Securities Law & Instruments

Headnote

Mutual Reliance Review System for ExemptiveRelief Applications - under a plan of arrangement, issuer tobecome a wholly owned subsidiary of holdco - each security holderto receive one common share of holdco for each common shareof issuer - holdco to adopt issuer's DRIP - sections 25 and53 of the Act do not apply distribution of shares by the holdcoto holders of issuer's securities pursuant to a dividend reinvestmentplan (DRIP). Relief subject to conditions.

Applicable Ontario Statutory Provisions

Securities Act, R.S.O. 1990, c. S.5, as am.,ss. 74(1), s. 25 and s. 53.

Ontario Rules

Ontario Securities Commission Rule 45-501 --Exempt Distributions.

IN THE MATTER OF

THE SECURITIES LEGISLATIONOF

ALBERTA, BRITISH COLUMBIA,SASKATCHEWAN,

MANITOBA, ONTARIO, QUÉBEC,NOVA SCOTIA,

NEW BRUNSWICK, PRINCE EDWARDISLAND,

NEWFOUNDLAND AND LABRADOR,THE YUKON TERRITORY,

THE NORTHWEST TERRITORIESAND NUNAVUT

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEWSYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

TRANSCANADA PIPELINES LIMITED

AND

TRANSCANADA CORPORATION

 

MRRS DECISION DOCUMENT

1. WHEREAS the local securities regulatoryauthority or regulator (the "Decision Makers") inBritish Columbia, Alberta, Saskatchewan, Manitoba, Ontario,Québec, New Brunswick, Prince Edward Island, Nova Scotia,Newfoundland and Labrador, the Yukon Territory, the NorthwestTerritories, and Nunavut (collectively, the "Jurisdictions")has received an application from TransCanada PipeLines Limited("TransCanada") and TransCanada Corporation ("Holdco")for a decision under the securities legislation of the Jurisdictions(the "Legislation") that the requirements containedin the Legislation to be registered to trade in a security(the "Registration Requirement") and to file andobtain a receipt for a preliminary prospectus and a finalprospectus before effecting a trade that is a distribution(the "Prospectus Requirement") shall not apply:

1.1 to certain trades in shares of Holdcoin connection with a Holdco dividend reinvestment and sharepurchase plan; and

1.2 to certain trades in certain of theJurisdictions:

1.2.1 in connection with a proposed planof arrangement (the "Arrangement") under theCanada Business Corporations Act (the "CBCA")involving TransCanada and Holdco;

1.2.2 in stock options of Holdco in connectionwith a Holdco stock option plan; and

1.2.3 in rights of Holdco in connectionwith a Holdco shareholder rights plan;

2. AND WHEREAS under the Mutual Reliance ReviewSystem for Exemptive Relief Applications (the "System"),the Alberta Securities Commission is the principal regulatorfor this application;

3. AND WHEREAS, unless otherwise defined,the terms herein have the meaning set out in National Instrument14-101 Definitions or in Québec Commission Notice 14-101;

4. AND WHEREAS it was represented by TransCanadato the Decision Makers that:

4.1 TransCanada is a corporation governedunder the laws of Canada;

4.2 TransCanada is and has been a reportingissuer (or the equivalent) for a period in excess of 12months in each of the Jurisdictions;

4.3 TransCanada is eligible to use the shortform prospectus system pursuant to National Instrument 44-101("NI 44-101");

4.4 TransCanada's registered and head officeis in Calgary, Alberta;

4.5 the authorized capital of TransCanadaconsists of an unlimited number of common shares (the "TransCanadaShares"), an unlimited number of Cumulative RedeemableFirst Preferred Shares ("TransCanada First PreferredShares"), and an unlimited number of Cumulative RedeemableSecond Preferred Shares of which as of February 25, 2003there were 480,193,991 TransCanada Shares, 4,000,000 TransCanadaFirst Preferred Shares, Series U, and 4,000,000 TransCanadaFirst Preferred Shares, Series Y outstanding;

