FOURTH REPORT OF FTI CONSULTING CANADA INC.
IN ITS CAPACITY AS MONITOROctober 28, 2009
Court File No. CV-09-8396-000L
INTRODUCTION
[Party definitions]1. By [Intitial] Order of this Court dated October 6, 2009, Canwest and certain subsidiaries obtained protection from their creditors under the Companies' Creditors Arrangement Act, R.S.C. 1985 c. C-36, as amended (the "CCAA"). The Initial Order also granted relief in respect of certain affiliated partnerships of the Applicants listed in Schedule "B" hereto (collectively,the "Partnerships", and together with the Applicants, the "CMI Entities") andappointed FTI Consulting Canada Inc. ("FTI") as monitor (the "Monitor") of theCMI Entities. The proceedings commenced by the CMI Entities under the CCAAwill be referred to herein as the "CCAA Proceedings".
2 Following the granting of the Initial Order, on October 6, 2009 and October 15, 2009, the Monitor obtained Orders under Chapter 15 of the US. Bankruptcy Code from the United States Bankruptcy Court (Southern District of New York) a result of the commencement of the CCAA Proceedings.
3. The basis of a plan of arrangement for the CMI Entities under the CCAA (the"Recapitalization Transaction") is a going concern recapitalization transaction, the terms and conditions of which were agreed upon following intensive and extendednegotiations between the CMI Entities and the ad hoc committee (the "Ad HocCommittee") of the CMI Senior Subordinated Noteholders ' . The terms of theproposed Recapitalization Transaction are set out in the Recapitalization TransactionTerm Sheet (the "Term Sheet").
4. Further background information regarding the CMI Entities and the CCAAProceedings is provided in the Pre-filing Report and in the affidavit of John E.Maguire sworn October 5, 2009 (the "Maguire Affidavit"), copies of which havebeen posted on the Monitor's website http://cfcanada.fticonsulting.com/cmi/
Capitalized terms used but not defined herein have the meanings ascribed to them in FTI's pre-filing reportdated October 5, 2009 (the "Pre-filing Report").E F T l°3PURPOSE OF THIS REPORT5. The purpose of this Fourth Report is to inform the Court on the CMI Entities' requestfor an Order approving the Transition and Reorganization Agreement dated October26, 2009 (the "CMI/LP Reorganization Agreement"), which provides a frameworkfor the CMI Entities and the LP Entities (as defined below) to properly restructuretheir inter-entity arrangements for the benefit of their respective stakeholders.
TheCMI/LP Reorganization Agreement provides, inter alia, for:
(a) a reorganization, orderly transition and subsequent termination of certainshared services arrangements between the CMI Entities and the LP Entitiespursuant to the terms of the Agreement on Shared Services and Employeesdated October 26, 2009 (the "Shared Services Transition Agreement"); and
(b) a transition of substantially all of the assets of The National Post Company/LaPublication National Post (the "National Post Company") and certainintellectual property of Canwest Global (collectively, the "Assets") andcertain liabilities of the National Post Company to the LP Entities pursuant tothe terms of the National Post Transition Agreement dated October 26, 2009(the "NP Transition Agreement").DIVISIONS OF CANWEST GLOBAL6. Canwest Global's business operations consist of the following two major divisions:(a) television business (the "Canwest TV Group"), and (b) newspaper publishingand digital media business (the "Canwest Publishing Group").E F T I
9. The debt structure and current financial position of the CMI Entities is described indetail in the Pre-filing Report and the Maguire Affidavit.
10. The LP Entities are also currently in default under their various credit facilities, noteindenture or guarantee obligations, and, in particular, under a credit agreement (the"LP Secured Credit Agreement") dated as of July 10, 2007, as amended, between,inter alia, the predecessor of the Canwest Limited Partnership and The Bank of NovaScotia, as Administrative Agent (in such capacity, the "Administrative Agent") for asyndicate of lenders (the "LP Secured Lenders").
