Relief granted from the registration and prospectus requirements of the Ontario SecuritiesAct to permit the issuance of options and common shares to senior employees ofsubsidiaries of issuer that are not affiliated entities in connection with an employee stockoption plan.
Securities Act, R.S.O. 1990, c.S.5, as am., s. 25,53, 72(1)(n), and 74(1).
Regulation made under the Securities Act, R.R.O. 1990, Reg. 1015, as am.
Rule 45-503 - Trades to Employees, Executives and Consultants.
R.S.O. 1990, CHAPTER S.5, AS AMENDED (the "Act")
IN THE MATTER OF
UPON the application of Fortis Inc. ("Fortis"), a Newfoundland corporation, to theOntario Securities Commission (the "Commission") for a ruling pursuant to subsection74(1) of the Act that distributions by Fortis of options to purchase its common shares("Common Shares") pursuant to its Executive Stock Option Plan (the "Option Plan") tosenior employees of Canadian Niagara Power Company Limited ("Canadian Niagara") andits affiliated entities in accordance with the provisions of the Option Plan are not subjectto Sections 25 and 53 of the Act;
AND UPON considering the application and the recommendation of the staff ofCommission;
AND UPON Fortis having represented to the Commission that:
1. Fortis was incorporated as 81800 Canada Limited under the Canada BusinessCorporations Act on June 28, 1977 and was continued under The Corporations Act(Newfoundland) on August 28, 1987. Its articles were amended on October 12,1987 to change its name to Fortis Inc.
2. The authorized capital of Fortis consists of an unlimited number of Common Shareswithout nominal or par value, an unlimited number of First Preference Shareswithout nominal or par value, issuable in series, and an unlimited number of SecondPreference Shares without nominal or par value, issuable in series. As at March31, 1999, 13,188,367 Common Shares, 2,000,000 8.7% Fixed Rate CumulativeRedeemable Retractable First Preference Shares, Series A and no SecondPreference Shares were outstanding. The Common Shares and the FirstPreference Shares, Series A of Fortis are listed and posted for trading on TheToronto Stock Exchange (the "TSE").
3. Fortis is a reporting issuer under the Act and is not on the list of defaulting reportingissuers maintained by the Commission pursuant to subsection 72(9) of the Act.
4. Fortis is a holding company which, among other things, owns all the outstandingcommon shares of three electric utilities: (i) Newfoundland Power Inc., the principaldistributor of electricity in the Province of Newfoundland, (ii) Maritime ElectricCompany, Limited, the principal distributor of electricity in the Province of PrinceEdward Island, and (iii) Belize Electricity Limited, the principal distributor ofelectricity in Belize, Central America. Through its wholly-owned U.S. subsidiary,FortisUS Energy Corporation, Fortis owns two small hydro-electric generatingplants in upper New York State.
5. Fortis owns 50% of the outstanding common shares in the capital of CanadianNiagara, a corporation existing under the Business Corporations Act (Ontario) anda private company under the Act. Niagara Mohawk Power Corporation ("NiagaraMohawk"), a public New York corporation, owns the remaining outstanding commonshares in the capital of Canadian Niagara indirectly through its wholly-ownedsubsidiary, Opinac Energy Corporation. Canadian Niagara operates a hydro-electric generating facility in Niagara Falls, Ontario and, among other things,distributes electricity in Town of Fort Erie, Ontario. Canadian Niagara Power Inc.is a wholly-owned subsidiary of Canadian Niagara and is a corporation existingunder the Business Corporations Act (Ontario).
6. Pursuant to a unanimous shareholders agreement among Fortis and a subsidiaryof Niagara Mohawk, each of Fortis and Niagara Mohawk are entitled to an equalnumber of seats on the board of directors of Canadian Niagara. Fortis is, however,entitled under that agreement to appoint the President and Chief Executive Officerof Canadian Niagara. Fortis has agreed that Canadian Niagara will be its exclusivevehicle for all gas or electricity projects in the Province of Ontario. As a holder of50% of the outstanding common shares of Canadian Niagara, Fortis exertssignificant influence over the management of the business and affairs of CanadianNiagara and consequently, its affiliated entities. In this ruling, the term "affiliatedentities" shall be interpreted in the same manner as it is in Part 1.2 (2) of Rule 45-503 Trades to Employees, Executives and Consultants ("Rule 45-503").
7. Pursuant to the Option Plan, Fortis may grant to senior employees of Fortis and itssubsidiaries ("Optionees") options to purchase Common Shares ("Options") at aspecified option price (the "Option Price"). Senior employees of Canadian Niagaraand its subsidiaries and affiliates are currently not eligible to participate in theOption Plan. Subject to the receipt of all necessary regulatory approvals including,without limitation, this ruling the Option Plan will be amended such that senioremployees of Canadian Niagara and its affiliated entities would be entitled toparticipate in the Option Plan on the same terms and conditions that are availableto senior employees of Fortis and its affiliated entitities.
8. The aggregate number of Common Shares optioned in all Options granted to asenior employee of Fortis or its affiliated entities in a calendar year cannot exceed0.2% of the total number of Common Shares issued and outstanding at the end ofthe previous calendar year. The aggregate number of Common Shares optionedin all Options granted pursuant to the Option Plan in a calendar year cannot exceed1% of the total number of Common Shares issued and outstanding at the end of theprevious calendar year. At no time during the currency of the Option Plan may theaggregate number of Common Shares issued or currently optioned under theOption Plan exceed 800,000, subject to adjustment in certain circumstances.
9. The Option Price is the average of the daily high and low board lot trading pricesof the Common Shares on the TSE on the five days immediately preceding the dateof the grant of the Options. Options expire on the date determined by a committeeof the board of directors of Fortis, except that the Options will expire no later thanfive years from the date they are granted. If an Option is not exercised before itsexpiry, it will become null and void. Options are not assignable.
10. Senior employees of Fortis or its subsidiaries may be extended an interest-free loanby Fortis or the subsidiary for the purchase of Common Shares upon the exerciseof Options. Common Shares purchased in this manner are held by Fortis as trusteefor the senior employee until such time as the loan is fully repaid.
11. The registration and prospectus exemptions in Section 2.2 of Rule 45-503 wouldnot be applicable to distributions of Options by Fortis under the Option Plan tosenior employees of Canadian Niagara and its subsidiaries and affiliates.
12. The participation by the senior employees in the Option Plan will be voluntary.
AND UPON the Commission being satisfied that to do so would not be prejudicialto the public interest;
IT IS RULED, pursuant to subsection 74(1) of the Act, that distributions of Optionsby Fortis under the Option Plan, as amended, to senior employees of Canadian Niagaraor its affiliated entities shall not be subject to sections 25 and 53 of the Act provided thatat the time of the distribution of Options to senior employees of Canadian Niagara and itsaffiliated entities under the Option Plan:
(a) Fortis owns, directly or indirectly, at least 50% of the outstanding common sharesof Canadian Niagara; and
(b) Fortis is entitled to appoint the President and Chief Executive Officer of CanadianNiagara.
August 22nd, 2000.
"Howard I. Wetston" "R. Stephen Paddon"