Dual application – Regulation 61-101 – Minority approval of a business combination transaction – Issuer with dual class share structure for Canadian Transportation Act compliance purposes – Both common shares and variable voting shares are listed – Application for relief from requirement to obtain separate minority approval for each class of shares – Both classes of securities are freely tradable – No difference of interest between holders of Common Shares and holders of Variable Voting Shares in connection with the Arrangement – Safeguards include independent committee, formal valuation, fairness opinion – Requiring a vote by class would give a de facto veto right to a very small group of shareholders.
Applicable Legislative Provisions
Securities Act (Québec), s. 263.
Regulation 61-101 respecting Protection of Minority Security Holders in Special Transactions, ss. 4.5, 8.1, 9.1.
Companion Policy to Regulation 61-101, s. 3.3.
November 17, 2017
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
QUÉBEC AND ONTARIO
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
HNZ GROUP INC.
The securities regulatory authority or regulator in each of the Jurisdictions (each a “Decision Maker”) has received an application (the “Application”) from the Filer for a decision under the securities legislation of the Jurisdictions (the “Legislation”) for an exemption from the requirement that every class of affected securities vote as a separate class for the purpose of obtaining minority approval (the “Class Voting Requirement”), as set out in Regulation 61-101 respecting Protection of Minority Security Holders in Special Transactions (“Regulation 61-101”) in connection with the business combination which would result from the proposed Arrangement (as defined below), and that instead minority approval of the Arrangement be obtained from all of the outstanding Shares (as defined below) voting together as a single class (the “Exemption Sought”).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the Autorité des marchés financiers (“AMF”) is the principal regulator for this Application;
(b) the Filer has provided notice that Subsection 4.7(1) of Regulation 11-102 respecting Passport System (“Regulation 11-102”) is intended to be relied upon by the Filer in Alberta, Manitoba and New Brunswick; and
(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Terms defined in Regulation 14-101 respecting Definitions, Regulation 11-102 and Regulation 61-101 have the same meaning if used in this decision, unless otherwise defined.
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 and registered office of the Filer are located at 1215 montée Pilon, Les Cèdres, Québec.
3. The Filer is a reporting issuer in all the jurisdictions of Canada and is not in default of any requirement of the securities legislation in the jurisdictions in which it is a reporting issuer.
4. The Filer is the largest helicopter operator in Canada and is one of the largest helicopter providers in the world.
5. As a licensed operator, the Filer is subject to the requirements of the Canada Transportation Act (“CTA”). The CTA requires that any person operating a “domestic service” (as defined in the CTA), as the Filer does, be controlled by Canadians (as defined in the CTA), in that at least 75% of a licensed service provider’s voting interests be owned and controlled by Canadians, such that non-Canadians cannot hold or control more than 25% of the voting interests in a licensed service provider.
6. The authorized share capital of the Filer is comprised of an unlimited number of variable voting shares (the “Variable Voting Shares”), an unlimited number of common shares (the “Common Shares”, and, together with the Variable Voting Shares, the “Shares”) and an unlimited number of preferred shares issuable in series. To the knowledge of the Filer, based on searches conducted as of September 30, 2017, 11,893,377 Common Shares and 1,066,988 Variable Voting Shares are outstanding. No preferred shares are outstanding.
7. To the knowledge of the Filer, based on searches conducted as of September 30, 2017, Variable Voting Shares constitute approximately 8.23% of the aggregate issued and outstanding Shares.
8. The Common Shares may only be beneficially owned and 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 beneficially owned or controlled, directly or indirectly, otherwise than by way of security only, by a person who is not a Canadian.
9. The Variable Voting Shares may only be 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 beneficially owned and controlled, directly or indirectly, otherwise than by way of security only, by a Canadian.
