MHR Fund Management LLC

Headnote

Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief from the take-over bid requirements in Part 2 of NI 62-104 to allow for thresholds in the exemption normal course purchases to be calculated by the capital market participant based on the aggregate number of the issuer's two classes of listed securities, as opposed to on a per-class basis -- listed securities separated into two distinct classes (by Canadian status of the holder) to allow the issuer to track its Canadian shareholder composition and ensure that it maintains its status as Canadian-controlled for regulatory, financing and contractual purposes -- listed securities trade under the same ticker symbol and CUSIP, are economically equivalent and are mandatorily inter-convertible upon a change in the holder's Canadian status -- relief granted, subject to conditions, to allow the capital market participant to calculate thresholds for the normal course purchase exemption in section 4.1 of NI 62-104 on the basis of the outstanding listed securities of both classes.

Applicable Legislative Provisions

National Instrument 62-104 Take-Over Bids and Issuer Bids, Part 2 and s. 6.1.

January 26, 2023

IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF MHR FUND MANAGEMENT LLC (the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer pursuant to section 6.1 of National Instrument 62-104 Take-Over Bids and Issuer Bids (NI 62-104) for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) exempting the Filer and the members of the MHR Group (as defined below) from the requirements set out in Part 2 of NI 62-104 applicable to take-over bids in connection with normal course purchases by any of them occurring on published markets of outstanding Class A common shares of Telesat Corporation (the Company, and such shares, the Class A Shares) or Class B variable voting shares of the Company (the Class B Variable Voting Shares, and together with the Class A Shares, the Listed Shares), as the case may be, which would constitute a take-over bid under the Legislation as a result of the securities subject to the offer to acquire, together with the offeror's securities, representing in the aggregate 20% or more of the outstanding Class A Shares or Class B Variable Voting Shares, as the case may be, at the date of the offer to acquire (the Exemption Sought).

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

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

(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon by the Filer in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland, the Northwest Territories, Nova Scotia, Nunavut, Prince Edward Island, Quebec, Saskatchewan and the Yukon Territory.

Interpretation

Terms defined in National Instrument 14-101 Definitions, MI 11-102 and NI 62-104 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filer:

The Filer

1. The Filer is a limited liability company incorporated in the state of Delaware that is validly existing and in good standing. The Filer's principal executive office is located at 1345 Avenue of the Americas, 42nd Floor, New York, New York, 10105.

2. The Filer is a private equity firm that invests in middle market companies and assets. The Filer advises various affiliated funds pursuant to investment management agreements.

3. MHR Capital Partners Master Account LP, MHR Capital Partners Master Account II Holdings LLC, MHR Capital Partners (100) LP, MHR Institutional Partners LP, MHRM LP, MHRA LP, MHR Institutional Partners II LP, MHR Institutional Partners IIA LP, MHR Institutional Partners III LP, MHR Capital Partners Master Account II LP, MHR Advisors LLC, MHR Institutional Advisors LLC, MHR Institutional Advisors II LLC, MHR Institutional Advisors III LLC, MHRC LLC, MHRC I LLC, MHRC II LLC, MHR Holdings LLC and Dr. Mark H. Rachesky (Dr. Rachesky and collectively, the Potential Joint Actors) may be considered to be joint actors of the Filer. Dr. Rachesky is also a director of the Company.

4. The Filer is an affiliate of and has an investment management agreement with each of MHR Capital Partners Master Account LP, MHR Capital Partners Master Account II LP, MHR Capital Partners (100) LP, MHR Institutional Partners LP, MHRA LP, MHRM LP, MHR Institutional Partners II LP, MHR Institutional Partners IIA LP and MHR Institutional Partners III LP (the Affiliates and together with the Potential Joint Actors and any other entity managed or controlled by the Filer, the MHR Group).

The Company and the Partnership

5. The Company is a corporation incorporated under the Business Corporations Act (British Columbia).

6. The Company's registered office is located at 666 Burrard Street, Suite 1700, Vancouver, British Columiba, V6C 2X8, and its head office and principal place of business is located at 160 Elgin Street, Suite 2100, Ottawa, Ontario, K2P 2P7.

