Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- exemption granted from the continuous disclosure, certification, insider reporting, audit committee, corporate governance and prospectus requirements subject to conditions -- issuer granted relief to file a short form prospectus and certain provisions of Form 44-101F subject to conditions -- issuer meets the conditions of the exemption for credit support issuers in section 13.4 of NI 51-102, except the issuer proposes to issue convertible preferred shares that are convertible into other preferred shares of the issuer -- confidentiality request granted subject to certain conditions.

Applicable Legislative Provisions

Securities Act R.S.O, c. S.5, as am., ss. 107, 121(2).

National Instrument 51-102 Continuous Disclosure Requirements.

National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings.

National Instrument 52-110 Audit Committees.

National Instrument 58-101 Disclosure of Corporate Governance Practices.

National Instrument 55-102 System for Electronic Disclosure by Insiders.

National Instrument 55-104 Insider Reporting Requirements and Exemptions.

National Instrument 44-101 Short Form Prospectus Distributions.

April 30, 2010

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the Jurisdiction)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

NORTHLAND POWER PREFERRED EQUITY INC.

(the Issuer)

AND NORTHLAND POWER INCOME FUND

(the Fund and together with the Issuer, the Filers)

DECISION

Background

The principal regulator in the Jurisdiction (Decision Maker) has received an application from the Filers for a decision under the securities legislation of the Jurisdiction (the Legislation) granting:

1. the Issuer relief from:

(a) the continuous disclosure requirements contained in National Instrument 51-102 -- Continuous Disclosure Obligations (NI 51-102), as amended from time to time (the Continuous Disclosure Requirements);

(b) the certification requirements contained in National Instrument 52-109 -- Certification of Disclosure in Issuers' Annual and Interim Filings (NI 52-109), as amended from time to time (the Certification Requirements);

(c) the audit committee requirements contained in National Instrument 52-110 -- Audit Committees (NI 52-110), as amended from time to time (the Audit Committee Requirements);

(d) the corporate governance disclosure requirements contained in National Instrument 58-101 -- Disclosure of Corporate Governance Practices (NI 58-101) as amended from time to time (the Corporate Governance Requirements);

(the Continuous Disclosure Requirements, the Certification Requirements, the Audit Committee Requirements and the Corporate Governance Requirements are collectively referred to as the Disclosure Requirements);

(e) the qualification requirements of Part 2 of National Instrument 44-101 -- Short Form Prospectus Distributions (NI 44-101), as amended from time to time, such that the Issuer is qualified to file a prospectus in the form of a short form prospectus (the Short Form Prospectus Eligibility Requirements);

(f) the disclosure requirements contained in Item 6 (Earnings Coverage Ratios) and Item 11 (Documents Incorporated by Reference) of Form 44-101F1, with the exception of Item 11.1(1)(5) of Form 44-101F1, in respect of the Issuer, as applicable (the Specified Form 44-101F1 Disclosure Requirements);

(g) the requirement in Section 2.8 of NI 44-101 to file a notice of intention to file a short form prospectus no fewer than 10 business days prior to a filing of a preliminary short form prospectus (the Notice of Intention Requirement); and

2. the insiders of the Issuer relief from the insider reporting requirements in the Securities Act, R.S.O.1990, c. S.5, as amended (the Act Insider Reporting Requirements) and the insider reporting requirements in National Instrument 55-104 Insider Reporting Requirements and Exemptions (the NI 55-104 Insider Reporting Requirements, collectively with the Act Insider Reporting Requirements, the Insider Reporting Requirements).

The Decision Maker has received an application from the Filers for a decision under the Legislation that the application for this decision, the supporting materials and this decision (collectively, the Confidential Material) be kept confidential pursuant to Section 5.4 of National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions (NP 11-203), as amended from time to time until the earlier of: (i) the date on which the Issuer is issued a receipt for the preliminary short form prospectus in respect of the distribution of the Series 1 Shares (as defined herein); (ii) the date that the Issuer advises the Decision Makers that there is no longer any need for the Confidential Material to remain confidential; and (iii) the date that is 90 days after the date of this decision (the Request for Confidentiality).

