CANADA SUPERIOR COURT (COMMERCIAL DIVISION) PROVINCE OF QUEBEC DISTRICT OF MONTREAL No: 500-11- IN THE MATTER OF THE PROPOSED ARRANGEMENT PURSUANT TO SECTION 192 OF THE CANADA BUSINESS CORPORATIONS ACT, R.C.S. 1985, c. C-44 AS AMENDED (THE "CBCA ") AIR CANADA, a legal person duly constituted under the CBCA, having its registered and head office at 7373 Côte -Vertu Boulevard West, Saint- Laurent, Quebec, H4S 1Z3 Petitioner -and- THE DIRECTOR, appointed pursuant to article 260 of the CBCA, having a place of business at 235 Queen Street, Ottawa, Ontario, K1A OH5 Impleaded Party MOTION FOR INTERIM AND FINAL ORDERS WITH RESPECT TO AN ARRANGEMENT (SECTION 192 OF THE CANADA BUSINESS CORPORATIONS ACT) TO ONE OF THE JUDGES OF THE SUPERIOR COURT OF THE PROVINCE OF QUEBEC, SITTING IN COMMERCIAL DIVISION IN AND FOR THE DISTRICT OF MONTREAL, THE PETITIONER RESPECTFULLY SUBMITS AS FOLLOWS: Basis for this Motion: 1. The Applicant, Air Canada ( "Air Canada" or the "Corporation "), requests that this Honourable Court consider and approve a proposed plan of arrangement (the "Arrangement ") that Air Canada seeks to implement pursuant to section 192 of the Canada Business Corporations Act, RSC 1985, c C-44, as amended (the "CBCA"). 2. Air Canada is a corporation continued under the CBCA on August 25, 1988 and has a registered office in Saint-Laurent, Québec as appears from a copy of the corporate registry filed herewith as Exhibit P-1. 3. Air Canada is an air carrier that holds a domestic service operating license pursuant to the Canada Transportation Act, SC 1996, c 10 (the "CTA"). Air Canada is a reporting issuer pursuant to the securities laws of each province of Canada.
Transcript
CANADA SUPERIOR COURT (COMMERCIAL DIVISION)
PROVINCE OF QUEBEC DISTRICT OF MONTREAL No: 500-11-
IN THE MATTER OF THE PROPOSED ARRANGEMENT PURSUANT TO SECTION 192 OF THE CANADA BUSINESS CORPORATIONS ACT, R.C.S. 1985, c. C-44 AS AMENDED (THE "CBCA ")
AIR CANADA, a legal person duly constituted under the CBCA, having its registered and head office at 7373 Côte-Vertu Boulevard West, Saint-Laurent, Quebec, H4S 1Z3
Petitioner
-and-
THE DIRECTOR, appointed pursuant to article 260 of the CBCA, having a place of business at 235 Queen Street, Ottawa, Ontario, K1A OH5
Impleaded Party
MOTION FOR INTERIM AND FINAL ORDERS WITH RESPECT TO AN ARRANGEMENT
(SECTION 192 OF THE CANADA BUSINESS CORPORATIONS ACT)
TO ONE OF THE JUDGES OF THE SUPERIOR COURT OF THE PROVINCE OF QUEBEC, SITTING IN COMMERCIAL DIVISION IN AND FOR THE DISTRICT OF MONTREAL, THE PETITIONER RESPECTFULLY SUBMITS AS FOLLOWS:
Basis for this Motion:
1. The Applicant, Air Canada ( "Air Canada" or the "Corporation "), requests that this Honourable
Court consider and approve a proposed plan of arrangement (the "Arrangement") that Air
Canada seeks to implement pursuant to section 192 of the Canada Business Corporations Act,
RSC 1985, c C-44, as amended (the "CBCA").
2. Air Canada is a corporation continued under the CBCA on August 25, 1988 and has a registered
office in Saint-Laurent, Québec as appears from a copy of the corporate registry filed herewith as
Exhibit P-1.
3. Air Canada is an air carrier that holds a domestic service operating license pursuant to the
Canada Transportation Act, SC 1996, c 10 (the "CTA"). Air Canada is a reporting issuer pursuant
to the securities laws of each province of Canada.
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4. The purpose of the Arrangement is to amend Air Canada's articles of incorporation
(the "Articles") to ensure compliance with the recent amendments to the CTA (the "CTA
Amendments") and in order to allow it to benefit from the higher threshold of permitted non-
Canadian ownership and control.
5. The CTA Amendments increased the aggregate permitted holdings of voting interests by non-
Canadians from 25% to 49% (the "Aggregate Limit") but introduced 25% restrictions on holdings
of voting interests by single non-Canadians and by non-Canadian air carriers (the "Single
Limits"). The Articles do not permit Air Canada to take advantage of the increased Aggregate
Limit from 25% to 49% for permitted holdings of voting interests by non-Canadians. If Air Canada
amends its Articles to accommodate the increased Aggregate Limit, there is also currently
nothing in the Articles that would restrict the voting rights of an Single non-Canadian or non-
Canadian air service provider to 25%.
6. If Air Canada does not comply with the Aggregate Limit or Single Limits, the CTA requires that
the Canadian Transportation Agency (the "Agency") suspend Air Canada's domestic license.