10. The Filer’s articles provide that each Common Share confers the right to one vote and 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 issued and outstanding Shares, exceeds 25% (or any higher percentage that the Governor in Council may by regulation specify), or (ii) the total number of votes cast by or on behalf of holders of Variable Voting Shares at any meeting exceeds 25% (or any higher percentage that the Governor in Council may by regulation specify) of the total number of votes that may be cast at such meeting. If either of the above noted thresholds would otherwise be surpassed at any time, the vote attached to each Variable Voting Share decreases automatically and proportionately such that: (i) the Variable Voting Shares as a class do not carry more than 25% (or any higher percentage that the Governor in Council may by regulation specify) of the aggregate votes attached to all issued and outstanding Shares and (ii) the total number of votes cast by or on behalf of holders of Variable Voting Shares at any meeting of shareholders do not exceed 25% (or any higher percentage that the Governor in Council may by regulation specify) of the votes cast at such meeting.
11. The adjustments to the votes of the Variable Voting Shares in the Filer’s articles are solely to ensure compliance with the requirements of the CTA.
12. Other than the differences in voting rights stated above, the terms of the Variable Voting Shares and the Common Shares are substantially identical in all other respects, including the right to receive dividends if any, and the right to receive the property and assets of the Filer in the event of dissolution, liquidation, or winding up of the Filer.
13. The Variable Voting Shares are not considered “restricted voting securities” for the purposes of Regulation 51-102 respecting Continuous Disclosure Obligations and Regulation 41-101 respecting General Prospectus Requirements, or “restricted voting shares” under OSC Rule 56-501 – Restricted Shares.
14. On April 29, 2016, the Filer obtained a decision from the AMF and the securities regulatory authorities in the other jurisdictions of Canada, which allows for the Shares to be considered as a single class, instead of on a class-by-class basis, for the purposes of certain early warning reporting, take-over bid and continuous disclosure requirements (the “AMF Decision”).
15. On October 30, 2017, the Filer, 2075568 Alberta ULC (“207 Alberta”), Mr. Don E. Wall and PHI, Inc. entered into an arrangement agreement pursuant to which, by way of a statutory plan of arrangement under Section 192 of the Canada Business Corporations Act, among other things, Mr. Don E. Wall, the President and Chief Executive Officer of the Filer, will, through 207 Alberta, a beneficially wholly-owned subsidiary, acquire all of the issued and outstanding Shares for CAD$18.70 per share in cash (the “Arrangement”).
16. The Arrangement is subject to Regulation 61-101 and in particular to Part 8 thereof, which requires, among other things, that minority approval be obtained from the holders of every class of affected securities of the Filer, in each case voting separately as a class.
17. To the knowledge of the Filer, Mr. Don E. Wall holds directly or indirectly 521,438 Common Shares, representing approximately 4.38% of the outstanding Common Shares and based on searches as of September 30, 2017, 4.02% of the outstanding Shares.
18. Each of the Common Shares and the Variable Voting Shares represent a class of affected securities under the Arrangement.
19. Subject to the interim order of the Superior Court of Quebec to be obtained in connection with the Arrangement, the approval threshold for the Arrangement will be, in addition to the minority approval required under Regulation 61-101, 66 ?% of the votes cast by holders of Shares present in person or represented by proxy at the special meeting of shareholders of the Filer to be held to approve the Arrangement (the “Meeting”) voting together as a single class, since the Filer has determined that the Common Shares and the Variable Voting Shares are not affected by the Arrangement in a different manner.
