HAVE MY SHARES APPRAISED?
Under a second-step transaction, if one occurs, shareholders will have the
right to dissent and demand payment of the fair value of their Class B
Restricted Voting Shares. If the statutory procedures are complied with, this
right could lead to a judicial determination of the fair value required to be
paid to such dissenting shareholders for their Class B Restricted Voting Shares.
The fair value of the Class B Restricted Voting Shares so determined could be
more or less than the consideration paid per Class B Restricted Voting Share
pursuant to such second-step transactions or the offer.
WHAT IS THE MARKET VALUE OF MY SHARES AS OF A RECENT DATE?
On November 10, 2004, which is the last trading day prior to the date on
which we announced our intention to make the Offer, the last sale price of a
Class B Restricted Voting Share of the Corporation reported on the Toronto Stock
Exchange and the New York Stock Exchange was $43.17 and U.S.$36.28,
respectively. We urge you to obtain a recent quotation for Class B Restricted
Voting Share of the Corporation before deciding whether to tender your shares.
See "PRICE RANGE AND TRADING VOLUME OF RWCI RESTRICTED VOTING SHARES" in the
Circular.
WHO CAN I TALK TO IF I HAVE QUESTIONS ABOUT THE OFFER?
You can call Computershare Investor Services Inc., ▇▇▇▇▇▇▇▇▇ Shareholder
Communications Inc., Scotia Capital Inc. in Canada and Scotia Capital (USA) Inc.
in the United States at their respective telephone numbers and locations set out
on the back page of this document. Computershare Investor Services Inc. is
acting as Depository for our Offer. ▇▇▇▇▇▇▇▇▇ Shareholder Communications Inc. is
acting as the Information Agent for our offer in Canada and the United States.
Scotia Capital Inc. is acting as the Dealer Manager for our Offer in Canada.
Scotia Capital (USA) Inc. is acting as the Dealer Manager for our Offer in the
United States.
5
GLOSSARY
In this document, unless the subject matter or context is inconsistent
therewith, the following terms have the meanings set forth below:
"206 NOTICE" has the meaning ascribed thereto under "ACQUISITION OF RWCI
RESTRICTED VOTING SHARES NOT DEPOSITED -- Compulsory Acquisition" in the
Circular;
"1933 ACT" means the United States Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder;
"AFFILIATE" unless otherwise indicated, has the meaning ascribed thereto in the
Securities Act (Ontario);
"ASSOCIATE" unless otherwise indicated, has the meaning ascribed thereto in the
Securities Act (Ontario);
"AT&T WIRELESS" means AT&T Wireless Services, Inc., a corporation incorporated
under the laws of the State of Delaware;
"BOARD OF DIRECTORS" means the board of directors of the Corporation;
"BROADCASTING" means ▇▇▇▇▇▇ Broadcasting Limited;
"BUSINESS DAY" means any day on which commercial banks in the City of ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ are open for business;
"BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇" means BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ Inc., a Canadian investment banking
firm retained to provide financial advice to the Independent Committee and
prepare the Valuation and Fairness Opinion;
"CBCA" means the Canada Business Corporations Act, as amended;
"CIRCULAR" means the take-over bid circular included in this document;
"COMPULSORY ACQUISITION" has the meaning ascribed thereto under "ACQUISITION OF
RWCI RESTRICTED VOTING SHARES NOT DEPOSITED -- Compulsory Acquisition" in the
Circular;
"CORPORATION" OR "RWCI" means ▇▇▇▇▇▇ Wireless Communications Inc., a corporation
continued under the CBCA;
"CRA" means the Canada Revenue Agency;
"CRTC" means the Canadian Radiotelevision and Telecommunications Commission;
"DEALER MANAGER" means Scotia Capital Inc. in Canada and Scotia Capital (USA)
Inc. in the United States;
"DEPOSITARY" means Computershare Investor Services Inc.;
"DEPOSITED SHARES" means RWCI Restricted Voting Shares deposited pursuant to the
Offer in accordance with the terms and conditions of the Offer to Purchase and
the Letter of Acceptance and Transmittal and not withdrawn;
"DIRECTORS' CIRCULAR" means the directors' circular of the Corporation prepared
in connection with the Offer and mailed to Minority Shareholders together with
the Offer to Purchase and Circular;
"EFFECTIVE DATE" means the first date on which an Offeror has taken up and paid
for Deposited Shares;
"ELIGIBLE HOLDER" means a Shareholder who is (a) a resident of Canada for the
purposes of the Tax Act, holds RWCI Restricted Voting Shares as capital property
and is not exempt from tax on income under the Tax Act, or (b) a non-resident of
Canada for the purposes of the Tax Act, whose RWCI Restricted Voting Shares
constitute "taxable Canadian property" (as defined by the Tax Act) and who is
not exempt from Canadian tax in respect of any capital gain realized on the
disposition of RWCI Restricted Voting Shares by reason of an exemption contained
in an applicable income tax treaty, or (c) a partnership if one or more members
of the partnership are described in (a) or (b);
"ELIGIBLE INSTITUTION" means a Canadian Schedule "A" chartered bank, a major
trust company in Canada, a member of the Securities Transfer Agent Medallion
Program (STAMP), a member of the Stock Exchange Medallion Program (SEMP), a
member of the New York Stock Exchange, Inc. Medallion Signature Program (MSP) or
any other "Eligible Guarantor Institution", as such term is defined in Rule
17Ad-15 of the Exchange Act;
"ENGAGEMENT LETTER" means the agreement dated October 19, 2004 entered into by
the Corporation and BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ under which BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ agreed to
provide financial advice to the Independent Committee and prepare the Valuation
and Fairness Opinion, as such agreement was amended on November 11, 2004;
6
"ESPP" means the Employee Share Purchase Plan of the Corporation;
"EXCHANGE ACT" means the United States Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder;
"EXPIRY DATE" means December 30, 2004, unless the Offer is extended, in which
event the Expiry Date shall mean the latest date on which the Offer as so
extended expires;
"EXPIRY TIME" means midnight (local time) on the Expiry Date;
"FAIRNESS OPINION" means the opinion of BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ as to the fairness of
the Offer Consideration, from a financial point of view, to Minority
Shareholders and attached hereto as Schedule "D";
"INDEPENDENT COMMITTEE" means the special committee of the Board of Directors
constituted to, among other matters, supervise the preparation of the Valuation
and Fairness Opinion; such committee consists of ▇▇▇▇▇ ▇. ▇▇▇▇▇ (Chairman),
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, all of whom are independent of
RCI, and its associates and affiliates (other than the Corporation) and of
management of the Corporation;
"INFORMATION AGENT" means ▇▇▇▇▇▇▇▇▇ Shareholder Communications Inc.;
"IRS" means the Internal Revenue Service;
"JVII" means JVII General Partnership, a partnership formed under Delaware law
and wholly-owned by AT&T Wireless;
"JVII SHAREHOLDERS AGREEMENT" has the meaning ascribed thereto in "BACKGROUND TO
THE OFFER -- Following 2001 Proposed Transaction";
"LETTER OF ACCEPTANCE AND TRANSMITTAL" means the letter of acceptance and
transmittal printed on blue paper accompanying the Offer to Purchase and
Circular;
"MICROCELL" means Microcell Telecommunications Inc.;
"MINORITY SHAREHOLDERS" means all holders of RWCI Restricted Voting Shares other
than RCI and its affiliates;
"NOTICE OF GUARANTEED DELIVERY" means the notice of guaranteed delivery printed
on green paper accompanying the Offer to Purchase and Circular;
"NYSE" means the New York Stock Exchange;
"OFFER" means the offer by RCI and RCI Subco to purchase RWCI Restricted Voting
Shares made hereby, the terms and conditions of which are set forth in this
document and the Letter of Acceptance and Transmittal;
"OFFER CONSIDERATION" means 1.75 RCI Non-Voting Shares for each RWCI Restricted
Voting Share;
"OFFEREE" has the meaning ascribed thereto under "ACQUISITION OF RWCI RESTRICTED
VOTING SHARES NOT DEPOSITED -- Compulsory Acquisition" in the Circular;
"OFFERORS" means RCI and RCI Subco;
"OFFER PERIOD" means the period commencing on November 25, 2004 and ending at
the Expiry Time;
"OFFER TO PURCHASE" means the offer to purchase made hereby;
"OFFER TO PURCHASE AND CIRCULAR" means this document, including the Offer to
Purchase and the Circular, and the Letter of Acceptance and Transmittal;
"PERSON" includes any individual, government, governmental agency or authority,
body corporate, partnership, limited partnership, limited liability company,
trust, unlimited liability company, joint venture or any form of unincorporated
entity;
"POLICY Q-27" means Policy Q-27 of the Autorite des marches financiers, as
amended;
"PUBLISHING" means ▇▇▇▇▇▇ Publishing Limited;
"PURCHASED SECURITIES" has the meaning ascribed thereto in Section 3 of the
Offer to Purchase, "Manner of Acceptance -- Power of Attorney";
"RCI" means ▇▇▇▇▇▇ Communications Inc., a corporation amalgamated under the laws
of the Province of British Columbia;
7
"RCI CLASS A SHARES" means the Class A Multiple Voting Shares of RCI, which have
the attributes described under "Share Capital of RCI and Dividend Policy --
Equity Shares" in Schedule "A" hereto;
"RCI OPTIONS" means options granted to acquire RCI Non-Voting Shares pursuant to
RCI's stock option plan;
"RCI SHARE CERTIFICATES" means certificates representing RCI Non-Voting Shares;
"RCI SUBCO" means RWCI Acquisition Inc., a corporation incorporated under the
laws of the Province of British Columbia, and a wholly-owned subsidiary of RCI;
"RCI NON-VOTING SHARES" means the Class B Non-Voting Shares of RCI, which have
the attributes described under "Share Capital of RCI and Dividend Policy --
Equity Shares" in Schedule "A" hereto;
"REGULATIONS" has the meaning ascribed thereto under "ACQUISITION OF RWCI
RESTRICTED VOTING SHARES NOT DEPOSITED -- Subsequent Acquisition Transactions"
in the Circular;
"RULE 61-501" means Ontario Securities Commission Rule 61-501;
"RULES" has the meaning ascribed thereto under "VALUATION" in the Circular;
"RWCI CLASS A SHARES" means the Class A Multiple Voting Shares of the
Corporation, which have the attributes described under "Share Capital of the
Corporation -- RWCI Class A Shares and RWCI Restricted Voting Shares" in
Schedule "B" hereto;
"RWCI OPTIONS" means options to acquire RWCI Restricted Voting Shares pursuant
to the Corporation's stock option plans;
"RWCI RESTRICTED VOTING SHARES" means the Class B Restricted Voting Shares of
the Corporation, which have the attributes described under "Share Capital of the
Corporation -- RWCI Class A Shares and RWCI Restricted Voting Shares" in
Schedule "B" hereto;
"RWI" means ▇▇▇▇▇▇ Wireless Inc., a corporation incorporated under the CBCA, and
a wholly-owned subsidiary of the Corporation;
"SCOTIA CAPITAL" means Scotia Capital Inc.;
"SEC" means the United States Securities and Exchange Commission;
"SHAREHOLDER" means a holder of RWCI Restricted Voting Shares;
"SHAREHOLDER PROTECTION AGREEMENT" means the minority shareholder protection
agreement dated August 7, 1991 between the Corporation and RCI;
"SOLICITING DEALER GROUP" means the group of soliciting dealers formed by Scotia
Capital Inc. to solicit acceptances of the Offer;
"SUBSEQUENT ACQUISITION TRANSACTION" has the meaning ascribed thereto under
"ACQUISITION OF RWCI RESTRICTED VOTING SHARES NOT DEPOSITED -- Subsequent
Acquisition Transactions" in the Circular;
"SUBSEQUENT OFFERING PERIOD" has the meaning ascribed thereto in Section 5 of
the Offer to Purchase, "Extension and Variation of the Offer";
"TAX ACT" means the Income Tax Act (Canada), as amended;
"TELECOMMUNICATIONS LEGISLATION" has the meaning ascribed thereto under
"Restrictions on the Transfer, Voting and Issue of Shares" in Schedule "A"
hereto;
"TSX" means the Toronto Stock Exchange;
"TRUST AGREEMENTS" has the meaning ascribed thereto under "Take-Over Bid
Protection for RWCI Restricted Voting Shares" in Schedule "B" hereto;
"TRUSTEE" has the meaning ascribed thereto under "Take-Over Bid Protection for
RWCI Restricted Voting Shares" in Schedule "B" hereto;
"U.S. BUSINESS DAY" means any day on which commercial banks in the City of New
York, New York, are open for business; and
8
"VALUATION" means the independent valuation of the RWCI Restricted Voting Shares
prepared by BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ under the supervision of the Independent Committee
and prepared in accordance with the requirements of Rule 61-501, Policy Q-27 and
the Shareholder Protection Agreement and attached hereto as Schedule "D".
9
OFFER TO PURCHASE
The accompanying Circular and Letter of Acceptance and Transmittal, which
are incorporated into and form part of the Offer, contain important information
and should be read carefully before making a decision with respect to the Offer.
TO: HOLDERS OF CLASS B RESTRICTED VOTING SHARES OF THE CORPORATION
1. THE OFFER
Each Offeror hereby offers to purchase, upon the terms and subject to the
conditions hereinafter specified, all of the issued and outstanding RWCI
Restricted Voting Shares not already owned by RCI and its affiliates on the
basis of 1.75 RCI Non-Voting Shares for each RWCI Restricted Voting Share.
Subject to the conditions described under Section 4 of the Offer to Purchase,
"Conditions of the Offer", the Offerors intend to purchase any and all RWCI
Restricted Voting Shares properly tendered to the Offer. There is no condition
requiring that a minimum number of RWCI Restricted Voting Shares be tendered to
the Offer.
The Offer is made only for RWCI Restricted Voting Shares and is not made
for any of the outstanding RWCI Options or RWCI Class A Shares. A holder of RWCI
Options who wishes to accept the Offer must, to the extent permitted by the
terms of such securities and applicable law, exercise such RWCI Options in order
to obtain RWCI Restricted Voting Shares and then deposit those RWCI Restricted
Voting Shares under the Offer. Any such exercise must be sufficiently in advance
of the Expiry Time to ensure that RWCI Restricted Voting Shares will be
available for deposit no later than the Expiry Time or in sufficient time to
comply with the procedures referred to in Section 3 of the Offer to Purchase,
"Manner of Acceptance -- Guaranteed Delivery".
Subject to the receipt of any necessary regulatory approval, RCI intends to
offer to holders of RWCI Options the right to exchange such options for RCI
Options entitling the holders thereof to acquire RCI Non-Voting Shares on terms
equivalent to those attaching to the existing RWCI Options. Holders of currently
exercisable RWCI Options are entitled to exercise such options and to tender to
the Offer the RWCI Restricted Voting Shares so issued, provided such Persons
comply with the terms and conditions of the Offer.
No fractional RCI Non-Voting Shares shall be issued pursuant to the Offer.
In lieu of a fractional RCI Non-Voting Share, a Shareholder accepting the Offer
will receive a cash payment determined based on a price of $28.70 per RCI
Non-Voting Share. The $28.70 represents the closing price of the RCI Non-Voting
Shares on the TSX on November 10, 2004, which is the last trading day prior to
the date on which RCI announced its intention to make the Offer.
2. TIME FOR ACCEPTANCE
The Offer is open for acceptance until the Expiry Time, being midnight
(local time) on December 30, 2004, unless the Offer is withdrawn by the
Offerors. The Expiry Time may be extended from time to time at the Offerors'
sole discretion pursuant to Section 5 of the Offer to Purchase, "Extension and
Variation of the Offer."
3. MANNER OF ACCEPTANCE
ACCEPTANCE
The Offer may be accepted by a Shareholder only by depositing all of the
following with the Depositary in accordance with the instructions set forth in
the Letter of Acceptance and Transmittal on or prior to the Expiry Time:
(a) the certificate(s) representing RWCI Restricted Voting Shares, in
proper form for transfer, in respect of which the Offer is being
accepted;
(b) a Letter of Acceptance and Transmittal, or a facsimile thereof,
properly completed and duly executed in accordance with the
instructions set forth therein; and
(c) all other documents required pursuant to the Offer and the
instructions set forth in the Letter of Acceptance and Transmittal.
The Offer will be accepted by a Shareholder only if the Depositary has
actually received these documents no later than the Expiry Time. The signature
on the applicable Letter of Acceptance and Transmittal must be guaranteed by an
Eligible Institution or in some other manner acceptable to the Depositary
(except that no guarantee is required for the signature of a depositing
Shareholder that is an Eligible Institution) if:
10
- the Letter of Acceptance and Transmittal is signed by a Person other
than the registered owner(s) of the RWCI Restricted Voting Shares being
deposited,
- the RWCI Restricted Voting Shares not purchased are to be returned to a
Person other than such registered owner(s) or sent to an address other
than the address of the registered owner(s) as shown on the register of
the Corporation, or
- payment is to be issued in the name of a Person other than the
registered owner(s) of the RWCI Restricted Voting Shares being
deposited.
If a Letter of Acceptance and Transmittal is executed by a Person other
than the registered holder of the RWCI Restricted Voting Shares represented by
the certificate(s) deposited therewith, then the certificate(s) must be endorsed
or be accompanied by an appropriate share transfer power of attorney duly and
properly completed by the registered holder, with the signature on the
endorsement panel or share transfer power of attorney guaranteed by an Eligible
Institution.
SHAREHOLDERS WHO ARE ELIGIBLE HOLDERS ARE ELIGIBLE TO TENDER RWCI
RESTRICTED VOTING SHARES TO RCI FOR THE PURPOSE OF ACHIEVING A TAX-DEFERRED
ROLLOVER FOR CANADIAN FEDERAL INCOME TAX PURPOSES. SEE "MATERIAL CANADIAN
FEDERAL INCOME TAX CONSIDERATIONS" IN THE CIRCULAR. OTHER SHAREHOLDERS THAT
ACCEPT THE OFFER WILL BE REQUIRED TO TENDER THEIR RWCI RESTRICTED VOTING SHARES
TO RCI SUBCO. SHAREHOLDERS WHO DO NOT EXPRESSLY DESIGNATE RCI FOR THE PURPOSE OF
THE PURCHASE OF THEIR RWCI RESTRICTED VOTING SHARES IN THE SPACE PROVIDED IN THE
LETTER OF ACCEPTANCE AND TRANSMITTAL AND WHO DO NOT PROPERLY COMPLETE ANY
CERTIFICATE THAT MAY BE REQUIRED THEREBY WILL BE DEEMED TO HAVE TENDERED THEIR
RWCI RESTRICTED VOTING SHARES TO RCI SUBCO AND WILL NOT OBTAIN A TAX-DEFERRED
ROLLOVER INTO RCI NON-VOTING SHARES FOR CANADIAN FEDERAL INCOME TAX PURPOSES.
The Offer is being made on a joint basis by RCI and RCI Subco in order
that, in those circumstances where Shareholders are not subject to Canadian tax
in respect of any capital gain realized on the disposition of RWCI Restricted
Voting Shares under the Offer, RCI Subco is able to acquire the RWCI Restricted
Voting Shares at a cost for Canadian tax purposes equal to the fair market value
of the RCI Non-Voting Shares issued in exchange for the RWCI Restricted Voting
Shares by requiring that Shareholders other than Eligible Holders tender to RCI
Subco. Eligible Holders are able to tender RWCI Restricted Voting Shares to RCI
in order to achieve a tax-deferred rollover into RCI Non-Voting Shares. The tax
cost of RWCI Restricted Voting Shares tendered to RCI will be an amount
significantly less than the fair market value of the RCI Non-Voting Shares
issued in exchange.
GUARANTEED DELIVERY
If a Shareholder wishes to deposit RWCI Restricted Voting Shares pursuant
to the Offer and cannot deliver certificates for such RWCI Restricted Voting
Shares by the Expiry Time, or time will not permit all required documents to
reach the Depositary by the Expiry Time, such RWCI Restricted Voting Shares may
nevertheless be deposited if all of the following conditions are met:
(a) the deposit is made by or through an Eligible Institution;
(b) a properly completed and duly executed Notice of Guaranteed Delivery
in the form provided by the Offerors (indicating the number of RWCI
Restricted Voting Shares being deposited), including a guarantee by
an Eligible Institution in the form specified in the Notice of
Guaranteed Delivery, is received by the Depositary at the applicable
address set out in the Notice of Guaranteed Delivery by the Expiry
Time; and
(c) the certificate(s) representing the Deposited Shares in proper form
for transfer, together with a properly completed and duly executed
Letter of Acceptance and Transmittal, or facsimile thereof, and any
other documents required by the Letter of Acceptance and Transmittal
are received by the Depositary at the applicable address set out in
the Notice of Guaranteed Delivery before 5:00 p.m., Toronto time, on
the third trading day on the TSX after the Expiry Date.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile or mail to the Depositary at the applicable addresses set out in
the Notice of Guaranteed Delivery and must include a guarantee by an Eligible
Institution in the form set forth in the Notice of Guaranteed Delivery. DELIVERY
OF THE APPLICABLE NOTICE OF GUARANTEED DELIVERY AND LETTER OF ACCEPTANCE AND
TRANSMITTAL AND ACCOMPANYING CERTIFICATE(S) REPRESENTING RWCI RESTRICTED VOTING
SHARES TO ANY OFFICE OTHER THAN SUCH OFFICES OF THE DEPOSITARY DOES NOT
CONSTITUTE DELIVERY FOR THE PURPOSES OF SATISFYING A GUARANTEED DELIVERY.
11
GENERAL
Notwithstanding any other provision of the Offer, payment for RWCI
Restricted Voting Shares deposited pursuant to the Offer will be made only after
timely receipt by the Depositary of: (i) certificate(s) representing such RWCI
Restricted Voting Shares, (ii) a properly completed and duly executed Letter of
Acceptance and Transmittal, or a facsimile thereof, covering such RWCI
Restricted Voting Shares with the signatures guaranteed, if required, in
accordance with the instructions set out in the Letter of Acceptance and
Transmittal, and (iii) any other documents required by the Letter of Acceptance
and Transmittal.
All questions as to the validity, form, eligibility (including timely
receipt) and acceptance of any RWCI Restricted Voting Shares deposited pursuant
to the Offer will be determined by the Offerors in their sole judgment.
Depositing Shareholders agree that such determinations shall be final and
binding. The Offerors reserve the absolute right to reject any and all deposits
which they determine not to be in proper form or which may be unlawful to accept
under the laws of any applicable jurisdiction. The Offerors reserve the absolute
right to waive any defects or irregularities in the deposit of any RWCI
Restricted Voting Shares. There shall be no duty or obligation on the Offerors,
the Dealer Manager, any member of the Soliciting Dealer Group, the Depositary or
any other Person to give notice of any defects or irregularities in any deposit
and no liability shall be incurred by any of them for failure to give any such
notice. The Offerors' interpretation of the terms and conditions of the Offer to
Purchase and Circular, the Letter of Acceptance and Transmittal and the Notice
of Guaranteed Delivery will be final and binding.
SHAREHOLDERS ARE ADVISED THAT THE METHOD CHOSEN TO TRANSMIT ANY RWCI
RESTRICTED VOTING SHARES, THE RELATED LETTER OF ACCEPTANCE AND TRANSMITTAL AND
NOTICE OF GUARANTEED DELIVERY, IF APPLICABLE, AND OTHER DOCUMENTS IS AT THE RISK
OF EACH DEPOSITING SHAREHOLDER. FOR THE SHAREHOLDER'S PROTECTION, THE OFFERORS
RECOMMEND THAT DOCUMENTS BE DELIVERED BY HAND TO THE DEPOSITARY AND A RECEIPT BE
OBTAINED. OTHERWISE, THE USE OF REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, IS RECOMMENDED.
Shareholders whose RWCI Restricted Voting Shares are registered in the name
of a dealer, broker, trust company, bank or other nominee and who wish to accept
the Offer should contact that nominee for assistance in depositing such RWCI
Restricted Voting Shares and should do so promptly in order to be able to
deposit their RWCI Restricted Voting Shares prior to the Expiry Time.
The acceptance of the Offer pursuant to the procedures set forth herein
will constitute a binding agreement between the depositing Shareholder and the
purchasing Offeror on and subject to the terms and conditions of the Offer.
POWER OF ATTORNEY
The execution of a Letter of Acceptance and Transmittal irrevocably
appoints each officer of the Depositary and each officer of the purchasing
Offeror and any other Person designated by such Offeror in writing as the true
and lawful agents, attorneys and attorneys-in-fact and proxies of the holder of
the RWCI Restricted Voting Shares covered by such Letter of Acceptance and
Transmittal, with respect to RWCI Restricted Voting Shares registered in the
name of the holder on the share register of the Corporation and deposited
pursuant to the Offer and purchased by an Offeror (the "Purchased Securities").
The power of attorney granted irrevocably under a Letter of Acceptance and
Transmittal shall be effective on and after the Effective Date with full power
of substitution and resubstitution in the name of and on behalf of such holder
of Purchased Securities (such power of attorney, coupled with an interest, being
irrevocable) to: (i) register or record the transfer of Purchased Securities on
the share registers of the Corporation and (ii) execute and deliver, as and when
requested by the purchasing Offeror, any instruments of proxy, authorization or
consent in form and on terms satisfactory to such Offeror in respect of such
Purchased Securities, revoke any such instrument, authorization or consent or
designate in such instrument, authorization or consent any Person or Persons as
the proxy of such holder in respect of the Purchased Securities for all
purposes; and (iii) exercise any rights of a holder of Purchased Securities with
respect to such Purchased Securities, all as set forth in the Letter of
Acceptance and Transmittal.
A Shareholder who executes a Letter of Acceptance and Transmittal also
agrees, effective on and after the Effective Date, not to vote any of the
Purchased Securities at any meeting (whether annual, special or otherwise or any
adjournment thereof) of Shareholders and not to exercise any or all of the other
rights or privileges attached to the Purchased Securities and agrees to execute
and deliver to the purchasing Offeror any and all instruments of proxy,
authorizations or consents, in form and on terms satisfactory to such Offeror,
in respect of all or any of the Purchased Securities, and to designate in such
instruments of proxy the Person or Persons specified by the purchasing Offeror
as
12
the proxy or the proxy nominee or nominees of the holder in respect of the
Purchased Securities. Upon such appointment, all prior proxies given by the
holder of such Purchased Securities with respect thereto shall be revoked and no
subsequent proxies may be given by such Person with respect thereto.
FURTHER ASSURANCES
A Shareholder accepting the Offer covenants under the terms of the Letter
of Acceptance and Transmittal to execute, upon request by the purchasing
Offeror, any additional documents, transfers and other assurances as may be
necessary or desirable to complete the sale, assignment and transfer of the
Purchased Securities to such Offeror and acknowledges that all authority therein
conferred or agreed to be conferred may be exercised during any subsequent legal
incapacity of such holder and shall, to the extent permitted by law, survive the
death or incapacity, bankruptcy or insolvency of the holder and all obligations
of the holder therein shall be binding upon the heirs, personal representatives,
successors and assigns of such holder.
DEPOSITING SHAREHOLDERS' REPRESENTATIONS AND WARRANTIES
The acceptance of the Offer pursuant to the procedures set forth above
constitutes an agreement between a depositing Shareholder and the purchasing
Offeror in accordance with the terms and conditions of the Offer. This agreement
includes a representation and warranty by the depositing Shareholder that: (i)
the person signing the Letter of Acceptance and Transmittal has full power and
authority to deposit, sell, assign and transfer the Deposited Shares; (ii) the
person signing the Letter of Acceptance and Transmittal or the Person on whose
behalf the Deposited Shares are being deposited owns (including, without
limitation, within the meaning of Rule 14e-4 under the Exchange Act) the
Deposited Shares; (iii) the Deposited Shares have not been sold, assigned or
transferred, nor has any agreement been entered into to sell, assign or transfer
any of the Deposited Shares to any other Person; (iv) the deposit of the
Deposited Shares complies with applicable laws (including with Rule 14e-4 under
the Exchange Act); and (v) when the Deposited Shares are taken up and paid for
by the purchasing Offeror, such Offeror will acquire good title thereof, free
and clear of all liens, restrictions, charges, encumbrances, claims, adverse
interests and rights of others.
4. CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer and subject to applicable
law, the Offerors shall have the right to withdraw the Offer and not take up and
pay for, or to extend the period of time during which the Offer is open for
acceptance and postpone taking up and paying for, any RWCI Restricted Voting
Shares deposited under the Offer if, at any time at or before the take up of
Deposited Shares, any of the following events shall have occurred (as determined
by the Offerors) which, in the Offerors' sole judgment in any such case, makes
it inadvisable to proceed with the Offer or with the take up of Deposited
Shares:
(a) an act, action, suit or proceeding shall have been threatened,
commenced or taken by any Person before or by any domestic or foreign
arbitrator, court, tribunal, governmental agency, regulatory
authority, administrative agency, commission or stock exchange, in
Canada, the United States or elsewhere, or (ii) a law, regulation,
rule, policy, directive or order shall have been proposed, enacted,
issued, promulgated, amended or applied, in the case of each of (i)
or (ii):
(i) to cease trade, enjoin, prohibit, challenge or impose limitations
or conditions on the purchase by an Offeror of the RWCI Restricted
Voting Shares or the right of an Offeror to own or exercise full
rights of ownership of the RWCI Restricted Voting Shares or the
ability of the Offerors to complete a Compulsory Acquisition or a
Subsequent Acquisition Transaction; or
(ii) which, if RWCI Restricted Voting Shares are taken-up and paid for
under the Offer, could in the Offerors' sole judgment adversely
affect the Corporation or an Offeror or any of their respective
subsidiaries or the ability of the Offerors to complete a
Compulsory Acquisition or a Subsequent Acquisition Transaction;
(b) there shall exist any prohibition at law against an Offeror making
the Offer, taking up and paying for any Deposited Shares or
completing a Compulsory Acquisition or Subsequent Acquisition
Transaction;
(c) there shall have occurred (i) any general suspension of trading in,
or limitation on prices for, securities on any securities exchange or
in the over-the-counter market in Canada or the United States, or
(ii) any event, action, state, condition or major financial
occurrence of national or international consequence which
13
materially adversely affects or may materially adversely affect
financial markets in Canada or the United States generally;
(d) there shall have occurred any tax change (including any proposal to
amend the Tax Act or any announcement, governmental or regulatory
initiative, issue of an interpretation bulletin, condition, event or
development involving a prospective change) that, in the sole
judgment of the Offerors, has or may have an adverse effect on the
Corporation, an Offeror or any of their respective subsidiaries, on
any Compulsory Acquisition or Subsequent Acquisition Transaction or
on a subsequent sale or disposition of assets of the Corporation or
any of its subsidiaries;
(e) there shall have occurred any material adverse change or changes (or
any development shall have occurred involving any prospective
material adverse change or changes) in the business, assets, capital,
liabilities, condition (financial or otherwise), operations, results
of operations or prospects of the Corporation or its subsidiaries
taken as a whole; and
(f) all necessary approvals and consents in respect of the Offer or the
take up and payment for Deposited Shares from any government body,
regulatory body or agency or any stock exchange on terms satisfactory
to the Offerors have not been obtained or any waiting period with
respect to such approvals and consents has not expired or been
terminated.
The foregoing conditions are for the exclusive benefit of the Offerors and
may be asserted by the Offerors in their sole discretion regardless of the
circumstances (including any action or inaction by an Offeror) giving rise to
any such conditions, or may be waived by the Offerors, in their sole discretion,
in whole or in part at any time and from time to time, prior to the Expiry Time,
without prejudice to any other rights which an Offeror may have. Each of the
foregoing conditions is independent of and in addition to each other of such
conditions and may be asserted irrespective of whether any other of such
conditions may be asserted in connection with any particular event, occurrence
or state of facts or otherwise. The failure by the Offerors at any time prior to
the Expiry Time to exercise any of the foregoing rights will not be deemed a
waiver of any such right and each such right will be deemed an ongoing right
which may be asserted by the Offerors at any time and from time to time prior to
the take up of Deposited Shares. Any determination by the Offerors concerning
any event or other matter described in the foregoing conditions will be final
and binding upon all parties.
Any waiver of a condition or the withdrawal of the Offer shall be effective
on the date on which notice of such waiver or withdrawal is delivered or
otherwise communicated in writing to the Depositary at its principal office in
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇. After giving any such notice, the Offerors will make a
public announcement of such waiver or withdrawal, cause the Depositary, if
required by law, as soon as practicable thereafter to notify Shareholders in the
manner set forth in Section 11 of the Offer to Purchase, "Notices and Delivery",
and provide or cause to be provided a copy of the aforementioned public
announcement to the TSX and the NYSE. If the Offer is withdrawn, the Offerors
shall not be obligated to take up or pay for any Deposited Shares, and the
Depositary will return all certificates representing Deposited Shares, Letter of
Acceptance and Transmittal and related documents to the parties by whom they
were deposited at the Offerors' expense. See Section 11 of the Offer to
Purchase, "Notices and Delivery".
5. EXTENSION AND VARIATION OF THE OFFER
The Offer is open for acceptance until the Expiry Time unless the Offer is
withdrawn by the Offerors.
Subject as hereinafter described, the Offerors expressly reserve the right,
in their sole judgement, at any time and from time to time during the Offer
Period or at any other time if permitted by applicable law, to extend the Offer
Period or to vary the Offer by giving written notice, or other communication
confirmed in writing, of such extension or variation to the Depositary at its
principal office in ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇, and by causing the Depositary as
soon as practicable thereafter to communicate such notice to all holders of RWCI
Restricted Voting Shares that have not been taken up prior to the extension or
variation in the manner set forth in Section 11 of the Offer to Purchase,
"Notices and Delivery". The Offerors will, as soon as practicable after giving
notice of an extension or variation to the Depositary, make a public
announcement of the extension or variation, such announcement in the case of an
extension to be disseminated no later than 9:00 a.m., Toronto time, on the next
business day after the extension or variation, and will provide a copy of the
written notice to the TSX and the NYSE. Any notice of extension or variation
will be deemed to have been given and be effective at the time on the day on
which it is delivered or otherwise communicated to the Depositary at its
principal office in ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇. Notwithstanding the foregoing, but
subject to applicable
14
law, the Offer may not be extended by the Offerors if all of the terms and
conditions of the Offer, except those waived by the Offerors, have been
fulfilled or complied with, unless the Offerors first takes up all Deposited
Shares.
Where the terms of the Offer are varied, the Offer Period for the Offer
will not expire before ten days after the notice of such variation has been
delivered to the applicable Shareholders unless otherwise permitted by
applicable law and subject to abridgement or elimination of that period pursuant
to such orders as may be granted by Canadian courts or applicable securities
regulatory authorities. Notwithstanding the foregoing, if the Offerors make a
material change in the terms of the Offer or the information concerning the
Offer, or if they waive a material condition of the Offer, the Offerors will
disseminate additional offer materials and extend the Offer to the extent
required by Rules 14d-4(d), 14d-6(c) and 14e-1 under the Exchange Act. Under the
Exchange Act, the minimum period during which an offer must remain open
following material changes in the terms of such offer, other than a change in
consideration offered, percentage of securities sought or inclusion of or
changes to a dealer's soliciting fee, will depend upon the facts and
circumstances, including the materiality, of the changes. Generally, in the
SEC's view, an offer should remain open for a minimum of five U.S. business days
from the date the material change is first published, sent or given to
securityholders and, if material changes are made with respect to information
that approaches the significance of consideration offered, percentage of
securities sought or a dealer's soliciting fee, a minimum of ten U.S. business
days is required to allow for adequate dissemination of information to
securityholders and investor response. Accordingly, if prior to the Expiry Time,
the Offerors decrease the number of RWCI Restricted Voting Shares being sought,
increase or decrease the consideration offered pursuant to the Offer or increase
or decrease a dealer's soliciting fee, and if the Offer is scheduled to expire
at any time earlier than the tenth U.S. business day from the date that notice
of such increase or decrease is first published, sent or given to Shareholders,
the Offer will be extended at least until the expiration of such tenth U.S.
business day. The requirement to extend the Offer will not apply to the extent
that the number of U.S. business days remaining between the occurrence of the
change and the then scheduled Expiry Time equals or exceeds the minimum
extension period that would be required because of such amendment.
If at any time before the Expiry Time, or at any time after the Expiry Time
but before the expiry of all rights of withdrawal with respect to the Offer, a
change occurs in the information contained in the Offer to Purchase and
Circular, as amended from time to time, that would reasonably be expected to
affect the decision of a Shareholder to accept or reject the Offer (other than a
change that is not within the control of the Offerors or of their affiliates),
the Offerors will give written notice of such change to the Depositary at its
principal office in ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇, and will cause the Depositary to
provide as soon as practicable thereafter a copy of such notice in the manner
set forth in Section 11 of the Offer to Purchase, "Notices and Delivery" to all
Shareholders whose RWCI Restricted Voting Shares have not been taken up pursuant
to the Offer at the date of the change, if required by applicable law. The
Offerors will as soon as practicable after giving notice of a change in
information to the Depositary make a public announcement of the change in
information and provide a copy of the public announcement to the TSX and the
NYSE, subject to compliance with applicable law. Any notice of change in
information will be deemed to have been given and to be effective on the day on
which it is delivered or otherwise communicated to the Depositary at its
principal office in ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇.
If, prior to the Expiry Time, the Offerors should increase the Offer
Consideration in their sole discretion, such increase will be applicable to all
Shareholders whose RWCI Restricted Voting Shares are accepted for payment
pursuant to the Offer, whether or not such RWCI Restricted Voting Shares were
deposited prior to the amendment or the increase in consideration.
During any such extension or in the event of any such variation or change
in information, all RWCI Restricted Voting Shares deposited to the Offer and not
taken up or withdrawn will remain subject to the Offer and may be taken up by
the Offerors in accordance with the terms of the Offer, subject to Section 6 of
the Offer to Purchase, "Withdrawal of Deposited Shares". An extension of the
Offer Period, a variation of the Offer or a change to information contained in
the Offer to Purchase and Circular does not constitute a waiver by the Offerors
of their rights under Section 4 of the Offer to Purchase, "Conditions of the
Offer".
SUBSEQUENT OFFERING PERIOD
Pursuant to Rule 14d-11 under the Exchange Act, the Offerors, subject to
the conditions listed below, may elect to make available a subsequent offering
period by extending the Offer on one occasion for a period of at least three
U.S.
15
business days and not to exceed 20 U.S. business days (the "Subsequent Offering
Period") following the Expiry Time. Pursuant to such rule, the Offerors may
include a Subsequent Offering Period with respect to the Offer so long as:
- the Offer was open for at least 20 U.S. business days and has expired;
- the Offer was for all outstanding RWCI Restricted Voting Shares that are
the subject of the Offer;
- the Offerors immediately take up and promptly pay for all RWCI
Restricted Voting Shares deposited during the Offer;
- the Offerors announce the results of the Offer, including the
approximate number and percentage of RWCI Restricted Voting Shares
deposited, no later than 9:00 a.m., Toronto time, on the next U.S.
business day after the Expiry Time and immediately begin the Subsequent
Offering Period;
- the Offerors immediately take up and promptly pay for RWCI Restricted
Voting Shares as they are deposited during the Subsequent Offering
Period with respect to the Offer; and
- the Offerors pay the same form and amount of consideration for all RWCI
Restricted Voting Shares deposited during the Subsequent Offering Period
with respect to the Offer.
A Subsequent Offering Period, if one is included, does not constitute an
extension of the Offer for purposes of the Exchange Act, although it may
constitute an extension of the Offer under Canadian securities laws. For
purposes of the Exchange Act, a Subsequent Offering Period is an additional
period of time beginning on the day after the Expiry Time during which
Shareholders may deposit RWCI Restricted Voting Shares not deposited during the
Offer. For purposes of applicable Canadian securities laws, a Subsequent
Offering Period is an additional period of time by which the Offer is extended,
following the satisfaction or waiver of all conditions of the Offer and the
take-up of all RWCI Restricted Voting Shares then deposited under the Offer, and
during which period Shareholders may deposit RWCI Restricted Voting Shares not
deposited prior to the commencement of the Subsequent Offering Period with
respect to the Offer. The Offerors do not currently intend to include a
Subsequent Offering Period with respect to the Offer, although the Offerors
reserve the right to do so in their sole discretion. If the Offerors elect to
include a Subsequent Offering Period with respect to the Offer, for purposes of
applicable United States federal securities laws, the Offerors will include a
statement of their intention to do so in the press release announcing the
results of the Offer disseminated no later than 9:00 a.m., Toronto time, on the
next business day after the previously scheduled Expiry Time. For purposes of
applicable Canadian securities laws, the Offerors will provide a written notice
of extension of the Offer with respect to the implementation of the Subsequent
Offering Period, including the period during which the Offer will be open for
acceptance, to the Depositary and will cause the Depositary to provide as soon
as practicable thereafter a copy of such notice in the manner set forth in
Section 11 of the Offer to Purchase, "Notices and Delivery" to all holders of
RWCI Restricted Voting Shares that have not been taken up pursuant to the Offer
at the date of the extension. The same form and amount of consideration will be
paid to Shareholders depositing RWCI Restricted Voting Shares during the
Subsequent Offering Period, if one is included, as would have been paid prior to
the commencement of such period. To comply with applicable Canadian law, the
Offerors will permit withdrawal of RWCI Restricted Voting Shares deposited
during any Subsequent Offering Period, if there is one, at any time prior to
such RWCI Restricted Voting Shares being purchased by the Offerors under the
Offer. Subject to the following sentence, the Expiry Time with respect to a
subsequent Offer shall be 9:00 p.m., Toronto time, on the last day of the
Subsequent Offering Period, unless determined otherwise pursuant to the
provisions of this Section 5. The foregoing sentence will not limit the
requirement that the conditions to the Offer set forth in Section 4 of the Offer
to Purchase, "Conditions of the Offer", be satisfied or waived prior to the
initial Expiry Time, which will be before the commencement of the Subsequent
Offering Period. If the consideration being offered for the RWCI Restricted
Voting Shares under the Offer is increased, the increased consideration will be
paid to all depositing Shareholders whose RWCI Restricted Voting Shares are
taken up under the Offer without regard to when such RWCI Restricted Voting
Shares are taken up under the Offer by the Offerors.
Under applicable Canadian securities laws, a Subsequent Offering Period
must be open for at least ten calendar days from the date of notice of extension
referred to above. As a result, to comply with the applicable laws of Canada and
the Exchange Act, if the Offerors elect to make a Subsequent Offering Period
available with respect to the Offer, the Subsequent Offering Period will be open
for at least ten calendar days from the date of notice of extension and will not
exceed 20 U.S. business days from the Expiry Time. The Offerors will promptly
take up and pay for all RWCI Restricted Voting Shares validly deposited during
the Subsequent Offering Period with respect to the Offer.
16
6. WITHDRAWAL OF DEPOSITED SHARES
Except as otherwise stated in this Section 6 and subject to applicable law,
all deposits of RWCI Restricted Voting Shares pursuant to the Offer are
irrevocable. Any Deposited Shares may be withdrawn by or on behalf of the
depositing Shareholder:
(a) at any time when the Deposited Shares have not been taken up by an
Offeror;
(b) at any time before the expiration of ten days from the date of a
notice of change or variation to the Offer; provided, however, that
this right of withdrawal will not apply (i) where the RWCI Restricted
Voting Shares have been taken up by the purchasing Offeror at the
date of such notice or (ii) where a variation of the terms of the
Offer consists solely of an increase in the consideration offered for
the RWCI Restricted Voting Shares and the period during which RWCI
Restricted Voting Shares may be deposited pursuant to the Offer is
not extended for more than ten days;
(c) if the RWCI Restricted Voting Shares have not been paid for by the
purchasing Offeror, within three business days after having been
taken up; and
(d) as required by the Exchange Act, at any time after January 23, 2004,
provided that the RWCI Restricted Voting Shares have not been
accepted for payment by the purchasing Offeror prior to the receipt
by the Depositary of the notice of withdrawal in respect of such RWCI
Restricted Voting Shares.
Withdrawals of Deposited Shares must be effected by notice of withdrawal
made by or on behalf of the depositing Shareholder, by whom or on whose behalf
such RWCI Restricted Voting Shares were deposited, and such notice must be
actually received by the Depositary at the place of deposit of the applicable
RWCI Restricted Voting Shares within the time limits indicated above. A notice
of withdrawal must: (i) be made by a method, including facsimile transmission,
that provides the Depositary with a written or printed copy; (ii) be signed by
the person who signed the Letter of Acceptance and Transmittal accompanying, or
the Notice of Guaranteed Delivery in respect of, the Deposited Shares which are
to be withdrawn; and (iii) specify such person's name, the number of RWCI
Restricted Voting Shares to be withdrawn, the name of the registered holder and
the certificate number shown on each certificate representing the RWCI
Restricted Voting Shares to be withdrawn. The withdrawal will take effect upon
receipt by the Depositary of the properly completed notice of withdrawal. For
the purpose of obtaining physical possession of the deposited share certificates
so withdrawn, the signature on the notice of withdrawal must be guaranteed by an
Eligible Institution in the same manner as in a Letter of Acceptance and
Transmittal (as described in the instructions set out in such letter), except in
the case of RWCI Restricted Voting Shares deposited for the account of an
Eligible Institution.
Withdrawals may not be rescinded and any RWCI Restricted Voting Shares
withdrawn will thereafter be deemed to be not validly deposited under the Offer.
However, withdrawn RWCI Restricted Voting Shares may be redeposited no later
than the Expiry Time by again following one of the procedures described in
Section 3 of the Offer to Purchase, "Manner of Acceptance". Once an Offeror
takes up the Deposited Shares, Shareholders will no longer be able to withdraw
them, except in accordance with applicable law.
The ability of a purchasing Offeror to delay the payment for RWCI
Restricted Voting Shares that such Offeror has taken up is limited by Rule
14e-1(c) under the Exchange Act, which requires that a bidder pay the
consideration offered or return the securities deposited by or on behalf of
securityholders promptly after the termination or withdrawal of such bidder's
offer, unless such bidder elects to offer a subsequent offering period and pays
for the securities deposited during the subsequent offering period in accordance
with Rule 14d-11 under the Exchange Act. The Depositary, on behalf of the
Offerors, is bound by Rule 14e-1(c) under the Exchange Act in retaining
Deposited Shares under these circumstances.
In addition to the foregoing rights of withdrawal, Shareholders in certain
provinces of Canada are entitled to statutory rights of rescission or to
damages, or both, in certain circumstances. See "STATUTORY RIGHTS" in the
Circular.
All questions as to the validity (including timely receipt) and form of
notices of withdrawal will be determined by the Offerors in their sole
discretion, and such determination will be final and binding. None of the
Offerors, the Corporation, the Depositary, the Dealer Manager, a member of the
Soliciting Dealer Group, the Information Agent or any other Person will be under
any duty to give notice of any defect or irregularity in any notice of
withdrawal or shall incur any liability for failure to give such notice.
17
7. TAKE UP OF AND PAYMENT FOR DEPOSITED SHARES
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Offerors will take up RWCI Restricted Voting Shares deposited
and not withdrawn in accordance with Section 6 of the Offer to Purchase,
"Withdrawal of Deposited Shares", promptly following the Expiry Time, but in any
event not later than 10 days from the Expiry Time, and, after such take up, will
promptly pay for the RWCI Restricted Voting Shares taken up pursuant to
applicable law, but in any event not more than the lesser of three business days
after the taking up of the Deposited Shares and 10 days after the Expiry Time,
whichever is the shorter period.
For purposes of the Offer, each Offeror will be deemed to have taken up and
accepted for payment Deposited Shares as, if and when such Offeror gives written
notice or other communication confirmed in writing to the Depositary to that
effect at its principal office in ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇.
Subject to applicable law, including Rule 14e-1(c) under the Exchange Act,
which requires that the Offerors pay the consideration offered or return the
RWCI Restricted Voting Shares deposited by or on behalf of Shareholders promptly
after the termination of the Offer or withdrawal of the RWCI Restricted Voting
Shares, the Offerors expressly reserve the right, in their sole discretion, to
delay or otherwise refrain from taking up and paying for any RWCI Restricted
Voting Shares or to terminate the Offer and not take up or pay for any RWCI
Restricted Voting Shares if any condition specified in Section 4 of the Offer to
Purchase, "Conditions of the Offer", is not satisfied or waived by the Offerors,
by giving written notice thereof, or other communication confirmed in writing,
to the Depositary at its principal office in ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇. Subject
to compliance with Rule 14e-1(c) under the Exchange Act, the Offerors also
expressly reserve the right, in their sole discretion and notwithstanding any
other condition of the Offer, to delay taking up and paying for any RWCI
Restricted Voting Shares deposited under the Offer in order to comply, in whole
or in part, with any applicable governmental regulatory approvals or consents.
See Section 4 of the Offer to Purchase, "Conditions of the Offer". If, for any
reason whatsoever, the take-up of any RWCI Restricted Voting Shares deposited
pursuant to the Offer is delayed, or the Offerors are unable to take up RWCI
Restricted Voting Shares deposited pursuant to the Offer, then, without
prejudice to the Offerors' other rights under the Offer, the Depositary may,
nevertheless, on behalf of the Offerors, retain the deposited RWCI Restricted
Voting Shares, except to the extent that the depositing Shareholders exercise
withdrawal rights as described in Section 6 of the Offer to Purchase,
"Withdrawal of Deposited Shares". The Offerors will not, however, take up and
pay for any RWCI Restricted Voting Shares deposited under the Offer unless they
simultaneously take up and pay for all RWCI Restricted Voting Shares then
validly deposited under the Offer and not withdrawn.
The Offerors will pay for Deposited Shares not withdrawn by providing the
Depositary with sufficient certificates for RCI Non-Voting Shares for
transmittal to depositing Shareholders and sufficient funds for amounts to be
paid to depositing Shareholders in lieu of fractional RCI Non-Voting Shares. The
Depositary will act as the agent of Persons who have deposited RWCI Restricted
Voting Shares in acceptance of the Offer for the purposes of receiving payment
from the Offerors and transmitting payment to such Persons, and receipt of
payment by the Depositary shall be deemed to constitute receipt thereof by
Persons depositing RWCI Restricted Voting Shares. UNDER NO CIRCUMSTANCES WILL
INTEREST ACCRUE OR BE PAID BY THE OFFERORS OR THE DEPOSITARY TO PERSONS
DEPOSITING RWCI RESTRICTED VOTING SHARES ON THE PURCHASE PRICE OF RWCI
RESTRICTED VOTING SHARES PURCHASED BY THE OFFERORS, REGARDLESS OF ANY DELAY IN
MAKING SUCH PAYMENT. No fractional RCI Non-Voting Shares shall be issued
pursuant to the Offer. In lieu of a fractional RCI Non-Voting Share, a
Shareholder accepting the Offer will receive a cash payment determined based on
a price of $28.70 per RCI Non-Voting Share.
Settlement with each Shareholder who has validly deposited RWCI Restricted
Voting Shares and not withdrawn RWCI Restricted Voting Shares under the Offer
will be made by the Depositary forwarding the applicable certificates
representing RCI Non-Voting Shares and, if applicable, a cheque payable in
Canadian funds in lieu of fractional RCI Non-Voting Shares to each such
Shareholder. Unless otherwise directed in the Letter of Acceptance and
Transmittal, RCI Share Certificates and, if applicable, the cheque will be
issued in the name of the registered holder of the Deposited Shares. Unless the
Person depositing RWCI Restricted Voting Shares instructs the Depositary to hold
the RCI Share Certificates and, if applicable, the cheque for pick-up by
checking the appropriate box in the Letter of Acceptance and Transmittal, RCI
Share Certificates and, if applicable, the cheque will be forwarded by first
class mail to such Person at the address specified in the Letter of Acceptance
and Transmittal. RCI Share Certificates and, if applicable, cheques mailed in
accordance with this paragraph will be deemed to have been delivered at the time
of mailing.
18
8. RETURN OF DEPOSITED SHARES
If, for any reason, the Offerors have concluded that any Deposited Shares
will not be taken up and paid for pursuant to the terms and conditions of the
Offer or if certificates are submitted for more RWCI Restricted Voting Shares
than are deposited, certificates for RWCI Restricted Voting Shares that are not
purchased will be returned. Unless otherwise directed in the Letter of
Acceptance and Transmittal, certificates representing unpurchased RWCI
Restricted Voting Shares will be forwarded to the address of the registered
owner as shown on the share register maintained by or on behalf of the
Corporation.
9. MAIL SERVICE INTERRUPTION
Notwithstanding the provisions of the Offer to Purchase and Circular, the
Letter of Acceptance and Transmittal or the Notice of Guaranteed Delivery,
cheques, share certificates and any other relevant documents will not be mailed
to Shareholders if the Offerors determine that delivery thereof by mail may be
delayed. Persons entitled to cheques, share certificates and any other relevant
documents which are not mailed for the foregoing reason may take delivery
thereof at the office of the Depositary to which the deposited certificates
representing RWCI Restricted Voting Shares were delivered until such time as the
Offerors have determined that delivery by mail will no longer be delayed. The
Offerors will provide notice of any determination not to mail under this Section
9 as soon as reasonably practicable after the making of such determination and
in accordance with Section 11 of the Offer to Purchase, "Notices and Delivery".
Notwithstanding Section 7 of the Offer to Purchase, "Take Up of and Payment for
Deposited Shares", cheques, share certificates or other relevant documents not
mailed for the foregoing reason will be conclusively deemed to have been mailed
on the first day upon which they are available for delivery to the depositing
Shareholder at the appropriate office of the Depositary.
10. CHANGES IN CAPITALIZATION
If, on or after the date of the Offer, the Corporation should divide,
combine, reclassify, consolidate, convert or otherwise change any of the RWCI
Restricted Voting Shares or its capitalization, or should disclose that it has
taken or intends to take any such action, then the Offerors may, in their sole
discretion and without prejudice to its rights under Section 4 of the Offer to
Purchase, "Conditions of the Offer", make such adjustments as it deems
appropriate to reflect such division, combination, reclassification,
consolidation, conversion or other change in the purchase price or other terms
of the Offer (including, without limitation, the type of securities offered to
be purchased and the consideration payable therefor).
11. NOTICES AND DELIVERY
Except as otherwise provided in the Offer, any notice to be given by the
Offerors or the Depositary pursuant to the Offer will be deemed to have been
properly given if it is in writing and is mailed by first class mail to
Shareholders at their respective addresses as shown on the share register
maintained by or on behalf of the Corporation in respect of the RWCI Restricted
Voting Shares and will be deemed to have been received on the first business day
following the date of mailing. For this purpose, "business day" means any day
other than a Saturday, Sunday or statutory holiday in the jurisdiction to which
the notice is mailed. These provisions apply notwithstanding any accidental
omission to give notice to any one or more Shareholders and notwithstanding any
interruption of, or delay in, mail services in Canada or in the United States
following mailing. In the event of any interruption of or delay in mail service
in Canada or the United States following mailing, the Offerors intend to make
reasonable efforts to disseminate notice by other means, such as publication.
Except as otherwise required or permitted by law, in the event of any
interruption of or delay in mail services following mailing, or if post offices
in Canada are not open for the deposit of mail, any notice which the Offerors or
the Depositary may give or cause to be given under the Offer will be deemed to
have been properly given and to have been received by Shareholders if a summary
of the material facts thereof (i) is given to the TSX and the NYSE for
dissemination through their respective facilities, (ii) is published once in the
National Edition of The Globe and Mail or The National Post, and in La Presse,
or (iii) is given to the Dow ▇▇▇▇▇ News Wire Service.
The Offer to Purchase and Circular (together with the Letter of Acceptance
and Transmittal and Notice of Guaranteed Delivery) will be mailed to
Shareholders or made in such other manner as is permitted by applicable
regulatory authorities and the Offerors will use their reasonable efforts to
furnish such documents to brokers, banks and similar Persons whose names, or the
names of whose nominees, appear on the Shareholder lists or, if applicable, who
are listed as participants in a clearing agency's security position listing, for
subsequent transmission to beneficial owners of RWCI Restricted Voting Shares
when such list or listing is received.