4.6 the TransCanada Shares are listed onthe Toronto Stock Exchange (the "TSX") and theNew York Stock Exchange (the "NYSE");

4.7 TransCanada has implemented the TransCanadaKey Employee Stock Incentive Plan (1995), as amended andrestated as of May 19, 1998 (the "TransCanada OptionPlan") pursuant to which it has granted stock options("TransCanada Options") to acquire TransCanadaShares to certain key employees. As at February 25, 2003,an aggregate of approximately 13,551,530 TransCanada Shareswere subject to TransCanada Options granted under the TransCanadaOption Plan;

4.8 TransCanada has a Shareholder RightsPlan (the "TransCanada Rights Plan") pursuantto a Shareholder Rights Plan Agreement dated as of December2, 1994 between TransCanada and Computershare Trust Companyof Canada, as Rights Agent. The TransCanada Rights Planwas subsequently amended, with the approval of the holdersof TransCanada Shares on April 7, 1995, May 19, 1998 andApril 27, 2001;

4.9 the TransCanada Rights Plan is designedto encourage the fair treatment of shareholders in connectionwith a take-over bid for TransCanada. Rights issued underthe TransCanada Rights Plan become exercisable when a personacquires or commences a take-over bid to acquire 20% ormore of the outstanding TransCanada Shares without complyingwith certain provisions set out in the TransCanada RightsPlan. Should such an event occur, each rights holder, otherthan the acquiring person, will have the right to purchase$200 worth of TransCanada Shares for $100;

4.10 TransCanada has a dividend reinvestmentand share purchase plan (the "TransCanada DRIP")pursuant to which registered holders of TransCanada Sharesand TransCanada First Preferred Shares are entitled to acquireTransCanada Shares by reinvesting dividends paid on TransCanadaShares and TransCanada First Preferred Shares and by makingoptional cash payments to a maximum of $10,000 (U.S.$7,000)per quarter without being subject to brokerage or administrativefees;

4.11 the price of TransCanada Shares purchasedunder the TransCanada DRIP is 100% of the weighted averagepurchase price of TransCanada Shares on the TSX on the investmentdate;

4.12 TransCanada may also issue the TransCanadaShares purchased under the TransCanada DRIP from treasuryat 100% of the average market price, being the weightedaverage price of all TransCanada Shares traded on the TSXon the 20 trading days preceding the applicable dividendpayment date;

4.13 TransCanada has proposed a reorganizationby way of the Arrangement that will result in Holdco acquiringall of the issued and outstanding TransCanada Shares;

4.14 each holder of TransCanada Shares (a"TransCanada Shareholder") will, immediately afterthe date of the certificate giving effect to the Arrangement(the "Effective Date"), hold one common shareof Holdco (a "Holdco Share") for each TransCanadaShare formerly held;

4.15 Holdco was incorporated pursuant tothe provisions of the CBCA on February 25, 2003 for thepurposes of effecting the Arrangement;

4.16 the registered and head office of Holdcois, and will be following the completion of the Arrangement,located in Calgary, Alberta;

4.17 the authorized share capital of Holdcoconsists of an unlimited number of Holdco Shares and anunlimited number of First Preferred Shares (the "HoldcoFirst Preferred Shares") and Second Preferred Shares(the "Holdco Second Preferred Shares"), issuablein series;

4.18 upon completion of the Arrangement:

4.18.1 Holdco will become a reportingissuer in British Columbia, Alberta, Saskatchewan, Ontario,Nova Scotia, and Newfoundland and Labrador;

4.18.2 Holdco will be eligible to usethe short form prospectus system pursuant to NI 44-101and will be a "qualifying issuer" as definedin Multilateral Instrument 45-102 Resale of Securities("MI- 45-102");

4.18.3 Holdco will act as a managementholding company;

4.19 application is being made in Québecfor an order declaring Holdco to be a reporting issuer onthe Effective Date and to have been a reporting issuer forthe period of time that TransCanada was a reporting issuerbefore the Effective Date;

4.20 on the Effective Date:

