Pre-Hearing Production Order: In the Matter of Sears Canada Inc. et al.

IN THEMATTER OF THE SECURITIES ACT
R.S.O. 1990, c. S.5, AS AMENDED

- and -

IN THE MATTER OF
SEARSCANADA INC.,
SEARS HOLDINGS CORPORATION,
AND SHLDACQUISITION CORP.

- and -

IN THE MATTEROF
HAWKEYE CAPITAL MANAGEMENT, LLC,
KNOTT PARTNERS MANAGEMENT LLC,and
PERSHING SQUARE CAPITAL MANAGEMENT,L.P.

 

PRE-HEARINGPRODUCTION ORDER

 

Motion Hearing                                         -   May 31, 2006

Panel        

Susan WolburghJenah                                -    Vice-Chair (Chair of the Panel)
Robert W. Davis, FCA                                  -    Commissioner
Carol S. Perry                                              -    Commissioner

Counsel    

ForStaff                                                       -    Kelley McKinnon

For Hawkeye Capital Management LLC        -     Luis Sarabia
Knott Partners Management LLC                  -     Steven Harris
Pershing Square Capital Management, L.P.

For Sears Holdings Corporation                   -    Mark Gelowitz
                                                                   -     Steven Harris

For Sears Canada Inc.                                -     Andrew Gray
                                                                   -      John Laskin

For the Bank of Nova Scotia and                  -    Paul Steep
Scotia Capital Inc.                                        -     Thomas Sutton
                                                                   -    Lyla Simon

For Royal Bank of Canada                          -     Peter Howard

For WilliamAnderson                                  -    Gerald Ranking

 

 

PRE-HEARINGPRODUCTION ORDER

WHEREAS theseproceedings concern an offer (the Offer) by SHLD Acquisition Corp. (SHLD), awholly-owned subsidiary of Sears Holdings Corporation (Sears Holdings), toacquire all of the outstanding common shares of Sears Canada Inc. (SearsCanada);

On June 5, 2006, Pershing Square CapitalManagement L.P. (Pershing), Hawkeye Capital Management, LLC (Hawkeye) andKnott Partners Management LLC (Knott Partners) (collectively, the PershingGroup) applied for relief against SHLD and Sears Holdings under sections 104and 127 of the Securities Act, R.S.O. 1990, c. S.5 (the Act);

On June 5, 2006, SHLD and Sears Holdingsapplied for relief under sections 104 and 127 of the Act in respect of theconduct of the Pershing Group in connection with the Offer;

AND WHEREAS the motion,made by counsel for the Pershing Group for a pre-hearing order forproduction by SHLD and Sears Holdings, Sears Canada Inc., The Bank of NovaScotia (BNS) and Scotia Capital Inc. (Scotia Capital) and The Royal Bank ofCanada in this hearing was heard on June 9 and 20, 2006 at 20 Queen StreetWest, Toronto, Ontario;

AND WHEREAS the motion, made bycounsel for SHLD Acquisition Corp. (“SHLD”) and Sears HoldingsCorporation (“Sears Holdings”) for a pre-hearing order forproduction by the Pershing Group in this hearing was heard on June 9 and 20,2006 at 20 Queen Street West, Toronto, Ontario;

AND WHEREAS at the motion hearing, theparties, including BNS and Scotia Capital and The Royal Bank of Canada,agreed to disclose and produce certain documents and information sought;

AND ON READING the written submissionsof the parties, and on hearing the submissions of counsel for theparties;

IT IS ORDERED THAT:

Confidentiality ofProductions

1.  All Parties shall maintainconfidential any productions received from any other party and suchproductions shall
     not be used for any purposeother than these proceedings.