19
WHENEVER THE OFFER CALLS FOR DOCUMENTS TO BE DELIVERED TO THE DEPOSITARY,
SUCH DOCUMENTS WILL NOT BE CONSIDERED DELIVERED UNLESS AND UNTIL THEY HAVE BEEN
PHYSICALLY RECEIVED AT ONE OF THE ADDRESSES LISTED FOR THE DEPOSITARY IN THE
LETTER OF ACCEPTANCE AND TRANSMITTAL OR NOTICE OF GUARANTEED DELIVERY, AS
APPLICABLE. WHENEVER THE OFFER CALLS FOR DOCUMENTS TO BE DELIVERED TO A
PARTICULAR OFFICE OF THE DEPOSITARY, SUCH DOCUMENTS WILL NOT BE CONSIDERED
DELIVERED UNLESS AND UNTIL THEY HAVE BEEN PHYSICALLY RECEIVED AT THAT PARTICULAR
OFFICE AT THE ADDRESS LISTED IN THE LETTER OF ACCEPTANCE AND TRANSMITTAL OR
NOTICE OF GUARANTEED DELIVERY, AS APPLICABLE.
12. OTHER TERMS OF THE OFFER
Each Offeror reserves the right to transfer or assign from time to time, in
whole or in part, to one or more of its affiliates, the right to purchase all or
any portion of the Deposited Shares, but any such transfer or assignment will
not relieve such Offeror of its obligations under the Offer and will in no way
prejudice the rights of Shareholders depositing RWCI Restricted Voting Shares to
receive prompt payment for RWCI Restricted Voting Shares validly deposited and
taken up pursuant to the Offer.
The Offer and all contracts resulting from acceptance hereof shall be
governed by and construed in accordance with the laws of the Province of Ontario
and the laws of Canada applicable therein. Each party to the agreement resulting
from the acceptance of the Offer unconditionally and irrevocably attorns to the
exclusive jurisdiction of the courts of the Province of Ontario, Canada.
No broker, dealer or other person has been authorized to give any
information or make any representation on behalf of the Offerors not contained
herein, in the accompanying Circular or in the Letter of Acceptance and
Transmittal or Notice of Guaranteed Delivery, and, if given or made, such
information or representation must not be relied upon as having been authorized.
The Offerors, in their sole discretion, shall be entitled to make a final
and binding determination of all questions relating to the interpretation of the
Offer to Purchase and Circular, the Letter of Acceptance and Transmittal and any
Notice of Guaranteed Delivery, and the validity of any acceptance of the Offer
and the validity of any withdrawal of RWCI Restricted Voting Shares.
The provisions of the Circular, the Letter of Acceptance and Transmittal
and the Notice of Guaranteed Delivery accompanying the Offer to Purchase,
including the instructions contained therein, form part of the terms and
conditions of the Offer.
The Offer to Purchase and Circular together constitute the take-over bid
circular required under Canadian provincial securities legislation with respect
to the Offer. The Offer to Purchase and Circular will also constitute a part of
the Offerors' Schedule TO and Schedule 13e-3 and Registration Statement on Form
F-10 to be filed with the SEC on November 26, 2004 and comprise the prospectus
set forth in the Registration Statement on Form F-10. Shareholders are urged to
refer to the accompanying Circular and, with respect to U.S. Shareholders, the
Offerors' Schedule TO and Schedule 13e-3 and Registration Statement on Form
F-10, for additional information relating to the Offer, RCI, RCI Subco and the
Corporation.
RCI will file with the SEC on November 26, 2004 a Tender Offer Statement on
Schedule TO pursuant to Rule 14d-3 of the Exchange Act, together with exhibits
furnishing additional information with respect to the Offer, and may file
amendments thereto. In addition, the Corporation will file with the SEC on
November 26, 2004 a Tender Offer Solicitation/Recommendation Statement on
Schedule 14D-9, together with exhibits, pursuant to Rule 14d-9 under the
Exchange Act, setting forth the position of the Board of Directors with respect
to the Offer and the reasons for such position, and may file amendments thereto.
A copy of these documents, and any amendments thereto, may be examined at, and
copies may be obtained from, the SEC (but not the regional offices of the SEC)
in the manner set forth under Section 2 of the Circular. These documents also
can be obtained from the Information Agent, the Depositary or the Dealer Manager
by calling the telephone numbers set forth on the back page of this Offer to
Purchase and Circular.
20
Dated: November 24, 2004
▇▇▇▇▇▇ COMMUNICATIONS INC.
(Signed) ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, O.C.
President and
Chief Executive Officer
RWCI ACQUISITION INC.
(Signed) ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, O.C.
President and
Chief Executive Officer
21
CIRCULAR
This Circular is furnished in connection with the accompanying Offer to
Purchase dated November 24, 2004 by the Offerors to purchase all of the issued
and outstanding RWCI Restricted Voting Shares not owned by them and their
affiliates. The terms and provisions of the Offer to Purchase, the Letter of
Acceptance and Transmittal and any Notice of Guaranteed Delivery are
incorporated into and form part of this Circular. Shareholders should refer to
the Offer to Purchase for details of the terms and conditions of the Offer,
including details as to payment and withdrawal rights.
RCI
RCI is a diversified Canadian communications and media company engaged in
cable television, high-speed Internet access and video retailing through its
wholly-owned subsidiary ▇▇▇▇▇▇ Cable Inc.; in wireless voice, data and messaging
services through its subsidiary ▇▇▇▇▇▇ Wireless Communications Inc.; in radio
and television broadcasting, televised shopping, consumer magazines, and trade
and professional publications through its wholly-owned subsidiary ▇▇▇▇▇▇ Media
Inc.; and in sports entertainment through its wholly-owned subsidiary the
Toronto Blue Jays Baseball Club. RCI also holds other interests including a
pay-per-view movie service and investments in several specialty television
channels. In addition, RCI holds interests in other companies for investment
purposes.
PRINCIPAL SUBSIDIARIES
The following summary organization chart illustrates, as of November 22,
2004, the structure and equity ownership of the principal subsidiaries of RCI,
and indicates the jurisdiction of incorporation of each entity shown.
(ORGANIZATION CHART)
---------------
(1) Undiluted. Comprises a 97.8% voting interest. On a fully diluted basis,
RCI's equity and voting interests in the Corporation were 87.4% and 97.4%,
respectively, at November 22, 2004, of which 33.3% and 6.8% were held by RCI
Subco.
(2) RCI owns 100% of the Toronto Blue Jays Baseball Club as at September 30,
2004.
(3) ▇▇▇▇▇▇ Wireless Inc. completed its acquisition of Microcell
Telecommunications Inc. on November 12, 2004.
(4) Rogers Wireless Alberta Inc. holds certain spectrum licenses.
(5) Microcell Telecommunications Inc. is a holding company and does not directly
carry on any operations. Microcell Solutions Inc., the continuing
corporation formed from the amalgamation of Inukshuk Internet Inc. and
Microcell Solutions Inc., carries on the operations of Microcell.
▇▇▇▇▇▇ WIRELESS COMMUNICATIONS INC.
For further information in respect of the Corporation, see "THE
CORPORATION" in this Circular and Schedule "B" hereto.
22
▇▇▇▇▇▇ CABLE INC.
▇▇▇▇▇▇ Cable Inc. is Canada's largest cable television company, serving
approximately 2.25 million basic cable subscribers at September 30, 2004,
representing approximately 29% of basic cable subscribers in Canada. At
September 30, 2004, ▇▇▇▇▇▇ Cable Inc. provided digital cable services to 627,000
households and Internet service to approximately 879,500 subscribers.
▇▇▇▇▇▇ Cable Inc. has highly-clustered and technologically advanced
broadband networks in Ontario, New Brunswick and Newfoundland and Labrador.
Rogers Cable Inc.'s Ontario cable systems, which comprise approximately 90% of
its approximately 2.25 million basic cable subscribers, are concentrated in and
around three principal clusters: (i) the ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Area, Canada's largest
metropolitan centre; (ii) Ottawa, the capital city of Canada; and (iii) the
Guelph to London corridor in southern Ontario. ▇▇▇▇▇▇ Cable Inc.'s New Brunswick
and Newfoundland and Labrador cable systems in Atlantic Canada comprise the
balance of ▇▇▇▇▇▇ Cable Inc.'s subscribers.
Through its technologically advanced broadband networks, ▇▇▇▇▇▇ Cable Inc.
offers a diverse range of services, including analog and digital cable
television services and residential and commercial Internet services. ▇▇▇▇▇▇
Cable Inc. also offers DVD, videocassette and video game sales and rentals
through ▇▇▇▇▇▇ Video, Canada's second largest chain of video stores. There were
288 Rogers Video stores at September 30, 2004, many of which provide customers
with the additional ability to purchase cable and wireless products and
services, to pay their cable television, Internet or ▇▇▇▇▇▇ Wireless Inc. bills
and to pick up or return Rogers digital cable and Internet equipment.
▇▇▇▇▇▇ Cable Inc.'s cable systems in Ontario and New Brunswick, with few
exceptions, are interconnected to regional head-ends by inter-city fibre-optic
rings. The fibre interconnections allow its multiple Ontario and New Brunswick
cable systems to function as a single cable network. Rogers Cable Inc.'s
remaining subscribers in Newfoundland and Labrador and New Brunswick are served
by local head-ends. ▇▇▇▇▇▇ Cable Inc.'s two regional head-ends in Toronto,
Ontario and Moncton, New Brunswick provide the source for most television
signals used in the cable systems. At September 30, 2004, 99% of the homes
passed in Rogers Cable Inc.'s service areas had digital cable available and 96%
of its homes passed were two-way addressable. At September 30, 2004, more than
93% of Rogers Cable Inc.'s cable network has been upgraded to transmit 750 MHz
of bandwidth and approximately 85% of its cable network has been upgraded to
transmit 860 MHz of bandwidth. 96% of Rogers Cable Inc.'s cable network is
capable of transmitting 550 MHz of bandwidth or greater. 99% of ▇▇▇▇▇▇ Cable
Inc.'s network is digital cable available.
▇▇▇▇▇▇ Cable Inc.'s analog cable service consists of basic and tiered
analog cable television service, typically comprising 31 channels of basic
programming services and a choice of three additional tiers comprised of up to
30 additional channels. ▇▇▇▇▇▇ Cable Inc.'s digital cable service allows
subscribers to augment their analog services with a wide selection of digital
programming services, selecting from digital programming services individually,
in pre-set theme packages or in customer selected packages. In addition, digital
cable service generally provides subscribers with a platform to select ▇▇▇▇▇▇
Cable Inc.'s advanced cable services, such as time-shifting, PVR, HDTV, VOD and
SVOD. ▇▇▇▇▇▇ Cable Inc.'s VOD service was launched in August 2002 and now covers
approximately 2.9 million homes in Ontario. ▇▇▇▇▇▇ Cable Inc. currently has a
library of over 2,000 titles. ▇▇▇▇▇▇ Cable Inc.'s digital cable service also
provides additional features, including a detailed interactive programming
guide, interactive PPV, VOD and SVOD ordering, parental control features and 40
channels of digital CD quality music. At September 30, 2004, Rogers Cable Inc.
had 729,300 digital terminals in 627,000 households, representing a penetration
rate of 27.9% of its basic cable households.
Rogers Cable Inc. is marketing multi-product bundles to existing and new
customers, enabling it to reduce individual product churn, increase the average
revenue received from its customers by selling multiple products to them, lower
the cost of customer acquisition and create a single point of customer service
contact. These multi-product bundles, known as "Rogers Better Choice Bundles",
provide Rogers Cable Inc.'s subscribers with a percentage discount over a two
year committed term. The Rogers Better Choice Bundles currently include cable,
Internet, Rogers Wireless Inc. and wireline long distance products and service
options.
▇▇▇▇▇▇ MEDIA INC.
▇▇▇▇▇▇ Media Inc. holds Rogers' radio and television broadcasting
operations, its consumer and trade publishing operations, and its televised home
shopping service. Within ▇▇▇▇▇▇ Media Inc., the Broadcasting group includes 43
radio stations across Canada (33 FM and 10 AM radio stations), two multicultural
television stations in Ontario (OMNI.1 and OMNI.2), an 80% interest in Rogers
Sportsnet, a sports specialty service licenced to provide regional
23
sports programming across Canada and Canada's only nationally televised shopping
service, The Shopping Channel. The Broadcasting group holds minority interests
in several Canadian specialty television services, including Viewers Choice
Canada, Outdoor Life Network (OLN), Tech TV Canada, The Biography Channel
Canada, and certain other minority interest investments. In addition, effective
January 2, 2004, Broadcasting entered into a partnership with CTV Specialty
Television Inc. in which 50% of CTV's mobile production and distribution
business was acquired for $21.3 million, including working capital adjustments
and net of cash acquired. The Publishing group publishes approximately 70
consumer, trade, and professional publications. In addition to its traditional
broadcast and print media platforms, ▇▇▇▇▇▇ Media Inc. also delivers content
over the Internet relating to many of the individual broadcasting and publishing
properties, and has a Web-commerce distribution channel associated with The
Shopping Channel.
PRINCIPAL OFFICES
RCI's head and registered office is at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇. The telephone number of RCI's principal business
office is ▇▇▇-▇▇▇-▇▇▇▇. Further information in respect of RCI is set forth in
Schedule "A" hereto and see Schedule "C" hereto for information in respect of
its directors and officers.
STATEMENT OF PROCEEDINGS
RCI has not during the past five years been convicted in a criminal
proceeding, nor has it been a party to any judicial or administrative proceeding
that resulted in a judgment, decree or final order enjoining RCI from future
violations of, or prohibiting the activities subject to, federal or state
securities laws, or a finding of any violation of federal or state securities
laws.
SUMMARY FINANCIAL INFORMATION OF RCI
All information contained in the following tables should be read in
conjunction with RCI's consolidated financial statements, unaudited interim
consolidated financial statements, the notes related to those financial
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for the applicable period, which financial statement,
notes and discussion are incorporated by reference in this Circular. The
following tables do not give pro forma effect to a number of significant and
important transactions of RCI and its subsidiaries, including the Corporation,
that have occurred since September 30, 2004. See "Schedule "E" -- Unaudited Pro
Forma Consolidated Financial Statements of RCI" for information regarding these
transactions and the impact thereof on RCI's financial statements.
24
YEAR ENDED FOR THE NINE MONTHS
DECEMBER 31 AND AS AT SEPTEMBER 30
------------------------ --------------------------
2003 2002 2004 2003
---------- ---------- ------------ ----------
(thousands of dollars, except per share amounts)
AMOUNTS UNDER CANADIAN GAAP (1)
STATEMENT OF INCOME DATA:
Revenue (2)
Cable (2)................................... $1,788,122 $1,614,554 $1,437,291 $1,313,030
Wireless (2)................................ $2,207,794 $1,891,514 $1,969,896 $1,618,195
Media....................................... 854,992 810,805 653,379 611,123
Blue Jays................................... -- -- 42,062
Corporate items and eliminations............ (59,052) (50,088) (60,696) (42,132)
---------- ---------- ---------- ----------
Total revenue................................. $4,791,856 $4,266,785 $4,041,932 $3,500,216
========== ========== ========== ==========
Operating expenses
Cost of sales (2)........................... $ 642,243 $ 545,684 $ 566,193 $ 438,746
Sales and marketing expenses (2)............ 742,781 697,579 591,717 522,375
Operating, general and administrative
expense (2).............................. 1,957,936 1,881,908 1,600,401 1,459,509
Other expense (recovery).................... -- (6,481) -- --
Depreciation and amortization............... 1,040,263 981,458 752,475 766,413
---------- ---------- ---------- ----------
Total operating expenses...................... $4,383,223 $4,100,148 $3,510,786 $3,187,043
========== ========== ========== ==========
Operating income
Cable....................................... $ 181,424 $ 73,405 $ 169,257 $ 123,303
Wireless.................................... 208,973 82,885 378,965 187,226
Media....................................... 70,413 54,344 25,994 37,260
Blue Jays................................... -- -- (10,656) --
Corporate................................... (52,177) (43,997) (32,414) (34,616)
---------- ---------- ---------- ----------
Total operating income........................ $ 408,633 $ 166,637 $ 531,146 $ 313,173
========== ========== ========== ==========
Net income (loss)............................. $ 129,193 $ 312,032 $ 2,289 $ 60,354
========== ========== ========== ==========
Ratio of earnings available to cover fixed
charges (3)................................. 1.20 1.44 1.03 1.18
Earnings (loss) per share:
-- basic.................................... $ 0.35 $ 1.05 $ (0.16) $ 0.11
-- diluted.................................. 0.34 0.83 (0.16) 0.10
Book value per share.......................... 7.82 6.57 8.41 7.67
AS AT AS AT AS AT AS AT
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2004 2003
------------ ------------ ------------- -------------
(thousands of dollars)
BALANCE SHEET:
Assets
Current assets............................ $ 729,823 $ 711,290 $1,047,809 $ 735,074
Total assets................................ $8,465,495 $8,706,733 $8,779,097 $8,481,103
========== ========== ========== ==========
Liabilities and Shareholders' Equity
Current liabilities....................... $1,140,922 $1,201,156 $1,457,167 $1,172,712
Long-term debt (excluding current portion)
(4).................................... 4,958,734 5,857,721 4,472,974 5,131,523
Other long-term liabilities............... 405,117 111,285 560,606 269,569
Non-controlling interest.................. 193,342 132,536 282,112 192,747
Shareholders' Equity...................... 1,767,380 1,404,035 2,006,238 1,714,462
---------- ---------- ---------- ----------
Total Liabilities and Shareholders'
Equity.................................... $8,465,495 $8,706,733 $8,779,097 $8,481,103
========== ========== ========== ==========
---------------
(1) In certain respects, Canadian GAAP differs from U.S. GAAP. Accordingly,
certain line items with respect to Statement of Income Data and Balance
Sheet Data differ as a result of the application of U.S. GAAP. For a
discussion of the principal differences between Canadian GAAP
25
and U.S. GAAP, see Note 22 to the audited consolidated financial statements
incorporated by reference in this Circular and Note 15 to the unaudited
interim consolidated financial statements incorporated by reference in this
Circular.
(2) As a result of retrospectively adopting new Canadian accounting standards
on January 1, 2004, including Emerging Issues Committee Abstract 142,
"Revenue Arrangements with Multiple Deliverables" and Canadian Institute of
Chartered Accountants Handbook Section 1100, "Generally Accepted Accounting
Principles", regarding the timing of revenue recognition and the
classification of certain items as revenue or expense, RCI made the
following changes to its classification of certain revenue and expense
items.
- Wireless activation fees are now classified as equipment revenue.
Previously, these amounts were classified as network revenue.
- Recoveries from new and existing subscribers from the sale of equipment
are now classified as equipment revenue. Previously, these amounts were
recorded as a reduction to sales expense in the case of a new cable or
wireless subscriber, or a reduction to operating, general and
administrative expense in the case of an existing wireless subscriber.
- Equipment subsidies provided to new and existing wireless subscribers
are now classified as a reduction to equipment revenue. Previously,
these amounts were recorded as sales expense in the case of a new
subscriber or as an operating, general and administrative expense in the
case of an existing subscriber. Costs for equipment provided under
retention programs to existing wireless subscribers are now recorded as
cost of equipment sales. Previously these amounts were recorded as
operating, general and administrative expense.
- Certain other recoveries from subscribers related to collections
activities are now recorded as network revenue rather than as a recovery
of operating, general and administrative expenses.
As a result of the adoption of these new accounting standards, the
following changes to the classification of revenue and expenses have been
made.
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31 SEPTEMBER 30,
-------------------- --------------------
2003 2002 2004 2003
-------- -------- -------- --------
(in millions of dollars)
Cable revenue
Prior to adoption......................................... $1,769.2 $1,596.4 $1,425.3 $1,298.5
After adoption............................................ 1,788.1 1,614.6 1,437.3 1,313.0
Wireless revenue
Prior to adoption......................................... 2,282.2 1,966.0 1,991.5 1,657.5
After adoption............................................ 2,207.8 1,891.5 1,969.9 1,618.2
Total revenue
Prior to adoption......................................... 4,847.4 4,323.0 4,051.5 3,525.0
After adoption............................................ 4,791.9 4,266.8 4,041.9 3,500.2
Cost of sales
Prior to adoption......................................... 506.0 458.8 416.2 347.7
After adoption............................................ 642.2 545.7 566.2 438.8
Sales and marketing expenses
Prior to adoption......................................... 905.3 833.0 706.5 623.2
After adoption............................................ 742.8 697.6 591.7 522.4
Operating, general and administrative expenses
Prior to adoption......................................... 1,987.2 1,889.6 1,644.5 1,474.7
After adoption............................................ 1,957.9 1,881.9 1,600.4 1,459.5
(3) For the purposes of calculating the ratio of earnings to fixed charges and
the deficiency of earnings available to cover fixed charges, (i) earnings
or deficiencies consist of earnings (loss) before income taxes plus fixed
charges during the year and (ii) fixed charges consist of interest expense
(before deducting capitalized interest) on all debt, amortization of
deferred financing costs and the portion of operating lease rental expense
that is representative of the interest factor (deemed to be one-third of
minimum operating lease rentals).
(4) As a result of RCI's adoption of new Canadian GAAP for hedge accounting,
effective January 1, 2004, RCI no longer treats the impact of its
cross-currency interest rate exchange agreements ("swaps") as a component
of long-term debt. For comparison purposes, all prior periods have been
reclassified. Accordingly, RCI's total debt and senior debt at each period
end under Canadian GAAP and U.S. GAAP are presented at the balance sheet
date rate of exchange, and do not include the effect of its swaps.
RCI SUBCO
RCI Subco is a wholly-owned subsidiary of RCI incorporated under the laws
of the Province of British Columbia and has carried on no business other than
holding RWCI Restricted Voting Shares and the making of this Offer.
The authorized capital of RCI Subco consists of 100,000,000 common shares,
of which 1,000,002 are issued and outstanding and registered in the name of RCI.
RCI Subco's executive office is ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇ and its registered office is located at ▇▇▇▇-▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇.
26
THE CORPORATION
The Corporation, operating through ▇▇▇▇▇▇ Wireless Inc. and Microcell
Solutions Inc., is a leading wireless communications service provider.
▇▇▇▇▇▇ WIRELESS INC.
▇▇▇▇▇▇ Wireless Inc. served approximately 4.2 million customers across
Canada as at September 30, 2004, including over 4.0 million wireless voice and
data subscribers and approximately 211,000 one-way messaging (paging)
subscribers. ▇▇▇▇▇▇ Wireless Inc. operates both a Global System for Mobile
Communications/General Packet Radio Service, or GSM/GPRS, network, Enhanced Data
Rates for GSM Evolution, or EDGE technology, and a seamless integrated Time
Division Multiple Access, or TDMA, and analog network. ▇▇▇▇▇▇ Wireless Inc.'s
GSM/GPRS network provides coverage to approximately 93% of Canada's population.
▇▇▇▇▇▇ Wireless Inc.'s seamless TDMA and analog network covers a geographic area
representing approximately 85% of Canada's population in digital mode and
approximately 93% of Canada's population in analog mode. ▇▇▇▇▇▇ Wireless Inc.
estimates that its approximately 4.0 million wireless voice and data subscribers
represent approximately 13.6% of the Canadian population residing in its
coverage area and approximately 28% of the wireless voice and data subscribers
in Canada. Subscribers to ▇▇▇▇▇▇ Wireless Inc.'s wireless services have access
to these services throughout the United States through agreements with AT&T
Wireless and other U.S. wireless operators. ▇▇▇▇▇▇ Wireless Inc.'s subscribers
also have access internationally in over 140 countries, including parts of
Europe, Asia and Latin America through roaming agreements with other wireless
communication providers.
▇▇▇▇▇▇ Wireless Inc.'s GSM/GPRS network provides customers with advanced
wireless voice and high-speed packet data services, including mobile access to
the Internet, e-mail, digital picture transmission and two-way short messaging
service, or SMS. In June 2002, ▇▇▇▇▇▇ Wireless Inc. completed the deployment of
its digital wireless GSM/ GPRS network overlay in the 1900 megahertz frequency
bands. During 2003, ▇▇▇▇▇▇ Wireless Inc. also completed the deployment of
GSM/GPRS technology operating in the 850 megahertz spectrum across its national
footprint, which expanded the network capacity, enhanced the quality of the
GSM/GPRS network and enabled ▇▇▇▇▇▇ Wireless Inc. to operate seamlessly between
the two frequencies. In June 2004, ▇▇▇▇▇▇ Wireless Inc. completed deployment of
EDGE technology across its national GSM/GPRS network. Accomplished by the
installation of a network software upgrade, EDGE more than triples the wireless
data transmission speeds previously available on ▇▇▇▇▇▇ Wireless Inc.'s network.
▇▇▇▇▇▇ Wireless Inc.'s integrated wireless networks are operationally seamless
in GSM/GPRS and TDMA digital functionality between the 850 megahertz and 1900
megahertz frequency bands, and between TDMA digital and analog modes at 850
megahertz.
▇▇▇▇▇▇ Wireless Inc. markets its products and services through an extensive
nationwide distribution network of over 6,900 dealer and retail locations across
Canada, which include approximately 2,000 locations selling subscriptions to
service plans, handsets and prepaid cards and approximately 5,000 additional
locations selling prepaid cards. Its nationwide distribution network includes an
independent dealer network, ▇▇▇▇▇▇ Wireless Inc. stores and kiosks, major retail
chains, such as RadioShack Canada Inc., and convenience stores. ▇▇▇▇▇▇ Wireless
Inc. also offers many of its products and services through a retail agreement
with ▇▇▇▇▇▇ Video, which is a division of ▇▇▇▇▇▇ Cable Inc., that had 288
locations across Canada as of September 30, 2004, and on its e-business website
▇▇▇.▇▇▇▇▇▇.▇▇▇.
MICROCELL
The Corporation, through ▇▇▇▇▇▇ Wireless Inc., completed its acquisition of
Microcell on November 12, 2004. Microcell has been a provider of wireless
telecommunications services in Canada since November 1996 and offers a wide
range of wireless communications services and products to approximately 1.3
million customers. Microcell's national distribution network includes over 5,500
dealer and retail locations across Canada, which include 64 corporate-owned
stores and kiosks. The Corporation intends to maintain Microcell's full line of
wireless voice and data products and services through a distribution network
composed of more than 5,500 points of sale. These include corporate-owned stores
and kiosks, as well as third-party outlets. Microcell's digital network operates
on the GSM/ GPRS standard.
Operating under the Fido brand, Microcell's product offerings target the
mass-market retail consumer and individual business user market segments.
Through simple packages of affordable and innovative products and services,
Microcell offers both postpaid and prepaid plans. The City Fido plan, first
launched in Vancouver in October 2003, and subsequently launched in Toronto in
May 2004, allows customers to place and receive an unlimited number
27
of local calls within a defined local calling area for a flat monthly rate.
Microcell recently launched the City Fido plan in Montreal.
Microcell operates a nationwide GSM/GPRS network in the 1900 megahertz
frequency range utilizing 30 megahertz of contiguous national spectrum.
Microcell's network covers approximately 61% of the Canadian population and is
concentrated in areas with high population density or high traffic. ▇▇▇▇▇▇
Wireless Inc. intends to integrate its GSM/GPRS/EDGE network with that of
Microcell, resulting in a single integrated national GSM/GPRS/ EDGE network.
▇▇▇▇▇▇ Wireless Inc. expects that the resulting integrated network will enable
it to provide its customers with improved network coverage and quality in urban
areas. This will enable ▇▇▇▇▇▇ Wireless Inc. to decommission certain of the
Microcell cell sites and transmission and switching infrastructure.
Microcell holds licenses for 90 megahertz of spectrum in the 2500 megahertz
range to build and operate a Multipoint Communications System ("MCS") network in
all Canadian provinces and territories, with the exception of Manitoba and
Saskatchewan. Part of Microcell's business is to build a high speed fixed
wireless network that will support a broad range of data applications, including
wireless high-speed Internet, Voice over Internet Protocol services, as well as
home and office networking. In November 2003, Allstream Inc., Microcell and NR
Communications, LLC announced the creation of a new venture with the aim of
using MCS wireless technology to offer integrated high-speed Internet, IP based
voice and local networking services to selected markets in Canada. In March
2004, the new venture launched its first MCS networks in Richmond, a suburb of
Vancouver, and in Cumberland, a rural community approximately ▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇. Concurrently with the deployment of MCS networks, Microcell
launched, in Richmond and Cumberland, its iFido(R) service, a residential
wireless high speed Internet service. Microcell's commitments to the venture are
to transfer its MCS spectrum to the venture, to operate the MCS network deployed
by the venture pending Industry Canada's approval of the MCS spectrum transfer
and to make a cash contribution of up to $6.0 million in the aggregate. In
connection with its acquisition of Microcell, it is expected that ▇▇▇▇▇▇
Wireless Inc. will agree to cause Microcell to fulfill its commitments to the
venture.
On November 19, 2004, as provided for in the shareholders agreement in
respect of the venture, Microcell gave notice of its intent to purchase the
shares currently owned by Allstream Inc. On November 18, 2004 NR Communications,
LLC made the same offer to Allstream Inc. As a result, subject to the terms of
the shareholders agreement, Microcell would acquire 50% of Allstream Inc.'s
shares for which Microcell estimates the cost to be between approximately $4
million to $5 million.
PRINCIPAL OFFICES
The Corporation's executive office is located at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ and its registered office is located at ▇▇▇▇ ▇▇▇▇-▇▇-▇▇▇▇▇▇,
▇▇-▇▇▇▇▇▇▇, ▇▇▇▇▇▇. The Corporation's phone number is ▇▇▇-▇▇▇-▇▇▇▇. Further
information in respect of the Corporation, including recent developments, is set
forth in Schedule "B" hereto.
SUMMARY FINANCIAL INFORMATION OF THE CORPORATION
All information contained in the following tables should be read in
conjunction with the Corporation's consolidated financial statements, unaudited
interim consolidated financial statements, the notes related to those financial
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for the applicable period, which financial statement,
notes and discussion are incorporated by reference in this Circular. The
following tables do not give pro forma effect to a number of significant and
important transactions of the Corporation and its subsidiaries that have
occurred since September 30, 2004. See "Schedule "F" -- Unaudited Pro
28
Forma Consolidated Financial Statements of the Corporation" for information
regarding these transactions and the impact thereof on the Corporation's
financial statements.
YEAR ENDED FOR THE NINE MONTHS
DECEMBER 31 ENDED SEPTEMBER 30
----------------------- -------------------------
2003 2002 2004 2003
---------- ---------- ------------ ----------
(thousand of dollars, except per share amounts)
AMOUNTS UNDER CANADIAN GAAP (1)
STATEMENT OF INCOME DATA:
Total revenue (2)(3)............................. $2,207,794 $1,891,514 $1,969,897 $1,618,195
Cost of sales (3)................................ 380,771 296,794 357,527 252,009
Sales and marketing expenses (3)................. 361,998 328,884 266,447 250,086
Operating, general and administrative expenses
(3)............................................ 737,453 738,149 609,632 555,449
Management fees (4).............................. 11,336 11,006 8,756 8,502
Other expense (recovery)......................... -- (12,331) -- --
Depreciation and amortization.................... 518,599 457,133 357,327 373,425
---------- ---------- ---------- ----------
Total operating expenses......................... 2,010,157 1,819,635 1,599,689 1,439,471
---------- ---------- ---------- ----------
Operating income................................. $ 197,637 $ 71,879 $ 370,208 $ 178,724
========== ========== ========== ==========
Net income (loss)................................ $ 137,841 $ (90,705) $ 161,202 $ 136,490
========== ========== ========== ==========
Ratio of earnings available to cover fixed
charges (5).................................... 1.67 2.00 1.88
Deficiency or earnings available to cover fixed
charges (5).................................... (85,447)
Average Class A and Class B shares outstanding... 141,773 141,608 142,631 141,752
Earnings (loss) per share -- basic............... $ 0.97 $ (0.64) $ 1.13 $ 0.96
-- diluted............. 0.97 (0.64) 1.12 0.96
Book value per share............................. 3.13 2.12 4.43 3.10
AS AT AS AT AS AT AS AT
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2004 2003
------------ ------------ ------------- -------------
(thousands of dollars)
BALANCE SHEET:
Assets
Current assets............................... $ 363,829 $ 332,952 $ 513,147 $ 369,950
Total assets................................... $3,107,343 $3,302,712 $3,201,230 $3,140,001
========== ========== ========== ==========
Liabilities and Shareholders' Equity
Current liabilities.......................... $ 437,813 $ 507,789 $ 366,765 $ 484,319
Long-term debt (6)........................... 2,070,761 2,472,620 1,946,308 2,111,654
Other long-term liabilities.................. 155,689 21,847 256,798 105,015
Shareholders' Equity......................... 443,080 300,456 631,359 439,013
---------- ---------- ---------- ----------
Total liabilities and Shareholders' Equity $3,107,343 $3,302,712 $3,201,230 $3,140,001
========== ========== ========== ==========
---------------
(1) In certain respects, Canadian GAAP differs from U.S. GAAP. Accordingly,
certain line items with respect to Statement of Income Data and Balance
Sheet Data differ as a result of the application of U.S. GAAP. For a
discussion of the principal differences between Canadian GAAP and U.S.
GAAP, see Note 18 to the consolidated financial statements incorporated by
reference in this Circular and Note 11 to the unaudited interim
consolidated financial statements incorporated by reference in this
Circular.
(2) In the first quarter of 2003, the Corporation introduced enhanced reporting
classification for stratifying subscriber and revenue categories, which
more clearly reflects the emergence of data products and integrated voice
and data devices. Concurrently, the Corporation changed its classification
of subscribers of certain resale two-way messaging arrangements for
reporting purposes. The previous periods' subscriber and revenue categories
have been reclassified to conform to this current presentation. The
Corporation now reports revenue in three categories: postpaid, prepaid and
one-way messaging. Postpaid includes voice-only and data-only subscribers,
as well as subscribers with service plans integrating both voice and data.
In addition, as discussed in note 3 below, further changes to the
classification of revenues and expenses were made effective January 1,
2004. As a result of these reclassifications, all periods presented have
been restated. These enhancements to the classification of revenue
categories had no impact on the reported operating profit in the current or
previous periods.
(3) As a result of retrospectively adopting new Canadian accounting standards
on January 1, 2004, including Emerging Issues Committee Abstract 142,
"Revenue Arrangements with Multiple Deliverables" and Canadian Institute of
Chartered Accountants Handbook Section 1100,
29
"Generally Accepted Accounting Principals", regarding the timing of revenue
recognition and the classification of certain items as revenue expense, the
Corporation made the following changes to our classification of certain
revenue and expense items:
- Activation fees are now classified as equipment revenue. Previously,
these amounts were classified as network revenue.
- Recoveries from new and existing subscribers from the sale of equipment
are now classified as equipment revenue. Previously, these amounts were
recorded as a reduction to sales expense in the case of a new
subscriber, or a reduction to operating, general and administrative
expense in the case of an existing subscriber.
- Equipment subsidies provided to new and existing subscribers are now
classified as a reduction to equipment revenue. Previously, these
amounts were recorded as sales expense in the case of a new subscriber
or as an operating, general and administrative expense in the case of an
existing subscriber. Costs for equipment provided under retention
programs to existing subscribers are now recorded as cost of equipment
sales. Previously these amounts were recorded as operating, general and
administrative expense.
- Certain other recoveries from subscribers related to collections
activities are now recorded as network revenue rather than as a recovery
of operating, general and administrative expense.
As a result of the adoption of these new accounting standards, the
following changes to the classification of revenue and expenses have been
made.
YEAR ENDED NINE MONTH'S ENDED
DECEMBER 31 SEPTEMBER 30
-------------------- ------------------------
2003 2002 2004 2003
-------- -------- ------------ --------
(in millions of dollars)
Postpaid (voice and data) revenue:
Prior to adoption......................................... $1,921.0 $1,632.9 $1,683.5 $1,414.0
After adoption............................................ 1,911.1 1,628.1 1,678.5 1,408.3
Network revenue:
Prior to adoption......................................... 2,039.8 1,759.3 1,777.2 1,499.1
After adoption............................................ 2,029.9 1,754.5 1,772.4 1,493.4
Equipment sales:
Prior to adoption......................................... 242.4 206.7 214.3 158.4
After adoption............................................ 177.9 137.0 197.5 124.8
Total operating revenue
Prior to adoption......................................... 2,282.2 1,966.0 1,991.5 1,657.5
After adoption............................................ 2,207.8 1,891.5 1,969.9 1,618.2
Cost of equipment sales:
Prior to adoption......................................... 244.5 209.9 207.5 160.9
After adoption............................................ 380.8 296.8 357.5 252.0
Sales and marketing expenses:
Prior to adoption......................................... 522.7 462.8 378.8 349.8
After adoption............................................ 362.0 328.9 266.4 250.1
Operating, general and administrative expenses:
Prior to adoption......................................... 787.4 765.5 668.9 586.2
After adoption............................................ 737.4 738.1 609.7 555.3
(4) The Corporation is a party to a management services agreement with RCI,
under which RCI provides finance, treasury, legal, regulatory,
administrative and strategic planning services to the Corporation in
exchange for a fee. The fee per year is the greater of $8.0 million
(adjusted for changes in the Canadian consumer price index from January 1,
1991) and an amount agreed to by RCI and the independent directors serving
on the Audit Committee of the Corporation under guidelines specified in the
management services agreement. In addition, for services not specifically
covered under the management services agreement, the fee is generally equal
to RCI's cost.
(5) For the purposes of calculating the ratio of earnings to fixed charges and
the deficiency of earnings available to cover fixed charges, (i) earnings
or deficiencies consist of earnings (loss) before income taxes plus fixed
charges during the year and (ii) fixed charges consist of interest expense
(before deducting capitalized interest) on all debt, amortization of
deferred financing costs and the portion of operating lease rental expense
that is representative of the interest factor (deemed to be one-third of
minimum operating lease rentals).
(6) As a result of the Corporation's adoption of new Canadian GAAP for hedge
accounting, effective January 1, 2004, the Corporation no longer treats the
impact of its cross-currency interest rate exchange agreements ("swaps") as
a component of long-term debt. For comparison purposes, all prior periods
have been reclassified. Accordingly, the Corporation's long-term total debt
at each period end under Canadian GAAP and U.S. GAAP are presented at the
balance sheet date rate of exchange, and do not include the effect of the
Corporation's swaps.
30
SPECIAL FACTORS
BACKGROUND TO THE OFFER
BACKGROUND AND REASONS OF RCI FOR THE OFFER
2001 PROPOSED TRANSACTION
On June 12, 2001, RCI announced its intention to acquire all of the
outstanding RWCI Restricted Voting Shares owned by the public in consideration
for 1.1 RCI Non-Voting Shares for each RWCI Restricted Voting Share held. This
transaction (the "2001 Proposed Transaction") was proposed to be carried out by
way of an amalgamation of RWCI and a subsidiary of RCI and required the approval
by a majority of the votes cast by Minority Shareholders. The consideration
offered of 1.1 RCI Non-Voting Shares was equivalent to a price of approximately
$27.14 per RWCI Restricted Voting Share based upon the average of the closing
prices of RCI Non-Voting Shares on the TSX for the five trading days immediately
prior to the June 12, 2001 public announcement of the 2001 Proposed Transaction.
An independent committee of the Corporation was established for the purpose of
reviewing the 2001 Proposed Transaction. The independent committee retained an
independent financial advisor to prepare a formal valuation of the RWCI
Restricted Voting Shares. The independent financial advisor determined that the
2001 Proposed Transaction was inadequate, from a financial point of view, to
Minority Shareholders. Based on the report of the independent committee, the
Board of Directors determined that the 2001 Proposed Transaction was not fair,
from a financial point of view, to Minority Shareholders and recommended that
Minority Shareholders vote against the 2001 Proposed Transaction. On September
11, 2001, Minority Shareholders voted not to approve the 2001 Proposed
Transaction.
FOLLOWING THE 2001 PROPOSED TRANSACTION
Subsequent to the 2001 Proposed Transaction, RCI, as the controlling
shareholder of the Corporation, was prepared to consider the acquisition from
time to time of additional RWCI Restricted Voting Shares if such shares became
available. However, RCI had no plans to commence any offer to the public or to
take the Corporation private.
On March 20, 2002, RCI entered into agreements with five institutional
investors to purchase 4.925 million RWCI Restricted Voting Shares, representing
approximately 9.7% of the issued and outstanding RWCI Restricted Voting Shares.
In consideration for the RWCI Restricted Voting Shares, RCI issued 0.874 RCI
Non-Voting Shares for each RWCI Restricted Voting Share (based on the closing
market price on March 19, 2002 of $24.28 per RCI Non-Voting Share).
In early 2004, RCI became aware that AT&T Wireless was interested in
selling its entire 34.2% equity position in the Corporation as a result of a
strategic refocus by AT&T Wireless.
On April 28, 2004, RCI announced that it had received notice from AT&T
Wireless of its intent to explore options to monetize its holding of 48,594,172
RWCI Class A Shares and RWCI Restricted Voting Shares that were held by JVII, a
partnership wholly-owned by AT&T Wireless. The letter received by RCI also
stated AT&T Wireless' interest in negotiating with RCI for a period of 21 days
to attempt to reach an agreement on a private sale to RCI. Under a shareholders'
agreement dated August 16, 1999 between RCI, the Corporation and AT&T Wireless
(through JVII) (the "JVII Shareholders' Agreement"), RCI had a right of first
negotiation pursuant to which RCI and AT&T Wireless were required for a period
of 21 days from the receipt of the notice from AT&T Wireless to negotiate
exclusively and in good faith for the possible purchase by RCI of AT&T Wireless'
shares of the Corporation. If no agreement was reached in this timeframe, AT&T
Wireless thereafter had a period of 60 days in which to sell its shares of the
Corporation to third parties. Under the terms of the JVII Shareholders'
Agreement and subject to RCI's right of first negotiation, there were two
restrictions on AT&T Wireless' right to sell shares of the Corporation to third
parties. The first was a requirement that all of AT&T Wireless' RWCI Class A
Shares be converted into RWCI Restricted Voting Shares prior to completion of a
sale of such shares. The second restriction was that no one purchaser from AT&T
Wireless, following completion of the sale, acquire more than a 5% equity
interest in the Corporation (other than equipment, software or service providers
to the Rogers group of companies which could acquire up to 10% of the total
equity of the Corporation). These two restrictions significantly limited AT&T
Wireless' flexibility in disposing of its shares of the Corporation to third
parties.
At the time of the notice from AT&T Wireless, RCI was prepared to offer to
acquire the shares of the Corporation owned by AT&T Wireless but only if the
price was below the market price for such shares. RCI believed that if AT&T
Wireless sold its shares in the market, the price it would be able to obtain
would be subject to a significant discount,
31
given the number of shares to be sold. On May 20, 2004, RCI announced that it
did not reach an agreement during the 21-day exclusive negotiation period to
acquire AT&T Wireless' stake. The highest offer made by RCI during the 21-day
period was $31 per share. On July 19, 2004, RCI and the Corporation announced
the expiration of the 60-day period and the failure of AT&T Wireless to dispose
of its equity interest in the Corporation during this period to a third party.
While RCI was aware that AT&T Wireless continued to be interested in
disposing of its shares of the Corporation, there were no further discussions
with AT&T Wireless with respect to a possible purchase by RCI until late summer
of 2004. In part as a result of the proposed acquisition by Cingular Wireless
LLC of AT&T Wireless, RCI became aware that AT&T Wireless wished to again
attempt to sell its equity interest in the Corporation. RCI was concerned that
the overhang of the shares of the Corporation might negatively affect the market
for the RWCI Restricted Voting Shares. Accordingly, RCI agreed to assist AT&T
Wireless in connection with a private sale of all of its shares of the
Corporation by, among other things, waiving the terms of its right of first
negotiation. On September 3, 2004, RCI and AT&T Wireless entered into a letter
agreement (to which the Corporation was a party for limited purposes) under
which RCI agreed to assist JVII in accordance with the letter agreement in
respect of a private sale of its shares of the Corporation. The two restrictions
contained in the JVII Shareholders' Agreement referred to above on the ability
of AT&T Wireless to sell shares to third parties applied to any sale under the
letter agreement. Among other matters, the letter agreement provided a right to
RCI to purchase all of the shares of the Corporation from AT&T Wireless at the
net proposed sale price by AT&T Wireless to third parties if that sale price
(less commissions and expenses) was $36.00 or less.
As a result of the negotiations with respect to the letter agreement
referred to above, RCI considered again whether it was interested in acquiring
the shares of the Corporation owned by AT&T Wireless. RCI concluded that there
were potential benefits to RCI in doing so, and, as a result, RCI initiated
discussions with AT&T Wireless with respect to a possible private agreement
acquisition. The decision by RCI to offer to purchase AT&T Wireless' shares of
the Corporation represented a shift in its strategy with respect to the AT&T
Wireless stake in the Corporation.
On September 13, 2004, RCI entered into an agreement with AT&T Wireless
under which RCI agreed to purchase AT&T Wireless's entire stake in the
Corporation. On October 13, 2004, RCI indirectly acquired from AT&T Wireless
48,594,172 RWCI Restricted Voting Shares, representing approximately 60.6% of
the issued and outstanding RWCI Restricted Voting Shares. The RWCI Restricted
Voting Shares were acquired for a cash purchase price of $36.37 per share,
totaling an aggregate of approximately $1,767 million. RCI's offer to purchase
those shares was not part of any plan or proposal to acquire additional RWCI
Restricted Voting Shares or to take the Corporation private. As a result of that
purchase, the pre-bid integration rules contained in applicable Canadian
securities laws apply to the Offer. The Offerors have applied to Canadian
securities regulators, and anticipate receiving, exemption orders from such
rules on the basis that the value of the consideration offered pursuant to the
Offer is substantially higher than the consideration paid to AT&T Wireless for
the purchase of its RWCI Restricted Voting Shares on October 13, 2004.
At the request of RCI, on September 27, 2004, the Corporation constituted
the Independent Committee with a mandate to, among other things, retain an
investment advisor independent of RCI and its affiliates to prepare a formal
valuation of the RWCI Restricted Voting Shares in accordance with Rule 61-501,
Policy Q-27 and the Shareholder Protection Agreement. In order for the
Corporation to be able to make a decision whether to proceed with a possible
substantial issuer bid to purchase RWCI Restricted Voting Shares, it was
necessary for the Corporation to determine the value of the RWCI Restricted
Voting Shares pursuant to a formal valuation prepared by an independent
valuator. Such a valuation was required under the terms of the Shareholder
Protection Agreement. A substantial issuer bid was being considered as a
possibility because it could serve as a mechanism to permit funds to be
transferred from the Corporation to RCI in order to permit RCI to repay
financing in the amount of approximately $1,750 million to be incurred by RCI to
complete the purchase of AT&T Wireless' stake in the Corporation. If such a
substantial issuer bid was made, RCI would have had the opportunity to tender
the shares of the Corporation acquired from AT&T Wireless to that bid. The
substantial issuer bid would also have been made to public shareholders of the
Corporation. No decision was ever made as to the possible terms of any such
substantial issuer bid.
On November 7, 2004, Scotia Capital was first contacted by the management
of RCI to be available to provide financial advice to RCI on any possible
transaction with respect to the Corporation.
On November 9, 2004, the Independent Committee met and confirmed, following
discussions with BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇, that the appropriate valuation approach for
determining the fair market value of the RWCI Restricted Voting Shares for
purposes of a substantial issuer bid was the fair market value or "en bloc"
approach without minority
32
discount, as is required by Rule 61-501 and Policy Q-27. At this meeting, BMO
▇▇▇▇▇▇▇ ▇▇▇▇▇ updated the Independent Committee on discussions that it had held
with the Corporation's management and reviewed in detail its valuation work. BMO
▇▇▇▇▇▇▇ ▇▇▇▇▇ advised the Independent Committee that, subject to completion of
due diligence, its preliminary "en bloc" valuation range per share for the RWCI
Restricted Voting Shares was $46.00 to $54.00. As part of its presentation to
the Independent Committee, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ provided details regarding the
application of each valuation methodology, including key assumptions and
limitations. Following the meeting, the Chairman of the Independent Committee
communicated this preliminary "en bloc" valuation range to management of RCI.
On November 9, 2004, upon receipt of the preliminary valuation range,
management of RCI concluded that rather than a substantial issuer bid, it could
recommend to the RCI board of directors an insider bid by RCI as a first step to
potentially taking the Corporation private at a price that was in the best
interests of RCI's own shareholders and that could be fair from a financial
point of view to Minority Shareholders. As a result, at a meeting held on
November 10, 2004, representatives of Scotia Capital presented financial
information and advice to the finance committee of the board of directors of
RCI. Scotia Capital was not requested to, and did not provide any report or
opinion as to the value of the Corporation, RCI, the RWCI Restricted Voting
Shares or the RCI Non-Voting Shares. Scotia Capital was not requested to, and
did not, evaluate or render an opinion as to the fairness, from a financial
point of view, of the consideration proposed to be paid under the Offer to
Minority Shareholders. Following Scotia Capital's presentation, management of
RCI recommended to the finance committee of the board of directors of RCI that
RCI make the Offer.
Thereafter, RCI requested that the Independent Committee:
- confirm with BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ that the formal valuation being prepared
by it was relevant to an insider bid by RCI and not just a substantial
issuer bid by the Corporation;
- request that any necessary bid valuation work be completed by BMO
▇▇▇▇▇▇▇ ▇▇▇▇▇ with respect to the RCI Non-Voting Shares being offered as
consideration under the Offer, in part because the Shareholder
Protection Agreement required a formal valuation of that consideration;
- request that BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ do the necessary valuation work in order
to determine whether it would be able to deliver an opinion with respect
to the Offer Consideration that it was fair, from a financial point of
view, to Minority Shareholders; and
- confirm whether BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ would be able to render an opinion
that no formal valuation of the RCI Non-Voting Shares would be necessary
under Rule 61-501 and Policy Q-27.
Based on the recommendation of the finance committee and following
presentations from Scotia Capital and management of RCI, the board of directors
of RCI, at a meeting held on November 11, 2004, approved the making of the Offer
with no directors dissenting or abstaining. RCI recognized that while the BMO
▇▇▇▇▇▇▇ ▇▇▇▇▇' valuation range was preliminary and was prepared in connection
with the possibility of a substantial issuer bid by the Corporation, it was
desirable to immediately disclose to the market its change in investment
intention, and, accordingly, RCI publicly announced its intention to make the
Offer immediately following the November 11, 2004 board meeting.
On November 22, 2004, following a meeting of the Independent Committee and
the Board of Directors, the Corporation announced that the Independent Committee
had completed its review of the Offer and had received the Valuation and
Fairness Opinion. BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ determined, pursuant to the Valuation that,
subject to the assumptions and qualifications set forth in the Valuation, the
fair market value of the RWCI Restricted Voting Shares is in the range of $46 to
$54 per share. This valuation range is the same as the preliminary valuation
range publicly disclosed on November 11, 2004. The Fairness Opinion indicated
that, as of November 22, 2004, the Offer Consideration is fair, from a financial
point of view, to the Minority Shareholders. At an executive committee meeting
of the RCI board of directors held immediately following the meeting of the RWCI
Board of Directors, RCI approved the making of the Offer on the terms and
conditions set forth in the Offer to Purchase and Circular.
REASONS OF RCI FOR THE OFFER
The Offer represents an opportunity for Minority Shareholders to exchange
their RWCI Restricted Voting Shares at an exchange ratio which offers a
substantial premium to Minority Shareholders and on terms that the Independent
Committee has concluded is fair and reasonable to Minority Shareholders. The
consideration offered is slightly above the mid point of the fair market value
range for the RWCI Restricted Voting Shares determined pursuant to the Valuation
(based on the average trading prices on the TSX for the RCI Non-Voting Shares
for the five trading days ending November 10, 2004, which is the last trading
day prior to the date on which RCI announced its intention to
33
make the Offer). The consideration offered of 1.75 RCI Non-Voting Shares for
each RWCI Restricted Voting Share was equivalent to a price of approximately
$50.23 per RWCI Restricted Voting Share (based upon the closing price of the RCI
Non-Voting Shares on the TSX on November 10, 2004). The equivalent price of
$50.23 per share represented a premium of 13.8% to the volume weighted average
of the closing prices of RWCI Restricted Voting Shares on the TSX for the five
trading days ending November 10, 2004) and represents a 38% premium to the price
paid to AT&T Wireless on October 13, 2004 for its 34.2% equity interest in the
Corporation. Furthermore, this price represents a premium of 14.1%, 19.0% and
28.2% to the weighted average closing prices of the RWCI Restricted Voting
Shares on the TSX for the 20, 40 and 100 trading day periods, respectively,
immediately prior to the public announcement of the Offer. In addition, the RCI
Non-Voting Shares are significantly more liquid than the RWCI Restricted Voting
Shares and the nature of the share exchange offer permits a tax deferred
roll-over into RCI Non-Voting Shares for Canadian federal income tax purposes
for an Eligible Holder that makes the required designation in the Letter of
Acceptance and Transmittal.
The value range for the RWCI Restricted Voting Shares established in the
Valuation and Fairness Opinion represents fair market value for an "en bloc"
sale of 100% of the Corporation. For this purpose, an "en bloc" valuation means
a valuation prepared on the basis of the sale of the entire company.
Accordingly, in valuing the RWCI Restricted Voting Shares, the Valuation does
not include any downward adjustment to reflect the liquidity of the RWCI
Restricted Voting Shares, the effect of the Offer or the fact that the RWCI
Restricted Voting Shares do not form part of a controlling interest.
By receiving RCI Non-Voting Shares for RWCI Restricted Voting Shares
tendered to the Offer, Minority Shareholders will have the opportunity to
continue to participate, through RCI, in the wireless business of the
Corporation. In addition, by receiving RCI Non-Voting Shares, Minority
Shareholders will have the opportunity to participate in the opportunities
associated with other communications-related businesses within the Rogers group
of companies, which includes ▇▇▇▇▇▇ Media Inc. and Rogers Cable Inc. Many of the
Corporation's largest shareholders are also significant shareholders of RCI.
RCI is making the Offer at this time based on a number of factors, the most
important of which are the following:
- RCI believes that the simplification of the capital and corporate
structures and additional operational flexibility that will be available
if RCI ultimately acquires all of the RWCI Restricted Voting Shares will
benefit the entire Rogers group of companies, including by enhancing the
common branding and product bundling initiatives;
- the Offer provides Minority Shareholders with the opportunity to
continue to participate in the wireless business of the Corporation
through receiving shares of RCI, a public company with a more diverse
asset base and significantly larger capital base than the Corporation;
- the Offer Consideration is within the range of fair market values
determined pursuant to the Valuation, and the Board of Directors has
concluded that the Offer is fair and reasonable to Minority
Shareholders;
- BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ has concluded in the Fairness Opinion that the Offer
Consideration is fair, from a financial point of view, to Minority
Shareholders; and
- RCI believes that the price at which RCI acquired AT&T Wireless'
interest in the Corporation on October 13, 2004 provides Minority
Shareholders a relevant comparison to the terms of the Offer.
For the foregoing reasons, RCI's board of directors also believes that the
Offer is fair from a financial point of view to Minority Shareholders.
If the Offer is completed and RCI thereafter acquires all of the RWCI
Restricted Voting Shares held by Minority Shareholders, the Corporation expects
to continue to carry on its current business activities as a subsidiary of RCI.
As noted above, RCI believes that if the Corporation becomes a wholly-owned
subsidiary of RCI, RCI will have additional operational flexibility with regard
to how it manages its activities. The simplification of the corporate structure
that would result from the elimination of public equity investors in the
Corporation may also improve investor understanding of the RCI group of
companies.