Under NP 11-203 (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application; and

(b) the Filers have provided notice that Section 4.7(1) of Multilateral Instrument 11-102 -- Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Newfoundland and Labrador and Prince Edward Island (the Other Jurisdictions and with the Jurisdiction, the Jurisdictions).

Interpretation

Terms defined in NI 14-101 and MI 11-102 have the same meanings if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filers:

The Issuer

1. The Issuer was incorporated under the laws of Ontario on April 8, 2010.

2. The registered and head office of the Issuer is located in Toronto, Ontario.

3. The Issuer is not a reporting issuer, or the equivalent, in any of the Jurisdictions.

4. The Issuer will operate as a financing company and has no significant assets or liabilities and will not have any ongoing business operations of its own. The Issuer will lend the net proceeds of the Offering (as defined below) to NPIF Holdings L.P. (Holdings LP), a subsidiary of the Fund. The Issuer is an indirect subsidiary of the Fund.

5. The authorized share capital of the Issuer currently consists of an unlimited number of common shares (the Common Shares) and an unlimited number of preferred shares (the Preferred Shares) issuable in series. As of April 8, 2010, one Common Share was issued and outstanding. No Preferred Shares have been issued.

6. The only voting securities of the Issuer are the Common Shares, all of which are held by Holdings LP.

7. The directors of the Issuer may from time to time issue Preferred Shares in one or more series, each series to consist of such number of shares as will before issuance thereof be fixed by the directors who will at the same time determine the designation, rights, privileges, restrictions and conditions attaching to that series of Preferred Shares. Subject to applicable corporate law the Preferred Shares of each series shall be non-voting and not entitled to receive notice of any meeting of shareholders, provided that the designation, rights, privileges, restrictions and conditions may provide that if the Issuer shall fail, for a specified period, which is at least two years, to pay dividends at the prescribed rate on any series of the Preferred Shares, whereupon, and so long as any such dividends shall remain in arrears, the holders of that series of Preferred Shares shall be entitled to receive notice of, to attend and vote at all meetings of shareholders, except meetings at which only holders of a specified class or series of shares are entitled to attend.

8. The Issuer has not issued any securities, and does not have any securities outstanding, other than the one Common Share, which was issued to and is directly held by Holdings LP.

9. The Issuer is proposing to amend its articles to create two new series of Preferred Shares, being Cumulative Rate Reset Preferred Shares, Series 1 (the Series 1 Shares) and Cumulative Floating Rate Preferred Shares, Series 2 (the Series 2 Shares).

10. The Fund will provide full and unconditional guarantees (the Guarantees) of the payments to be made by the Issuer in respect of the Series 1 Shares and Series 2 Shares, as stipulated in agreements governing the rights of holders of the securities, that result in the holders of such securities being entitled to receive payment from the Fund within 15 days of any failure by the Issuer to make a payment, as contemplated by paragraph (d) of the definition of "designated credit support security" in NI 51-102.

11. Accordingly, the Fund will be a "parent credit supporter" (as defined in NI 51-102) and the Issuer will be a "credit support issuer" (as defined in NI 51-102).

12. The Series 1 Shares will be convertible, at a date that is more than five years from the issue date and every five years thereafter (the Conversion Date) at the option of the holder, into an equal number of Series 2 Shares. The Series 1 Shares will carry a fixed dividend rate until the Conversion Date. As at each Conversion Date, the dividend rate will be reset based upon a specified spread above benchmark Canadian government bonds.

13. The Series 2 Shares will be convertible, at each Conversion Date (other than the first) at the option of the holder, into an equal number of Series 1 Shares. The Series 2 Shares will carry a floating dividend rate until the Conversion Date. As at each Conversion Date, the dividend rate will be reset based upon a specified spread above 90-day Government of Canada Treasury Bills.