4.20.1 Holdco will not own any assetsdirectly other than all of the TransCanada Shares andits only outstanding securities will be the Holdco Shares;

4.20.2 all of the existing employees ofTransCanada will continue to be employed by TransCanada;

4.20.3 TransCanada will enter into a managementservices agreement with Holdco whereby TransCanada willprovide Holdco with the management and administrativeservices required by Holdco;

4.20.4 Holdco will provide strategic directionto TransCanada and its subsidiaries and also provide coordinationon matters which affect these companies collectively;

4.20.5 based on the number of TransCanadaShares outstanding as of February 25, 2003, it is expectedthat there will be approximately 480,193,991 Holdco Sharesoutstanding, which amount does not take into considerationthe exercise of any options under the TransCanada OptionPlan after February 25, 2003; and

4.20.6 Holdco will not have any HoldcoFirst Preferred Shares or Holdco Second Preferred Sharesoutstanding;

4.21 the TSX and the NYSE have conditionallyapproved the listing of the Holdco Shares;

4.22 the rights, privileges, restrictionsand conditions attaching to the Holdco Shares, the HoldcoFirst Preferred Shares and the Holdco Second Preferred Shares,as a class, are in all material respects identical to therights, privileges, restrictions and conditions attachingto the TransCanada Shares, the TransCanada Cumulative RedeemableFirst Preferred Shares and the TransCanada Cumulative RedeemableSecond Preferred Shares, as a class, respectively, exceptthat no voting rights attach to the Holdco First PreferredShares and the Holdco Second Preferred Shares, except asprovided under the CBCA or except as provided under theshare conditions attaching to a particular series of HoldcoFirst Preferred Shares or Holdco Second Preferred Shares;

4.23 the following steps will occur in thefollowing order as part of the Arrangement effective asof the Effective Date:

4.23.1 each right ("TransCanada Right")held by TransCanada Shareholders under the TransCanadaRights Plan shall be cancelled and the TransCanada RightsPlan shall be terminated and be of no further force andeffect;

4.23.2 each TransCanada Share (other thanTransCanada Shares held by TransCanada Shareholders whoexercise their dissent rights under section 190 of theCBCA in respect of the Arrangement) shall be and shallbe deemed to have been exchanged, free and clear of anyencumbrances and claims, with Holdco for the sole considerationof the issuance by Holdco of one Holdco Share;

4.23.3 Holdco will hold all of the issuedand outstanding TransCanada Shares. The Holdco Shareswill have the same rights, privileges, restrictions andconditions as the TransCanada Shares;

4.23.4 each holder of Holdco Shares shallbe issued and shall be deemed to have been issued thatnumber of rights ("Holdco Rights") under a shareholderrights plan of Holdco to be implemented on or before theEffective Date equal to the number of Holdco Shares issuedto such holder under the Arrangement; and

4.23.5 TransCanada Options issued andoutstanding under the TransCanada Option Plan, shall beand shall be deemed to be exchanged with Holdco for thesame number of options ("Holdco Options") topurchase Holdco Shares granted pursuant to a stock optionplan of Holdco (the "Holdco Option Plan") onthe same terms and conditions and at the same exerciseprice as provided for under the TransCanada Options soexchanged, provided that the exercise price under eachHoldco Option will be such that the amount by which thetotal fair market value of a Holdco Share that a holderis entitled to acquire under a Holdco Option immediatelyafter the Effective Date exceeds the total amount payableby such holder to acquire a Holdco Share under a HoldcoOption will not exceed the amount by which the total fairmarket value of a TransCanada Share that a holder is entitledto acquire under a TransCanada Option immediately beforethe Effective Date exceeds the amount payable by suchholder to acquire a TransCanada Share under a TransCanadaOption. Immediately following such exchange all issuedand outstanding TransCanada Options shall be cancelled;

(the trades referred to in paragraphs 4.23.1through 4.23.5 are collectively referred to herein as the"Arrangement Trades");

