Securities Law & Instruments


Headnote

Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions.

National Instrument 62-104, Part 6 Take-Over Bids – Exemption from the formal take-over bid requirements – An issuer wants relief so that the take-over bid thresholds are calculated based on the aggregate number of securities outstanding, rather than for each class of securities – The issuer is subject to foreign ownership restrictions in its governing federal legislation; the issuer implemented a dual class share structure solely for compliance with foreign ownership restrictions in the aviation industry; both classes of securities are freely tradeable, have identical economic attributes and are automatically and mandatorily inter-convertible based on the security holder’s Canadian or non-Canadian status; security holders will calculate their ownership position by combining the outstanding classes of securities for the purposes of determining whether take-over bid requirements are triggered

National Instrument 62-104, Part 6 Take-Over Bids – Early warning relief – An issuer wants relief so that the early warning thresholds are calculated based on the aggregate number of securities outstanding, rather than for each class of securities – The issuer is subject to foreign ownership restrictions in its governing federal legislation; the issuer implemented a dual class share structure solely for compliance with foreign ownership restrictions in the aviation industry; both classes of securities are freely tradeable, have identical economic attributes and are automatically and mandatorily inter-convertible based on the security holder’s Canadian or non-Canadian status; security holders will calculate their ownership position by combining the outstanding classes of securities for the purposes of determining whether early warning requirements are triggered

National Instrument 62-104, Part 6 Take-Over Bids – Exemption from the formal take-over bid requirements – News release relief – An issuer wants relief so that the threshold triggering the requirement for an acquiror to file a news release during a take-over bid or an issuer bid is calculated based on the aggregate number of securities outstanding, rather than for each class of securities – The issuer is subject to foreign ownership restrictions in its governing federal legislation; the issuer implemented a dual class share structure solely for compliance with foreign ownership restrictions in the aviation industry; both classes of securities are freely tradeable, have identical economic attributes and are automatically and mandatorily inter-convertible based on the security holder’s Canadian or non-Canadian status; acquirors will calculate their ownership position by combining the outstanding classes of securities for the purposes of determining whether the requirement to file a news release during a take-over bid or issuer bid is triggered

National Instrument 62-103 The Early Warning System and Related Take-Over Bid and Insider Reporting Issues, s. 11.1 – Alternative reporting relief – An issuer wants relief so that an eligible institutional investor subject to early warning requirements may rely on alternative eligibility criteria from those in section 4.5 of NI 62-103 in order to benefit from the exemption contained in section 4.1 of NI 62-103 – The issuer is subject to foreign ownership restrictions in its governing federal legislation; the issuer implemented a dual class share structure solely for compliance with foreign ownership restrictions in the aviation industry; both classes of securities are freely tradeable, have identical economic attributes and are automatically and mandatorily inter-convertible based on the security holder’s Canadian or non-Canadian status; eligible institutional investors will calculate their ownership position by combining the outstanding classes of securities for the purposes of determining whether they are eligible for the reporting exemption in s. 4.1 of NI 62-103

National Instrument 51-102 Continuous Disclosure Obligations, s. 13.1 – Continuous disclosure relief – An issuer wants relief so that it can provide disclosure on significant security holders in its information circular on a combined basis, rather than for each class of securities – The issuer is subject to foreign ownership restrictions in its governing federal legislation; the issuer implemented a dual class share structure solely for compliance with foreign ownership restrictions in the aviation industry; both classes of securities are freely tradeable, have identical economic attributes and are automatically and mandatorily inter-convertible based on the security holder’s Canadian or non-Canadian status; the issuer will provide disclosure on holders of its voting securities on a combined basis in its information circular

Applicable Legislative Provisions

National Instrument 62-104 Take-Over Bids and Issuer Bids, Part 2, ss. 5.2, 5.4, 6.1.
National Instrument 62-103 The Early Warning System and Related Take-Over Bid and Insider Reporting Issues, ss. 4.1, 4.5, 11.1.
National Instrument 51-102 Continuous Disclosure Obligations, s. 13.1.