11. Following intensive and extended negotiations, on August 31, 2009, the LP Entitiesand the Administrative Agent agreed on the terms and conditions of a forbearanceagreement, as amended (the "Forbearance Agreement"), pursuant to which theAdministrative Agent on behalf of the LP Secured Lenders holding more than 50% ofadvances under the LP Secured Credit Agreement (the "Majority LP SecuredLenders") agreed to forbear, subject to certain terms and conditions, from takingE F T 195steps to proceed with enforcement of their security in order to allow the CanwestLimited Partnership and the LP Secured Lenders an opportunity to negotiate a prepackagedrestructuring or reorganization of the affairs of the LP Entities.12. The Forbearance Agreement provides, inter alia, that arrangements (satisfactory tothe Administrative Agent) with the applicable CMI Entities with respect torestructuring or termination of the Shared Services (as defined below) will be reachedby October 30, 2009.13. Under the Forbearance Agreement, the LP Entities are prohibited from entering intothe transactions contemplated under the NP Transition Agreement and the SharedServices Transition Agreement without the consent of the Administrative Agent.14.The Forbearance Agreement expires on, inter alia, the LP Entities' failure to complywith their obligations under the Forbearance Agreement.SHARED SERVICES15. Pursuant to a number of inter-company service agreements, the CMI Entities and theLP Entities share certain business services (collectively, the "Shared Services"). Forexample, Canwest Media Inc. ("CMI") and Canwest Limited Partnership provideeach other (in addition to providing certain other Canwest entities) with certainadministrative and advisory services and engage in certain cross-promotionalactivities and inter-company services which are integral to the overall Canwestenterprise.16.A summary of the Shared Services agreements affected by the CMI/LPF T !'6-Reorganization Agreement (collectively, the "Shared Services Agreements")(including the nature of the services provided, the service provider and the servicerecipient) is attached as Appendix "A" to this report. Among others, CMI providesCanwest Television Limited Partnership, the CW Media Segment and the CanwestLimited Partnership the following services:(a) executive advisory and other services based upon various fee and costallocation agreements and practices;(b) corporate and administrative services related to, inter alia, legal matters, taxcompliance, and financial reporting; and(c) negotiation and placement of insurance coverage for which insurancepremiums are shared.
17.The Canwest Limited Partnership provides the following services to the followingentities:
(a) certain information technology infrastructure and support, on-line and digitalmedia support, receivables and payables management, corporate, accountingand human resources administrative and infrastructure services to CMI, theCanwest Television Limited Partnership, and the CW Media Segment;E F T IR7
(b) certain information technology infrastructure and support, on-line and digitalmedia support, receivables and payables management, accounting, humanresources administrative, financial, accounting, infrastructure, sales, printingand distribution services to the National Post Company; and
(c) management, invoicing and collection of advertising and circulation revenuesservices on behalf of the National Post Company, and the management,invoicing and collection of on-line advertising for the CW Media Segmentand the Canwest Television Limited Partnership.
18. Canwest Global, which is one of the CMI Entities, also grants to CMI and theCanwest Limited Partnership a non-exclusive, royalty-free, non-transferable licenseto use some or all of the Canwest trademarks in Canada and to sublicense the use ofthe Canwest trademarks to its subsidiaries.19. FTI reviewed the Shared Services Agreements which, by their terms, generallyprovide that the service provider (whether CMI, the Canwest Limited Partnership orotherwise) is entitled to reimbursement for all costs and expenses incurred in theprovision of the services. Costs and expenses that are shared between the serviceprovider and the service recipient are allocated between the parties on a reasonablebasis. FTI is advised that neither the reimbursement of costs and expenses nor thepayment of fees is intended to result in any material financial gain or loss to theservice provider. Fees charged under the Shared Services Agreements are based onannual budgeted costs, with the service provider bearing the risk of exceeding orbenefitting from performing better than budget. Fees are reviewed and revisedE F T8annually with no mechanism in the Shared Services Agreements for a retrospectivetrue up of fees to reflect actual versus budgeted costs of the service provider.
20. Under the Initial Order, the CMI Entities and the Canwest Limited Partnership are prohibited from modifying, ceasing to provide or terminating the provision or payment of the Shared Services except with the consent of, inter alia, the Monitorand the party receiving such services or further Order of this Honourable Court(except with respect to certain portions of the CMI Entities' business which may beshut down).