4.24 TransCanada's outstanding first mortgagepipe line bonds, medium term notes, debentures, preferredsecurities and subordinated debentures and outstanding CumulativeRedeemable First Preferred Shares, Series U and CumulativeRedeemable First Preferred Shares, Series Y will not beaffected by the Arrangement and will remain obligationsand securities of TransCanada after the Effective Date;

4.25 on or before the Effective Date, Holdcowill adopt a dividend reinvestment and share purchase plan(the "Holdco DRIP") which will be substantiallythe same as the TransCanada DRIP;

4.26 subject to this decision document,registered holders of Holdco Shares and TransCanada FirstPreferred Shares will be entitled to acquire Holdco Sharesunder the Holdco DRIP, on the same basis as participantsin the TransCanada DRIP are presently able to acquire TransCanadaShares, by reinvesting dividends paid on TransCanada Sharesand TransCanada First Preferred Shares and by making optionalcash payments (to a maximum of $10,000 (U.S.$7,000) perquarter (the "Optional Cash Payments") withoutbeing subject to brokerage or administrative fees;

4.27 there are currently 18 holders of TransCanadaFirst Preferred Shares that are participating in the TransCanadaDRIP that will be participating in the Holdco DRIP;

4.28 the TransCanada DRIP will be terminatedafter the Effective Date;

4.29 on the Effective Date, all participantsin the TransCanada DRIP automatically will become participantsin the Holdco DRIP in respect of reinvestment of dividendspaid after the Effective Date on Holdco Shares and, subjectto this decision document, TransCanada First Preferred Shares,unless a notice of withdrawal has been delivered to thetrustee of the TransCanada DRIP by June 30, 2003 or theparticipant has dissented in connection with the Arrangement;

4.30 TransCanada's other compensation planswill be amended to provide that accruals or vesting thereunder,as applicable, will be measured with reference to the financialperformance of Holdco rather than TransCanada and the stockmarket performance of Holdco Shares rather than TransCanadaShares, as applicable, and that any rights to shares thereunderwill be with respect to Holdco Shares rather than TransCanadaShares;

4.31 unless and until changed in accordancewith applicable law, the financial year of Holdco will endon December 31st in each year;

4.32 the board of directors of TransCanada,acting upon the recommendation of senior management, haveunanimously approved the Arrangement and have unanimouslyrecommended that the TransCanada Shareholders vote in favourof the Arrangement;

4.33 a management proxy circular dated February25, 2003 (the "Circular") has been sent to theTransCanada Shareholders in connection with the Meeting,which contains among other things, prospectus level disclosureof the business and affairs of TransCanada, Holdco and theparticulars of the Arrangement. The mailing of the Circularwas commenced on March 25, 2003 and was filed on SEDAR ineach of the Jurisdictions concurrently with the mailingto TransCanada Shareholders;

4.34 on March 4, 2003, the Court of Queen'sBench of Alberta (the "Alberta Court") grantedan interim order (the "Interim Order") providing,among other things, for the calling and holding of an annualand special meeting of TransCanada Shareholders (the "Meeting");

4.35 on April 25, 2003, TransCanada heldthe Meeting at which the TransCanada Shareholders passeda special resolution approving the Arrangement;

4.36 on April 28, 2003, the Arrangementreceived final approval of the Alberta Court;

4.37 each TransCanada Shareholder was entitledto dissent from the Arrangement in accordance with section190 of the CBCA, as modified by the Interim Order and theArrangement, and to be paid the fair value of such holder'sTransCanada Shares, subject to certain conditions describedin the Circular;

4.38 it is anticipated that the Arrangementwill become effective on May 15, 2003, after all conditionsto the Arrangement have been satisfied or waived;

4.39 exemptive relief from the RegistrationRequirement and the Prospectus Requirement is required:

4.39.1 in all Jurisdictions to effectthe distribution of the Holdco Shares by Holdco pursuantto the Holdco DRIP to the holders of TransCanada FirstPreferred Shares who do not also hold Holdco Shares;