May 8, 2017

IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA AND ONTARIO
(the Jurisdictions)

AND

IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF
CANADA JETLINES LTD.
(the Filer)

DECISION

Background

1              The securities regulatory authority or regulator in each of the Jurisdictions (each a Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) that:

(a)           an offeror that makes an offer to acquire outstanding variable voting shares of the Filer (Variable Voting Shares) or outstanding common shares of the Filer (Common Shares, and collectively with the Variable Voting Shares, the Shares), 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 of that class, constituting in the aggregate 20% or more of the outstanding Variable Voting Shares or Common Shares, as the case may be, at the date of the offer to acquire, be exempted under section 6.1 of National Instrument 62-104 Take-Over Bids and Issuer Bids (NI 62-104) from the take-over bid requirements contained in NI 62-104 (the TOB Rules) (the TOB Relief);

(b)           an acquiror who acquires beneficial ownership of, or the power to exercise control or direction over, Variable Voting Shares or Common Shares, or securities convertible into such shares, that, together with the acquiror’s securities of that class, would constitute 10% or more of the outstanding Variable Voting Shares or Common Shares, as the case may be, be exempted from the early warning requirements contained in the Legislation (the Early Warning Relief);

(c)           an acquiror who acquires, during a take-over bid or an issuer bid, beneficial ownership of, or the power to exercise control or direction over, Variable Voting Shares or Common Shares, or securities convertible into such shares, that, together with the acquiror’s securities of that class, would constitute 5% or more of the outstanding Variable Voting Shares or Common Shares, as the case may be, be exempted from the requirement in section 5.4 of NI 62-104 to issue and file a news release (the News Release Relief);

(d)           an eligible institutional investor subject to the early warning requirements of the Legislation be entitled to rely on alternative eligibility criteria from those in section 4.5 of National Instrument 62-103 The Early Warning System and Related Take-Over Bid and Insider Reporting Issues (NI 62-103) in order to benefit from the exemption contained in section 4.1 of NI 62-103 (the Alternative Monthly Reporting Criteria); and

(e)           the Filer be entitled to rely on alternative disclosure requirements from those in Item 6.5 of Form 51-102F5 Information Circular (Form 51-102F5) of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) (the Alternative Disclosure Requirements and, collectively with the TOB Relief, the Early Warning Relief, the News Release Relief and the Alternative Monthly Reporting Criteria, the Exemption Sought).

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

(a)           the British Columbia Securities Commission is the principal regulator for this Application,

(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 in British Columbia, Alberta, Saskatchewan, Manitoba, Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland and Labrador, Northwest Territories and the Yukon, and

(c)           the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.

Interpretation

2              Terms defined in National Instrument 14-101 Definitions, NI 62-103, NI 62-104 or MI 11-102, including without limitation, “offeror”, “offeror’s securities”, “offer to acquire”, “acquiror”, “acquiror’s securities”, “early warning requirements”, “eligible institutional investor”, and “securityholding percentage”, have the same meaning if used in this decision, unless otherwise defined herein. For the purposes of this decision, the terms below have the following meanings:

“Canadian” has the meaning ascribed to that term in the CTA;

“CTA” means Canada Transportation Act; and

“TSXV” means the TSX Venture Exchange.

Representations

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

1.             the Filer is a corporation governed by the Canada Business Corporations Act;

2.             the head office of the Filer is located in Richmond, British Columbia;

3.             the Filer is a reporting issuer in all of the provinces and territories of Canada, except for Québec and Nunavut, and is not in default of any requirement of the securities legislation in any of these jurisdictions or the policies of the TSXV;

4.             Canada Jetlines Operations Ltd. (CJL Operations), a wholly-owned subsidiary of the Filer, has applied to the Canada Transportation Agency for a domestic license (as defined in the CTA) for the purposes of operating an ultra-low cost carrier airline;

5.             CJL Operations is subject to the requirements of the CTA; the CTA requires that air carriers which provide domestic services be controlled in fact by Canadians, and prohibits non-Canadians from holding or controlling more than 25% of the voting interests of a licensed domestic carrier;