THE NATIONAL POST COMPANYThe Nationa2l 1P. ost Company is a general partnership with units held by CMI andNational Post Holdings Ltd. (a wholly owned subsidiary of CMI).22.The National Post Company carries on business publishing the National Post nationalnewspaper and operating related online publications.23. The National Post is one of only two national daily newspapers and is second in itsmarket position to The Globe and Mail. In 2008, the National Post had a reportedaverage daily paid circulation of almost 200,000 and an estimated weekly readershipof 1.1 million people.24.The National Post was founded in 1998 by Conrad Black and was acquired byCanwest Global from Hollinger Inc. by way of two transactions in 2000 and 2002.E F T I°9-Employees & Related Obligations
25. As at the date of this report, the National Post Company employed approximately 277employees. Three of its employees provide services exclusively to the LP Entitiesand the National Post Company is reimbursed by the LP Entities for all associatedemployment costs. In addition, ten of the LP Entities' employees provide servicesexclusively to the National Post Company which reimburses the LP Entities for allassociated employment costs.26. The National Post Company maintains a defined benefit pension plan registeredunder the Ontario Pension Benefits Act (the "NP Pension Plan"). FTI is advised thatthe solvency deficiency of the NP Pension Plan effective as of December 31, 2006was $1.5 million and the winding up deficiency was $1.6 million. The annual servicecontributions for the NP Pension Plan estimated at the last valuation of the NPPension Plan totaled $662,000 and annual special payments totaled $360,000. Thelast actuarial valuation of the NP Pension Plan was carried out in 2006 and thefunding status of the NP Pension Plan may have deteriorated further in the interimdue to market factors.Creditors of the National Post Company27. As described in greater detail in the Pre-filing Report, the National Post Company (asguarantor of certain of CMI's and/or Canwest Global's secured and unsecuredindebtedness) is indebted in the following amounts pursuant to the followingobligations:E F" T I-10-(a) Irish Holdco Secured Note - $187.3 million(b) CIT Facility - $10.7 million (in connection with outstanding letters of credit)(c) CMI Senior Subordinated Notes - US$393.2 million(d) Irish Holdco Unsecured Note - $430.6 millionRelationship of the National Post Company with other Canwest Global Divisions
28. Prior to 2005, the newspaper assets of the LP Entities and the National Post assetswere owned by a single Canwest Global entity. In 2005, the predecessor of theCanwest Limited Partnership was formed to acquire Canwest Global's newspaperpublishing and digital media entities and to operate such businesses, as well as certainshared services operations (including information technology, accounting, financialreporting, and benefits administration) as part of a planned income trust spin-off ofCanwest Global's newspaper publishing and digital media assets. Based on its poorfinancial performance at that time, the National Post was not included in the newlyformedincome trust and was instead separated into a standalone general partnership.
29. The National Post Company and National Post Holdings Ltd. are the only entities inthe Canwest Publishing Group that are guarantors of certain secured and unsecuredindebtedness of CMI (as described above) and were, for that reason, included in theCCAA Proceedings. With the exception of the commonality of creditors (and beingbeneficiaries under certain Canwest Global national procurement contracts), theNational Post Company and the CMI Entities do not have any common services,licenses, or material synergies.F T-11-30. The management and operations of the LP Entities and the National Post Company,although separate legal entities, are intertwined as evidenced by, inter alia, thefollowing:(a) the headquarters of the Canwest Limited Partnership and the National PostCompany are both located at 1450 Don Mills Road in Toronto;(b) the National Post Company executives report to the President and CEO of theCanwest Limited Partnership;(c) the LP Entities provide various sales, operational, back-office and othersupport services to the National Post Company including:(i) IT support;(ii) Accounting and finance;(iii) Human Resources;(iv) Digital Media;(v) National and Digital sales representation;(vi) Canwest Editorial Services;(vii) FPlnfomart.ca (archival services);(viii) Canwest News Services; andE F T I'-12-(ix)Printing and distribution services in Montreal, Ottawa, Calgary,Edmonton and Vancouver.
31. As a result of the National Post Company's dependence on the intercompany servicesprovided by the LP Entities, it would be unable to operate independently from the LPEntities.