If the Offer is completed and RCI subsequently acquires all of the RWCI
Restricted Voting Shares from Minority Shareholders, the Corporation intends to
apply to cease to be subject to applicable continuous disclosure obligations
under Canadian and United States securities laws. The Offer will not affect the
continuous disclosure obligations of the Corporation's wholly-owned subsidiary,
▇▇▇▇▇▇ Wireless Inc., or RCI.
34
The intention of RCI to retain its interest in the Corporation and not to
divest its majority interest in the Corporation has precluded the Corporation
from considering an alternative transaction to the Offer with an unaffiliated
third party purchaser, which could have resulted in a higher price for all
Shareholders.
The Offer Consideration to be received pursuant to the Offer was determined
by RCI. See "RECOMMENDATION OF THE BOARD OF DIRECTORS OF THE CORPORATION" in
this Circular. The consideration may be below the price that Minority
Shareholders would receive if the Corporation were sold to an unaffiliated third
party.
PROVISIONS FOR UNAFFILIATED SECURITY HOLDERS
The Offerors have not made any provision to grant unaffiliated shareholders
of the Offerors access to the corporate files of the Offerors, except as
required under applicable law, or to obtain counsel or appraisal services at
their expense.
STRUCTURE OF TRANSACTION
The proposed transaction has been structured as an offer because the Offer
will permit RCI to acquire any and all RWCI Restricted Voting Shares tendered to
the Offer regardless of the number of shares actually tendered.
If the Offerors acquire, pursuant to the Offer, at least 90% of the RWCI
Restricted Voting Shares owned by Minority Shareholders, the Offerors intend to
acquire the balance of the RWCI Restricted Voting Shares pursuant to a
Compulsory Acquisition pursuant to the statutory right contained in the CBCA.
If the Offerors do not acquire a sufficient number of RWCI Restricted
Voting Shares under the Offer in order to be entitled to effect a Compulsory
Acquisition, but RCI acquires at least 2,334,526 RWCI Restricted Voting Shares
(as at November 22, 2004), RCI and its affiliates will own at least 90% of the
RWCI Restricted Voting Shares if RCI converts at least 62,819,371 of its RWCI
Class A Shares into RWCI Restricted Voting Shares (assuming all exercisable RWCI
Options are exercised). Accordingly, if the Offerors acquire at least 2,334,526
RWCI Restricted Voting Shares under the Offer, RCI currently intends to convert
that number of RWCI Class A Shares and to initiate a Subsequent Acquisition
Transaction under which the Offerors would acquire all of the remaining RWCI
Restricted Voting Shares held by Minority Shareholders for the same
consideration as provided in the Offer. While it is RCI's current intention in
connection with a Subsequent Acquisition Transaction to convert approximately
62,819,371 RWCI Class A Shares into RWCI Restricted Voting Shares if RCI
acquires at least 2,334,526 RWCI Restricted Voting Shares under the Offer, RCI
reserves the absolute discretion to decide whether or not to do so. Rule 61-501,
Policy Q-27 and the Shareholder Protection Agreement provide in effect that, in
addition to any other required security holder approval, in order to complete a
Subsequent Acquisition Transaction, the approval of a simple majority of the
votes cast by Minority Shareholders of the RWCI Restricted Voting Shares must be
obtained. In certain circumstances, the Shareholder Protection Agreement
requires approval by 66 2/3 of the votes cast by Minority Shareholders. However,
if the Offerors and their affiliates are the owners of 90% or more of the RWCI
Restricted Voting Shares, the requirement under Rule 61-501, Policy Q-27 and the
Shareholder Protection Agreement for minority approval would not apply to the
transaction if a statutory dissent and appraisal remedy is available or a
substantially equivalent enforceable right is made available to the Minority
Shareholders. It is the Offerors' intention that such a dissent and appraisal
remedy would be available to Minority Shareholders in connection with a
Subsequent Acquisition Transaction.
PLANS FOR THE CORPORATION AFTER THE OFFER
RCI will increase its equity ownership of the Corporation as a result of
the Offer, and, depending on the number of RWCI Restricted Voting Shares
tendered to the Offer, RWCI may become a wholly-owned subsidiary of RCI pursuant
to a Compulsory Acquisition or a Subsequent Acquisition Transaction. RCI will
continue to operate as a holding company for its operating subsidiaries.
Except as otherwise described in this Circular, neither RCI nor the
Corporation has any current plans or proposals or is participating in any
negotiations, except in connection with the integration of Microcell with ▇▇▇▇▇▇
Wireless Inc., which relate to or would result in:
(a) any extraordinary transaction, such as a merger, reorganization or
liquidation involving the Corporation or any of its subsidiaries;
(b) any purchase, sale or transfer of shares or a material portion of the
assets of the Corporation or its subsidiaries;
35
(c) any change in the management of the Corporation or any change in any
material term of the employment contract of any executive officer; or
(d) any other material change in the corporate structure or business of
the Corporation.
Nevertheless, RCI or the Corporation may initiate, from time to time,
reviews of the Corporation's assets, corporate structure, capitalization,
operations, properties, management and personnel to determine what changes, if
any, would be desirable following the completion of the Offer. RCI and the
Corporation expressly reserve the right to make any changes that they deem
necessary or appropriate in light of their review or in light of future
developments.
IF THE CORPORATION DOES NOT BECOME A WHOLLY-OWNED SUBSIDIARY
If the Corporation does not become a wholly-owned subsidiary of RCI as a
result of the Offer and any Compulsory Acquisition or Subsequent Acquisition
Transaction, the Corporation will continue to operate its businesses as a
publicly traded subsidiary of RCI, provided there are sufficient remaining
shareholders and publicly held RWCI Restricted Voting Shares to enable such
shares to continue to be eligible to be traded on the TSX and NYSE. If the Offer
is not completed for any reason, any Letter of Acceptance and Transmittal
completed by a Shareholder will be of no effect and the Depositary will return
all share certificates deposited under the Offer to the holders thereof as soon
as practicable.
EXPENSES OF THE OFFER
RCI will fund the costs of the Offer including legal, accounting, filing
and printing costs, the cost of preparation and mailing of this Offer to
Purchase and Circular and BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇' fees in respect of preparing the
Valuation and Fairness Opinion, plus out-of-pocket expenses. Such costs are
expected to be approximately as set forth below. The Corporation will pay the
fees paid to the members of the Independent Committee, the fees of the
Independent Committee's legal counsel and the legal, accounting, filing and
printing costs related to the preparation of the Directors' Circular. Such costs
are expected to be approximately as set forth below:
PAID BY PAID BY
RCI THE CORPORATION
------------ ---------------
Filing Fees................................................. $ 153,000 $ --
Financial Advisors' Fees and Expenses....................... 2.4 million --
Legal Fees and Expenses..................................... 950,000 75,000
Accounting Fees and Expenses................................ 150,000 150,000
Depository and Solicitation Fees............................ 500,000 --
Printing and Mailing Costs.................................. 75,000 30,000
Miscellaneous............................................... 50,000 50,000
------------ --------
TOTAL.................................................. 4,278,000 305,000
============ ========
INDEPENDENT COMMITTEE OF THE CORPORATION
On September 27, 2004, at the request of RCI, the Board of Directors
established a committee of directors of the Corporation independent of RCI, its
associates and affiliates and management of the Corporation, to, among other
matters, retain a financial adviser to prepare a formal valuation of the RWCI
Restricted Voting Shares in accordance with Rule 61-501, Policy Q-27 and the
Shareholder Protection Agreement, in connection with a possible substantial
issuer. Such a bid was being considered as a mechanism to transfer funds to RCI
to repay the bridge loan incurred by RCI in acquiring the RWCI Restricted Voting
Shares of AT&T Wireless. Any such offer would have been made to all shareholders
of the Corporation. The Corporation was of the view that until it had an
indication of the likely range of fair market values for the RWCI Restricted
Voting Shares pursuant to a formal valuation, it could not assess or come to a
view whether it would be prepared to initiate a substantial issuer bid.
The Independent Committee is composed of ▇▇▇▇▇ ▇. ▇▇▇▇▇ (as Chairman),
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, the three directors of the
Corporation elected by Minority Shareholders, all of whom are independent of
RCI, its associates and affiliates, and of management of the Corporation. The
Independent Committee retained ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ as its legal adviser and BMO
▇▇▇▇▇▇▇ ▇▇▇▇▇ as its financial advisor. BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ was asked by the
Independent Committee to prepare a formal valuation of the RWCI Restricted
Voting Shares on the assumption that the Corporation would make a substantial
issuer bid for RWCI Restricted Voting Shares on terms as yet undetermined.
36
MANDATE
The Independent Committee's mandate was to: (a) retain independent legal
counsel to advise the Independent Committee; (b) retain a financial advisor
independent of RCI its associates and affiliates and management of the
Corporation, to prepare a formal valuation (in accordance with Rule 61-501,
Policy Q-27 and the Shareholder Protection Agreement) of the RWCI Restricted
Voting Shares and to supervise the preparation of that valuation; (c) carry out
any negotiations that may be necessary between the Corporation and RCI in
connection with a substantial issuer bid; and (e) take such other actions as the
Independent Committee considered necessary or desirable in order to carry out
its mandate. On November 10, 2004, RCI requested that the Independent Committee
(which request was subsequently ratified by the Board of Directors):
- confirm with BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ that the formal valuation being prepared
by it was relevant to an insider bid by RCI and not just a substantial
issuer bid by the Corporation;
- request that any necessary bid valuation work be completed by BMO
▇▇▇▇▇▇▇ ▇▇▇▇▇ with respect to the RCI Non-Voting Shares being offered as
consideration under the Offer, in part because the Shareholder
Protection Agreement required a formal valuation of that consideration;
- request that BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ do the necessary valuation work in order
to determine whether it would be able to deliver an opinion that the
Offer Consideration is fair, from a financial point of view, to Minority
Shareholders; and
- confirm whether BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ would be able to render an opinion
that no formal valuation of the RCI Non-Voting Shares would be necessary
under Rule 61-501 and Policy Q-27.
DELIBERATIONS AND RECOMMENDATION OF THE INDEPENDENT COMMITTEE
Between October 7, 2004 and November 22, 2004, the Independent Committee
met formally nine times.
On November 9, 2004, the Independent Committee confirmed, following
discussions with BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇, that the appropriate valuation approach for
determining the fair market value of the RWCI Restricted Voting Shares for the
purposes of a substantial issuer bid was the fair market value or "en bloc"
approach without minority discount, as is required by Rule 61-501 and Policy
Q-27. At this meeting, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ updated the Independent Committee on
discussions that it had held with the Corporation's management and reviewed in
detail its valuation work. BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ advised the Independent Committee
that, subject to completion of due diligence, its preliminary "en bloc"
valuation range per share for the RWCI Restricted Voting Shares was $46.00 to
$54.00. As part of its presentation to the Independent Committee, BMO ▇▇▇▇▇▇▇
▇▇▇▇▇ provided details regarding the application of each valuation methodology,
including key assumptions and limitations. After RCI decided to make the Offer,
subsequently BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ confirmed that the same "en bloc" valuation
approach would be applicable to determining the fair market value of the RWCI
Restricted Voting Shares in connection with the Offer.
On November 22, 2004, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ provided its final written
Valuation and its Fairness Opinion in which it concluded that the Offer
Consideration is fair, from a financial point of view, to Minority Shareholders.
In considering whether the Offer is in the best interests of the Minority
Shareholders, the Independent Committee considered relevant factors including
the following:
(a) the Valuation and Fairness Opinion;
(b) the fact that the consideration under the Offer had a value
(determined based on average closing prices for the RWCI Restricted
Voting Shares and the RCI Non-Voting Shares for the five day period
ending November 10, 2004, which is the last trading day prior to the
date on which RCI announced its intention to make the Offer) slightly
above the mid-point of the BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ valuation range for the
RWCI Restricted Voting Shares;
(c) the liquidity of the market for the RWCI Restricted Voting Shares and
the relatively greater liquidity of the RCI Non-Voting Shares;
(d) the opportunity for Minority Shareholders to continue to participate
in the wireless business of the Corporation through receiving shares
of RCI, a public company with a more diverse asset base and
significantly larger capital base than the Corporation;
37
(e) the fact that RCI controls the Corporation, with the result that
there is no prospect of an offer for the RWCI Restricted Voting
Shares from a third party;
(f) based on the average closing prices on the TSX for the RWCI
Restricted Voting Shares for the five day period ending November 10,
2004, the Offer represents a premium of 14.1%, 19.0% and 28.2% to the
weighted average closing prices of the RWCI Restricted Voting Shares
for the 20, 40 and 100 trading day periods ending on that date, and a
38% premium to the price paid to AT&T Wireless for their shares of
the Corporation;
(g) the consideration under the Offer can be received on a tax deferred
"rollover" basis for Canadian federal income tax purposes for an
Eligible Holder that makes the required designation in the Letter of
Acceptance and Transmittal;
(h) the simplified corporate structure that will result if the
Corporation is taken private will enhance the common branding and
product bundling initiatives in the Rogers group of companies;
(i) the recent $2,800 million high yield debt offering by Rogers Wireless
and the additional leverage to which the Corporation will be exposed;
and
(j) the expected distribution of $1,750 million from ▇▇▇▇▇▇ Wireless Inc.
as a return of capital to the Corporation (following the closing of
the $2,800 million high yield debt offering) and the Corporation's
review of the various methods of transferring such distribution to
its Shareholders so RCI will have adequate funds to repay its $1,750
million bridge facility incurred in connection with RCI's acquisition
of RWCI shares from AT&T Wireless.
In reaching its determination, the Independent Committee also considered
and evaluated, among other things: (a) information concerning the business,
operations, property, assets, financial condition, operating results and
prospects of the Corporation and RCI; (b) current industry, economic and market
conditions and trends and its informed expectations as to the prospects for the
wireless voice communications industry; and (c) historical market prices and
trading information with respect to the RWCI Restricted Voting Shares and the
RCI Non-Voting Shares.
After considering all of these factors, the Independent Committee concluded
that the price and terms of the Offer are fair and reasonable to Minority
Shareholders and recommended that the Board of Directors recommend that Minority
Shareholders accept the Offer. On November 22, 2004, the Independent Committee
reported its conclusions and recommendations and presented the Valuation and
Fairness Opinion to the Board of Directors.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF THE CORPORATION
After due consideration of the report and recommendation of the Independent
Committee and the Valuation and Fairness Opinion, the Board of Directors
determined that the Offer is fair and reasonable to Minority Shareholders and
resolved to recommend that holders of RWCI Restricted Voting Shares tender such
shares to the Offer. The resolution to recommend acceptance of the Offer was
passed unanimously with all directors or officers of the Offerors or their
associates abstaining from voting.
REASONS FOR RECOMMENDATION
In reaching its decision to recommend acceptance of the Offer, the Board of
Directors considered a number of factors, including the following:
(a) the report of the Independent Committee which advised the Board of
Directors that the Independent Committee was of the opinion that the
Offer is fair and reasonable to Minority Shareholders and recommended
that the Board of Directors recommend that Minority Shareholders
accept the Offer;
(b) the Valuation and Fairness Opinion; and
(c) the factors considered by the Independent Committee as described
above.
The foregoing discussion of the information and factors considered by the
Independent Committee and the Board of Directors is not intended to be
exhaustive but is believed to include all material factors considered by the
Independent Committee and the Board of Directors. In reaching the determination
to recommend acceptance of the Offer, the Independent Committee and the Board of
Directors did not assign any relative or specific weights to the foregoing
factors that were considered, and individual directors may have given different
weights to different factors.
38
Notwithstanding the Board of Directors' recommendation, Shareholders are
urged to evaluate carefully all information in the Offer to Purchase and
Circular, consult their own investment and tax advisors and make their own
decisions whether to deposit RWCI Restricted Voting Shares under the Offer.
VALUATION
Under the provisions of the securities laws of Ontario and Quebec, and the
Shareholder Protection Agreement, respecting insider bids, RCI is required,
unless otherwise exempted, to have a formal valuation of the RWCI Restricted
Voting Shares and the RCI Non-Voting Shares offered as consideration for such
shares prepared by a qualified and independent valuator based on techniques that
are appropriate in the circumstances, after considering all relevant
assumptions, that determines the value or range of values for the RWCI
Restricted Voting Shares and the RCI Non-Voting Shares.
Accordingly, pursuant to the Engagement Letter between the Corporation and
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ was engaged to provide financial advice to
the Independent Committee and to prepare the Valuation and Fairness Opinion
under the supervision of the Independent Committee, to consider whether a formal
valuation of the RCI Non-Voting Shares was required under Rule 61-501 and Policy
Q-27 and to prepare a formal valuation of such shares in accordance with the
Shareholder Protection Agreement, and to consider whether the Offer
Consideration is fair, from a financial point of view, to Minority Shareholders.
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ ENGAGEMENT
As noted above, the Independent Committee retained BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ to
provide advice and assistance to the Independent Committee and to prepare and
deliver to the Independent Committee the Valuation and Fairness Opinion. BMO
▇▇▇▇▇▇▇ ▇▇▇▇▇ was formally engaged by the Independent Committee under the
Engagement Letter. The terms of the Engagement Letter provide that BMO ▇▇▇▇▇▇▇
▇▇▇▇▇ is to be paid (i) $700,000 when it communicates the valuation range and
its commitment to deliver the Valuation to the Independent Committee, and (ii)
an additional $600,000 for its advisory services related to the Offer and
delivery of the Fairness Opinion plus, in any event, its out of pocket expenses.
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ is one of Canada's largest investment banking firms, with
operations in all facets of corporate and government finance, corporate banking,
mergers and acquisitions, equity and fixed income sales and trading and
investment research. The Valuation and Fairness Opinion represent the opinions
of BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ and the form and content thereof have been approved for
release by a committee of its directors, each of whom is experienced in merger,
acquisition, divestiture and valuation matters.
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ has been determined by the Independent Committee to be
qualified and independent for purposes of preparing the Valuation and Fairness
Opinion. See the Valuation and Fairness Opinion attached hereto as Schedule "D".
SUMMARY
The following constitutes a summary only of the Valuation and Fairness
Opinion. The Valuation and the Fairness Opinion have been prepared and provided
solely for the use of the Independent Committee and the Board of Directors and
for inclusion in this Circular and the Directors' Circular, and may not be used
or relied upon by any other person without the express prior written consent of
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇. BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ believes that its analyses must be
considered as a whole. Selecting portions of its analyses or the factors
considered by BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇, without considering all factors and analyses
together, could create a misleading view of the process underlying the Valuation
and the Fairness Opinion. The preparation of a valuation is a complex process
and is not necessarily susceptible to partial analysis or summary description.
Any attempt to do so could lead to undue emphasis on any particular factor or
analysis. The following summary is qualified in its entirety by the full text of
the Valuation and Fairness Opinion which is appended hereto as Schedule "D".
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ was retained by the Independent Committee to prepare and
deliver a formal valuation of the RWCI Restricted Voting Shares in accordance
with the requirements of Rule 61-501, Policy Q-27 (collectively, the "Rules"),
and the Shareholder Protection Agreement, to prepare a valuation of the RCI
Non-Voting Shares in accordance with the Shareholder Protection Agreement and to
provide its opinion as to the fairness, from a financial point of view, of the
consideration offered under the Offer to Minority Shareholders.
39
On November 9, 2004, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ delivered to the Independent
Committee a preliminary "en bloc" value range of $46.00 to $54.00 per share for
the RWCI Restricted Voting Shares. On November 22, 2004, having completed its
updating diligence and internal review and approval processes, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇
met with the Independent Committee and reconfirmed, and delivered its final
Valuation and Fairness Opinion setting forth, its formal valuation range of
$46.00 to $54.00 per share for the RWCI Restricted Voting Shares and opined that
the consideration offered under the Offer is fair, from a financial point of
view, to the Minority Shareholders.
In the preparation of its formal valuation, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ performed due
diligence on the Corporation and RCI, conducted discussions with senior
financial management of the Corporation, and relied upon information and
forecasts supplied by the Corporation as well as publicly available financial
information, all as detailed in the Valuation.
The fair market value of the RWCI Restricted Voting Shares was analyzed on
a going concern basis, which included the acquisition of Microcell, and on an
"en bloc" basis in accordance with the Rules.
For the purposes of determining the value of the RWCI Restricted Voting
Shares, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ relied on three methodologies:
- the discounted cash flow ("DCF") approach;
- the comparable trading approach; and
- the precedent transaction approach.
The following is a summary of the range of fair market values of the RWCI
Restricted Voting Shares resulting from the DCF approach, the comparable trading
approach, and the precedent transaction approach:
EQUITY VALUE PER
RWCI SHARE
----------------
LOW HIGH
------ ------
Discounted cash flow approach............................... $47.18 $56.46
Comparable trading approach (2005E & 2006E average)......... $41.63 $52.58
Precedent transaction approach.............................. $39.08 $48.90
In arriving at its opinion as to the fair market value of the RWCI
Restricted Voting Shares, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇, for the reasons set forth in the
Valuation and Fairness Opinion, attributed the greatest weight to the DCF
approach and the least weight to the precedent transaction approach. BMO ▇▇▇▇▇▇▇
▇▇▇▇▇ concluded that no material additional synergy value should be assigned to
the RWCI Restricted Voting Shares.
In considering the value of the RCI Non-Voting Shares being offered as
consideration under the Offer for the purposes of the Fairness Opinion and the
Valuation of the RCI Non-Voting Shares in accordance with the Shareholders'
Protection Agreement, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ relied upon the market trading approach.
The market trading approach was deemed by BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ to be an appropriate
basis for valuing the consideration offered to Minority Shareholders under the
Offer after considering several factors, all as detailed in the Valuation. BMO
▇▇▇▇▇▇▇ ▇▇▇▇▇ considered the following range of recent trading levels for the
RCI Non-Voting Shares:
RCI NON-VOTING SHARES IMPLIED
TRADE WEIGHTED VALUE OF
PERIOD ENDING NOVEMBER 19, 2004 SHARE PRICE (1) CONSIDERATION (2)
------------------------------- --------------------- -----------------
1 Day................................................. $29.11 $50.94
10 Days............................................... $29.01 $50.76
20 Days............................................... $28.68 $50.19
30 Days............................................... $28.33 $49.58
---------------
(1) Highest price traded in last 10 trading days was $30.37.
(2) Based on 1.75 RCI Non-Voting Shares per RWCI Restricted Voting Share.
Based on its market trading analysis, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ determined a value
range for the RCI Non-Voting Shares of $28.00 to $30.00 per share.
40
Minority Shareholders accepting the Offer will receive 1.75 RCI Non-Voting
shares for each RWCI Restricted Voting Share, representing $49.00 to $52.50
based on the foregoing valuation range for the RCI Non-Voting Shares, which is
within the value range in the Valuation.
Based upon and subject to the matters described in the Fairness Opinion,
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ concluded that, as of November 22, 2004, the consideration
offered under the Offer is fair, from a financial point of view, to the Minority
Shareholders.
SCOTIA CAPITAL PRESENTATION
In the course of providing advice to RCI, Scotia Capital provided to the
board of directors of RCI on November 11, 2004 a presentation of financial
information and analysis. Scotia Capital did not have the opportunity to conduct
due diligence in respect of the Corporation or have discussions with RWCI
management. Scotia Capital has, on occasion, acted as financial advisor to RCI
with respect to strategic initiatives and acts as a member of RCI's banking
group. Scotia Capital also has participated in some of RCI's equity financings.
In preparing its analysis, Scotia Capital reviewed and relied upon (without
independently verifying the completeness or the accuracy thereof), among other
things, publicly available information regarding RCI, the Corporation and
Microcell and such other corporate, industry and financial market information,
investigations and analyses as Scotia Capital considered necessary or
appropriate in the circumstances. The analysis presented by Scotia Capital was
indicative in nature and was prepared solely to provide RCI with a preliminary
illustration of the pricing of RWCI Restricted Voting Shares to assist RCI in
formulating its offer. Such analysis was not intended as an opinion, report or
valuation of the RWCI Restricted Voting Shares. The summary set forth below does
not purport to be a complete description of the analysis presented to management
and the board of directors of RCI. The description of the analysis set forth
below is qualified in its entirety by reference to the text of such analysis.
SHAREHOLDER BASE
Scotia Capital provided to the board of directors of RCI an analysis of the
RWCI shareholder base. The analysis was based on publicly available information.
Due to the time lag between trading activity and public filing, the analysis did
not offer a definitive current view of RWCI's shareholder base. Scotia Capital
estimated that the top 20 institutional shareholders in RWCI owned approximately
20% of the RWCI Restricted Voting Shares not held by RCI and RCI Subco. Scotia
Capital performed a cross-shareholder analysis of the top 20 institutional
shareholders in RWCI and their respective holdings in RCI Non-Voting Shares and
determined that 15 of the top 20 RWCI institutional shareholders were holders of
RCI Non-Voting Shares. Scotia Capital described the share price performance and
trading patterns for both the RWCI Restricted Voting Shares and the RCI
Non-Voting Shares since January 2001, including reviewing the two year
historical exchange ratio of RCI and RWCI relative to the 20-day moving average,
the implied exchange ratio paid for the AT&T Wireless stake and the exchange
ratio offered by RCI in its unsuccessful attempt to acquire the outstanding RWCI
Restricted Voting Shares not held by RCI and RCI Subco in 2001.
Scotia Capital also estimated that a number of RWCI Restricted Voting
Shares, equivalent to approximately 90% of the RWCI Restricted Voting Shares not
held by RCI and RCI Subco, had traded on the TSX since November 2003 at a price
less than $40.00 per share.
PRELIMINARY FINANCIAL ANALYSIS
Scotia Capital reviewed the preliminary BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ valuation range
in the context of the Corporation's 52-week trading range on the TSX, consensus
research estimates and selected precedent transactions. Scotia Capital reviewed
the trading of the RWCI Restricted Voting Shares on the TSX over the last 52
weeks and noted that it was in the range of $25.75 to $46.71 per RWCI Restricted
Voting Share. Scotia Capital also informed the board of directors of RCI that,
at the time of its analysis, equity research analysts had established price
targets for RWCI Restricted Voting Share ranging from $47.00 to $65.00. In its
review of selected precedent transactions, Scotia Capital applied an
illustrative EBITDA multiple range of 8.0x to 10.0x to RWCI yielding an
illustrative pricing range of approximately $48.53 to $66.89 per RWCI Restricted
Voting Share. EBITDA was defined as the earnings before interest, taxes,
depreciation and amortization. Enterprise value was defined as the equity market
value of the subject company plus its net indebtedness, the value of its
preferred stock and the value of any minority interest in the applicable
company.
In preparing its selected precedent transactions analysis, Scotia Capital
reviewed publicly available information with respect to recent transactions in
the wireless telecommunications industry in North America. For the purposes of
41
its analysis, Scotia Capital considered transactions where the target company
had significant cellular operations to be the most relevant and comparable. Such
transactions include those referred to in the table below.
ENTERPRISE VALUE
----------------
ANNOUNCE DATE ACQUIROR TARGET REVENUE EBITDA
------------- -------- ------ ------- ------
(Last 12 Months)
CANADIAN TRANSACTIONS
20-Sep-04............ ▇▇▇▇▇▇ Wireless Communications Inc. Microcell Telecommunications Inc. 2.4x 19.0x
13-Sep-04............ ▇▇▇▇▇▇ Communications Inc. ▇▇▇▇▇▇ Wireless Communications Inc. 2.2x 7.3x
21-Aug-00............ Telus Corp. Clearnet Communications Inc. 14.4x n.m.
30-Jul-99............ BCE Inc. BCE Mobile Communications 3.9x 16.0x
U.S. TRANSACTIONS
17-Feb-04............ Cingular Wireless AT&T Wireless 3.0x 10.5x
15-Nov-00............ Verizon Wireless Price Communications Wireless 7.4x 13.7x
27-Aug-00............ Deutsche Telekom Powertel Inc. 18.7x n.m.
24-Jul-00............ Deutsche Telekom VoiceStream Wireless Corporation 12.7x n.m.
In addition, Scotia Capital compared, using publicly available information,
selected financial information of the Corporation with similar information for
selected publicly traded wireless telecommunications companies located in Canada
and the United States.
Scotia Capital also provided the board of directors of RCI with its views
as to offer strategy and timing, as well as to the potential reaction to the
Offer by holders of RCI Non-Voting Shares and RWCI Restricted Voting Shares.
AVAILABILITY OF VALUATION AND PRESENTATION
A copy of the Valuation and Fairness Opinion is attached hereto as Schedule
"D". Copies of both the Valuation and Fairness Opinion and the Scotia Capital
presentation will be made available for inspection and copying by a Shareholder
or their representative designated in writing at the principal offices of RCI
during regular business hours.
PRIOR VALUATIONS
RCI, after making reasonable enquiries of its directors and senior
officers, is unaware of any prior valuations, as defined in the Rules, of (i)
the RWCI Restricted Voting Shares, the Corporation or its material assets or
(ii) the RCI Non-Voting Shares, RCI or its material assets, that have been made
within 24 months preceding the date of the Offer. For this purpose, a prior
valuation means a valuation or appraisal that, if disclosed, would reasonably be
expected to affect the decision of a Shareholder to retain or dispose of RWCI
Restricted Voting Shares.
VALUATION OF RCI NON-VOTING SHARES
RCI is required in connection with the Offer to include in this Circular a
formal valuation of the RWCI Restricted Voting Shares prepared by an independent
valuator under the supervision of a committee of independent directors of the
Corporation. That is a requirement of the Rules and the Shareholder Protection
Agreement. The inclusion of the Valuation in this Circular satisfies those
requirements. In addition, under the Rules, RCI is required, unless an exemption
is available, to include in this Circular a formal valuation of the RCI
Non-Voting Shares being issued as consideration under the Offer. In connection
with the Offer, RCI is relying upon an exemption from that requirement contained
in Rule 61-501 that is available because (i) there is a liquid market (as
defined in Rule 61-501) in the RCI Non-Voting Shares, (ii) the RCI Non-Voting
Shares being issued as consideration under the Offer constitute less than 25% of
the number of RCI Non-Voting Shares outstanding immediately before the Offer,
(iii) the RCI Non-Voting Shares being issued as consideration under the Offer
will be freely tradeable upon the completion of the Offer, (iv) as expressed,
and for the reasons stated in its Valuation, BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ is of the opinion
that a formal valuation of the RCI Non-Voting Shares is not required, and (v)
RCI has indicated that it has no knowledge of any material information
concerning RCI or its securities that has not been generally disclosed. Policy
Q-27 provides an exemption from the obligation to prepare a formal valuation of
the RCI Non-Voting Shares on the same basis as is contained in Rule 61-501 (and
described above) except that Policy Q-27 limits the number of RCI Non-Voting
Shares which may be issued under that exemption to not more than 10% of the
number of RCI Non-Voting Shares outstanding immediately before the distribution
of RCI Non-Voting Shares under the Offer. RCI has applied for and obtained an
exemption from the obligation to prepare a formal valuation of the RCI
Non-Voting Shares under Policy Q-27 on the basis that the Offerors otherwise
comply with the Policy Q-27 exemption described above provided that the number
of RCI Non-Voting Shares to be distributed under the Offer is less than 25% of
the number of RCI Non-Voting Shares outstanding
42
immediately before the Offer. The number of RCI Non-Voting Shares to be issued
in connection with the Offer is approximately 15.48% of the number of RCI
Non-Voting Shares outstanding immediately prior to the Offer.
RCI is required under the Shareholder Protection Agreement to have a formal
valuation of the RCI Non-Voting Shares being issued as consideration under the
Offer prepared by an independent valuator under the supervision of a committee
of independent directors of the Corporation. The valuation of the RCI Non-Voting
Shares contained in the Valuation satisfies that requirement.
CERTAIN TRANSACTIONS AND RELATIONSHIPS BETWEEN RCI AND THE CORPORATION
The Corporation and ▇▇▇▇▇▇ Wireless Inc. have entered into a number of
intercompany agreements with RCI and its other subsidiaries. These agreements
govern the management, commercial and cost-sharing arrangements that the
Corporation has with RCI and its other subsidiaries, including Rogers Cable Inc.
The Corporation has also entered into a number of agreements with AT&T Wireless,
which until October 13, 2004, held a 34.2% equity interest in the Corporation,
and other companies previously affiliated with AT&T Wireless. The AT&T Wireless
agreements principally relate to commercial matters. The RCI agreements and
arrangements are summarized below. Copies of agreements relating to certain of
the agreements described below, which RCI and the Corporation have determined
may be material, are included as Exhibits to the Offerors' tender offer
materials on Schedule TO.
The Corporation monitors its intercompany and related party agreements to
ensure the agreements remain beneficial to it. The Corporation is continually
evaluating the expansion of existing arrangements and the entry into new
agreements. The Corporation's agreements with the Rogers group of companies have
historically focused on areas of operations in which joint or combined services
provide efficiencies of scale or other synergies. For example, beginning in late
2001, RCI began managing the customer call center operations of both the
Corporation and ▇▇▇▇▇▇ Cable Inc., with a goal of improving productivity,
increasing service levels and reducing cost.
More recently, the Corporation's arrangements with RCI and its other
subsidiaries are increasingly focusing on sales and marketing activities. In
February 2004, the Board of Directors approved two additional arrangements
between ▇▇▇▇▇▇ Cable Inc. and the Corporation:
- DISTRIBUTION. The Corporation will provide management services to
▇▇▇▇▇▇ Cable Inc. in connection with the distribution of ▇▇▇▇▇▇ Cable
Inc.'s products and services through retail outlets and dealer channels
and will also manage ▇▇▇▇▇▇ Cable Inc.'s e-commerce relationships. The
Corporation also may manage other distribution relationships for ▇▇▇▇▇▇
Cable Inc. if mutually agreed by Rogers Cable Inc. and the Corporation.
- ROGERS BUSINESS SERVICES. The Corporation will establish a division,
Rogers Business Solutions, that will provide a single point of contact
to offer the full range of the Corporation's products and services and
Rogers Cable Inc.'s products and services to small and medium businesses
and, in the case of telecommunication virtual private network services,
to corporate business accounts and employees.
The definitive terms and conditions of the agreements between Rogers Cable
Inc. and the Corporation relating to these arrangements will be subject to the
approval of the audit committee of the Board of Directors.
In addition, the Corporation continues to look for other operations and
activities that the Corporation can share or jointly operate with other
companies within the Rogers group of companies. Specifically, the Corporation is
considering the expansion of intercompany arrangements relating to sales and
marketing activities as well as other arrangements that may result in greater
integration with other companies within the Rogers group of companies. The
Corporation is also presently considering with RCI the terms upon which the
Corporation and ▇▇▇▇▇▇ Cable Inc. may further outsource information technology
operations to RCI. The Corporation is also considering the terms upon which it
may provide billing and other services to ▇▇▇▇▇▇ Cable Inc. in connection with
its launch of local telephony services. The Corporation is presently carrying
out development work to support the launch of local telephony services by ▇▇▇▇▇▇
Cable Inc. The Corporation is reimbursed for this work by ▇▇▇▇▇▇ Cable Inc. The
Corporation also provides billing services to ▇▇▇▇▇▇ Cable Inc. in connection
with the resale of long distance telephone service as part of ▇▇▇▇▇▇ Cable
Inc.'s bundles. In the future, market conditions may require the Corporation to
further strengthen its arrangements to better coordinate and integrate its sales
and marketing and operational activities with its affiliated companies. Any new
arrangements, including the new proposed arrangements described above, will be
entered into only if the Corporation believes such arrangements are in its best
interests.
43
RCI ARRANGEMENTS
MANAGEMENT SERVICES AGREEMENT. The Corporation has entered into a
management services agreement with RCI under which RCI provides executive,
administrative, financial, strategic planning, information technology and
various additional services to the Corporation. Those services relate to, among
other things, assistance with tax advice, Canadian regulatory matters, financial
advice (including the preparation of business plans and financial projections
and the evaluation of PP&E expenditure proposals), treasury services, service to
the Board of Directors and committees of such Board of Directors, and advice and
assistance on relationships with employee groups, internal audits, investor
relations, purchasing and legal services. In return for these services, the
Corporation has agreed to pay RCI fees equal to the greater of $8.0 million per
year (adjusted for changes in the Canadian Consumer Price Index from January 1,
1991) and an amount determined by both RCI and the independent directors serving
on the Corporation's Audit Committee. The Corporation also has agreed to
reimburse RCI for all out-of-pocket expenses incurred with respect to services
provided to it by RCI under the management services agreement.
CALL CENTERS. The Corporation is party to an agreement with RCI pursuant
to which RCI provides customer service functions through its call centers. The
Corporation pays RCI commissions for new subscriptions, products and service
options purchased by subscribers through the call centers. The Corporation
reimburses RCI for the cost of providing these services based on the actual
costs incurred. The Corporation is not obligated to pay additional amounts and
may receive a refund if costs, based on actual call volume multiplied by an
agreed upon cost per call rate, are higher than actual costs. In addition, the
Corporation owns the assets used in the provision of services. This agreement is
for an indefinite term and is terminable by either party upon 90 days' notice.
INVOICING OF COMMON CUSTOMERS. Pursuant to an agreement with ▇▇▇▇▇▇ Cable
Inc., the Corporation purchases the accounts receivable of ▇▇▇▇▇▇ Cable Inc. for
common subscribers who elect to receive a consolidated invoice. The Corporation
is compensated for costs of bad debts, billing costs and services and other
determinable costs by purchasing these receivables at a discount. The discount
is based on actual costs incurred for the services provided and is reviewed
periodically. This agreement is for a term of one year.
ACCOUNTS RECEIVABLE. RCI manages the Corporation's subscriber account
collection activities. The Corporation is responsible, however, for the costs
incurred in the collection and handling of its accounts.
REAL ESTATE. The Corporation leases, at market rates, office space to RCI
and RCI's subsidiaries. RCI also manages the real estate that the Corporation
leases or owns. The Corporation reimburses RCI for the costs it incurred based
on various factors, including the number of sites managed and employees
utilized.
WIRELESS SERVICES. The Corporation provides wireless services to RCI and
its subsidiaries. The fees the Corporation receives are based on actual usage at
market rates.
DISTRIBUTION OF COMPANY'S PRODUCTS AND SERVICES. The Corporation and
▇▇▇▇▇▇ Cable Inc. have entered into an agreement for the sale of its products
and services through the ▇▇▇▇▇▇ Video retail outlets owned by ▇▇▇▇▇▇ Cable Inc.
The Corporation pays ▇▇▇▇▇▇ Cable Inc. commissions for new subscriptions
equivalent to amounts paid to third-party distributors.
DISTRIBUTION OF ▇▇▇▇▇▇ CABLE INC.'S PRODUCTS AND SERVICES. The Corporation
has agreed to provide retail field support to ▇▇▇▇▇▇ Cable Inc. and to represent
▇▇▇▇▇▇ Cable Inc. in the promotion and sales of their business products and
services. Under the retail field support agreement, its retail sales
representatives receive sales commissions for achieving sales targets with
respect to ▇▇▇▇▇▇ Cable Inc. products and services, the cost of which to it is
reimbursed by ▇▇▇▇▇▇ Cable Inc.
TRANSMISSION FACILITIES. The Corporation has entered into agreements with
▇▇▇▇▇▇ Cable Inc. to share the construction and operating costs of certain
co-located fiber-optic transmission and microwave facilities. The costs of these
facilities are allocated based on usage or ownership as applicable. Since there
are significant fixed costs associated with these transmission links, the
Corporation has achieved economies of scale by sharing these facilities with
▇▇▇▇▇▇ Cable Inc., resulting in reduced capital costs. In addition, the
Corporation receives payments from ▇▇▇▇▇▇ Cable Inc. for the use of its data,
circuits, data transmission and links. The price of these services is based on
usage.
ADVERTISING. The Corporation advertises its products and services through
radio stations and other media outlets owned by ▇▇▇▇▇▇ Media Inc. The
Corporation receives a discount from the customary rates of ▇▇▇▇▇▇ Media Inc.
OTHER COST SHARING AND SERVICES AGREEMENTS. The Corporation has entered
into other cost sharing and services agreements with RCI and its subsidiaries in
the areas of accounting, purchasing, human resources, accounts payable
44
processing, remittance processing, payroll processing, e-commerce, the RCI data
center and other common services and activities. Generally, these services are
provided to it and other RCI subsidiaries by RCI and have renewable terms of one
year and may be terminated by either party on 30 to 90 days notice. To the
extent that RCI incurs expenses and makes PP&E expenditures, these costs are
typically reimbursed by the Corporation, on a cost recovery basis, in accordance
with the services provided on its behalf by RCI.
CORPORATE OPPORTUNITY. The Corporation has agreed with RCI under a
business areas and transfer agreement that RCI will, subject to any required
regulatory, lender or other approvals, continue to conduct all of its wireless
telephone operations and related mobile communications businesses through the
Corporation. In July 1999, the business areas and transfer agreement was amended
to permit RCI and its subsidiaries, other than the Corporation, to resell the
wireless communications services and products that the Corporation may agree to
supply to RCI and its subsidiaries.
RCI has also agreed with the Corporation that if RCI acquires, through one
or more transactions, a controlling interest in assets or operations that are
within the Corporation's permitted businesses, as described below, RCI will,
subject to any required regulatory, lender or other approvals, promptly offer to
transfer RCI's interest in those assets and operations to the Corporation for a
purchase price equal to RCI's cost, if readily determinable, or otherwise RCI's
determination of fair value of the assets, plus, in either case, costs and
expenses incurred by RCI in transferring the assets and operations to the
Corporation. If RCI's determination of fair value with respect to any such offer
is in excess of $10.0 million and if the Corporation's independent directors
disagree with such determination, then the fair value shall be determined by an
independent appraiser chosen by the independent directors of the Corporation.
In order to reduce difficulties that may arise in allocating business
opportunities, the Corporation's Articles of Incorporation, as amended, provide
that, unless the holders of a majority of the RWCI Class A Shares otherwise
consent, it is prohibited from engaging, directly or indirectly through its
subsidiaries, in businesses other than (i) the business that it engaged in on
June 17, 1991 and (ii) mobile communications services. At present, RCI holds the
majority of the RWCI Class A Shares. Mobile communications services are defined
as communications services where either the terminal from which the
communications originated or on which the communications are alternately
received or both, are mobile radio communications devices (including, in each
case, mobile communications devices that are being used in a fixed mode). These
include, but are not limited to, wireless telephone equipment sales and related
services, paging and mobile voice/data equipment sales and related services,
local area personal communications networks and all activities reasonably
necessary or incidental thereto.
In August 1999, as part of the JVII Shareholders Agreement, RCI irrevocably
consented to the Corporation and its subsidiaries carrying on wireline
telecommunications businesses outside of the cable territories operated by
affiliates of RCI, subject to the Corporation complying with its contractual and
other legal obligations to JVII. The foregoing limitations automatically
terminate and the Corporation may thereafter engage in any lawful business at
such time as RCI no longer holds, directly or indirectly, capital stock of the
Corporation representing 20% or more of the combined voting power of all of its
outstanding capital stock.
The Corporation's Articles of Incorporation provide that neither it nor any
shareholder of the Corporation will have a claim against RCI or any director or
officer thereof, or of an affiliate, for a breach of a fiduciary duty on account
of a diversion of a corporate opportunity unless:
- the opportunity related solely to a business in which the Corporation is
authorized to engage, and
- the Corporation's directors who are not affiliated with RCI have not
disclaimed the opportunity by majority vote thereof.
For purposes of the Corporation's Articles of Incorporation, "solely"
means, with respect to any entity, that 80% or more of its revenues or assets is
derived from or dedicated to businesses in which the Corporation is permitted to
engage. Notwithstanding such limitations on liability in the Corporation's
Articles of Incorporation, the Corporation's directors and officers are subject
to a statutory duty of good faith under the CBCA and this duty is not waived by
the provisions of the Corporation's Articles of Incorporation.
45
SHAREHOLDER PROTECTION AGREEMENT. The Corporation has entered into a
shareholder protection agreement with RCI that extends certain protections to
holders of RWCI Restricted Voting Shares. The Corporation has agreed with RCI
that:
- in respect of a "going-private transaction" involving the Corporation
proposed by RCI or insiders, associates or affiliates thereof:
- a formal valuation of the RWCI Restricted Voting Shares will be
prepared by an independent valuer,
- the consideration offered per share will not be less than the value or
will be within or exceed the range of values per share arrived at in
the formal valuation, and
- such transaction will be subject to approval by a majority of the
votes cast by Minority Shareholders, and
- in respect of an issuer bid or insider bid made by RCI or any of its
subsidiaries relating to the Corporation:
- a formal valuation will be prepared by an independent valuer, and
- the consideration offered per share to holders of the RWCI Restricted
Voting Shares will not be less than 66 2/3% of the value (or of the
midpoint of the range of values) arrived at in the formal valuation.
The Corporation and RCI have also agreed under the terms of the Shareholder
Protection Agreement that a committee of independent directors of the
Corporation will be responsible for the selection of the independent valuer and
will review and report to the Board of Directors on any transaction. The Board
of Directors will be required to disclose its reasonable belief as to the
desirability or fairness of the transaction to holders of the RWCI Restricted
Voting Shares.
The Shareholder Protection Agreement provides certain instances in which a
transaction is not subject to the valuation and minority approval requirements,
including if the price to be offered to all shareholders is arrived at through
arm's length negotiations with a selling holder of a sizeable block of the RWCI
Restricted Voting Shares, provided such holder had full knowledge and access to
information concerning the Corporation. Further, a going-private transaction
will not be subject to Minority Shareholder approval where 90% or more of the
outstanding RWCI Restricted Voting Shares are held by RCI or its affiliates. RCI
has agreed that, so long as RCI owns or controls shares representing 50% or more
of the voting interest of the shares of the Corporation, RCI will not vote any
of the RWCI Restricted Voting Shares which it may own or control with respect to
the election of the three directors to be elected by the holders of the RWCI
Restricted Voting Shares as a class.
The provisions of the Shareholder Protection Agreement may not be waived or
amended by the Corporation or RCI without the approval of the Minority
Shareholders. The rights and obligations under the Shareholder Protection
Agreement are in addition to any applicable requirements of law and regulatory
authorities.
RCI is complying fully with the terms of the Shareholder Protection
Agreement in connection with the Offer.
46
SUMMARY OF THE CORPORATION'S CHARGES FROM (TO) RELATED PARTIES
The following table provides a summary of the Corporation's all significant
charges from (to) related parties, which have been accounted for at exchange
amounts:
FOR THE YEAR ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- -------------------------
2003 2002 2004 2003
-------- -------- ---------- ----------
(IN THOUSANDS OF DOLLARS)
RCI:
Management fees.................................... $ 11,336 $ 11,006 $ 8,757 $ 8,502
Rent income........................................ (7,980) (8,144) (5,529) (6,237)
Wireless services.................................. (978) (79) (886) (539)
Cost of shared operating expenses.................. 192,292 208,257 151,265 139,349
Additions to PP&E (1).............................. 24,656 37,418 17,780 14,489
-------- -------- -------- --------
219,326 248,458 171,387 155,564
CABLE:
Wireless equipment for resale...................... (14,926) (10,116) (12,182) (9,343)
Subscriber activation commissions.................. 9,511 8,817 14,643 6,941
Rent income........................................ (3,516) (3,587) (3,034) (2,779)
Wireless services.................................. (2,355) (2,214) (2,398) (1,782)
Consolidated billing services (2).................. (1,499) (655) (2,886) (1,015)
Transmission facilities usage...................... 440 440 1,042 330
Charges for PP&E (1)............................... -- -- (1,011) --
-------- -------- -------- --------
(12,345) (7,315) (5,826) (7,648)
MEDIA:
Advertising........................................ 3,000 2,940 2,173 2,749
Rent income........................................ (8,493) (1,881) (8,425) (5,985)
Wireless services.................................. (516) (181) (555) (381)
-------- -------- -------- --------
(6,009) 878 (6,807) (3,617)
-------- -------- -------- --------
AT&T WIRELESS: (3)
Roaming revenue.................................... (13,030) (13,910) (12,146) (10,098)
Roaming expense.................................... 13,628 18,028 8,977 10,868
Over-the-air activation services................... 292 680 31 234
-------- -------- -------- --------
890 4,798 (3,138) 1,004
-------- -------- -------- --------
$201,862 $246,819 $155,616 $145,303
======== ======== ======== ========
---------------
(1) Additions to (charges for) PP&E related primarily to expenditures on
information technology infrastructure and call center technologies.
(2) Included in accounts receivable at September 30, 2004, is approximately
$14.7 million related to amounts outstanding for ▇▇▇▇▇▇ Cable Inc. services
included on consolidated bills to customers of the Corporation.
(3) AT&T Wireless was a related party until October 13, 2004, on which date RCI
closed its indirect purchase of AT&T Wireless' shares in the Corporation.
See the "Recent Developments" in Schedule "B" hereto for a description of
this transaction.
The Corporation has entered into certain transactions with companies, the
partners or senior officers of which are directors of the Corporation or RCI.
During the years ended December 31, 2003 and 2002, total amounts paid by the
Corporation to these related parties for legal services and commissions paid on
premiums for insurance coverages aggregated $1.5 million and $1.7 million,
respectively, and for interest charges aggregated $12.0 million and $8.3
million, respectively. During the nine months ended September 30, 2004 and 2003,
total amounts paid by the Corporation to these related parties for legal
services and commissions paid on premiums for insurance coverages aggregated
$1.4 million and $1.2 million, respectively, and for interest charges aggregated
$5.6 million and $12.1 million, respectively.
47
EFFECT OF THE OFFER ON THE MARKET FOR SECURITIES; PUBLIC DISCLOSURE BY THE
CORPORATION; EXCHANGE ACT REGISTRATION
EFFECT OF THE OFFER ON THE MARKET FOR RWCI RESTRICTED VOTING SHARES
If the Offer is successful, the Offerors' current intention is to acquire
the RWCI Restricted Voting Shares of any holders who have not accepted the Offer
pursuant to a Compulsory Acquisition or Subsequent Acquisition Transaction. See
"ACQUISITION OF RWCI RESTRICTED VOTING SHARES NOT DEPOSITED" and "BACKGROUND TO
THE OFFER -- STRUCTURE OF THE TRANSACTION" in this Circular. If the Offerors
proceed with the acquisition of the RWCI Restricted Voting Shares not deposited
under the Offer, RCI intends that the RWCI Restricted Voting Shares will be
delisted from the TSX and the NYSE.
From the time that the Offerors begin to take up RWCI Restricted Voting
Shares pursuant to the Offer, the liquidity and market value of the remaining
RWCI Restricted Voting Shares held by the public could be affected adversely.
The TSX or the NYSE could delist the RWCI Restricted Voting Shares if the
minimum listing requirements (including minimum requirements as to the number of
public security holders and the aggregate market value of the publicly held
securities) are not met.
PUBLIC DISCLOSURE BY THE CORPORATION
After the purchase by the Offerors of the RWCI Restricted Voting Shares
under the Offer, the Corporation may cease to be subject to the public reporting
and proxy solicitation requirements of the CBCA and the securities laws of
certain provinces of Canada. Furthermore, it may be possible for the Corporation
to request the elimination of the public reporting requirements of any province
where a small number of securityholders reside. If permitted by applicable law,
subsequent to the completion of the Offer or a Compulsory Acquisition or
Subsequent Acquisition Transaction, RCI intends to cause the Corporation to
cease to be a reporting issuer under the securities laws of each province.
EXCHANGE ACT REGISTRATION
The RWCI Restricted Voting Shares are currently registered under the
Exchange Act. A registration in respect of the RWCI Restricted Voting Shares may
be terminated upon application of the Corporation to the SEC if the RWCI
Restricted Voting Shares are not listed on a U.S. national securities exchange
or quoted on the Nasdaq Stock Market and there are fewer than 300 holders of
record of the RWCI Restricted Voting Shares resident in the United States. The
termination of registration of the RWCI Restricted Voting Shares under the
Exchange Act would substantially reduce the information required to be furnished
by the Corporation to holders of its RWCI Restricted Voting Shares under United
States federal securities laws and to the SEC and would make certain provisions
of the Exchange Act no longer applicable to the Corporation. Furthermore, the
ability of "affiliates" (as defined under Rule 144 of the ▇▇▇▇ ▇▇▇) of the
Corporation and Persons holding "restricted securities" of the Corporation to
dispose of such securities pursuant to Rule 144 of the 1933 Act may be impaired
or eliminated. RCI intends to seek to cause the Corporation to apply for
termination of registration of the RWCI Restricted Voting Shares under the
Exchange Act as soon after the completion of the Offer as the requirements for
such termination are met. If registration of the RWCI Restricted Voting Shares
under the Exchange Act is terminated, the RWCI Restricted Voting Shares will no
longer be "margin securities" or be eligible for listing on a U.S. national
securities exchange or eligible for trading on the Nasdaq Stock Market. The RWCI
Restricted Voting Shares are currently listed on the NYSE.
ACQUISITION OF RWCI RESTRICTED VOTING SHARES NOT DEPOSITED
COMPULSORY ACQUISITION
If within 120 days after the date of the Offer, the Offer has been accepted
by holders of not less than 90% of the RWCI Restricted Voting Shares, other than
RWCI Restricted Voting Shares held at the date of the Offer by or on behalf of
the Offerors and their affiliates and associates (as such terms are defined in
the CBCA), and the Offerors acquire such Deposited Shares, the Offerors intend
to acquire the RWCI Restricted Voting Shares held by each Shareholder who did
not accept the Offer, and any Person who subsequently acquires any RWCI
Restricted Voting Shares from such a holder (each such holder and each such
Person being hereinafter referred to as an "Offeree") on the same terms and at
the same price for which the RWCI Restricted Voting Shares were acquired under
the Offer, pursuant to the provisions of Section 206 of the CBCA (a "Compulsory
Acquisition").
48
To exercise such statutory right, the Offerors must give notice (the "206
Notice") to each Offeree and to the Director under the CBCA of such proposed
acquisition on or before the earlier of 60 days from the Expiry Time and 180
days from the date of the Offer. Within 20 days of giving the 206 Notice, the
Offerors must reserve the consideration they would have to pay or transfer to
the Offerees if they had elected to accept the Offer, to be held in trust for
the Offerees. In accordance with Section 206 of the CBCA, within 20 days after
receipt of the 206 Notice, each Offeree must send the certificates representing
RWCI Restricted Voting Shares held by such Offeree to the Corporation and must
elect either to transfer such RWCI Restricted Voting Shares to the Offerors on
the terms of the Offer or to demand payment of the fair value of such shares
held by such holder by so notifying the Offerors within 20 days after the
Offeree receives the 206 Notice. An Offeree who does not, within 20 days after
the Offeree receives the 206 Notice, notify the Offerors that the Offeree is
electing to demand payment of the fair value of the Offeree's RWCI Restricted
Voting Shares is deemed to have elected to transfer such RWCI Restricted Voting
Shares to the Offerors on the same terms that the Offerors acquired RWCI
Restricted Voting Shares from holders of RWCI Restricted Voting Shares who
accepted the Offer. If an Offeree has elected to demand payment of the fair
value of such RWCI Restricted Voting Shares, the Offerors may apply to a court
having jurisdiction to hear an application to fix the fair value of such RWCI
Restricted Voting Shares of such Offeree. If the Offerors fail to apply to such
court within 20 days after it made the payment or transferred the consideration
referred to above to the Corporation, the Offeree may then apply to the court
within a further period of 20 days to have the court fix the fair value. If
there is no such application made by the Offeree within such period, the Offeree
will be deemed to have elected to transfer such RWCI Restricted Voting Shares to
the Offerors on the terms that the Offerors acquired RWCI Restricted Voting
Shares from holders of RWCI Restricted Voting Shares who accepted the Offer. Any
judicial determination of the fair value of RWCI Restricted Voting Shares could
be more or less than the consideration paid pursuant to the Offer.
If an Offeree did not receive the 206 Notice, such Offeree may, within 90
days from the Expiry Time, require the Offerors to acquire its RWCI Restricted
Voting Shares, provided that the Offerors shall acquire such RWCI Restricted
Voting Shares on the same terms under which the Offerors acquired RWCI
Restricted Voting Shares under the Offer. If a Shareholder did not receive the
Offer, such Shareholder may, within 90 days after the later of (i) the Expiry
Time and (ii) the date on which such Shareholder learned of the Offer, require
the Offerors to acquire its RWCI Restricted Voting Shares, provided that the
Offerors shall acquire such RWCI Restricted Voting Shares on the same terms
under which the Offerors acquired RWCI Restricted Voting Shares under the Offer.