7. The Company is a reporting issuer in each of the provinces and territories of Canada.

8. Telesat Partnership LP (the Partnership) is a limited partnership formed under the laws of Ontario on November 12, 2020.

9. The Partnership's head office and principal place of business is located at 160 Elgin Street, Suite 2100, Ottawa, Ontario, K2P 2P7. The Company is the general partner of the Partnership.

10. The Partnership is a reporting issuer in each of the provinces and territories of Canada.

Pre-Closing Reorganization

11. Prior to the Company and the Partnership becoming reporting issuers on November 16, 2021, the Company and the Partnership undertook certain pre-closing capital changes (the Pre-Closing Reorganization), the terms of which are set out in a transaction and plan of merger agreement (the Transaction Agreement) dated November 23, 2020 among the Company, the Partnership, Telesat Canada, Telesat CanHold Corporation, Loral Space & Communications Inc. (Loral), Lion Combination Sub Corporation, Public Sector Pension Investment Board (PSP Investments) and Red Isle Private Investments Inc. (Red Isle).

12. As part of the Pre-Closing Reorganization, the Filer acquired control over 18,035,092 Class B Units (as defined below) in exchange for the 18,035,092 shares of common stock of Loral over which it previously exercised control. In addition, Dr. Rachesky acquired 15,000 Class B Units and 46,136 Class B Variable Voting Shares. Loral became a wholly-owned subsidiary of the Partnership as a result of the Pre-Closing Reorganization.

13. As of September 30, 2022, the Filer exercises control over 18,035,092 Class B Units, representing approximately 95.7% of the Class B Units and approximately 59.1% of the Listed Shares on a fully exchanged and converted basis.

14. As of September 30, 2022, Dr. Rachesky exercises control over 15,000 Class B Units, representing approximately 0.1% of the Class B Units, and 46,136 Class B Variable Voting Shares, representing approximately 0.4% of the outstanding Class B Variable Voting Shares (and collectively representing approximately 0.5% of the outstanding Listed Shares on a fully exchanged and converted basis).

15. The MHR Group's indirect economic interests in the subsidiaries of the Company and the Partnership did not change as a result of the Pre-Closing Reorganization or the closing of the transactions contemplated by the Transaction Agreement.

Capital Structure of the Company

16. The authorized share capital of the Company consists of: (a) an unlimited number of Class A Shares; (b) an unlimited number of Class B Variable Voting Shares; (c) an unlimited number of Class C fully voting shares (the Class C Fully Voting Shares); (d) an unlimited number of Class C limited voting shares (and together with the Class C Fully Voting Shares, the Class C Shares, and the Class A Shares, Class B Variable Voting Shares and the Class C Shares collectively being the Company Shares); (e) one Class A Special Voting Share; (f) one Class B Special Voting Share; (g) one Class C Special Voting Share (and together with the Class A Special Voting Share and Class B Special Voting Share, the Special Voting Shares); (h) an unlimited number of Super Voting Shares; (i) one Golden Share; and (j) an unlimited number of "blank check" Class A Preferred Shares.

17. The Class A Shares and Class B Variable Voting Shares commenced trading on the Toronto Stock Exchange and the Nasdaq Global Select Market on November 19, 2021. The Class A Shares and Class B Variable Voting Shares are the only securities of the Company listed for trading and trade under a single ticker symbol and CUSIP.

18. The articles of the Company require that holders of Class A Shares be Canadian (as such term is defined by the Investment Canada Act). Class A Shares will immediately be converted into Class B Variable Voting Shares without any further act of the Company or the holder thereof if such Class A Shares become beneficially owned or controlled, directly or indirectly, by a person who is not Canadian.

19. The articles of the Company allow a holder of Class B Variable Voting Shares to notify the Company of its Canadian status and upon providing evidence satisfactory to the Company of its Canadian status, such Class B Variable Voting Shares convert automatically into Class A Shares.

