HeadnoteMutualReliance Review System for Exemptive Relief Applications - Relieffrom registration and prospectus requirements in connection witha statutory arrangement involving an exchangeable share structurewhere exemptions may not be available in for technical reasons.Exchangeco exempted from certain continuous disclosure and insiderreporting requirements subject to certain conditions. First tradedeemed a distribution unless made in accordance with specifiedprovisions of Multilateral Instrument 45-102: Resale of Securities.
ApplicableOntario Statutory ProvisionsSecuritiesAct, R.S.O. 1990, c. S.5, as am., ss. 25, 53, 74(1), 80(b)(iii)and 121(2)(a)(ii).
ApplicableOntario RulesRule45-501 - Exempt Distributions
Rule51-501 - AIF and MD&A
MultilateralInstrument 45-102: Resale of Securities
NationalInstrument 55-102 System for Electronic Disclosure by Insiders(SEDI)
INTHE MATTER OF
THESECURITIES LEGISLATION OF
BRITISHCOLUMBIA, ALBERTA, SASKATCHEWAN, MANITOBA,
ONTARIO,QUÉBEC, NEW BRUNSWICK, NOVA SCOTIA,
PRINCEEDWARD ISLAND, NEWFOUNDLAND AND LABRADOR,
YUKONTERRITORY, NORTHWEST TERRITORIES AND NUNAVUT
INTHE MATTER OF
THEMUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
INTHE MATTER OF
DUKEENERGY CORPORATION, 3946509 CANADA INC.,
3058368 NOVA SCOTIA COMPANY AND WESTCOAST ENERGY INC.
WHEREAS the local securities regulatory authority orregulator (the "Decision Maker") in each ofBritish Columbia, Alberta, Saskatchewan, Manitoba, Ontario,Québec, New Brunswick, Prince Edward Island, Nova Scotia,Newfoundland and Labrador, Yukon Territory, Northwest Territoriesand Nunavut (collectively, the "Jurisdictions")has received an application from Duke Energy Corporation ("DukeEnergy"), 3058368 Nova Scotia Company ("Callco"),3946509 Canada Inc. ("Exchangeco") and WestcoastEnergy Inc. ("Westcoast") (collectively, the"Applicant") for a decision pursuant to thesecurities legislation, regulations, rules, instruments and/orpolicies of the Jurisdictions (the "Legislation")that:(a)certain trades in securities made in connection with or resultingfrom the proposed combination (the "Transaction")of Duke Energy and Westcoast to be effected by way of a plan ofarrangement (the "Arrangement") under Section192 of the Canada Business Corporations Act (the "CBCA")shall be exempt from the requirements contained in the Legislationto be registered to trade in a security (the "RegistrationRequirements") and to file a preliminary prospectus anda prospectus and receive receipts therefor (the "ProspectusRequirements");
(b)Exchangeco shall be exempt from the requirements of the Legislationto issue a press release and file a report upon the occurrenceof a material change, to file with the Decision Makers and deliverto its security holders an annual report, where applicable, andinterim and annual financial statements, to file and deliver aninformation circular, to file interim and annual management'sdiscussion and analysis of the financial condition and resultsof operation of Exchangeco and, where applicable, to file an annualinformation form (the "Continuous Disclosure Requirements");and
(c)the requirement contained in the Legislation for an insider ofa reporting issuer to file reports disclosing the insider's director indirect beneficial ownership of, or control or direction over,securities of the reporting issuer and the filing requirementsof Exchangeco in connection therewith (the "Insider ReportingRequirements") shall not apply to each insider of Exchangecoand its successors and Exchangeco;
ANDWHEREAS pursuant to the Mutual Reliance Review Systemfor Exemptive Relief Applications (the "System"),the Ontario Securities Commission is the principal regulator forthis application;
ANDWHEREAS the Applicant has represented to each DecisionMaker that:
1.Duke Energy, together with its subsidiaries, is an integratedenergy and energy services provider with the ability to offerphysical delivery and management of both electricity and naturalgas throughout the United States and abroad. With over 23,000employees world-wide, Duke Energy is a multinational corporationwith operations in over 50 countries.
2.As of December 31, 2000, Duke Energy's total assets were approximatelyUS$58 billion. For the financial year ended December 31, 2000,its total operating revenues and net income were approximatelyUS$49.318 billion and US$1.776 billion, respectively.