4.39.2 in New Brunswick and the YukonTerritory to effect the distribution of the Holdco Sharesby Holdco pursuant to the Holdco DRIP to holders of HoldcoShares;

4.39.3 in Québec to effect theArrangement Trades and the trades in Holdco Rights andHoldco Shares issuable pursuant to the exercise of HoldcoRights under the Holdco shareholder rights plan (the "RightsTrades"); and

4.39.4 in New Brunswick to effect theRights Trades and trades in Holdco Options and HoldcoShares issuable pursuant to the exercise of Holdco Optionsto employees of TransCanada under the Holdco Option Plan(the "Option Trades" and collectively, withthe Arrangement Trades and the Rights Trades, the "TransactionTrades");

5. AND WHEREAS under the System this MRRSDecision Document evidences the decision of the Decision Makers(the "Decision");

6. AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decision Makers with the jurisdiction to makethe Decision has been met;

7. THE DECISION of the Decision Makers underthe Legislation is that:

7.1 the Registration Requirement and ProspectusRequirement shall not apply to the Transaction Trades providedthat the first trade in securities acquired pursuant tothe Transaction Trades under this Decision shall be deemedto be a distribution or a primary distribution to the publicunder the Legislation;

7.2 except in Québec, the RegistrationRequirement and Prospectus Requirement shall not apply totrades by Holdco of Holdco Shares to holders of Holdco Sharesunder the Holdco DRIP, provided that:

7.2.1 at the time of the trade Holdcois a reporting issuer or the equivalent under the Legislationand is not in default of any requirements of the Legislation;

7.2.2 no sales charge is payable in respectof the trade;

7.2.3 the terms and conditions of theHoldco DRIP are accessible to prospective participantsand existing participants including instructions regardingparticipation in, and terminating participation in, theHoldco DRIP;

7.2.4 in any financial year of Holdcoduring which the trade takes place, the aggregate numberof Holdco Shares issued pursuant to the Optional CashPayments shall not exceed 2% of the aggregate number ofHoldco Shares outstanding at the commencement of thatfinancial year; and

7.2.5 the first trade of the Holdco Sharesacquired pursuant to the Holdco DRIP under this Decisionshall be deemed to be a distribution or a primary distributionto the public under the Legislation;

7.3 except in Québec, the RegistrationRequirement and Prospectus Requirement shall not apply totrades by Holdco of Holdco Shares to holders of TransCanadaFirst Preferred Shares under the Holdco DRIP, provided that:

7.3.1 the requirements in each of theconditions in 7.2.1 through 7.2.5 are met;

7.3.2 TransCanada is a subsidiary of Holdco;

7.3.3 the assets of TransCanada and itssubsidiaries, on a book value basis, as reflected in thelatest interim or annual financial statements of Holdcofiled under the Legislation, represent at least 85% ofthe assets of consolidated Holdco on a book value basis;and

7.3.4 Holdco provides any new participantin the Holdco DRIP that is a registered holder of TransCanadaFirst Preferred Shares and not Holdco Shares copies ofall continuous disclosure documents that are providedto holders of Holdco Shares;

7.4 the Prospectus Requirement shall notapply to the first trade of securities acquired under thisDecision, provided that:

7.4.1 except in Québec, the conditionsin paragraphs 2 through 5 of subsection 2.6(3) of MI 45-102are satisfied; and

7.4.2 in Québec:

7.4.2.1. at the time of the first tradeHoldco is a reporting issuer in Québec and isnot in default of any of the requirements of the securitieslegislation in Québec;

7.4.2.2. no unusual effort is made toprepare the market or to create a demand for the securitiesthat are the subject of the trade;

7.4.2.3. no extraordinary commissionor consideration is paid to a person or company in respectof the trade; and

7.4.2.4. if the selling security holderis in a special relationship with the issuer, the sellingsecurity holder has no reasonable grounds to believethat the issuer is in default of any requirement ofthe securities legislation in Québec.

May 14, 2003.

"Glenda A. Campbell"
"Stephen R. Murison"