32. Due to the integrated operations of the National Post Company and the LP Entities,the National Post Company absorbs significant fixed costs which would otherwise becarried by the LP Entities. In the fiscal year ending August 31, 2009, such coststotaled approximately $23 million.33. As a result, and despite the National Post Company's inability to generate profits as astandalone publication, closure of the National Post Company would negativelyimpact the financial performance of the LP Entities, as they would continue to bearcosts currently being allocated to the National Post Company. Management of the LPEntities estimates that closure of the National Post would increase the LP Entities'cost burden by approximately $14 million in fiscal year ending August 31, 2010.
34. Integration of the National Post Company's business will also allow the LP Entities tocontinue to benefit from various news gathering, production, distribution and othersynergies currently shared with the National Post Company.Financial Performance & Current Status of the National Post CompanyThe National3 5P. ost Company has been unprofitable since its inception, recordingannual losses as high as approximately $60 million in 2001. Through various costE F T- 13 -cutting measures and improved distribution, sales and marketing efficiencies, losseshave been reduced but the company has still recorded annual net losses ranging from$9 million to $12 million in each year since 2005.
36. The National Post Company continues to operate at a loss and is projected to suffer anet loss of $9.3 million in fiscal year ending August 31, 2009 and a net loss of $0.9million in September 2009.37. The National Post Company's losses for the past 7 years have been fully funded byCMI. As a result, the National Post Company is currently indebted to CMI in theamount of $139.1 million.38.The Ad Hoc Committee has advised that they are no longer prepared to supportfunding the losses of the National Post Company by CMI after October 30, 2009.39. The LP Entities, in recognition of the financial and strategic benefits that would beafforded to them by transition of the business of the National Post Company to them,agreed to fund 50% the losses suffered by the National Post Company in October2009 (to a maximum of $1 million), but only if the CMI/LP ReorganizationAgreement is approved by this Court and the transition of the assets and liabilitiescontemplated by the NP Transition Agreement (the "NP Transition Transaction")closes.40. In addition, the Recapitalization Transaction is subject to a condition that a definitiveagreement in respect of the transfer of the business operated by the National PostCompany to the Canwest Limited Partnership be entered into by October 15, 2009,E F T I`-14-which deadline was subsequently extended to October 30, 2009, with a closing of thetransaction to take place no later than October 30, 2009. The Ad Hoc Committeeadvised that should the transition of the National Post Company's business fail to takeplace by the above deadline (and in the absence of funding by the LP Entities), it willno longer support the funding of the National Post Company by CMI. Withoutongoing funding, it is anticipated that the National Post Company would be forced tocease operations and commence liquidation proceedings.PROPOSED INTERCOMPANY REORGANIZATION
41. Both the LP Entities and the CMI Entities experienced deterioration in their respective financial performances in 2008-2009 and have commenced reorganizations of their respective corporate and debt structures. The LP Entities and the CMIEntities determined that an orderly transition from their current intertwined corporatestructures to two standalone enterprises will likely be necessary to facilitate and effecttheir respective restructurings.
42. In furtherance of such transition, the CMI Entities and the LP Entities determined thatan orderly disentanglement, transition and subsequent termination of the SharedServices would be mutually beneficial and should be effected. As the businesses ofthe National Post Company and the LP Entities are integrated and interdependent (asdescribed above), the CMI Entities and the LP Entities have also recognized that thebusiness of the National Post Company ought to be integrated into the corporatestructure of the LP Entities.E F T I- 15 -
43. The CMI Entities and the LP Entities have been engaged in negotiations to carry out the transition and subsequent termination of the Shared Services and transition of the business of the National Post Company to the LP Entities since July 2009. However,due to, inter alia, the financial difficulties encountered by both the CMI Entities andthe LP Entities in 2008-2009 and management's focus on recapitalization efforts, the contemplated intercompany reorganization was not effected prior to the commencement of the CCAA Proceedings.
44. Following lengthy and intensive negotiations between the CMI Entities, the LPEntities, their respective chief restructuring and financial advisors, the Ad HocCommittee and the Administrative Agent, the LP Entities and certain of the CMIEntities have entered into the CMI/LP Reorganization Agreement which provides forthe framework to properly restructure their inter-entity arrangements by effecting acomprehensive reorganization of the Shared Services and a transition of substantiallyall of the assets of the National Post Company to the LP Entities (collectively, the"Canwest Intercompany Reorganization "). The Shared Services TransitionAgreement and the NP Transition Agreement are attached as Schedules "A" and "B"to the CMI/LP Reorganization Agreement, respectively. A copy of the CMI/LPReorganization Agreement (together with Schedules) is attached as Exhibit "A" to theaffidavit of John E. Maguire sworn October 27, 2009 (the "October 27 MaguireAffidavit").