3.Duke Energy was organized in 1917 under the laws of the stateof New Jersey and reincorporated under the laws of the State ofNorth Carolina in 1963. Duke Energy was known as Wateree PowerCompany until 1924, when it changed its name to Duke Power Company.In 1997, it changed its name to Duke Energy Corporation. DukeEnergy's principal executive offices are located at 526 SouthChurch Street, Charlotte, North Carolina, U.S.A. 28202.
4.Duke Energy's authorized capital currently consists of two billioncommon shares, without par value, 12.5 million shares of preferredstock ("Duke Energy Preferred Stock"), par valueUS$100 per share, issuable in series, 10 million shares of preferredstock A ("Duke Energy Preferred Stock A"), parvalue US$25 per share, issuable in series, and 1.5 million sharesof preference stock, par value US$100 per share, issuable in series("Duke Energy Preference Stock"). The Duke Energycommon shares are fully participating voting shares. As at December10, 2001, there were 776,632,413 Duke Energy common shares issuedand outstanding and as at November 30, 2001 there were 1,534,984shares of Duke Energy Preferred Stock, 2,007,185 shares of DukeEnergy Preferred Stock A and no shares of Duke Energy PreferenceStock issued and outstanding.
5.As of November 29, 2001, there were 81 registered holders of DukeEnergy common shares in Canada holding 38,933 Duke Energy commonshares, representing approximately 0.005% of the total numberof issued and outstanding Duke Energy common shares. As of December10, 2001, there were 961 beneficial holders of Duke Energy commonshares in Canada holding 2,097,951 shares representing approximately0.27% of the total number of issued and outstanding Duke Energycommon shares.
6.As of November 30, 2001, there were 54,176,015 Duke Energy commonshares reserved for issuance pursuant to the Duke Energy stockoption plans ("Duke Energy Plans"). As of November30, 2001, of all of the options outstanding under the Duke EnergyPlans, there were 28 persons in Canada holding options to purchasean aggregate of 99,220 Duke Energy common shares, representingapproximately 0.18% of the Duke Energy common shares reservedfor issuance pursuant to the Duke Energy Plans.
7.Duke Energy is a public company in the United States. The DukeEnergy common shares are listed on the New York Stock Exchange(the "NYSE") under the symbol "DUK".
8.Duke Energy is not a "reporting issuer" or the equivalent in anyprovince or territory of Canada. Upon the completion of and asa consequence of the Arrangement, Duke Energy may become a reportingissuer in British Columbia, Alberta, Saskatchewan and Québec.
9.Duke Energy is subject to the United States Securities ExchangeAct of 1934, as amended (the "Exchange Act").
10.On September 20, 2001, the market capitalization of Duke Energywas approximately Cdn$47.2 billion and the trading price of aDuke Energy common share was US$38.73.
11.Callco is an indirect wholly-owned subsidiary of Duke Energy.Callco is an unlimited liability company incorporated under theCompanies Act (Nova Scotia) on September 14, 2001 as3058368 Nova Scotia Company to hold the call rights related tothe Exchangeable Shares (as defined below). Prior to the effectivedate of the Arrangement (the "Effective Date"),it is expected that Callco will change its name to "Duke EnergyCanada Call Co.". Callco's registered office address is Suite800, 1959 Upper Water Street, P.O. Box 997, Halifax, Nova ScotiaB3J 2X2.
12.The authorized capital of Callco consists of one billion commonshares. All of the outstanding common shares of Callco are heldindirectly by Duke Energy.
13.Exchangeco is an indirect subsidiary of Duke Energy incorporatedunder the CBCA on September 14, 2001 as 3946509 Canada Inc. forthe purpose of implementing the Arrangement. Prior to the EffectiveDate, it is expected that Exchangeco will change its name to "DukeEnergy Canada Exchangeco Inc.". Exchangeco's registered officeaddress is 199 Bay Street, Commerce Court West, Suite 5300, Toronto,Ontario M5L 1B9.
14.The authorized capital of Exchangeco consists of an unlimitednumber of common shares and an unlimited number of preferenceshares, issuable in series. All of the outstanding common sharesof Exchangeco are held indirectly by Duke Energy. No preferenceshares of Exchangeco are currently outstanding.
15.The share capital of Exchangeco will be amended prior to the EffectiveDate to create the non-voting exchangeable shares (the "ExchangeableShares"). Upon the completion of the Arrangement, allof the outstanding Exchangeable Shares will be held by formerWestcoast Shareholders who receive Exchangeable Shares in exchangefor their Westcoast common shares pursuant to the Arrangement.
