Securities Law & Instruments

Headnote

Distribution of bonds securedby services fees payable by Government of Canada not subjectto the prospectus requirements, subject to conditions - tradesof such bonds (other than the initial distribution) not subjectto the registration requirements, except for where the tradeis by a person subject to the registration requirements in respectof trades of bonds, debentures or other evidences of indebtednessof or guaranteed by the government of Canda.

Applicable Ontario StatutoryProvisions

Securities Act, R.S.O. 1990,c. S.5, as am., ss. 25, 35(2)(1)(a), 53, 73(1)(a), 74(1).

Regulation made under the SecuritiesAct, R.R.O. 1990, Reg. 1015, as am. ss. 206(1).

IN THE MATTER OF

THE SECURITIES LEGISLATIONOF

BRITISH COLUMBIA, ALBERTA,SASKATCHEWAN, MANITOBA,

ONTARIO, QUEBEC, NEW BRUNSWICK,NOVA SCOTIA,

PRINCE EDWARD ISLAND, NEWFOUNDLANDAND LABRADOR,

YUKON TERRITORY, NORTHWESTTERRITORIES

AND NUNAVUT TERRITORY

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEWSYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

SCOTIA CAPITAL INC. AND MILIT-AIRINC.

MRRS DECISION DOCUMENT

1. WHEREAS the local securitiesregulatory authority or regulator (the "Decision Maker")in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario,Québec, New Brunswick, Nova Scotia, Prince Edward Island,Newfoundland and Labrador, Yukon Territory, Northwest Territoriesand Nunavut Territory (collectively, the "Jurisdictions")has received an application from Scotia Capital Inc. (the"Underwriter") and MILIT-AIR Inc. ("MILIT-AIR")for a decision under the securities legislation of the Jurisdictions(the "Legislation") that:

1.1 the requirement containedin the Legislation to file and obtain receipts for a preliminaryprospectus and a prospectus (the "Prospectus Requirement")will not apply to any distribution of Series 2-1 AmortizingSecured Bonds (the "Series 2-1 Bonds") to be issuedby MILIT-AIR including a distribution by the Underwriter(the "Offering"); and

1.2 the requirement containedin the Legislation to be registered to trade in securities(the "Registration Requirement") will not applyto any trades of the Series 2-1 Bonds subsequent to theOffering;

2. AND WHEREAS pursuant tothe Mutual Reliance Review System for Exemptive Relief Applications(the "System") the Alberta Securities Commissionis the principal regulator for this application;

3. AND WHEREAS MILIT-AIR hasrepresented to the Decision Makers that:

3.1 MILIT-AIR is a not-for-profitcorporation, with no share capital, incorporated on March12, 1998 under Part II of the Canada Corporations Act;

3.2 the head office of MILIT-AIRis located at Edmonton, Alberta;

3.3 MILIT-AIR is not a reportingissuer under the Legislation and has no intention of becominga reporting issuer under the Legislation;

3.4 the objects of MILIT-AIRare to advance the educational standards in the trainingof military pilots in Canada;

3.5 the NATO Flying Trainingin Canada Program (the "NFTC Program") is a publicand private sector collaboration between the Governmentof Canada ("Canada") and an industry group, ledby Bombardier Inc. ("Bombardier"), involving theestablishment of a military pilot training program for thepurpose of meeting the training needs of Canada and thoseof NATO and other participating nations;

3.6 MILIT-AIR was establishedas an independent entity to acquire and make available toBombardier aircraft, flight simulation devices and otherancillary capital assets required for the NFTC Program;

3.7 on May 12, 1998, undera trust indenture (the "Trust Indenture") betweenMILIT-AIR and Montreal Trust Company of Canada, in its capacityas indenture trustee (the "Bondholders' Trustee"),MILIT-AIR issued an aggregate principal amount of $720,000,0005.75% Series 1 Amortizing Secured Bonds (the "Series1 Bonds");

3.8 the proceeds of theSeries 1 Bonds were used to fund the purchase of certainaircraft, flight simulation devices and other ancillarycapital assets (the "Series 1 Assets") as wellas certain administrative costs and other expenses of MILIT-AIR;

3.9 The Series 1 Bonds wereissued in reliance upon exemptive relief orders grantedby the Decision Maker in each of the Jurisdictions, withthe exception of Nunavut;

3.10 for the purposes ofcarrying out the NFTC Program, Canada granted MILIT-AIRa licence (the "Licence") to occupy and use certainpremises and facilities (the "NFTC Premises")at the Canadian Armed Forces Bases at Moose Jaw, Saskatchewan,and Cold Lake, Alberta, for a term of 33 years;

3.11 under a concessionand agency agreement (the "Concession and Agency Agreement"),MILIT-AIR granted Bombardier exclusive concession rightsto use and occupy the NFTC Premises for the establishmentand operation of a military flying training centre for Canadianand foreign military pilots under the NFTC Program;

3.12 the Concession andAgency Agreement appointed Bombardier as MILIT-AIR's exclusiveagent to negotiate and manage contracts with suppliers ofthe assets required for the NFTC Program;