45. Both the transition and subsequent termination of the Shared Services and thetransition of the Assets and certain liabilities of the National Post Company areintegral components of the LP Entities' and the CMI Entities' efforts to reorganizeE F T !x-16-their respective business affairs. The terms of the Shared Services TransitionAgreement were informed by and negotiated, in part, based on the terms of the NPTransition Agreement and vice versa.
46. Furthermore, the consummation of the transactions contemplated under each of theShared Services Transition Agreement and the NP Transition Agreement is acondition to the consummation of the transaction contemplated under the otheragreement. Each of the Administrative Agent and the Ad Hoc Committee has beenclear that it will only support the CMI/LP Reorganization Agreement as a whole andwould not support a consummation of either of the Shared Services TransitionAgreement or the NP Transition Agreement without the concurrent consummation ofthe other agreement.The Shared Services Transition Agreement47. The Shared Services Transition Agreement provides for the orderly transition andsubsequent termination of the Shared Services Agreements. The terms of the SharedServices Transition Agreement, include, inter alia, the following:(a) a transition of employees between the CMI Entities and LP Entities andadjustment of amounts currently payable for the Shared Services inaccordance with section 2.5 of the Shared Services Transition Agreementfrom the date of closing of the Shared Services Transition Agreement until theShared Services Agreements are terminated; andE F T 1"-17-(b)all Shared Services Agreements will be terminated by certain dates rangingfrom February 28, 2010 to February 28, 2011.48. A summary of the proposed amendments to the Shared Services Agreements(including the revised payment terms and termination dates) is attached as Appendix"B" to this report.49. The Shared Services Transition Agreement also sets out procedures for offeringemployment to the various employees of the LP Entities and the CMI Entities andmodifies their obligations under certain pension plans maintained for the benefit oftheir respective employees.50. The Shared Services Transition Agreement is conditional on and subject to, inter alia,obtaining (a) an Order of this Court approving the Shared Services TransitionAgreement, and (b) the written consent of the Administrative Agent.The NP Transition AgreementThe NP Tran5s1.ition Agreement provides for the transition of the business of theNational Post Company as a going concern.
52. Pursuant to the NP Transition Agreement, a new wholly-owned subsidiary (the "LPNominee") of Canwest Publishing Inc./Publications Canwest Inc. (which owns all ofthe newspaper and online assets held by the LP Entities), will acquire substantially allof the assets of the National Post Company and certain intellectual property ofCanwest Global in consideration for the Transfer Price/Transition Cost (as defined inthe NP Transition Agreement) which includes: (a) the assumption of certain liabilitiesE F T 1"-18-up to a maximum amount of $6.3 million (plus certain pension and employee benefitsliabilities); and (b) payment of the cash component of the Transfer Price/TransitionCost (as described in greater detail in paragraph 53(f) hereof).53.The terms of the NP Transition Agreement include, inter alia, the following:(a) the LP Nominee has agreed to take title to the Assets (which constitutesubstantially all of the assets of the National Post Company) on an "as is,where is" basis;(b) the LP Nominee will assume certain liabilities of the National Post Company,including certain trade payables and accrued expenses;(c) the following liabilities, among others, are not being assumed by the LPNominee and will remain as claims in the estate of the National PostCompany:(i) breach of contract or license claims, product liability claims and allother litigation claims;(ii) all employment obligations (including severance and terminationclaims) relating to those employees who do not accept the LPNominee's offer of employment;(iii) liabilities of the National Post Company to the other CMI Entities,except for any amounts owing in connection with the Shared Services;andE F T 1?-19-(iv) certain pre-filing payables of the National Post Company (defined asthe Stayed Payables in the NP Transition Agreement).