14. The purpose of the conversion right attached to each of the Series 1 Shares and the Series 2 Shares is to allow the holder to decide every five years whether to receive a fixed-rate or a floating-rate dividend for the next five years.

15. Therefore, the Series 1 Shares and the Series 2 Shares would be "designated credit support securities" (as defined in NI 51-102), but for the fact that they are convertible into the Issuer's own preferred shares as opposed to being either non-convertible or convertible into securities of the parent credit supporter.

16. The Issuer is proposing to distribute (the Offering) the Series 1 Shares to the public pursuant to a short form prospectus (the Prospectus) filed in each of the Jurisdictions as if the Series 1 Shares were designated credit support securities. The Issuer intends to obtain a receipt for the Prospectus and thereby become a reporting Issuer in the Jurisdictions.

17. The Fund has announced its intention to convert to a corporation on or before January 1, 2011. It is currently anticipated that the Issuer will amalgamate with the Successor to the Fund as part of the conversion. However, if the Issuer does not amalgamate with or otherwise become, the Successor, the corporate entity that is the Successor will assume all of the obligations of the Fund under the Guarantees and the Guarantees will remain in full force and effect, unless the Successor and the issuer of the Series 1 Shares and Series 2 Shares are one and the same person. If the Issuer amalgamates with, or otherwise becomes, the Successor, the Guarantees will be cancelled. For greater certainty, if at any time all the trust units of the Fund are owned by the Issuer, the Guarantees will automatically terminate. If the Successor and the issuer of the Series 1 Shares and the Series 2 Shares are not one and the same person, any equity securities issued by the Successor will rank pari passu or junior to the Guarantees.

18. An application will be made to list the Series 1 Shares and the Series 2 Shares on the Toronto Stock Exchange (the TSX).

19. The Issuer may also, subject to market conditions, wish to issue other series of Preferred Shares that, but for the fact they would be convertible into other series of Preferred Shares, would satisfy the definition of "designated credit support securities" in NI 51-102.

The Fund

20. The Fund was established as an unincorporated open-ended trust under the laws of the Province of Ontario pursuant to a trust indenture dated February 17, 1997, as supplemented and restated as of July 16, 2009.

21. The registered and head office of business of the Fund is located in Toronto, Ontario.

22. The Fund is a reporting issuer, or the equivalent, in each of the Jurisdictions, and, to its knowledge, is not in default of any of its reporting issuer obligations under the Legislation.

23. The Fund, through Holdings LP, is in the business of developing, constructing, financing, owning, managing and operating power projects, which efficiently and cleanly produce electricity and, in come cases, steam for sale under long-term contracts.

24. The Fund is qualified to file a prospectus in the form of a short form prospectus pursuant to Section 2.2 of NI 44-101, as it satisfies paragraphs (a), (b), (c), (d) and (e) of that Section.

25. The Fund's Trust Units trade on the TSX under the symbol "NPI.UN". As at March 31, 2010, the Fund had 71,389,658 Trust Units outstanding. The Fund's 6.50% convertible unsecured subordinated debentures due June 30, 2011 trade on the TSX under the symbol "NPI.DB". The Fund's 6.25% convertible unsecured subordinated debentures, Series A due December 31, 2014 trade on the TSX under the symbol "NPI.DB.A".

Decision

The Decision Maker is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.

Relief from the Disclosure Requirements

The decision of the Decision Maker under the Legislation is that relief from the Disclosure Requirements is granted upon the Issuer becoming a reporting issuer, provided that:

(a) the Issuer continues to satisfy all the conditions set forth in subsection 13.4(2) of NI 51-102, other than paragraph 13.4(2)(c); and

(b) the Issuer does not issue any securities, and does not have any securities outstanding, other than:

(i) designated credit support securities (as such term is defined in NI 51-102);

(ii) securities issued to and held by the Fund or an affiliate of the Fund;

(iii) debt securities issued to and held by banks, loan corporations, loan and investment corporations, savings companies, trust corporations, treasury branches, savings or credit unions, financial services cooperatives, insurance companies or other financial institutions;

(iv) securities issued under exemptions from the prospectus requirement in Section 2.35 and registration requirement in Section 3.35 of National Instrument 45-106 -- Prospectus and Registration Exemptions;

(v) Series 1 Shares and Series 2 Shares; and

(vi) other series of Preferred Shares that, but for the fact they are convertible to other series of Preferred Shares, are designated credit support securities (as such term is defined in NI 51-102).