16.Exchangeco is currently a "closely-held issuer" within the meaningof that term under OSC Rule 45-501. Upon completion of the Arrangement,it is anticipated that the Exchangeable Shares will be listedon The Toronto Stock Exchange (the "TSE") andthat Exchangeco will become a reporting issuer in Alberta, BritishColumbia, Saskatchewan, Manitoba, Ontario, Québec, NovaScotia and Newfoundland. The Exchangeable Shares were conditionallyapproved for listing on the TSE on October 12, 2001, subject tothe satisfaction of its customary requirements.
17.Westcoast is a North American energy company whose interests includenatural gas gathering, processing and transmission, natural gasstorage facilities and gas distribution, power generation, andinternational energy businesses as well as financial, informationand energy services businesses.
18.As at December 31, 2000, Westcoast had consolidated assets ofapproximately Cdn$15.1 billion and employed approximately 5,500people. For the financial year ended December 31, 2000, Westcoasthad gross revenues of approximately Cdn$8.9 billion and net incomeof approximately Cdn$388 million.
19.Westcoast was incorporated by a Special Act of Parliament as WestcoastTransmission Company Limited in 1949, and continued under theCBCA effective May 5, 1976. Westcoast Transmission Company Limitedchanged its name to Westcoast Energy Inc. on June 1, 1988. Westcoast'sregistered office is 1333 West Georgia Street, Vancouver, BritishColumbia V6E 3K9.
20.Westcoast's authorized capital consists of an unlimited numberof Westcoast common shares and an unlimited number of first preferredshares, issuable in series (the "Westcoast First PreferredShares"), and second preferred shares, issuable in series(the "Westcoast Second Preferred Shares"). Asof November 27, 2001, 127,386,859 Westcoast common shares wereissued and outstanding, no Westcoast Second Preferred Shares wereissued and outstanding, and the following Westcoast First PreferredShares were issued and outstanding:
a.8,000,000 4.90% Cumulative Redeemable First Preferred Shares,Series 5;
b. 5,000,000 4.72% Cumulative Redeemable First Preferred Shares,Series 6;
c. 6,000,000 5.50% Cumulative First Preferred Shares, Series7;
d. 6,000,000 5.60% Cumulative First Preferred Shares, Series8; and
e. 5,000,000 5.00% Cumulative Redeemable First Preferred Shares,Series 9.21.The Westcoast common shares are listed on the TSE under the symbol"W" and on the NYSE under the symbol "WE".
22.Westcoast is a reporting issuer or the equivalent in all provincesof Canada. To the best of the knowledge of Westcoast, Westcoastis not in default of any of the requirements of the Legislation.Westcoast is also currently subject to the reporting requirementsapplicable to foreign private issuers under the Exchange Act.
23.Westcoast is currently eligible to file under National Instrument44-101 -"Short Form Prospectus Distributions".
24.As of February 6, 2002, based on information provided to Westcoastby Independent Investor Communications Corp., it is estimatedthat beneficial Westcoast Shareholders in Canada held 87,087,844Westcoast common shares, representing approximately 68% of thetotal number of issued and outstanding Westcoast common shares.Based on the number of sets of Westcoast Meeting materials sentto Canadian addresses, it is estimated that on November 8, 2001there were 41,424 Westcoast Shareholders in Canada.
25.As of November 29, 2001, of all the Westcoast Options outstandingunder the Westcoast stock option plans, Westcoast Options representingthe right to acquire 4,788,312 Westcoast common shares were heldby residents of Canada, representing approximately 98.7% of thetotal number of Westcoast common shares which may be acquiredpursuant to the exercise of Westcoast Options.
26.Duke Energy, Callco, Exchangeco and Westcoast entered into anamended and restated combination agreement as of September 20,2001, pursuant to which Duke Energy intends to acquire all ofthe issued and outstanding Westcoast common shares by way of theArrangement.
27.The Arrangement will be carried out under Section 192 of the CBCA.On November 6, 2001, the Applicant obtained, under section192of the CBCA, an interim order (the "Interim Order") from the SupremeCourt of British Columbia which order specifies, among other things,certain procedures and requirements to be followed in connectionwith the calling and holding of the Westcoast Meeting (as definedbelow) and the completion of the Arrangement.
28.Westcoast mailed a management proxy circular dated November 8,2001 (the "Circular") to holders ("WestcoastShareholders") of Westcoast common shares and holders("Westcoast Optionholders") of Westcoast options,and filed the Circular in all of the provinces on November 16,2001.