(d) the following assets, among others, are not being transitioned to the LPNominee pursuant to the NP Transition Agreement and will remain in theestate of the National Post Company:(i)the benefit of all insurance policies related to the business of theNational Post Company;(ii) all cash and cash equivalents, including certificates of deposit,commercial paper; and(iii) any amounts owing to the National Post Company by the other CMIEntities;(e)the LP Nominee is offering employment to all of the National PostCompany's employees and will be assuming:(i)all wage related employee obligations owing to the employees it hiresup to and from the date the NP Transition Transaction closes;(ii) all vacation pay owing (as at the date the NP Transition Transactioncloses) to the employees it hires; and(iii) the National Post Company's obligations and liabilities under the NPPension Plan.ETF°- 20 -under the NP Transition Agreement, the LP Nominee must pay a portion ofthe Transfer Price/Transition Cost to the National Post Company in cash. Thecash component is equal to (i) the sum of $2 million and 50% of the NationalPost Company's negative net cash flow during the month of October 2009 (toa maximum of $1 million), less (ii) a reduction equal to the amount, if any, bywhich the Assumed Liabilities Estimate (as defined in the NP TransitionAgreement) exceeds $6.3 million;the NP Transition Agreement is conditional, among other things, on obtainingthe consent of the Administrative Agent on behalf of the Majority LP SecuredLenders.Alternatives to Transitioning the Business of the National Post Company to the LP Entities
54. For the reasons outlined below, it does not appear that there are currently any viablealternatives to transitioning the business of the National Post Company to the LPEntities pursuant to the NP Transition Agreement.55. In December 2008, Canwest Global engaged RBC Dominion Securities Inc. ("RBC")to assist it in considering and evaluating recapitalization alternatives. FTI is advisedby RBC that in the course of conducting its engagement RBC did not conduct aseparate sales process with respect to the National Post Company. However, while itreceived a number of solicited and unsolicited expressions of interest in various otherassets of Canwest Global, it received no expressions of interest from parties seekingto acquire the National Post Company.(f)(g)ETF'-21-56. The Support Agreement, which includes the condition that a definitive agreement inrespect of the transfer of the business operated by the National Post Company toCanwest Limited Partnership be completed by October 15, 2009 (which deadline wassubsequently amended to October 30, 2009 with a closing of the transaction no laterthan October 30, 2009), has been in the public domain since the date of the InitialOrder (October 6, 2009). The Monitor has not been contacted by any interested partywith respect to acquiring the business of the National Post Company.57. The Ad Hoc Committee has continued to support the National Post Company's shortterm liquidity needs, but only on the basis and understanding that the NP TransitionTransaction is being advanced and will be completed. The Ad Hoc Committee hasindicated that it will not continue to support funding the National Post Company inthe long or short term past October 30, 2009 and will not finance the National PostCompany through any marketing process.58. The National Post Company is also precluded from borrowing any funds from CIT orany other lender without the consent of the Ad Hoc Committee, which has indicatedthat such consent would not be granted.
59. The LP Entities have refused to advance any funds to the National Post Companyuntil the terms of the CMI/LP Reorganization Agreement are finalized and the NPTransition Transaction closes.60.Accordingly, the National Post Company has no sources of funding its ongoinglosses.E F T !°- 22 -61. Accordingly, failure to transition the business carried on by the National PostCompany by October 30, 2009 to the LP Entities would likely result in the forcedcessation of its operations and commencement of liquidation proceedings in respectof the National Post Company.62. The Monitor has prepared a preliminary liquidation analysis (the "LiquidationAnalysis") based on certain information provided by the National Post Company.The Liquidation Analysis is an estimate of the potential recovery from the NationalPost Company's assets pursuant to a forced liquidation following a cessation ofoperations.63. It is evident from the Liquidation Analysis that if the National Post Company issubject to a forced liquidation after a cessation of operations, the estimated netrecovery available to its creditors, before costs of liquidation, would range from anegative amount to an amount not materially higher than the transfer price under theNP Transition Agreement.64. The CIT Facility Lenders and Irish Holdco are (subject only to Court-ordered chargesin the CCAA Proceedings) the senior secured creditors of the National Post Companyand there will be no recovery to any of the other of National Post Company's securedor unsecured creditors under either the NP Transition Transaction or the liquidationscenario.