3.13 in accordance withthe terms of a services agreement between Canada and Bombardier(the "Canada Services Agreement"), Bombardieragreed to provide services in support of the NFTC Programover a term of approximately 22 years;

3.14 Canada's commitmentto Bombardier under the Canada Services Agreement involvesthe payment of services fees (the "Tuition Fees")over the term, a portion of which is fixed (the "FirmFixed Fees");

3.15 subject to Section40 of the Financial Administration Act (Canada) (the "FAA"),Canada's obligation to make payment of the Firm Fixed Feesis unconditional, irrevocable, and without right of set-off;

3.16 MILIT-AIR and Bombardieralso entered into a lease agreement (the "Series 1Lease") pursuant to which the Series 1 Assets havebeen leased by MILIT-AIR to Bombardier for the purposesof carrying out the NFTC Program;

3.17 under the Series 1Lease, Bombardier is obligated to make certain payments("Series 1 Rental Payments") to MILIT-AIR forthe lease of the Series 1 Assets, which obligation is unconditional,irrevocable and without right of set-off;

3.18 under a collectiontrust agreement (the "Collection Trust Agreement")among MILIT-AIR, Bombardier, the Bondholders' Trustee, MontrealTrust Company of Canada, in its capacity as collection trustee,(the "Collection Trustee") and Deloitte &Touche, Bombardier assigned absolutely to the CollectionTrustee all of the Tuition Fees owing to it under the CanadaServices Agreement, to be held in trust and disbursed inaccordance with the terms of the Collection Trust Agreement;

3.19 under the contractualarrangements entered into in 1998 among MILIT-AIR, Bombardierand Canada, it was contemplated that additional bonds maybe issued in the future to finance the acquisition of additionalassets required, from time to time, for the purposes ofthe NFTC Program;

3.20 in 2002, it was determinedthat certain additional aircraft and other ancillary capitalassets (the "Series 2-1 Assets") would be requiredas a result of the anticipated expansion of the NFTC Programto include other participant nations;

3.21 MILIT-AIR proposesto issue the Series 2-1 Bonds and to use the proceeds ofthe Offering to finance the purchase of the Series 2-1 Assets;

3.22 in connection withthe issuance of the Series 2-1 Bonds and the purchase ofthe Series 2-1 Assets by MILIT-AIR, the following contractualarrangements will be entered into on or before the closingof the Offering:

3.22.1 MILIT-AIR and theBondholders' Trustee will enter into an indenture supplementalto the Trust Indenture (the "Supplemental Indenture")under which the Series 2-1 Bonds will be issued;

3.22.2 MILIT-AIR willenter into contracts with certain suppliers in respectof the purchase of the Series 2-1 Assets;

3.22.3 MILIT-AIR and Bombardierwill enter into a lease in respect of the Series 2-1 Assets(the "Series 2-1 Lease") under which Bombardierwill be required to make rental payments ("Series2-1 Rental Payments") for the lease of the Series2-1 Assets. The obligation to pay Series 2-1 Rental Paymentswill be unconditional, irrevocable and without right ofset-off;

3.22.4 the Canada ServicesAgreement will be amended (the "Amended Canada ServicesAgreement") to, inter alia, increase the Firm FixedFees payable by Canada in order to fund the additionalpayments of principal and interest to be made by MILIT-AIRin respect of the Series 2-1 Bonds;

3.22.5 the CollectionTrust Agreement will be amended to provide for the disbursementof the additional Firm Fixed Fees to the Bondholders'Trustee, on behalf of the holders of Series 2-1 Bonds,and MILIT-AIR;

3.23 the Firm Fixed Feescurrently payable by Canada under the Canada Services Agreementare equal in amount to and payable at the same time as theSeries 1 Rental Payments payable by Bombardier to MILIT-AIRfor the lease of the Series 1 Assets;

3.24 the Series 1 RentalPayments are greater in amount than, but payable at thesame time as, the payments due to the bondholders in respectof the Series 1 Bonds;

3.25 under the Amended CanadaServices Agreement, the Firm Fixed Fees payable by Canadawill be increased by an amount that is equal to the Series2-1 Rental Payments payable by Bombardier under the Series2-1 Lease, and that is at least equal to the principal andinterest payments due in respect of the Series 2-1 Bonds;

3.26 all amounts due andpayable by MILIT-AIR under the Trust Indenture and the SupplementalIndenture, including all principal and interest owing onthe Series 1 Bonds and the Series 2-1 Bonds, as well asrelated administrative costs and expenses of MILIT-AIR,will continue to be funded by the Firm Fixed Fees payableby Canada under the Amended Canada Services Agreement;

3.27 the Series 1 RentalPayments and the Series 2-1 Rental Payments (collectively,the "Rental Payments") and, correspondingly, theFirm Fixed Fees shall be adjusted to reflect any increaseor decrease in applicable taxes, duties or expenses of MILIT-AIR,thereby ensuring that sufficient funds continue to be availableto meet MILIT-AIR's commitments in respect of the Series1 Bonds and Series 2-1 Bonds;

