Securities Law & Instruments

Headnote

Mutual Reliance Review System for ExemptiveRelief Applications -- related party transactions -- relieffrom valuation requirement in connection with a proposed relatedparty transaction -- independent committee of directors formedto review, consider, negotiate and approve the public offeringand acquisition -- formal valuation of the acquired businessand fairness opinion provided -- private offering would requirea valuation -- offering price for private offering determinedby arm's length negotiations -- full details of transactionsincluded in materials sent to unit holders -- applicant exemptfrom valuation requirement.

Ontario Rule Cited

Rule 61-501 -- Insider Bids, Issuer Bids, GoingPrivate Transactions and Related Party Transactions, ss. 5.5and 9.1.

IN THE MATTER OF

THE SECURITIES LEGISLATIONOF

ONTARIO AND QUÉBEC

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEWSYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

TRANSALTA POWER, L.P.

 

MRRS DECISION DOCUMENT

WHEREAS the local securities regulatoryauthority or regulator (the "Decision Maker") in eachof Ontario and Québec (the "Jurisdictions")has received an application from TransAlta Power, L.P. ("TAPower") for a decision under the securities legislationof the Jurisdictions (the "Legislation") that certainrelated party transactions be exempt from the valuation requirements(the "Valuation Requirements") under Ontario SecuritiesCommission Rule 61-501 ("Rule 61-501") and QuébecPolicy Statement Q-27 ("Q-27");

AND WHEREAS under the Mutual RelianceReview System for Exemptive Relief Applications (the "MRRS"),the Ontario Securities Commission is the principal regulatorfor this application;

AND WHEREAS, unless otherwise defined,the terms have the meaning set out in National Instrument 14-101Definitions or in Quebec Commission Notice 14-101;

AND WHEREAS TA Power has representedto the Decision Makers that:

1. TA Power is a limited partnership formedon December 16, 1997 under the laws of the Province of Ontario.

2. TA Power's principal and head office islocated at 110 -- 12th Avenue S.W., Calgary, Alberta,T2P 2M1.

3. TA Power is permitted to carry on onlyactivities which are directly or indirectly related to theenergy supply industry and to hold investments in other entitieswhich are primarily engaged in the energy supply industry.

4. TA Power is and has been a reporting issuer(or the equivalent) for a period in excess of 12 months ineach of the Jurisdictions.

5. The authorized capital of TA Power consistsof an unlimited number of limited partnership units (the "TAPower Units"). As at May 31, 2003, 33,987,700 TA PowerUnits were issued and outstanding.

6. The TA Power Units are listed and postedfor trading on the Toronto Stock Exchange (the "TSX").

7. At present, TA Power owns a 49.99% interestin TA Cogen which wholly owns three cogeneration facilitieslocated in Mississauga, Ottawa and Windsor, Ontario and whichalso owns a 60% interest in a cogeneration facility locatedin Fort Saskatchewan, Alberta. The remaining 50.01% of TACogen is owned by TransAlta Energy Corporation ("TEC")(50.00%) and by TransAlta Cogeneration Ltd. ("TA CogenGP") (0.01%). TA Cogen GP is the general partner of TACogen.

8. The business and affairs of TA Power aremanaged by TransAlta Power Ltd. ("TA Power GP").TA Power GP has contracted with TEC to provide TA Power withcertain management, administrative and other services. TECrelies on its own resources in providing such services toTA Power.

9. The business and affairs of TA Cogen aremanaged by TA Cogen GP. TA Cogen CP has contracted with TECto provide TA Cogen with certain management, administrative,operations and maintenance and other services. TEC relieson its own resources in providing such services to TA Cogen.

10. Each of TEC, TA Power GP, TA Cogen GPand TransAlta Utilities Corporation ("TAU") arewholly owned subsidiaries of TransAlta Corporation.

11. To the knowledge of the directors andofficers of TA Power GP, there are no unitholders who own,directly or indirectly, or exercise control or direction over,securities carrying more than 10% of the votes attached toall of the outstanding voting securities of TA Power.

12. The proposed transaction consists of theacquisition (the "Acquisition") by TA Cogen fromTEC of TAU's 50% interest in a 756 MW coal-fired mine mouththermal electric generating station located near Hanna, Albertaand the related agreements (the "Acquired Business")for approximately $600 million. One week prior to the Acquisition,TAU will sell all of its right, title and interest in andto the Acquired Business to TEC.

13. Under the proposed transaction, TA Powerwill complete a public offering (the "Public Offering")of subscription receipts (the "Subscription Receipts")of TA Power for gross proceeds of up to approximately $171million. It is expected that the Subscription Receipts willbe listed and posted for trading on the TSX. Each SubscriptionReceipt will be automatically exchanged for one TA Power Unitand one warrant (a "Warrant") of TA Power withoutpayment of additional consideration on the first businessday following the closing of the Acquisition or, if the Acquisitionhas been completed prior to the closing date of the PublicOffering (the "Closing Date"), on the Closing Date.Each Warrant will entitle the holder to acquire one TA PowerUnit at a specified price within a period of one year followingthe Closing Date.

14. Concurrent with such subscription, TECwill subscribe (the "Private Placement") for privateplacement subscription receipts (the "Private SubscriptionReceipts") for gross proceeds of up to $190 million.Each Private Subscription Receipt will be automatically exchangedfor one TA Power Unit without payment of additional considerationon the first business day following the closing of the Acquisitionor, if the Acquisition has been completed prior to the ClosingDate, on the Closing Date.