65.The Monitor notes that the NP Transition Transaction has the following advantagesover a liquidation:E F T 1"- 23 -(a) as an integral part of the CMI/LP Reorganization Agreement, it facilitates thereorganization and orderly transition and subsequent termination of the SharedServices arrangements between the CMI Entities and the LP Entities;(b)it preserves approximately 277 jobs in an already highly distressed newspaperpublishing industry;(c) it will help maintain and promote competition in the national daily newspapermarket for the benefit of Canadian consumers; and(d) the LP Nominee will assume substantially all of the National Post Company'strade payables (including those owing to various suppliers) and variousemployment costs associated with the transferred employees.
66. The National Post Company's senior secured creditors, namely the CIT FacilityLenders and Irish Holdco, and the Ad Hoc Committee support the NP TransitionTransaction as part of the Canwest Intercompany Reorganization. IMPACT OF CCAA AMENDMENTS ON THE PROPOSED REORGANIZATION
67. Until recently, the CCAA did not expressly address dispositions or sales of assets. On September 18, 2009, certain amendments to the CCAA were proclaimed intoforce, including Section 36 of the CCAA which sets out the criteria for the sale and/ordisposition of assets in the context of CCAA proceedings and is reproduced in full inSchedule "C" hereto.E F T I"-24-68.
The Monitor has reviewed Section 36 of the CCAA and, after consultation with itscounsel, has formed the view that Section 36 does not apply to the CanwestIntercompany Reorganization for the following reasons:
(a) the purpose of Section 36 is to prevent restructuring debtors from disposing ofvaluable assets outside of the ordinary course of business to the detriment oftheir creditors;
(b) the National Post Company has failed to generate any profits since itsinception and has operated at a loss since;
(c) the transition of some of the assets and liabilities of the National PostCompany is only one aspect of a larger reorganization of the relationshipbetween the LP Entities and the CMI Entities contemplated under the CMI/LPReorganization Agreement;
(d) the business of the National Post Company was always intended to operatefunctionally as a part of the LP Entities;
(e) the business and operations of the National Post Company are not alignedwith that of the CMI Entities, yet are intertwined with the operations of the LPEntities;
(f) the CMI Entities' secured creditors support the Canwest IntercompanyReorganization as a whole, but not in part, and both the Ad Hoc Committeeand the Administrative Agent have indicated that they will only consent to these transactions on the grounds that the NP Transition Agreement and theE F T I'- 25 -Shared Services Transition Agreement will be implementedcontemporaneously pursuant to the CMI/LP Reorganization Agreement; and(g)there is no ability to proceed with either the NP Transition Agreement or theShared Services Agreement alone.RECOMMENDATIONS AND CONCLUSIONS
69. The LP Entities and the CMI Entities agree that it is in their mutual best interests totransition and subsequently terminate the Shared Services Agreements. As thebusinesses of the National Post Company and the LP Entities are integrated andinterdependent (as described above), the CMI Entities and the LP Entities also agreethat the business of the National Post Company ought to be integrated into thecorporate structure of the LP Entities.
70.Disposition of the National Post Company will improve the CMI Entities' cash flowsand financial results.
71. Irish Holdco, the CIT Facility Lenders and the Ad Hoc Committee support theproposed reorganization of the LP Entities' and the CMI Entities' relationship inaccordance with the terms of the CMI/LP Reorganization Agreement.
72. Pursuant to the terms of the Recapitalization Transaction, failure to transition thebusiness carried on by the National Post Company by October 30, 2009 constitutes adefault under the Term Sheet and Support Agreement and relieves the ConsentingNoteholders from any obligations to support the Recapitalization Transaction.- 26 -
73. Completion of the Canwest Intercompany Reorganization appears to be in the bestinterest of a broad constituency of stakeholders of the CMI Entities, the National PostCompany, including its employees, suppliers and customers, and the LP Entities.
74. Accordingly, the Monitor respectfully recommends that this Honourable Court grant an Order approving the CMI/LP Reorganization Agreement, including the Shared Services Transition Agreement and the NP Transition Agreement, and vesting title in and to the Assets in the LP Nominee.