3.28 if the Amended CanadaServices Agreement is terminated for default, convenienceor otherwise, or if Canada fails to pay Firm Fixed Feeswhen due and payable, Canada will be required to assumeBombardier's obligations as lessee (including the obligationto pay Rental Payments) under the Series 1 Lease and theSeries 2-1 Lease, respectively;

3.29 the mechanisms setout in paragraph 3.28 are in place to ensure continued accessby Canada to the Series 1 Assets and the Series 2-1 Assetsand a resulting stream of Rental Payments to MILIT-AIR thatis, subject to Section 40 of the FAA, sufficient in allcircumstances to meet MILIT-AIR's obligation to pay theprincipal and interest on the Series 1 Bonds and the Series2-1 Bonds, as well as its administrative costs and otherexpenses;

3.30 the Collection Trusteewill disburse, out of the Firm Fixed Fees paid by Canada,an amount equal to the aggregate of the principal and interestthen due on the Series 1 Bonds and the Series 2-1 Bondsto the Bondholders' Trustee, on behalf of the bondholders.The remaining Firm Fixed Fees shall be held by the CollectionTrustee for the direct and, subject to the rights and securityof the Bondholders' Trustee, sole benefit of MILIT-AIR forthe payment of its reasonable normal course expenses. Thebalance of Tuition Fees received by the Collection Trusteeshall be remitted in accordance with the terms of the AmendedCanada Services Agreement;

3.31 the Series 2-1 Bondswill be direct obligations of MILIT-AIR and, in accordancewith the terms of the Trust Indenture, will rank pari passuwith the Series 1 Bonds and all additional bonds issuedunder the Trust Indenture and any supplement(s) thereto;

3.32 the obligations ofMILIT-AIR in respect of the Series 1 Bonds, Series 2-1 Bonds,and any additional bonds of MILIT-AIR will be secured by:

3.32.1 the Firm FixedFees included in the absolute assignment of the TuitionFees by Bombardier to the Collection Trustee; and

3.32.2 under the TrustIndenture, a first ranking charge on and assignment ofall of the assets and undertakings of MILIT-AIR includingthe Series 1 Assets, the Series 2-1 Assets, the RentalPayments (recourse in respect of which is limited to Bombardier'sentitlement to the Firm Fixed Fees), and MILIT-AIR's interestin each of the agreements entered into in connection withthe NFTC Program;

3.33 the Series 2-1 Bondswill be sold to the Underwriter and then offered for salein all of the provinces and territories of Canada by theUnderwriter;

3.34 in connection withthe Offering, a preliminary and final disclosure documentin both the English and French languages (the "OfferingMemorandum") describing, among other things, MILIT-AIR,the attributes of the Series 2-1 Bonds, the NFTC Program,the security for the Series 2-1 Bonds, the use of proceeds,eligibility for investment of the Series 2-1 Bonds, ratingsfor the Series 2-1 Bonds, investment considerations, materialcontracts and the applicable contractual and statutory rightsof action will be prepared and distributed to prospectiveinvestors;

3.35 each purchaser purchasingfrom the Underwriter will be given a copy of the OfferingMemorandum prior to or at the time of entering into an agreementof purchase and sale for the Series 2-1 Bonds and will havethe benefit of the contractual and statutory rights of actiondescribed in the Offering Memorandum;

3.36 under the Legislation,the distribution of bonds of or guaranteed by Canada orany province of Canada is exempt from the registration andprospectus requirements of the Legislation (with the exceptionof the Yukon Territory where the exemption extends onlyto prospectus requirements), and resale restrictions donot apply to such securities in the secondary market (the"Government Debt Exemptions"); and

3.37 the Government DebtExemptions are not available for the distribution of theSeries 2-1 Bonds because such arrangements do not constitutea direct obligation of Canada to make payments on the bondsor a collateral obligation of Canada in the nature of aguarantee for the performance of MILIT-AIR's obligationsto make payments on the Series 2-1 Bonds;

4. AND WHEREAS under the System,this MRRS Decision Document evidences the decision of eachDecision Maker (collectively, the "Decision");

5. AND WHEREAS each of theDecision Makers is satisfied that the test contained in theLegislation that provides the Decision Maker with the jurisdictionto make the Decision has been met;

6. THE DECISION of the DecisionMakers under the Legislation is that the Prospectus Requirementwill not apply to a distribution of the Series 2-1 Bonds andthe Registration Requirement will not apply to trades by aperson or company in Series 2-1 Bonds subsequent to the acquisitionof a Series 2-1 Bond by a purchaser on the closing of theOffering and all further trades thereafter of the Series 2-1Bonds, other than a trade by a person or company in a Jurisdictionwho is a person or company who is subject to the RegistrationRequirement under the Legislation of such Jurisdiction inrespect of trades of bonds, debentures or other evidencesof indebtedness of or guaranteed by the government of Canadaprovided that:

6.1 the Series 2-1 Bondswill have received a rating from Standard & Poors orDominion Bond Rating Service equal to the rating assignedto the long-term unsecured Canadian dollar debt obligationsof Canada prior to completion of the Offering.

June 14, 2002.

"Glenda A. Campbell"                    "JohnW. Cranston"