29.The Circular contained or incorporated by reference prospectus-leveldisclosure of the business and affairs of Duke Energy and Westcoastand a detailed description of the Arrangement, except as variedby Orders previously granted by certain of the Decision Makers.The Circular also contained certain historical financial statementsof Duke Energy and Westcoast and certain pro forma condensed consolidatedfinancial statements for the combined Duke Energy/Westcoast entity.
30.The Circular sought, among other things, approval by the WestcoastShareholders and Westcoast Optionholders (collectively, the "WestcoastSecurityholders") of the Arrangement and approval bythe Westcoast Shareholders of the amendment to the shareholderrights plan of Westcoast (the "Westcoast Rights Agreement")waiving the application of the Westcoast Rights Agreement to theTransaction, at a special meeting of Westcoast Securityholdersheld on December 13, 2001 (the "Westcoast Meeting").
31.At the Westcoast Meeting, each Westcoast Shareholder was entitledto one vote for each Westcoast common share held, and each holderof Westcoast Options was entitled to one vote for each Westcoastcommon share such holder would receive on a valid exercise ofthe Westcoast Options held by the Holder. At the Westcoast Meeting,over 96% of the votes cast by the Westcoast Securityholders werein favour of the Transaction. In addition, the Westcoast Shareholdersapproved the amendment to the Westcoast Rights Agreement.
32.Westcoast received a valid notice of objection to the Arrangement,pursuant to rights of dissent granted to Westcoast Shareholdersin accordance with the Interim Order, from only one WestcoastShareholder in respect of 664 Westcoast common shares (the "DissentingShareholder").
33.On January 10, 2002, the Supreme Court of British Columbia grantedfinal approval to the Arrangement.
34.Subject to the satisfaction or waiver of all closing conditions,including obtaining all required regulatory approvals, it is currentlyanticipated that the Transaction will be completed in the firstquarter of 2002.
35.On the Effective Date, pursuant to the Arrangement, each WestcoastShareholder (other than the Dissenting Shareholder, and otherthan Duke Energy and its affiliates) may elect, subject to certainproration adjustments described in the Circular, as considerationfor each Westcoast common share held:
a.Cdn$43.80 in cash;
b.a fraction of a Duke Energy common share equal to the ExchangeRatio (as described below);
c.a fraction of an Exchangeable Share equal to the Exchange Ratio;or
d.a combination of a fraction of a Duke Energy common share, a fractionof an Exchangeable Share and/or cash.
36.Only residents of Canada may elect to receive Exchangeable Shares.Any election to receive Exchangeable Shares by a Westcoast Shareholderwho is not a resident of Canada will be deemed to be an electionto receive Duke Energy common shares.
37.The Exchange Ratio will be determined by dividing Cdn$43.80 bythe product of the weighted average trading price of Duke Energycommon shares on the NYSE over the 20 consecutive trading daysending two Business Days before the Effective Date (the "WeightedAverage Trading Price of Duke Energy Common Shares")and a fixed currency exchange rate of Canadian dollars to U.S.dollars of 1.54. The Exchange Ratio is subject to a collar suchthat if the Weighted Average Trading Price of Duke Energy CommonShares is equal to or less than US$36.88, the Exchange Ratio willbe fixed at 0.7711, and if the Weighted Average Trading Priceof Duke Energy Common Shares is equal to or greater than US$46.48,the Exchange Ratio will be fixed at 0.6119.
38.The Arrangement provides that the consideration to be paid byDuke Energy to Westcoast Shareholders pursuant to the Arrangementwill consist of approximately 50% cash and approximately 50% DukeEnergy common shares and/or Exchangeable Shares. Elections madeby Westcoast Shareholders in the letter of transmittal and electionform mailed to Westcoast Shareholders will, pursuant to the Arrangement,be prorated accordingly.
39.No fractions of Exchangeable Shares or Duke Energy common shareswill be issued in exchange for Westcoast common shares pursuantto the Arrangement and such fractional interests will not entitlethe owner to exercise any rights as a shareholder of Exchangecoor Duke Energy. In lieu of any fractional securities, each holderotherwise entitled to a fraction of an Exchangeable Share or aDuke Energy common share will be entitled to receive a cash paymentequal to the product of the fractional interest and the WeightedAverage Trading Price of Duke Energy common shares.
