Peninsular and Oriental Steam Navigation Company and P&O Princess Cruises plc

Headnote

Mutual Reliance Review System for Exemptive Relief Applications - Subsection74(1) -- relief from prospectus and registration requirements for spin off of twosubsidiaries of a publicly traded company to investors by issuing shares of spunoff entities as dividends in kind -- reorganization technically not covered byprescribed reorganization exemption -- technical relief -- no policy issues.

Applicable Ontario Statutes

Securities Act, R.S.O. 1990, c.S.5, as am., ss. 25, 35(1)(12)(ii), 53, 72(1)(f)(ii),74(1).

WHEREAS the Canadian securities regulatory authority or regulator (the"Decision Maker") in each of British Columbia, Alberta, Saskatchewan, Ontario,Quebec, New Brunswick and Nova Scotia (the "Jurisdictions") has received anapplication from The Peninsular and Oriental Steam Navigation Company("P&OSNCo") for a decision pursuant to the securities legislation of theJurisdictions (the "Legislation") that the prospectus and registration requirementscontained in the Legislation shall not apply to the Demerger (as defined inparagraph 1(c) below) and to P&OSNCo and P&O Princess Cruises plc ("Cruisesplc");

AND WHEREAS pursuant to the Mutual Reliance Review System forExemptive Relief Applications (the "System"), the Executive Director of the BritishColumbia Securities Commission is the principal regulator for this application;

AND WHEREAS P&OSNCo has represented to the Decision Makers that:

1. P&OSNCo is a company incorporated by Royal Charter with limited liabilityunder the laws of England and Wales.

2. P&OSNCo's business includes cruise operations and ferries and portslogistics;

3. P&OSNCo is proposing to demerge or spin-off from P&OSNCo its entirecruises business (the "Demerger") to a newly incorporated company, P&OPrincess Cruises plc ("Cruises plc"). The Demerger forms part of an ongoingrestructuring strategy intended to allow (i) P&OSNCo to focus on its corebusinesses of ferries and ports and logistics and (ii) Cruises plc to focus onthe core cruises business;

4. as at August 15, 2000, the total authorized capital of P&OSNCo was£806,531,341 and the issued capital consisted of £679,432,379 of deferredstock, £68,638,327 of concessionary stock and £3,344,000 of preferredstock. P&OSNCo deferred stock (the "P&OSNCo Shares") is listed andposted for trading on the LSE;

5. as at August 9, 2000, there were 86 registered P&OSNCo shareholders withaddresses in Canada (the "Canadian Shareholders"), of which 37 areresident in British Columbia, 22 are resident in Ontario, 17 are resident inAlberta, 4 are resident in Quebec, 3 are resident in Novia Scotia, 2 areresident in Saskatchewan, and 1 is resident in New Brunswick. CanadianShareholders held an aggregate of 47,309 P&OSNCo Shares representingless than 0.00005% of the issued and outstanding P&OSNCo Shares;

6. P&OSNCo is not, and has no current intention of becoming, a reportingissuer in any province of Canada;

7. Cruises plc is incorporated under the laws of England and Wales.Immediately prior to the Demerger, the authorized U.S. dollar denominatedshare capital of Cruises plc will be increased based on the nominal value ofthe P&OSNCo deferred stock in issue as at that time;

8. application is being made to the U.K. Listing Authority ("UKLA") for theCruises Shares to be admitted to the Official List, to the LSE for admissionof the Cruises Shares to trading and to the NYSE for the listing of theAmerican Depository Shares ("ADS") subject to the approval of theDemerger by the stockholders of P&OSNCo.;

9. Cruises plc is not, and there is no current intention that it will become, areporting issuer in any province of Canada;

10. P&OSNCo will ask its shareholders to approve the Demerger at theextraordinary general meeting of P&OSNCo, which is expected to take placein October 2000 (the "Extraordinary General Meeting");

11. P&OSNCo will provide information about the Demerger to all of itsshareholders in the form of a shareholder circular (the "Circular") and in adetailed English disclosure document for Cruises plc relating to the listing ofthe Cruises Shares (the "Listing Particulars"). These documents will be sentto all shareholders of P&OSNCo, including the Canadian Shareholders,approximately three weeks prior to the Extraordinary General Meeting;

12. information contained in the Circular and Listing Particulars will conform tothe requirements of the UKLA's Listing Rules, the LSE and the UK FinancialServices Act of 1986 as well as the NYSE and the United States SecuritiesAct of 1933. The Circular and the Listing Particulars are subject to reviewand approval by the UKLA and the NYSE before they may be disseminated.Among other things, the Circular will describe the background, rationale andbenefits of the Demerger to P&OSNCo and its shareholders, including adescription of P&OSNCo's ongoing businesses and the continuingrelationship between P&OSNCo and Cruises plc, and will include financialinformation with respect to P&OSNCo. The Listing Particulars will describethe business of Cruises plc and certain other information regarding theDemerger and will include financial information with respect to Cruises plc;