20. Ownership of the Class C Fully Voting Shares is restricted to Red Isle or PSP Investments (or permitted transferees thereof that are wholly-owned by PSP Investments). The Class C Fully Voting Shares convert automatically to Class A Shares (where the transferee is a Canadian) or Class B Variable Voting Shares (where the transferee is not a Canadian) upon transfer to a person other than Red Isle or PSP Investments (or permitted transferees thereof that are wholly-owned by PSP Investments).

21. Ownership of the Class C limited voting shares is restricted to Red Isle or PSP Investments (or permitted transferees thereof that are wholly-owned by PSP Investments). Holders of Class C limited voting shares may vote on all matters submitted to shareholders of the Company other than the election of directors. The Class C limited voting shares convert automatically to Class A Shares (where the transferee is Canadian) or Class B Variable Voting Shares (where the transferee is not a Canadian) upon transfer to a person other than Red Isle or PSP Investments (or permitted transferees thereof that are wholly-owned by PSP Investments). The restrictions on voting rights attached to the Class C limited voting shares of the Company were designed to assist PSP Investments and Red Isle with ensuring compliance with specific legislation to which they are subject.

22. The Special Voting Shares are voted pursuant to the direction of the holders of the corresponding class of Partnership Units (as defined below) to enable such holders to vote on all matters submitted to the shareholders of the Company on an as-if-exchanged basis.

23. All of the Super Voting Shares were redeemed as part of the Pre-Closing Reorganization and the Company's articles prohibit the further issuance of any Super Voting Shares.

24. The Golden Share and the Special Voting Shares have no material economic entitlements.

25. The Golden Share would be entitled to participate in a particular vote when:

(a) in the event of a vote with respect to the election of directors of the Company, the number of fully diluted Class B Variable Voting Shares is greater than the aggregate number of fully diluted Class A Shares and Class C Fully Voting Shares;

(b) in the event of a vote with respect to any matter other than the election of directors of the Company, the number of fully diluted Class B Variable Voting Shares is greater than the aggregate number of fully diluted Class A Shares and Class C Shares; or

(c) a person who is not Canadian beneficially owns or controls more than one-third of the sum of (i) the number of votes attached to the Company Shares and the Special Voting Shares then outstanding, and (ii) the Golden Share Canadian Votes (as defined and described below) (such person, a Non-Canadian Principal Shareholder and such limitation, the Non-Canadian Voting Limitation).

26. Voting power is attributed to the Golden Share in two ways. First, the Golden Share is attributed with the number of votes required to ensure that the votes cast by the holders of Class A Shares and Class A Units (as defined below) (indirectly via the Class A Special Voting Share), Class C Shares and Class C Units (as defined below) (indirectly via the Class C Special Voting Share), and the Golden Share, together, represent a simple majority of the votes cast and entitled to vote (such voting power, the Golden Share Canadian Votes). Second, the Golden Share is attributed with the number of votes in excess of the Non-Canadian Voting Limitation exercised by a Non-Canadian Principal Shareholder.

27. The Golden Share voting rights will be voted pro rata consistent with the sum of the aggregate votes of the Class A Shares and the Class A Special Voting Share (in each case, excluding any votes cast by or on behalf of PSP Investments and/or its affiliates) controlled by holders who can demonstrate that they are Canadian. However, if (a) one or more holders other than PSP Investments or its controlled affiliates holds an aggregate amount of Class A Shares and/or Class A Units exceeding 5% of the aggregate number of outstanding Company Shares and Partnership Units (as defined below) taken as a whole as of the record date for the applicable vote (each such holder, a "5% Voter"), and (b) the 5% Voters together hold over 50% of the aggregate number of outstanding Class A Shares and Class A Units (in each case, excluding any Class A Shares or Class A Units held by or on behalf of PSP Investments and/or its affiliates) taken as a whole as of the record date for the applicable vote, one-half of the voting rights attached to the Golden Share will be voted pro rata consistent with the aggregate votes cast on the applicable matter as described in the first sentence of this paragraph and the other half will be voted pro rata consistent with the aggregate votes cast on the applicable matter by the holders of Class A Shares and the Class A Special Voting Share (in each case, excluding any votes cast by or on behalf of the 5% Voters and PSP Investments and/or its affiliates).