40.Under the Arrangement, each Westcoast Option will be replacedwith an option (the "Replacement Options") to purchase Duke Energycommon shares. The number of Duke Energy common shares for whicha Replacement Option may be exercised will be determined by multiplyingthe number of Westcoast common shares subject to the WestcoastOption by the Exchange Ratio, subject to rounding. The exerciseprice of the Replacement Option will be determined by dividingthe exercise price per Westcoast common share of the WestcoastOption immediately prior to the effective time of the Arrangementby the Exchange Ratio, subject to rounding. The exercise pricewill also be converted into U.S. dollars at the currency exchangerate on the Effective Date.
41.As a result of the foregoing, upon the completion of the Arrangement,all of the issued and outstanding Westcoast common shares willbe held directly or indirectly by Duke Energy and its affiliates.
42.It is expected that the Westcoast common shares will be delistedfrom the TSE and the NYSE on or after the Effective Date and onthe Effective Date, Exchangeco will become a reporting issuer,or the equivalent thereof, in Alberta, British Columbia, Saskatchewan,Manitoba, Ontario, Québec, Nova Scotia and Newfoundland.
43.The Westcoast First Preferred Shares, Series 5, Series 6, Series7, Series 8 and Series 9 will remain issued and outstanding andwill continue to be listed on the TSE after the Effective Date.Westcoast will continue to be a reporting issuer or the equivalentthereof in all provinces of Canada.
44.The Exchangeable Shares will be issued by Exchangeco. The ExchangeableShares provide the holder with a security having, as nearly aspracticable, economic terms and voting rights that are the sameas the Duke Energy common shares.
45.Duke Energy will apply to the NYSE to list the Duke Energy commonshares to be issued pursuant to the Arrangement and issuable inexchange for the Exchangeable Shares and upon exercise of theReplacement Options.
46.The rights, privileges, conditions and restrictions attachingto the Exchangeable Shares (the "Exchangeable Share Provisions"),the terms and conditions of the voting and exchange trust agreementto be entered into between Duke Energy, Exchangeco and a trustee(the "Trustee") in connection with the Arrangement(the "Voting and Exchange Trust Agreement") andthe terms and conditions of the support agreement to be enteredinto between Duke Energy, Callco and Exchangeco in connectionwith the Arrangement (the "Support Agreement")are described in the Circular, and are summarized below.\
47.The Exchangeable Shares will be issued by Exchangeco and willbe exchangeable at any time up to eight years from the EffectiveDate (subject to earlier redemption in accordance with the Arrangement),on a one-for-one basis, at the option of the holder, for DukeEnergy common shares. An Exchangeable Share will provide a holderwith economic terms and voting rights which are, as nearly aspracticable, equivalent to those of a Duke Energy common share.Westcoast Shareholders who are residents of Canada and who receiveExchangeable Shares under the Arrangement may, upon filing thenecessary tax elections, obtain a full or partial deferral oftaxable capital gains for Canadian federal income tax purposesin certain circumstances. In addition, provided the ExchangeableShares are listed on a prescribed stock exchange (which currentlyincludes the TSE), they will be "qualified investments"for certain investors and will not constitute "foreignproperty", in each case, under the Income Tax Act (Canada).
48.Subject to applicable law and the exercise of the Retraction CallRight described below, a holder of Exchangeable Shares will beentitled at any time following the effective time of the Arrangementto retract any or all of the Exchangeable Shares owned by theholder and to receive an amount per share equal to the RetractionPrice described in the Circular which will be fully paid and satisfiedby the delivery for each Exchangeable Share of one Duke Energycommon share and any dividends payable on such Exchangeable Share.When a holder of Exchangeable Shares makes a Retraction Request,Callco will have an overriding call right (the "RetractionCall Right") to purchase all but not less than all ofthe Exchangeable Shares subject to the Retraction Request in exchangefor the Retraction Price, pursuant to the Exchangeable Share Provisions.
49.Subject to applicable law and the Redemption Call Right describedbelow, at any time on or after the eighth anniversary of the EffectiveDate, Exchangeco may, or earlier in the event of certain circumstancesdescribed in the Circular under the heading "Early Redemption"will, redeem all but not less than all of the then outstandingExchangeable Shares for an amount per share equal to the RedemptionPrice described in the Circular, which will be fully paid andsatisfied by the delivery for each Exchangeable Share of one DukeEnergy common share and any dividends payable on such ExchangeableShare. Callco will have an overriding right (the "RedemptionCall Right") to purchase on the Redemption Date all butnot less than all of the Exchangeable Shares then outstanding(other than Exchangeable Shares held by Duke Energy and its affiliates)for a purchase price per share equal to the Redemption Price,as set out in the Plan of Arrangement attached as Schedule F tothe Circular.