Relief from the Short Form Prospectus Eligibility Requirements

The further decision of the Decision Maker under the Legislation is that relief from the Short Form Prospectus Eligibility Requirements in respect of the distribution of the Series 1 Shares, and other series of Preferred Shares is granted, provided that

(a) the criteria in section 2.5 of NI 44-101 other than subsection 2.5(a) are satisfied; and

(b) the Series 1 Shares and other series of Preferred Shares are not convertible into any securities other than:

(i) another series of Preferred Shares; or

(ii) securities of the Fund.

Relief from the Notice of Intention Requirement

The further decision of the Decision Maker under the Legislation is that relief from the Notice of Intention Requirement is granted provided that the Issuer files a notice declaring its intention pursuant to Section 2.8 of NI 44-101 prior to or concurrently with the filing of the preliminary short form prospectus.

Relief from the Specified Form 44-101F1 Prospectus Disclosure Requirements

The further decision of the Decision Maker under the Legislation is that relief from the Specified Form 44-101F1 Prospectus Disclosure Requirements is granted provided that at the time of the filing of any prospectus in connection with offerings of Preferred Shares (including the Offering):

(a) the prospectus will be prepared in accordance with the short form prospectus requirements of NI 44-101 other than the Specified Form 44-101F1 Prospectus Disclosure Requirements, except as permitted by the Legislation;

(b) the Issuer will comply with all of the filing requirements and procedures set out in NI 44-101 other than the Short Form Prospectus Eligibility Requirements and the Notice of Intention Requirement, except as permitted by the Legislation;

(c) the Issuer satisfies the conditions of the relief from the Short Form Prospectus Eligibility Requirements above;

(d) the Issuer satisfies the conditions of the relief from the Notice of Intention Requirement above; and

(e) in respect of an offering other than the Offering, the Issuer satisfies the conditions of the relief from the Disclosure Requirements above.

Relief from the Insider Reporting Requirements

The further decision of the Decision Maker under the Legislation is that relief from the Insider Reporting Requirements is granted, provided that:

(a) the Issuer continues to satisfy the conditions of the relief from the Disclosure Requirements above;

(b) if the insider is not the Fund, (i) the insider does not receive, in the ordinary course, information as to material facts or material changes concerning the Issuer before the material facts or material changes are generally disclosed, and (ii) the insider is not an insider of the Fund in any capacity other than by virtue of being insider of the Issuer; and

(c) if the insider is the Fund, the Fund does not beneficially own any designated credit support securities of the Issuer.

Request for Confidentiality

The further decision of the Decision Maker under the Legislation is that the Request for Confidentiality is granted until the earlier of: (i) the date on which the Issuer is issued a receipt for the preliminary short form prospectus in respect of the distribution of the Series 1 Shares; (ii) the date that the Issuer advises the Decision Maker that there is no longer any need for the Confidential Material to remain confidential; and (iii) the date that is 90 days after the date of this decision.

As to the relief from the Disclosure Requirements, Short Form Prospectus Eligibility Requirements, Notice of Intention Requirement, Specified Form 44-101F1 Prospectus Disclosure Requirements, the NI 55-104 Insider Reporting Requirements and the Request for Confidentiality:

"Michael Brown"
Assistant Manager, Corporate Finance

As to relief from the Act Insider Reporting Requirements and the Request for Confidentiality:

"Paulette Kennedy"
Commissioner
 
"David L. Knight"
Commissioner