28. Although the Listed Shares are two separate and distinct classes of shares, they are economically equivalent. The relevance of the distinction between the two classes (i.e., the Canadian status of the holder) is solely for the Company (i.e., so that the Company can track its Canadian shareholder composition) but has no relevance to the holders of the Listed Shares for economic purposes.

29. Holders of Class A Shares, Class B Shares, Class C Shares, Special Voting Shares and the Golden Share are generally entitled to receive notice of and attend meetings of the Company's shareholders and receive copies of all proxy materials, information statements and other written communications, including from third parties, given in respect of the Company Shares.

30. Holders of Company Shares have one vote for each share held at all meetings of the shareholders of the Company, except meetings at which only holders of another class or of a particular series have the right to vote, provided that Class C limited voting shares vote on all matters submitted to shareholders of the Company other than the election of directors of the Company.

Unit Structure of the Partnership

31. The amended and restated partnership agreement of the Partnership (the A&R Partnership Agreement) provides for a capital structure consisting of: (a) an unlimited number of general partnership units; (b) an unlimited number of Class A limited partnership units (the Class A Units); (c) an unlimited number of Class B limited partnership units (the Class B Units); (d) an unlimited number of Class C limited partnership units (the Class C Units); and (e) an unlimited number of Class D limited partnership units (the Class D Units and together with the Class A Units, Class B Units and Class C Units, the Partnership Units).

32. The Class A Units, Class B Units and Class C Units are intended to provide economic rights and voting rights with respect to the Company (through the Special Voting Shares) that are substantially equivalent to the corresponding rights afforded to holders of Class A Shares, Class B Variable Voting Shares and Class C Fully Voting Shares.

33. Under the A&R Partnership Agreement, the Class A Units, Class B Units and Class C Units are non-transferable except in limited circumstances. Holders of Partnership Units are required to convert their Partnership Units into Company Shares prior to disposition. Following conversion of a Partnership Unit into the corresponding class of Company Share and the disposal of such Company Share, the disposed Company Share will convert, automatically to a Class A Share or Class B Variable Voting Share, without formality or regard to any other consideration, except for the purchaser's status as a Canadian or non-Canadian.

34. The Class A Units, Class B Units and Class C Units are economically identical to each other.

35. Approval of holders of the Partnership Units is required for an action that would affect the economic rights of a Partnership Unit relative to the Class A Shares, Class B Variable Voting Shares or Class C Shares, as applicable.

The Exemption Sought

36. The multi-class capital structure and exchangeable unit structure of the Company and the Partnership were implemented solely to (a) ensure the Company's continued status as controlled by Canadians, (b) provide for certain favourable tax treatment for stockholders of Loral in connection with the Transaction Agreement, and (c) assist PSP Investments with ongoing compliance with its governing legislation. They have no other purpose.

37. The Company and the Partnership are not required to be Canadian-controlled under applicable legislation or regulations. However, the Company and Partnership believe that there are benefits to being Canadian-controlled for regulatory and financing purposes and have entered into contractual arrangements with the Government of Canada that require the Company and the Partnership to be and remain Canadian-controlled.

38. To maintain its status as Canadian, the Company's articles feature a variable voting mechanism by way of the Golden Share and the separation of its shares into classes based on the holder's status as a Canadian or non-Canadian.

39. The Class A Shares will convert mandatorily and automatically and without any further act of the Company or the holder to a Class B Variable Voting Share if transferred to a non-Canadian. If a Canadian acquires a Class B Variable Voting Share, upon delivery of evidence to the Company that it is a Canadian, such Class B Variable Voting Share will convert mandatorily and automatically and without any further act of the Company or the holder to a Class A Share.

40. The Company's articles formally identify the Class A Shares and Class B Variable Voting Shares as separate classes of shares, but economically they represent, in effect, a single class of shares.

41. An investor will not choose whether it acquires a Class A Share or a Class B Variable Voting Share. There are no unique features of either the Class A Shares or the Class B Variable Voting Shares which an existing or potential investor can choose to acquire, exercise or dispose of. The class of Listed Shares ultimately available to an investor will be a function of the investor's non-Canadian status or ability to evidence its Canadian status. If after having acquired a Class A Share an investor's Canadian status changes, the shares will convert accordingly and automatically, without formality or regard to any other consideration.