Production Order: Bank ofNova Scotia and Scotia Capital

2.  Scotia Capital and BNS shallproduce documents in accordance with the questions and responses set out
     below:

3.  All documentation evidencingsubstantive contacts between Holdings and each of BNS and Scotia Capital
     dealing with the Offer prior to the date of ScotiaCapital's engagement letter with Holdings, including Scotia
    Capital's "pitch" books in respect of the potentialmandate;

Response:BNS and Scotia Capital will produce documentation evidencing substantivecontacts between Holdings and each of BNS and Scotia Capital dealing withthe Offer prior to the date of Scotia Capital's engagement letter withHoldings. BNS and Scotia Capital will produce the “pitch” bookwhich was used at a meeting with Sears Holdings on December 29, 2005. Thisis the only pitch book that was prepared for Sears Holdings. Scotia Capitalwill also provide the date of the earliest contact between Holdings andScotia Capital concerning a possible mandate with SearsHoldings.

4.  All documentation leading up toand documenting the engagement of Scotia Capital:

    (a) as financial advisorto Holdings in connection with the Offer; and

    (b) as dealer-manager in respect of theOffer;

Response:BNS and Scotia Capital will produce the engagement letter dated January6, 2006, wherein Scotia Capital was engaged as financial advisor to Holdingsin connection with the Offer and as dealer-manager in respect of theOffer.

5.  All support agreements enteredinto by Scotia Capital and BNS referred to in the April 7, 2006 Notice of
     Variation and Change of Information filed by Holdingsin respect of the Offer (the "Support Agreements");

6.  All documentation betweenHoldings, and either or both of BNS and Scotia Capital dealing with:

    (a) such party's interests in or relatingto Sears Canada (whether by share ownership, derivative instrument or
    otherwise);

    (b) the negotiation andentering into of the Support Agreements;

    (c) the benefits(including tax benefits) and/or advantages that a party could obtain orderive, directly or
    indirectly, by entering into, orotherwise by virtue of, a Support Agreement; and

    (d) any variation of theOffer and second step going private transaction in connection with theSupport
    Agreements;

Response:

(a)    BNS and ScotiaCapital will produce the Support Agreements. (See response to #3) and allsubstantive documentation relating to this inquiry.

(b)    BNS and ScotiaCapital will produce drafts of the Support Agreements, as well assubstantive documentation between Holdings and either or both of BNS andScotia Capital dealing with the negotiation and entering into of the SupportAgreements.

(c)    The scope ofproduction on this issue is addressed by Order of Vice-Chair Wolburgh Jenahdated June 20, 2006.

(d)    BNS and ScotiaCapital will produce substantive communication between Holdings, and eitheror both of BNS and Scotia Capital dealing with any variation of the Offerand second step going private transaction in connection with the SupportAgreements. BNS and Scotia Capital have not located any relevant documentsin this category.

7.  All documentation dealing witha request or proposal that Scotia Capital or BNS tender their Sears sharesto
     the bid, or agree to vote them under a SupportAgreement;

Response:BNS and Scotia Capital will produce any written requests or proposals,that they enter into a Support Agreement.

8.  All documentation between BNSand Scotia Capital including internal communications dealing with:

    (a) the interests of BNSand Scotia Capital in Sears Canada (whether by share ownership, derivativeinstrument
    or otherwise);

    (b) the negotiation andentering into of the Support Agreements, including all internal draftsthereof and
    comments thereon;

    (c) the benefits(including tax benefits) and/or advantages that could be obtained orderived, either directly or
    indirectly, by entering into,or otherwise by virtue of, a Support Agreement; and

    (d) any variation of theOffer and second step going private transaction in connection with theSupport
    Agreements;

Response:

 

(a)    BNSand Scotia Capital will produce the Swap Agreements, as well as substantivecommunication between BNS and Scotia Capital reflecting internalcommunications dealing with the interests of BNS and Scotia Capital in SearsCanada.

(b)    Seeanswer to 4(b) and 5, modified as required to include documentation internalto or between BNS and Scotia.

(c)    Thescope of production on this issue is addressed by Order of Vice-ChairWolburgh Jenah dated June 20, 2006.

(d)    BNSand Scotia Capital have not located any documents falling into thiscategory.