The foregoing is a summary only of the right of Compulsory Acquisition
which may become available to the Offerors and each Offeree and is qualified in
its entirety by the provisions of Sections 206 and 206.1 of the CBCA. Holders of
RWCI Restricted Voting Shares who wish to be better informed about the
provisions of Sections 206 and 206.1 of the CBCA should consult their legal
advisors. See "MATERIAL CANADIAN FEDERAL INCOME TAX CONSIDERATIONS" and
"MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS" in this Circular,
respectively, for a discussion of the tax consequences to holders of RWCI
Restricted Voting Shares in the event of a Compulsory Acquisition.
SUBSEQUENT ACQUISITION TRANSACTIONS
If after completion of the Offer, the right of Compulsory Acquisition is
not available for any reason, but the Offerors and their affiliates are the
holders of 90% or more of the RWCI Restricted Voting Shares, the Offerors
currently intend to acquire, directly or indirectly, at the same price per RWCI
Restricted Voting Share as under the Offer, all of the RWCI Restricted Voting
Shares not purchased by the Offerors under the Offer in accordance with
applicable law by way of a Subsequent Acquisition Transaction. In order to
effect a Subsequent Acquisition Transaction, the Offerors would seek to cause a
special meeting of the holders of shares of the relevant class(es) to be called
to consider an amalgamation, statutory arrangement, capital reorganization,
consolidation or other transaction involving the Offerors and/or the holders of
shares of the relevant class(es) for the purpose of the Corporation becoming,
directly or indirectly, a wholly-owned subsidiary of RCI or an affiliate (a
"Subsequent Acquisition Transaction"). In the event that the Offerors do not
acquire sufficient RWCI Restricted Voting Shares in order to carry out a
Subsequent Acquisition Transaction in accordance with the foregoing but RCI
subsequently becomes the holder of 90% or more of the outstanding RWCI
Restricted Voting Shares, RCI may at that time decide to initiate a Subsequent
Acquisition Transaction. Based on RWCI Restricted Voting Shares outstanding on
November 22, 2004, if the Offerors acquire at least 2,334,526 RWCI Restricted
Voting Shares and RCI converts at least 62,819,371 of its RWCI Class A Shares
into RWCI Restricted Voting Shares (and assuming all exercisable RWCI Options
are exercised), RCI would become the holder of 90% of the outstanding RWCI
Restricted Voting Shares. RCI currently
49
intends to make that conversion and to initiate a Subsequent Acquisition
Transaction under which the Offerors would acquire all of the remaining RWCI
Restricted Voting Shares held by Minority Shareholders for the same
consideration as provided in the Offer. While it is RCI's current intention in
connection with a Subsequent Acquisition Transaction to convert approximately
62,819,371 RWCI Class A Shares into RWCI Restricted Voting Shares if RCI
acquires at least 2,334,526 RWCI Restricted Voting Shares under the Offer, RCI
reserves the absolute discretion to decide whether or not to do so.
Each type of Subsequent Acquisition Transaction described above would be a
"business combination" or "going private transaction" within the meaning of
applicable Canadian securities legislation and regulations (collectively the
"Regulations"), Rule 61-501, Policy Q-27 and the Shareholder Protection
Agreement. In certain circumstances, the provisions of Rule 61-501 and Policy
Q-27 may also deem certain types of Subsequent Acquisition Transactions to be
"related party transactions." However, if the Subsequent Acquisition Transaction
is a "business combination" carried out in accordance with Rule 61-501 or an
exemption therefrom and a "going private transaction" carried out in accordance
with Policy Q-27 or an exemption therefrom, the "related party transaction"
provisions of Rule 61-501 and Policy Q-27 do not apply to such transaction. RCI
intends to carry out any Subsequent Acquisition Transaction in accordance with
Rule 61-501 and Policy Q-27, or any successor provisions, or exemptions
therefrom, such that the related party transaction provisions of Rule 61-501 and
Policy Q-27 will not apply thereto.
The Regulations, Rule 61-501 and Policy Q-27 provide that, unless exempted,
a corporation proposing to carry out a business combination or going private
transaction is required to prepare a valuation of the affected securities (and
any non-cash consideration being offered therefor, subject to certain
exceptions) and provide to the holders thereof a summary of such valuation or
the entire valuation. The Shareholder Protection Agreement imposes similar
requirements on the Offerors . If the Offerors initiate a Subsequent Acquisition
Transaction, the Offerors intend to use the Valuation for this purpose.
Rule 61-501, Policy Q-27 and the Shareholder Protection Agreement provide
in effect that, in addition to any other required security holder approval, in
order to complete a business combination or going private transaction, the
approval of a simple majority of the votes cast by Minority Shareholders of the
RWCI Restricted Voting Shares must be obtained. In certain circumstances, the
Shareholder Protection Agreement requires approval by 66 2/3 of the votes cast
by Minority Shareholders. However, if the Offerors and their affiliates are the
owners of 90% or more of the RWCI Restricted Voting Shares, the requirement
under Rule 61-501, Policy Q-27 and the Shareholder Protection Agreement for
minority approval would not apply to the transaction if a statutory dissent and
appraisal remedy is available or a substantially equivalent enforceable right is
made available to the Minority Shareholders. It is the Offerors' intention that
such a dissent and appraisal remedy would be available to Minority Shareholders
in connection with a Subsequent Acquisition Transaction.
If the Offerors decide not to propose a Subsequent Acquisition Transaction,
RCI will evaluate its other alternatives. Such alternatives could include, to
the extent permitted by applicable law, purchasing additional RWCI Restricted
Voting Shares in the open market, in privately negotiated transactions,
converting RWCI Class A Shares into RWCI Restricted Voting Shares or taking no
further action to acquire additional RWCI Restricted Voting Shares. Any
additional purchases of RWCI Restricted Voting Shares could be at a price
greater than, equal to or less than the price to be paid for RWCI Restricted
Voting Shares under the Offer and could be for cash and/or securities or other
consideration. Alternatively, RCI may sell or otherwise dispose of any of its
RWCI Class A Shares and RWCI Restricted Voting Shares. Such transactions may be
effected on terms and at prices then determined by RCI, which may vary from the
terms and the price paid for RWCI Restricted Voting Shares under the Offer.
Any Subsequent Acquisition Transaction may also result in registered
holders of RWCI Restricted Voting Shares under Section 190 of the CBCA, having
the right to dissent and demand payment of the fair value of their RWCI
Restricted Voting Shares. If the statutory procedures are complied with, this
right could lead to a judicial determination of the fair value required to be
paid to such dissenting shareholders for their RWCI Restricted Voting Shares.
The fair value of the RWCI Restricted Voting Shares so determined could be more
or less than the consideration paid per RWCI Restricted Voting Share pursuant to
the Subsequent Acquisition Transaction or the Offer. Any such judicial
determination of the fair value of the RWCI Restricted Voting Shares could be
based upon considerations other than, or in addition to, the market price of the
RWCI Restricted Voting Shares.
The tax consequences to a holder of RWCI Restricted Voting Shares of a
Subsequent Acquisition Transaction may differ from the tax consequences to such
holder of accepting the Offer. See "MATERIAL CANADIAN FEDERAL
50
INCOME TAX CONSIDERATIONS" and "MATERIAL UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS", in this Circular, respectively.
Shareholders should consult their legal advisors for a determination of
their legal rights (including any rights of dissent) with respect to a
Subsequent Acquisition Transaction if and when such a transaction is proposed.
JUDICIAL DEVELOPMENTS
Certain judicial decisions may be considered relevant to any going private
transaction that may be proposed or effected subsequent to the expiry of the
Offer. Canadian courts have, in a few instances prior to the adoption of Rule
61-501 and Policy Q-27 (or similar policies of Canadian securities regulators),
granted preliminary injunctions to prohibit transactions involving certain going
private transactions. The current trend in both legislation and Canadian
jurisprudence is toward permitting going private transactions to proceed,
subject to evidence of procedural and substantive fairness in the treatment of
minority shareholders. Compliance with the provisions of Rule 61-501 and Policy
Q-27 is generally viewed as providing procedural and substantive fairness to
minority shareholders.
OWNERSHIP OF SECURITIES
To the knowledge of the Offerors, no Person beneficially owns, or exercises
control or direction over any class of equity securities of the Corporation
other than RCI, a corporation controlled by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, O.C., and certain
corporations owned or controlled directly or indirectly by him and trusts for
the benefit of ▇▇. ▇▇▇▇▇▇ and his family. RCI, directly and indirectly,
beneficially owns or controls 62,820,371 RWCI Class A Shares, representing 100%
of the issued and outstanding RWCI Class A Shares, and 64,911,816 RWCI
Restricted Voting Shares, representing 80.6% of the issued and outstanding RWCI
Restricted Voting Shares, which together represent 97.8% of the total votes
attaching to all voting shares of the Corporation currently issued and
outstanding.
Apart from as disclosed in this section, no director or senior officer of
an Offeror nor, to the knowledge of the Offerors after reasonable enquiry, any
associate of the directors or senior officers of an Offeror or any Person
holding more than 10% of any class of equity securities of RCI or any Person
acting jointly or in concert with the Offerors, beneficially owns or exercises
control or direction over any of the securities of the Corporation at the date
of this Circular.
The following table sets out the approximate number of securities of the
Corporation that each director and senior officer of the Offerors has advised
are beneficially owned, directly or indirectly, or subject to control or
direction by that person at the date of this Circular.
PERCENTAGE OF
NUMBER OF OUTSTANDING
RWCI RESTRICTED RWCI RESTRICTED NUMBER OF
VOTING SHARES VOTING SHARES DIRECTORS'
(INCLUDING RWCI (ASSUMING EXERCISE DEFERRED SHARE
NAME OF DIRECTOR OR SENIOR OFFICER OPTIONS) (2) OF ALL RWCI OPTIONS) UNITS (3)
---------------------------------- --------------- -------------------- --------------
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇............................... 9,725 less than 1% Nil
H. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Q.C. ........................ 23,400 less than 1% Nil
▇▇▇▇▇▇ ▇. ▇▇▇▇................................... 20,200 less than 1% 1,930.73
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇............................... 12,500 less than 1% Nil
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇................................. 434,525 less than 1% Nil
The ▇▇▇ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ P.C., Q.C. ............ 22,600 less than 1% 2,851.86
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ O.C. (1)........................ 64,911,816 80.9 Nil
▇▇▇▇▇▇ ▇▇▇▇▇▇.................................... 5,500 less than 1% Nil
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇................................ 24,600 less than 1% 583.42
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇................................ 1,000 less than 1% Nil
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇............................. 6,850 less than 1% Nil
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ Counsel Wansbrough.............. 3,600 less than 1% Nil
---------------
(1) Through RCI, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, O.C., owns or exercises control or direction
over 62,820,371 RWCI Class A Shares, representing 100% of the outstanding
RWCI Class A Shares.
(2) Includes RWCI Options where the exercise price is greater than the current
market price of the RWCI Restricted Voting Shares.
(3) The Corporation implemented a Directors' Deferred Share Unit Plan under
which non-employee directors may receive all or a percentage of their total
directors' fees in the form of Directors' Deferred Share Units ("DDSUs"),
each of which has a value equal to the market value of a RWCI Restricted
Voting Share at the commencement of the relevant fiscal quarter. A DDSU is
a bookkeeping entry credited to the account of
51
an individual director, which cannot be converted to cash until the
director ceases to be a member of the Board of Directors and its
subsidiaries. The value of a DDSU, when converted to cash, will be
equivalent to the market value of a RWCI Restricted Voting Share at the
time the conversion takes place. DDSUs will attract dividends in the form
of additional DDSUs at the same rate as dividends on RWCI Restricted Voting
Shares.
TRADING IN SECURITIES OF THE CORPORATION
No securities of the Corporation have been traded during the six-month
period preceding the date of the Offer by the Offerors or by directors or senior
officers of the Offerors or, to the knowledge of the directors and senior
officers of the Offerors, by associates or affiliates of the Offerors or by
associates of the directors or senior officers of the Offerors or any Person
acting jointly or in concert with the Offerors or by any Person who beneficially
owns, directly or indirectly, more than 10% of any class of equity securities of
RCI or any pension, profit-sharing or similar plan of an Offeror or the
Corporation except the following:
NO. OF RWCI
RESTRICTED VOTING NO. OF RWCI
SHARES RESTRICTED VOTING PRICE
PARTY TRADE DATE PURCHASED SHARES SOLD PER SHARE
----- ---------------- ----------------- ----------------- ---------
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇......... June 24, 2004 29,175(1) $20.7400
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇......... June 24, 2004 29,175 $35.6000
▇▇▇▇ ▇. Day......................... May 20, 2004 650(1) $16.8800
▇▇▇▇ ▇. Day......................... May 20, 2004 650 $34.7500
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇.............. June 17, 2004 4,000(1) $32.7500
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇.............. June 17, 2004 3,900 $35.0000
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇.............. June 17, 2004 100 $35.0500
▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇..................... June 22, 2004 6,000(1) $32.7500
▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇..................... June 22, 2004 600 $35.5200
▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇..................... June 22, 2004 2,500 $35.4700
▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇..................... June 22, 2004 2,900 $35.3000
JVII General Partnership............ October 13, 2004 27,647,888(3) n/a
JVII General Partnership............ October 13, 2004 48,594,172(2) $36.3700
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇.................... July 22, 2004 15,275(1) $16.8800
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇.................... July 22, 2004 15,275 $38.2549
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇............... June 10, 2004 1,800(1) $28.4100
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇............... June 10, 2004 1,800 $35.0000
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇............... June 18, 2004 6,000(1) $32.7500
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇............... June 18, 2004 1,500 $34.9300
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇............... June 18, 2004 400 $34.9400
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇............... June 18, 2004 100 $34.9800
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇............... June 18, 2004 3,500 $35.0000
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇............... June 18, 2004 500 $35.1000
▇▇▇▇▇▇ Communications Inc........... October 13, 2004 48,594,172(2) $36.3700
▇▇▇▇▇▇ ▇▇▇▇▇▇....................... July 22, 2004 7,500(1) $15.6100
▇▇▇▇▇▇ ▇▇▇▇▇▇....................... July 22, 2004 5,000(1) $11.8200
▇▇▇▇▇▇ ▇▇▇▇▇▇....................... July 22, 2004 12,500 $38.2500
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇................... June 25, 2004 6,000(1) $32.7500
NO. OF RWCI
NO. OF RWCI CLASS A CLASS A SHARES PRICE
PARTY TRADE DATE SHARES PURCHASED SOLD PER SHARE
----- ---------------- ------------------- -------------- ---------
JVII General Partnership........... October 13, 2004 27,647,888(3) n/a
---------------
(1) RWCI Restricted Voting Shares acquired through exercise of options.
(2) See Schedule "A" hereto, "Recent Developments -- RCI's Purchase of RWCI
Restricted Voting Shares".
(3) Pursuant to conversion of RWCI Class A Shares into RWCI Restricted Voting
Shares in connection with the sale of 48,594,172 RWCI Restricted Voting
Shares from AT&T Wireless to RCI Subco. See Schedule "A" hereto, "Recent
Developments -- RCI's Purchase of RWCI Restricted Voting Shares".
52
Except as disclosed above, the Offerors have not purchased any securities
of the Corporation during the twenty-four months preceding the date of the
Offer.
ARRANGEMENTS, AGREEMENTS OR UNDERSTANDINGS
There are no arrangements or agreements made or proposed to be made between
the Offerors and any of the directors or senior officers of the Corporation and
no payments or other benefits are proposed to be made or given by way of
compensation for loss of office or as to such directors or senior officers
remaining in or retiring from office. There are no contracts, arrangements or
understandings, formal or informal, between the Offerors and any security holder
of the Corporation with respect to the Offer or between the Offerors and any
person or company with respect to any securities of the Corporation in relation
to the Offer.
TREATMENT OF RWCI OPTIONS
Subject to the receipt of any necessary regulatory approval, RCI intends to
offer to holders of RWCI Options the right to exchange such options for RCI
Options entitling the holders thereof to acquire RCI Non-Voting Shares on terms
equivalent to those attaching to the existing RWCI Options. Holders of currently
exercisable RWCI Options are entitled to exercise such options and to tender to
the Offer the RWCI Restricted Voting Shares so issued, provided such Persons
comply with the terms and conditions of the Offer.
ACCEPTANCE AND RECOMMENDATIONS OF OTHERS
Each of the directors and senior officers of the Offerors and the
Corporation, exercising control or direction over any RWCI Restricted Voting
Shares, has indicated to the Corporation that he or she intends to tender all of
his or her RWCI Restricted Voting Shares to the Offer.
To the best of RCI's knowledge, none of the directors and senior officers
of RCI and the Corporation exercising control or direction over any RWCI
Restricted Voting Shares, or any affiliate of RCI or the Corporation, has made
any public recommendation with respect to the Offer.
COMMITMENTS TO ACQUIRE SECURITIES OF THE CORPORATION
Other than the Offer and as disclosed herein, the Offerors do not have and,
to the knowledge of the Offerors, after reasonable enquiry, no director or
senior officer of the Offerors, any of their respective associates, any Person
holding more than 10% of any class of equity securities of the Corporation or
any Person acting jointly or in concert with the Offerors, has any commitment to
acquire equity securities of the Corporation.
BENEFITS FROM THE OFFER
Other than as disclosed herein, no Person named under "OWNERSHIP OF
SECURITIES" in this Circular, will receive any direct or indirect benefit from
accepting or refusing to accept the Offer, other than the consideration
available to any Shareholder who deposits shares to the Offer.
MATERIAL CHANGES AND OTHER INFORMATION
The Offerors are not aware of any information which indicates that a
material change has occurred in the affairs of the Corporation or the Offerors
since the date of the last published financial statements of the Corporation and
RCI other than as has been publicly disclosed by the Corporation or the Offerors
or as disclosed in this Circular. The Offerors have no knowledge of any other
matter that has not previously been generally disclosed and which would
reasonably be expected to affect the decision of Shareholders to accept or
reject the Offer.
PREVIOUS DISTRIBUTIONS AND PURCHASES
During the last five years, the Corporation distributed RWCI Restricted
Voting Shares (other than RWCI Restricted Voting Shares issued upon the exercise
of RWCI Options or through the ESPP) as follows:
(a) On April 19, 2001, the Corporation completed a rights offering with
respect to RWCI Restricted Voting Shares pursuant to which it issued
RWCI Restricted Voting Shares for $422.6 million or $22.41 per RWCI
Restricted Voting Share; and
53
(b) During 1999, the Corporation issued to a partnership owned by AT&T
Wireless (through JVII), Convertible Series B Preference Shares,
convertible into RWCI Restricted Voting Shares and Convertible Series
A Preference Shares, convertible into RWCI Class A Shares, for
$963,888,862 or $34.70 per share. Effective March 1, 2001, the
Corporation redeemed all outstanding Convertible Series B Preference
Shares and Convertible Series A Preference Shares in exchange for the
issuance, on a one-for-one basis, of RWCI Restricted Voting Shares
and RWCI Class A Shares, respectively. All of such shares were
indirectly acquired by RCI from AT&T Wireless on October 13, 2004 as
disclosed under "BACKGROUND TO THE OFFER" in this Circular.
The Corporation has not purchased any of its equity securities during the
twenty-four months preceding the date of the Offer.
PRICE RANGE AND TRADING VOLUME OF RWCI RESTRICTED VOTING SHARES
The RWCI Restricted Voting Shares are listed for trading on the TSX and the
NYSE. The following table sets forth, for the periods indicated, the high and
low sales prices and aggregate volume of the RWCI Restricted Voting Shares on
the TSX and the NYSE.
TSX NYSE
--------------------------- ---------------------------
MONTH HIGH LOW VOLUME HIGH LOW VOLUME
----- ------ ------ --------- ------ ------ ---------
(in U.S. dollars)
November 2003............................. $28.50 $25.00 1,302,104 $21.73 $19.12 304,200
December 2003............................. 29.50 26.00 960,158 22.28 19.96 238,800
January 2004.............................. 37.20 27.55 1,642,912 29.20 21.35 677,400
February 2004............................. 36.83 33.00 1,267,250 27.51 24.81 327,400
March 2004................................ 35.00 32.25 985,277 26.51 24.28 230,100
April 2004................................ 37.38 33.30 1,751,565 27.38 24.21 334,200
May 2004.................................. 37.39 30.45 2,108,392 27.34 22.10 419,600
June 2004................................. 36.81 34.85 1,232,440 27.37 25.35 165,300
July 2004................................. 39.85 35.53 1,368,043 30.14 27.00 648,500
August 2004............................... 40.70 38.50 694,570 30.61 28.80 439,200
September 2004............................ 41.79 35.43 1,734,703 32.17 27.43 405,800
October 2004.............................. 46.71 39.51 694,761 38.30 31.34 188,500
November 1 -- November 11, 2004........... 49.75 41.31 1,859,100 44.30 34.15 327,400
2002
4th Quarter............................... 17.00 6.00 5,959,007 10.80 3.90 353,900
2003
1st Quarter............................... 17.45 13.06 2,567,710 11.53 8.81 259,300
2nd Quarter............................... 23.50 15.44 1,940,264 17.45 10.47 268,600
3rd Quarter............................... 24.50 20.60 1,384,357 17.43 14.90 192,100
4th Quarter............................... 29.50 21.21 4,108,629 22.28 15.63 897,000
2004
1st Quarter............................... 37.20 27.55 3,895,439 29.20 21.35 1,234,700
2nd Quarter............................... 37.39 30.45 5,092,397 27.38 22.10 919,100
3rd Quarter............................... 41.79 35.43 3,797,316 32.17 27.00 1,489,100
---------------
Source: The TSX and the NYSE.
The closing prices of the RWCI Restricted Voting Shares on the TSX and the
NYSE on November 10, 2004, the last trading day prior to RCI's announcement of
its intention to make the Offer, were C$43.17 and U.S.$36.28, respectively.
54
PRICE RANGE AND TRADING VOLUME OF RCI NON-VOTING SHARES
The RCI Non-Voting Shares are listed for trading on the TSX and the NYSE.
The following table sets forth, for the periods indicated, the high and low
sales prices and aggregate volume of the RCI Non-Voting Shares on the TSX and
the NYSE.
TSX NYSE
---------------------------- ---------------------------
MONTH HIGH LOW VOLUME HIGH LOW VOLUME
----- ------ ------ ---------- ------ ------ ---------
(in U.S. dollars)
November 2003............................ $21.95 $19.73 10,915,619 $16.82 $15.23 575,700
December 2003............................ 22.03 19.53 11,360,701 17.01 15.07 462,500
January 2004............................. 25.90 21.36 21,745,853 19.66 16.60 1,033,300
February 2004............................ 27.60 24.55 14,027,957 20.76 18.39 643,100
March 2004............................... 25.80 22.75 11,029,891 19.46 17.19 582,200
April 2004............................... 26.00 22.50 12,137,909 19.82 16.50 628,400
May 2004................................. 26.51 22.90 11,755,466 19.50 16.49 275,000
June 2004................................ 26.50 23.64 12,139,424 19.67 17.59 327,600
July 2004................................ 25.25 23.43 8,191,689 19.05 17.74 284,600
August 2004.............................. 24.52 22.30 6,020,330 18.62 17.05 244,400
September 2004........................... 25.87 22.82 17,818,495 20.29 17.58 677,300
October 2004............................. 28.20 25.50 16,179,535 23.12 20.05 301,200
November 1 -- November 11, 2004.......... 29.05 27.01 8,853,600 25.31 22.76 647,500
2002
4th Quarter.............................. 16.83 8.54 55,506,557 10.80 5.36 4,715,600
2003
1st Quarter.............................. 16.28 12.70 57,060,687 11.06 8.35 3,823,300
2nd Quarter.............................. 22.24 15.52 60,499,575 16.38 10.54 794,700
3rd Quarter.............................. 23.00 19.46 51,821,327 16.52 13.98 1,275,400
4th Quarter.............................. 22.03 18.46 49,306,361 17.01 13.84 1,749,200
2004
1st Quarter.............................. 27.60 21.36 46,803,701 20.76 16.60 2,258,600
2nd Quarter.............................. 26.51 22.50 36,032,799 19.82 16.49 1,231,000
3rd Quarter.............................. 25.87 22.30 32,030,514 20.29 17.05 1,206,300
---------------
Source: The TSX and the NYSE.
The closing prices of the RCI Non-Voting Shares on the TSX and the NYSE (i)
on November 10, 2004, the last trading day prior to RCI's announcement of its
intention to make the Offer, were C$28.70 and U.S.$24.05, respectively and (ii)
on November 23, 2004 were C$28.95 and U.S.$24.48, respectively.
MATERIAL CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Torys LLP, counsel to RCI, the following summary fairly
presents the principal consequences under the Tax Act generally applicable to
Shareholders who dispose of their RWCI Restricted Voting Shares pursuant to the
Offer or pursuant to certain transactions described in "ACQUISITION OF RWCI
RESTRICTED VOTING SHARES NOT DEPOSITED" in this Circular.
The summary is based upon the current provisions of the Tax Act, the
regulations thereunder and counsel's understanding of the current administrative
practices of the CRA, and takes into account all specific proposals to amend the
Tax Act and the regulations that have been publicly announced by the Minister of
Finance prior to the date hereof, but does not otherwise take into account or
anticipate any changes in law, whether by judicial, governmental or legislative
decision or action, or changes in administrative practices of the CRA. This
summary does not take into account the tax legislation of any province or
territory of Canada or any non-Canadian jurisdiction. Provisions of provincial
income tax legislation vary from province to province in Canada and in some
cases differ from federal income tax legislation.
55
The Tax Act contains certain provisions relating to securities held by
certain financial institutions (the "▇▇▇▇-to-market rules"). This summary does
not take into account the ▇▇▇▇-to-market rules and Shareholders that are
financial institutions for the purpose of those rules should consult their own
tax advisers.
THE FOLLOWING SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO
BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR
SHAREHOLDER. ACCORDINGLY, SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS
WITH RESPECT TO THEIR PARTICULAR CIRCUMSTANCES.
RESIDENTS OF CANADA
The following summary is applicable to Shareholders who are residents in
Canada, who hold their RWCI Restricted Voting Shares as capital property and who
deal at arm's length with RCI and the Corporation. RWCI Restricted Voting Shares
will generally constitute capital property to a holder thereof unless the holder
holds such shares in the course of carrying on a business of trading or dealing
in securities or otherwise as part of a business of buying and selling
securities or has acquired such RWCI Restricted Voting Shares in a transaction
or transactions considered to be an adventure in the nature of trade.
Shareholders who do not hold their RWCI Restricted Voting Shares as capital
property should consult their own tax advisors regarding their particular
circumstances, as the following summary does not apply to such Shareholders.
SALE OF RWCI RESTRICTED VOTING SHARES UNDER THE OFFER
SALE TO RCI SUBCO
A Shareholder whose RWCI Restricted Voting Shares are taken up and paid for
by RCI Subco will be considered to have disposed of such RWCI Restricted Voting
Shares for proceeds of disposition equal to the fair market value as at the time
of acquisition of the RCI Non-Voting Shares received by such Shareholder on the
exchange (plus any cash received by such Shareholder in lieu of a fraction of a
RCI Non-Voting Share). As a result, the Shareholder will in general realize a
capital gain (or capital loss) to the extent that such proceeds of disposition,
net of any reasonable costs of disposition, exceed (or are less than) the
adjusted cost base to the Shareholder of such RWCI Restricted Voting Shares. The
cost to a Shareholder of any RCI Non-Voting Shares acquired on the exchange will
be equal to the fair market value of those RCI Non-Voting Shares as at the time
of acquisition, such cost of the RCI Non-Voting Shares to be averaged with the
adjusted cost base to that holder of any other RCI Non-Voting Shares held by the
holder at the time as capital property. The general tax treatment of capital
gains and losses is discussed below under the heading "Taxation of Capital Gains
and Losses".
SALE TO RCI
Eligible Holders are eligible to tender RWCI Restricted Voting Shares to
RCI for the purpose of achieving a tax-deferred exchange for Canadian federal
income tax purposes. An Eligible Holder whose RWCI Restricted Voting Shares are
taken up and paid for by RCI will be deemed to have disposed of the RWCI
Restricted Voting Shares for proceeds equal to the aggregate adjusted cost base
thereof to such Eligible Holder and will be deemed to have acquired the RCI
Non-Voting Shares received in exchange therefor at an aggregate cost equal to
such aggregate adjusted cost base, unless the Eligible Holder chooses to report
any portion of the capital gain or capital loss, otherwise determined, from such
disposition in his return of income for the year of disposition. Under the
current administrative practice of the CRA, an Eligible Holder who receives cash
of $200 or less in lieu of a fraction of an RCI Non-Voting Share may either
include the gain or loss on the partial disposition of the fractional RCI
Non-Voting Share in computing income or reduce the adjusted cost base to the
Eligible Holder of his RCI Non-Voting Shares by the amount of the cash.
A Shareholder who chooses to include in computing the Shareholder's income
any portion of the capital gain or capital loss, otherwise determined, from such
disposition will be considered to have disposed of RWCI Restricted Voting Shares
for proceeds of disposition equal to the fair market value as at the time of
acquisition of the RCI Non-Voting Shares acquired by such Shareholder on the
exchange (plus any cash received by such Shareholder in lieu of a fraction of a
RCI Non-Voting Share). As a result, the Shareholder will in general realize a
capital gain (or capital loss) to the extent that such proceeds of disposition,
net of any reasonable costs of disposition, exceed (or are less than) the
adjusted cost base to the Shareholder of the RWCI Restricted Voting Shares. The
cost to a Shareholder of any RCI Non-Voting Shares acquired on the exchange will
be equal to the fair market value of those shares as at the time of acquisition.
The general tax treatment of capital gains and losses is discussed below under
the heading "Taxation of Capital Gains and Losses".
56
The cost of the RCI Non-Voting Shares acquired by an Eligible Holder will
be averaged with the adjusted cost base of all other RCI Non-Voting Shares held
by the Eligible Holder as capital property immediately prior to such acquisition
for the purpose of determining thereafter the adjusted cost base of each of the
RCI Non-Voting Shares held by such Eligible Holder.
TAXATION OF CAPITAL GAINS AND LOSSES
A Shareholder who, as described above, realizes a capital gain or a capital
loss on the disposition of RWCI Restricted Voting Shares will generally be
required to include in income one half of any such capital gain ("taxable
capital gain") and may apply one half of any such capital loss ("allowable
capital loss") against taxable capital gains in accordance with the detailed
rules in the Tax Act. Allowable capital losses in excess of taxable capital
gains may be carried back and deducted in any of the three preceding years or
carried forward and deducted in any following year against taxable capital gains
realized in such year in accordance with the detailed rules of the Tax Act.
If the Shareholder is a corporation or a partnership or trust of which a
corporation is a partner or a beneficiary, any capital loss realized on the
disposition of any such shares may be reduced by the amount of certain dividends
previously received in accordance with detailed provisions of the Tax Act in
that regard. Shareholders should consult their tax advisers for specific
information regarding the application of these provisions.
A "Canadian-controlled private corporation" (as defined in the Tax Act) may
be liable to pay an additional 6 2/3% refundable tax on certain investment
income, including taxable capital gains.
The realization of a capital gain or loss by an individual (including most
trusts) may affect the individual's liability for alternative minimum tax under
the Tax Act.
COMPULSORY ACQUISITION
As described in "ACQUISITION OF RWCI RESTRICTED VOTING SHARES NOT
DEPOSITED" in this Circular, the Offerors may, in certain circumstances, acquire
RWCI Restricted Voting Shares pursuant to the provisions of section 206 of the
CBCA. The tax consequences to a Shareholder of a disposition of RWCI Restricted
Voting Shares in such circumstances generally will be as described above but
Shareholders whose RWCI Restricted Voting Shares may be so acquired should
consult their own tax advisers in this regard.
SUBSEQUENT ACQUISITION TRANSACTION
If the compulsory acquisition provisions of section 206 of the CBCA are not
utilized, other means of acquiring the remaining issued and outstanding RWCI
Restricted Voting Shares may be proposed. In particular, the Offerors may
propose an amalgamation of RCI Subco or another wholly-owned subsidiary of RCI
and the Corporation pursuant to which Shareholders who do not tender their RWCI
Restricted Voting Shares under the Offer would have their RWCI Restricted Voting
Shares exchanged on the amalgamation for redeemable preference shares of the
amalgamated corporation ("Preference Shares"), such Preference Shares to be
forthwith redeemed for RCI Non-Voting Shares. A Shareholder would realize no
capital gain or capital loss as a result of such exchange, and the cost of the
Preference Shares received would be equal to the aggregate adjusted cost base of
the RWCI Restricted Voting Shares to the Shareholder immediately before the
amalgamation. Upon the redemption of Preference Shares, the Shareholder thereof
would be deemed to have received a taxable dividend equal to the amount by which
the redemption price of the Preference Shares exceeds their paid-up capital. The
difference between the redemption price and the amount of the deemed dividend
would be treated as proceeds of disposition of such shares for the purpose of
computing any capital gain or capital loss arising on the disposition of such
shares. In the case of a Shareholder who is an individual, any such dividend
would be included in computing the Shareholder's income and would be subject to
the gross-up and dividend tax credit rules normally applicable to dividends from
taxable Canadian corporations. In the case of a corporate Shareholder, the
amount of any such dividend in certain circumstances would be treated as
proceeds of disposition and not as a dividend. Where it is treated as a
dividend, it would be included in computing the corporation's income and would
generally be deductible in computing the corporation's taxable income. A private
corporation and certain other corporations controlled for the benefit of an
individual or a related group of individuals would be liable to pay a 33 1/3%
refundable tax under Part IV of the Tax Act in respect of such dividend.
A Shareholder who dissents with respect to the amalgamation is entitled to
receive the fair value of his RWCI Restricted Voting Shares. Under the current
administrative practice of the CRA, such payments (other than interest awarded
by a court) would be treated as proceeds of disposition giving rise to a capital
gain or capital loss. The tax
57
treatment of any such capital gain or capital loss will be generally the same as
described under "Taxation for Capital Gains and Losses" above.
As an alternative to the amalgamation discussed above, RCI may propose a
different form of amalgamation, an arrangement, consolidation, reclassification
or other transaction. The tax consequences of any such transaction will depend
upon the exact manner in which the transaction is carried out, and may differ
from those arising on the sale of RWCI Restricted Voting Shares under the Offer.
No opinion is expressed herein as to the tax consequences of any such
transaction to a Shareholder.
NON-RESIDENTS OF CANADA
The following summary is generally applicable to a Shareholder who, at all
relevant times, for purposes of the Tax Act and any applicable income tax
treaty, is neither resident nor deemed to be resident in Canada, deals at arm's
length with RCI and the Corporation, holds RWCI Restricted Voting Shares as
capital property and does not use or hold, and is not deemed to use or hold,
RWCI Restricted Voting Shares in connection with carrying on business in Canada.
Special rules which are not discussed in this summary may apply to a
non-resident Shareholder that is an insurer for whom RWCI Restricted Voting
Shares are "designated insurance property" under the Tax Act. Non-resident
Shareholders should consult their own tax advisers for advice with respect to
any foreign tax consequences.
A non-resident Shareholder will not be subject to tax under the Tax Act on
any capital gain realized on a disposition of RWCI Restricted Voting Shares to
the Offerors under the Offer, or by virtue of the compulsory acquisition of RWCI
Restricted Voting Shares pursuant to the provisions of section 206 of the CBCA,
unless the RWCI Restricted Voting Shares constitute "taxable Canadian property"
to the non-resident Shareholder. Generally, RWCI Restricted Voting Shares will
not be "taxable Canadian property" to a non-resident Shareholder unless, at any
time during the five-year period immediately preceding the disposition, 25% or
more of the issued shares of any class of the Corporation were held by the
non-resident Shareholder, persons with whom the non-resident Shareholder did not
deal at arm's length or the non-resident Shareholder together with persons with
whom he did not deal at arm's length.
If RWCI Restricted Voting Shares constitute taxable Canadian property to a
particular non-resident Shareholder, such non-resident Shareholder will realize
a capital gain (or capital loss) on the sale thereof to the Offerors under the
Offer, generally computed in the manner, and subject to the tax treatment,
described above under "Residents of Canada". Any such capital gain may be exempt
from tax under the Tax Act under the terms of an income tax treaty between
Canada and the country in which the non-resident Shareholder resides.
In the event that RWCI Restricted Voting Shares constitute taxable Canadian
property to a particular non-resident Shareholder and the capital gain to be
realized upon a disposition of such RWCI Restricted Voting Shares under the
Offer is not exempt from Canadian tax by virtue of an applicable income tax
treaty, then the non-resident Shareholder will be an Eligible Holder and may
seek to tender his RWCI Restricted Voting Shares to RCI in order that the
exchange occur on a tax-deferred basis as described above under "Residents of
Canada -- Sale of RWCI Restricted Voting Shares under the Offer -- Sale to RCI".
However, if such tender is made, the RCI Non-Voting Shares received as
consideration for the RWCI Restricted Voting Shares will be deemed to be taxable
Canadian property to such non-resident Shareholder. Non-resident Shareholders
who are Eligible Holders should consult their own tax advisers.
In the event the Offerors effect an amalgamation involving the Corporation
as described above, non-resident Shareholders who do not tender their RWCI
Restricted Voting Shares under the Offer will have their RWCI Restricted Voting
Shares exchanged on the amalgamation for preference shares of the amalgamated
corporation ("Preference Shares"), such Preference Shares to be forthwith
redeemed for RCI Non-Voting Shares. No tax will be payable by a non-resident
Shareholder as a result of the amalgamation. However, upon the redemption of a
Preference Share, the holder thereof will be deemed to have received a taxable
dividend equal to the amount by which the redemption price of the Preference
Shares exceeds their paid-up capital and such dividend will be subject to
non-resident withholding tax at a rate of 25% or such lower rate as may be
provided for under the terms of an applicable income tax treaty.
Under the current administrative practice of the CRA, the receipt by a
non-resident Shareholder who dissents with respect to the amalgamation of a cash
payment equal to the fair value of his RWCI Restricted Voting Shares will be
treated as proceeds of disposition of such RWCI Restricted Voting Shares (other
than interest awarded by a court, which will be subject to Canadian withholding
tax at the rate of 25% unless the rate is reduced under the provisions of an
applicable income tax treaty).
58
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
This section summarizes the material United States federal tax consequences
to holders of RWCI Restricted Voting Shares. It represents the views of Cravath,
Swaine & ▇▇▇▇▇ LLP, U.S. tax counsel to RCI. However, the discussion is limited
in the following ways:
- The discussion is only applicable to Shareholders who hold their RWCI
Restricted Voting Shares as a capital asset (that is, for investment
purposes), and who do not have a special tax status.
- The discussion does not cover tax consequences that depend upon a
Shareholder's particular tax situation in addition to its ownership of
the RWCI Restricted Voting Shares. We suggest that Shareholders consult
their tax advisor about the consequences of disposing of RWCI Restricted
Voting Shares pursuant to the Offer in their particular situation.
- The discussion is based on current law. Changes in the law may change
the tax treatment discussed below.
- The discussion does not cover state, local or non-United States law.
- Neither Offeror has requested a ruling from the IRS on the tax
consequences of the Offer. As a result, the IRS could disagree with
portions of this discussion.
IF A SHAREHOLDER IS CONSIDERING DISPOSING OF ITS RWCI RESTRICTED VOTING
SHARES PURSUANT TO THE OFFER, WE SUGGEST THAT SUCH SHAREHOLDER CONSULT ITS TAX
ADVISOR ABOUT THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF SUCH SALE IN
LIGHT OF ITS PARTICULAR SITUATION, AS WELL AS ANY CONSEQUENCES ARISING UNDER THE
LAWS OF ANY STATE, LOCAL OR NON-UNITED STATES TAXING JURISDICTION.
TAX CONSEQUENCES TO U.S. HOLDERS OF THE OFFER
This section applies to a Shareholder if such Shareholder is a "U.S.
Holder". A "U.S. Holder" is:
- an individual U.S. citizen or resident alien;
- a corporation -- or entity taxable as a corporation for U.S. federal
income tax purposes -- that was created under U.S. law (federal or
state); or
- an estate or trust whose world-wide income is subject to U.S. federal
income tax.
If a partnership holds RWCI Restricted Voting Shares, the tax treatment of
a partner will generally depend upon the status of the partner and upon the
activities of the partnership. If a Shareholder is a partner of a partnership
holding RWCI Restricted Voting Shares, the Offerors suggest that you consult
your tax advisor.
SALE OF RWCI RESTRICTED VOTING SHARES PURSUANT TO THE OFFER
A U.S. Holder who disposes of RWCI Restricted Voting Shares pursuant to the
Offer generally will recognize capital gain or loss for United States federal
income tax purposes equal to the difference between the amount realized pursuant
to the Offer and such holder's adjusted basis in the RWCI Restricted Voting
Shares. Such capital gain or loss generally will be a long-term capital gain or
loss if such holder has held the RWCI Restricted Voting Shares for more than one
year, and will be income from United States sources. Capital losses are subject
to certain limitations.
The amount realized pursuant to the Offer will be equal to the sum of the
fair market value of the RCI Non-Voting Shares received in the Offer and any
cash received in lieu of fractional shares. The fair market value of the RCI
Non-Voting Shares will be equal to the U.S. dollar equivalent of the Canadian
dollar closing price of RCI Non-Voting Shares, as determined on the TSX on the
Expiry Date. The fair market value of any Canadian dollars received in lieu of
fractional shares of RCI Non-Voting Shares will be equal to the U.S. dollar
equivalent of the Canadian dollars received. In each case, the U.S. dollar
equivalent will be determined by using the spot rate of exchange on the Expiry
Date.
U.S. Holders who dispose of their RWCI Restricted Voting Shares pursuant to
the Offer will have a basis in their RCI Non-Voting Shares equal to the fair
market value of the RCI Non-Voting Shares, as determined in the preceding
paragraph, and their holding period for the RCI Non-Voting Shares will begin on
the day following the Expiry Date.
SALE OF RWCI RESTRICTED VOTING SHARES IN A SUBSEQUENT OFFERING PERIOD
The United States federal income tax consequences to a U.S. Holder of a
disposition of RWCI Restricted Voting Shares pursuant to the Offer in a
Subsequent Offering Period generally will be as described above under "Sale of
59
RWCI Restricted Voting Shares Pursuant to the Offer," but based upon the fair
market value of the RCI Non-Voting Shares and the spot rate of exchange at the
Expiry Time with respect to the subsequent Offer.
COMPULSORY ACQUISITION OF SHARES
The United States federal income tax consequences to a U.S. Holder of a
disposition of Shares pursuant to a Compulsory Acquisition generally will be as
described above under "Sale of RWCI Restricted Voting Shares Pursuant to the
Offer", but based upon the fair market value of the RCI Non-Voting Shares and
the spot rate of exchange at the time of the Compulsory Acquisition.
Although there is no authority directly on point, a U.S. Holder who
dissents in a Compulsory Acquisition probably will recognize gain or loss at the
time of the Compulsory Acquisition (even if the fair market value of the RWCI
Restricted Voting Shares has not yet been judicially determined at such time).
The amount of such gain or loss will be equal to the difference between the
"amount realized" and the adjusted tax basis of such shares. For this purpose,
although there is no authority directly on point, the amount realized generally
should equal the U.S. dollar equivalent amount, determined at the spot rate, of
the trading value of the RWCI Restricted Voting Shares on the TSX on the date of
the Compulsory Acquisition. In such event, capital gain or loss also would be
recognized by the U.S. Holder at the time the actual fair value payment is
determined or the actual amount is received, to the extent that such payment
exceeds or is less than the amount previously recognized. In addition, if any
portion of this actual payment received was characterized as interest income for
United States federal tax purposes, such portion generally should be included in
ordinary income in accordance with the U.S. Holder's method of accounting.
SUBSEQUENT ACQUISITION TRANSACTION
If RCI is unable to effect a Compulsory Acquisition, or elects not to
proceed with a Compulsory Acquisition, then RCI intends to propose a Subsequent
Acquisition Transaction as described in this Circular. The United States federal
income tax consequences resulting therefrom will depend upon the manner in which
the transaction is carried out and may be substantially similar to or materially
different from the consequences described above. However, the United States
federal income tax consequences to a U.S. Holder of a disposition of RWCI
Restricted Voting Shares for RCI Non-Voting Shares pursuant to a Subsequent
Acquisition Transaction should be as described under "Sale of RWCI Restricted
Voting Shares Pursuant to the Offer" above, but based upon the fair market value
of the RCI Non-Voting Shares and the spot rate of exchange at the time of the
Subsequent Acquisition Transaction. U.S. Holders should consult their tax
advisors with respect to any United States federal, state or local tax
consequences to them of having their RWCI Restricted Voting Shares acquired
pursuant to a Subsequent Acquisition Transaction.
A U.S. Holder who dissents in a Subsequent Acquisition Transaction and
elects to receive the fair value for the holder's RWCI Restricted Voting Shares
generally will be treated in the same manner as described above under
"Compulsory Acquisition of Shares".
AMOUNTS SUBJECT TO CANADIAN WITHHOLDING TAX
A U.S. Holder who dissents in a Compulsory Acquisition or a Subsequent
Acquisition Transaction may receive interest or may be deemed to receive a
dividend under Canadian federal income tax law and, as a result, may be subject
to Canadian withholding tax (or may otherwise be subject to Canadian withholding
tax). See "MATERIAL CANADIAN FEDERAL INCOME TAX CONSIDERATIONS -- Non-Residents
of Canada" in this Circular. Such U.S. Holder may be eligible, subject to a
number of complex limitations, to claim a foreign tax credit or a deduction in
respect of any Canadian taxes withheld. If a U.S. Holder elects to claim a
foreign tax credit, rather than a deduction, for a particular taxable year, such
election will apply to all foreign taxes paid by the holder in a particular
year. U.S. Holders are urged to consult their tax advisors regarding the
availability of the foreign tax credit under their particular circumstances.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Information returns may be required to be filed with the Internal Revenue
Service relating to payments made to particular U.S. Holders. In addition, U.S.
Holders may be subject to a backup withholding tax on such payments if they do
not provide their taxpayer identification numbers in the manner required, or
otherwise fail to comply with applicable backup withholding tax rules. Any
amounts withheld under the backup withholding rules will be allowed as a credit
against the U.S. Holder's United States federal income tax liability provided
the required information is timely furnished to the Internal Revenue Service.
60
TAX CONSEQUENCES TO U.S. HOLDERS OF HOLDING RCI NON-VOTING SHARES
DIVIDENDS
Dividends paid on RCI Non-Voting Shares will be treated as dividend income
for U.S. federal income tax purposes to the extent of the undistributed current
or accumulated earnings and profits of RCI as computed for U.S. federal income
tax purposes. In the case of an individual U.S. Holder, such dividend income
will be eligible for a maximum tax rate of 15% for dividends received before
January 1, 2009, provided that (i) such holder complies with certain holding
period requirements, (ii) we are a Qualified Foreign Corporation and (iii) we
are not a passive foreign investment company (PFIC). Such dividends will
generally not be eligible for the dividends received deduction available to
certain U.S. corporations.
The Offerors believe that they are Qualified Foreign Corporations, and they
do not believe that they are PFICs. If this latter conclusion is incorrect,
certain additional tax consequences could apply to U.S. Holders.
The amount of any dividend paid in Canadian dollars will equal the U.S.
dollar value of the dividend calculated at the spot rate in effect on the day
the dividend is received by the U.S. Holder.
SALE OR EXCHANGE
Any gain or loss on the sale or exchange of RCI Non-Voting Shares by a U.S.
Holder will be a capital gain or loss, equal to the difference between the U.S.
dollar value of the amount received and the U.S. Holder's basis in the RCI
Non-Voting Shares. If such U.S. Holder has held the RCI Non-Voting Shares for
more than one year, such gain or loss will be long-term capital gain or loss.
Long-term capital gains are taxable at a maximum rate of 15% for tax years
ending before January 1, 2009. Capital losses are subject to certain
limitations.
U.S. FOREIGN TAX CREDIT
A U.S. Holder generally will be entitled, subject to a number of complex
rules and limitations, to claim a U.S. foreign tax credit in respect of any
Canadian withholding taxes imposed on dividends or the proceeds of a sale or
exchange. Holders who do not elect to claim a foreign tax credit may instead
claim a deduction in respect of such withholdings. If a U.S. Holder elects to
claim a foreign tax credit, rather than a deduction, for a particular taxable
year, such election will apply to all foreign taxes paid by the holder in a
particular year. Dividends will be treated as foreign-source income and proceeds
from a sale or exchange will constitute U.S.-source income. U.S. Holders are
urged to consult their tax advisors regarding the availability of the foreign
tax credit under their particular circumstances.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Information returns may be required to be filed with the Internal Revenue
Service relating to payments made to particular U.S. Holders. In addition, U.S.
Holders may be subject to a backup withholding tax on such payments if they do
not provide their taxpayer identification numbers in the manner required, or
otherwise fail to comply with applicable backup withholding tax rules. Any
amounts withheld under the backup withholding rules will be allowed as a credit
against the U.S. Holder's United States federal income tax liability provided
the required information is timely furnished to the Internal Revenue Service.
FINANCIAL ADVISOR, INFORMATION AGENT, DEALER MANAGER AND DEPOSITARY
RCI has retained the services of Scotia Capital to act as its financial
advisor in connection with the Offer. RCI has also engaged the services of
Scotia Capital to act as Dealer Manager in connection with the Offer in Canada
and Scotia Capital (USA) Inc. to act as Dealer Manager in connection with the
Offer in the United States. RCI will reimburse the Dealer Manager for its
reasonable out-of-pocket expenses, including reasonable attorneys' fees, and has
also agreed to indemnify the Dealer Manager against certain liabilities in
connection with the Offer, including certain liabilities under the provincial
securities laws of Canada and the federal securities laws of the United States
and expenses in connection with the Offer. Scotia Capital and its affiliates
render various investment banking services and other advisory services to RCI
and its affiliates and are expected to continue to render such services for
which they have received and expect to receive customary compensation from the
RCI and its affiliates.
Scotia Capital will form and manage a soliciting group (the "Soliciting
Dealer Group") to solicit acceptances of the Offer by Shareholders. The
Soliciting Dealer Group will include members of the Investment Dealers
Association of Canada and all stock exchanges in Canada. In general, RCI will
pay to any member of the Soliciting Dealer Group whose name appears on the
designated place on a duly executed and delivered Letter of Acceptance and
Transmittal
61
accompanying a deposit of RWCI Restricted Voting Shares, a solicitation fee of
$0.25 per RWCI Restricted Voting Share deposited and taken up and paid for
pursuant to the Offer, provided the solicitation fee in respect of any single
depositing beneficial owner of RWCI Restricted Voting Shares shall not be less
than $125 nor more than $1,500 (provided that in the case of a beneficial owner
of less than 300 RWCI Restricted Voting Shares which are deposited to the Offer,
no solicitation fee is payable). The Offerors may make other arrangements with
soliciting dealers outside Canada.
RCI has retained ▇▇▇▇▇▇▇▇▇ Shareholder Communications Inc. to act as
Information Agent in connection with the Offer. The Information Agent will
receive reasonable and customary compensation from RCI for services in
connection with the Offer, will be reimbursed for certain out-of-pocket expenses
and will be indemnified against certain liabilities, including liabilities under
securities laws and expenses incurred in connection therewith.
BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ was formally engaged by the Independent Committee under
the Engagement Letter. The terms of the Engagement Letter provide that BMO
▇▇▇▇▇▇▇ ▇▇▇▇▇ is to be paid (i) $700,000 when it communicates the valuation
range and its commitment to deliver the Valuation to the Independent Committee
and (ii) an additional $600,000 for its advisory services related to the Offer
and delivery of the Fairness Opinion plus, in any event, its out of pocket
expenses.
RCI has also engaged Computershare Investor Services Inc. to act as
depositary for the receipt of certificates in respect of RWCI Restricted Voting
Shares and related Letters of Acceptance and Transmittal and Notices of
Guaranteed Delivery deposited under the Offer. The Depositary will receive
reasonable and customary compensation from RCI for its services relating to the
Offer and will be reimbursed for certain out-of-pocket expenses. RCI has also
agreed to indemnify the Depositary against certain liabilities and expenses in
connection with the Offer, including certain liabilities under the provincial
securities laws of Canada and the federal securities laws of the United States.
Depositing Shareholders will not be obligated to pay any brokerage fee or
commission with respect to the purchase of RWCI Restricted Voting Shares by the
Offerors pursuant to the Offer if they accept the Offer by depositing their RWCI
Restricted Voting Shares directly with the Depositary or by utilizing the
services of the Dealer Manager or a member of the Soliciting Dealer Group. If a
depositing Shareholder owns RWCI Restricted Voting Shares through a broker or
other nominee and such broker or nominee deposits RWCI Restricted Voting Shares
on the Shareholder's behalf, the broker or nominee may charge a fee for
performing this service. Except as set forth above, the Offerors will not pay
any fees or commissions to any broker or dealer or any other Person for
soliciting deposits of RWCI Restricted Voting Shares pursuant to the Offer
(other than to the Dealer Manager, members of the Soliciting Dealer Group and
the Depositary).
Questions and requests for assistance concerning the Offer should be made
directly to the Dealer Manager, the Information Agent or the Depositary.
LEGAL MATTERS
Certain legal matters on behalf of RCI will be passed upon by, and the
opinions contained under "MATERIAL CANADIAN FEDERAL INCOME TAX CONSIDERATIONS"
in this Circular have been provided by, Torys LLP, Canadian counsel to RCI. The
partners and associates of Torys LLP own beneficially, directly or indirectly,
less than 1% of the outstanding RCI Non-Voting Shares.
Certain legal matters on behalf of RCI will be passed upon by, and the
opinions contained under "MATERIAL UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS" in this Circular have been provided by, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇
LLP, U.S. counsel to RCI. The partners and associates of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇
LLP own beneficially, directly or indirectly, less than 1% of the outstanding
RCI Non-Voting Shares.
STATUTORY RIGHTS
Securities legislation in certain of the provinces of Canada provides
Shareholders with, in addition to any other rights they may have at law, rights
to rescission or to damages, or both, if there is a misrepresentation in a
circular or notice that is required to be delivered to such Shareholders.
However, such rights must be exercised within prescribed time limits.
Shareholders should refer to the applicable provisions of the securities
legislation of their jurisdiction for particulars of those rights or consult
with a lawyer.
62
DIRECTORS' APPROVAL
The contents of the Offer to Purchase and Circular have been approved and
the sending thereof to the Shareholders has been authorized by the respective
boards of directors of the Offerors.
63
CONSENTS
CONSENT OF LEGAL COUNSEL
To: The Directors of ▇▇▇▇▇▇ COMMUNICATIONS INC. ( "RCI")
The Directors of RWCI ACQUISITION INC. ("RCI Subco")
We hereby consent to the reference to our opinion under the heading
"Material Canadian Federal Income Tax Considerations" in the circular dated
November 24, 2004 forming part of the offer made by RCI and RCI Subco to
purchase all of the Class B Restricted Voting Shares of ▇▇▇▇▇▇ Wireless
Communications Inc. not owned by RCI or its affiliates.
(Signed) TORYS LLP
Toronto, Ontario
November 24, 2004
To: The Directors of ▇▇▇▇▇▇ COMMUNICATIONS INC. ("RCI")
The Directors of RWCI ACQUISITION INC. ("RCI Subco")
We hereby consent to the reference to our opinion under the heading
"Material United States Federal Income Tax Considerations" in the circular dated
November 24, 2004 forming part of the offer made by RCI and RCI Subco to
purchase all of the Class B Restricted Voting Shares of ▇▇▇▇▇▇ Wireless
Communications Inc. not owned by RCI or its affiliates.