42. On November 16, 2021, the Company obtained a decision from the Ontario Securities Commission, as principal regulator, that, among other things, an offer to acquire outstanding Class A Shares or Class B Variable Voting Shares, as the case may be, which would constitute a take-over bid under the Legislation as a result of the securities subject to the offer to acquire, together with the offeror's securities, representing in the aggregate 20% or more of the outstanding Class A Shares or Class B Variable Voting Shares, as the case may be, at the date of the offer to acquire, be exempt from the requirements set out in Part 2 of NI 62-104 applicable to take-over bids subject to certain conditions (the "Company Relief").

43. Pursuant to section 1.8 of NI 62-104, as at September 30, 2022, the Filer and MHR Group (collectively, the Filer Group) are deemed to have beneficial ownership of 18,096,228 Class B Variable Voting Shares, representing approximately 59.3% of the Listed Shares on a fully exchanged and converted basis, and accordingly, the acquisition of Listed Shares by members of the Filer Group would constitute a take-over bid under NI 62-104 to which the requirements applicable to take-over bids in Part 2 of NI 62-104 would apply, subject to the availability of an exemption.

44. As the Listed Shares trade under the same ticker symbol and have mandatory inter-convertibility depending on the holder's Canadian status, members of the Filer Group are unable to determine the number of issued and outstanding Class A Shares or Class B Variable Voting Shares at the time of any potential purchase of Listed Shares. Consequently, the Filer is unable to determine the number of Listed Shares that it is entitled to purchase in reliance on the exemption set out in section 4.1 of NI 62-104 (the Normal Course Purchase Exemption).

45. No member of the Filer Group will purchase Company Shares when they have knowledge of any material fact or material change about the Company which has not been generally disclosed.

46. No member of the Filer Group has any current intention of making a take-over bid for all of the issued and outstanding Company Shares, or otherwise acquiring all of the issued and outstanding Company Shares by way of a plan of arrangement or other similar voting transaction.

47. The interests of the Filer Group in being able to acquire Company Shares are not to gain legal control of the Company but instead to preserve their ability to purchase Company Shares, depending on the prices at which the Company Shares are trading.

48. The Non-Canadian Voting Limitation would apply to the Filer Group for so long as they beneficially own or control more than one-third of the sum of (i) the number of votes attached to the Company Shares and the Special Voting Shares then outstanding, and (ii) the Golden Share Canadian Votes. As a result, the Filer Group is not able to gain legal control of the Company under its existing capital structure due to the attribution of the Golden Share.

49. The Company is aware that an application has been submitted for the Exemption Sought and management of the Company supports the Exemption Sought.

Decision

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

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

(a) the Company Relief is still effective and has not been revoked or varied;

(b) the applicable member of the Filer Group has made reasonable inquiries to confirm that the Company Relief is still effective and has not been revoked or varied prior to relying on the Exemption Sought;

(c) there have been no changes to the capital structure of the Company or the Partnership, or the provisions attached to their respective securities from what has been described in this decision, provided the removal of the Super Voting Shares from the Company's authorized share capital will not be considered to be a change to the capital structure of the Company;

(d) the Listed Shares are listed for trading under the same ticker symbol and CUSIP; and

(e) the Filer Group complies with the requirements of section 4.1 of NI 62-104 except that: (i) the bid is for not more than 5% of the outstanding Class A Shares and Class B Variable Voting Shares on a combined basis, as opposed to a per-class basis, and (ii) the aggregate number of Class A Shares and Class B Variable Voting Shares acquired in reliance on this decision by the offeror and any person acting jointly or in concert with the offeror within any period of 12 months, when aggregated with acquisitions otherwise made by the offeror and any person acting jointly or in concert with the offeror within the same 12-month period (other than under a bid that is subject to Part 2 of NI 62-104) does not exceed 5% of the outstanding Class A Shares and Class B Variable Voting Shares on a combined basis, as opposed to a per-class basis, at the beginning of such 12-month period.