Moreover, if Air Canada does not amend its Articles to reflect the increased Aggregate Limit from
25% to 49%, Air Canada will be unable to take advantage of the increased access to foreign
investment contemplated by the CTA Amendments. Accordingly, ensuring Air Canada's Articles
reflect the CTA Amendments is of considerable importance to Air Canada and the public more
generally.
7. Air Canada currently has two classes of outstanding shares, class A variable voting shares (the
"Variable Voting Shares") and class B voting shares (the "Voting Shares") (the Variable Voting
Shares and the Voting Shares being collectively the "Shares"). Pursuant to the Arrangement, the
Variable Voting Shares will be amended to increase the aggregate permitted holdings of voting
interests by non-Canadians from 25% to 49%, in compliance with the Aggregate Limits set by
CTA Amendments and introduce new 25% restrictions required by the CTA's Single Limits on
holdings of voting interests by single non-Canadians and by non-Canadian air carriers.
Orders Sought:
8. In connection with the Arrangement, Air Canada is hereby seeking the following orders from the
Court:
(a) As a first step, an interim order (the "Interim Order") providing among other things:
(i) A declaration that the time for filing and service of this Motion and the Affidavit of
David Perez, sworn on February 14, 2019, may be abridged, if necessary;
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(ii) For the classes of persons to whom notice is to be provided in respect of the
Arrangement and the annual and special meeting of the registered holders of the
Shares (the "Meeting") and for the manner in which such notice is to be provided;
(iii) Pursuant to s. 134(2)(a) CBCA, for the confirmation of the record date to determine
the holders of the Air Canada Shares (the "Shareholders") who shall be entitled to
notice and to for at the Meeting ("Record Date");
(iv) That the required level of approval of the resolution approving the Arrangement (the
"Arrangement Resolution") shall be not less than 66 2/3% of the votes cast by
Shareholders, present in person or represented by proxy, at the Meeting;
(v) That subject to the foregoing, and in all other respects, the terms and restrictions and
conditions of Air Canada's Articles and By-Laws, including quorum requirements and
all other matters, shall apply in respect of the Meeting;
(vi) For the return of this Motion including notice requirements with respect to the
presentation of the Motion to the Court for a final order; and
(vii) For such other matters as may be required for the proper consideration of the
Arrangement.
(b) As a second step, if the Arrangement Resolution is duly adopted, a final order (the "Final
Order"):
(i) deeming service of notice of this Motion, the notice in respect of the Meeting, and the
Interim Order good and sufficient;
(ii) declaring that the terms and conditions of the Arrangement, and the procedures
relating thereto, are compliant with the CBCA and that they are fair and reasonable to
the Shareholders and other affected parties, both from a substantive and procedural
point of view;
(iii) approving the Arrangement pursuant to section 192 of the CBCA and the terms and
conditions of the Arrangement; and
(iv) permitting Air Canada to seek leave to vary the Final Order at any time prior to filing
the Articles of Arrangement or to seek advice and directions as to the implementation
of the Final Order.
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Description of Air Canada:
9. Air Canada currently has two classes of outstanding shares, the Variable Voting Shares and
Voting Shares. In order to comply with the foreign-ownership restrictions contained in the CTA
prior to the CTA Amendments, Air Canada's Articles require that only Canadians are to hold and
exercise control or direction over Voting Shares and only non-Canadians are to hold and exercise
control over Variable Voting Shares. The Articles contain provisions that cause an automatic
conversion of Voting Shares held by non-Canadians into Variable Voting Shares (and vice versa).
10. The Articles include a provision that reduces the voting power of the Variable Voting Shares to
25% of the aggregate votes attached to all outstanding Shares "or any higher percentage that the
Governor in Council may by regulation specify". If the number of Variable Voting Shares exceeds
25% of the total number of Shares or if the votes cast at a meeting exceed 25% of the total votes
cast, then the collective number of votes associated with all Variable Voting Shares as a class is
reduced to 25%, with the voting rights of such shareholders being reduced on a pro rata basis.
11. Effective November 3, 2014, Air Canada's Voting Shares and Variable Voting Shares were listed
for trading on the Toronto Stock Exchange ("TSX") under the single ticker "AC". Effective July 29,
2016, Air Canada's Variable Voting Shares and Voting Shares were listed for trading on OTCQX
International Premier in the United States under the single ticker symbol "ACDVF".
12. Air Canada is the largest provider of scheduled passenger services in the Canadian market, the
Canada-U.S. transborder market and in the international market to and from Canada. In 2017, Air
Canada, together with Jazz Aviation LP, Sky Regional Airlines Inc. and other regional airlines
operating flights on behalf of Air Canada under capacity purchase agreements, operated, on
average, 1,602 daily scheduled flights to 217 direct destinations on six continents, comprised of
64 Canadian cities, 57 destinations in the United States and a total of 96 cities in Europe, Africa,
the Middle East, Asia, Australia, the Caribbean, Mexico and South America. In 2017, Air Canada
carried a record 48.1 million passengers, an increase of 7.3% from 2016.
13. As a provider of domestic services, in 2017, Air Canada, together with its contracted carriers,
provided the largest network and most extensive product offering in Canada, with scheduled
direct passenger service to 64 Canadian destinations.
14. At December 31, 2017, Air Canada mainline operated a fleet of 175 aircraft, comprised of 75
Airbus narrow-body aircraft, 73 Boeing and Airbus wide-body aircraft, two Boeing narrow-body
aircraft and 25 Embraer 190 regional jets, while Air Canada Rouge operated a fleet of 49 aircraft,
comprised of 20 Airbus A319, five Airbus A321 and 24 Boeing 767-300 aircraft, for a total fleet of
224 aircraft.