6.             the Filer and CJL Operations requested and received, on December 2, 2016, an order (the Exemption Order) exempting CJL Operations from the requirement to be Canadian in order to be issued a license to operate and to conduct a domestic air service, provided that:

(a)           at all times, at least 51% of the voting interest of CJL Operations are owned by Canadians;

(b)           no single foreign investor or its affiliates owns more than a 25% voting interest in CJL Operations;

(c)           no non-Canadian air carrier or its affiliates owns more than a 25% voting interest in CJL Operations;

(d)           at all times CJL Operations is controlled in fact by Canadians; and

(e)           at the end of the term of the Exemption Order, CJL Operations conforms to the legislative framework regarding the ownership of Canadian air carriers then in effect;

7.             unless rescinded, the Exemption Order expires on December 1, 2021;

8.             the foreign ownership rules in the CTA apply equally to the Filer, as the parent company of CJL Operations; accordingly, voting control of the Filer must be in compliance with the terms of the Exemption Order which would restrict non-Canadian voting interest in the Filer to 49%, subject to the conditions noted in paragraph 6;

9.             the authorized share capital of the Filer is comprised of an unlimited number of Variable Voting Shares and an unlimited number of Common Shares; as of March 31, 2017; there were 57,636,409 Shares outstanding, of which 7,694,694 (or approximately 13.4%) were Variable Voting Shares and 49,941,715 (or approximately 86.6%) were Common Shares;

10.          the Common Shares may only be held, beneficially owned or controlled, directly or indirectly, by Canadians; an outstanding Common Share is converted into one Variable Voting Share, automatically and without any further act of the Filer or the holder, if such Common Share becomes held, beneficially owned or controlled, directly or indirectly, by a person who is not a Canadian;

11.          the Variable Voting Shares may only be held, beneficially owned or controlled, directly or indirectly, by persons who are not Canadians; an outstanding Variable Voting Share is converted into one Common Share, automatically and without any further act of the Filer or the holder, if such Variable Voting Share becomes held, beneficially owned or controlled, directly or indirectly, by a Canadian;

12.          each Common Share confers the right to one vote; for the term of the Exemption Order, each Variable Voting Share confers the right to one vote unless: (i) the number of Variable Voting Shares outstanding, as a percentage of the total number of all Shares of the Filer outstanding exceeds 49%, or (ii) the total number of votes cast by holders of Variable Voting Shares at any meeting exceeds 49% of the total number of votes that may be cast at such meeting; if either of these thresholds would otherwise be surpassed at any time, the vote attached to each Variable Voting Share decreases proportionately such that: (i) the Variable Voting Shares as a class do not carry more than 49% of the aggregate votes attached to all outstanding Shares of the Filer, and (ii) the total number of votes cast by holders of Variable Voting Shares at any meeting do not exceed 49% of the total number of votes that may be cast at such meeting; after the expiration of the Exemption Order, references to “49%” in the foregoing are to be read as “25%” (or any higher percentage that the Governor in Council may specify under the CTA);

13.          aside from the differences in voting rights stated above, the Variable Voting Shares and Common Shares are the same in all other respects, including the right to receive dividends and the right to receive the property and assets of the Filer in the event of dissolution, liquidation or winding up of the Filer;

14.          the articles of the Filer contain coattail provisions under which Variable Voting Shares may be converted into Common Shares if an offer is made to purchase Common Shares and the offer is one which is required to be made to all or substantially all the holders of Common Shares; similar coattail provisions are contained in the terms of the Common Shares and provide for the conversion of Common Shares into Variable Voting Shares if an offer is made to purchase Variable Voting Shares and the offer is one which is required to be made to all or substantially all the holders of Variable Voting Shares; since these coattail provisions currently do not specify the threshold at which the offer is required to be made to all the holders of a class of Shares, they do not need to be amended as a result of the decision to grant the Exemption Sought;

15.          the Variable Voting Shares and the Common Shares are both listed for trading on the TSXV under the same ticker symbol, “JET”;

