Securities Law & Instruments

Headnote

Mutual Reliance Review System for ExemptiveRelief Applications -- relief from issuer bid requirements inconnection with the acquisition of issuer's units pursuant toa delivery agreement.

Applicable Ontario Statutory Provisions

Securities Act, R.S.O. 1990, c. S.5, as am.,ss. 95-98, 100 and 104(2)(c).

IN THE MATTER OF

THE SECURITIES LEGISLATIONOF

ALBERTA AND ONTARIO

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

1. WHEREAS the local securities regulatoryauthority or regulator (collectively, the "Decision Makers")in each of Alberta and Ontario (the "Jurisdictions")has received an application from TransAlta Power, L.P. ("TAPower") for a decision under the securities legislationof the Jurisdictions (the "Legislation") that certaintransactions be exempt from the issuer bid requirements pursuantto the Securities Act (Alberta) (the "Alberta Act")and the Securities Act (Ontario) (the "Ontario Act");

2. AND WHEREAS pursuant to the Mutual RelianceReview System for Exemptive Relief Applications (the "System")the Alberta Securities Commission is the principal regulatorfor this application;

3. AND WHEREAS TA Power has represented tothe Decision Makers that:

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

3.2 TA Power's principal and head officeis located at 110 -- 12th Avenue S.W., Calgary, Alberta,T2P 2M1;

3.3 TA Power is permitted to carry on onlyactivities which are directly or indirectly related to theenergy supply industry and to hold investments in otherentities which are primarily engaged in the energy supplyindustry;

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

3.5 TA Power is not in default of the securitieslegislation of the Jurisdictions;

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

3.7 the TA Power Units are listed and postedfor trading on the Toronto Stock Exchange (the "TSX");

3.8 at present, TA Power owns a 49.99% interestin TA Cogen which wholly owns three cogeneration facilitieslocated in Mississauga, Ottawa and Windsor, Ontario andwhich also owns a 60% interest in a cogeneration facilitylocated in Fort Saskatchewan, Alberta. The remaining 50.01%of TA Cogen 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 ofTA Cogen;

3.9 the business and affairs of TA Powerare managed by TransAlta Power Ltd. ("TA Power GP").TA Power GP has contracted with TEC to provide TA Powerwith certain management, administrative and other services.TEC relies on its own resources in providing such servicesto TA Power;

3.10 the business and affairs of TA Cogenare managed by TA Cogen GP. TA Cogen CP has contracted withTEC to 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;

3.11 TA Cogen proposes to acquire (the "Acquisition")from TEC a 50% interest in a 756 megawatt coal-fired minemouth thermal electric generating station located near Hanna,Alberta currently held by TransAlta Utilities Corporation("TAU") and the related agreements (the "AcquiredBusiness") for approximately $600 million. At leastone week prior to the purchase of the Acquired Businessby TA Cogen, TAU will sell all of its right, title and interestin and to the Acquired Business to TEC;

3.12 in connection with the proposed transaction,TA Power will complete an offering (the "Public Offering")of up to 18.5 million subscription receipts (the "SubscriptionReceipts") for gross proceeds of up to approximately$171 million. The Subscription Receipts will be issued pursuantto a subscription receipt agreement to be entered into betweenTA Power, the underwriters of the Public Offering and CIBCMellon Trust Company. It is expected that the SubscriptionReceipts will be listed and posted for trading on the TSX.Each Subscription Receipt will be automatically exchangedfor one TA Power Unit and one warrant (a "Warrant")of TA Power without payment of additional considerationon the closing date of the Acquisition (the "AcquisitionClosing Date") or, if the Acquisition has been completedprior to the closing date of the Public Offering (the "ClosingDate"), on the Closing Date. Each Warrant will entitlethe holder to acquire one TA Power Unit at a specified pricewithin a period of one year from the Acquisition ClosingDate. The Warrants will be issued pursuant to a warrantagreement to be entered into between TA Power, the underwritersof the Offering and CIBC Mellon Trust Company (the "WarrantsAgent"), as warrants agent;

3.13 concurrent with the Public Offering,TEC will subscribe (the "Private Placement") forup to 20.5 million private placement subscription receipts(the "Private Subscription Receipts") for grossproceeds of up to approximately $190 million. The PrivateSubscription Receipts will be issued pursuant to a subscriptionagreement to be entered into between TA Power, TEC and CIBCMellon Trust Company. Each Private Subscription Receiptwill be automatically exchanged for one TA Power Unit withoutpayment of additional consideration on the Acquisition ClosingDate or, if the Acquisition has been completed prior tothe Closing Date, on the Closing Date;