9.  In light of Scotia Capital andBNS's assertions in McCarthy Tétrault's letter of May 5, 2006 toNaizam Kanji of
     the Ontario Securities Commissionthat BNS, Scotia Capital Mergers & Acquisitions and Scotia Capital
     Institutional Equity were subject to controlsrelating to the containment of confidential information applicable to
     BNS, Scotia Capital Institutional Equity and ScotiaCapital M&A, all documentation:

    (a) evidencing the stepstaken or structures put in place to implement these "controls" inrelation to the ownership
    of Sears Canada shares byeither or both of BNS and Scotia Capital;

    (b) evidencing the stepstaken or structures put in place to maintain the separation of ScotiaCapital's role as
    financial advisor and dealer-manager inrespect of the Offer from the decisions of BNS and Scotia Capital to
    enter into the Support Agreements;

    (c) evidencing steps takenor structures put in place (if any) to maintain the separation of (i) BNSand Scotia
    Capital (ii) Scotia Capital Mergers &Acquisitions and (iii) Scotia Capital Institutional Equity in respect ofthe
    Offer and the Support Agreements;

Response: (a), (b) and(c) BNS and Scotia Capital will produce relevant policies andprocedures regarding controls relating to the containment of confidentialinformation applicable to BNS, Scotia Capital Institutional Equity andScotia Capital M&A, including Chinese walls that were in place. BNS andScotia Capital will produce documents which evidence any steps taken tomaintain the separation of the financial advisor and the decision makingconcerning the Support Agreements.

10.  All trading records fromOctober 2005 to May 2006 of Scotia Capital and BNS in respect of securitiesof
       Sears Canada (both on a derivative andactual share basis);

Response:BNS and Scotia Capital will produce a summary of all trading activityfrom October 2005 to April 25, 2006 of Scotia Capital and BNS in respect ofthe trading of securities of Sears Canada for its ownaccounts.

11.  All agreements, commitmentsand understandings, apart from the Support Agreements, between any of
       Holdings, BNS and Scotia Capital with respectto Sears Canada;

Response:BNS and Scotia Capital is not aware of any such documentation existing.However if BNS and Scotia Capital became aware of agreements, commitmentsand understandings, apart from the Support Agreements, between any ofHoldings, BNS and Scotia Capital with respect to Sears Canada they willproduce these.

12.  All swap agreements or otherderivative instruments entered into by BNS or Scotia Capital in connectionwith
       or relating to shares in Sears Canada in2005 and 2006;

Response:BNS and Scotia Capital will produce all swap agreements entered into byBNS or Scotia Capital in connection with or relating to shares in SearsCanada in 2005 up to and including April 25, 2006. 23 O.S.C.B. 6889 at para.74);

13.  All documentation dealing withcommunications between any of Holdings, Scotia Capital and BNS with
       respect to the ability of Holdings to securethe majority of the minority on any second step going private
      transaction for Sears Canada;

Response:BNS and Scotia Capital have not located any communications between any ofHoldings, Scotia Capital and BNS with respect to the ability of Holdings tosecure the majority of the minority on any second step going privatetransaction for Sears Canada.

14.  A summary of all tradingactivity and swap activities of Scotia Capital and BNS relating to shares inSears
       Canada from November, 2006 to May,2006.

Response:BNS and Scotia Capital will produce a summary of trading from October2005 to April 25, 2006 of Scotia Capital and BNS in respect of securities ofSears Canada held for its own accounts. (See response to #8) includinginformation on the time of day of each of its trades.

15.  All recordings, transcripts ofrecordings or other documentation reflecting discussions between any ofScotia
       Capital, BNS and Sun Trust withrespect to the Offer or in relation to transactions involving the sharesin
       Sears Canada;

Response:There is no reason to believe that there are any recordings concerningthe Offer. BNS and Scotia Capital will not search through archivedrecordings for such communications. Recordings would be in relation totrading. The transcripts of calls relating to trading of Sears Canada sharesare not relevant. A summary of trades is being providedseparately.

16.  Any documentation concerningthe engagement of BNS in respect of the December 22, 2005 credit facility
       provided to Sears Canada.

Response:BNS will produce any substantive communication concerning the engagementof BNS in respect of the December 22, 2005 credit facility provided to SearsCanada from Scotia Capital M&A to Holdings from the date Scotia CapitalM&A and Holdings first communicated with respect to amandate.