16.          the Filer’s dual class structure was implemented solely to ensure compliance with the requirements of the CTA;

17.          an investor does not control or choose which class of Shares it acquires and holds; there are no unique features of either class of Shares which an existing or potential investor can choose to acquire, exercise or dispose of; the class of Shares ultimately available to an investor is solely a function of the investor’s Canadian or non-Canadian status; moreover, if after having acquired Shares, a holder’s Canadian or non-Canadian status changes, the Shares will convert accordingly and automatically;

18.          the Variable Voting Shares are not considered “restricted voting securities” for the purposes of the Legislation; and

19.          the TOB Rules and early warning requirements apply to the acquisition of securities of a class; due to the significantly smaller public float of Variable Voting Shares (compared to the public float of Common Shares), it is more difficult for non-Canadian investors to acquire Shares in the ordinary course without the apprehension of inadvertently triggering the TOB Rules and early warning requirements; aggregating Variable Voting Shares and Common Shares for the purpose of the TOB Rules and early warning requirements would facilitate investment in Variable Voting Shares.

Decision

4              Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.

The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted provided that:

(a)           the Filer publicly discloses the terms of the Exemption Sought in a news release filed on SEDAR promptly following the issuance of this decision document;

(b)           the Filer discloses the terms and conditions of the Exemption Sought in all of its annual information forms and management proxy circulars filed on SEDAR following the issuance of this decision document;

(c)           with respect only to the TOB Relief, the Variable Voting Shares or Common Shares, as the case may be, subject to the offer to acquire of an offeror, together with the Variable Voting Shares and Common Shares beneficially owned, or over which control or direction is exercised, on the date of the offer to acquire, by the offeror or by any person acting jointly or in concert with the offeror, would not constitute, at the date of the offer to acquire, in the aggregate 20% or more of the outstanding Variable Voting Shares and Common Shares on a combined basis;

(d)           with respect only to the Early Warning Relief, the Variable Voting Shares or Common Shares, or securities convertible into such shares, as the case may be, over which the acquiror acquires beneficial ownership of, or the power to exercise control or direction over, together with the securities of the Filer beneficially owned, or over which control or direction is exercised, by the acquiror or any person acting jointly or in concert with the acquiror, would not constitute 10% or more of the outstanding Variable Voting Shares and Common Shares on a combined basis;

(e)           with respect only to the News Release Relief, the Variable Voting Shares or Common Shares, or securities convertible into such shares, as the case may be, over which the acquiror acquires beneficial ownership of, or the power to exercise control or direction over, together with the securities of the Filer beneficially owned, or over which control or direction is exercised, by the acquiror or any person acting jointly or in concert with the acquiror, would not constitute 5% or more of the outstanding Variable Voting Shares and Common Shares on a combined basis;

(f)            with respect only to the Alternative Monthly Reporting Criteria, the eligible institutional investor will meet any of the eligibility criteria contained in section 4.5 of NI 62-103 by calculating its securityholding percentage using (i) a denominator comprised of all of the outstanding Variable Voting Shares and Common Shares on a combined basis, and (ii) a numerator including all of the Variable Voting Shares and Common Shares, as the case may be, beneficially owned or over which control or direction is exercised by the eligible institutional investor; and

(g)           with respect only to the Alternative Disclosure Requirements, the Filer will meet the disclosure requirements contained in Item 6.5 of Form 51-102F5 by calculating the securityholding percentage using (i) a denominator comprised of all of the outstanding Variable Voting Shares and Common Shares on a combined basis, and (ii) a numerator including all of the Variable Voting Shares and Common Shares, as the case may be, beneficially owned, or over which control or direction is exercised, directly or indirectly, by any person who, to the knowledge of the Filer’s directors or executive officers, beneficially owns, controls or directs, directly or indirectly, voting securities carrying 10% or more of the voting rights attached to the outstanding Variable Voting Shares and Common Shares on a combined basis.

“Nigel P. Cave”
Vice Chair
British Columbia Securities Commission