15. Air Canada generates revenue from its cargo business, operating as Air Canada Cargo,
Canada's largest provider of air cargo services as measured by cargo capacity. Air Canada
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Cargo provides direct cargo services to over 150 Canadian, U.S. transborder and international
destinations and has sales representation in over 50 countries. Air cargo services are provided
across the Air Canada network.
16. Air Canada's hubs are located in Toronto, Vancouver, and Montréal, each of which provides
extensive access to domestic, transborder and international markets. Toronto Pearson
International Airport is the largest hub in Canada and a significant airline origin and destination
market in North America. In 2017, Air Canada, together with its contracted carriers, operated, on
average: 360 daily departures from Toronto, 159 daily departures from Montréal, and 156 daily
departures from Vancouver.
Background to the Arrangement:
17. A general summary of the background and reasons for the Arrangement is provided below. The
background and business rationale for the Arrangement is described more completely in the draft
Arrangement disclosure (the "Arrangement Disclosure") which is an extract from the Notice of
2019 Annual and Special Meeting of Shareholders and Management Proxy Circular (the
"Circular"), filed herewith as Exhibit P-2. The balance of the Circular relates primarily to routine
annual meeting matters to be addressed at the Meeting as prescribed by corporate and securities
laws. These routine sections in the circular remain to be completed. However, the po rt ions of the
circular relevant to the Arrangement are included in the Arrangement Disclosure.
18. In May 2018, the Transportation Modernization Act, SC 2018, c 10 (the "TMA") received Royal
Assent. The TMA made ce rtain amendments to the definition of "Canadian" in section 55(1) of
the CTA (the "CTA Amendments"). With respect to Canadian corporations, the CTA
Amendments increased the Aggregate Limit for permitted holdings of voting interests by non-
Canadians from 25% to 49% and also introduced new 25% Single Limits on holdings of voting
interests by single non-Canadians and non-Canadian air carriers.
19. If Air Canada does not comply with the Aggregate Limit or the Single Limits, the Agency is
required to suspend Air Canada's domestic license.
20. The proposed amendments to the Articles contemplated by the Arrangement were provided to
staff of the Agency on January 8, 2019. The Agency is an independent, quasi-judicial tribunal
and regulator of the Government of Canada that makes decisions relating to federally-regulated
modes of transportation, including oversight of the ongoing compliance by licenced air service
providers with the requirement that such air service providers maintain Canadian status in
accordance with the CTA. Following discussions with the Agency, on February 4, 2019, staff of
the Agency confirmed that it had completed its review of the proposed amendments and were of
the opinion that the proposed amendments would not affect the Canadian status of Air Canada
should the amendments be adopted by Air Canada.
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21. As of September 30, 2018, there are 155,014,869 Variable Voting Shares issued and outstanding
and 117,765,095 Voting Shares issued and outstanding, totalling 272,779,964 issued and
outstanding Shares. In addition, based on publicly available filings, the only shareholder holding
greater than 10% of the outstanding Air Canada Voting Shares is Letko, Brosseau & Associates
Inc., an independent investment manager, who holds 33,782,314 Voting Shares amounting to
12.4% of all of Air Canada's issued and outstanding Shares. Based on the foregoing, there is
currently no Shareholder that would exceed the Single Limits.
The Arrangement
22. Pursuant to the Arrangement, Air Canada's Articles will be amended to modify the Aggregate
Limit and add an Single Limit to the Variable Voting Shares. The full text of the Arrangement is
attached as Appendix C to Exhibit P-2;.
23. In general, it is proposed that the Arrangement would amend Air Canada's Articles to ensure that
Air Canada complies with applicable requirements under the CTA that:
(i) At least 51% of the voting interests in Air Canada are owned and controlled by
Canadians;
(ii) no more than 25% of the voting interests in Air Canada are owned directly or
indirectly by any single non-Canadian, either individually or in affiliation with another
person; and
(iii) no more than 25% of the voting interests in Air Canada are owned directly or
indirectly by one or more non-Canadians authorized to provide an air service in any
jurisdiction, either individually or in affiliation with another person.
The foregoing requirements are described further in paragraph 26 of this Motion.
24. The proposed amendments to the Articles will increase the current aggregate 25% pro rata voting
limitation for non-Canadian holders of Variable Voting Shares to 49%.
25. The proposed amendments will also add two additional 25% limits. The first applies to any single
non-Canadian holder, either individually or in affiliation with another person. The second applies
to the aggregate of all non-Canadian air service providers, either individually or in affiliation with
any other persons. In other words, the amendments provide that, if a single non-Canadian
shareholder (or affiliated shareholders) or air service provider (or affiliated shareholders) acquires
25% or more of the Voting Shares, the voting rights of that shareholder or group of shareholders
would be limited to 25%, and may in fact be further reduced on a per share basis if the aggregate
foreign ownership exceeds 49%.