50.Except as required by law or under the Support Agreement, theterms of the Exchangeable Share Provisions or the Voting and ExchangeTrust Agreement, the holders of Exchangeable Shares will not beentitled to receive notice of, attend or vote at any meeting ofshareholders of Exchangeco.
51.On the Effective Date, Duke Energy, Exchangeco and the Trusteewill enter into the Voting and Exchange Trust Agreement pursuantto which Duke Energy will issue to the Trustee a number of DukeEnergy common shares equal to the number of Exchangeable Sharesissued and outstanding (other than Exchangeable Shares held byDuke Energy and its affiliates), which will be held by the Trusteeto enable the holders of Exchangeable Shares to have voting rightsthat are equivalent to those of holders of Duke Energy commonshares. Each registered holder of Exchangeable Shares (other thanDuke Energy and its affiliates) (a "Beneficiary")on the record date for any meeting at which shareholders of DukeEnergy are entitled to vote will be entitled to instruct the Trusteeto vote one Duke Energy common share held by the Trustee for eachExchangeable Share held by the Beneficiary. The Exchangeable Sharesare subject to adjustment or modification in the event of a stocksplit or other change to the capital structure of Duke Energyso as to maintain the initial one-to-one relationship betweenthe Exchangeable Shares and the Duke Energy common shares.
52.The Exchangeable Share Provisions will provide that each ExchangeableShare will entitle the holder to dividends from Exchangeco payableat the same time as, and the same as or economically equivalentto, each dividend paid by Duke Energy on a Duke Energy commonshare.
53.On the liquidation, dissolution or winding-up of Exchangeco orany other distribution of the assets of Exchangeco among its shareholdersfor the purpose of winding-up its affairs, holders of the ExchangeableShares will have, subject to applicable law, preferential rightsto receive from Exchangeco the Liquidation Amount for each ExchangeableShare held. When a liquidation, dissolution or winding-up occurs,Callco will have an overriding right (the "LiquidationCall Right") to purchase all of the outstanding ExchangeableShares (other than Exchangeable Shares held by Duke Energy andits affiliates) from the holders of Exchangeable Shares on theLiquidation Date for a purchase price per share equal to the LiquidationAmount described in the Circular, which will be fully paid andsatisfied by the delivery of one Duke Energy common share andany dividends payable on such Exchangeable Share. On the liquidation,dissolution or winding-up of Exchangeco (or when any other InsolvencyEvent described in the Circular occurs, and while it continues)each holder of Exchangeable Shares (other than Duke Energy andits affiliates) will be entitled to instruct the Trustee to exercisethe exchange right (the "Exchange Right") grantedto the Trustee in the Voting and Exchange Trust Agreement to requireDuke Energy to purchase from such holder all or any part of theExchangeable Shares held by the holder for a purchase price pershare equal to the Exchangeable Share Price as described in theCircular, which will be fully paid and satisfied by the deliveryof one Duke Energy common share and any dividends payable on suchExchangeable Share.
54.In order for the holders of the Exchangeable Shares to participateon a pro rata basis with the holders of Duke Energy common shares,immediately prior to the effective time of the liquidation, dissolutionor winding-up of Duke Energy (or when any other Liquidation Eventdescribed in the Circular occurs), each Exchangeable Share will,pursuant to the automatic exchange right granted to the Trusteein the Voting and Exchange Trust Agreement, automatically be exchangedfor Duke Energy common shares equal to the Exchangeable SharePrice under the Voting and Exchange Trust Agreement.
55.The Exchangeable Shares will have a preference over the commonshares of Exchangeco and any other shares ranking junior to theExchangeable Shares with respect to the payment of dividends andthe distribution of assets in the event of a liquidation, dissolutionor winding-up of Exchangeco, whether voluntary or involuntary,or any other distribution of the assets of Exchangeco among itsshareholders for the purpose of winding-up its affairs. The ExchangeableShares will rank junior to the preference shares of Exchangeco.