3.14 the net proceeds from the sale of theSubscription Receipts and the Private Subscription Receiptswill be held in escrow by CIBC Mellon Trust Company (the"Escrow Agent"), as escrow agent, pending theclosing of the Acquisition. Provided that the Acquisitioncloses prior to a specified date, such proceeds will bereleased to TA Power concurrently with the closing of theAcquisition;

3.15 if the Acquisition fails to close bya specified date, or the agreement governing the terms ofthe Acquisition is terminated at any earlier time, the EscrowAgent and TA Power will return to holders of the SubscriptionReceipts and the Private Subscription Receipts an amountequal to the issue price therefor and their pro rata entitlementto interest on such amount;

3.16 TA Power will, concurrent with theclosing of the Acquisition, use the net proceeds of thePublic Offering and the Private Placement to subscribe foradditional limited partnership units in TA Cogen ("TACogen Units");

3.17 TA Cogen will, in turn, use the fundsreceived from TA Power to complete the Acquisition. Thebalance of the purchase price for the Acquired Businesswill be satisfied by TA Cogen by the issuance to TEC ofTA Cogen Units;

3.18 pursuant to a delivery agreement (the"Delivery Agreement") to be dated as of the ClosingDate among TA Power, TEC and CIBC Mellon Trust Company (the"Warrants Agent"), TEC will commit to sell toTA Power, as Warrants are exercised, that number of theTA Power Units issued to it pursuant to the exchange ofPrivate Subscription Receipts equal to the number of TAPower Units issued to holders of the Warrants (the "WarrantHolders") by TA Power. The purchase price payable byTA Power for TA Power Units purchased from TEC in this mannerwill be equal to the exercise price of the Warrants andthe TA Power Units so purchased will be cancelled;

3.19 the Delivery Agreement is the mechanismbeing utilized to essentially provide TA Power with TA PowerUnits for Warrant exercise. The principal terms of the DeliveryAgreement are as follows:

3.19.1 pursuant to the Delivery Agreement,TEC will irrevocably commit and agree to sell TA PowerUnits from its holdings of TA Power Units to TA Powerfor cancellation upon the due exercise of the Warrants.To secure this obligation, TEC will agree, among otherthings, to deposit, upon the closing of the Public Offering,certificates representing that number of up to 18.5 millionTA Power Units equal to the number of TA Power Units issuableupon exercise of the Warrants (the "Pledged Units")in favour of TA Power;

3.19.2 upon the due exercise of the Warrants,TA Power will issue to the Warrant Holders that numberof TA Power Units to which the Warrant Holders are entitled.TA Power will, immediately thereafter, purchase an equalnumber of the Pledged Units from TEC for a purchase priceequal to the funds received by TA Power upon exerciseof the Warrants. Pledged Units so purchased by TA Powerwill be immediately cancelled. The Warrants Agent willcredit TA Power the full amount of the funds receivedin payment of the exercise price of the Warrants, debitTA Power the full amount of the purchase price for thePledged Units cancelled and remit that amount to TEC;

3.19.3 until the due exercise of the Warrants,distributions, if any, in respect of the Pledged Unitswill be paid to, or to the order of the Warrants Agent,as registered holder of the Pledged Units. The WarrantsAgent will remit such distributions to TEC. The rightto vote attached to the Pledged Units will be exercisedby the Warrants Agent in accordance with the written instructionsof TEC;

3.19.4 in the event that any Pledged Unitsremain with the Warrants Agent after 5:00 p.m. (Torontotime) on the expiry date of the Warrants expected to beJuly 31, 2004 (the "Expiry Date"), the WarrantsAgent will deliver to TEC a certificate representing anysuch remaining Pledged Units;

3.20 to the extent that Warrants remainunexercised on the Expiry Date, TEC will continue to ownthe TA Power Units acquired by it pursuant to the exerciseof Private Subscription Receipts acquired pursuant to thePrivate Placement. In addition, the Delivery Agreement providesthat TEC will indemnify TA Power and hold TA Power harmlessagainst any and all losses, damages or liabilities to whichTA Power may become subject arising out of or based uponany default of TEC under the Delivery Agreement;

3.21 application is being made to list theWarrants on the TSX;

3.22 TA Power applied for an exemption fromthe Decision Makers from the issuer bid requirements ofPart 14 of the Alberta Act and Part XX of the Ontario Actin connection with the issuer bid that will arise upon theacquisition by TA Power of TA Power Units from TEC pursuantto the Delivery Agreement;

4. AND WHEREAS under the MRRS, this DecisionDocument evidences the decision of each Decision Maker (collectively,the "Decision");

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

6. THE DECISION of the Decision Makers underthe Legislation is that the issuer bid requirements containedin Part 14 of the Alberta Act and Part XX of the Ontario Actshall not apply to the acquisition by TA Power of TA PowerUnits from TEC pursuant to the Delivery Agreement.

July 7, 2003.

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