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26. To address these limits, the proposed amendments to the Articles would allow for three
categories of non-Canadians and the automatic and proportionate reduction of the voting rights
attached to their Variable Voting Shares in the event any of the applicable limits are exceeded, as
follows:
(i) first, if required, a reduction of the voting rights of any single non-Canadian holder
(including a single non-Canadian air service provider) carrying more than 25% of the
votes to ensure that such non-Canadian holder never carries more than 25% of the
votes that holders of Air Canada's Shares cast at any meeting of Air Canada's
Shareholders;
(ii) second, if required and after giving effect to the first proration set out above, a further
proportional reduction of the voting rights of all non-Canadian holders authorized to
provide air service to ensure that such non-Canadian holders authorized to provide
air service, in the aggregate, never carry more than 25% of the votes that holders of
Air Canada's Shares cast at any meeting of Shareholders; and
(iii) third, if required and after giving effect to the first two prorations set out above, a
proportional reduction of the voting rights for all non-Canadian holders as a class to
ensure that non-Canadians never carry, in aggregate, more than 49% of the votes
that holders of Air Canada's Shares cast at any meeting of Shareholders.
27. The following procedural steps must occur in order for the Arrangement to become effective:
(i) The Arrangement Resolution must be approved by the Shareholders at the Meeting;
(ii) The Court must grant the Final Order approving the Arrangement;
(iii) All conditions precedent to the Arrangement, as set forth therein, must be satisfied or
waived by the appropriate Party; and
(iv) The Final Order, the Articles of Arrangement and related documents, in the form
prescribed by the CBCA, must be filed with the Director.
28. Pursuant to the Arrangement, each of the events set out below shall occur and shall be deemed
to occur in the following order commencing at the Effective Time (as defined in the
Arrangement), without any further act or formality:
(a) Schedule A of the Corporation's Articles shall be amended and replaced, and shall be
deemed to be amended and replaced, with the form of Schedule A attached to the Plan
of Arrangement as Exhibit I, to, among other things, modify the rights attached to the
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Shares in order to reflect the definition of "Canadian" in Section 55(1) of the CTA as
amended pursuant to The Transportation Modernization Act (Bill C-49).
(b) the Articles of Arrangement in the form attached as Exhibit I to the Plan of Arrangement
shall be adopted and the Corporation's A rt icles shall be amended accordingly; and
(c) the Corporation shall be authorized to amend the declaration and any form or other
document to be completed from time to time by Shareholders to determine their status as
Canadian, non-Canadian, Single Non-Canadian Holder and Non-Canadian Holder
Authorized to Provide Air Service (as defined in the Plan of Arrangement) and to
determine whether the Shareholder holds, is the beneficial owner of or has control over
any Shares and whether the Shareholder is in affiliation with any Single Non-Canadian
Holder or with any Non-Canadian Holder Authorized to Provide Air Service, and, in any
such circumstance, the identity of such affiliated Shareholders, and declaring any further
facts that the Corporation considers relevant, such amendments to be made in
accordance with the authority granted to the directors in the Corporation's Articles by way
of the Articles of Arrangement.
Fairness of the Arrangement
29. The Board of directors of Air Canada recommends that Shareholders vote in favour of the
Arrangement Resolution. In making its determination, the Board considered and relied upon a
number of substantive factors including the following factors described herein.
30. The purpose of the Arrangement is to update the A rticles to ensure compliance with the CTA
Amendments in a way that achieves Parliament's objectives for the enactment of the CTA
Amendments and is in the best interest of Air Canada and its Shareholders.
31. Parliament's objective in enacting the CTA Amendments was to increase foreign investment in
the Canadian air industry while maintaining Canadian control of Canadian air carriers. The
Arrangement is the most effective way for Air Canada to meet this objective and also comply with
the CTA's foreign ownership requirements.
32. While the Articles currently include restrictions on voting power by non-Canadians on an
aggregate basis. They are based on the past 25% limit. Furthermore, the A rticles do not contain
any restrictions that correspond to the new Single Limits.
33. The Arrangement will ensure that Air Canada can avail itself of the higher permitted Aggregate
Limit while complying with the new Single Limits as required by the CTA Amendments.
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34. By allowing Air Canada to increase the Aggregate Limit from 25% to 49% for Non-Canadian
Shareholders, Air Canada will have access to greater foreign investment while ensuring control
remains with the Canadian Shareholders.
35. An alternative to the Arrangement, which was considered and rejected by Air Canada for the
reasons specified below, would involve the creation of two additional classes of non-Canadian
voting shares. Specifically, this alternative would require the creation of a second class of
Variable Voting Shares for Single non-Canadian shareholders holding more than 25% of the total
number of Voting Shares, and a third class of Variable Voting Shares for non-Canadian air
carriers holding individually or together more than 25% of the total number of Voting Shares. The
voting interests attached to these additional classes would then be subject to the Single Limits.
36. This alternative would be detrimental to Air Canada and its Shareholders, and would be contrary
to Parliament's objectives in enacting the CTA Amendments, for at least three reasons:
(a) It is possible that the second and third classes of Variable Voting Shares would have few
if any holders at any particular time, which may present challenges in maintaining a listing
for those classes of shares on the TSX. Such a consequence would adversely impact Air
Canada. Maintaining one class of Variable Voting Shares, which would always be
subscribed, avoids this problem;
(b) The creation of three classes of Variable Voting Shares increases the risk that non-
Canadian shareholders will effectively have a veto in the context of future shareholder
votes, thereby giving increased control to foreign owners contrary to the CTA
Amendments; and
(c) Having four classes of voting shares would be unique in the Canadian capital markets
and could create confusion in the capital markets about Air Canada's capital structure.