56.On the Effective Date, Duke Energy, Exchangeco and Callco willenter into the Support Agreement which will provide that DukeEnergy will not declare or pay dividends on the Duke Energy commonshares unless Exchangeco on the same day declares or pays an equivalentdividend on the Exchangeable Shares, and that Duke Energy willensure that Exchangeco and Callco will be able to honour the redemptionand retraction rights and dissolution entitlements that are attributesof the Exchangeable Shares under the Exchangeable Share Provisionsand the Redemption Call Right, Retraction Call Right and LiquidationCall Right. The Support Agreement will also provide that, withoutthe prior approval of Exchangeco and the holders of the ExchangeableShares, Duke Energy will not issue or distribute Duke Energy commonshares, securities exchangeable for or convertible into or carryingrights to acquire Duke Energy common shares, rights, options orwarrants to subscribe for or to purchase Duke Energy common shares,evidences of indebtedness or other assets of Duke Energy to theholders of Duke Energy common shares nor will Duke Energy subdivide,redivide or change the Duke Energy common shares unless the sameor an economically equivalent distribution or change is simultaneouslymade to the Exchangeable Shares.
57.The Arrangement involves or may involve, a number of trades and/ordistributions of securities (collectively, the "Trades"),in respect of which there may be no registration or prospectusexemptions available under the Legislation, including, withoutlimitation, the issuance of the Exchangeable Shares, ReplacementOptions and Duke Energy common shares; the issuance of DukeEnergy common shares upon the exchange of Exchangeable Sharesand the issuance of Duke Energy common shares upon the exerciseof Replacement Options; the creation and exercise of allthe various rights under the Voting and Exchange Trust Agreement,Support Agreement and Exchangeable Share Provisions; and the issuanceof shares of Duke Energy and its affiliates (including Exchangecoand Callco) in connection with the Arrangement.
58.The fundamental investment decision to be made by a WestcoastSecurityholder was made at the time when such holder voted inrespect of the Arrangement. As a result of this decision, unlessExchangeable Shares are sold in the market, a holder (other thanthe Dissenting Shareholder) will ultimately receive Duke Energycommon shares in exchange for the Westcoast common shares heldby such holder. The use of the Exchangeable Shares will providecertain Canadian tax benefits to certain Canadian holders butwill otherwise be, as nearly as practicable, the economic andvoting equivalent of the Duke Energy common shares. As such, allsubsequent exchanges of Exchangeable Shares are in furtheranceof the holder's initial investment decision.
59.As a result of the economic and voting equivalency in all materialrespects between the Exchangeable Shares and the Duke Energy commonshares, holders of Exchangeable Shares will have an equity interestdetermined by reference to Duke Energy, rather than Exchangeco.Dividend and dissolution entitlements will be determined by referenceto the financial performance and condition of Duke Energy, notExchangeco. Accordingly, it is the information relating to DukeEnergy, not Exchangeco, that will be relevant to the holders ofExchangeable Shares.
60.Duke Energy will send concurrently to all holders of ExchangeableShares and Duke Energy common shares resident in the Jurisdictionsall disclosure material furnished to holders of Duke Energy commonshares resident in the United States including, without limitation,copies of its annual financial statements and all proxy solicitationmaterials.
61.The Circular disclosed that applications have been made for prospectus,registration and resale exemptions and exemptions from the continuousdisclosure requirements. The Circular specified the disclosurerequirements from which Exchangeco has applied to be exemptedand identified the disclosure that would be made in substitutiontherefor if such exemptions are granted.
62.Upon completion of the Arrangement, assuming a maximum ExchangeRatio of 0.7711, it is expected that the beneficial holders ofDuke Energy common shares resident in Canada will hold approximately4.1% of the issued and outstanding Duke Energy common shares and/orExchangeable Shares (calculated based upon the number of beneficialWestcoast Shareholders and beneficial holders of Duke Energy commonshares who are residents of Canada, as set out above, and on thebasis that the consideration to be paid by Duke Energy to WestcoastShareholders pursuant to the Arrangement will be approximately50% cash and approximately 50% Duke Energy common shares and/orExchangeable Shares). This percentage would increase to approximately4.4% if it is assumed that all of the WestcoastOptions held by residents of Canada were exercised prior to theeffective time of the Arrangement.
63.There is no public market in Canada for the Duke Energy commonshares and no such public market is expected to develop.