20. The Arrangement is subject to a number of mechanisms to ensure that the interests of each holder of Common Shares or Variable Voting Shares are protected, including, among other things:
a) A special committee composed entirely of independent directors of the Filer (the “Special Committee”) was formed to, among other things, consider and evaluate the Arrangement. The Special Committee, after having consulted with independent financial and legal advisors, unanimously determined that the Arrangement is in the best interests of the Filer and is fair to the Filer’s shareholders and recommended to the Filer’s board of directors that it approve the Arrangement.
b) The Meeting will be called to consider and, if deemed advisable, approve the Arrangement, and subject to the interim order of the Superior Court of Québec in connection with the Arrangement and the Exemption Sought being granted, the approval threshold for the Arrangement will be (i) 66 ⅔% of the votes cast by holders of Shares present in person or represented by proxy at the Meeting, and (ii) a majority of votes cast by disinterested holders of Shares present in person or represented by proxy at the Meeting voting together as a single class;
c) Subject to the interim order of the Superior Court of Québec in connection with the Arrangement, all holders of Shares will be granted rights of dissent in connection with the Arrangement, and all such holders will have the right to appear and make submissions at the hearing of the application for the final order of the Superior Court of Québec;
d) The preparation and delivery of an information circular (the “Information Circular”) prepared in accordance with the applicable securities regulations (including Regulation 61-101) in order to provide the necessary information allowing holders of Shares to make an informed decision on the Arrangement;
e) In accordance with Regulation 61-101, the preparation and delivery of a formal valuation prepared by an independent valuator selected and supervised by the Special Committee to be included in the Information Circular; and
f) The delivery of a fairness opinion prepared by the independent valuator;
(collectively, the “Safeguard Measures”).
21. There is commonality of interest among the Variable Voting Shares and the Common Shares of the Filer, as they have identical economic attributes and are each entitled to one vote per share, except as described above where, in order to comply with the regulatory requirements of the CTA, the voting rights attached to Variable Voting Shares are prorated down to the extent non-Canadians hold, beneficially own or control more than 25% of the voting interests in the Filer at any time or at any shareholder meeting. The Shares are listed on the Toronto Stock Exchange (the “TSX”) under a single ticker symbol and trade at the same price on the TSX.
22. 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 ultimately available to it is a function of the investor’s Canadian or non-Canadian status only. Moreover, if after having acquired shares a holder’s Canadian/non-Canadian status changes, the shares will convert accordingly and automatically, without formality or regard to any other consideration.
23. Shareholders of the Filer other than Mr. Don E. Wall and his affiliates (“Disinterested Shareholders”) hold, to the knowledge of the Filer, based on searches conducted as of September 30, 2017, approximately 11,371,939 Common Shares representing approximately 95.62% of the Common Shares. Disinterested Shareholders hold, to the knowledge of the Filer, all of the Variable Voting Shares. To the knowledge of the Filer, the Disinterested Shareholders’ voting rights represent in the aggregate approximately 95.98% of the voting rights of the Filer.
24. Absent the granting of the Exemption Sought, the holders of 50% of the Variable Voting Shares outstanding (being, to the knowledge of the Filer based on searches conducted as of September 30, 2017, 533,494 Variable Voting Shares), would have the ability to veto the Arrangement while representing a minimal minority position (only 4.12% of the Shares).
25. The policy objectives of Regulation 61-101 are not served by imposing the Class Voting Requirement in the context of obtaining minority approval of the Arrangement because the Variable Voting Shares and the Common Shares represent, in substance (including economically), a single class of common shares whose terms are only designed to ensure that it complies continuously with foreign ownership rules. The Class Voting Requirement is therefore not necessary to ensure the fair treatment of minority security holders in the context of the Arrangement.
26. To the best of the knowledge of the Filer, there is no reason to believe that any shareholders of the Filer of any particular class would not approve the Arrangement.
27. The Filer will comply with all the requirements of Regulation 61-101 in connection with the Arrangement, other than the requirement to hold a separate vote by class in connection with obtaining minority approval.
28. The Filer is of the view that the various Safeguard Measures ensure that the public interest is well protected.
29. The Filer is of the view that granting the Exemption Sought will not be detrimental or otherwise affect the protection afforded to shareholders.
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 the Safeguard Measures are implemented and remain in place as described herein.
“Lucy J. Roy”
Directrice principale du financement des sociétés
Autorité des marchés financiers