Such confusion would be detrimental to Air Canada and contrary to the interests of
Shareholders, and could chill investment interest in Air Canada generally.
37. By proceeding by way of an arrangement ensures that certain procedural safeguards in
connection with the Arrangement, including:
(a) the required approval by 66 2/3% of the votes cast on the Arrangement Resolution by
Shareholders present in person or by proxy and entitled to vote at the Meeting; and
(b) the approval of the Arrangement by the Court, which will consider, among other things,
the fairness and reasonableness of the Arrangement to Shareholders.
38. Similar proceedings to this Motion have been or will be commenced before this honourable Court
by Air Transat A.T. and in other Canadian jurisdictions by other publically-traded Canadian
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airlines, namely WestJet Aviation Ltd. and Chorus Aviation Inc. The plans of arrangement
proposed by the other carriers are substantively the same as the Arrangement. Accordingly, Air
Canada and the other carriers are in agreement about the best way to proceed in light of the CTA
Amendments.
The Air Canada Shareholders Meeting
39. Air Canada proposes to hold the Meeting at 10:30 am (eastern time) on May 6, 2019, at Metro
Toronto Convention Center located at South Building, 222 Bremner Boulevard, Toronto, Ontario.
40. Air Canada intends to give notice of the Meeting by delivering or giving access, in the manner
hereinafter described and to the persons hereinafter specified, a copy of the Interim Order to be
rendered herein, together with the following documents, with non-substantial amendments thereto
as Air Canada my deem to be necessary or desirable, provided that such amendments are not
inconsistent with the Interim Order (collectively, the "Notice Materials"):
(a) the Notice of Meeting substantially in the same form as contained in Exhibit P-3;
(b) the Circular, which will include the Arrangement Disclosure and Appendices, substantially
in the same form as contained in Exhibit P-2; and
(c) the Form of Proxy
41. As permitted by Canadian securities regulators, Air Canada will use notice-and-access to deliver
the Notice of Meeting and Circular to both registered and non-registered shareholders. This
means that the Notice of Meeting and Circular will be posted online for Shareholders to access,
rather than being mailed out. Shareholders will receive a form of proxy in the mail (unless the
Shareholder has chosen to receive proxy materials electronically) but, instead of automatically
receiving a paper copy of the Notice of Meeting and Circular, Shareholders will receive a notice of
notice-and-access with information about how they can access those documents electronically
and how to request a paper copy.
42. A copy of the Notice Materials will be provided or made accessible to Air Canada's Shareholders,
directors, auditors and to the Director named pursuant to the CBCA in the manner and delays
further detailed in the conclusions of the Motion for Interim and Final Orders.
43. At the Meeting, the Shareholders, voting together as a single class, will be asked to consider and,
if deemed advisable, to pass the Arrangement Resolution the full text of which is filed herewith as
Appendix B to the Arrangement Disclosure Exhibit P-2.
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44. The Board of directors of Air Canada has fixed March 11, 2019 as the record date (the "Record
Date") for determining the Shareholders entitled to receive the Notice of Materials and to vote at
the Meeting.
45. Quorum shall be present at the Meeting if the holders of not less than 25% of the Shares entitled
to vote at the Meeting are present in person or represented by proxy, irrespective of the number
of persons actually at the Meeting. If a quorum is present at the opening of the Meeting, the
Shareholders present or represented by proxy may proceed with the business of the Meeting
notwithstanding that a quorum is not present throughout the Meeting.
46. The Shareholders will vote together as a single class. Each Voting Share will confer the right to
one vote per share. Each Variable Voting Share will confer the right to one vote per share unless:
(i) the number of Variable Voting Shares outstanding, as a percentage of the total number of
voting shares outstanding of Air Canada exceeds 25%, or (ii) the total number of votes cast by or
on behalf of holders of Variable Voting Shares at the Meeting exceeds 25% of the total number of
votes cast at such Meeting. If either of the above noted thresholds is otherwise surpassed at any
time, the vote attached to each Variable Voting Share will be decreased proportionately such that:
(i) the Variable Voting Shares as a class do not carry more than 25% of the aggregate votes
attached to all issued and outstanding Shares of Air Canada and (ii) the total number of votes
cast by or on behalf of holders of Variable Voting Shares at the Meeting does not exceed 25% of
the votes cast at the Meeting.
47. The Arrangement Resolution must be approved, with our without variation, by not less than
66 2/3% of the votes cast by the Air Canada Shareholders, present in person or represented by
proxy at the Meeting.
Reason for Supporting the Issuance of an Interim Order with Respect to the Proposed Arrangement
The Plan of Arrangement is an Arrangement
48. The Arrangement is an "arrangement" within the meaning of section 192 CBCA because Air
Canada proposes to effect a fundamental change in the nature of an arrangement, namely the
amendment of its articles pursuant to section 192(1)(a) CBCA.
Air Canada is not Insolvent
49. Air Canada is solvent as:
(a) It is able to pay its liabilities as they become due; and
(b) the realizable value of its assets is greater that the aggregate of its liabilities and stated
capital for all classes;
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as appears from a copy of the Annual Report for the year ended December 31, 2017 and the
Interim Unaudited Condensed Financial Statements and Notes for the Third Quarter of 2018, filed
in support hereof as Exhibit P-4.
