Securities Law & Instruments


Headnote

Mutual Reliance Review System for Exemptive Relief Applications - employment agreement between offeror and seniorofficer and director who is major shareholder of offeree made for reasons other than to increase the value of theconsideration paid to the senior officer and may be entered into despite the prohibition on collateral agreements in theLegislation.

Applicable Ontario Statutory Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 97 and 104(2)(a).

IN THE MATTER OF

THE SECURITIES LEGISLATION

OF ONTARIO AND QUEBEC

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

CANADA 3000 INC.

AND ROYAL AVIATION INC.

MRRS DECISION DOCUMENT

WHEREAS the securities regulatory authority or regulator (the "Decision Maker") in each of Ontario and Quebec(the "Jurisdictions") has received an application from Canada 3000 Inc. (the "Offeror") for a decision pursuant to thesecurities legislation of the Jurisdictions (the "Legislation") that, in connection with an offer dated February 28, 2001 (the"Offer") by the Offeror to acquire all of the issued and outstanding common shares (the "Royal Shares") of Royal AviationInc. ("Royal"), certain employment arrangements entered into between the Offeror and a senior officer and director ofRoyal have been entered into for reasons other than to increase the value of the consideration paid to such senior officerand director of Royal for his Royal Shares and may be entered into despite the provision in the Legislation that prohibitsan offeror who makes or intends to make a take-over bid and any person acting jointly or in concert with the offeror fromentering into any collateral agreement, commitment or understanding with any holder or beneficial owner of securitiesof the offeree issuer that has the effect of providing to the holder or owner a consideration of greater value than thatoffered to other holders of the same class of securities (the "Prohibition on Collateral Agreements");

AND WHEREAS pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the"System"), the Ontario Securities Commission is the principal regulator for this application;

AND WHEREAS the Offeror has represented to the Decision Makers that:

1. The Offeror is a corporation incorporated under the Business Corporations Act (Alberta), with its registeredoffice located in Calgary, Alberta and its corporate head office located in Toronto, Ontario.

2. The Offeror is Canada's second largest scheduled air carrier providing reliable and affordable air travel to valueconscious passengers. The Offeror operates flights to over 90 destinations worldwide, offering scheduledpassenger service domestically within Canada and internationally to the United States and Europe. The Offeroralso provides vacation packages and other travel related services.

3. The Offeror is a reporting issuer or the equivalent in all provinces of Canada and its common shares are listedfor trading on The Toronto Stock Exchange (the "TSE") under the symbol "CCC".

4. Royal is a corporation incorporated under the Canada Business Corporations Act (the "CBCA").

5. Royal operates, through its Royal Division, principally as a charter airline company. It provides its services inprice sensitive markets through tour operators to Canadian customers. Royal serves the needs of an extensivebase of Canadian, American and European tour operators, and offers flights from most major Canadian citiesto destinations in the Caribbean, Latin American and Europe. Through its Royal Cargo Division, Royal alsooffers air freight services to major couriers, freight forwarders and industrial companies. Through its ConifairDivision, Royal also provides aircraft maintenance services.

6. The authorized capital of Royal consists of an unlimited number of Royal Shares and an unlimited number ofpreference shares ("Preference Shares"). As at April 30, 2000, there were 19,156,000 Royal Shares and noPreference Shares issued and outstanding.

7. Royal is a reporting issuer or the equivalent in all provinces of Canada and the Royal Shares are listed andposted for trading on the TSE under the symbol "ROY".

8. Michel Leblanc ("Leblanc") and Groupe Royal Aviation Inc., a company controlled by Leblanc, (collectively, the"Vendors") currently own 9,470,000 Royal Shares, representing approximately 45% of the issued andoutstanding Royal Shares (on a fully diluted basis).

9. The Offer is for each of the issued and outstanding Royal Shares, in exchange for 0.40 of a common share ofthe Offeror, subject to conditions that are customary for transactions of this nature, including that all regulatoryapprovals have been obtained and there be validly deposited under the Offer and not withdrawn at the expirytime of the Offer at least 66 2/3% of the outstanding Royal Shares to which the Offer relates.

10. If the Offeror takes up and pays for less than 90% but not less than 66 2/3% of the Royal Shares (excludingRoyal Shares held by or on behalf of the Offeror or its associates and affiliates) but is unable to rely on thecompulsory acquisition provisions under the CBCA, the Offeror currently intends to propose a statutoryarrangement, amalgamation, consolidation of Royal Shares or other transaction with Royal that constitutes agoing-private transaction.

11. On January 28, 2000, the Offeror and the Vendors entered into an agreement (the "Lock-Up Agreement")pursuant to which, among other things, the Vendors agreed to deposit all of the 9,470,000 Royal Shares ownedby the Vendors, together with any additional Royal Shares acquired after the date of the Lock-Up Agreementand prior to the expiry of the Offer, to the Offer.