All of which is respectfully submitted this 28th of October, 2009. FTI Consulting Canada Inc.,in its capacity as the Monitor of Canwest Global Communications Corp. and the other Applicants listed in Schedule "A" and Partnerships listed in Schedule "B"PerGreg WatsonSenior Managing DirectorE F T I"Schedule"A"The Applicants1. Canwest Global Communications Corp.2. Canwest Media Inc.3. 30109, LLC4. 4501063 Canada Inc.5. 4501071 Canada Inc.6. Canwest Finance Inc./Financiere Canwest Inc.7. Canwest Global Broadcasting Inc./Radiodiffusion Canwest Global Inc.8. Canwest International Communications Inc.9. Canwest International Distribution Limited10. Canwest International Management Inc.11. Canwest Irish Holdings (Barbados) Inc.12. Canwest MediaWorks Turkish Holdings (Netherlands) B.V.13. Canwest MediaWorks (US) Holdings Corp.14. Canwest Television GP Inc.15. CGS Debenture Holding (Netherlands) B.V.16. CGS International Holdings (Netherlands) B.V.17. CGS NZ Radio Shareholding (Netherlands) B.V.18. CGS Shareholding (Netherlands) B.V.19. Fox Sports World Canada Holdco Inc.20. Global Centre Inc.21. MBS Productions Inc.22. Multisound Publishers Ltd.23. National Post Holdings Ltd.24. Western Communications Inc.25. Yellow Card Productions Inc.5605861 v8E F T I`Schedule "B"PartnershipsCanwest T1e.levision Limited Partnership2.Fox Sports World Canada Partnership3.The National Post Company/La Publication National Post5605861
1) A debtor company in respect of which an order hasbeen made under this Act may not sell or otherwisedispose of assets outside the ordinary course of businessunless authorized to do so by a court. Despite any requirement for shareholder approval, including one under federal or provincial law, the court may authorizethe sale or disposition even if shareholder approval was not obtained.
Notice to creditors(2) A company that applies to the court for an authorization is to give notice of the application to the secured creditors who are likely to be affected by the proposed sale or disposition.Factors to be considered(3) In deciding whether to grant the authorization, thecourt is to consider, among other things,
(a) whether the process leading to the proposed sale ordisposition was reasonable in the circumstances;
(b) whether the monitor approved the process leadingto the proposed sale or disposition;
(c) whether the monitor filed with the court a reportstating that in their opinion the sale or dispositionwould be more beneficial to the creditors than asale or disposition under a bankruptcy;
(d) the extent to which the creditors were consulted;(e) the effects of the proposed sale or disposition onthe creditors and other interested parties; and(
f) whether the consideration to be received for theassets is reasonable and fair, taking into accounttheir market value.F T 1°-2-Additional factors - related persons(
4) If the proposed sale or disposition is to a person who isrelated to the company, the court may, after consideringthe factors referred to in subsection
(3), grant theauthorization only if it is satisfied that(a) good faith efforts were made to sell or otherwisedispose of the assets to persons who are not relatedto the company; and(b) the consideration to be received is superior to theconsideration that would be received under anyother offer made in accordance with the processleading to the proposed sale or disposition.Related persons
(
5) For the purpose of subsection (4), a person who is related to the company includes(a) a director or officer of the company;(b) a person who has or has had, directly or indirectly,control in fact of the company; and(c) a person who is related to a person described inparagraph (a) or (b).Assets may be disposed of free and clear
(6) The court may authorize a sale or disposition free and clear of any security, charge or other restriction and, if it does, it shall also order that other assets of the companyor the proceeds of the sale or disposition be subject to asecurity, charge or other restriction in favour of the creditor whose security, charge or other restriction is to be affected by the order. Restriction - employers
(7) The court may grant the authorization only if the court is satisfied that the company can and will make the payments that would have been required underparagraphs 6(4)(a) and (5)(a) if the court had sanctionedthe compromise or arrangement.5605861 v8E F
[Reimbursements not required for shareholders to given lenders.
ReimbursementArrangements
Description of Services▪ Financial, tax and other regulatory supportservicesFinancial reportingPreparation of regulatory and other filings(e.g.tax)▪ The Pension Plan Participation Agreementsprovide for intercompany charges betweenCanwest entities to align pension relatedcosts of employees of one Canwest entitywho participate in the pension plan ofanother Canwest entity._
[Canwest shareholders funds funding their shareholder expropriation.]
Executive Advisory CMI CorporateCanwest LimitedServices Agreement $250,000 (includes bothExecutive Advisory andPartnership Services)February 28, 20102.