Impracticability of Affecting the Arrangement in any other manner
50. For the reasons set out below, it is impracticable for the Arrangement to be completed using any
other provision of the CBCA other than the arrangement provisions of section 192 of the CBCA.
In particular:
(a) Utilizing the amendment provisions of section 173 ff. of the CBCA would import the
requirement that dissent rights be provided to Shareholders under section 190 of the
CBCA, which is not appropriate or necessary in the circumstances of the Arrangement
which results for a legislative change;
(b) Furthermore using the amendment provisions of section 173 ff. of the CBCA could give
rise to questions as to whether a class vote is required as a result of the changes being
made to the Variable Voting Shares. Giving non-Canadian shareholders a veto over the
Arrangement Resolution would be contrary to the objectives underlying the foreign
ownership restrictions in the CTA;
(c) The Arrangement is the most effective means of achieving Parliament's objectives for the
CTA Amendments to increase foreign ownership in Canadian air carriers while
simultaneously maintaining Canadian control of such carriers;
(d) The alternative mechanism of creating two new classes of non-Canadian voting shares in
order to regulate ownership relative to the Single Limits also introduces potential
considerations as to whether class votes would be provided to holders of shares within
such classes in the context of future proposed fundamental changes in the business and
affairs of Air Canada that require shareholder approval, including where a single non-
Canadian shareholder is the sole holder of shares issued and outstanding within such
newly created classes of shares. This result would create inappropriate and undesirable
leverage over corporate decision-making and could run contrary to the intent of the CTA
Amendments; and
(e) The creation within the Variable Voting Share class of three groups in order to ensure
compliance with the CTA's Aggregate and Single Limits may require the Court to
consider principles of equality of treatment within the class in the context of the CTA
Amendments. The Court hearing, both on at the interim and final stages, will allow the
Court to ensure that an appropriate balancing of the rights of all shareholders, in view of
the legislative requirements, has been achieved; and
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(f)
The Arrangement contemplates a number of interrelated steps which must occur at
precice times and in a specific sequence.
Dissent Rights and Single Voting Class
51. Pursuant to the Interim Order, registered holders of Variable Voting Shares and Voting Shares
would not be provided dissent rights on the basis that the proposed amendments to the Articles
are being undertaken solely to facilitate compliance by Air Canada with the CTA Amendments
and that the economic rights of such holders are not affected. As a result, providing dissent rights
is not appropriate or necessary, nor would it be in the best interests of Air Canada.
52. For the same reasons, pursuant to the Interim Order, holders of Voting Shares and Variable
Voting Shares would vote as a single class in respect of the Arrangement Resolution.
Good Faith and Fairness
53. Air Canada is presenting the present Motion and the Arrangement in good faith.
54. The Arrangement is fair and reasonable to the Shareholders and all other affected persons.
55. For the reasons detailed in the present Motion, Air Canada submits that the Arrangement has a
valid business purpose and resolves in a fair and reasonable way the objections, if any, of those
whose legal rights are being arranged.
Notice to the Director Appointed under the CBCA
56. On February 8, 2019, Air Canada's counsel notified the Director appointed under the CBCA of the
presentation of the Motion before this Court on February 15, 2019 or at any other date fixed by
this honourable Court and provided him with draft Notice Materials.
57. Air Canada will submit at the time of hearing on the Interim Order the correspondence from the
Director appointed under the CBCA indicating whether he has any comments on the proposed
Arrangement and whether he intends to appear before the Court for the issuance of the Interim
Order sought herein.
Notice of Final Hearing and Final Order
58. Air Canada proposes to hold the hearing with respect to the Final Order sought herein on May 8,
2019 or at any other date fixed by this honourable Court.
59. A Notice of Presentation advising Shareholders of the date and time of the hearing will be
included in the Circular, as more fully appears from a draft Notice of Presentation of Motion for
Final Order attached as Appendix F to the Arrangement Disclosure, Exhibit P-2.