(Signed) ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇ LLP
New York, New York
November 24, 2004
CONSENT OF VALUATOR
To: The Directors of ▇▇▇▇▇▇ COMMUNICATIONS INC. ( "RCI")
The Directors of RWCI ACQUISITION INC. ("RCI Subco")
We hereby consent to the inclusion of our valuation and fairness opinion
addressed to the independent committee of the board of directors of ▇▇▇▇▇▇
Wireless Communications Inc. ("RWCI") dated November 22, 2004 in the circular
dated November 24, 2004 forming part of the offer of RCI and RCI Subco to
purchase all of the Class B Restricted Voting Shares of RWCI not owned by RCI or
its affiliates and to the references to such valuation and fairness opinion in
such circular. We consent to the filing of the valuation and fairness opinion
with the applicable securities regulatory authorities.
(Signed) BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇ INC.
Toronto, Ontario
November 24, 2004
64
AUDITORS' CONSENT
TO: The Board of Directors of ▇▇▇▇▇▇ COMMUNICATIONS INC. ("RCI")
The Board of Directors of RWCI ACQUISITION INC. ("RCI Subco")
We have read the circular of RCI and its wholly-owned subsidiary RCI Subco
dated November 24, 2004 relating to the offer made by RCI and RCI Subco to
purchase all of the Class B Restricted Voting Shares of ▇▇▇▇▇▇ Wireless
Communications Inc not owned by RCI or its affiliates. We have complied with
Canadian generally accepted standards for an auditors' involvement with offering
documents.
We consent to the incorporation by reference in the above-mentioned
circular of our report to the shareholders of RCI on the consolidated balance
sheets of RCI as at December 31, 2003 and 2002 and the consolidated statements
of income, deficit and cash flows for each of the years in the two-year period
ended December 31, 2003. Our report is dated January 28, 2004, except as to note
23, which is as of November 19, 2004.
/s/ KPMG LLP
Chartered Accountants
Toronto, Canada
November 24, 2004
65
AUDITORS' CONSENT
TO: The Board of Directors of ▇▇▇▇▇▇ COMMUNICATIONS INC. ("RCI")
The Board of Directors of RWCI ACQUISITION INC. ("RCI Subco")
We have read the circular of RCI and its wholly-owned subsidiary RCI Subco
dated November 24, 2004 relating to the offer made by RCI and RCI Subco to
purchase all of the Class B Restricted Voting Shares of ▇▇▇▇▇▇ Wireless
Communications Inc. ("RWCI") not owned by RCI or its affiliates. We have
complied with Canadian generally accepted standards for an auditors' involvement
with offering documents.
We consent to the incorporation by reference in the above-mentioned
circular of our report to the shareholders of RWCI on the consolidated balance
sheets of RWCI as at December 31, 2003 and 2002 and the consolidated statements
of income, deficit and cash flows for each of the years in the two-year period
ended December 31, 2003. Our report is dated January 28, 2004, except as to note
19, which is as of November 19, 2004.
/s/ KPMG LLP
Chartered Accountants
Toronto, Canada
November 24, 2004
66
AUDITORS' CONSENT
We have read the circular of ▇▇▇▇▇▇ Communications Inc. ("RCI") and its
wholly-owned subsidiary RWCI Acquisition Inc. dated November 24, 2004 relating
to the offer made by RCI and RWCI Acquisition Inc. to purchase all of the Class
B Restricted Voting Shares of ▇▇▇▇▇▇ Wireless Communications Inc. not owned by
RCI or its affiliates. We have complied with Canadian generally accepted
standards for an auditor's involvement with offering documents as it relates to
Microcell Telecommunications Inc. ("Microcell").
We consent to the incorporation by reference in the above-mentioned
circular of our report to the Directors of Microcell on the consolidated balance
sheets of Microcell as at December 31, 2003, May 1, 2003 and December 31, 2002
and the consolidated statements of net income(loss) and deficit and cash flows
for the eight months ended December 31, 2003, the four months ended April 30,
2003 and the years ended December 31, 2002 and 2001. Our report is dated
February 11, 2004 (except for note 20 which is as at November 19, 2004).
(signed) ▇▇▇▇▇ & ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇
November 24, 2004 Chartered Accountants
67
APPROVAL AND CERTIFICATE OF ▇▇▇▇▇▇ COMMUNICATIONS INC.
The foregoing contains no untrue statement of a material fact and does not
omit to state a material fact that is required to be stated or that is necessary
to make a statement not misleading in light of the circumstances in which it was
made.
DATED: November 24, 2004
(Signed) ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, O.C. (Signed) ▇▇▇▇ ▇. ▇▇▇▇
President and Vice-President, Finance and
Chief Executive Officer Chief Financial Officer
On behalf of the Board of Directors
(Signed) H. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Q.C., ICD.D (Signed) ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Director Director
68
APPROVAL AND CERTIFICATE OF RWCI ACQUISITION INC.
The foregoing contains no untrue statement of a material fact and does not
omit to state a material fact that is required to be stated or that is necessary
to make a statement not misleading in light of the circumstances in which it was
made.
DATED: November 24, 2004
(Signed) ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, O.C. (Signed) ▇▇▇▇ ▇. ▇▇▇▇
President and Vice-President, Finance and
Chief Executive Officer Chief Financial Officer
On behalf of the Board of Directors
(Signed) M. ▇▇▇▇▇▇▇▇ ▇▇▇▇ (Signed) ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Director Director
69
SCHEDULE "A"
INFORMATION CONCERNING RCI
DOCUMENTS INCORPORATED BY REFERENCE
CANADIAN DOCUMENTS
The following documents filed with the securities regulatory authority in
each of the provinces of Canada are specifically incorporated by reference in
this Circular:
1. annual information form of RCI for the year ended December 31, 2003, dated
May 19, 2004;
2. interim unaudited consolidated financial statements of each of RCI and the
Corporation as at September 30, 2004 and for the three and nine months
ended September 30, 2004 and 2003, and management's discussion and
analysis in respect of those statements of RCI and the Corporation;
3. interim unaudited consolidated financial statements of Microcell as at
September 30, 2004 and for the four months ended April 30, 2003, the five
months ended September 30, 2003 and the nine months ended September 30,
2004;
4. audited consolidated financial statements of each of RCI and the
Corporation as at and for each of the years ended December 31, 2003 and
December 31, 2002, together with the report of the auditors' thereon and
management's discussion and analysis in respect of those statements of RCI
and the Corporation;
5. audited consolidated financial statements of Microcell as at December 31,
2002, May 1, 2003 and December 31, 2003 and for the years ended December
31, 2001 and December 31, 2002, the four months ended April 30, 2003 and
the eight months ended December 31, 2003;
6. management information circular of RCI dated April 21, 2004 in connection
with the annual meeting of shareholders held on May 27, 2004, other than
the sections entitled "Report on Executive Compensation", "Performance
Graph" and "Statement of Corporate Governance Practices";
7. material change report of RCI, relating to the offering of RCI Non-Voting
Shares, dated June 10, 2004;
8. material change report of RCI, relating to the purchase by RCI of RWCI
Restricted Voting Shares from AT&T Wireless, dated September 16, 2004;
9. material change report of RCI, relating to the offer by ▇▇▇▇▇▇ Wireless
Inc. to acquire Microcell, dated September 20, 2004; and
10. material change report of RCI, relating to the Offer, dated November 15,
2004.
Any documents of the types referred to in paragraphs 1 to 10 above
(excluding confidential material change reports) filed by RCI with the
securities regulatory authorities in Canada, after the date of the Offer and
prior to the Expiry Time, shall be deemed to be incorporated by reference into
the Offer to Purchase and Circular.
U.S. DOCUMENTS
The following documents are incorporated by reference for U.S. holders:
1. annual report of RCI for the year ended December 31, 2003 as filed on
November 24, 2004 with the SEC on Form 40-F/A;
2. management's discussion & analysis and audited financial statements of RCI
for the years ended December 31, 2003 and December 31, 2002 as furnished
on November 24, 2004 to the SEC on Form 6-K/A;
3. interim unaudited consolidated financial statements of RCI for the nine
months ended September 30, 2004 as furnished on November 24, 2004 to the
SEC on Form 6-K/A;
4. management information circular of RCI dated April 21, 2004 in connection
with the annual meeting of shareholders held on May 27, 2004, other than
the sections entitled "Report on Executive Compensation", "Performance
Graph" and "Statement of Corporate Governance Practices" as filed on May
10, 2004 with the SEC on Form ARS;
5. material change report of RCI, relating to the offering of RCI Non-Voting
Shares, dated June 10, 2004, as furnished on June 16, 2004 to the SEC on
Form 6-K;
A-1
6. material change report of RCI, relating to the purchase by RCI of RWCI
Restricted Voting Shares from AT&T Wireless, dated September 16, 2004, as
furnished on September 16, 2004 to the SEC on Form 6-K;
7. material change report of RCI, relating to the commencement of the offer
by ▇▇▇▇▇▇ Wireless Inc. to acquire Microcell, dated September 20, 2004 as
furnished on September 21, 2004 to the SEC on Form 6-K;
8. material change report of RCI, relating to the completion of the offer by
▇▇▇▇▇▇ Wireless Inc. to acquire Microcell, dated November 8, 2004, as
furnished on November 8, 2004 to the SEC on Form 6-K;
9. annual report of the Corporation for the year ended December 31, 2003 as
filed on November 24, 2004 with the SEC on Form 40-F/A;
10. management's discussion & analysis and audited financial statements of the
Corporation for the years ended December 31, 2003 and December 31, 2002 as
furnished on November 24 , 2004 to the SEC on Form 6-K/A;
11. interim unaudited consolidated financial statements of the Corporation for
the nine months ended September 30, 2004 as furnished on November 24, 2004
to the SEC on Form 6-K/A; and
12. audited consolidated financial statements of Microcell as at December 31,
2002, May 1, 2003 and December 31, 2003 and for the years ended December
31, 2001 and December 31, 2002, the four months ended April 30, 2003 and
the eight months ended December 31, 2003 and interim unaudited
consolidated financial statements of Microcell as at September 30, 2004
and for the four months ended April 30, 2003, the five months ended
September 30, 2003 and the nine months ended September 30, 2004, which
financial statements and report are attached as exhibits to the Tender
Offer Statement on Schedule TO and for Registration Statement on Form F-10
of RCI to be filed with the SEC on November 26, 2004.
ANY STATEMENT CONTAINED IN A DOCUMENT INCORPORATED OR DEEMED TO BE
INCORPORATED BY REFERENCE HEREIN SHALL BE DEEMED TO BE MODIFIED OR SUPERSEDED
FOR THE PURPOSES OF THE OFFER TO PURCHASE AND CIRCULAR TO THE EXTENT THAT A
STATEMENT CONTAINED HEREIN, OR IN ANY OTHER SUBSEQUENTLY FILED DOCUMENT WHICH
ALSO IS OR IS DEEMED TO BE INCORPORATED BY REFERENCE HEREIN, MODIFIES OR
SUPERSEDES THAT STATEMENT. THE MODIFYING OR SUPERSEDING STATEMENT NEED NOT STATE
THAT IT HAS MODIFIED OR SUPERSEDED A PRIOR STATEMENT OR INCLUDE ANY OTHER
INFORMATION SET FORTH IN THE DOCUMENT THAT IT MODIFIES OR SUPERSEDES. THE MAKING
OF A MODIFYING OR SUPERSEDING STATEMENT SHALL NOT BE DEEMED AN ADMISSION FOR ANY
PURPOSES THAT THE MODIFIED OR SUPERSEDED STATEMENT, WHEN MADE, CONSTITUTED A
MISREPRESENTATION, AN UNTRUE STATEMENT OF A MATERIAL FACT OR AN OMISSION TO
STATE A MATERIAL FACT THAT IS REQUIRED TO BE STATED OR THAT IS NECESSARY TO MAKE
A STATEMENT NOT MISLEADING IN LIGHT OF THE CIRCUMSTANCES IN WHICH IT WAS MADE.
ANY STATEMENT SO MODIFIED OR SUPERSEDED SHALL NOT BE DEEMED, EXCEPT AS SO
MODIFIED OR SUPERSEDED, TO CONSTITUTE A PART OF THE OFFER TO PURCHASE AND
CIRCULAR.
INFORMATION HAS BEEN INCORPORATED BY REFERENCE IN THIS OFFER TO PURCHASE
AND CIRCULAR FROM DOCUMENTS FILED WITH SECURITIES COMMISSIONS OR SIMILAR
AUTHORITIES IN CANADA. Copies of the documents incorporated herein by reference
may be obtained on request without charge from the Secretary of RCI at ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇ ▇▇▇ (telephone:
▇▇▇-▇▇▇-▇▇▇▇). For the purpose of the Province of Quebec, this Circular contains
information to be completed by consulting the permanent information record. A
copy of the permanent information record may be obtained from the Secretary of
RCI at the above-mentioned address and telephone number.
The information provided on the website of RCI is not incorporated herein
by reference and accordingly should not be relied upon for the purpose of making
an investment decision with respect to the securities offered hereunder.
RCI is subject to the informational requirements of the 1934 Act and in
accordance therewith files reports and other information with the SEC. The
reports and other information filed by RCI with the SEC can be inspected and
copied at the public reference facilities maintained by the SEC at Room 1024,
Judiciary Plaza, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇. Please call the
SEC at ▇-▇▇▇-▇▇▇-▇▇▇▇ for further information on the operation of the public
reference room.
In addition, the following documents are being filed with the SEC as part
of the Registration Statement of which this Offer to Purchase and Circular forms
a part: (i) the consents of KPMG LLP, (ii) consent of Ernst & Young, LLP, (iii)
the consent of BMO ▇▇▇▇▇▇▇ ▇▇▇▇▇; (iv) the powers of attorney; (v) the documents
listed under "Documents Incorporated by Reference" in this Schedule "A"; and
(vi) the Letter of Acceptance and Transmittal.
A-2
RECENT DEVELOPMENTS
RCI'S PURCHASE OF RWCI SHARES
On September 13, 2004, RCI entered into an agreement with AT&T Wireless
(through JVII), whereby RCI agreed to purchase all of AT&T Wireless' 48,594,172
RWCI Restricted Voting Shares for a cash purchase price of $36.37 per share,
totalling approximately $1,767 million. RCI indirectly purchased such shares on
October 13, 2004. The sale by AT&T Wireless of its 34.2% interest in the
Corporation does not impact the extensive North American wireless voice and data
roaming capabilities between ▇▇▇▇▇▇ Wireless Inc. and AT&T Wireless, and
customers of both companies continue to enjoy the benefits of seamless wireless
roaming between Canada and the U.S. on North America's largest combined
GSM/GPRS/EDGE network. As a result of this transaction, RCI's ownership interest
in the Corporation increased from approximately 55.3% to approximately 89.2% at
October 31, 2004.
ACQUISITION OF MICROCELL
On September 20, 2004, ▇▇▇▇▇▇ Wireless Inc. announced an agreement with
Microcell to make an all cash offer of $35.00 per share to acquire all of
Microcell, Canada's fourth largest wireless communications provider. The
acquisition was completed on November 12, 2004. ▇▇▇▇▇▇ Wireless Inc. has
expended approximately $1,600 million in connection with the acquisition of
Microcell, including the repayment of Microcell's bank debt and swap
obligations, net of Microcell's cash on hand and including prepayment penalties,
investment banking advisory fees and other related costs.
FINANCING TRANSACTIONS
RCI'S PURCHASE OF RWCI SHARES
RCI's purchase of the RWCI Restricted Voting Shares from AT&T Wireless was
funded by RCI with a $1,750 million bridge credit facility with a term of up to
two years to October 12, 2006. The facility was provided by a group of Canadian
financial institutions and is secured by a pledge of all of the shares of the
Corporation and ▇▇▇▇▇▇ Cable Inc. that are owned by RCI or any of its
subsidiaries. The bridge credit facility contains mandatory repayment
requirements, on the incurrence of debt by RCI or ▇▇▇▇▇▇ Wireless Inc. and/or
the issuance of equity by RCI or by the Corporation, subject to certain
exceptions, including equity issuances in connection with the purchase of the
shares of the Corporation.
ACQUISITION OF MICROCELL
▇▇▇▇▇▇ Wireless Inc. has expended approximately $1,600 million in
connection with the acquisition of Microcell. The funding by ▇▇▇▇▇▇ Wireless
Inc. for this acquisition is comprised of: utilization of cash on hand,
drawdowns under a committed $700 million amended bank credit facility, and
proceeds from a bridge loan to ▇▇▇▇▇▇ Wireless Inc. from RCI of up to $900
million, of which $850 million has been drawn. The bridge loan has a term of up
to two years from November 9, 2004 and was made on a subordinated unsecured
basis. The bridge loan bears interest at 6% per annum and is prepayable in whole
or in part without penalty. RCI funded the $850 million drawdown on the bridge
loan using cash on hand, cash received from Rogers Cable Inc. in the form of a
return of capital and cash received from ▇▇▇▇▇▇ Media Inc. in the form of a
repayment of an intercompany advance made to ▇▇▇▇▇▇ Media Inc. by RCI. Each of
Rogers Cable Inc. and ▇▇▇▇▇▇ Media Inc. made drawdowns under its respective
committed bank credit facilities to fund the cash transfers to RCI.
Rogers Wireless Inc. intends to refinance the bridge loan from RCI of up to
$900 million, of which $850 million is drawn down, as well as RCI's $1,750
million bridge credit facility. ▇▇▇▇▇▇ Wireless Inc. intends to use the net
proceeds of $2,773 million from the debt offering referred to below under
"Offers of Senior Notes -- ▇▇▇▇▇▇ Wireless Inc." to repay the $850 million
bridge loan to RCI, make a $1,750 million distribution as a return of capital to
the Corporation and use the remaining net proceeds to repay a portion of the
advances outstanding under ▇▇▇▇▇▇ Wireless Inc.'s amended bank credit facility.
The Corporation is reviewing the various methods of transferring the $1,750
million distribution to its shareholders, so RCI will have adequate funds to
repay its $1,750 million bridge credit facility incurred in connection with its
acquisition of the RWCI Restricted Voting Shares from AT&T Wireless. A
determination of the method of such a distribution, including the timing
thereof, will not take place until following completion of the Offer.
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OFFERS OF SENIOR NOTES
▇▇▇▇▇▇ WIRELESS INC.
On November 19, 2004, ▇▇▇▇▇▇ Wireless Inc. priced a private placement of
notes in an aggregate principal amount of approximately US$2,356 million. The
private placement consists of $460 million 7.625% senior (secured) notes due
2011, US$550 million floating rate senior (secured) notes due 2010, US$470
million 7.25% senior (secured) notes due 2012, US$550 million 7.50% senior
(secured) notes due 2015 and US$400 million 8.00% senior subordinated notes due
2012.
▇▇▇▇▇▇ Wireless Inc. expects to use the proceeds form the private placement
to make a $1,750 million distribution as a return of capital to the Corporation;
to repay $850 million of intercompany subordinated debt owing to RCI in
connection with ▇▇▇▇▇▇ Wireless Inc.'s acquisition of Microcell; and the
remaining net proceeds to partially repay advances outstanding under ▇▇▇▇▇▇
Wireless Inc.'s amended bank credit facility. The Corporation is reviewing the
various methods of transferring the $1,750 million distribution to its
shareholders, so RCI will have adequate funds to repay its $1,750 million bridge
credit facility incurred in connection with its acquisition of the Corporation's
shares from AT&T Wireless. A determination of the method of such a distribution,
including the timing thereof, will not take place until following completion of
this Offer and the distribution will be subject to compliance with applicable
legal requirements.
▇▇▇▇▇▇ CABLE INC.
On November 19, 2004 ▇▇▇▇▇▇ Cable Inc. priced a private placement of notes
in an aggregate principal amount of approximately US$427 million. The private
placement consists of Cdn$175 million 7.25% senior (secured) second priority
notes due 2011 and US$280 million 6.75% senior (secured) second priority notes
due 2015.
▇▇▇▇▇▇ Cable Inc. intends to use all of the net proceeds from the private
placement to partially repay outstanding advances under its bank credit
facility. On November 9, 2004, ▇▇▇▇▇▇ Cable Inc. borrowed $650.0 million under
its bank credit facility which, together with $10.0 million cash on hand, was
distributed to RCI as a return of capital.
AUDITORS, TRANSFER AGENT AND REGISTRAR
The auditors of RCI and the Corporation are KPMG LLP, Chartered
Accountants, Toronto, Ontario. The auditors of Microcell are Ernst & Young, LLP,
Chartered Accountants, Montreal, Quebec. The transfer agent and registrar for
the RCI Non-Voting Shares is Computershare Trust Company of Canada at its
principal office in Toronto, Ontario.
PRESENTATION OF FINANCIAL INFORMATION
RCI's consolidated financial statements have been prepared in accordance
with the accounting principles generally accepted in Canada (Canadian GAAP). For
a discussion of the principal differences between Canadian GAAP and the
accounting principles generally accepted in the United States (U.S. GAAP), see
Note 22 to our audited consolidated financial statements incorporated by
reference in this Circular.
SHARE CAPITAL OF RCI AND DIVIDEND POLICY
PREFERRED SHARES
As of November 22, 2004, there were 400,000,000 authorized Preferred Shares
without par value, issuable in series, with rights and terms of each series to
be fixed by the board of directors of RCI prior to the issue of such series. RCI
has three authorized series of RCI Preferred shares, and shares of the Series
XXVII Preferred shares, Series XXX Preferred shares and Series XXXI Preferred
shares are currently outstanding.
The Series XXVII Preferred shares are non-voting, are redeemable at $1,000
per share at RCI's option and carry the right to cumulative dividends at a rate
equal to the bank prime rate plus 1 3/4% per annum.
The Series XXX Preferred shares are non-voting, are redeemable and
retractable under certain conditions and carry the right to non-cumulative
dividends at a rate of 9 1/2% per annum.
The Series XXXI Preferred shares are non-voting, are redeemable at $1,000
per share at RCI's option and carry the right to cumulative dividends at a rate
of 9 5/8% per annum.
A-4
EQUITY SHARES
As of November 22, 2004, there were 56,235,394 authorized RCI Class A
Shares, without par value, of which 56,235,394 were issued and outstanding. Each
RCI Class A Share is entitled to 50 votes per share as approved at the annual
meeting of shareholders held on May 27, 2004. THE HOLDERS OF RCI NON-VOTING
SHARES ARE ENTITLED TO RECEIVE NOTICE OF AND TO ATTEND MEETINGS OF SHAREHOLDERS
BUT, EXCEPT AS REQUIRED BY LAW, ARE NOT ENTITLED TO VOTE AT SUCH MEETINGS. The
RCI Class A Shares may receive a dividend at an annual rate of up to $0.10 per
share only after the RCI Non-Voting Shares have been paid a dividend at an
annual rate of $0.10 per share. The RCI Class A Shares are convertible on a
one-for-one basis into RCI Non-Voting Shares.
As of November 22, 2004, there were 1,400,000,000 authorized RCI Non-Voting
Shares with a par value of $1.62478 per share, of which 189,746,703 were issued
and outstanding. The RCI Class A Shares and RCI Non-Voting Shares participate
equally, share for share, in dividends after payment of an annual dividend of
$0.10 per share for each Class and participate equally, share for share, in any
of the remaining assets of RCI in the event of RCI's dissolution or winding up
(subject to the preference as to dividends in favour of the RCI Non-Voting
Shares).
In May 2003, RCI adopted a dividend policy that provides for the payment
each year of dividends aggregating $0.10 per share to be payable twice yearly on
each outstanding RCI Non-Voting Share and RCI Class A Share held as of the
record date, as determined by the board of directors of RCI.
UNDER APPLICABLE CANADIAN SECURITIES LAWS, AN OFFER TO PURCHASE RCI CLASS A
SHARES WOULD NOT REQUIRE THAT AN OFFER BE MADE TO PURCHASE RCI NON-VOTING
SHARES. UNLIKE THE RWCI RESTRICTED VOTING SHARES, THE RCI NON-VOTING SHARES DO
NOT HAVE THE BENEFIT OF A COAT-TAIL AGREEMENT SUCH AS THE TRUST AGREEMENTS OR A
MINORITY SHAREHOLDER PROTECTION AGREEMENT SUCH AS THE SHAREHOLDER PROTECTION
AGREEMENT.
CONVERTIBLE PREFERRED SECURITIES
Convertible Preferred securities were issued in 1999 with a face value of
$600 million to a subsidiary of Microsoft Corporation (Microsoft). These
Convertible Preferred securities are entitled to interest at a rate of 5 1/2%
per annum, payable quarterly in cash, RCI Non-Voting Shares or additional
Convertible Preferred securities, at RCI's option. The Convertible Preferred
securities are convertible, in whole or in part, at any time, at Microsoft's
option, into 28.5714 RCI Non-Voting Shares per $1,000 aggregate principal amount
of Convertible Preferred securities, representing a conversion price of $35 per
RCI Non-Voting Share. In August 2004, RCI and Microsoft Corporation, the holder
of the Convertible Preferred Securities, agreed to amend the terms of such
securities whereby certain transfer restrictions will terminate on March 28,
2006 unless a qualifying offer to purchase these securities is made by RCI. In
the event such transfer restrictions terminate, during a three month period
subsequent to March 28, 2006, RCI has the option to extend the maturity of these
securities for up to three years from the original August 11, 2009 maturity
date. We have the option of repaying the Convertible Preferred securities in
cash or RCI Non-Voting Shares.
RESTRICTIONS ON THE TRANSFER, VOTING AND ISSUE OF SHARES
RCI has a direct or indirect ownership interest in a number of distinct
Canadian undertakings which hold licences pursuant to applicable licencing
legislation (the "Telecommunications Legislation"). The Telecommunications
Legislation includes the Broadcasting Act (Canada), the Telecommunications Act
(Canada) and the Radiocommunication Act (Canada).
The Telecommunications Legislation contains separate requirements relating
to the level of foreign ownership that is permitted in respect of a given class
of licenced undertaking. RCI believes that it, and each of its subsidiaries,
have at all times been in compliance with all of the relevant ownership
requirements of the Telecommunications Legislation.
In April 1996, the Governor in Council (i.e., the federal cabinet) issued a
Direction to the CRTC respecting the ineligibility of non-Canadians to hold
broadcasting licences, including licences to operate cable television
undertakings. That Direction substantially harmonized the foreign ownership
requirements under the Broadcasting Act with those under the Telecommunications
Act and the Radiocommunication Act. The Direction was amended in 1997 to allow
two non-Canadian controlled telephone companies to hold licences to operate
cable television undertakings within their respective service areas. It was
amended in July 1998 to clarify the restrictions relating to a holding company's
ability to control or influence the programming decisions of the licensee
operating company.
The revised Cabinet Direction authorizes non-Canadians to own and control,
directly or indirectly, up to 33 1/3% of the voting shares and up to 33 1/3% of
the number of votes attached to the voting shares of a holding company which has
A-5
a subsidiary operating company licenced under the Broadcasting Act. In addition,
up to 20% of the voting shares and up to 20% of the votes attached to the voting
shares of the operating licencee company may be owned and controlled, directly
or indirectly, by non-Canadians. The chief executive officer and 80% of the
members of the board of directors of the operating licensee company must be
Canadian. In addition, the holding company and its directors are prohibited from
exercising control or influence over the programming decisions of the licensee
company, unless the holding company satisfies the ownership requirements which
are applicable to the licensee company. There are no restrictions on the number
of non-voting shares that may be held by non-Canadians at either the holding
company or licencee company level. The CRTC retains the discretion under the
Direction to determine whether a given licencee is in fact controlled by
non-Canadians.
The cellular, PCS and paging licenses held by RCI's indirect subsidiary,
▇▇▇▇▇▇ Wireless Inc., include a condition requiring the licensed carrier company
to comply with the ownership restrictions set out in the Telecommunications Act
and the Radiocommunication Act. A maximum level of 20% of the issued voting
shares of the licensed carrier company may be owned by persons who are not
Canadians. In addition, at least 80% of the members of the board of directors of
the licensed carrier company must be Canadian. Pursuant to regulations
promulgated under the Telecommunications Act and the Radiocommunication Act, a
parent corporation may have up to 33 1/3% of its voting shares owned by non-
Canadians. Neither the licensed carrier company nor the parent holding
corporation (such as the Corporation) can be otherwise controlled by
non-Canadians.
In order to ensure that RCI and any Canadian corporation in which RCI has a
direct or indirect interest remains qualified to hold or obtain any cable
television, broadcasting or telecommunications licence or authority to operate a
similar undertaking pursuant to the Telecommunications Legislation and to ensure
that the Corporation and any Canadian corporation in which RCI has an interest
is not in breach of the Telecommunications Legislation or any licences issued to
it or to any Canadian subsidiary, associate or affiliate of it under the
Telecommunications Legislation, the Articles of RCI impose certain restrictions
on the issue and transfer of RCI's shares and the exercise of voting rights
attached thereto. A copy of the text of such restrictions may be obtained from
the Secretary of RCI.
If in the opinion of the board of directors of RCI circumstances arise in
the future that may jeopardize the ability of RCI and its subsidiaries to be
qualified to hold and obtain licences in Canada, the restrictions on transfer,
voting and issue of shares contained in the Articles of RCI will be invoked.
On November 19, 2002, the Minister of Industry announced that the
Government of Canada will review the restrictions on foreign ownership
applicable to the telecommunications sector. In February 2003, ▇▇▇▇▇▇ Wireless
Inc. appeared before the Parliamentary Standing Committee on Industry, Science
and Technology and filed a brief in support of elimination of the restrictions.
▇▇▇▇▇▇ Cable Communications Inc., another subsidiary of RCI, also made
representations in favour of elimination of the foreign ownership restrictions
on cable television companies. A similar submission had been made by RCI in
February of 2002 to the Standing Committee on Canadian Heritage urging the
removal of restrictions on foreign ownership applicable to cable television
companies. On April 28, 2003, the Standing Committee on Industry, Science and
Technology released a report to Parliament in which it recommended the removal
of all Canadian ownership requirements applicable to telecommunications common
carriers, which would include wireless carriers such as ▇▇▇▇▇▇ Wireless Inc. and
entities such as RCI that have a direct or indirect interest in such carriers.
This report also recommended that any changes made to the Canadian ownership
requirements for telecommunications common carriers be extended to cable
television companies, such as Rogers Cable Communications Inc. However, a second
report issued by the Standing Committee on Canadian Heritage in June, 2003, has
expressed concerns that changes in ownership restrictions for either
telecommunications common carriers or cable television companies could have an
adverse impact on the Canadian broadcasting system. Given these conflicting
reports, the Government of Canada has indicated that it will try to reconcile
the conflicting recommendations prior to taking any legislative action. This
reconciliation process is currently underway. It is not yet known whether the
Government of Canada will decide to amend the Telecommunications Legislation to
relax or eliminate the restrictions on either wireless carriers (such as ▇▇▇▇▇▇
Wireless Inc.) or cable television companies (such as ▇▇▇▇▇▇ Cable
Communications Inc.) that distribute broadcasting services and provide internet
and other telecommunications services to the public.
A-6
RISK FACTORS
Any of the following risks could materially adversely affect RCI's
business, financial condition or results of operations. Additional risks and
uncertainties not currently known to RCI or that RCI currently deems to be
immaterial may also materially and adversely affect RCI's business, financial
condition or results of operations.
RISKS RELATING TO RCI
RCI'S HOLDING COMPANY STRUCTURE MAY LIMIT RCI'S ABILITY TO MEET ITS FINANCIAL
OBLIGATIONS.
As a holding company, RCI's ability to meet its financial obligations is
dependent primarily upon the receipt of interest and principal payments on
intercompany advances, management fees, cash dividends and other payments from
its subsidiaries together with proceeds raised by RCI through the issuance of
equity and debt and from the sale of assets.
Substantially all of RCI's business activities are operated by its
subsidiaries, other than certain centralized functions such as payables,
remittance processing, call centres and certain shared information technology
functions. All of RCI's subsidiaries are distinct legal entities and have no
obligation, contingent or otherwise, to make funds available to RCI whether by
dividends, interest payments, loans, advances or other payments, subject to
payment arrangements on intercompany advances and management fees. In addition,
the payment of dividends and the making of loans, advances and other payments to
RCI by these subsidiaries are subject to statutory or contractual restrictions,
are contingent upon the earnings of those subsidiaries and are subject to
various business and other considerations. The subsidiaries are parties to
various agreements, including certain loan agreements, that restrict the ability
of the respective subsidiaries to pay cash dividends or make advances or other
payments to RCI.
RCI IS CONTROLLED BY ONE SHAREHOLDER, WHOSE INTERESTS MAY CONFLICT WITH THOSE OF
OTHER SHAREHOLDERS.
As at November 22, 2004, RCI had outstanding 56,235,394 RCI Class A Shares.
To the knowledge of RCI's directors and officers, the only person or corporation
beneficially owning, directly or indirectly, or exercising control or direction
over more than 10% of RCI's outstanding voting shares is ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇. As of
November 22, 2004, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ beneficially owns or controls 51,116,099 RCI
Class A Shares, representing approximately 90.9% of the issued and outstanding
RCI Class A Shares, which class is the only class of issued shares carrying the
right to vote in all circumstances. Accordingly, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ is, and will
continue to be after this Offer, able to elect a majority of RCI's board of
directors and to control the vote on matters submitted to a vote of RCI's
shareholders. The interests of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ may not correspond with those of
other shareholders. For purposes of the foregoing, a reference to "▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇" includes ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, O.C., the President and Chief Executive
Officer and a director of RCI, and certain corporations, other than RCI, owned
or controlled directly or indirectly by him and trusts for the benefit of ▇▇.
▇▇▇▇▇▇ and his family.
THE OPERATION OF RCI'S BUSINESS REQUIRES SUBSTANTIAL CAPITAL, AND THERE IS NO
GUARANTEE THAT FINANCING WILL BE AVAILABLE TO MEET THOSE REQUIREMENTS.
The operation of RCI's networks, the marketing and distribution of its
products and services and future technology upgrades of the networks will
require substantial capital resources. RCI had approximately $5,300 million of
long-term debt outstanding at December 31, 2003 and, through its subsidiaries,
has subsequently incurred substantial additional indebtedness. RCI's PP&E
spending on a consolidated basis in 2003 was approximately $964 million.
Significant additional PP&E expenditures will also be required during 2004 and
in the future.
The actual amount of PP&E expenditures required to finance RCI's operations
and network development may vary materially from RCI's estimates. RCI may incur
significant additional capital expenditures in the future as a result of
unforeseen delays in the development of its networks, cost overruns, customer
demand, unanticipated expenses, regulatory changes or other events that affect
RCI's businesses, and may need to obtain additional funds as a result of these
unforeseen events. RCI anticipates that additional debt financing may be needed
to fund cash requirements in the future. RCI cannot predict whether such
financing will be available, what the terms of such additional financing would
be or whether existing debt agreements would allow additional financing at that
time. If RCI cannot obtain additional financing when needed, RCI will have to
delay, modify or abandon some of its plans. This could slow RCI's growth and
negatively impact its ability to compete.
A-7
RCI'S SUBSTANTIAL LEVERAGE MAY HAVE ADVERSE CONSEQUENCES.
RCI's substantial debt may have important consequences. For instance, it
could:
- make it more difficult for RCI to satisfy its financial obligations;
- require RCI to dedicate a substantial portion of any cash flow from
operations to the payment of interest and principal due under its debt,
which will reduce funds available for other business purposes;
- increase RCI's vulnerability to general adverse economic and industry
conditions;
- limit RCI's flexibility in planning for, or reacting to, changes in its
businesses and the industries in which it operates;
- place RCI at a competitive disadvantage compared to some of its
competitors that have less financial leverage; and
- limit RCI's ability to obtain additional financing required to fund
working capital and capital expenditures and for other general corporate
purposes.
RCI's ability to satisfy its obligations and to reduce its total debt
depends on its future operating performance and on economic, financial,
competitive and other factors, many of which are beyond RCI's control. RCI's
business may not generate sufficient cash flow and future financings may not be
available to provide sufficient net proceeds to meet these obligations or to
successfully execute its business strategies.
RCI MAY EXPERIENCE ADVERSE EFFECTS DUE TO EXCHANGE RATE AND INTEREST RATE
FLUCTUATIONS.
Nearly all of RCI's business is transacted in Canadian dollars.
Accordingly, RCI is exposed to foreign exchange rate risk on its U.S. dollar
denominated debt. The exchange rate between Canadian dollars and U.S. dollars,
although historically less volatile than those of certain other foreign
currencies, has varied significantly over the last three years. Foreign exchange
and interest rate fluctuations may materially adversely affect RCI's financial
performance or results of operations. For a more complete discussion on the
impact of exchange rate and interest rate fluctuations, see the section entitled
"Interest Rate and Foreign Exchange Management" in RCI's 2003 management's
discussion and analysis, incorporated by reference into this document.
REGULATORY CHANGES COULD ADVERSELY AFFECT RCI'S RESULTS OF OPERATIONS.
Substantially all of RCI's business activities (except for the
non-broadcasting operations of ▇▇▇▇▇▇ Media Inc.) are regulated by the Canadian
Federal Department of Industry, Science and Technology, on behalf of the
Minister of Industry (Canada) (collectively "Industry Canada") and the Canadian
Radio-television and Telecommunications Commission (CRTC) under the
Telecommunications Act (Canada), the Radiocommunication Act (Canada) and the
Broadcasting Act (Canada), and accordingly RCI's results of operations on a
consolidated basis are affected by changes in regulations and decisions by these
regulators. Such regulation relates to, among other things, licensing,
competition, the specific cable television programming services that RCI must
distribute, the rates it may charge to provide access to its network by third
parties, resale of its networks and roaming on to its networks, RCI's operation
and ownership of communications systems and its ability to acquire an interest
in other communications systems. In addition, RCI's cable, cellular, PCS, paging
and broadcasting licences may not generally be transferred without regulatory
approval. Changes in the regulation of RCI's business activities, including
decisions by regulators affecting RCI's operations (such as the granting or
renewal of licences or decisions as to rates RCI may charge its customers), or
changes in interpretations of existing regulations by courts or regulators,
could adversely affect RCI's consolidated results of operations.
RESTRICTIONS ON NON-CANADIAN OWNERSHIP AND CONTROL MAY ADVERSELY AFFECT RCI'S
COST OF CAPITAL.
RCI's regulated subsidiaries must be Canadian-owned and controlled under
requirements enacted or adopted under the Broadcasting Act (Canada), the
Telecommunications Act (Canada) and the Radiocommunication Act (Canada). The
requirements generally provide that Canadians must own at least 80% of the
voting shares of the regulated entities, at least 80% of the members of the
board of directors must be Canadian, and the entities must not be controlled in
fact by non-Canadians. In addition, no more than 33 1/3% of the voting shares of
a parent company, such as RCI or the Corporation, may be held by non-Canadians
and the parent company must not be controlled in fact by non-Canadians in order
that such parent corporation may qualify as Canadian. These restrictions on
non-Canadian ownership and control may have an adverse effect on RCI, including
on its cost of capital. RCI's Articles and the
A-8
Articles of the Corporation contain provisions which constrain the issue and
transfer of certain classes of shares, including RCI Non-Voting shares, for the
purpose of ensuring that RCI and RCI's subsidiaries remain eligible to hold
licences or to carry on businesses which are subject to non-Canadian ownership
and control restrictions. RCI is in compliance with all applicable Canadian
ownership and control requirements.
RCI'S RELATIONSHIP WITH THE CORPORATION MAY CREATE CONFLICTS OF INTEREST.
Because RWCI Restricted Voting Shares representing approximately 10% of the
Corporation's total equity are currently publicly traded, RCI's transactions
with the Corporation and its subsidiaries are currently subject to the
Corporation's obligation to these minority shareholders and the Corporation's
other significant shareholder. RCI's directors and officers who are also
directors or officers of the Corporation have certain fiduciary duties to those
companies and may find themselves in a position where their duties as RCI's
director or officer are in conflict with their duties as a director or officer
of the Corporation with respect to transactions involving RCI and the
Corporation. There can be no assurance that any such conflict will be resolved
in favour of RCI.
RCI MAY ENGAGE IN UNSUCCESSFUL ACQUISITIONS AND DIVESTITURES.
Acquisitions of complementary businesses and technologies, development of
strategic alliances and divestitures of portions of RCI's business are an active
part of its overall business strategy. Services, technologies, key personnel or
businesses of acquired companies may not be effectively assimilated into RCI's
business or service offerings and RCI's alliances may not be successful. RCI may
not be able to successfully complete any divestitures on satisfactory terms, if
at all. Divestitures may result in a reduction in RCI's total revenues and net
income.
RCI MAY BE INVOLVED IN LEGAL PROCEEDINGS THAT MAY HAVE AN ADVERSE IMPACT ON IT.
From time to time, RCI is involved in litigation or other legal proceedings
relating to claims arising out of its operations. The results of these matters
cannot be predicted with certainty. RCI may determine that it is necessary or
desirable to settle one or more of these claims on terms that are adverse to RCI
or one or more of these matters may be determined adversely to its interests and
a substantial judgment may be awarded against it. If either of the foregoing
events were to occur, there could be a material adverse impact on RCI's
business, financial condition, liquidity or results of operations.
RISKS RELATING TO RCI'S CABLE BUSINESS
▇▇▇▇▇▇ CABLE INC. MAY FAIL TO ACHIEVE EXPECTED REVENUE GROWTH FROM NEW AND
ADVANCED CABLE PRODUCTS AND SERVICES.
▇▇▇▇▇▇ Cable Inc. expects that a substantial portion of future growth will
be achieved from new and advanced cable, Internet, voice-over-cable telephony
and other IP products and services. Accordingly, ▇▇▇▇▇▇ Cable Inc. has invested
significant capital resources in the development of a technologically advanced
cable network in order to support a wide variety of advanced cable products and
services and has invested significant resources in the development of new
services to be provided over the network. However, consumers may not provide
sufficient demand for the enhanced cable products and services that are offered.
In addition, any initiatives to increase prices for ▇▇▇▇▇▇ Cable Inc.'s services
may result in increased churn of its subscribers and a reduction in the total
number of subscribers. Alternatively, ▇▇▇▇▇▇ Cable Inc. may fail to anticipate
demand for certain products and services, or may not be able to offer or market
these new products and services successfully to subscribers. ▇▇▇▇▇▇ Cable Inc.'s
failure to retain existing subscribers while increasing pricing or attract
subscribers to new products and services, or failure to keep pace with changing
consumer preferences for cable products and services, could slow revenue growth
and have a material adverse effect on ▇▇▇▇▇▇ Cable Inc.'s business and financial
condition. In addition, ▇▇▇▇▇▇ Cable Inc.'s discounted bundled product and
service offerings may fail to reduce churn and may have an adverse impact on
▇▇▇▇▇▇ Cable Inc.'s financial results.
▇▇▇▇▇▇ CABLE INC. PLANS TO INVEST SUBSTANTIAL RESOURCES IN CONNECTION WITH
VOICE-OVER-CABLE TELEPHONY SERVICES AND MAY NOT RECOVER ALL OR ANY OF ITS
INVESTMENT.
In connection with ▇▇▇▇▇▇ Cable Inc.'s offering of telephony services,
▇▇▇▇▇▇ Cable Inc. anticipates that it will invest approximately $200 million of
PP&E expenditures by the end of 2005, with approximately $100 million to $120
million of the investment occurring in 2004. Once this initial platform is
deployed, the additional variable PP&E expenditures associated with adding each
voice-over-cable telephony service subscriber, which includes uninterruptible
A-9
back-up powering at the home, is expected to be in the range of $300 to $340 per
subscriber addition. ▇▇▇▇▇▇ Cable Inc. does not expect to generate significant
revenue, if any, from this investment during the next few years. ▇▇▇▇▇▇ Cable
Inc. also cannot predict whether its voice-over-cable telephony services, that
will be based on PacketCable technology, will be accepted by its customers or
whether its voice-over-cable telephony services will be competitive, from a
quality and price perspective, with other telephony services that will be
available to ▇▇▇▇▇▇ Cable Inc.'s customers. In addition, in deciding to invest
in voice-over-cable telephony services at this time, ▇▇▇▇▇▇ Cable Inc. has
assumed that Incumbent Local Exchange Carriers (ILECs) will continue to be
regulated for voice services and that safeguards will be put in place to
restrict their ability to offer these services in a bundle with competitive
services. ▇▇▇▇▇▇ Cable Inc. has also assumed that no material access obligations
or other new restrictions will be placed on it. If these assumptions prove to be
incorrect, ▇▇▇▇▇▇ Cable Inc. may not offer voice-over-cable telephony services
as contemplated. As a result of these uncertainties, ▇▇▇▇▇▇ Cable Inc. may not
recover any or all of its investment in telephony services, which could have a
material adverse effect on its business and financial condition.
▇▇▇▇▇▇ CABLE INC. FACES SUBSTANTIAL COMPETITION.
Technological, regulatory and public policy trends have resulted in a more
competitive environment for cable television service providers, Internet Service
Providers (ISPs) and video sales and rental services in Canada. ▇▇▇▇▇▇ Cable
Inc. faces competition from entities utilizing other communications technologies
and may face competition from other technologies being developed or to be
developed in the future. The ability to attract and retain customers is also
highly dependent on the quality and reliability of service provided, as well as
execution of business processes in relation to services provided by competitors.
Competitors of cable include direct-to-home, or DTH, satellite providers, and
other distributors of multi-channel television signals to homes for a fee,
including "grey market" satellite service providers, which are U.S. direct
broadcast satellite, or DBS, providers whose signals are not sold but can be
acquired in Canada, terrestrially-based video service providers, microwave
multi-point distribution system, or MMDS, operators, satellite master antennae
television systems, or SMATVs, and over-air television broadcasters. Other
competitors of the cable television business are providers of "black market",
pirate systems to Canadian customers that enable customers to take, without
paying a fee, programming services from U.S. and Canadian satellite providers by
defeating the operation of the systems preventing unauthorized access.
Competitors of the Internet business include other ISPs offering competing
residential and commercial Internet access services. Competitors of the
videocassette, DVD and video games sales and rental business include other video
rental and retail outlets, as well as alternative entertainment media, such as
theatres, sporting events, PPV services and broadcasting services, as well as
competition from VOD and SVOD services introduced by cable television providers
and on-line-based subscription rental services. Any of these factors could
reduce ▇▇▇▇▇▇ Cable Inc.'s market share or decrease its revenue.
COMPETITION IN MULTIPLE DWELLING UNIT BUILDINGS COULD LEAD TO SUBSCRIBER LOSSES.
The Broadcasting Distribution Regulations (Canada) do not allow ▇▇▇▇▇▇
Cable Inc. or its competitors to obtain exclusive contracts in buildings where
it is technically feasible to install two or more systems. Approximately
one-third of ▇▇▇▇▇▇ Cable Inc.'s basic cable subscribers are located in multiple
dwelling unit buildings (MDUs). These regulations could lead to competitive
subscriber losses or pricing pressure in MDUs serviced by ▇▇▇▇▇▇ Cable Inc.,
which could result in a reduction in its revenue.
FORECASTING PROPERTY, PLANT AND EQUIPMENT EXPENDITURES MAY BECOME MORE
DIFFICULT, WHICH MAY INCREASE THE VOLATILITY OF CABLE'S OPERATING RESULTS.
An increasing component of ▇▇▇▇▇▇ Cable Inc.'s PP&E expenditures will be to
support a series of more advanced services. These services include ▇▇▇▇▇▇ Cable
Inc.'s Internet, digital television, PVR, HDTV, VOD, SVOD, voice-over-telephony
and other enhanced services that require advanced subscriber equipment. A
substantial component of the PP&E required to support these services will be
demand driven. For example, increasing per-subscriber bandwidth usage may lead
to increased network costs. As a result, forecasting PP&E expenditure levels for
▇▇▇▇▇▇ Cable Inc. will likely become less precise, which may increase the
volatility of ▇▇▇▇▇▇ Cable Inc.'s operating results from period to period.
INCREASING PROGRAMMING COSTS COULD ADVERSELY AFFECT ▇▇▇▇▇▇ CABLE INC.'S RESULTS
OF OPERATIONS.
▇▇▇▇▇▇ Cable Inc.'s single most significant purchasing commitment is the
total annual cost of acquiring programming. Programming costs have increased
significantly in recent years, particularly in connection with the recent growth
in subscriptions to digital specialty channels. As ▇▇▇▇▇▇ Cable Inc. continues
to upgrade its analog and
A-10
digital cable selections, increasing programming costs within the industry could
adversely affect its operating results if ▇▇▇▇▇▇ Cable Inc. is unable to pass
such programming costs to its subscribers.
FAILURE BY PROGRAMMING SUPPLIERS TO CONTINUE THEIR OPERATIONS MAY REDUCE ▇▇▇▇▇▇
CABLE INC.'S REVENUE.
There have been a significant number of new digital specialty channels and
services that have become available in Canada since the latter portion of 2001.
▇▇▇▇▇▇ Cable Inc. believes that subscriber selection of these digital specialty
service channels, whether individually, in pre-set theme packs or in
customer-designed channel packages, will provide a consistent and growing stream
of new revenue. In addition, the ability to attract subscribers to digital cable
service is enhanced by the expanded variety of programming choices that are
currently available, including a growing amount of HDTV and on-demand
programming. If a number of programmers that supply digital specialty channels
face financial or operational difficulty sufficient to cause them to cease their
operations, and the number of digital specialty channels decreases
significantly, it may have a significant negative impact on ▇▇▇▇▇▇ Cable Inc.'s
revenue.
IF ▇▇▇▇▇▇ CABLE INC. IS UNABLE TO DEVELOP OR ACQUIRE ADVANCED ENCRYPTION
TECHNOLOGY TO PREVENT UNAUTHORIZED ACCESS TO CABLE PROGRAMMING, ▇▇▇▇▇▇ CABLE
INC. COULD EXPERIENCE A DECLINE IN REVENUES.
▇▇▇▇▇▇ Cable Inc. utilizes encryption technology to protect its cable
signals from unauthorized access and to control programming access based on
subscriber levels. There can be no assurance that ▇▇▇▇▇▇ Cable Inc. will be able
to effectively prevent or eliminate unauthorized decoding of signals in the
future. If ▇▇▇▇▇▇ Cable Inc. is unable to control cable access with its
encryption technology, its subscription levels for digital programming including
VOD and SVOD, as well as Rogers Video rentals, may decline, which could result
in a decline in ▇▇▇▇▇▇ Cable Inc.'s revenues.
▇▇▇▇▇▇ CABLE INC. IS REQUIRED TO PROVIDE ACCESS TO ITS CABLE SYSTEMS TO THIRD
PARTY INTERNET PROVIDERS, WHICH MAY RESULT IN INCREASED COMPETITION.
▇▇▇▇▇▇ Cable Inc. is required by the CRTC to provide access to its cable
systems to third party ISPs at mandated wholesale rates. The CRTC has approved
cost-based rates for third party Internet access service and certain of those
rates are currently under review by the CRTC. As a result of the requirement
that ▇▇▇▇▇▇ Cable Inc. provide access to third party ISPs, ▇▇▇▇▇▇ Cable Inc. may
experience increased competition for high-speed Internet retail subscribers. In
addition, these third party providers would utilize network capacity that ▇▇▇▇▇▇
Cable Inc. could otherwise use for its own subscribers. A third party ISP has
connected to ▇▇▇▇▇▇ Cable Inc.'s network on a wholesale basis and is providing
competing high-speed internet services at retail. The increased competition and
reduced network capacity could result in a reduction of ▇▇▇▇▇▇ Cable Inc.'s
revenue.
FAILURE TO OBTAIN ACCESS TO SUPPORT STRUCTURES AND MUNICIPAL RIGHTS OF WAY COULD
INCREASE ▇▇▇▇▇▇ CABLE INC.'S COSTS AND ADVERSELY AFFECT ITS BUSINESS.
▇▇▇▇▇▇ Cable Inc. requires access to support structures and municipal
rights of way in order to deploy facilities. Where access to municipal rights of
way cannot be secured, ▇▇▇▇▇▇ Cable Inc. applies to the CRTC to obtain a right
of access under the Telecommunications Act (Canada). However, in a recent
decision, the Supreme Court of Canada has determined that the CRTC does not have
the jurisdiction to establish the terms and conditions of access to the poles of
hydroelectric companies. As a result of this decision, the Canadian Cable
Telecommunications Association filed an application with the Ontario Energy
Board (OEB) asking it to set a pole rate for all hydroelectric distributors in
Ontario. The OEB accepted jurisdiction over this matter and held a hearing in
Fall 2004. ▇▇▇▇▇▇ Cable Inc. expects a decision from the OEB in 2005. In New
Brunswick, where there is currently no similar regulatory authority, ▇▇▇▇▇▇
Cable Inc. has received notifications from electric distributors that they will
be seeking a rate increase for the poles that they own. As a result, the costs
of obtaining access to support structures of hydroelectric companies in each of
▇▇▇▇▇▇ Cable Inc.'s cable service areas could be substantially increased and
could adversely affect ▇▇▇▇▇▇ Cable Inc.'s operating results.
▇▇▇▇▇▇ CABLE INC. IS HIGHLY DEPENDENT UPON ITS INFORMATION TECHNOLOGY SYSTEMS
AND THE INABILITY TO ENHANCE ITS SYSTEMS OR A SECURITY BREACH OR DISASTER COULD
HAVE AN ADVERSE IMPACT ON ▇▇▇▇▇▇ CABLE INC.'S FINANCIAL RESULTS AND OPERATIONS.
The day-to-day operation of ▇▇▇▇▇▇ Cable Inc.'s business is highly
dependent on its information technology systems. An inability to enhance ▇▇▇▇▇▇
Cable Inc.'s information technology systems to accommodate additional customer
growth and to support new products and services could have an adverse impact on
▇▇▇▇▇▇ Cable Inc.'s ability to acquire new subscribers, manage subscriber churn,
produce accurate and timely subscriber bills, generate revenue
A-11
growth and manage operating expenses, all of which could adversely impact ▇▇▇▇▇▇
Cable Inc.'s financial results and position.
In addition, ▇▇▇▇▇▇ Cable Inc. uses industry standard network and
information technology security, survivability and disaster recovery practices.
Approximately 1,500 of ▇▇▇▇▇▇ Cable Inc.'s employees and critical elements of
its network infrastructure and information technology systems are located at two
sites: its corporate offices in Toronto and its Toronto operations facility. In
the event that ▇▇▇▇▇▇ Cable Inc. cannot access either of these facilities, as a
result of a natural or manmade disaster or otherwise, ▇▇▇▇▇▇ Cable Inc.'s
operations may be significantly affected and may result in a condition that is
beyond the scope of ▇▇▇▇▇▇ Cable Inc.'s ability to recover without significant
service interruption and commensurate revenue and customer loss.
▇▇▇▇▇▇ CABLE INC. MAY BE REQUIRED TO PAY HIGHER ROYALTY RATES TO COPYRIGHT
COLLECTIVES, WHICH COULD ADVERSELY AFFECT ITS FINANCIAL POSITION.
The Copyright Board of Canada (Copyright Board) is expected to issue a
decision in 2006 on the royalty rates for the retransmission of television and
radio services for the 2004-2008 period. As a result of this decision, the
royalties ▇▇▇▇▇▇ Cable Inc. owes to copyright collectives could increase. A rate
increase for 2004-2008, if ▇▇▇▇▇▇ Cable Inc. is unable to pass the increased
rates to its customers, could have a material adverse effect on its operating
results.
▇▇▇▇▇▇ CABLE INC.'S BUSINESS IS SUBJECT TO VARIOUS GOVERNMENTAL REGULATIONS.