13. the Demerger will involve, as a first step, the reorganization and transfer ofall of the assets and subsidiaries comprising P&OSNCo's cruises businessto a wholly-owned subsidiary of P&OSNCo, P&O Cruises Limited ("P&OCruises"). The board of directors of P&OSNCo will then declare a dividendin specie to the deferred stockholders of P&OSNCo ("P&OSNCoStockholders") which, in the aggregate, will be equal to the book value ofP&OSNCo's investment in P&O Cruises. The dividend will be satisfied by(i) the transfer of the shares of P&O Cruises to Cruises plc and (ii) theissuance by Cruises plc of Cruises Shares to the P&OSNCo Stockholders,including Canadian Shareholders, on the basis of one Cruises Share foreach £1 nominal value of deferred stock of P&OSNCo (the "CruisesDividend"). P&OSNCo's Charters and Regulations (being its constitutionaldocuments) require that the dividend in specie be approved by a majority ofP&OSNCo's shareholders;

14. immediately following the Demerger, the P&OSNCo Stockholders will holdCruises Shares in the same proportion as their holdings of P&OSNCoShares. P&OSNCo and Cruises plc will each operate as a separate publiclylisted company and neither company will retain any beneficial shareholdingin the other;

15. all materials relating to the Demerger that are sent to P&OSNCoshareholders in the United Kingdom will concurrently be sent to CanadianShareholders. Copies of such materials will also be filed with the DecisionMakers;

16. following the Demerger, Cruises plc shareholders with addresses in Canadawill receive the same disclosure materials that are sent to Cruises plcshareholders who are resident in the United Kingdom absent any relevantsecurities law issues;

17. the issuance of Cruises Shares pursuant to the Cruises Dividend toCanadian Shareholders constitutes a "distribution" within the meaning of theLegislation. Given that the Demerger is an initiative of P&OSNCo and thatthe Cruises Shares will be issued in connection with an obligation owed byCruises plc to P&OSNCo, P&OSNCo's involvement may constitute acts infurtherance of the distribution of the Cruises Shares to CanadianShareholders;

18. there is no registration exemption available to P&OSNCo and noregistration or prospectus exemption available to Cruises plc in connectionwith the distribution of the Cruises Shares to the Canadian Shareholders.Although the Cruises Shares are being issued as incidental to a good faithreorganization, the registration and prospectus exemptions provided for inthe securities Legislation of certain Jurisdictions (the "good faithreorganization exemptions") may not be relied upon by Cruises plc andP&OSNCo since it is P&OSNCo rather than Cruises plc that is beingreorganized pursuant to the Demerger, and the Cruises Shares will not bedistributed by P&OSNCo.;

19. both the Circular and Listing Particulars will contain representations to theeffect that application has been made to the UKLA, the LSE and the NYSEfor the listing of the Cruises Shares and ADS's. Both the Circular and theListing Particulars will disclose that the Demerger is conditional, amongstother things, upon admission of the Cruises Shares to the UKLA's OfficialList and to the LSE for trading on its market for listed securities;

20. there is no market in Canada for the Cruises Shares, and none is expectedto develop;

AND WHEREAS pursuant to the System, this MRRS Decision Documentevidences the decision of each Decision Maker (collectively, the "Decision");

AND WHEREAS each of the Decision Makers is satisfied that the testcontained in the Legislation that provides the Decision Maker with the jurisdictionto make the Decision has been met;

THE DECISION of the Decision Makers pursuant to the Legislation is that:

1. the trades of the Cruises Shares pursuant to the Demerger areexempt from the prospectus and registration requirements of theLegislation;

2. the first trade in the Cruises Shares acquired by the CanadianShareholders pursuant to this decision is a distribution or is deemeda distribution under the Legislation, unless such trade is executedthrough the facilities of a stock exchange or market outside Canada,in accordance with all rules and laws applicable to the stockexchange or market upon which the trade is made; and

3. P&OSNCo and Cruises plc are permitted to make representations inthe Circular and Listing Particulars to the effect that application hasbeen made to the UKLA, the LSE and the NYSE for the listing of theCruises Shares and ADS and that the Demerger is conditional,amongst other things, upon admission of the Cruises Shares to theUKLA's Official List and to the LSE for trading on its market for listedsecurities.

September 22^nd, 2000.

"Brenda Leong"