60. The present Motion is well founded in fact and it law.
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FOR THESE REASONS, MAY IT PLEASE THE COURT TO:
AT THE INTERIM STAGE:
[1] GRANT the Interim Order sought in the Motion;
[2] DISPENSE Air Canada of the obligation, if any, to notify any person other than the Director
appointed pursuant to the CBCA with respect to the Interim Order;
[3] ORDER that all Shareholders be deemed parties, as Impleaded Parties, to the present
proceedings and be bound by the terms of any Order rendered herein;
The Meeting
[4] ORDER that Air Canada may convene, hold and conduct the Meeting on May 6, 2019,
commencing at 10:30 am (Montréal time) at the following location, Metro Toronto Convention
Center located at South Building, 222 Bremner Boulevard, Toronto, Ontario, at which time the
Shareholders will be asked, among other things, to consider and, if thought appropriate, to pass,
with or without variation, the Arrangement Resolution substantially in the form set forth in
Appendix B of the Arrangement Disclosure (Exhibit P-2) to, among other things, authorize,
approve and adopt the Arrangement, and to transact such other business as may properly come
before the Meeting, the whole in accordance with the terms, restrictions and conditions of the
articles and by-laws of Air Canada, the CBCA, and this Interim Order, provided that to the extent
there is any inconsistency between this Interim Order and the terms, restrictions and conditions of
the articles and by-laws of Air Canada or the CBCA, this Interim Order shall govern;
[5] ORDER that in respect of the vote on the Arrangement Resolution or any matter determined by
the Chair of the Meeting to be related to the Arrangement, each registered holder of Shares shall
be entitled to cast one vote in respect of each such Share held;
[6] ORDER that the Shareholders will vote together as a single class. Notwithstanding paragraph 5
of the present Interim Order, each Variable Voting Share will confer the right to one vote per
share unless: (i) the number of Variable Voting Shares outstanding, as a percentage of the total
number of voting shares outstanding of Air Canada exceeds 25%, or (ii) the total number of votes
cast by or on behalf of holders of Variable Voting Shares at the Meeting exceeds 25% of the total
number of votes cast at such Meeting. If either of the above noted thresholds is otherwise
surpassed at any time, the vote attached to each Variable Voting Share will be decreased
proportionately such that: (i) the Variable Voting Shares as a class do not carry more than 25% of
the aggregate votes attached to all issued and outstanding Shares of Air Canada and (ii) the total
number of votes cast by or on behalf of holders of Variable Voting Shares at the Meeting does not
exceed 25% of the votes cast at the Meeting;
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[7]
ORDER that quorum shall be present at the Meeting if the holders have not less than 25% of the
Shares entitled to vote at the Meeting are present in person or represented by proxy, irrespective
of the number of persons actually at the Meeting. If a quorum is present at the opening of the
Meeting, the Shareholders present or represented by proxy may proceed with the business of the
Meeting notwithstanding that a quorum is not present throughout the Meeting;
[9] ORDER that the only persons entitled to attend, be heard or vote at the Meeting (as it may be
adjourned or postponed) shall be the registered Shareholders at the close of business on the
Record Date (March 11, 2019), their proxy holders, and the directors and advisors of Air Canada,
provided however that such other persons having the permission of the Chair of the Meeting shall
also be entitled to attend and be heard at the Meeting;
[9] ORDER that for the purpose of the vote on the Arrangement Resolution, or any other vote taken
by ballot at the Meeting, any spoiled ballots, illegible ballots and defective ballots shall be deemed
not to be votes cast by Shareholders and further ORDER that proxies that are properly signed
and dated but which do not contain voting instructions shall be voted in favour of the Arrangement
Resolution;
[10] ORDER that Air Canada, if it deems it advisable, be authorized to adjourn or postpone the
Meeting on one or more occasions (whether or not a quorum is present), without the necessity of
fi rst convening the Meeting or first obtaining any vote of Shareholders respecting the adjournment
or postponement; further ORDER that notice of any such adjournment or postponement shall be
given by press release, newspaper advertisement or by mail, as determined to be the most
appropriate method of communication by Air Canada; further ORDER that any adjournment or
postponement of the Meeting will not change the Record Date for Shareholders entitled to notice
of, and to vote at, the Meeting and further ORDER that any subsequent reconvening of the
Meeting, all proxies will be voted in the same manner as the proxies would have been voted at
the original convening of the Meeting, except for any proxies that have been effectively revoked
or withdrawn prior to the subsequent reconvening of the Meeting;
[11] ORDER that that Air Canada may amend the Arrangement at any time, provided that each such
amendment must be set out in writing and filed with the Court. Further, ORDERS that:
(a) Any amendment, modification or supplement to the Plan of Arrangement may be made
prior to the Effective Time by Air Canada without the approval of the Court or of the
Shareholders, provided that it concerns a matter which, in the reasonable opinion of Air
Canada, is of an administrative nature required to better give effect to the implementation
of the Arrangement or is not adverse to the financial or economic interests of any
Shareholders.
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(b) Subject to paragraph (a) above, any amendment to the Arrangement may be proposed
by Air Canada at any time prior to or at the Meeting with or without any other prior notice
or communication to Shareholders, and if so proposed and accepted by the persons
voting at the Meeting, shall become part of the Arrangement for all purposes.
(c) Subject to paragraph (a) above, Air Canada may amend, modify and/or supplement the
Arrangement at any time and from time to time after the Meeting and prior to the Effective
Time with the approval of the Court, and, if and as required by the Court, after
communication to Shareholders.
(d) This Plan of Arrangement may be withdrawn and Air Canada may not proceed with this
Plan of Arrangement prior to the Effective Time in accordance with the Arrangement
Resolution.