15. Pursuant to a delivery agreement to bedated as of the Closing Date among TA Power, TEC and CIBCMellon Trust Company, TEC will commit to sell to TA Power,as Warrants are exercised, that number of the TA Power Unitsissued to it pursuant to the exchange of Private SubscriptionReceipts equal to the number of TA Power Units issued to Warrantholdersby TA Power. The purchase price payable by TA Power for TAPower Units purchased from TEC in this manner will be equalto the exercise price of the Warrants. As this aspect of theproposed transactions is an issuer bid for TA Power Unitsunder the Securities Act (Ontario) and the SecuritiesAct (Alberta) (the "Issuer Bid Legislation"),the proposed transaction is conditional upon TA Power obtainingrelief from the applicable requirements under the Issuer BidLegislation.

16. The net proceeds from the sale of theSubscription Receipts and the Private Subscription Receiptswill be held in escrow by CIBC Mellon Trust Company (the "EscrowAgent"), as escrow agent, pending the closing of theAcquisition. Provided that the Acquisition closes prior toa specified date, such proceeds will be released to TA Powerconcurrently with the closing of the Acquisition.

17. If the Acquisition fails to close by aspecified date, or the agreement governing the terms of theAcquisition is terminated at any earlier time, the EscrowAgent and TA Power will return to holders of the SubscriptionReceipts and the Private Subscription Receipts an amount equalto the issue price therefor and their pro rata entitlementto interest on such amount.

18. TA Power will, concurrent with the closingof the Acquisition, use the net proceeds of the Public Offeringand the Private Placement to subscribe for additional limitedpartnership units in TA Cogen ("TA Cogen Units").

19. After the escrow period, TA Cogen will,in turn, use the funds received from TA Power and TEC to completethe Acquisition. The balance of the purchase price for theAcquired Business will be satisfied by TA Cogen by the issuanceto TEC of TA Cogen Units.

20. The directors of TA Power GP have formedan independent committee of directors (the "IndependentCommittee") to review, consider, negotiate and approvethe Public Offering and the Acquisition. In furtherance ofits responsibilities, the Independent Committee has:

(a) retained HSBC Securities (Canada) Inc.to act as independent financial advisor to the IndependentCommittee and, in particular, to prepare and deliver a formalvaluation of the Acquired Business in accordance with Rule61-501and Q-27, and a written opinion as to the fairnessof the transaction from a financial point of view to theholders of TA Power Units (the "Independent Valuationand Fairness Opinion");

(b) retained independent counsel; and

(c) retained Nordic Acres Engineering toprepare and deliver an independent engineering report inrespect of the Acquired Business.

21. TA Power will hold a special meeting ofthe holders of TA Power Units (the "Special Meeting")to obtain approval of, inter alia, the Acquisition.The approval will constitute minority approval of the Acquisitionas prescribed under Rule 61-501 and Q-27.

22. Each of TransAlta Corporation, TA Cogen,TAU and TEC are related parties to TA Power under Rule 61-501and Q-27.

23. The Acquisition is a related party transactionof TA Power, as it is acquiring indirectly an asset, the AcquiredBusiness, from a related party, TEC. In addition, a numberof steps required to complete the Acquisition are relatedparty transactions. Three aspects of the transaction are subjectto the valuation provisions of Rule 61-501 and Q-27:

(a) the issue of the Private SubscriptionReceipts to TEC;

(b) the indirect acquisition of the AcquiredBusiness by TA Power from TEC; and

(c) the issue of TA Cogen Units to TA Power.

24. The Private Subscription Receipts arenot different in substance from a subscription for TA PowerUnits directly. The Private Subscription Receipts represent,for all practical purposes, TA Power Units and are being utilizedfor the sole purpose of ensuring that the proceeds of thePrivate Placement will be held in escrow pending the closingof the Acquisition. Upon the completion of the Acquisition,the Private Subscription Receipts will be automatically exchangedfor TA Power Units on a one-for-one basis. In addition, theoffering price for the Private Subscription Receipts willbe determined at arm's length by negotiation between TA PowerGP and CIBC World Markets Inc., on behalf of itself and theother underwriters in the Public Offering.

25. The subscription by TA Power for additionalTA Cogen Units will be made concurrently with the issuanceof additional TA Cogen Units by TA Cogen to TEC as partialconsideration for the Acquired Business at the same priceper TA Cogen Unit under the Public Offering, such that thedirect and indirect interests (including the voting interests)in TA Cogen held by TA Power, on the one hand, and TA CogenGP and TEC, on the other hand, will remain unchanged.

26. TA Cogen is a pass-through vehicle. Accordingly,the value of the TA Cogen Units is determined by the valueof the TA Power Units.

27. The materials to be sent to holders ofthe TA Power Units in connection with the Special Meetingwill include full details of the proposed transactions, includingfull disclosure of TA Power and the issuance of additionalTA Cogen Units to TA Power and TEC and the effect of the transactionon the direct and indirect voting interests of TA Cogen. Inaddition, the material will include the Independent Valuationand Fairness Opinion.

AND WHEREAS under the System, this MRRSDecision Document evidences the decision of each Decision Maker(collectively, the "Decision");

AND WHEREAS each of the Decision Makersis satisfied that the test contained in the Legislation thatprovides the Decisions Maker with the jurisdiction to make theDecision has been met;

THE DECISION of the Decision Makers underthe Legislation is that the Valuation Requirements shall notapply to (a) the issuance of the Private Subscription Receiptsby TA Power to TEC and (b) the issuance of TA Cogen Units toTA Power.

June 13, 2003.

"Ralph Shay"