▇▇▇▇▇▇ Cable Inc.'s operations are subject to governmental regulations
relating to, among other things, licencing, competition, programming and foreign
ownership. A significant percentage of ▇▇▇▇▇▇ Cable Inc.'s business activities
are regulated by the CRTC under the Telecommunications Act (Canada), the
Radiocommunication Act (Canada) and the Broadcasting Act (Canada), and
accordingly ▇▇▇▇▇▇ Cable Inc.'s results of operations are affected by changes in
regulations and decisions by the CRTC. Such regulation relates to, among other
things, licensing, competition, the specific cable television programming
services that ▇▇▇▇▇▇ Cable Inc. must distribute, as well as percentages of
foreign ownership and control of cable television licences. In addition, ▇▇▇▇▇▇
Cable Inc.'s CRTC licences must be renewed from time to time and cannot be
transferred without regulatory approval. ▇▇▇▇▇▇ Cable Inc.'s cable television
systems are also required to obtain certain authorizations and to meet certain
technical standards established by the Canadian Federal Department of Industry
Canada (Industry Canada), pursuant to its authority under the Telecommunications
Act (Canada) and the Radiocommunication Act (Canada). Changes in regulation by
Industry Canada could adversely affect ▇▇▇▇▇▇ Cable Inc.'s business and results
of operation. In addition, the costs of providing ▇▇▇▇▇▇ Cable Inc.'s Internet
services may be increased from time to time as a result of compliance with
industry or legislative indicatives to address Internet-based issues such as
copyright infringement, unsolicited commercial e-mail and cyber-crime.
RISKS RELATING TO RCI'S WIRELESS BUSINESS
▇▇▇▇▇▇ WIRELESS INC. FACES SUBSTANTIAL COMPETITION.
The Canadian wireless communications industry is highly competitive. In the
wireless voice and data market, ▇▇▇▇▇▇ Wireless Inc. competes primarily with two
other wireless service providers and may in the future compete with other
companies, including resellers, such as Virgin Mobile Canada, Sprint Canada and
Primus. Potential users of wireless voice and data systems may find their
communications needs satisfied by other current or developing technologies, such
as WiFi, "hotspots" or trunk radio systems, which have the technical capability
to handle mobile telephone calls. ▇▇▇▇▇▇ Wireless Inc. also competes with its
rivals for dealers and retail distribution outlets. There can be no assurance
that ▇▇▇▇▇▇ Wireless Inc.'s current or future competitors will not provide
services comparable or superior to those provided by ▇▇▇▇▇▇ Wireless Inc., or at
lower prices, adapt more quickly to evolving industry trends or changing market
requirements, enter the market in which ▇▇▇▇▇▇ Wireless Inc. operates, or
introduce competing services. Any of these factors could reduce ▇▇▇▇▇▇ Wireless
Inc.'s market share or decrease its revenue.
PRICE COMPETITION COULD ADVERSELY AFFECT ▇▇▇▇▇▇ WIRELESS INC.'S CHURN RATE AND
REVENUE GROWTH.
Aggressive pricing by industry participants in previous years has caused
significant reductions in Canadian wireless communications pricing. ▇▇▇▇▇▇
Wireless Inc. believes that competitive pricing is a factor in causing churn.
▇▇▇▇▇▇ Wireless Inc. cannot predict the extent of further price competition and
customer churn into the future, but ▇▇▇▇▇▇ Wireless Inc. anticipates some
ongoing re-pricing of its existing subscriber base as lower pricing offered to
attract new customers is extended to or requested by existing customers. In
addition, as wireless penetration of the
A-12
population deepens, new wireless customers may generate lower average monthly
revenues than those from ▇▇▇▇▇▇ Wireless Inc.'s existing customers, which could
slow revenue growth.
▇▇▇▇▇▇ WIRELESS INC. MAY FAIL TO ACHIEVE EXPECTED REVENUE GROWTH FROM NEW AND
ADVANCED WIRELESS SERVICES.
▇▇▇▇▇▇ Wireless Inc. expects that a substantial portion of future revenue
growth will be achieved from new and advanced wireless voice and data
transmission services. Accordingly, ▇▇▇▇▇▇ Wireless Inc. has invested and
continues to invest significant capital resources in the development of its
GSM/GPRS/EDGE network in order to offer these services. However, there may not
be sufficient consumer demand for these advanced wireless services.
Alternatively, ▇▇▇▇▇▇ Wireless Inc. may fail to anticipate or satisfy demand for
certain products and services, or may not be able to offer or market these new
products and services successfully to subscribers. ▇▇▇▇▇▇ Wireless Inc.'s
failure to attract subscribers to new products and services, or failure to keep
pace with changing consumer preferences for wireless products and services,
would slow revenue growth and have a material adverse effect on its business and
financial condition.
▇▇▇▇▇▇ WIRELESS INC. EXPECTS TO EXPERIENCE SIGNIFICANT CHANGE IN THE WIRELESS
COMMUNICATIONS INDUSTRY.
The wireless communications industry is experiencing significant
technological change. This includes the increasing pace of digital upgrades to
existing wireless systems, evolving industry standards, ongoing improvements in
the capacity and quality of digital technology, shorter development cycles for
new products and enhancements and changes in end-user needs and preferences.
There is also uncertainty as to the pace and extent that consumer demand for
wireless services will continue to increase, as well as the extent to which
airtime and monthly recurring charges may continue to decline. As a result,
▇▇▇▇▇▇ Wireless Inc.'s future prospects and those of its industry remain
uncertain.
THERE IS NO GUARANTEE THAT ▇▇▇▇▇▇ WIRELESS INC.'S THIRD GENERATION TECHNOLOGY
WILL BE COMPETITIVE OR COMPATIBLE WITH OTHER TECHNOLOGIES.
The deployment of EDGE technology may not be competitive or compatible with
other technologies. ▇▇▇▇▇▇ Wireless Inc. also expects to develop a Universal
Mobile Telecommunications System, or UMTS, technology based network that will
supplement its GSM/GPRS/EDGE networks. While ▇▇▇▇▇▇ Wireless Inc. and other U.S.
and international operators have selected these technologies as an evolutionary
step from current and future networks, there are other competing technologies
that are being developed and implemented in both Canada and other parts of the
world. None of the competing technologies is directly compatible with each
other. If the third generation technology that gains the most widespread
acceptance is not compatible with ▇▇▇▇▇▇ Wireless Inc.'s networks, competing
services based on such alternative technology may be preferable to subscribers
and ▇▇▇▇▇▇ Wireless Inc.'s business may be materially adversely affected.
▇▇▇▇▇▇ WIRELESS INC. MAY ENCOUNTER DIFFICULTIES WITH RESPECT TO THE CONTINUED
DEVELOPMENT OF THIRD GENERATION NETWORK TECHNOLOGY.
▇▇▇▇▇▇ Wireless Inc. is currently pursuing its strategy to transition its
technology network to third generation technology with enhanced digital voice
and data transmission capabilities. In order to implement this transition
successfully:
- network technology developers must complete the refinement of third
generation network technologies, specifically UMTS, networking
technologies; and
- ▇▇▇▇▇▇ Wireless Inc. must complete the implementation of the fixed
network infrastructure to support its third generation technologies,
which will include design and installation of upgrades to its existing
network equipment.
These steps may not be completed in the time frame or at the cost ▇▇▇▇▇▇
Wireless Inc. anticipates. ▇▇▇▇▇▇ Wireless Inc.'s third generation technology
network will rely, in many instances, on new and unproven technology. As with
any new technology, there is a risk that the new technology ▇▇▇▇▇▇ Wireless Inc.
has chosen for its network will not perform as expected, that ▇▇▇▇▇▇ Wireless
Inc. may be unable to integrate the new technology with its current technology
and that ▇▇▇▇▇▇ Wireless Inc. may be unable to deliver next generation services
in a cost-effective manner. The occurrence of any of these difficulties could
delay the development of ▇▇▇▇▇▇ Wireless Inc.'s network, which could materially
adversely affect its business.
A-13
▇▇▇▇▇▇ WIRELESS INC. IS HIGHLY DEPENDENT UPON ITS INFORMATION TECHNOLOGY SYSTEMS
AND THE INABILITY TO ENHANCE ITS SYSTEMS OR A SECURITY BREACH OR DISASTER COULD
HAVE AN ADVERSE IMPACT ON ITS FINANCIAL RESULTS AND OPERATIONS.
The day-to-day operation of ▇▇▇▇▇▇ Wireless Inc.'s business is highly
dependent on its information technology systems. An inability to enhance ▇▇▇▇▇▇
Wireless Inc.'s information technology systems to accommodate additional
customer growth and support new products and services could have an adverse
impact on ▇▇▇▇▇▇ Wireless Inc.'s ability to acquire new subscribers, manage
subscriber churn, produce accurate and timely subscriber bills, generate revenue
growth and manage operating expenses, all of which could adversely impact its
financial results and position. In connection with ▇▇▇▇▇▇ Wireless Inc.'s
acquisition of Microcell, ▇▇▇▇▇▇ Wireless Inc. intends to integrate its
information technology systems with those of Microcell and this integration
could result in unexpected costs and complications that could have an adverse
impact on ▇▇▇▇▇▇ Wireless Inc.'s ability to retain customers, which could
materially adversely affect their financial results and position.
In addition, ▇▇▇▇▇▇ Wireless Inc. uses industry standard network and
information technology security, survivability and disaster recovery practices.
Approximately 1,500 of ▇▇▇▇▇▇ Wireless Inc.'s employees and critical elements of
▇▇▇▇▇▇ Wireless Inc.'s network infrastructure and information technology systems
are located at its corporate offices in Toronto. In the event that ▇▇▇▇▇▇
Wireless Inc. cannot access these facilities, as a result of a natural or
manmade disaster or otherwise, ▇▇▇▇▇▇ Wireless Inc.'s operations may be
significantly affected and may result in a condition that is beyond the scope of
its ability to recover without significant service interruption and commensurate
revenue and customer loss.
▇▇▇▇▇▇ WIRELESS INC. IS DEPENDENT ON INFRASTRUCTURE AND HANDSET VENDORS, WHICH
COULD IMPACT THE QUALITY OF ITS SERVICES OR IMPEDE NETWORK DEVELOPMENT AND
EXPANSION.
▇▇▇▇▇▇ Wireless Inc. has relationships with a small number of essential
network infrastructure and handset vendors, over which it has no operational or
financial control and only limited influence in how they conduct their
businesses. The failure of one of ▇▇▇▇▇▇ Wireless Inc.'s network infrastructure
suppliers could delay programs to provide additional network capacity or new
capabilities and services across the business. Handsets and network
infrastructure suppliers may, among other things, extend delivery times, raise
prices and limit supply due to their own shortages and business requirements. If
these suppliers fail to deliver products and services on a timely basis, or fail
to develop and deliver handsets that satisfy ▇▇▇▇▇▇ Wireless Inc.'s customers'
demands, this could have a negative impact on ▇▇▇▇▇▇ Wireless Inc.'s business,
financial condition and results of operations. Similarly, interruptions in the
supply of equipment for ▇▇▇▇▇▇ Wireless Inc.'s networks could impact the quality
of its service or impede network development and expansion.
▇▇▇▇▇▇ WIRELESS INC. HAS SUBSTANTIAL CAPITAL REQUIREMENTS AND INTENDS TO MAKE
SUBSTANTIAL CAPITAL EXPENDITURES, AND ▇▇▇▇▇▇ WIRELESS INC. MAY NOT BE ABLE TO
OBTAIN SUFFICIENT FINANCING TO EXECUTE ITS BUSINESS STRATEGY.
The operation of ▇▇▇▇▇▇ Wireless Inc.'s wireless communications network,
the marketing and distribution of its products and services, the continued
evolution of network technologies and the addition of network capacity will
continue to require substantial capital resources. The actual amount of capital
required to finance ▇▇▇▇▇▇ Wireless Inc.'s operations and network development
may vary materially from its estimates. ▇▇▇▇▇▇ Wireless Inc. may not generate or
have access to sufficient capital to fund these future requirements. If ▇▇▇▇▇▇
Wireless Inc. cannot obtain additional financing when needed, it will have to
delay, modify or abandon some of its plans to construct its third generation
network. This could slow ▇▇▇▇▇▇ Wireless Inc.'s growth and negatively impact its
ability to compete in the wireless communications industry.
A CHANGE IN FOREIGN OWNERSHIP LEGISLATION COULD INCREASE COMPETITION WHICH COULD
REDUCE ▇▇▇▇▇▇ WIRELESS INC.'S MARKET SHARE OR DECREASE ITS REVENUE.
▇▇▇▇▇▇ Wireless Inc. could face increased competition if there is a removal
or relaxation of the limits on foreign ownership and control of wireless
licences. Legislative action to remove or relax these limits could result in
foreign telecommunication companies entering the Canadian wireless
communications market, through the acquisition of either wireless licences or of
a holder of wireless licences. The entry into the market of such companies with
significantly greater capital resources than ▇▇▇▇▇▇ Wireless Inc. has could
reduce its market share and cause Wireless' revenues to decrease.
A-14
THE IMPLEMENTATION OF WIRELESS LOCAL NUMBER PORTABILITY IN CANADA COULD CREATE
SIGNIFICANT COSTS FOR ▇▇▇▇▇▇ WIRELESS INC. AND INCREASE CHURN.
Over the past several years, certain countries in Europe and Asia have
implemented wireless local number portability ("WLNP"). In addition, the U.S.
wireless industry has also implemented WLNP. WLNP involves porting wireless
phone numbers to other wireless companies, but can also involve porting phone
numbers between wireline and wireless companies. The implementation of WLNP
systems and capabilities represents significant costs for the carriers in a
country. There has been no regulatory mandate for the implementation of WLNP in
Canada to date. The CRTC recently stated that it intends to review the matter in
its 2005/2006 planning period. If WLNP were to be mandated, this would require
the carriers, including ▇▇▇▇▇▇ Wireless Inc., to incur implementation costs that
could be significant and once implemented could cause an increase in churn among
Canadian wireless carriers.
▇▇▇▇▇▇ WIRELESS INC.'S BUSINESS IS SUBJECT TO VARIOUS GOVERNMENT REGULATIONS
THAT COULD ADVERSELY AFFECT ITS BUSINESS OR INCREASE COSTS OR COMPETITION.
The licensing, construction and operation of wireless communications
systems in Canada are subject to the licensing requirements and oversight of
Industry Canada. In addition, various aspects of wireless communications
operations, including ▇▇▇▇▇▇ Wireless Inc.'s ability to enter into
interconnection agreements with traditional wireline telephone companies, are
subject to regulation by the CRTC. Any of the government agencies having
jurisdiction over ▇▇▇▇▇▇ Wireless Inc.'s business could adopt regulations or
take other actions that could materially adversely affect its business and
operations, including actions that could increase competition or that could
increase RCI's costs.
Industry Canada grants radio licences for a specified term. All of ▇▇▇▇▇▇
Wireless Inc.'s licences expire in 2011. Industry Canada has placed conditions
on the maintenance of ▇▇▇▇▇▇ Wireless Inc.'s licences and has the authority at
any time to modify these licensing conditions to the extent necessary to ensure
the efficient and orderly development of radio communication facilities and
services in Canada. Industry Canada may decide not to renew ▇▇▇▇▇▇ Wireless
Inc.'s licences when they expire and any failure by ▇▇▇▇▇▇ Wireless Inc. to
comply with the conditions on the maintenance of its licences could result in a
revocation or forfeiture of any of its licences or the imposition of fines by
Industry Canada.
▇▇▇▇▇▇ Wireless Inc. intends to interconnect its wireless network with the
telecommunications network operated by Microcell, as a competitive local
exchange carrier, for the purpose of termination of traffic on the public
switched telephone network. This arrangement could be challenged before the
CRTC. If the CRTC decided to disallow this arrangement this could adversely
affect ▇▇▇▇▇▇ Wireless Inc.'s business, including increased tax and operating
costs.
CONTRIBUTION RATE INCREASES COULD ADVERSELY AFFECT ▇▇▇▇▇▇ WIRELESS INC.'S
RESULTS OF OPERATIONS.
▇▇▇▇▇▇ Wireless Inc. is required to make payments equal to an annual
percentage of adjusted revenues in accordance with the CRTC's revenue-based
contribution scheme to a fund established to subsidize the provision of basic
local service. The percentage of adjusted revenues payable is revised annually
by the CRTC. The CRTC has announced a contribution levy of 1.1% as both the
final rate for 2003 and the interim rate for 2004. ▇▇▇▇▇▇ Wireless Inc. cannot
anticipate the final rate for 2004 or the rates for future years. The fee
increase ▇▇▇▇▇▇ Wireless Inc. charges its subscribers to recover the cost of the
increased contribution levy may result in a significant number of its
subscribers deciding to deactivate their service and may make it difficult for
▇▇▇▇▇▇ Wireless Inc. to attract new subscribers, particularly if some or all of
▇▇▇▇▇▇ Wireless Inc.'s competitors do not increase their fees or do not increase
them to the same extent as ▇▇▇▇▇▇ Wireless Inc. does, and could materially
adversely affect ▇▇▇▇▇▇ Wireless Inc.'s business.
THIRD GENERATION SPECTRUM ALLOCATION COULD INCREASE ▇▇▇▇▇▇ WIRELESS INC.'S COSTS
AND CREATE A SIGNIFICANT CAPITAL FUNDING REQUIREMENT.
Industry Canada has released a proposed policy regarding third generation
spectrum allocation and has indicated that a third generation spectrum auction
may occur in the 2005 to 2006 timeframe. The spectrum frequency range for third
generation has not been fully resolved, but ▇▇▇▇▇▇ Wireless Inc. believes that
it will likely bear a close resemblance to the U.S. allocation. Although ▇▇▇▇▇▇
Wireless Inc. has acquired additional spectrum in connection with its
acquisition of Microcell, it may choose to participate in the proposed auction
to acquire new spectrum. ▇▇▇▇▇▇ Wireless Inc. does not know how much the cost of
acquiring such spectrum in the proposed auction will be or when it will occur.
▇▇▇▇▇▇ Wireless Inc. could face a significant capital funding requirement in
connection with this proposed auction.
A-15
RESTRICTIONS ON THE USE OF WIRELESS HANDSETS WHILE DRIVING MAY REDUCE SUBSCRIBER
USAGE.
Certain provincial government bodies are considering legislation to
restrict or prohibit wireless handset usage while driving. Legislation banning
the use of hand-held phones while driving was implemented in Newfoundland in
April 2003, which permits the use of hands-free devices. Legislation has been
proposed in other jurisdictions to restrict or prohibit the use of wireless
handsets while driving motor vehicles. Some studies have indicated that certain
aspects of using wireless handsets while driving may impair the attention of
drivers in various circumstances, making accidents more likely. Laws prohibiting
or restricting the use of wireless handsets while driving could have the effect
of reducing subscriber usage, which could cause a material adverse effect on
▇▇▇▇▇▇ Wireless Inc.'s business. Additionally, concerns over the use of wireless
handsets while driving could lead to litigation relating to accidents, deaths or
bodily injuries, which could also have a material adverse effect on ▇▇▇▇▇▇
Wireless Inc.'s business.
CONCERNS ABOUT RADIO FREQUENCY EMISSIONS MAY ADVERSELY AFFECT ▇▇▇▇▇▇ WIRELESS
INC.'S BUSINESS.
Occasional media and other reports have highlighted alleged links between
radio frequency emissions from wireless handsets and various health concerns,
including cancer, and interference with various medical devices, including
hearing aids and pacemakers. While there are no definitive reports or studies
stating that such health issues are directly attributable to radio frequency
emissions, concerns over radio frequency emissions may discourage the use of
wireless handsets or expose ▇▇▇▇▇▇ Wireless Inc. to potential litigation. It is
also possible that future regulatory actions may result in the imposition of
more restrictive standards on radio frequency emissions from low powered devices
such as wireless handsets. ▇▇▇▇▇▇ Wireless Inc. is unable to predict the nature
or extent of any such potential restrictions.
▇▇▇▇▇▇ WIRELESS INC. COULD LOSE ITS WIRELESS LICENCES IF RCI OR ▇▇▇▇▇▇ WIRELESS
INC. FAIL TO COMPLY WITH GOVERNMENTAL LIMITS ON NON-CANADIAN OWNERSHIP AND
CONTROL.
▇▇▇▇▇▇ Wireless Inc.'s wireless licences include a condition requiring RCI
to comply with the ownership restrictions of the Telecommunications Act
(Canada), the legislation that governs the provision of telecommunications
services in Canada by telecommunications service providers. This condition
provides that:
- a minimum of 80% of the issued voting shares of a licenced carrier
company, such as ▇▇▇▇▇▇ Wireless Inc., must be owned and controlled by
Canadians;
- a minimum of 80% of the members of the board of directors of a licenced
carrier company must be Canadians;
- a parent corporation of a licenced carrier company, such as RCI and the
Corporation, must have at least 66 2/3% of its voting shares owned and
controlled by Canadians; and
- neither a licenced carrier nor its parent corporation may be otherwise
controlled in fact by non-Canadians.
Under the Radiocommunication Act (Canada), the legislation that governs the
licensing and use of radio frequency spectrum in Canada, ▇▇▇▇▇▇ Wireless Inc.'s
eligibility to hold its wireless licences is subject to the requirement that:
- no more than 20% of the voting shares of the Corporation's wholly-owned
subsidiary, ▇▇▇▇▇▇ Wireless Inc., and no more than 33 1/3% of the voting
shares of RCI or the Corporation, may be held by non-Canadians; and
- neither Wireless nor RCI may be otherwise effectively controlled by
non-Canadians.
RCI and Wireless are currently in compliance with all of these Canadian
ownership and control requirements. However, to the extent that these
requirements are violated, Wireless would be subject to various penalties,
possibly including, in the extreme case, the loss of Wireless' wireless
licences.
▇▇▇▇▇▇ WIRELESS INC. IS AND WILL CONTINUE TO BE INVOLVED IN LITIGATION.
On August 9, 2004, a proceeding under the Class Actions Act (Saskatchewan)
was brought against providers of wireless communications in Canada, including
▇▇▇▇▇▇ Wireless Inc. and Microcell. The proceeding involves allegations by
wireless customers of breach of contract, misrepresentation and false
advertising arising out of the charging of system access fees. The plaintiffs
seek unquantified damages from the defendant wireless communications service
providers. The proceeding has not been certified as a class action and it is too
early to determine whether the proceeding will qualify for certification as a
class action. Similar proceedings have also been brought against ▇▇▇▇▇▇ Wireless
Inc. and Microcell and other providers of wireless communications in Canada.
A-16
On April 21, 2004, a proceeding was brought against Microcell and others
alleging breach of contract, breach of confidence, misuse of confidential
information, breach of a duty of loyalty, good faith and to avoid a conflict of
duty and self interest, and conspiracy. The plaintiff is seeking damages in the
amount of $160 million. The proceeding is at an early stage.
▇▇▇▇▇▇ Wireless Inc. is and may from time to time be named as a defendant
in other legal actions arising in the ordinary course of ▇▇▇▇▇▇ Wireless Inc.'s
business, including claims arising out of its dealer arrangements.
▇▇▇▇▇▇ WIRELESS INC. REMAINS SUBJECT TO RISKS ARISING OUT OF ITS ACQUISITION OF
MICROCELL, SUCH AS THE RISKS THAT IT MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE
MICROCELL AND MAY NOT BE ABLE TO REALIZE THE ANTICIPATED SYNERGIES.
▇▇▇▇▇▇ Wireless Inc.'s bid for Microcell was based on the belief that
acquiring Microcell would enable it to achieve cost savings from elimination of
duplicative operations and redundant infrastructure and to benefit from
efficiencies in operating and capital spending. The successful realization of
these synergies will depend on a number of factors, many of which are beyond
▇▇▇▇▇▇ Wireless Inc.'s control. ▇▇▇▇▇▇ Wireless Inc. may not be able to achieve
any of the cost savings it anticipates from the acquisition, thereby causing its
financial results to be less than it expects.
▇▇▇▇▇▇ Wireless Inc. may not be able to successfully integrate and manage
Microcell's business because of unanticipated difficulties in assimilating
Microcell's operations, services and corporate culture into its own. In
particular, ▇▇▇▇▇▇ Wireless Inc.'s existing GSM/GPRS/EDGE network, information
technology systems and billing systems and those of Microcell will require
integration that could result in unexpected costs and complications that could
have an adverse impact on its ability to retain customers and adversely impact
on its financial results and position. If ▇▇▇▇▇▇ Wireless Inc. is unable to
successfully integrate and manage Microcell's business, or if the integration
costs, including severance and other employee related costs, as well as costs to
consolidate facilities, systems and operations, are more than anticipated or the
integration diverts management attention or other resources from the operation
of ▇▇▇▇▇▇ Wireless Inc.'s existing business, then ▇▇▇▇▇▇ Wireless Inc.'s
business and financial results may suffer.
▇▇▇▇▇▇ Wireless Inc. may also be subject to unexpected claims and
liabilities arising from the acquisition of Microcell, including claims and
liabilities of Microcell that were not disclosed to ▇▇▇▇▇▇ Wireless Inc. or that
exceed its estimates. These claims could be costly to defend and result in
liabilities to ▇▇▇▇▇▇ Wireless Inc. which may be material in amount.
▇▇▇▇▇▇ Wireless Inc.'s telecommunications network and the
telecommunications network operated by Microcell are based on network equipment
and infrastructure supplied by different telecommunications equipment vendors.
This could materially adversely affect or delay ▇▇▇▇▇▇ Wireless Inc.'s network
integration plans and increase its capital and operating costs.
RISKS RELATING TO RCI'S MEDIA BUSINESS
A DECLINE IN DEMAND FOR ADVERTISING WOULD ADVERSELY AFFECT ▇▇▇▇▇▇ MEDIA INC.'S
RESULTS OF OPERATIONS.
▇▇▇▇▇▇ Media Inc. depends on advertising as a material source of its
revenue and its businesses would be adversely affected by a further material
decline in the demand for local or national advertising. ▇▇▇▇▇▇ Media Inc.
derived approximately 53.4% of its revenues in 2003 from the sale of
advertising. ▇▇▇▇▇▇ Media Inc. expects advertising will continue to be a
material source of ▇▇▇▇▇▇ Media Inc.'s revenue in the future. Advertising
revenue, which is largely a function of consumer confidence and general economic
conditions, remains unpredictable, although the diversity of the businesses
▇▇▇▇▇▇ Media Inc. operates, both geographically and in terms of the breadth of
media, helps to provide some stability to the advertising revenue base. Most of
▇▇▇▇▇▇ Media Inc.'s advertising contracts are short-term contracts that can be
terminated by the advertiser with little notice. A reduction in advertising
spending or loss of material advertising relationships would adversely affect
▇▇▇▇▇▇ Media Inc.'s results of operations and financial position.
▇▇▇▇▇▇ MEDIA INC.'S ABILITY TO GENERATE ADVERTISING REVENUE IS ADVERSELY
AFFECTED BY LOCAL AND REGIONAL ECONOMIC DOWNTURNS.
Expenditures by advertisers tend to be cyclical, reflecting overall
economic conditions as well as budgeting and buying patterns outside of ▇▇▇▇▇▇
Media Inc.'s control. Moreover, because a substantial portion of ▇▇▇▇▇▇ Media
Inc.'s advertising revenue is derived from local advertisers, Rogers Media
Inc.'s ability to generate advertising revenue in specific markets is adversely
affected by local or regional economic downturns. This is particularly true in
the
A-17
concentrated Toronto market, where the combined revenue from Rogers Media Inc.'s
four radio stations and two over-the-air television stations represented
approximately 14% of Media's revenue in 2003.
ROGERS MEDIA INC.'S BUSINESS IS SENSITIVE TO EXTERNAL EVENTS.
External events and consumer behavior substantially influence advertising
patterns and media usage. A terrorist attack, such as occurred in the United
States on September 11, 2001, or a war, may result in a shift in consumer focus
and a change in the price or quantity of advertising purchased. If advertising
and media spending decline following an unforeseen event, Rogers Media Inc.'s
advertising revenues could be adversely affected.
A LOSS IN ROGERS MEDIA INC.'S LEADERSHIP POSITION IN RADIO, TELEVISION OR
MAGAZINE READERSHIP COULD ADVERSELY IMPACT ROGERS MEDIA INC.'S SALES VOLUMES AND
ADVERTISING RATES.
It is well established that advertising dollars migrate to media properties
that are leaders in their respective markets and categories when advertising
budgets are tightened. Although most of Rogers Media Inc.'s radio, television
and magazine properties are currently leaders in their respective markets, such
leadership may not continue in the future. Advertisers base a substantial part
of their purchasing decisions on statistics such as ratings and readership
generated by industry associations and agencies. If Rogers Media Inc.'s radio
and television ratings or magazine readership levels were to decrease
substantially, Rogers Media Inc.'s advertising sales volumes and the rates which
it charges advertisers could be adversely affected.
ROGERS MEDIA INC.'S FAILURE TO IDENTIFY, COMPLETE AND INTEGRATE ACQUISITIONS
COULD SLOW THE GROWTH OF ITS BUSINESS AND ADVERSELY AFFECT ITS FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Historically, Rogers Media Inc.'s growth has been generated, in part, by
strategic acquisitions. Rogers Media Inc. intends to continue to selectively
pursue acquisitions of radio and television stations and publishing properties.
Rogers Media Inc. is not able to predict whether it will be successful in
acquiring properties that enhance its businesses. If Rogers Media Inc. is unable
to identify and complete acquisitions, its growth could slow from historical
levels. In addition, Rogers Media Inc. could face difficulties associated with
integrating the operations of businesses that it does acquire, which could have
a material adverse effect on Rogers Media Inc.'s business, financial condition
or results of operations.
ROGERS MEDIA INC. FACES INCREASED COMPETITION.
New programming or content services, as well as alternative media
technologies, such as digital radio services, satellite radio, DTH satellite,
wireless and wired pay television, Internet radio and video programming, and
on-line publications have either begun competing, or may in the future compete,
with Rogers Media Inc.'s properties for programming and publishing content,
audiences and advertising revenues. These competing technologies may increase
audience fragmentation, reduce Rogers Media Inc.'s ratings or have an adverse
effect on its local or national advertising revenue. These or other technologies
and business models may have a material adverse effect on Rogers Media Inc.'s
results of operations.
A REDUCTION IN SUPPORT FROM THE CANADIAN MAGAZINE FUND MAY HAVE AN ADVERSE
AFFECT ON ROGERS MEDIA INC.'S FINANCIAL POSITION.
The Government of Canada created the Canadian Magazine Fund (CMF) to help
encourage Canadian publishers to continue to produce high-quality and innovative
Canadian editorial content, subject to certain eligibility requirements.
Beginning with the fiscal year ended March 31, 2001, the CMF intended to provide
$150.0 million in funding to Canadian magazine publishers through 2003, $75.0
million of which is intended to support Canadian editorial content. In the
fiscal year ended March 31, 2002, the CMF distributed $25.0 million to over 400
publishers in support of Canadian editorial content, with funding pro-rated
among publishers based on their respective share of total eligible Canadian
editorial expenses. Rogers Media Inc. qualified for approximately $5.0 million
in support from the CMF in 2002. For fiscal years beginning with the fiscal year
ended March 31, 2004, the Government of Canada has announced a number of changes
to the Canadian editorial content envelope of the CMF. Total funding was reduced
in the fiscal year ended March 31, 2004 to $18.0 million and will be reduced to
$16.0 million in each of the next two fiscal years. In addition, editorial
content funding was re-oriented to enable the Government to address the
industry's current needs and current market conditions, with more funding
provided to ethno-cultural, aboriginal, and minority official-language
publications, small community newspapers, arts and literary magazines, and
small-circulation magazines. The reduction in the CMF's support of Rogers Media
Inc. may have an adverse affect on its financial position.
A-18
AN INCREASE IN PAPER PRICES, PRINTING COSTS OR POSTAGE COULD ADVERSELY AFFECT
ROGERS MEDIA INC.'S RESULTS OF OPERATIONS.
A significant portion of Publishing's operating expenses consist of paper,
printing and postage expenses. Paper is Publishing's single largest raw material
expense, representing approximately 7.3% of Publishing's operating expenses in
2003. Publishing depends upon outside suppliers for all of its paper supplies,
holds relatively small quantities of paper in stock itself, and is unable to
control paper prices, which can fluctuate considerably. Moreover, Publishing is
generally unable to pass paper cost increases on to customers. Printing costs
represented approximately 13.1% of Publishing's operating expenses in 2003.
Publishing relies on third parties for all of its printing services. In
addition, Publishing relies on the Canadian Postal Service to distribute a large
percentage of its publications. A material increase in paper prices, printing
costs or postage expenses to Publishing could have a material adverse effect on
Rogers Media Inc.'s business, results of operations or financial condition.
CHANGES IN REGULATORY POLICIES MAY ADVERSELY AFFECT ROGERS MEDIA INC.'S
BUSINESS.
Rogers Media Inc. expects the CRTC to review the Commercial Radio Policy
1998 in 2005 to address issues such as multiple licence ownership and Canadian
content. In the interim, the CRTC is reviewing satellite radio issues, including
the establishment of a satellite radio policy and licensing framework. The CRTC
has released its digital television policy, covering issues such as priority
carriage and simultaneous substitution. Rogers Media Inc. believes that the CRTC
policy provides an effective framework for the growth and development of digital
television broadcasting in Canada. A CRTC consultation has also been established
to develop a framework for the transition or migration of analog to digital for
specialty services.
The cable and telecommunications industries in Canada generally promote the
easing or elimination of foreign ownership restrictions. If successful, the
easing or elimination of such ownership restrictions may cause or require
integrated communications companies to establish a separate ownership structure
for their broadcasting content entities.
TARIFF INCREASES COULD ADVERSELY AFFECT ROGERS MEDIA INC.'S RESULTS OF
OPERATIONS.
Copyright liability pressures continue to affect radio services. The
Copyright Board is considering proposed changes to both Tariff 2 (Broadcast TV)
and Tariff 17 (Non-broadcast TV). While the Society of Composers, Authors and
Music Publishers of Canada (SOCAN) has sought tariff increases for each of these
tariffs, certain specialty services, including Rogers Sportsnet, also have
sought tariff payment adjustments that explicitly recognize the differing value
of music for different genres of services. SOCAN and the Neighbouring Rights
Collective Society (NRCC) also have proposed increases to each of their
respective radio tariffs, with the NRCC also seeking to eliminate important
revenue threshold and all-talk station tariff payment exemptions. If fees were
to increase, such increases could adversely affect Rogers Media Inc.'s results
of operations.
PRESSURES REGARDING CHANNEL PLACEMENT COULD NEGATIVELY IMPACT THE TIER STATUS OF
CERTAIN OF ROGERS MEDIA INC.'S CHANNELS.
Pressures regarding the favourable channel placement of The Shopping
Channel below the first cable tier will likely increase. The CRTC is currently
considering a policy change which could require cable broadcast distribution
undertakings to carry mandatory services below the first cable tier. This
decision, along with the licensing of new local TV stations, has the potential
to negatively affect The Shopping Channel's placement in some cable systems.
Unfavourable channel placement could negatively affect The Shopping Channel's
sales and could have a material adverse effect on Rogers Media Inc.'s results of
operations.
A-19
SCHEDULE "B"
INFORMATION CONCERNING THE CORPORATION
RECENT DEVELOPMENTS
See "Information Concerning RCI -- Recent Developments" in Schedule "A"
hereto.
DIVIDEND POLICY
There were no cash dividends declared by the Corporation for the period
from September 1, 1985 to the date of this Circular nor does the Corporation
anticipate paying any dividends in the foreseeable future. The Corporation is
party to various credit agreements that restrict the Corporation's ability to
declare dividends.
SHARE CAPITAL OF THE CORPORATION
The authorized capital of the Corporation consists of an unlimited number
of RWCI Class A Shares, without par value, an unlimited number of RWCI
Restricted Voting Shares, without par value, and an unlimited number of First
Preferred Shares, issuable in series, without par value. As at November 22,
2004, 62,820,371 RWCI Class A Shares and 80,553,913 RWCI Restricted Voting
Shares were issued and outstanding.
RWCI CLASS A SHARES AND RWCI RESTRICTED VOTING SHARES
Except as otherwise provided below, the RWCI Class A Shares and the RWCI
Restricted Voting Shares rank equally in all respects and neither class may be
subdivided, consolidated, reclassified or otherwise changed unless
contemporaneously therewith the other class is changed in the same proportion or
the same manner, and no distribution of assets or issuance of options, rights
may be made to the holders of either class unless the same distribution or
issuance is made, on a share for share basis, to the holders of the other class.
Subject to the prior rights of holders of any outstanding First Preferred
Shares, the holders of outstanding RWCI Class A Shares and RWCI Restricted
Voting Shares are entitled to receive dividends on a share for share basis out
of assets legally available therefor at such times and in such amounts as the
Board of Directors may from time to time determine without preference or
distinction among or between the RWCI Class A Shares and RWCI Restricted Voting
Shares.
The holders of the RWCI Restricted Voting Shares are generally entitled to
one vote per share other than with respect to the election of directors and the
appointment of auditors and are entitled, voting separately as a class, to elect
three directors of the Corporation. The holders of the RWCI Class A Shares are
generally entitled to ten votes per share. There is no cumulative voting. In
addition to being entitled to receive notice of, to attend in person or by proxy
and to vote at all meetings of holders of RWCI Restricted Voting Shares, each
holder of the RWCI Restricted Voting Shares is entitled to receive notice of, to
attend in person or by proxy and to speak, but not vote, at all class meetings
of holders of RWCI Class A Shares. Under the terms of the Shareholder Protection
Agreement described under "Shareholder Protection Agreement" in this Schedule
"B", RCI has agreed that, so long as RCI owns or controls shares representing
50% or more of the voting power of the shares of the Corporation, RCI will not
vote any RWCI Restricted Voting Shares which it may own or control with respect
to the election of such directors.
Each outstanding RWCI Class A Share may at any time, at the option of the
holder, be converted into one RWCI Restricted Voting Share. The RWCI Restricted
Voting Shares are not convertible into any other class of shares.
The RWCI Class A Shares and RWCI Restricted Voting Shares are not
redeemable and holders thereof as such have no pre-emptive or subscription
rights to purchase any securities of the Corporation. Upon the liquidation,
dissolution or winding up of the Corporation, the holders of RWCI Class A Shares
and RWCI Restricted Voting Shares shall be entitled, subject to such rights as
the holders of the RWCI Preferred Shares may have, to participate equally, share
for share. The outstanding RWCI Class A Shares and RWCI Restricted Voting Shares
are fully paid and non-assessable.
RESTRICTIONS ON NON-CANADIAN OWNERSHIP AND CONTROL
In order to ensure that the Corporation and any Canadian corporation in
which the Corporation has a direct or indirect interest remains qualified to
hold or obtain any license required to carry on a cellular, radio, PCS, paging
or similar undertaking and to ensure that the Corporation and any Canadian
corporation in which the Corporation has an interest is not in breach of any
applicable prescribed law of Canada or a province or any licenses issued to it
or to any
B-1
Canadian subsidiary, associate or affiliate of it under such law, the Articles
of the Corporation impose certain restrictions on the issue and transfer of the
Corporation's shares and the exercise of voting rights attached thereto. A copy
of the full text of such constraints may be obtained from the Secretary of the
Corporation.
The cellular, PCS and paging licenses held by the Corporation's
wholly-owned subsidiary, Rogers Wireless Inc., include a condition requiring the
licensed carrier company to comply with the ownership restrictions set out in
the Telecommunications Act (Canada) and the Radiocommunication Act (Canada). A
maximum level of 20% of the issued voting shares of the licensed carrier company
may be owned by persons who are not Canadians. In addition, at least 80% of the
members of the board of directors of the licensed carrier company must be
Canadian. Pursuant to regulations promulgated under the Telecommunications Act
(Canada) and the Radiocommunication Act (Canada), a parent holding corporation
(such as the Corporation) may have up to 33 1/3% of its voting shares owned by
non-Canadians. Neither the licensed carrier company nor the parent corporation
can be otherwise controlled by non-Canadians.
The Corporation is required to limit the ownership of the Corporation's
voting shares, which include only the RWCI Class A Shares, by persons who are
not Canadians to a maximum of 33 1/3% of the total issued and outstanding voting
shares. The RWCI Restricted Voting Shares are not voting shares for the purposes
of the Telecommunications Act (Canada) and the Radiocommunication Act (Canada).
Accordingly, the issue and transfer of the RWCI Restricted Voting Shares is not
constrained by the Articles of the Corporation. The Corporation will apply the
constraints in the Articles of the Corporation to ensure that no more than
33 1/3% of the RWCI Class A Shares are beneficially owned by non-Canadians.
On November 19, 2002, the Minister of Industry announced that the
Government of Canada would review the restrictions on foreign ownership
applicable to the telecommunications sector. In February, 2003, Rogers Wireless
Inc. appeared before the Parliamentary Standing Committee on Industry, Science
and Technology and filed a brief in support of elimination of the restrictions.
A similar submission had been made by RCI, in February of 2002 to the Standing
Committee on Canadian Heritage urging the removal of restrictions on foreign
ownership applicable to cable television companies. On April 28, 2003, the
Standing Committee on Industry, Science and Technology released a report to
Parliament in which it recommended the removal of all Canadian ownership
requirements applicable to telecommunications common carriers, which would
include wireless carriers such as Rogers Wireless Inc. and entities such as the
Corporation that have a direct or indirect interest in such carriers. This
report also recommended that any changes made to the Canadian ownership
requirements for telecommunications common carriers be extended to cable
television companies, such as Rogers Cable Communications Inc., an affiliate of
the Corporation. However, a second report issued by the Standing Committee on
Canadian Heritage in June, 2003, has expressed concerns that changes in
ownership restrictions for either telecommunications common carriers or cable
television companies could have an adverse impact on the Canadian broadcasting
system. Given these conflicting reports, the Government of Canada has indicated
that it will try to reconcile the conflicting recommendations prior to taking
any legislative action. This reconciliation process is currently underway. It is
not yet known whether the Government of Canada will decide to amend the
telecommunications legislation to relax or eliminate the restrictions on
wireless carriers such as Rogers Wireless Inc.
SHAREHOLDER PROTECTION AGREEMENT
The Corporation and RCI have entered into the Shareholder Protection
Agreement which provides that:
1. in respect of a Going Private Transaction (as defined below)
involving the Corporation proposed by RCI or insiders, associates or
affiliates of RCI, (a) a formal valuation of the RWCI Restricted
Voting Shares and of any non-cash consideration being offered to
holders of such shares will be prepared by an independent valuer, (b)
the consideration offered per share will not be less than the value,
or the low point of the range of values, arrived at in the formal
valuation, and (c) such transaction will be subject to approval by at
least 66 2/3% of the votes cast by the minority holders of RWCI
Restricted Voting Shares (minority shareholders exclude affiliates of
the Corporation); and
2. in respect of an Issuer Bid or Insider Bid (each as defined below)
made by RCI or any of its subsidiaries relating to the Corporation,
(a) a formal valuation of the RWCI Restricted Voting Shares and of
any non-cash consideration being offered to holders of such shares
will be prepared by an independent valuer, and (b) the consideration
offered per share to holders of RWCI Restricted Voting Shares will
not be less than 66 2/3% of the value (or of the mid point of the
range of values) arrived at in the formal valuation.
B-2
Such Issuer Bids, Insider Bids and Going Private Transactions are referred
to collectively as the "Transactions".
The Corporation and RCI also agreed under the terms of the Shareholder
Protection Agreement that a committee of independent directors of the
Corporation would be responsible for the selection of the independent valuer and
would review and report to the Board of Directors on any Transaction. The Board
of Directors is required to disclose their reasonable beliefs as to the
desirability or fairness of the Transaction to holders of RWCI Restricted Voting
Shares. The Corporation and RCI have agreed that a valuer will not be considered
to be independent for the purposes of a formal valuation where such person acts
as adviser in respect of the Transaction or where the compensation structure
gives such person a financial incentive in respect of the conclusion of the
formal valuation.
Under the terms of the Shareholder Protection Agreement, formal valuations
shall be based upon techniques that are appropriate in the circumstances, after
considering going-concern assumptions and/or liquidation assumptions, together
with other relevant assumptions. Such formal valuations shall not be less than
the higher of going-concern value and liquidation value and shall not include
any downward adjustment in the value of the RWCI Restricted Voting Shares to
reflect the liquidity thereof, the effect of the Transaction or the fact that
the RWCI Restricted Voting Shares do not form part of a controlling interest.
The Corporation has agreed to take all reasonably necessary steps to
maintain a listing of the RWCI Restricted Voting Shares on the NASDAQ National
Market System or a stock exchange in the United States and on a Canadian stock
exchange (except in each case if the Corporation no longer meets the minimum
listing requirements as a result of a Transaction completed in accordance with
the terms of the Shareholder Protection Agreement).
GOING PRIVATE TRANSACTIONS
A Going Private Transaction, for the purposes of the Shareholder Protection
Agreement, is a transaction involving the Corporation whereby the interest of a
holder of RWCI Restricted Voting Shares may be terminated without the consent of
that holder and without the substitution therefor of an interest of equivalent
fair market value in a participating security of the Corporation or of a
successor to the business of the Corporation or a controlling shareholder
thereof, including RCI. Where a transaction is not a Going Private Transaction
because of the substitution of a participating security of equivalent value, the
Corporation is required to obtain and disclose a formal valuation to the holders
of RWCI Restricted Voting Shares, other than in cases where the Corporation's
net assets exceed 90% of the successor corporation's consolidated net assets
upon completion of the transaction, as determined by the Board of Directors. A
Going Private Transaction does not include the acquisition of RWCI Restricted
Voting Shares pursuant to a statutory right of acquisition. A statutory right of
acquisition, under applicable Canadian law, allows an offeror who, pursuant to a
take-over bid made for all outstanding RWCI Restricted Voting Shares, acquires
90% or more of the RWCI Restricted Voting Shares subject to the bid, to acquire
the RWCI Restricted Voting Shares of holders not accepting such bid, subject to
such holder's right to dissent and receive the fair value of his or her RWCI
Restricted Voting Shares.
INSIDER BIDS
For the purposes of the Shareholder Protection Agreement, an Insider Bid is
an offer made by RCI or a subsidiary of RCI, while an insider of the Corporation
(as defined under Ontario securities legislation in effect as of August 7, 1991
(the "Former Act")), to acquire RWCI Restricted Voting Shares, where the RWCI
Restricted Voting Shares subject to such offer together with RCI's RWCI
Restricted Voting Shares (including RWCI Restricted Voting Shares into which
RCI's RWCI Class A Shares are convertible) constitute in the aggregate 20% or
more of the outstanding RWCI Restricted Voting Shares (including RWCI Restricted
Voting Shares into which RCI's RWCI Class A Shares are convertible). An Insider
Bid which under the Former Act would be exempt from the requirement that it be
made to all holders of RWCI Restricted Voting Shares is not subject to the
Shareholder Protection Agreement. That would include where (i) it is an offer
for not more than 5% of the outstanding RWCI Restricted Voting Shares at a price
not in excess of the market price, (ii) the purchase is made from not more than
five persons and the value of the consideration does not exceed 115% of the
market price, or (iii) the number of holders of RWCI Restricted Voting Shares in
Ontario is minimal (i.e., 50 holders or fewer holding 2% or less of the RWCI
Restricted Voting Shares).
The Offer is an Insider Bid for purposes of the Shareholder Protection
Agreement and the Offer is being carried out in accordance with the terms of the
Shareholder Protection Agreement.
B-3
ISSUER BIDS
An Issuer Bid in respect of the Corporation, for the purposes of the
Shareholder Protection Agreement, is an offer by the Corporation to acquire RWCI
Restricted Voting Shares, other than an exempt offer under the Former Act,
including pursuant to (i) market purchases through the TSX where the aggregate
number of RWCI Restricted Voting Shares acquired within any twelve month period
does not exceed the greater of 5% of the outstanding RWCI Restricted Voting
Shares and 10% of the public float (being the number of RWCI Restricted Voting
Shares owned by persons other than directors and senior officers of the
Corporation and holders of more than 10% of the RWCI Restricted Voting Shares or
RWCI Class A Shares), (ii) purchases from current or former employees of the
Corporation or of its affiliates where the value of the consideration does not
exceed the market price and the aggregate number of RWCI Restricted Voting
Shares acquired by the Corporation within a twelve month period from such
current or former employees does not exceed 5% of the outstanding RWCI
Restricted Voting Shares or (iii) purchases where the number of holders of RWCI
Restricted Voting Shares in Ontario is minimal (i.e. 50 holders or fewer holding
2% or less of the RWCI Restricted Voting Shares).
OTHER
The Shareholder Protection Agreement provides certain instances where a
Transaction is not subject to the valuation and minority approval requirements,
including where the price to be offered to all shareholders is arrived at
through arm's length negotiations with a selling holder of a sizeable block of
RWCI Restricted Voting Shares, provided such holder had full knowledge and
access to information concerning the Corporation. Moreover, a Going Private
Transaction will not be subject to minority shareholder approval where 90% or
more of the outstanding RWCI Restricted Voting Shares are held by RCI or its
affiliates.
Under the terms of the Shareholder Protection Agreement, RCI has agreed
that, so long as RCI owns or controls shares representing 50% or more of the
voting power of the shares of the Corporation, RCI will not vote any RWCI
Restricted Voting Shares which it may own or control with respect to the
election of the three directors to be elected by the holders of RWCI Restricted
Voting Shares as a class.
The provisions of the Shareholder Protection Agreement may not be waived or
amended by the Corporation or RCI without the approval by a majority of the
votes cast by holders of RWCI Restricted Voting Shares, excluding any holder who
is an affiliate of the Corporation. The rights and obligations under the
Shareholder Protection Agreement are in addition to any applicable requirements
of law and regulatory authorities.
TAKE-OVER BID PROTECTION FOR RWCI RESTRICTED VOTING SHARES
Under applicable Canadian law, an offer to purchase RWCI Class A Shares
would not necessarily require that an offer be made to purchase RWCI Restricted
Voting Shares. In compliance with the rules of the Canadian stock exchanges, RCI
entered into an agreement (the "Trust Agreement") with CIBC Mellon Trust Company
(the "Trustee") and the Corporation in order to provide the holders of the RWCI
Restricted Voting Shares with certain rights in the event of a take-over bid for
RWCI Class A Shares. A take-over bid, generally defined, is an offer to acquire
outstanding equity or voting shares where, as a result thereof, the offeror
would own more than 20% of the shares of the class.
The Trust Agreement operates by reference to Ontario securities legislation
in effect from time to time and, based upon the application of existing Ontario
securities legislation, would prevent the sale of RWCI Class A Shares owned,
directly or indirectly, by RCI pursuant to a take-over bid, at a price per share
in excess of 115% of the market price of the RWCI Restricted Voting Shares as
determined under such legislation (generally, the twenty day average trading
price of such shares prior to a bid). This prohibition will not apply if: (a)
such sale is made pursuant to an offer to purchase RWCI Class A Shares made to
all holders of RWCI Class A Shares and an offer identical in all material
respects is made concurrently to purchase RWCI Restricted Voting Shares, which
identical offer has no condition attached other than the right not to take-up
and pay for the shares tendered if no shares are purchased pursuant to the offer
for RWCI Class A Shares; or (b) there is a concurrent unconditional offer to
purchase all of the RWCI Restricted Voting Shares at a price per share at least
as high as the highest price per share paid pursuant to the take-over bid for
the RWCI Class A Shares. The Trust Agreement will not prevent certain indirect
sales resulting from the acquisition of shares of a corporation which, directly
or indirectly, controls, or is controlled by RCI or the Corporation where the
transferor and transferee are members of the Rogers Family and the sale is
otherwise made in accordance with applicable law. Indirect sales within the
Rogers Family between issue of Mr. Rogers (other than from parent to child)
B-4
are not excluded from the operation of the Trust Agreement. The phrase "Rogers
Family" is defined to mean (i) Edward S. Rogers, (ii) his spouse, (iii) any
issue of Mr. Rogers, (iv) his estate, (v) any trust primarily for the issue of
Mr. Rogers, spouses of such issue, Mr. Rogers himself or his spouse, and (vi)
any and all corporations of which more than 90% of the voting shares and all of
the participating shares are directly or indirectly owned by one or more of the
foregoing.
Under the Trust Agreement, if any person acquires 20% or more of RCI
Non-Voting Shares by means of a take-over bid, such acquisition will not
constitute a take-over bid for RWCI Class A Shares for purposes of the Trust
Agreement. In addition, if the net book value of the Corporation multiplied by
RCI's percentage interest therein is not greater than 80% of the net book value
of RCI on a consolidated basis, then, for the purposes of the Trust Agreement, a
take-over bid for RCI will not be deemed to be a take-over bid for the RWCI
Class A Shares.
Under the Trust Agreement, any disposition of RWCI Class A Shares
(including a transfer to a pledgee as security) by RCI or any person or company
which they control is conditional upon such person or company becoming a party
to an agreement on substantially similar terms and conditions as are contained
in the Trust Agreement.
The Trust Agreement provides that if a person or company carries out an
indirect sale in respect of any RWCI Class A Shares in contravention of the
Trust Agreement and, following such sale, such RWCI Class A Shares are owned by
RCI, RCI shall not from the time such sale becomes effective and thereafter: (a)
dispose of any such RWCI Class A Shares or convert them into RWCI Restricted
Voting Shares, in either case without the prior written consent of the Trustee;
or (b) exercise any voting rights attaching to such RWCI Class A Shares except
in accordance with the written instructions of the Trustee. The Trustee may
attach conditions to any consent the Trustee gives in exercising its rights
thereunder and shall exercise such rights in a manner that the Trustee considers
to be: (i) in the best interests of the holders of the RWCI Restricted Voting
Shares, other than RCI and holders who, in the opinion of the Trustee,
participated directly or indirectly in the transaction that triggered the
operation of this provision; and (ii) consistent with the intentions of RCI and
the Corporation in entering into the Trust Agreement.
The Trust Agreement contains provisions for the authorization of action by
the Trustee to enforce the rights thereunder on behalf of the holders of the
RWCI Restricted Voting Shares. The obligation of the Trustee to take such action
will be conditional on the Corporation or holders of the RWCI Restricted Voting
Shares providing such funds and indemnity as the Trustee may require. No holder
of RWCI Restricted Voting Shares will have the right, other than through the
Trustee, to institute any action or proceeding or to exercise any other remedy
to enforce any rights arising under the Trust Agreement unless the Trustee fails
to act on a request authorized by holders of not less than 10% of the
outstanding RWCI Restricted Voting Shares after provision of reasonable funds
and indemnity to the Trustee.
The Trust Agreement provides that it may not be amended, and no provision
thereof may be waived, except with the approval of at least two-thirds of the
votes cast by the holders of RWCI Restricted Voting Shares present or
represented at a meeting duly called for the purpose of considering such
amendment or waiver which two-thirds majority shall include a simple majority of
the votes cast by holders of RWCI Restricted Voting Shares excluding the
shareholders and their affiliates and any persons who have an agreement to
purchase RWCI Class A Shares on terms which would constitute a sale for purposes
of the Trust Agreement other than as permitted thereby prior to giving effect to
such amendment or waiver.
No provision of the Trust Agreement limits the rights of any holder of RWCI
Restricted Voting Shares under applicable securities legislation.
B-5
SCHEDULE "C"
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS OF RCI
The following table sets forth the name, current principal occupation or
employment (including the name, principal business and address of the
organization in which such occupation is conducted) and material occupations,
positions, offices or employments during the past five years for each member of
the board of directors and each executive officer of the RCI. Unless indicated
otherwise, each person is a citizen of Canada. Unless indicated otherwise, the
current principal business and address of each person is One Mount Pleasant
Road, Toronto, Ontario and such person's business telephone number at that
address is 416-935-1100. None of the persons listed below has been (1) convicted
in a criminal proceeding during the past five years (excluding traffic
violations or similar misdemeanors), or (2) a party to any judicial or
administrative proceeding during the past five years (except for matters that
were dismissed without sanction or settlement) that resulted in a judgement,
decree or final order enjoining the person from future violations of, or
prohibiting activities subject to, federal or state securities laws, or a
finding of any violation of federal or state securities laws.
CURRENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME AND PRINCIPAL BUSINESS ADDRESS MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
----------------------------------- --------------------------------------------------
DIRECTORS
Ronald D. Besse.............................. A resident of Toronto, Ontario, Mr. Besse has served as a
BesseCo Holdings Inc. director of RCI since June 1984. Mr. Besse was formerly
100 Adelaide Street West Chairman, President and Chief Executive Officer of Gage
Suite #1302 Learning Corporation (an educational publisher). Mr. Besse
Toronto, Ontario is also a director of CML Healthcare Inc., C.I. Fund
M5H 1S3 Management, Inc. and Luxembourg Cambridge Holding Group
and Rogers Cable Inc. Mr. Besse is a member of the Chief
Executives' Organization, World Presidents' Organization,
and is a past president of the Canadian Book Publishers'
Council.
H. Garfield Emerson, Q.C., ICD.D............. A resident of Toronto, Ontario, Mr. Emerson has served as
Fasken Martineau DuMoulin LLP non-executive Chairman of the board of directors of RCI
Toronto Dominion Bank Tower since 1993 and has been a director of RCI since 1989. Mr.
P.O. Box 20, Suite 4200 Emerson has also served as a director of the Corporation
66 Wellington Street West since 1992 and has served as non-executive Deputy Chairman
Toronto-Dominion Centre of the Board of Directors since May, 2002. Mr. Emerson is
Toronto, Ontario M5K 1N6 the National Chairman and a senior partner in the law firm
of Fasken Martineau DuMoulin LLP. Mr. Emerson is also a
director of the Canada Deposit Insurance Corporation, CAE
Inc., Wittington Investments, Limited, Rogers Wireless
Inc., Rogers Telecommunications Limited and Sunnybrook &
Women's College Health Sciences Centre. From 1990 to 2001,
Mr. Emerson served as President and Chief Executive
Officer of N M Rothschild & Sons Canada Limited, an
investment banking firm.
Peter C. Godsoe, O.C. ....................... A resident of Toronto, Ontario, Mr. Godsoe has served as a
Scotia Plaza director of RCI since October, 2003. Mr. Godsoe has served
40 King Street West, Suite 3005 as Chairman (1995), Chief Executive Officer (1993),
Toronto, Ontario President and Chief Operating Officer (1992) and Vice
M5H 1H1 Chairman (1982), of The Bank of Nova Scotia since 1966.
Mr. Godsoe stepped down as CEO on December 2, 2003. Mr.
Godsoe is Chairman of Fairmont Hotels & Resorts and Sobeys
Inc. His corporate directorships include Barrick Gold
Corporation, Ingersoll-Rand Company, Lonmin PLC, Onex
Corporation and Templeton Emerging Markets Investment
Trust. Mr. Godsoe holds a ▇.▇▇. (Mathematics and Physics)
from the University of Toronto and an M.B.A. from the
Harvard Business School. He is a C.A. and a Fellow of the
Institute of Chartered Accountants of Ontario.
C-1
CURRENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME AND PRINCIPAL BUSINESS ADDRESS MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
----------------------------------- --------------------------------------------------
Thomas I. Hull............................... A resident of Toronto, Ontario, Mr. Hull has served as a
The Hull Group director of RCI since 1979 and as a director of the
BCE Place Corporation since 1991. Mr. Hull has been Chairman and
181 Bay Street, Suite 4200 Chief Executive Officer of The Hull Group of Companies, an
Toronto, Ontario M5J 2T3 insurance firm, since 1954. Mr. Hull is also a director of
Rogers Wireless Inc., Rogers Cable Inc. and Rogers
Telecommunications Limited.
Robert W. Korthals........................... A resident of Toronto, Ontario, Mr. Korthals has served as
P.O. Box 298, Suite 4545 a director of RCI since February, 1995. Mr. Korthals is
Royal Trust Tower, TD Centre currently Chairman of the Ontario Teachers Pension Plan
77 King Street West Board and a director of Cognos Inc., Suncor Energy Inc.,
Toronto, Ontario Mulvihill Exchange Traded Closed-End Funds, Easyhome Ltd.,
M5K 1K2 and Jannock Properties Ltd. From 1967 to 1995, Mr.
Korthals served as an officer of a Canadian chartered bank
most recently as President from 1981 until his retirement
in 1995. Mr. Korthals holds a ▇.▇▇., Chemical Engineering,
University of Toronto, and an M.B.A., Harvard Business
School.
Philip B. Lind............................... A resident of Toronto, Ontario, Mr. Lind has served as
Rogers Communications Inc. Vice Chairman of RCI since 1991, as a director of RCI
333 Bloor Street East, 10th Floor since 1979 and has been associated with RCI since 1969.
Toronto, Ontario M4W 1G9 Mr. Lind also serves as a director of a number of other
companies, including Brascan Corporation, Canadian General
Tower Limited, Council for Business and the Arts, The
Outdoor Life Network, and the Power Plant (a contemporary
art gallery).
Alexander Mikalachki......................... A resident of London, Ontario, Mr. Mikalachki has served
Rogers Communications Inc. as a director of RCI since June 1999. Mr. Mikalachki is
333 Bloor Street East, 10th Floor also a director of The Independent Order of Foresters. Mr.
Toronto, Ontario M4W 1G9 Mikalachki served as Acting Dean, 1989-90, Associate Dean,
Programs, 1981-1991 and Professor Emeritus, 2000, Richard
Ivey School of Business, University of Western Ontario.
Mr. Mikalachki holds a B.Comm., Sir George Williams
College and an M.B.A., Ph.D., Ivey Business School,
University of Western Ontario.
The Hon. David R. Peterson, P.C., Q.C........ A resident of Toronto, Ontario, Mr. Peterson has served as
Cassels, Brock & Blackwell LLP a director of RCI and of the Corporation since 1991. Mr.
Suite 2100, 40 King Street West Peterson is a senior partner and Chairman of the law firm
Toronto, Ontario M5H 3C2 Cassels Brock & Blackwell LLP. Mr. Peterson also serves as
a director of a number of other companies, including
Rogers Wireless Inc., BNP Paribas, Ivanhoe Cambridge
Shopping Centres Limited, Industrielle Alliance Assurance
Company and National Life Assurance Company of Canada.
Edward "Ted" S. Rogers, O.C.................. A resident of Toronto, Ontario, Mr. Rogers has served as
Rogers Communications Inc. President, Chief Executive Officer and a director of RCI
333 Bloor Street East, 10th Floor since 1979. Mr. Rogers has also served as a director and
Toronto, Ontario M4W 1G9 Chairman of the Corporation since 1991. He also serves as
a director of Rogers Wireless Inc., Rogers Cable Inc.,
Rogers Media Inc., Rogers Telecommunications Limited,
Cable Television Laboratories, Inc. and the Canadian Cable
Television Association.
C-2
CURRENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME AND PRINCIPAL BUSINESS ADDRESS MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
----------------------------------- --------------------------------------------------
Edward Rogers................................ A resident of Toronto, Ontario, Mr. Rogers has served as a
Rogers Cable Inc. director of RCI since May 1997. Mr. Rogers also serves as
333 Bloor Street East, 7th Floor a director of Futureway Communications Inc. Mr. Rogers was
Toronto, Ontario M4W 1G9 appointed President and Co- Chief Executive Officer of
Rogers Cable Inc. in February 2003 and became President
and Chief Executive Officer of Rogers Cable Inc. in June
2003. Mr. Rogers served as director of the Corporation
from September 1999 to May 2004. From 1998 to 2000, Mr.
Rogers served as Rogers Cable Inc.'s Vice-President and
General Manager, Greater Toronto Area. From 2000 to
February 2003, Mr. Rogers served as Senior Vice President,
Planning and Strategy for RCI.
Loretta A. Rogers............................ A resident of Toronto, Ontario, Mrs. Rogers has served as
Rogers Communications Inc. a director of RCI since 1979 and as a director of the
333 Bloor Street East, 10th Floor Corporation since May, 2003. Mrs. Rogers also serves as a
Toronto, Ontario M4W 1G9 director of Rogers Wireless Inc., Rogers
Telecommunications Limited and Sheena's Place.
Melinda Rogers............................... A resident of Toronto, Ontario, Ms. Rogers has served as a
Rogers Communications Inc. director of RCI since May 2002. Ms. Rogers serves as Vice
333 Bloor Street East, 10th Floor President, Strategic Planning and Venture Investments. She
Toronto, Ontario M4W 1G9 is a director of The Ontario Media Development
Corporation, STSN Inc. and the Jays Care Foundation. Ms.
Rogers served as a director of Rogers Cable Inc. from
March 2000 to May 2004. Ms. Rogers was appointed Vice
President, Venture Investments of RCI in September 2000.
Prior to joining RCI, Ms. Rogers was a Product Manager for
Excite@Home, Redwood City, California. Ms. Rogers holds a
B.A., University of Western Ontario, and an M.B.A.,
University of Toronto.
William T. Schleyer.......................... An American citizen and a resident of Rye Beach, New
Adelphia Communications Corp. Hampshire, Mr. Schleyer has served as a director of RCI
5619 DTC Parkway since August, 1998. Mr. Schleyer was appointed Chairman
Greenwood Village, CO 80111 and Chief Executive Officer of Adelphia Communications
Corp., a cable television and Internet access provider, in
January 2003, prior to which Mr. Schleyer served as
President and Chief Executive Officer of AT&T Broadband, a
cable television and Internet service provider from 2001
to 2003. From February 2000 to October 2001, Mr. Schleyer
was a principal in Pilot House Ventures, an investment
firm, where he served as a liaison between investors and
entrepreneurs. Prior to February 2000, Mr. Schleyer served
as President and Chief Operating Officer of MediaOne, the
broadband services arm of U.S. West Media Group, and as
President and Chief Operating Officer of Continental
Cablevision, Inc. before that Company's merger with U.S.
West in 1996.
John A. Tory, Q.C. .......................... A resident of Toronto, Ontario, Mr. Tory has served as a
Thomson Investments Limited director of RCI since December 1979. Mr. Tory is President
65 Queen Street West, 21st Floor of Thomson Investments Limited. Mr. Tory also serves as a
Toronto, Ontario director of The Thomson Corporation, The Woodbridge
M5H 2M8 Company Limited and Abitibi- Consolidated Inc. Mr. Tory
was educated at University of Toronto Schools, Toronto,
Phillips Academy, Andover, Massachusetts, and University
of Toronto and holds an LL.B., University of Toronto. Mr.
Tory was called to the Bar of Ontario in 1954 and
appointed Queen's Counsel in 1965.
C-3
CURRENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME AND PRINCIPAL BUSINESS ADDRESS MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
----------------------------------- --------------------------------------------------
J. Christopher C. Wansbrough................. A resident of Toronto, Ontario, Mr. Wansbrough has served
Rogers Telecommunications Limited as a director of RCI since 1982 and as a director of the
333 Bloor Street East, 10th Floor Corporation since May, 2003. Mr. Wansbrough has served as
Toronto, Ontario M4W 1G9 Chairman of Rogers Telecommunications Limited since
December 1997. Mr. Wansbrough also served as President of
National Trust Company from 1977 to 1986, Vice Chairman
from 1986 to 1991 and Chairman of the Board of OMERS
Realty Corporation from 1989 to 1997. Mr. Wansbrough also
serves as a director of Rogers Wireless Inc. and Rogers
Cable Inc. Other affiliations include Chairman of the
Board of the R.S. McLaughlin Foundation and the
Independent Order of Foresters.
Colin D. Watson.............................. A resident of Toronto, Ontario, Mr. Watson was elected a
Vector Aerospace Corporation director of RCI in May 2004. Mr. Watson was appointed
105 Bedford Road President and Chief Executive Officer of Vector Aerospace
Toronto, Ontario Corporation, an aviation services firm, in November 2003.
M5R 2K4 Mr. Watson served as Vice-Chairman of Spar Aerospace
Limited, an aviation services firm, from January 2000
until January 2002. From 1996 to 1999, Mr. Watson served
as President and Chief Executive Officer of Spar Aerospace
Limited and from 1999 to 2000, as its Vice Chairman and
Chief Executive Officer. Prior to 1996, Mr. Watson was
President and Chief Executive Officer of Rogers Cable Inc.
Mr. Watson also serves as a director of a number of other
companies, including Rogers Cable Inc., Vector Aerospace
Corporation, Cygnal Technologies Corp., B Split II
Corporation, Kasten Chase Applied Research Limited,
NorthStar Aerospace, OnX Incorporated, Persona Inc., Great
Lakes Carbon Income Fund and Louisiana-Pacific
Corporation.
W. David Wilson.............................. A resident of Toronto, Ontario, Mr. Wilson has served as a
Scotia Capital Inc. director of RCI since February 1979. Mr. Wilson is Vice
7th Floor, Box 4085 Chairman, Bank of Nova Scotia and Chairman and Chief
40 King Street West Executive Officer, Scotia Capital Inc. Mr. Wilson joined
Toronto, Ontario McLeod Young Weir Limited in 1971 and became Managing
M5W 2X6 Director, Corporate Finance Department in 1984, President
and Deputy Chief Executive Officer, ScotiaMcLeod, in 1993
and Chairman and Chief Executive Officer of Scotia Capital
Markets in 1998 and Vice Chairman, Bank of Nova Scotia in
2002. Mr. Wilson is a trustee of the Art Gallery of
Ontario and a member of the Governing Council for the
University of Toronto, the Dean's Advisory Council for the
Schulich School of Business, York University and the
5-year Review Committee (reviewing the Securities Act
(Ontario). Mr. Wilson holds a B. Comm., University of
Toronto and an M.B.A., York University.
EXECUTIVE OFFICERS
Alexander R. Brock........................... A resident of Toronto, Ontario, Mr. Brock was appointed as
Rogers Communications Inc. Vice President, Business Development of RCI in 2002. Mr.
333 Bloor Street East, 10th Floor Brock has been associated with the Rogers group of
Toronto, Ontario M4W 1G9 companies in various executive capacities since 1994.
M. Lorraine Daly............................. A resident of Mississauga, Ontario, Ms. Daly has served as
Rogers Communications Inc. Vice President, Treasurer of RCI since 1989 and has been
333 Bloor Street East, 10th Floor associated with RCI since 1987. Ms. Daly has also been
Toronto, Ontario M4W 1G9 Vice President, Treasurer of the Corporation since 1991.
C-4
CURRENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME AND PRINCIPAL BUSINESS ADDRESS MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
----------------------------------- --------------------------------------------------
Bruce D. Day................................. A resident of Toronto, Ontario, Mr. Day has served as Vice
Rogers Communications Inc. President, Corporate Development of RCI since 1991. Mr.
333 Bloor Street East, 10th Floor Day has been associated with RCI since 1983. Mr. Day is a
Toronto, Ontario M4W 1G9 director of JDS Uniphase Corporation.
H. Garfield Emerson, Q.C., ICD.D ............ A resident of Toronto, Ontario, Mr. Emerson has served as
Fasken Martineau DuMoulin LLP non-executive Chairman of the board of directors of RCI
Toronto Dominion Bank Tower since 1993 and has been a director of RCI since 1989. Mr.
P.O. Box 20, Suite 4200 Emerson has also served as a director of the Corporation
66 Wellington Street West since 1992 and has served as non-executive Deputy Chairman
Toronto-Dominion Centre of the Board since May, 2002. Mr. Emerson is the National
Toronto, Ontario M5K 1N6 Chairman and a senior partner in the law firm of Fasken
Martineau DuMoulin LLP. Mr. Emerson is also a director of
the Canada Deposit Insurance Corporation, CAE Inc.,
Wittington Investments, Limited, Rogers Wireless Inc.,
Rogers Telecommunications Limited and Sunnybrook & Women's
College Health Sciences Centre. From 1990 to 2001, Mr.
Emerson served as President and Chief Executive Officer of
N M Rothschild & Sons Canada Limited, an investment
banking firm.
Kenneth G. Engelhart......................... A resident of Toronto, Ontario, Mr. Engelhart has served
Rogers Communications Inc. as Vice President, Regulatory Law of RCI since 1992 and
333 Bloor Street East, 10th Floor has been associated with RCI since 1990.
Toronto, Ontario M4W 1G9
Alan D. Horn, CA............................. A resident of Toronto, Ontario, Mr. Horn has served as
Rogers Communications Inc. Vice President, Finance and Chief Financial Officer of RCI
333 Bloor Street East, 10th Floor since 1996, prior to which Mr. Horn served as Vice
Toronto, Ontario M4W 1G9 President, Administration of RCI. Mr. Horn has also served
as a Vice President of the Corporation since 1996.
Jan L. Innes................................. A resident of Toronto, Ontario, Ms. Innes has served as
Rogers Communications Inc. Vice President, Communications of RCI since 1995.
333 Bloor Street East, 10th Floor
Toronto, Ontario M4W 1G9
Philip B. Lind............................... A resident of Toronto, Ontario, Mr. Lind has served as
Rogers Communications Inc. Vice Chairman of RCI since 1991, as a director of RCI
333 Bloor Street East, 10th Floor since 1979 and has been associated with RCI since 1969.
Toronto, Ontario M4W 1G9 Mr. Lind also serves as a director of a number of other
companies, including Brascan Corporation, Canadian General
Tower Limited, Council for Business and the Arts, The
Outdoor Life Network, and the Power Plant (a contemporary
art gallery).
Bruce M. Mann, C.P.A......................... A resident of Toronto, Ontario, Mr. Mann has served as
Rogers Communications Inc. Vice President, Investor Relations of RCI since 2001. From
333 Bloor Street East, 10th Floor 1998 to 2001, Mr. Mann served as Vice President, Investor
Toronto, Ontario M4W 1G9 Relations of Metronet Communications Inc. and, from 1986
to 1998, he was associated with US West, Inc., most
recently as Investor Relations Director. Mr. Mann is a CPA
and a CMA and holds an MBA from the University of Denver
where he also taught as an adjunct Professor of
Accounting.
Ronan D. McGrath............................. A resident of Toronto, Ontario, Mr. McGrath has served as
Rogers Communications Inc. President, Rogers Shared Services and Chief Information
One Mount Pleasant Road Officer of RCI since 1996, prior to which Mr. McGrath
M4Y 2Y5 served as Chief Information Officer of Canadian National
Railways (a national rail Toronto Ontario company).
C-5
CURRENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME AND PRINCIPAL BUSINESS ADDRESS MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
----------------------------------- --------------------------------------------------
Graeme H. McPhail............................ A resident of Toronto, Ontario, Mr. McPhail has served as
Rogers Communications Inc. Vice President, Associate General Counsel of RCI since
333 Bloor Street East, 10th Floor 1997 and has been associated with RCI since 1991. Mr.
Toronto, Ontario M4W 1G9 McPhail was appointed Vice President, Assistant General
Counsel of the Corporation in 1996 and as Vice President,
Associate General Counsel of the Corporation in November,
1997.
David P. Miller.............................. A resident of Toronto, Ontario, Mr. Miller has served as
Rogers Communications Inc. Vice President and General Counsel of RCI since 1987 and
333 Bloor Street East, 10th Floor as Vice President, General Counsel and Secretary to RCI
Toronto, Ontario M4W 1G9 since May 2002. Mr. Miller has served as Vice President,
General Counsel and Secretary of the Corporation since
1991.
Nadir H. Mohamed, C.A........................ A resident of Toronto, Ontario, Mr. Mohamed has served as
Rogers Wireless Communications Inc. Senior Vice President, Wireless Communications of RCI and
One Mount Pleasant Road, 16th Floor as a director and President and Chief Executive Officer of
Toronto, Ontario M4Y 2Y5 the Corporation since June 2001. From August 2000 to June
2001, Mr. Mohamed served as President and Chief Operating
Officer of the Corporation. From February 1999 to August
2000, he served as Senior Vice President, Marketing and
Sales of Telus Communications Inc. From 1981 to 1999, Mr.
Mohamed held several senior management positions at BC Tel
(predecessor to Telus Communications Inc.) and BC Tel
Mobility, most recently serving as President and Chief
Operating Officer of BC Tel Mobility from August 1997 to
June 1999. Mr. Mohamed is a director of Rogers Wireless
Inc., Sierra Wireless, Inc. and Cinram International Inc.
Edward "Ted" S. Rogers, O.C.................. A resident of Toronto, Ontario, Mr. Rogers has served as
Rogers Communications Inc. President, Chief Executive Officer and a director of RCI
333 Bloor Street East, 10th Floor since 1979. Mr. Rogers has also served as a director and
Toronto, Ontario M4W 1G9 Chairman of the Corporation since 1991. He also serves as
a director of Rogers Wireless Inc., Rogers Cable Inc.,
Rogers Media Inc., Rogers Telecommunications Limited,
Cable Television Laboratories, Inc. and the Canadian Cable
Television Association.
Thomas A. Turner, Jr......................... A resident of Toronto, Ontario, Mr. Turner has served as
Rogers Communications Inc. Vice President, Convergence of RCI since 2001. Mr. Turner
333 Bloor Street East, 10th Floor has been associated with RCI since 1992.
Toronto, Ontario M4W 1G9
Anthony P. Viner............................. A resident of Toronto, Ontario, Mr. Viner served as Senior
Rogers Communications Inc. Vice President, Media of RCI since 1995. From 1992 to
333 Bloor Street East, 10th Floor 1995, Mr. Viner served as Senior Vice President,
Toronto, Ontario M4W 1G9 Broadcasting of RCI. Mr. Viner serves as a Director and as
President and Chief Executive Officer of Rogers Media Inc.
Mr. Viner joined Rogers Broadcasting Limited as Executive
Vice President and General Manager of CFTR/CHFI in
February 1982 and, in September 1989, was appointed
President of Rogers Broadcasting Limited. Since February
2002, Mr. Viner has been Chief Executive Officer of Rogers
Broadcasting Limited.
E. Jennifer Warren........................... A resident of Toronto, Ontario, Ms. Warren has served as
Rogers Communications Inc. Vice President and Assistant General Counsel of RCI since
333 Bloor Street East, 10th Floor 2000. Ms. Warren served as Legal Counsel of RCI from 1996
Toronto, Ontario M4W 1G9 to 2000.
C-6
CURRENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME AND PRINCIPAL BUSINESS ADDRESS MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
----------------------------------- --------------------------------------------------
David J. Watt................................ A resident of Toronto, Ontario, Mr. Watt has served as
Rogers Communications Inc. Vice President, Business Economics of RCI since 1999. From
333 Bloor Street East, 10th Floor 1995 to 1999, Mr. Watt served as Vice President, Telecom
Toronto, Ontario M4W 1G9 Affairs of RCI, during which time Mr. Watt was seconded to
the Canadian Cable Television Association as Senior Vice
President, Economics and Telecommunications.
C-7
SCHEDULE "D"
VALUATION AND FAIRNESS OPINION
D-1
SCHEDULE "E"
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
OF RCI
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF
ROGERS COMMUNICATIONS INC.
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND
YEAR ENDED DECEMBER 31, 2003
(Unaudited)
E-1
COMPILATION REPORT ON PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
To the Board of Directors of
ROGERS COMMUNICATIONS INC.
We have read the accompanying unaudited pro forma consolidated balance
sheet of Rogers Communications Inc. (the "Company") as at September 30, 2004 and
unaudited pro forma consolidated statements of income for the nine months then
ended and for the year ended December 31, 2003 and have performed the following
procedures:
1. Compared the figures in the columns captioned "RCI" to the unaudited
consolidated financial statements of the Company as at September 30,
2004 and for the nine months then ended and the audited consolidated
financial statements of the Company for the year ended December 31,
2003 and found them to be in agreement.
2. Compared the figures in the columns captioned "Microcell" to the
unaudited consolidated financial statements of Microcell
Telecommunications Inc. as at September 30, 2004 and for the nine
months then ended and the audited consolidated financial statements
of Microcell for the four months ended April 30, 2003
(pre-reorganization (note 2(b))) and for the eight months ended
December 31, 2003 and found them to be in agreement.
3. Made enquiries of certain officials of the Company who have
responsibility for financial and accounting matters about:
(a) the basis for determination of the pro forma adjustments; and
(b) whether the pro forma financial statements comply as to form in
all material respects with the published requirements of Canadian
securities legislation.
The officials:
(a) described to us the basis for determination of the pro forma
adjustments; and
(b) stated that the pro forma statements comply as to form in all
material respects with the published requirements of Canadian
securities legislation.
4. Read the notes to the pro forma statements and found them to be
consistent with the basis described to us for determination of the
pro forma adjustments.
5. Recalculated the application of the pro forma adjustments to the
aggregate of the amounts in the columns captioned "RCI" and
"Microcell" as at September 30, 2004 and the nine months then ended,
and the application of the pro forma adjustments and adjustments to
the aggregate of the amounts in the columns captioned "RCI" for the
year ended December 31, 2003 and "Microcell" for the four months
ended April 30, 2003 (pre-reorganization (note 2(b))) and for the
eight months ended December 31, 2003 and found the amounts in the
columns captioned "Pro forma total" to be arithmetically correct.
A pro forma financial statement is based on management assumptions and
adjustments which are inherently subjective. The foregoing procedures are
substantially less than either an audit or a review, the objective of which is
the expression of assurance with respect to management's assumptions, the pro
forma adjustments, and the application of the adjustments to the historical
financial information. Accordingly, we express no such assurance. The foregoing
procedures would not necessarily reveal matters of significance to the pro forma
financial statements, and we therefore make no representation about the
sufficiency of the procedures for the purposes of a reader of such statements.
/s/ KPMG LLP
Chartered Accountants
Toronto, Canada
November 24, 2004
E-2
COMMENTS FOR UNITED STATES READERS ON DIFFERENCES
BETWEEN CANADIAN AND UNITED STATES REPORTING STANDARDS
The above report, provided solely pursuant to Canadian requirements, is
expressed in accordance with standards of reporting generally accepted in
Canada. To report in conformity with United States standards on the
reasonableness of the pro forma adjustments and their application to the pro
forma financial statements requires an examination or review substantially
greater in scope than the review we have conducted. Consequently, we are unable
to express any opinion in accordance with standards of reporting generally
accepted in the United States with respect to the compilation of the
accompanying unaudited pro forma financial information.
/s/ KPMG LLP
Chartered Accountants
Toronto, Canada
November 24, 2004
E-3
ROGERS COMMUNICATIONS INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
(In thousands of dollars)
SEPTEMBER 30, 2004
(Unaudited)
PRO FORMA ADJUSTMENTS
----------------------------------------------------------------
ACQUISITION OF
NON-CONTROLLING ACQUISITION
INTEREST OF FINANCING
RCI MICROCELL IN RWCI NOTES MICROCELL NOTES TRANSACTIONS
---------- ---------- --------------- ----- ----------- --------- ------------
ASSETS
Current assets:
Cash and cash equivalents....... $ 216,968 $ 110,977 $ (17,000) 4(a) $ (21,185) 5(a)(i) $2,921,588
(20,000) 4(a) 103,917 5(a)(ii) 522,255
(214,894) 5(a)(v) (321,588)
(522,255)
Short-term investments.......... -- 22,804 -- (22,804) 5(a)(v) --
Accounts receivable............. 599,677 91,430 -- -- --
Deferred charges................ -- 21,280 -- (21,280) 5(a)(iv) --
Other current assets............ 231,164 87,715 -- -- --
---------- ---------- ---------- --------- ----------
1,047,809 334,206 (37,000) (176,246) 2,600,000
Property, plant and equipment.... 5,007,141 462,161 -- (292,961) 5(a)(iv) --
Goodwill......................... 1,985,572 -- 1,426,302 4(b) 886,367 5(a)(iv) --
Spectrum licences................ 402,880 188,002 381,700 4(b) (188,002) 5(a)(iv) --
410,600 5(a)(iv)
Other intangible assets.......... 28,758 38,883 499,039 4(b) 292,773 5(a)(iv) --
(38,883) 5(a)(iv)
Investments...................... 128,060 -- -- -- --
Deferred charges................. 119,780 33,147 47,883 4(b) (33,147) 5(a)(iv) 28,295
6,637
Other long-term assets........... 59,097 4,146 -- -- --
---------- ---------- ---------- --------- ----------
$8,779,097 $1,060,545 $2,317,924 $ 860,501 $2,634,932
========== ========== ========== ========= ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payable and accrued
liabilities................... $ 937,119 $ 127,982 $ -- $ 193,000 5(a)(iii) $ --
Current portion of long-term
debt.......................... 371,668 12,000 -- (12,000) 5(a)(v) --
Current portion of derivative
instruments................... 41,764 9,677 -- (9,677) 5(a)(v) --
Unearned revenue................ 106,616 47,450 -- (7,227) 5(a)(iv) --
---------- ---------- ---------- --------- ----------
1,457,167 197,109 -- 164,096 --
Long-term debt................... 4,472,974 360,616 1,750,000 4(a) 444,860 5(a)(i) 2,949,883
660,000 5(a)(i) 528,892
280,000 5(a)(i) (522,255)
5,646 5(a)(iv) (321,588)
(366,262) 5(a)(v)
174,981 5(a)(v)
Derivative instruments........... 401,424 -- -- -- --
Deferred transitional
adjustment...................... 76,224 -- -- -- --
Other long-term liabilities...... 82,958 24,740 -- (24,740) 5(a)(v) --
Non-controlling interest......... 282,112 -- (282,112) 4(b) -- --
Shareholders' equity............. 2,006,238 478,080 775,409 4(a) 103,917 5(a)(ii) --
74,627 4(a) (581,997) 5(a)(vi)
---------- ---------- ---------- --------- ----------
$8,779,097 $1,060,545 $2,317,924 $ 860,501 $2,634,932
========== ========== ========== ========= ==========
PRO FORMA
NOTES TOTAL
----- -----------
ASSETS
Current assets:
Cash and cash equivalents....... 7(a) $ 2,758,783
7(b)
7(a)
7(b)
Short-term investments.......... --
Accounts receivable............. 691,107
Deferred charges................ --
Other current assets............ 318,879
-----------
3,768,769
Property, plant and equipment.... 5,176,341
Goodwill......................... 4,298,241
Spectrum licences................ 1,195,180
Other intangible assets.......... 820,570
Investments...................... 128,060
Deferred charges................. 7(a) 202,595
7(b)
Other long-term assets........... 63,243
-----------
$15,652,999
===========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payable and accrued
liabilities................... $ 1,258,101
Current portion of long-term
debt.......................... 371,668
Current portion of derivative
instruments................... 41,764
Unearned revenue................ 146,839
-----------
1,818,372
Long-term debt................... 7(a) 10,417,747
7(b)
7(b)
7(a)
Derivative instruments........... 401,424
Deferred transitional
adjustment...................... 76,224
Other long-term liabilities...... 82,958
Non-controlling interest......... --
Shareholders' equity............. 2,856,274
-----------
$15,652,999
===========
See accompanying notes to pro forma consolidated financial statements.
E-4
ROGERS COMMUNICATIONS INC.
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(In thousands of dollars, except per share amounts)
YEAR ENDED DECEMBER 31, 2003
(Unaudited)
MICROCELL PRO FORMA ADJUSTMENTS
------------------------------- --------------------------------------
PRE-ORGANIZATION
FOUR-MONTHS EIGHT-MONTHS ACQUISITION OF
ENDED ENDED NON-CONTROLLING
APRIL 30, DECEMBER 31, INTEREST ACQUISITION
RCI 2003 2003 IN RWCI NOTES OF MICROCELL
---------- ---------------- ------------ --------------- ----- ------------
Operating revenue............ $4,791,856 $177,694 $393,093 $ -- $(16,868)
Cost of sales................ 642,243 23,416 93,552 -- --
Sales and marketing costs.... 742,781 24,585 73,185 -- (12,908)
Operating, general and
administrative expenses..... 1,957,936 91,137 178,335 37,709 6(b) --
Depreciation and
amortization................ 1,040,263 59,388 46,771 108,881 6(a) 58,055
(7,383)
(41,852)
---------- -------- -------- --------- --------
Operating income (loss)...... 408,633 (20,832) 1,250 (146,590) (12,780)
Interest on long-term debt... (488,865) (70,608) (14,817) -- --
---------- -------- -------- --------- --------
(80,232) (91,440) (13,567) (146,590) (12,780)
Gain on sale of other
investments................. 17,902 -- -- -- --
Losses from investments
accounted for by the equity
method...................... (54,033) -- -- -- --
Foreign exchange gain........ 303,707 136,553 13,926 -- --
Loss on repayment of
long-term debt.............. (24,839) -- -- -- --
Investment and other
income...................... 2,256 2,200 5,187 -- --
---------- -------- -------- --------- --------
Income (loss) before income
taxes and non-controlling
interest.................... 164,761 47,313 5,546 (146,590) (12,780)
---------- -------- -------- --------- --------
Income taxes (recovery):
Current..................... 1,675 1,796 587 -- --
Future...................... (24,532) -- -- -- --
---------- -------- -------- --------- --------
(22,857) 1,796 587 -- --
---------- -------- -------- --------- --------
Income (loss) before non-
controlling interest........ 187,618 45,517 4,959 (146,590) (12,780)
Non-controlling interest..... (58,425) -- -- 58,425 6(c) --
---------- -------- -------- --------- --------
Net income (loss) for the
period...................... $ 129,193 $ 45,517 $ 4,959 $ (88,165) $(12,780)
========== ======== ======== ========= ========
Earnings (loss) per share:
Basic....................... $ 0.35
Diluted..................... 0.34
PRO FORMA ADJUSTMENTS
-------------------------------
FINANCING PRO FORMA
NOTES TRANSACTIONS NOTES TOTAL
-------- ------------ ----- ----------
Operating revenue............ 5(b)(i) $ -- $5,345,775
Cost of sales................ -- 759,211
Sales and marketing costs.... 5(b)(i) -- 827,643
Operating, general and
administrative expenses..... -- 2,265,117
Depreciation and
amortization................ 5(b)(ii) 4,303 7(c) 1,268,426
5(b)(ii)
5(b)(ii)
--------- ----------
Operating income (loss)...... (4,303) 225,378
Interest on long-term debt... (364,711) 7(c) (939,001)
--------- ----------
(369,014) (713,623)
Gain on sale of other
investments................. -- 17,902
Losses from investments
accounted for by the equity
method...................... -- (54,033)
Foreign exchange gain........ -- 454,186
Loss on repayment of
long-term debt.............. -- (24,839)
Investment and other
income...................... (3,891) 7(c) 5,752
--------- ----------
Income (loss) before income
taxes and non-controlling
interest.................... (372,905) (314,655)
--------- ----------
Income taxes (recovery):
Current..................... -- 4,058
Future...................... -- (24,532)
--------- ----------
-- (20,474)
--------- ----------
Income (loss) before non-
controlling interest........ (372,905) (294,181)
Non-controlling interest..... -- --
--------- ----------
Net income (loss) for the
period...................... (372,905) $ (294,181)
========= ==========
Earnings (loss) per share:
Basic....................... $ (1.43)
Diluted..................... (1.43)
See accompanying notes to pro forma consolidated financial statements.
E-5
ROGERS COMMUNICATIONS INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(In thousands of dollars, except per share amounts)
NINE MONTHS ENDED SEPTEMBER 30, 2004
(Unaudited)
PRO FORMA ADJUSTMENTS
--------------------------------------
ACQUISITION OF
NON-CONTROLLING
INTEREST IN ACQUISITION
RCI MICROCELL RWCI NOTES OF MICROCELL
---------- --------- --------------- ----- ------------
Operating revenue................ $4,041,932 $482,103 $ -- $(22,050)
Cost of sales.................... 566,193 83,041 -- --
Sales and marketing costs........ 591,717 87,822 -- (5,574)
Operating, general and
administrative expenses........ 1,600,401 220,854 7,839 6(b) 7,071
Special charges.................. -- 9,668 -- --
Depreciation and amortization.... 752,475 61,072 81,661 6(a) 43,916
(6,617)
(31,389)
---------- -------- -------- --------
Operating income (loss).......... 531,146 19,646 (89,500) (29,457)
Interest on long-term debt....... (359,343) (23,782) -- --
---------- -------- -------- --------
171,803 (4,136) (89,500) (29,457)
Gain on sale of other
investments.................... 5,479 -- -- --
Write-down of investments........ (4,080) -- -- --
Losses from investments accounted
for by the equity method....... (19,633) -- -- --
Foreign exchange loss............ (88,566) (15,757) -- --
Change in the fair value of
derivative instruments......... 28,073 -- -- --
Loss on repayment of long-term
debt........................... (20,327) -- -- --
Investment and other income
(loss)......................... 11,572 (147) -- --
---------- -------- -------- --------
Income (loss) before income taxes
and non-controlling interest... 84,321 (20,040) (89,500) (29,457)
---------- -------- -------- --------
Income taxes:
Current........................ 8,379 2,958 -- --
Future......................... -- -- -- --
---------- -------- -------- --------
8,379 2,958 -- --
---------- -------- -------- --------
Income (loss) before
non-controlling interest....... 75,942 (22,998) (89,500) (29,457)
Non-controlling interest......... (73,653) -- 73,653 6(c) --
---------- -------- -------- --------
Net income (loss) for the
period......................... $ 2,289 $(22,998) $(15,847) $(29,457)
========== ======== ======== ========
Loss per share -- basic and
diluted........................ $ (0.16)
PRO FORMA ADJUSTMENTS
-------------------------------
FINANCING PRO FORMA
NOTES TRANSACTIONS NOTES TOTAL
-------- ------------ ----- ----------
Operating revenue................ 5(b)(i) $ -- $4,501,985
Cost of sales.................... -- 649,234
Sales and marketing costs........ 5(b)(i) -- 673,965
Operating, general and
administrative expenses........ 5(b)(i) -- 1,836,165
Special charges.................. -- 9,668
Depreciation and amortization.... 5(b)(ii) 3,227 7(c) 904,345
5(b)(ii)
5(b)(ii)
--------- ----------
Operating income (loss).......... (3,227) 428,608
Interest on long-term debt....... (246,348) 7(c) (629,473)
--------- ----------
(249,575) (200,865)
Gain on sale of other
investments.................... -- 5,479
Write-down of investments........ -- (4,080)
Losses from investments accounted
for by the equity method....... -- (19,633)
Foreign exchange loss............ -- (104,323)
Change in the fair value of
derivative instruments......... -- 28,073
Loss on repayment of long-term
debt........................... -- (20,327)
Investment and other income
(loss)......................... (3,412) 7(c) 8,013
--------- ----------
Income (loss) before income taxes
and non-controlling interest... (252,987) (307,663)
--------- ----------
Income taxes:
Current........................ -- 11,337
Future......................... -- --
--------- ----------
-- 11,337
--------- ----------
Income (loss) before
non-controlling interest....... (252,987) (319,000)
Non-controlling interest......... -- --
--------- ----------
Net income (loss) for the
period......................... $(252,987) $ (319,000)
========= ==========
Loss per share -- basic and
diluted........................ $ (1.37)
See accompanying notes to pro forma consolidated financial statements.
E-6
ROGERS COMMUNICATIONS INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands of dollars, except per share amounts)
YEAR ENDED DECEMBER 31, 2003 AND NINE MONTHS ENDED SEPTEMBER 30, 2004
(Unaudited)
1. DESCRIPTION OF TRANSACTIONS:
On September 13, 2004, Rogers Communications Inc. ("RCI") entered into an
agreement with JVII General Partnership ("JVII"), a general partnership
wholly owned by AT&T Wireless Services, Inc., whereby RCI agreed to purchase
all of JVII's shares of
Rogers Wireless Communications Inc. ("RWCI") for a
cash purchase price totalling approximately $1,767 million (the "AWE
Acquisition"). RCI closed this transaction on October 13, 2004. RCI funded
the AWE Acquisition through a $1.75 billion secured bridge credit facility
with a term of up to two years to October 12, 2006 and from cash on hand.
On September 20, 2004, Rogers Wireless Inc. ("RWI"), a wholly owned
subsidiary of RWCI, announced an agreement with Microcell Telecommunications
Inc. ("Microcell") to make an all cash tender offer totalling approximately
Cdn. $1.4 billion, to acquire all of Microcell, Canada's fourth largest
wireless communications provider (the "Microcell Acquisition"). RWI completed
the Microcell Acquisition on November 12, 2004.
On November 11, 2004, the RCI Board of Directors authorized RCI to launch an
exchange offer to purchase all of the outstanding RWCI Class B Restricted
Voting Shares ("RWCI Class B Shares") not already owned by RCI in exchange
for 1.75 RCI Class B Non-Voting shares for each RWCI Class B share (the
"Exchange Offer").
In connection with the AWE Acquisition and the Microcell Acquisition, RWI
announced on November 19, 2004 that it had priced a private placement of
notes in the aggregate principal amount of U.S. $2,356,000,000
($2,949,883,000 based on the U.S. dollar exchange rate at September 30, 2004)
and Rogers Cable Inc. ("Rogers Cable") announced on November 19, 2004 that it
had priced a private placement of notes in the aggregate principal amount of
U.S. $427,000,000 ($528,892,000 based on the U.S. dollar exchange rate at
September 30, 2004) (the "Financings").
RWCI is currently reviewing various methods of transferring $1.75 billion to
its shareholders, so that RCI will have adequate funds to repay its $1.75
billion bridge credit facility. A determination of the method of such
transfer, including the timing thereof, will not take place until following
completion of the Exchange Offer (note 7(a)).
2. BASIS OF PRESENTATION:
(a) Pro forma consolidated financial statements:
The accompanying unaudited pro forma consolidated financial statements
(the "Statements") give effect to the AWE Acquisition, the Microcell
Acquisition, the Exchange Offer and the Financings as if they had occurred
as at:
- September 30, 2004 for the purposes of the unaudited pro forma
consolidated balance sheet; and
- January 1, 2003 for the purposes of the unaudited pro forma
consolidated statements of income for the year ended December 31, 2003
and the nine month period ended September 30, 2004.
The Statements have been prepared by management in accordance with
Canadian generally accepted accounting principles ("GAAP"). In certain
respects, GAAP as applied in the United States differs from that applied
in Canada (see note 9). The accounting policies used in the preparation of
the Statements are consistent with those used by RCI in the preparation of
the consolidated financial statements for the year ended December 31, 2003
and the nine months ended September 30, 2004.
The Statements have been prepared using the following information and
should be read in conjunction with the financial statements listed below:
(i) Audited consolidated financial statements of RCI as at and for the
year ended December 31, 2003;
(ii) Audited consolidated financial statements of Microcell as at
December 31, 2003 and for the periods from January 1, 2003 to April
30, 2003 and May 1, 2003 to December 31, 2003 (note 2(b));
(iii) Unaudited consolidated interim financial statements of RCI as at
and for the nine months ended September 30, 2004;
(iv) Unaudited consolidated interim financial statements of Microcell as
at and for the nine months ended September 30, 2004; and
(v) Such other supplementary information as was considered necessary to
reflect the AWE Acquisition, the Microcell Acquisition, the Exchange
Offer and the Financings in the Statements.
The Statements do not include the anticipated financial benefits from such
items as cost savings arising from the AWE Acquisition, the Microcell
Acquisition and the Exchange Offer. The Statements are not necessarily
indicative of the results of operations or the financial position that
would have resulted had the AWE Acquisition, Microcell Acquisition or the
Financings been effected on the dates indicated, or the results that may
be obtained in the future.
Certain elements of the RCI and Microcell's consolidated financial
statements have been reclassified to provide a consistent classification
format.
E-7
(b) Financial reorganization of Microcell:
On May 1, 2003, the predecessor company of Microcell and certain of its
subsidiaries emerged from a restructuring plan under the Companies'
Creditors Arrangement Act and Canada Business Corporations Act. Pursuant
to the plan, Microcell's long-term debt obligations decreased by
approximately $1.6 billion. Microcell's interest expense for the four
months ended April 30, 2003 includes the interest expense on the full
amount of Microcell's debt prior to the restructuring.
Effective May 1, 2003, the date of reorganization, Microcell accounted for
its financial reorganization by using the principles of fresh start
accounting. Accordingly, all assets and liabilities were revalued at
estimated fair values and Microcell's deficit was eliminated. Microcell
determined that its enterprise value was $689 million of which $350
million has been allocated to long-term debt and $339 million to equity.
This enterprise value was determined based on several traditional
valuation methodologies utilizing projections developed by Microcell
management including discounted cash flow analysis and comparable company
trading analysis. A comprehensive revaluation of the assets and
liabilities of Microcell was done based on this enterprise value.
Microcell's depreciation expense for the four months ended April 30, 2003
is based on the original cost of Microcell's property, plant and
equipment. For periods subsequent to the restructuring, depreciation
expense is based on the revalued property, plant and equipment amounts.
(c) Microcell special charges:
In connection with events leading up to the Microcell Acquisition,
Microcell incurred financial and legal fees in the amount of $6.1 million
in the nine months ended September 30, 2004. In addition, as a result of
the impact of the Microcell Acquisition on Microcell's share price, the
vesting of options under Microcell's stock option plan was accelerated,
which resulted in an acceleration of compensation expense of $3.6 million
in the nine months ended September 30, 2004.
3. ACCOUNTING FOR THE MICROCELL ACQUISITION:
The Microcell Acquisition is accounted for using the purchase method of
accounting. The total purchase consideration is composed of the following:
Cash........................................................ $1,391,045
Estimated transaction costs................................. 15,000
----------
$1,406,045
==========
The cash consideration includes the acquisition of additional equity
securities that RWI expects to acquire in May 2005.
The purchase price will be allocated to the assets acquired (including
identifiable intangible assets arising from the purchase) and liabilities
assumed based on their estimated fair value at the date of acquisition.
Details of the estimated fair value of assets acquired and liabilities
assumed of Microcell based on the information available at the date of
preparation of these statements are as follows:
Assets acquired:
Cash and cash equivalents................................. $ 110,977
Cash related to the exercising of existing stock options
and warrants (note 5(a)(ii))............................ 103,917
Short-term investments.................................... 22,804
Accounts receivable....................................... 91,430
Other current assets...................................... 87,715
Property, plant and equipment............................. 169,200
Spectrum licences......................................... 410,600
Other intangible assets................................... 292,773
Goodwill.................................................. 886,367
Other long-term assets.................................... 4,146
----------
2,179,929
----------
Less liabilities assumed:
Accounts payable and accrued liabilities.................. 127,982
Liabilities set up on close (note 5(a)(iii)).............. 193,000
Unearned revenue.......................................... 40,223
Long-term debt............................................ 378,262
Derivative instruments.................................... 34,417
----------
773,884
----------
Fair value of net assets acquired........................... $1,406,045
==========
The actual adjustments that RWI will ultimately make in finalizing the
allocation of the purchase price of Microcell to the fair value of the net
assets acquired will depend on a number of factors including additional
information available at such time, changes in market values and changes in
Microcell's operating results between the date of these pro forma
consolidated financial statements and the effective date of the Microcell
Acquisition.
In the preparation of these pro forma financial statements, the purchase
consideration has been allocated on a preliminary basis to the fair value of
assets acquired and liabilities assumed based on management's best estimates
and taking into account all relevant information available at the
E-8
time these Statements were prepared. RWI expects that the actual amounts for
each of the fair values of the assets and liabilities acquired will vary from
the pro forma amounts and that the variation may be material.
4. ACCOUNTING FOR THE AWE ACQUISITION AND THE EXCHANGE OFFER:
(a) The AWE Acquisition and the Exchange Offer are accounted for using the
purchase method of accounting. The total purchase consideration is
comprised of the following:
AWE Acquisition:
Bridge credit facility.................................... $1,750,000
Cash on hand.............................................. 17,000
Exchange offer:
RCI Class B Non-Voting shares............................. 775,409
Stock options, at fair value.............................. 74,627
Estimated transaction costs................................. 20,000
----------
$2,637,036
==========
The estimated purchase consideration related to the Exchange Offer was
determined using the average price of the RCI Class B Non-Voting shares
two days prior to the announcement of the Exchange Offer ($28.90 per
share) multiplied by the exchange factor of 1.75 times the number of RWCI
Class B shares not already owned by RCI (15,331,872 shares).
Stock options of RWCI are assumed to be converted into options of RCI. The
fair value of the options to be issued upon conversion has been recorded
as part of the purchase price. Unvested options are recorded as deferred
stock based compensation and amortized over the remaining vesting period.
(b) The purchase price will be allocated to the assets acquired (including
identifiable intangible assets arising from the purchase) and
liabilities assumed based on their estimated fair value at the date of
the acquisitions.
The estimated allocation of the purchase price based on the information
available at the date of preparation of the Statements is as follows:
Spectrum licences........................................... $ 381,700
Other intangible assets..................................... 499,039
Deferred stock based compensation........................... 47,883
Goodwill.................................................... 1,426,302
Non-controlling interest.................................... 282,112
----------
$2,637,036
==========
The actual adjustments that RCI will ultimately make in finalizing the
allocation of the purchase price of the AWE Acquisition and the Exchange
Offer to the fair value of the net assets acquired will depend on a number
of factors including additional information available at such time,
changes in market values and changes in RWCI's operating results between
the date of these pro forma consolidated financial statements and the
effective date of the acquisitions.
In the preparation of these pro forma financial statements, the purchase
consideration has been allocated on a preliminary basis to the fair value
of assets acquired and liabilities assumed based on management's best
estimates and taking into account all relevant information available at
the time these Statements were prepared. RCI expects that the actual
amounts for each of the fair values of the assets and liabilities acquired
will vary from the pro forma amounts and that the variation may be
material.
5. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS -- MICROCELL ACQUISITION:
(a) The unaudited pro forma consolidated balance sheet as at September 30,
2004 incorporates the following adjustments:
(i) The funding for the Microcell Acquisition has been reflected in the
pro forma consolidated balance sheet as if it had occurred on
September 30, 2004, as follows:
Sources of funding:
Cash on hand.............................................. $ 21,185
Bank credit facilities:
RWI..................................................... 444,860
▇▇▇▇▇▇ Cable............................................ 660,000
▇▇▇▇▇▇ Media Inc. ("▇▇▇▇▇▇ Media")...................... 280,000
----------
$1,406,045
==========
(ii) Each of cash and share capital has been increased by $103,917,000
to reflect the exercise of Microcell stock options and warrants,
which are assumed to have occurred immediately prior to the
Microcell Acquisition.
(iii) A plan has been developed to restructure and integrate the
operations of Microcell. As a result of the restructuring and
integration, it is expected that severance and other employee
related costs, as well as costs to consolidate facilities, systems
and operations totalling an estimated $193,000,000 will be
incurred. These costs are management's preliminary estimates and
take into account all relevant information available at the time
these Statements were prepared. The actual integration costs may
vary materially from
E-9
such estimates. These costs have been reflected in the pro forma
consolidated balance sheet as a liability as part of the purchase
consideration allocation.
(iv) Upon acquisition, all of the Microcell deferred charges and
intangible assets have been written off. Intangible assets arising
on the Microcell Acquisition have been recorded at their estimated
fair values as part of the allocation of the purchase price.
Intangible assets acquired include spectrum licences, which have an
indefinite life, and Microcell's customer contracts and
relationships and brand name. In addition, property, plant and
equipment, long-term debt and deferred revenue have been adjusted
to estimated fair value. The estimated fair values are based on
management's best estimates based on preliminary studies undertaken
by management. The estimated value allocated to goodwill was based
on the residual of the preliminary fair values of the identifiable
tangible and intangible assets less the fair values of the
liabilities assumed. The actual allocation may differ significantly
from these estimates.
(v) Immediately after closing the Microcell Acquisition, Microcell's
long-term debt was repaid and derivative instruments were unwound
utilizing Microcell's cash on hand (including cash received from the
exercise of stock options and warrants as described in (ii) above)
and short-term investments and from the proceeds of drawdowns under
the RWI bank credit facility.
(vi) Microcell's share capital, retained earnings and contributed
surplus have been eliminated to reflect the effect of the Microcell
Acquisition.
(b) The unaudited pro forma condensed consolidated statements of income for
the year ended December 31, 2003 and for the nine months ended
September 30, 2004 incorporate the following adjustments:
(i) RWCI recognizes revenue from the sale of prepaid services at the
net wholesale amount charged to distributors. Microcell recognizes
revenue from the sale of prepaid services at the gross amount
charged to the subscriber. RWCI expenses all costs related to
subscriber acquisition and retention as incurred. Microcell defers
and amortizes certain costs and revenues related to subscriber
acquisition and retention.
As a result, the following adjustments to revenue and expenses are
being made to harmonize Microcell's accounting presentation to that of
RWCI:
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
INCREASE (DECREASE) 2003 2004
------------------- ------------ -------------
Operating revenue........................................... $(16,868) $(22,050)
Operating, general and administrative expenses.............. -- 7,071
Sales and marketing costs................................... (12,908) (5,574)
(ii) Pro forma depreciation and amortization has been increased by
$58,055,000 and $43,916,000 for the year ended December 31, 2003
and the nine months ended September 30, 2004, respectively, to
reflect the amortization of other intangible assets arising on the
Microcell Acquisition, being the Microcell customer contracts and
relationships and brand name, over an estimated average life of
five years on a straight-line basis. The five-year estimated
average life was determined based on Microcell's historical
customer relationship period and a 15-year estimated useful life
for the Microcell brand name. A change in the fair value of other
intangible assets acquired of $10,000,000 would impact the pro
forma depreciation and amortization expense and pro forma net loss
by $2,000,000 and $1,500,000 for the year ended December 31, 2003
and the nine months ended September 30, 2004, respectively. An
extension in the estimated average useful life of the Microcell
customer contracts and relationships and brand name by one year
would reduce the pro forma depreciation and amortization expense
and pro forma net loss by $9,760,000 and $7,320,000 for the year
ended December 31, 2003 and the nine months ended September 30,
2004, respectively.
Pro forma amortization expense has been reduced by $7,383,000 and
$6,617,000 for the year ended December 31, 2003 and the nine months
ended September 30, 2004, respectively, to reflect the elimination of
historical amortization expense as a result of the fair value
adjustments to the existing Microcell intangible assets upon
acquisition.
Pro forma depreciation expense has been reduced by $41,852,000 and
$31,389,000 for the year ended December 31, 2003 and the nine months
ended September 30, 2004, respectively, to reflect the elimination of
historical depreciation expense as a result of the write-down of
Microcell's property, plant and equipment to estimated fair value
assuming an estimated average life of seven years on a straight-line
basis.
(iii) A full valuation allowance has been recorded against the income
tax loss carryforwards of Microcell totalling approximately $1.6
billion as it is not more likely than not that these losses will
be utilized. Any future reduction in the valuation allowance will
reduce goodwill and other intangible assets.
6. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS -- AWE ACQUISITION AND EXCHANGE OFFER:
(a) Pro forma depreciation and amortization has been increased by
$108,881,000 and $81,661,000 for the year ended December 31, 2003 and
the nine months ended September 30, 2004, respectively, to reflect the
amortization of other intangible assets arising on the AWE Acquisition
and the Exchange Offer, being the RWCI customer contracts and
relationships, over an estimated useful life of 55 months on a
straight-line basis. The fifty-five month estimated average life was
determined based on RWCI's historical customer relationship period. A
change in the fair value of other intangible assets acquired of
$10,000,000 would impact the pro forma amortization expense and pro
forma net loss by $2,182,000 and $1,636,000 for the year ended December
31, 2003 and the nine months ended September 30, 2004, respectively. An
extension in the estimated average useful life of the Microcell
customer contracts and relationships and brand name by
E-10
twelve months would reduce the pro forma amortization expense and pro
forma net loss by $19,500,000 and $14,625,000 for the year ended
December 31, 2003 and the nine months ended September 30, 2004,
respectively. A change in the fair value of property, plant and
equipment of $10,000,000 would impact the pro forma depreciation and
amortization and pro forma net loss by $1,000,000 and $750,000 for the
year ended December 31, 2003 and the nine months ended September 30,
2004, respectively. Spectrum licences acquired have an indefinite life
for accounting purposes and accordingly no adjustment to amortization
for this intangible asset has been recorded.
(b) Pro forma operating, general and administrative expenses for the year
ended December 31, 2003 and the nine months ended September 30, 2004
have been increased by $37,709,000 and $7,839,000, respectively,
representing the compensation cost of the stock options issued on the
Exchange Offer.