[12] ORDER that Air Canada is authorized to use proxies at the Meeting; that Air Canada is
authorized, at its expense, to solicit proxies on behalf of its management, directly or through its
officers, directors and employees, and through such agents or representatives as it may retain for
that purpose, and by mail or such other forms of personal or electronic communication as it may
determine; and that Air Canada may waive, in its discretion, the time limits for the deposit of
proxies by the Shareholders if it considers it advisable to do so;
[13] ORDER that, to be effective, the Arrangement Resolution, with or without variation, must be
approved by the affirmative vote of not less than 66 2/3 at a minimum percent of the total votes
cast on the Arrangement Resolution by the Shareholders present in person or by proxy at the
Meeting and entitled to vote at the Meeting; and further ORDER that such vote shall be sufficient
to authorize and direct Air Canada to do all such acts and things as may be necessary or
desirable to give effect to the Arrangement and the Plan of Arrangement on a basis consistent
with what has been disclosed to the Shareholders in the Notice Materials (as this term is defined
below);
The Notice Materials
[14] ORDER that Air Canada shall give notice of the Meeting, and that service of the Motion for a
Final Order shall be made by giving access, in the manner hereinafter described and to the
persons hereinafter specified, a copy of this Interim Order, together with the following documents,
with such non-material amendments thereto as Air Canada may deem to be necessary or
desirable, provided that such amendments are not inconsistent with the terms of this Interim
Order (collectively, the "Notice Materials"):
(a) the Notice of Meeting substantially in the same form as contained in Exhibit 3;
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(b) the Circular which will include the Arrangement Disclosure substantially in the same form
as contained in Exhibit P-2;
(c) an Arrangement Resolution substantially in the same for as contained in Appendix B to
Exhibit 2;
(d) a Form of Proxy;
(e) a notice substantially in the form of the draft filed as Exhibit F to Exhibit P-2 providing,
among other things, the date, time and room where the Motion for a Final Order will be
heard, and that a copy of the Motion can be found on Air Canada's Web site (the "Notice
of Presentation");
[15] ORDER that the Notice Materials shall be distributed :
(a) to the registered Shareholders and to the non-registered Shareholders by mailing (unless
the Shareholder has chosen to receive proxy materials electronically) a notice of notice-
and-access and the proxy form at least twenty-one (21) days prior to the date of the
Meeting;
(b) to the registered Shareholders and to the non-registered Shareholders by using notice-
and-access to deliver the Notice of Meeting and Circular whereby these documents will
be posted online for Shareholders to access.
(c) to Air Canada's directors and auditors, by delivering same at least twenty-one (21) days
prior to the date of the Meeting in person, by recognized courier service, by email or by
notice-and-access; and
(d) to the Director appointed pursuant to the CBCA, by delivering same at least twenty-one
(21) days prior to the date of the Meeting in person, by recognized courier service or by
email;
[16] ORDER that a copy of the Motion be posted on Air Canada's website (www.aircanada.com ) at
the same time the notice of notice-and-access is mailed;
[17] ORDER that the Record Date for the determination of Shareholders entitled to receive the Notice
Materials and to attend and be heard at the Meeting and vote on the Arrangement Resolution
shall be the close of business (Montreal time) on March 11, 2019;
[18] ORDER that Air Canada may make, in accordance with this Interim Order, such additions,
amendments or revision to the Notice Materials as it determines to be appropriate (the
"Additional Materials"), which shall be distributed to the persons entitled to receive the Notice
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Materials pursuant to this Interim Order by the method and in the time determined by Air Canada
to be most practicable in the circumstances;
[19] DECLARE that the mailing, delivery or access of the Notice Materials and any Additional
Materials in accordance with this Interim Order as set out above constitutes good and sufficient
notice of the Meeting upon all persons, and that no other form of service of the Notice Materials
and any Additional Materials or any portion thereof, or of the Motion need be made, or notice
given or other material served in respect of the Meeting to any persons;
[20] ORDER that the Notice Materials and any Additional Materials shall be deemed, for the purposes
of the present proceedings, to have been received and served upon:
(a) in the case of distribution by mail, three (3) business days after delivery thereof to the
post office;
(b) in the case of delivery in person or by courier, upon receipt thereof at the intended
recipient's address; and
(c) in the case of delivery by facsimile transmission,by e-mail or by notice-and-access, on
the day of transmission;
[21] DECLARE that the accidental failure or omission to give notice of the Meeting to, or the non-
receipt of such notice by, one or more of the persons specified in the Interim Order shall not
invalidate any resolution passed at the Meeting or the proceedings herein, and shall not
constitute a breach of the Interim Order or defect in the calling of the Meeting, provided that if any
such failure or omission is brought to the attention of Air Canada, it shall use reasonable efforts to
rectify such failure or omission by the method and in the time it determines to be most reasonably
practicable in the circumstances;
The Final Order Hearing
[22] ORDER that subject to the approval by the Shareholders of the Arrangement Resolution in the
manner set forth in this Interim Order, Air Canada may apply for this Court to sanction the
Arrangement by way of a final judgment (the "Motion for a Final Order");
[23] ORDER that the Motion for a Final Order be presented on May 8, 2019 before the Superior Court
of Québec, sitting in the Commercial Division in and for the district of Montréal at the Montréal
Courthouse, located at 1 Notre-Dame Street East in Montréal, Québec, Room 16.12 (or in any
other room that the Court designates) at noon, or or so soon thereafter as counsel may be heard,
or at any other date this Court may see fit;
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[24] ORDER that the delivery through notice-and-access of the Notice Materials constitutes good and
sufficient service of the Motion and good and sufficient notice of presentation of the Motion for a
Final Order to all persons, whether those persons reside within Québec or in another jurisdiction;
[25] ORDER that the only persons entitled to appear and be heard at the hearing of the Motion for a
Final Order shall be Air Canada and any person that:
(a) files an appearance with this Court's registry and serve same on Air Canada's counsel,
IN THE MATTER OF THE PROPOSED ARRANGEMENT PURSUANT TO SECTION 192 OF THE CANADA BUSINESS CORPORATIONS ACT, R.C.S. 1985, c. C-44 AS AMENDED (THE "CBCA")
AIR CANADA
Petitioner - and-
THE DIRECTOR
Impleaded Pa rty
BS0350 File No.: 021070-1563
MOTION FOR INTERIM AND FINAL ORDERS WITH RESPECT TO AN ARRANGEMENT
(SECTION 192 OF THE CANADA BUSINESS CORPORATIONS ACT)