12. On January 28, 2001, the Offeror and Royal entered into an agreement (the "Support Agreement") pursuantto which, among other things, the Offeror agreed to make the Offer on certain terms and conditions, includingrepresentations and warranties of Royal that it recommend acceptance of the Offer to holders of the RoyalShares (the "Shareholders") and for Royal to co-operate with the Offeror in connection with the Offer and to takeall reasonable actions to support the Offer.

13. Leblanc holds, directly and indirectly, or exercises control or direction over 9,470,000 Royal Shares,representing approximately 45% of the issued and outstanding Royal Shares (on a fully diluted basis). Leblancalso currently holds options to purchase 100,000 Royal Shares pursuant to the Royal stock option incentiveplan (the "Royal Stock Option Plan").

14. Royal currently has a consulting agreement (the "Consulting Agreement") with Gestion Conifair Inc. ("Gestion"),a company controlled by Leblanc, that provides for Gestion to make available the services of Leblanc asPresident and Chief Executive Officer of Royal for the general management and supervision of Royal'soperations. The terms and conditions of the Consulting Agreement are generally typical of agreements withsimilarly situated senior officers of companies with comparable businesses to Royal and the Offeror. TheConsulting Agreement is for an unspecified term and can be terminated upon thirty (30) days notice by Royalor Gestion or immediately by Royal for just and sufficient cause. The Consulting Agreement provides for noseverance payments in the event of termination other than upon the death or disability of Leblanc. The annualfee currently paid under the Consulting Agreement to Gestion is $215,000 in addition to reasonable expenses.Gestion is also eligible to receive fees related to Royal's profit sharing plan. Leblanc is also eligible toparticipate in the Royal Stock Option Plan.

15. The Offeror proposes to enter into certain employment arrangements (the "Employment Arrangements") withLeblanc, the principal terms of which are set forth below.

16. The principal terms of the proposed Employment Arrangements with Leblanc provide for Leblanc to beappointed Vice-Chairman and Managing Director, Canadian Scheduled Services for the Offeror, as well as adirector and a member of the executive committee of the Offeror. The term of the employment agreement tobe entered into will be for a period of five (5) years (the "Employment Term") and Leblanc will be entitled toreceive an initial annual base salary of $250,000. Leblanc will also be entitled to participate in the Offeror'ssenior management bonus, stock option and employee stock purchase plans. Leblanc, if terminated withoutcause prior to the expiry of the Employment Term, will be entitled to a severance payment based on his basesalary and one-half of his bonus until the end of his Employment Term, unless there is a change of control ofthe Offeror in respect of a transaction of which Leblanc voted in favour.

17. The execution of an employment agreement between Leblanc and the Offeror is a condition of the Offer infavour of the Offeror.

18. The Offeror believes that Leblanc has been an integral part of the successful development and operation ofRoyal and has substantial and valuable experience and expertise in the airline business, which will be ofsignificant value to the Offeror. The Offeror views the continued participation of Leblanc as critical to themaking of the Offer, as Leblanc was the founder of Royal, has contributed to the development of Royal and hasmade a significant contribution to Royal's current business products and services, which will be combined withthose of the Offeror. The Employment Arrangements will be entered into primarily for the purpose of ensuringLeblanc's participation in the successful management and development of the Offeror's operations followingthe successful consummation of the Offer.

19. The Employment Arrangements have been and will continue to be negotiated at arm's length and will be onterms and conditions that are commercially reasonable. The compensation to be provided to Leblanc, pursuantto the Employment Arrangements, is reasonable in light of the services to be rendered by Leblanc to the Offerorfollowing completion of the Offer and is commensurate of similarly situated executives of the Offeror.

20. The severance provisions for Leblanc are commensurate with the entitlements of similarly situated executivesof the Canadian airline industry.

21. The Employment Arrangements are to be entered into for valid business reasons unrelated to the Leblanc'sholdings of Royal, and not for the purpose of conferring an economic or collateral benefit on Leblanc that otherShareholders do not enjoy, and are being made for reasons other than to increase the value of theconsideration to be paid to Leblanc pursuant to the Offer.

AND WHEREAS pursuant to the System, this MRRS Decision Document evidences the decision of eachDecision Maker (the "Decision");

AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation that providesthe Decision Maker with the jurisdiction to make the Decision has been met;

THE DECISION of the Decision Makers, under the Legislation, is that the Employment Arrangements are beingmade for reasons other than to increase the value of the consideration to be paid to Leblanc for his Royal Shares andthat the Employment Arrangements may be entered into despite the Prohibition on Collateral Agreements contained inthe Legislation.

March 13, 2001.

"J. A. Geller"       "Stephen N. Adams"