(c) Non-controlling interest of $58,425,000 and $73,653,000 for the year
ended December 31, 2003 and the nine months ended September 30, 2004,
respectively, has been eliminated.
7. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS -- FINANCINGS:
(a) RWI announced on November 19, 2004 that it had priced a private
placement of senior and subordinated debt in the aggregate principal
amount of approximately $2,949,883,000 (based on the U.S. dollar
exchange rate at September 30, 2004). The net proceeds of this issue
are estimated to be $2,921,588,000 (based on the U.S. dollar exchange
rate at September 30, 2004). It is expected that the net proceeds will
be used as follows:
Cash on hand................................................ $2,600,000
Repayment of Rogers Wireless bank credit facility........... 321,588
----------
$2,921,588
==========
As indicated in note 1, RWCI is reviewing various methods of transferring
$1.75 billion to its shareholders, so that RCI will have adequate funds to
repay its $1.75 billion bridge credit facility incurred in connection with
the AWE Acquisition. The method of such transfer, including the timing
thereof, will not take place until following completion of the Exchange
Offer. If such transfer were to occur by a distribution of capital to RCI,
RCI would use those proceeds to repay its bridge credit facility, which
would have the following effect on the pro forma financial statements:
AS AT
INCREASE (DECREASE) SEPTEMBER 30, 2004
------------------- ------------------
Cash and cash equivalents................................... $(1,750,000)
-----------
Long-term debt.............................................. $(1,750,000)
-----------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
INCREASE (DECREASE) 2003 2004
------------------- ------------ -------------
Interest expense............................................ $(91,000) $(58,406)
======== ========
Loss for the period......................................... $(91,000) $(58,406)
======== ========
Loss per share.............................................. $ (0.36) $ (0.22)
======== ========
(b) ▇▇▇▇▇▇ Cable intends to issue the Cdn. equivalent of $528,892,000 of
senior debt. The net proceeds of this issue are estimated to be
$522,255,000. It is expected that the net proceeds will be used to
reduce amounts outstanding under Rogers Cable's bank credit facility.
E-11
(c) Interest expense and investment and other income have been adjusted to
reflect the financing of the AWE Acquisition, the Microcell Acquisition
and the Financings and to eliminate the historical interest expense of
Microcell as a result of the repayment of Microcell's long-term debt,
as follows:
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
INCREASE (DECREASE) 2003 2004
------------------- ------------ -------------
Bridge credit facility...................................... $ 91,000 $ 58,406
Interest expense:
Bank credit facility:
RWI..................................................... 14,913 11,184
▇▇▇▇▇▇ Cable............................................ 6,601 4,778
▇▇▇▇▇▇ Media............................................ 15,610 9,786
Senior and subordinated debt:
RWI..................................................... 219,553 157,672
▇▇▇▇▇▇ Cable............................................ 39,260 28,304
Long-term debt -- Microcell............................... (22,226) (23,782)
-------- --------
$364,711 $246,348
======== ========
Investment and other income............................... $ (3,891) $ (3,412)
======== ========
Pro forma interest expense has been determined using the historical
interest rates ranging from 4.625% to 5.575% for the bank credit
facilities and the weighted average interest rates for the senior and
subordinated debt of 6.83% for the year ended December 31, 2003 and 6.86%
for the nine months ended September 30, 2004.
A change of 1/8% in the interest rate on the bank credit facilities and
the floating rate senior debt would impact the pro forma interest expense
and pro forma net loss by $4,049,000 and $2,995,000 for the year ended
December 31, 2003 and the nine months ended September 30, 2004,
respectively.
Pro forma depreciation and amortization has been increased by $4,303,000
and $3,227,000 for the year ended December 31, 2003 and the nine months
ended September 30, 2004 to reflect the amortization of financing costs
incurred on the issue of senior and subordinated debt over the average
term to maturity.
8. PRO FORMA EARNINGS (LOSS) PER SHARE:
The following table sets forth the calculation of pro forma basic and diluted
earnings per share:
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
2003 2004
------------ -------------
Numerator:
Pro forma loss for the period............................. $(294,181) $(319,000)
Distribution on Convertible Preferred Securities, net of
income taxes............................................ (29,791) (24,750)
Dividends accreted on Convertible Preferred Securities,
net of income taxes..................................... (20,033) (15,607)
Dividends on Series E Preferred shares.................... (11) --
Accretion on redemption price of Microcell preferred
shares.................................................. (17,105) (5,184)
--------- ---------
Basic and diluted loss for the year......................... $(361,121) $(364,541)
========= =========
Denominator:
Weighted average number of shares outstanding -- basic and
diluted................................................. 252,749 265,333
========= =========
Loss per share:
Basic..................................................... $ (1.43) $ (1.37)
Diluted................................................... (1.43) (1.37)
========= =========
For the year ended December 31, 2003 and the nine months ended September 30,
2004, the effect of potentially dilutive securities, including employee stock
options, the Convertible Debentures, the Series E preferred shares and the
Convertible Preferred Securities, was excluded from the computation of
diluted earnings per share as their effect is anti-dilutive.
The Microcell preferred shares were redeemed and converted in 2004.
E-12
9. RECONCILIATION TO UNITED STATES GAAP:
If United States GAAP were employed, the pro forma consolidated net income
(loss) for the year ended December 31, 2003 and nine months ended September
30, 2004 would be adjusted as follows:
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
2003 2004
------------ -------------
Pro forma loss for the period based on Canadian GAAP........ $ (294,181) $(319,000)
Gain on sale of cable systems (b)........................... (4,028) (3,021)
Pre-operating costs (c)..................................... 11,150 5,374
Interest on equity instruments (d).......................... (35,388) (26,548)
Capitalized interest (e).................................... 5,405 6,034
Financial instruments (h)................................... (217,514) 26,485
Stock-based compensation (i)................................ (1,150) 11,459
Other....................................................... 516 (2,636)
Loss on repayment of long term debt (k)..................... -- (28,759)
Non-controlling interest.................................... 43,173 8,195
Income taxes (l)............................................ 11,493 (517)
Installation revenues (m)................................... -- 6,211
Installation costs (m)...................................... -- (4,118)
Microcell adjustments (n)................................... 1,253,160 5,700
---------- ---------
Pro forma net income (loss) based on United States GAAP..... $ 772,636 $(315,141)
========== =========
Pro forma earnings (loss) per share under United States
GAAP:
Basic..................................................... $ 3.06 $ (1.21)
Diluted................................................... 2.90 (1.21)
========== =========
The cumulative effect of these adjustments on the pro forma consolidated
shareholder's equity of RCI is as follows:
NINE MONTHS
ENDED
SEPTEMBER 30,
2004
-------------
Shareholders' equity based on Canadian GAAP................. $2,586,274
Gain on sale and issuance of subsidiary shares to
non-controlling interest (a).............................. 46,245
Gain on sale of cable systems (b)........................... 121,944
Pre-operating costs (c)..................................... (3,480)
Equity instruments (d)...................................... (588,208)
Capitalized interest (e).................................... 44,020
Unrealized holding gain on investments (f).................. 118,617
Acquisition of Cable Atlantic (g)........................... 34,673
Financial instruments (h)................................... (33,108)
Minimum pension liability (j)............................... (29,058)
Other....................................................... (19,676)
Income taxes (l)............................................ (253,567)
Installation revenues (m)................................... 6,211
Installation costs (m)...................................... (4,118)
Loss on repayment of long term debt (k)..................... (28,759)
Non-controlling interest effect of adjustments.............. (50,206)
----------
Shareholders' equity based on United States GAAP............ $1,947,804
==========
The areas of material differences between Canadian and United States GAAP and
their impact on the pro forma consolidated financial statements of RCI are
described below:
(a) Gain on sale and issuance of subsidiary shares to non-controlling
interest:
Under United States GAAP, the carrying value of the Company's investment
in Wireless would be lower than the carrying value under Canadian GAAP as
a result of certain differences between Canadian and United States GAAP,
as described herein. This results in an increase to the gain on sale and
dilution under United States GAAP.
(b) Gain on sale of cable systems:
Under Canadian GAAP, the cash proceeds on the non-monetary exchange of the
cable assets in 2000 were recorded as a reduction in the carrying value of
PP&E. Under United States GAAP, a portion of the cash proceeds received
must be recognized as a gain in the consolidated statements of income on
an after-tax basis. The gain amounted to $40.3 million before income
taxes.
E-13
Under Canadian GAAP, the after-tax gain arising on the sale of certain of
the Company's cable television systems in prior years was recorded as a
reduction of the carrying value of goodwill acquired in a contemporaneous
acquisition of certain cable television systems. Under United States GAAP,
the Company included the gain on sale of the cable television systems in
income, net of related future income taxes.
As a result of these transactions, amortization expense under United
States GAAP was increased in subsequent years.
(c) Pre-operating costs:
Under Canadian GAAP, the Company defers the incremental costs relating to
the development and pre-operating phases of new businesses and amortizes
these costs on a straight-line basis over periods up to five years. Under
United States GAAP, these costs are expensed as incurred.
(d) Equity instruments:
Under Canadian GAAP, the Convertible Preferred Securities are classified
as shareholders' equity and the related interest expense is recorded as a
distribution from retained earnings. Under United States GAAP, these
securities are classified as long-term debt and the related interest
expense is recorded in the consolidated statements of income.
Under Canadian GAAP, the Preferred Securities were classified as
shareholders' equity and until September 2002, the related interest
expense was recorded as a distribution from retained earnings. Under U.S.
GAAP, the Preferred Securities were classified as long-term debt and the
related interest expense was recorded in the consolidated statements of
income.
Under Canadian GAAP, the proceeds from the Collateralized Equity
Securities were classified as shareholders' equity. Under United States
GAAP, these securities were recorded as long-term debt and recorded at
their fair value at December 31, 2001. Adjustments to the fair value at
each reporting date are recorded in the consolidated statements of income.
(e) Interest capitalization:
United States GAAP requires capitalization of interest costs as part of
the historical cost of acquiring certain qualifying assets that require a
period of time to prepare for their intended use. This is not required
under Canadian GAAP.
(f) Unrealized holding gains and losses on investments:
United States GAAP requires that certain investments in equity securities
that have readily determinable fair values be stated in the consolidated
balance sheets at their fair values. The unrealized holding gains and
losses from these investments, which are considered to be
"available-for-sale securities" under United States GAAP, are included as
a separate component of shareholders' equity and comprehensive income, net
of related future income taxes.
As at December 31, 2003 and 2002, this amount represents a component of
the Company's accumulated other comprehensive income.
(g) Acquisition of Cable Atlantic:
United States GAAP requires that shares issued in connection with a
purchase business combination be valued based on the market price at the
announcement date of the acquisition, whereas Canadian GAAP had required
such shares be valued based on the market price at the consummation date
of the acquisition. Accordingly, the Class B Non-Voting shares issued in
respect of the acquisition of Cable Atlantic in 2001 were recorded at
$35.4 million more under United States GAAP than under Canadian GAAP. This
resulted in an increase to goodwill in this amount, with a corresponding
increase to contributed surplus in the amount of $35.4 million.
(h) Financial instruments:
Under Canadian GAAP, the Company accounts for certain of its
cross-currency interest rate exchange agreements and interest exchange
agreements as ▇▇▇▇▇▇ of specific debt instruments. Under United States
GAAP, these instruments are not accounted for as ▇▇▇▇▇▇ as a result of
adopting the pronouncement entitled "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), effective January 1, 2001. As a
result, the Company recorded the net excess of the fair values of the
cross-currency interest rate exchange agreements over the carrying values
of these instruments as at December 31, 2000, being $18.4 million, as a
cumulative transition adjustment to net income under United States GAAP.
The Company also recorded a cumulative transition adjustment to write off
the net balance of the deferred foreign exchange as at December 31, 2000,
being $20.7 million, that arose upon redesignation of certain of the
Company's cross-currency interest rate exchange agreements. Further, the
Company recorded $29.7 million as a cumulative transition adjustment to
net income, which represents the excess of the fair value of the long-term
debt to which the derivative instruments relate (the "hedged debt") over
its carrying value. Therefore, the net cumulative transition adjustment
under SFAS 133 to the loss for the year ended December 31, 2001 under
United States GAAP was a charge to the net loss of $32.1 million. The
adjustment to long-term debt is being amortized to net income under United
States GAAP over the remaining effective life of the related long-term
debt.
Therefore, for the nine months ended September 30, 2004 and year ended
December 31, 2003, under United States GAAP, the Company has recorded the
change in the fair values of the cross-currency interest rate exchange
agreements and the amortization of the adjustment to its long-term debt,
as discussed above.
(i) Stock-based compensation:
Under United States GAAP, options issued to non-employees must be measured
at the fair value at grant dates and recorded as deferred compensation
expense and shareholders' equity. The fair value must be remeasured at
each reporting date until vesting is complete, with corresponding
adjustments to the deferred compensation expense. The deferred
compensation is recognized as compensation expense over the vesting period
of the options.
E-14
The Company measures compensation expense relating to employee stock
option plans for United States GAAP purposes using the intrinsic value
method specified by APB Opinion No. 25. Under Canadian GAAP, effective
January 1, 2004, the Company adopted the fair value method of recognizing
stock-based compensation expense. Compensation expense of $11.5 million
under Canadian GAAP for the nine months ended September 30, 2004 would not
be recognized under United States GAAP. The exercise price of stock
options is equal to the market value of the underlying shares at the date
of grant, therefore there is no expense under the intrinsic value method
for United States GAAP purposes for the nine months ended September 30,
2004 and year ended December 31, 2003.
(j) Minimum pension liability:
Under United States GAAP, the Company is required to record an additional
minimum pension liability for one of its plans to reflect the excess of
the accumulated benefit obligation over the fair value of the plan assets.
Other comprehensive income has been charged with $13.5 million, net of
income taxes of $7.7 million, for the nine months ended September 30, 2004
and $5.0 million, net of income taxes of $2.9 million for the year ended
December 31, 2003. No such adjustments are required under Canadian GAAP.
(k) Loss on repayment of long-term debt:
On March 26, 2004, ▇▇▇▇▇▇ Wireless repaid long-term debt resulting in a
loss on early repayment of long-term debt of $2.3 million. This loss
included, among other items, a $40.2 million gain on the realization of
the deferred transitional gain related to cross-currency interest rate
exchange agreements which were unwound in connection with the repayment of
long-term debt. Under United States GAAP, the Company records
cross-currency interest rate exchange agreements at fair value. Therefore,
under United States GAAP the deferred transitional gain realized under
Canadian GAAP would be reduced by $28.8 million, representing the $40.2
million gain net of the realization of a gain of $11.4 million related to
the cumulative transition adjustment recorded upon the adoption of SFAS
133 "Accounting for Derivative Instruments and Hedging Activities".
(l) Income taxes:
Included in the caption "income taxes" is the tax effect of various
adjustments where appropriate and the impact of substantively enacted rate
changes that would not have been recorded under United States GAAP until
enacted. Under Canadian GAAP, future income taxes assets and liabilities
are remeasured for substantively enacted rate changes, whereas under
United States GAAP, future income tax assets and liabilities are only
remeasured for enacted tax rates.
(m) Installation revenues and costs:
Effective January 1, 2004, for Canadian GAAP purposes, installation
revenues for both new connects and reconnects are deferred and amortized
over the customer relationship period. New connect installation costs are
capitalized to property, plant and equipment and depreciated over the
related useful lives consistent with historical practice. Reconnect
installation costs are deferred only to the extent of reconnect
installation revenues with any excess charged to expense. For United
States GAAP purposes, installation fees are immediately recognized in
income only to the extent of direct selling costs with any excess deferred
and amortized over the customer relationship period. Installation costs
for reconnects are expensed as incurred while installation costs related
to new connects are capitalized to property, plant and equipment and
depreciated over the related useful lives consistent with our historical
practice.
(n) Microcell adjustments:
Effective January 1, 2004, Microcell adopted the fair value method of
recognizing stock-based compensation expense under Canadian GAAP. For
United States GAAP purposes, the intrinsic value method is used by RCI to
account for stock-based compensation. Compensation expense of $5.7 million
for the nine months ended September 30, 2004 would not be recognized under
United States GAAP.
On May 1, 2003, Microcell emerged from a restructuring plan under the
Companies' Creditors Arrangement Act and Canada Business Corporations Act.
Under United States GAAP, the forgiveness of debt and the effect of the
adjustments on the reported amounts of individual assets and liabilities
resulting from the adoption of fresh start accounting in the amount of
$1,253,660,000 are reflected in the statement of income for the year ended
December 31, 2003. Under Canadian GAAP, such adjustments are recorded as
capital transactions.
In addition, certain differences between Canadian GAAP and United States
GAAP exist related to the accounting for Microcell's investments under the
equity method which resulted in a reduction in net income under United
States GAAP of $500,000 for the year ended December 31, 2003.
E-15
(o) Statement of comprehensive income:
United States GAAP requires the disclosure of a statement of comprehensive
income. Comprehensive income generally encompasses all changes in
shareholders' equity, except those arising from transactions with
shareholders.
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
2003 2004
------------ -------------
Pro forma net income (loss) based on United States GAAP..... $772,636 $(315,141)
Other comprehensive income, net of income taxes:
Unrealized holding gains arising during the period, net of
income taxes............................................ 67,727 32,881
Realized gains included in income......................... (17,902) --
Minimum pension liability, net of income taxes............ (4,982) (13,543)
-------- ---------
Comprehensive loss based on United States GAAP.............. $817,479 $(295,803)
======== =========
E-16
SCHEDULE "F"
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
OF THE CORPORATION
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF
▇▇▇▇▇▇ WIRELESS COMMUNICATIONS INC.
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND
YEAR ENDED DECEMBER 31, 2003
(Unaudited)
F-1
COMPILATION REPORT ON PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
To the Board of Directors of ▇▇▇▇▇▇ Communications Inc.
We have read the accompanying unaudited pro forma consolidated balance
sheet of ▇▇▇▇▇▇ Wireless Communications Inc. (the "Company") as at September 30,
2004 and the unaudited pro forma consolidated statements of income for the nine
months then ended and for the year ended December 31, 2003 and have performed
the following procedures:
1. Compared the figures in the columns captioned "RWCI" to the unaudited
consolidated financial statements of the Company as at September 30,
2004 and for the nine months then ended and the audited consolidated
financial statements of the Company for the year ended December 31,
2003 and found them to be in agreement.
2. Compared the figures in the columns captioned "Microcell" to the
unaudited consolidated financial statements of Microcell
Telecommunications Inc. as at September 30, 2004 and for the nine
months then ended and the audited consolidated financial statements
of Microcell for the four months ended April 30, 2003
(pre-reorganization (note 2(b))) and for the eight months ended
December 31, 2003 and found them to be in agreement.
3. Made enquiries of certain officials of the Company who have
responsibility for financial and accounting matters about:
(a) the basis for determination of the pro forma adjustments; and
(b) whether the pro forma financial statements comply as to form in
all material respects with the published requirements of Canadian
securities legislation.
The officials:
(a) described to us the basis for determination of the pro forma
adjustments; and
(b) stated that the pro forma statements comply as to form in all
material respects with the published requirements of Canadian
securities legislation.
4. Read the notes to the pro forma statements and found them to be
consistent with the basis described to us for determination of the
pro forma adjustments.
5. Recalculated the application of the pro forma adjustments to the
aggregate of the amounts in the columns captioned "RWCI" and
"Microcell" as at September 30, 2004 and the nine months then ended,
and the application of the pro forma adjustments to the aggregate of
the amounts in the columns captioned "RWCI" for the year ended
December 31, 2003 and "Microcell" for the four months ended April 30,
2003 (pre-reorganization (note 2(b))) and for the eight months ended
December 31, 2003 and found the amounts in the columns captioned "Pro
forma total" to be arithmetically correct.
A pro forma financial statement is based on management assumptions and
adjustments which are inherently subjective. The foregoing procedures are
substantially less than either an audit or a review, the objective of which is
the expression of assurance with respect to management's assumptions, the pro
forma adjustments, and the application of the adjustments to the historical
financial information. Accordingly, we express no such assurance. The foregoing
procedures would not necessarily reveal matters of significance to the pro forma
financial statements, and we therefore make no representation about the
sufficiency of the procedures for the purposes of a reader of such statements.
/S/ KPMG LLP
Chartered Accountants
Toronto, Canada
November 24, ▇▇▇▇
▇-▇
▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ READERS ON DIFFERENCE
BETWEEN CANADIAN AND UNITED STATES REPORTING STANDARDS
The above report, provided solely pursuant to Canadian requirements, is
expressed in accordance with standards of reporting generally accepted in
Canada. To report in conformity with United States standards on the
reasonableness of the pro forma adjustments and their application to the pro
forma financial statements requires an examination or review substantially
greater in scope than the review we have conducted. Consequently, we are unable
to express any opinion in accordance with standards of reporting generally
accepted in the United States with respect to the compilation of the
accompanying unaudited pro forma financial information.
/S/ KPMG LLP
Chartered Accountants
Toronto, Canada
November 24, 2004
F-3
▇▇▇▇▇▇ WIRELESS COMMUNICATIONS INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
(In thousands of dollars)
SEPTEMBER 30, 2004
(Unaudited)
PRO FORMA PRO FORMA
RWCI MICROCELL ADJUSTMENTS NOTES TOTAL
---------- ---------- ----------- ---------- ----------
ASSETS
Current assets:
Cash and cash equivalents............ $ 111,291 $ 110,977 $ (111,185) 4(a)(i) $1,750,106
103,917 4(a)(ii)
2,921,588 4(a)(iii)
(1,171,588) 4(a)(iii)
(214,894) 4(a)(vii)
Short-term investments............... -- 22,804 (22,804) 4(a)(vii) --
Accounts receivable.................. 348,961 91,430 -- 440,391
Deferred charges..................... -- 21,280 (21,280) 4(a)(vi) --
Other assets......................... 51,128 87,715 -- 138,843
Due from parent and affiliated
companies......................... 1,767 -- -- 1,767
---------- ---------- ----------- ----------
513,147 334,206 1,483,754 2,331,107
Property, plant and equipment.......... 2,249,063 462,161 (292,961) 4(a)(vi) 2,418,263
Spectrum licences...................... 402,880 188,002 (188,002) 4(a)(vi) 813,480
410,600 4(a)(vi)
Goodwill............................... 7,058 -- 886,367 4(a)(vi) 893,425
Other intangible assets................ -- 38,883 292,773 4(a)(vi) 292,773
(38,883) 4(a)(vi)
Deferred charges....................... 27,904 33,147 28,295 4(a)(iii) 56,199
(33,147) 4(a)(vi)
Other long-term assets................. 1,178 4,146 -- 5,324
---------- ---------- ----------- ----------
$3,201,230 $1,060,545 $ 2,548,796 $6,810,571
========== ========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities:
Accounts payable and accrued
liabilities....................... $ 328,485 $ 127,982 $ 193,000 4(a)(v) $ 649,467
Current portion of long-term
debt............................ 918 12,000 (12,000) 4(a)(vii) 918
Fair value of derivative
instruments....................... -- 9,677 (9,677) 4(a)(vii) --
Unearned revenue..................... 37,362 47,450 (7,227) 4(a)(vi) 77,585
---------- ---------- ----------- ----------
366,765 197,109 164,096 727,970
Long-term debt......................... 1,946,308 360,616 444,860 4(a)(i) 5,194,444
2,949,883 4(a)(iii)
(321,588) 4(a)(iii)
5,646 4(a)(vi)
(366,262) 4(a)(vii)
174,981 4(a)(vii)
Subordinated loan payable to parent
company.............................. -- -- 850,000 4(a)(i) --
(850,000) 4(a)(iii)
Derivative instruments................. 198,307 -- -- 198,307
Deferred transitional gain............. 57,474 -- -- 57,474
Fair value of derivative instruments... 1,017 24,740 (24,740) 4(a)(vii) 1,017
Shareholders' equity (deficiency)...... 631,359 478,080 103,917 4(a)(ii) 631,359
(581,997) 4(a)(viii)
---------- ---------- ----------- ----------
$3,201,230 $1,060,545 $ 2,548,796 $6,810,571
========== ========== =========== ==========
See accompanying notes to pro forma consolidated financial statements.
F-4
▇▇▇▇▇▇ WIRELESS COMMUNICATIONS INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(In thousands of dollars, except earnings (loss) per share)
YEAR ENDED DECEMBER 31, 2003
(Unaudited)
MICROCELL
---------------------------------
PRE-REORGANIZATION
FOUR MONTHS
RWCI ENDED EIGHT MONTHS
YEAR ENDED APRIL 30, ENDED
DECEMBER 31, 2003 DECEMBER 31, PRO FORMA PRO FORMA
2003 (NOTE 2(B)) 2003 ADJUSTMENTS NOTES TOTAL
------------ ------------------ ------------ ----------- --------- ----------
Revenue:
Postpaid............ $1,911,073 $124,303 $261,907 $ -- $2,297,283
Prepaid............. 91,255 45,893 95,576 (12,908) 4(b)(i) 219,816
One-way messaging... 27,565 -- -- -- 27,565
Equipment........... 177,901 7,498 35,610 2,359 4(b)(ii) 217,049
(6,319) 4(b)(ii)
---------- -------- -------- --------- ----------
2,207,794 177,694 393,093 (16,868) 2,761,713
---------- -------- -------- --------- ----------
Operating expenses:
Cost of equipment
sales............ 380,771 23,416 93,552 -- 497,739
Sales and
marketing........ 361,998 24,585 73,185 (12,908) 4(b)(i) 446,860
Operating, general
and
administrative... 737,453 91,137 178,335 -- 1,006,925
Management fees..... 11,336 -- -- -- 11,336
Depreciation and
amortization..... 518,599 59,388 46,771 58,555 4(b)(iii) 637,660
(7,383) 4(b)(iii)
(41,852) 4(b)(iii)
3,582 4(b)(iv)
---------- -------- -------- --------- ----------
2,010,157 198,526 391,843 (6) 2,600,520
---------- -------- -------- --------- ----------
Operating income
(loss).............. 197,637 (20,832) 1,250 (16,862) 161,193
Interest expense...... 193,506 70,608 14,817 212,240 4(b)(iv) 491,171
---------- -------- -------- --------- ----------
4,131 (91,440) (13,567) (229,102) (329,978)
Foreign exchange
gain................ 135,242 136,553 13,926 -- 285,721
Investment and other
income.............. 861 2,200 5,187 (3,891) 4(b)(iv) 4,357
---------- -------- -------- --------- ----------
Income (loss) before
income taxes........ 140,234 47,313 5,546 (232,993) (39,900)
Income taxes.......... 2,393 1,796 587 -- 4,776
---------- -------- -------- --------- ----------
Net income (loss) for
the period.......... $ 137,841 $ 45,517 $ 4,959 $(232,993) $ (44,676)
========== ======== ======== ========= ==========
Earnings (loss) per
share --
basic and diluted... $ 0.97 $ (0.44)
========== ==========
See accompanying notes to pro forma consolidated financial statements.
F-5
▇▇▇▇▇▇ WIRELESS COMMUNICATIONS INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(In thousands of dollars, except earnings (loss) per share)
NINE MONTHS ENDED SEPTEMBER 30, 2004
(Unaudited)
PRO FORMA PRO FORMA
RWCI MICROCELL ADJUSTMENTS NOTES TOTAL
---------- --------- ----------- --------- ----------
Revenue:
Postpaid................................ $1,678,470 $354,290 $ -- $2,032,760
Prepaid................................. 75,211 91,645 (5,574) 4(b)(i) 161,282
One-way messaging....................... 18,652 -- -- 18,652
Equipment............................... 197,564 36,168 4,868 4(b)(ii) 217,256
(21,344) 4(b)(ii)
---------- -------- --------- ----------
1,969,897 482,103 (22,050) 2,429,950
---------- -------- --------- ----------
Operating expenses:
Cost of equipment sales................. 357,527 83,041 -- 440,568
Sales and marketing..................... 266,447 87,822 (5,574) 4(b)(i) 348,695
Operating, general and administrative... 609,632 220,854 7,071 4(b)(ii) 837,557
Management fees......................... 8,756 -- -- 8,756
Special charges (note 2(c))............. -- 9,668 -- 9,668
Depreciation and amortization........... 357,327 61,072 43,916 4(b)(iii) 426,995
(6,617) 4(b)(iii)
(31,389) 4(b)(iii)
2,686 4(b)(iv)
---------- -------- --------- ----------
1,599,689 462,457 10,093 2,072,239
---------- -------- --------- ----------
Operating income.......................... 370,208 19,646 (32,143) 357,711
Interest expense.......................... 152,422 23,782 145,074 4(b)(iv) 321,278
---------- -------- --------- ----------
217,786 (4,136) (177,217) 36,433
Foreign exchange loss..................... (46,369) (15,757) -- (62,126)
Change in the fair value of derivative
instruments............................. (9,046) -- -- (9,046)
Loss on repayment on long-term debt....... (2,313) -- -- (2,313)
Investment and other income (loss)........ 5,091 (147) (3,412) 4(b)(iv) 1,532
---------- -------- --------- ----------
Income (loss) before income taxes......... 165,149 (20,040) (180,629) (35,520)
Income taxes.............................. 3,947 2,958 -- 6,905
---------- -------- --------- ----------
Net income (loss) for the period.......... $ 161,202 $(22,998) $(180,629) $ (42,425)
========== ======== ========= ==========
Earnings (loss) per share:
Basic................................... $ 1.13 $ (0.33)
Diluted................................. 1.12 (0.33)
========== ==========
See accompanying notes to pro forma consolidated financial statements.
F-6
▇▇▇▇▇▇ WIRELESS COMMUNICATIONS INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
YEAR ENDED DECEMBER 31, 2003 AND NINE MONTHS ENDED SEPTEMBER 30, 2004
(Unaudited)
1. DESCRIPTION OF TRANSACTIONS:
On September 20, 2004, ▇▇▇▇▇▇ Wireless Inc. ("RWI"), a wholly owned
subsidiary of ▇▇▇▇▇▇ Wireless Communications Inc. ("RWCI"), announced an
agreement with Microcell Telecommunications Inc. ("Microcell") to make an all
cash tender offer totalling approximately Cdn. $1.4 billion, to acquire all
of Microcell, Canada's fourth largest wireless communications provider (the
"Acquisition"). RWI completed the Acquisition on November 12, 2004.
On September 13, 2004, ▇▇▇▇▇▇ Communications Inc. ("RCI") entered into an
agreement with JVII General Partnership ("JVII"), a general partnership
wholly owned by AT&T Wireless Services, Inc., whereby RCI agreed to purchase
all of JVII's shares of RWCI for a cash purchase price totalling
approximately $1,767 million. RCI closed this transaction on October 13,
2004. RCI funded the cash purchase price for the RWCI shares through a $1.75
billion secured bridge credit facility with a term of up to two years to
October 12, 2006 and from cash on hand. It is RCI's intention that RWCI will
refinance the bridge financing facility. RWCI is currently reviewing various
methods of transferring the $1.75 billion to its shareholders, so RCI will
have adequate funds to repay its $1.75 billion bridge credit facility. A
method of such transfer, including the timing thereof, has not been
determined at this time (note 4(a)(iv)).
In connection with these transactions, RWI announced on November 19, 2004
that it had priced a private placement of notes in the aggregate principal
amount of U.S. $2,356,000,000 (approximately $2,949,883,000 based on the U.S.
dollar exchange rate at September 30, 2004) (the "Financing").
2. BASIS OF PRESENTATION:
(a) Pro forma consolidated financial statements:
The accompanying unaudited pro forma consolidated financial statements
(the "Statements") give effect to the Acquisition and the Financing as if
they had occurred as at:
- September 30, 2004 for the purposes of the unaudited pro forma
consolidated balance sheet; and
- January 1, 2003 for the purposes of the unaudited pro forma
consolidated statements of income for the year ended December 31, 2003
and the nine months ended September 30, 2004.
The Statements have been prepared by management in accordance with
Canadian generally accepted accounting principles ("GAAP"). In certain
respects, GAAP as applied in the United States differs from that applied
in Canada (note 6). The accounting policies used in the preparation of the
Statements are consistent with those used by RWCI in the preparation of
the consolidated financial statements for the year ended December 31, 2003
and the nine months ended September 30, 2004.
The Statements have been prepared using the following information and
should be read in conjunction with the financial statements listed below:
(i) Audited consolidated financial statements of RWCI as at and for the
year ended December 31, 2003;
(ii) Audited consolidated financial statements of Microcell as at
December 31, 2003 and for the periods from January 1, 2003 to April
30, 2003 and May 1, 2003 to December 31, 2003 (note 2(b));
(iii) Unaudited consolidated interim financial statements of RWCI as at
and for the nine months ended September 30, 2004;
(iv) Unaudited consolidated interim financial statements of Microcell as
at and for the nine months ended September 30, 2004; and
(v) Such other supplementary information as was considered necessary to
reflect the Acquisition in the statements.
The Statements do not include the anticipated financial benefits from such
items as cost savings arising from the Acquisition. The Statements are not
necessarily indicative of the results of operations or the financial
position that would have resulted had the Acquisition or the Financing
been effected on the dates indicated, or the results that may be obtained
in the future.
Certain elements of the RWCI and Microcell consolidated financial
statements have been reclassified to provide a consistent classification
format.
(b) Financial reorganization of Microcell:
On May 1, 2003, the predecessor company of Microcell and certain of its
subsidiaries emerged from a restructuring plan under the Companies'
Creditors Arrangement Act and Canada Business Corporations Act. Pursuant
to the plan, Microcell's long-term debt obligations decreased by
approximately $1.6 billion. Microcell's interest expense for the four
months ended April 30, 2003 includes the interest expense on the full
amount of Microcell's debt prior to the restructuring.
Effective May 1, 2003, the date of reorganization, Microcell accounted for
its financial reorganization by using the principles of fresh start
accounting. Accordingly, all assets and liabilities were revalued at
estimated fair values and Microcell's deficit was eliminated. Microcell
determined that its enterprise value was $689 million, of which $350
million has been allocated to long-term debt and $339 million to equity.
This enterprise value was determined based on several traditional
valuation methodologies utilizing projections developed by
F-7
Microcell management, including discounted cash flow analysis and
comparable company trading analysis. A comprehensive revaluation of the
assets and liabilities of Microcell was done based on this enterprise
value. Microcell's depreciation expense for the four months ended April
30, 2003 is based on the original cost of Microcell's property, plant and
equipment. For periods subsequent to the restructuring, depreciation
expense is based on the restated property, plant and equipment amounts.
(c) Microcell special charges:
In connection with events leading up to the Acquisition, Microcell
incurred financial and legal fees in the amount of $6.1 million in the
nine months ended September 30, 2004. In addition, as a result of the
impact of the Acquisition on Microcell's share price, the vesting of
options under Microcell's stock option plan was accelerated, which
resulted in an acceleration of compensation expense of $3.6 million in the
nine months ended September 30, 2004.
3. ACCOUNTING FOR THE ACQUISITION:
The Acquisition is accounted for using the purchase method of accounting. The
total purchase consideration is comprised of the following:
Cash........................................................ $1,391,045
Estimated transaction costs................................. 15,000
----------
$1,406,045
==========
The cash consideration includes the acquisition of additional equity
securities that RWI expects to acquire in May 2005.
The purchase price will be allocated to the assets acquired (including
identifiable intangible assets arising from the purchase) and liabilities
assumed based on their estimated fair value at the date of acquisition.
Details of the estimated fair value of assets acquired and liabilities
assumed of Microcell based on the information available at the date of
preparation of these Statements are as follows:
Assets acquired:
Cash and cash equivalents................................. $ 110,977
Cash related to the exercising of existing stock options
and warrants (note 4(a)(ii))............................ 103,917
Short-term investments.................................... 22,804
Accounts receivable....................................... 91,430
Other current assets...................................... 87,715
Property, plant and equipment............................. 169,200
Spectrum licences......................................... 410,600
Other intangible assets................................... 292,773
Goodwill.................................................. 886,367
Other long-term assets.................................... 4,146
----------
2,179,929
----------
Less liabilities assumed:
Accounts payable and accrued liabilities.................. 127,982
Liabilities set up on close (note 4(a)(v))................ 193,000
Unearned revenue.......................................... 40,223
Long-term debt............................................ 378,262
Derivative instruments.................................... 34,417
----------
773,884
----------
Fair value of net assets acquired........................... $1,406,045
==========
The actual adjustments that the Company will ultimately make in finalizing
the allocation of the purchase price of Microcell to the fair value of the
net assets acquired will depend on a number of factors, including additional
information available at such time, changes in market values and changes in
Microcell's operating results between the date of these pro forma
consolidated financial statements and the effective date of the Acquisition.
In the preparation of these pro forma financial statements, the purchase
consideration has been allocated on a preliminary basis to the fair value of
assets acquired and liabilities assumed based on management's best estimates
and taking into account all relevant information available at the time these
Statements were prepared. The Company expects that the actual amounts for
each of the fair values of the assets and liabilities acquired will vary from
the pro forma amounts and that the variation may be material.
F-8
4. PRO FORMA ASSUMPTIONS AND ADJUSTMENTS:
(a) The unaudited pro forma consolidated balance sheet as at September 30,
2004 incorporates the following adjustments:
(i) The funding for the Acquisition has been reflected in the pro forma
consolidated balance sheet as if it had occurred on September 30,
2004, as follows:
Sources of funding:
Cash on hand of RWI....................................... $ 111,185
RWI bank credit facility.................................. 444,860
Loan from RCI............................................. 850,000
----------
$1,406,045
==========
(ii) Each of cash and share capital has been increased by $103,917,000
to reflect the exercise of Microcell stock options and warrants,
which are assumed to have occurred immediately prior to the
Acquisition.
(iii) RWI announced on November 19, 2004 that it had priced a private
placement in the aggregate principal amount of approximately
$2,949,883,000 (based on the U.S. dollar exchange rate at
September 30, 2004) of senior and subordinated debt. The net
proceeds of this issue are estimated to be $2,921,588,000 (based
on the U.S. dollar exchange rate at September 30, 2004). It is
expected that the net proceeds will be used as follows:
Cash on hand (note (iv) below).............................. $1,750,000
Repayment of loan from RCI.................................. 850,000
Repayment of RWI bank credit facility....................... 321,588
----------
$2,921,588
==========
(iv) As indicated in note 1, RWCI is reviewing the various methods of
transferring the $1.75 billion to RCI, so RCI will have adequate
funds to repay its $1.75 billion bridge credit facility. The method
of such transfer, including the timing thereof, has not been
determined at this time. If such transfer were to occur by a
distribution of capital to RCI, pro forma cash and cash equivalents
would be reduced by $1,750,000,000 and pro forma shareholders'
equity would be reduced by a corresponding amount.
(v) A plan has been developed to restructure and integrate the
operations of Microcell. As a result of the restructuring and
integration, it is expected that severance and other
employee-related costs, as well as costs to consolidate facilities,
systems and operations totalling an estimated $193,000,000, will be
incurred. These costs are management's preliminary estimates and
take into account all relevant information available at the time
these Statements were prepared. The actual integration costs may
vary materially from such estimates. These costs have been reflected
in the pro forma consolidated balance sheet as a liability as part
of the purchase consideration allocation.
(vi) Upon acquisition, all of the Microcell deferred charges and
intangible assets have been written off. Intangible assets arising
on the Acquisition have been recorded at their estimated fair
values as part of the allocation of the purchase price. Intangible
assets acquired include spectrum licences, which have an indefinite
life, and Microcell's customer contracts and relationships and
brand name. In addition, property, plant and equipment, long-term
debt and deferred revenue have been adjusted to estimated fair
value. The estimated fair values are based on management's best
estimates based on preliminary studies undertaken by management.
The estimated value allocated to goodwill was based on the residual
of the preliminary fair values of the identifiable tangible and
intangible assets less the fair values of the liabilities assumed.
The actual allocation may differ significantly from these
estimates.
(vii) Immediately after closing the Acquisition, Microcell's long-term
debt was repaid and derivative instruments were unwound, utilizing
Microcell's cash on hand (including cash received from the exercise
of stock options and warrants as described in (ii) above) and
short-term investments and from the proceeds of drawdowns under the
RWI bank credit facility.
(viii) Microcell's share capital, retained earnings and contributed
surplus have been eliminated to reflect the effect of the
Acquisition.
(b) The unaudited pro forma condensed consolidated statements of income for
the year ended December 31, 2003 and for the nine months ended
September 30, 2004 incorporate the following adjustments:
(i) RWCI recognizes revenue from the sale of prepaid services at the
net wholesale amount charged to distributors. Microcell recognizes
revenue from the sale of prepaid services at the gross amount
charged to the subscriber. In order to harmonize Microcell's
accounting presentation to that of RWCI, network revenue has been
reduced by $12,908,000 and $5,574,000 for the year ended December
31, 2003 and nine months ended September 30, 2004, respectively.
Sales and marketing expense for the periods has been reduced by the
same amounts.
F-9
(ii) RWCI expenses all costs related to subscriber acquisition and
retention as incurred. Microcell defers and amortizes certain costs
and revenues related to subscriber acquisition and retention. As a
result, the following adjustments to revenue and expenses are being
made to harmonize Microcell's accounting presentation to that of
RWCI:
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
INCREASE (DECREASE) 2003 2004
------------------- ------------ -------------
Equipment revenue -- activation fees........................ $2,359 $ 4,868
Equipment revenue -- handset subsidies...................... (6,319) (21,344)
Operating, general and administrative expenses.............. - 7,071
(iii) Pro forma depreciation and amortization has been increased by
$58,555,000 and $43,916,000 for the year ended December 31, 2003
and the nine months ended September 30, 2004, respectively, to
reflect the amortization of other intangible assets arising on the
Acquisition, being the Microcell customer contracts and
relationships and brand name, over an estimated average life of
five years on a straight-line basis. The five-year estimated
average life was determined based on Microcell's historical
customer relationship period and a 15-year estimated useful life
for the Microcell brand name. A change in the fair value of other
intangible assets acquired of $10,000,000 would impact the pro
forma amortization expense and pro forma net loss by $2,000,000
and $1,500,000 for the year ended December 31, 2003 and the nine
months ended September 30, 2004, respectively. An extension in the
estimated average useful life of the Microcell customer contracts
and relationships and brand name by one year would reduce the pro
forma amortization expense and pro forma net loss by $9,760,000
and $7,320,000 for the year ended December 31, 2003 and the nine
months ended September 30, 2004, respectively.
Pro forma amortization expense has been reduced by $7,383,000 and
$6,617,000 for the year ended December 31, 2003 and the nine months
ended September 30, 2004, respectively, to reflect the elimination of
historical amortization expense as a result of the fair value
adjustments to the existing Microcell intangible assets upon
acquisition.
Pro forma depreciation expense has been reduced by $41,852,000 and
$31,389,000 for the year ended December 31, 2003 and the nine months
ended September 30, 2004, respectively, to reflect the elimination of
historical depreciation expense as a result of the write-down of
Microcell's property, plant and equipment to estimated fair value
assuming an estimated average life of seven years on a straight-line
basis.
(iv) Interest expense and investment and other income have been adjusted
to reflect the financing of the Acquisition, the Financing and to
eliminate the historical interest expense of Microcell as a result
of the repayment of Microcell's long-term debt, as follows:
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
INCREASE (DECREASE) 2003 2004
------------------- ------------ -------------
Interest expense:
Bank credit facility...................................... $ 14,913 $ 11,184
Senior and subordinated debt.............................. 219,553 157,672
Long-term debt -- Microcell............................... (22,226) (23,782)
-------- --------
$212,240 $145,074
======== ========
Investment and other income................................. $ (3,891) $ (3,412)
======== ========
Pro forma interest expense has been determined using an estimated
interest rate of 5% for the bank credit facility and the weighted
average interest rates for the senior and subordinated debt of 6.81%
for the year ended December 31, 2003 and 6.85% for the nine months
ended September 30, 2004.
A change of 1/8% in the interest rate on the bank credit facility and
the floating rate senior debt would impact the pro forma interest
expense and pro forma net loss by $1,340,000 and $963,000 for the year
ended December 31, 2003 and the nine months ended September 30, 2004,
respectively.
Pro forma depreciation and amortization have been increased by
$3,582,000 and $2,686,000 for the year ended December 31, 2003 and the
nine months ended September 30, 2004 to reflect the amortization of
financing costs incurred on the issue of senior and subordinated debt
over an estimated average term to maturity of 7.9 years.
(v) A full valuation allowance has been recorded against the income tax
loss carryforwards of Microcell totalling approximately $1.6 billion
as it is not more likely than not that these losses will be
utilized. Any future reduction in the valuation allowance will
reduce goodwill and other intangible assets.
F-10
5. PRO FORMA EARNINGS PER SHARE:
The following table sets forth the calculation of pro forma basic and diluted
earnings (loss) per share:
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
2003 2004
------------ -------------
Numerator:
Pro forma loss for the period -- basic and diluted........ $(44,676) $(42,425)
Accretion on redemption price of Microcell preferred
shares.................................................. (17,105) (5,184)
-------- --------
$(61,781) $(47,609)
======== ========
Denominator:
Weighted average number of shares outstanding -- basic.... 141,773 142,631
Effect of dilutive securities:
Employee stock options.................................. 260 1,041
-------- --------
Weighted average number of shares outstanding -- diluted.... 142,033 143,672
======== ========
Pro forma loss per share -- basic and diluted............... $ (0.44) $ (0.33)
======== ========
The Microcell preferred shares were redeemed and converted in 2004.
6. RECONCILIATION TO UNITED STATES GAAP:
If United States GAAP were employed, the pro forma consolidated net income
(loss) for the year ended December 31, 2003 and nine months ended September
30, 2004 would be adjusted as follows:
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
2003 2004
------------ -------------
Pro forma loss for the period based on Canadian GAAP........ $ (44,676) $(42,425)
Stock-based compensation (a)................................ -- 3,178
Loss on repayment of long-term debt (b)..................... -- (28,759)
Interest capitalized (e).................................... 5,693 4,477
Amortization of pre-operating costs (f)..................... 2,976 --
Depreciation expense (h).................................... (2,968) (2,720)
Financial instruments (i)................................... (102,787) 5,379
Microcell adjustments (j)................................... 1,253,160 5,700
---------- --------
Pro forma net income (loss) based on United States GAAP..... $1,111,398 $(55,170)
========== ========
Pro forma earnings (loss) per share under United States
GAAP:
Basic..................................................... $ 7.72 $ (0.42)
Diluted................................................... 7.70 (0.42)
========== ========
The cumulative effect of these adjustments on the pro forma consolidated
shareholders' equity of RWCI is as follows:
NINE MONTHS
ENDED
SEPTEMBER 30,
2004
-------------
Pro forma shareholders' equity based on Canadian GAAP....... $ 631,359
Loss on repayment of long-term debt (b)..................... (28,759)
"Pushed down" goodwill (c).................................. 770,757
Amortization of goodwill (d)................................ (248,890)
Interest capitalized (e).................................... 35,720
Conversion costs (g)........................................ (3,911)
Accumulated depreciation (h)................................ (8,219)
Financial instruments (i)................................... 15,240
----------
Pro forma shareholders' equity based on United States
GAAP...................................................... $1,163,297
==========
F-11
The areas of material differences between Canadian and United States GAAP and
their impact on the pro forma consolidated financial statements of RWCI are
described below:
(a) Stock-based compensation:
Under Canadian GAAP, effective January 1, 2004 RWCI adopted the fair value
method of recognizing stock-based compensation expense. For United States
GAAP purposes, the intrinsic value method is used to account for
stock-based compensation. Compensation expense of $3.2 million under
Canadian GAAP for the nine months ended September 30, 2004 would not be
recognized under United States GAAP. The exercise price of stock options
is equal to the market value of the underlying shares at the date of
grant; therefore, there is no expense under the intrinsic value method for
United States GAAP purposes for the nine months ended September 30, 2004.
(b) Loss on repayment of long-term debt:
On March 26, 2004, RWCI repaid long-term debt resulting in a loss on early
repayment of long-term debt of $2.3 million. This loss included, among
other items, a $40.2 million gain on the realization of the deferred
transitional gain related to cross currency interest rate exchange
agreements which were unwound in connection with the repayment of
long-term debt. Under United States GAAP, the Company records cross
currency interest rate exchange agreements at fair value. Therefore, under
United States GAAP, the deferred transitional gain realized under Canadian
GAAP would be reduced by $28.8 million, representing the $40.2 million
gain net of the realization of a gain of $11.4 million related to the
cumulative transition adjustment recorded upon the adoption of SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities".
(c) "Push-down" accounting:
Under United States GAAP, purchase transactions that result in an entity
becoming a wholly owned subsidiary establish a new basis of accounting for
the entity purchased and its assets and liabilities. As a result of RCI's
acquisition of 100% of RWCI in 1989, for United States GAAP purposes, RWCI
must record as an asset in its consolidated financial statements the
amount of goodwill that was recorded on the consolidated financial
statements of RCI. As this acquisition was financed principally by the
parent company with proceeds from other asset sales, the corresponding
adjustment for the assets recorded was an increase in shareholders'
equity.
At the time of the acquisition by RCI, Canadian GAAP did not permit a
subsidiary company to alter the historical costs of its assets or
liabilities upon it being acquired.
On October 13, 2004, RCI acquired the shares of RWCI previously owned by
JVII General Partnership ("JVII"), a general partnership wholly owned by
AT&T Wireless Communications Inc., for a cash purchase price of $1,767
million. This acquisition increased RCI's ownership in RWCI to 89.3%, with
the balance of RWCI's outstanding shares being held by the public. On
November 11, 2004, RCI's Board of Directors authorized RCI to launch an
exchange offer to purchase all of the outstanding Class B Restricted
Voting Shares of RWCI ("RWCI Class B Shares") not already owned by RCI in
exchange for 1.75 Class B Non-voting shares of RCI for each RWCI Class B
Share (the "Exchange Offer").
If "push-down" accounting were to be applied to the purchase equation
resulting from the completion of the Exchange Offer, based on preliminary
allocations to the fair value of assets acquired and liabilities assumed,
RWCI's goodwill would increase by approximately $1,426 million, spectrum
licenses would increase by approximately $381.7 million, other intangible
assets would increase by approximately $499 million, and deferred
stock-based compensation would increase by approximately $47.9 million,
with a corresponding increase of approximately $5,789.9 million to
shareholders' equity.
Pro forma depreciation and amortization would increase by $108,881,000 and
$81,661,000 for the year ended December 31, 2003 and the nine months ended
September 30, 2004, respectively, to reflect the amortization of other
intangible assets, being customer contracts and relationships, on an
estimated useful life of 55 months on a straight-line basis.
(d) Amortization of goodwill:
As a result of the "push-down" accounting described in (c) above, RWCI was
required until 2001 to amortize the amount recorded as goodwill under
United States GAAP. RWCI had been amortizing this amount under United
States GAAP over 40 years on a straight-line basis.
(e) Interest capitalized:
United States GAAP requires capitalization of interest costs as part of
the historical cost of acquiring certain qualifying assets which require a
period of time to prepare for their intended use. This is not required
under Canadian GAAP.
(f) Pre-operating costs:
Under Canadian GAAP, RWCI defers the incremental costs relating to the
development and pre-operating phases of new business, and amortizes these
costs on a straight-line basis over two years. Under United States GAAP,
these costs are expensed as incurred.
(g) Conversion costs:
Under Canadian GAAP, RWCI capitalized certain costs incurred to convert
data to its new customer care and billing system. United States GAAP
required these costs to be expensed as incurred.
(h) Accumulated depreciation:
As a result of the capitalization of interest to property, plant and
equipment required under United States GAAP described in (e) above,
additional depreciation on the interest capitalized is recorded under
United States GAAP in subsequent periods. As a result of conversion costs
being expensed under United States GAAP, as described in (g) above,
depreciation expense is reduced under United States GAAP in subsequent
periods.
F-12
(i) Financial instruments:
Under Canadian GAAP, RWCI accounts for certain of its cross currency
interest rate exchange agreements as ▇▇▇▇▇▇ of specific debt instruments.
Under United States GAAP, these instruments are not accounted for as
▇▇▇▇▇▇ as a result of adopting SFAS 133, effective January 1, 2001.
Changes in the fair value of the derivative financial instruments,
reflecting primarily market changes in foreign exchange rates, interest
rates, as well as the level of short-term variable versus long-term fixed
interest rates, are recognized in income immediately. Under United States
GAAP, effective January 1, 2001, RWCI recorded an increase of $29.2
million in the carrying value of the derivative financial instruments, to
a total of $139.9 million, and a corresponding increase in the carrying
value of long-term debt. This increase in long-term debt has been recorded
for United States GAAP purposes as a cumulative transition adjustment that
is being amortized to net income over the remaining life of the respective
long-term debt.
(j) Microcell adjustments:
Effective January 1, 2004, Microcell adopted the fair value method of
recognizing stock-based compensation expense under Canadian GAAP. For
United States GAAP purposes, the intrinsic value method is used by RWCI to
account for stock-based compensation. Compensation expense of $5.7 million
for the nine months ended September 30, 2004 would not be recognized under
United States GAAP.
On May 1, 2003, Microcell emerged from a restructuring plan under the
Companies' Creditors Arrangement Act and Canada Business Corporations Act.
Under United States GAAP, the forgiveness of debt and the effect of the
adjustments on the reported amounts of individual assets and liabilities
resulting from the adoption of fresh start accounting in the amount of
$1,253,660,000 are reflected in the statement of income for the year ended
December 31, 2003. Under Canadian GAAP, such adjustments are recorded as
capital transactions.
In addition, certain differences between Canadian GAAP and United States
GAAP exist related to the accounting for Microcell's investments under the
equity method, which resulted in a reduction in net income under United
States GAAP of $500,000 for the year ended December 31, 2003.
(k) Statement of comprehensive income:
There are no material differences between pro forma net income and pro
forma comprehensive income under United States GAAP.
F-13
The Depositary for the Offer is:
COMPUTERSHARE INVESTOR SERVICES INC.
BY MAIL BY REGISTERED MAIL, HAND OR COURIER
▇.▇. ▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇ ▇▇. ▇ ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇ ▇▇▇
Attention: Corporate Actions Attention: Corporate Actions
Fax Number: ▇▇▇-▇▇▇-▇▇▇▇
Toll Free: ▇-▇▇▇-▇▇▇-▇▇▇▇
E-Mail: ▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
BY HAND OR COURIER
Montreal Vancouver Calgary
▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Gas Tower
Suite ▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇, 530 8th Avenue S.W.
Montreal, QC Vancouver, BC Calgary, AB
▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇ ▇▇▇
The Dealer Manager for the Offer is:
SCOTIA CAPITAL INC.
In Canada: In the United States:
Scotia Capital Inc. Scotia Capital (USA) Inc.
▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ One Liberty Plaza, 25th Floor
▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
Box 4085, Station "A" New York, New York
Toronto, Ontario 10006
M5W 2X6
Canadian Retail Shareholders: U.S. Contact:
Tel: ▇▇▇-▇▇▇-▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
Canadian Institutional Shareholders: U.S. Shareholders:
Tel: ▇▇▇-▇▇▇-▇▇▇▇ Tel: ▇-▇▇▇-▇▇▇-▇▇▇▇ or ▇▇▇-▇▇▇-▇▇▇▇
The Information Agent for the Offer is:
▇▇▇▇▇▇▇▇▇ SHAREHOLDER COMMUNICATIONS INC.
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ West
TD Tower - Suite 5210
Toronto ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
NORTH AMERICAN TOLL-FREE NUMBER: ▇-▇▇▇-▇▇▇-▇▇▇▇
U.S. Banks and Brokers Call Collect: ▇▇▇-▇▇▇-▇▇▇▇
ANY QUESTIONS AND REQUESTS FOR ASSISTANCE MAY BE DIRECTED BY SHAREHOLDERS TO THE
DEPOSITARY, DEALER MANAGER OR THE INFORMATION AGENT AT THEIR RESPECTIVE
TELEPHONE NUMBERS AND LOCATIONS SET OUT ABOVE.