Production Order: Royal Bankof Canada

17.  Royal Bank of Canada shallproduce documents in compliance with the questions and responses set out
       below and in a manner consistent with theproduction orders made in respect of the same issues in relation to
       Scotia Capital and Bank of Nova Scotia:

18.  Please provide copies of thedocumentation (including e mails) surrounding the decision by RBC to enterinto
       the Support Agreements, includingdocumentation respecting the negotiations, final support agreement andany
       agreements or understandings in relationthereto.

Response:RBC does not object to the production of the Support Agreement by SearsHoldings. RBC will review the Sears Holdings productions with respect tocontacts between it and Sears Holdings and produce additional documents, ifany. RBC will produce non-privileged internal communications with respect tothe RBC's shareholdings in Sears Canada and the execution of the SupportAgreements in the period from acquisition of the shares to the date of theexecution of the Support Agreement in April 2006 including, withoutlimitation, the consideration of tax matters in suchcommunications..

19.  What were the circumstancessurrounding RBC's purchase of shares of Sears Canada? When didRBC
       purchase those shares and from whom? Werethey acquired through pre-arranged trades? Please provide a
      summary of the trades by date and party.

Response:RBC will produce a summary of its trading in the shares of Sears Canada.The summary will include information on the date of trades, quantity tradedand share price.

20.  Is RBC a party to anyderivatives, such as swaps, based on Sears Canada shares? Please provide theterms
       of any such transactions, including thedates of them, and the number of shares of Sears Canada on which any
       such derivatives are based.

Response:RBC will produce copies of the confirmations and collateral agreementsrelating to (a) the cash settled forwards entered into in November andDecember 2005; (b) the cash settled equity swaps entered into in April 2006;and (c) the swap terminations effected in June 2006. In each case, RBC mayomit the name of the counterparty. The documents shall be produced by June23, 2006.

21.  Is RBC entitled to any taxloss deduction in connection with its Sears Canada shares (having regard tothe so-
       called stop loss rules provided forin the ITA)? Please produce documents that bear upon this issue.

Response:Included in the answer to #18.

Sears Holdings Corporationand Sears Canada Inc.

22.  Sears Canada shall either (i)produce non-privileged documents in its power, possession and control
       responsive to the following questions, or (ii)produce non-privileged documents in its power, possession and
      control responsive to the following questions that arenot produced by other parties:

    (a) All documentationreflecting communications between representatives of Holdings and anymembers of the
    Special Committee formed by the Board ofDirectors of Sears Canada in or about on December, 2005 (the
   "Special Committee") in connection with the Offer,including but not limited to, all communications and
   documentation between members of the Special Committee and representativesof Holdings with respect to
    support agreements enteredinto by Holdings in connection with the Offer.

    (b) All communications anddocumentation between officers, directors, employees or representativesof
    Holdings and officers, directors or employees of SearsCanada in connection with or pertaining to the Offer;

    (c) All documentationrelating to the engagement of The Bank of Nova Scotia and Scotia CapitalInc. in respect
    of the December 22, 2005 credit facilityprovided to Sears Canada including all board and board committee
   resolutions and minutes related thereto;

    (d) All documentationrelating to the proposal to eliminate Sears Canada's practice of payingquarterly dividends
    including all board and boardcommittee resolutions and minutes related thereto;

    (e) All documentationrelating to Holdings' decision not to seek a majority of independentdirectors to serve on
    the board of Sears Canada includingall board and board committee resolutions and minutes related thereto;

    (f) All shareholder listsand NOBO lists for Sears Canada in the possession, custody or control ofSears
    Canada as at any date after August 31, 2005;and

    (g) All documentsconcerning the retainer of Genuity Capital Markets by the Special Committeeincluding, in
    particular, any contacts thatrepresentatives of Holdings may have had with Genuity or involvement theymay
    have had in the preparation by Genuity CapitalMarkets of its valuation of Sears Canada.

23.  Sears Canada shall comply withthis production order by June 16, 2006.

Dated at Toronto this6th day of July, 2006.