ANDWHEREAS pursuant to the System, this MRRS Decision Documentevidences the decision of each Decision Maker (collectively, the"Decision");
ANDWHEREAS each of the Decision Makers is satisfied thatthe test contained in the Legislation that provides the DecisionMakers with the jurisdiction to make the Decision has been met;
THEDECISION of the Decision Makers pursuant to the Legislationis:
1.the Registration Requirements and the Prospectus Requirementsshall not apply to the Trades provided that
(a)the first trade in Exchangeable Shares acquired in connectionwith the Arrangement shall be deemed to be a distribution or primarydistribution to the public under the Legislation of the Jurisdictionin which the trade takes place (the "Applicable Legislation"),unless:
(i)except in Québec,
(A) the conditions in subsections (3) or (4) of section 2.6of Multilateral Instrument 45-102 ("MI 45-102")are satisfied; and provided further that, in determining theperiod of time that Exchangeco has been a reporting issuer forthe purposes of section 2.6 of MI 45-102, the period of timethat Westcoast has been a reporting issuer may be included;or(B)where such first trade is a control distribution as such termis defined in MI 45-102, such trade is made in compliance withsection 2.8 of MI 45-102; and provided further that, in determiningthe period of time that Exchangeco has been a reporting issuerfor the purposes of section 2.8 of MI 45-102, the period of timethat Westcoast has been a reporting issuer may be included; andthe period of time that a holder of Exchangeable Shares (or anaffiliated or controlled entity of such holder) held Westcoastcommon shares shall be included in the calculation of the holdperiod);
(ii)in Québec, to the extent that there is no exemption availablefrom the Registration Requirements and the Prospectus Requirementsin respect of any of the Trades, the Trades are not subject tothe Registration Requirements and the Prospectus Requirements,provided that the issuer or one of the parties to the Arrangement(including, for greater certainty, Westcoast) is and has beena reporting issuer in Québec in good standing for the twelvemonths immediately preceding the Trades (and for the purpose ofdetermining the period of time that the issuer or one of the partiesto the Arrangement has been a reporting issuer in Québec,the period of time that Westcoast was a reporting issuer may beincluded); and no unusual effort is made to prepare the marketor to create a demand for the Exchangeable Shares; and
(b)the first trade in Duke Energy common shares acquired in connectionwith the Arrangement shall be deemed to be a distribution or primarydistribution to the public under the Legislation unless, at thetime of the trade:
(i)except in Québec,
(A)if Duke Energy is a reporting issuer in any Jurisdiction listedin Appendix B to MI 45-102 other than Québec, the conditionsin subsections (3) or (4) of section 2.6 of MI 45-102 are satisfied;and for the purpose of determining the period of time that DukeEnergy has been a reporting issuer under section 2.6, the periodof time that Westcoast has been a reporting issuer may be included;or
(B)if Duke Energy is not a reporting issuer in any Jurisdiction otherthan Québec, such first trade is made through an exchange,or a market, outside of Canada; and
(ii)in Québec, to the extent that there is no exemption availablefrom the Registration Requirements and Prospectus Requirementsin respect of any of the Trades, the Trades are not subject tothe Registration Requirements and the Prospectus Requirements,provided that the issuer or one of the parties to the Arrangement(including, for greater certainty, Westcoast) is and has beena reporting issuer in Québec in good standing for the twelvemonths immediately preceding the Trades (and for the purpose ofdetermining the period of time that the issuer or one of the partiesto the Arrangement has been a reporting issuer in Québec,the period of time that Westcoast was a reporting issuer may beincluded); and no unusual effort is made to prepare the marketor to create a demand for the Duke Energy common shares; and
ITIS FURTHER THE DECISION of the Decision Makers, otherthan the Decision Maker in the Northwest Territories, pursuantto the Legislation that:
2.the Continuous Disclosure Requirements shall not apply to Exchangecoso long as:
(a)Duke Energy sends concurrently to all holders of ExchangeableShares resident in Canada all disclosure material furnished toholders of Duke Energy common shares resident in the United States,including, without limitation, copies of its proxy solicitationmaterials and its annual financial statements, which financialstatements will be prepared solely in accordance with US GAAP;
(b)Duke Energy files with each Decision Maker copies of all documentsrequired to be filed by it with the SEC under the ExchangeAct, and such filings are made under Exchangeco's SEDAR profileand the filing fees which would otherwise be payable by Exchangecoin connection with such filings are paid;
(c)Duke Energy complies with the requirements of the NYSE in respectof making public disclosure of material information on a timelybasis and forthwith issues in Canada and files with the DecisionMakers any press release that discloses a material change in DukeEnergy's affairs;
(d)Exchangeco complies with the material change reporting requirementsin respect of material changes in the affairs of Exchangeco thatwould be material to holders of Exchangeable Shares but wouldnot be material to holders of Duke Energy common shares;
(e)Duke Energy includes in all future mailings of proxy solicitationmaterials (if any) to holders of Exchangeable Shares a clear andconcise statement explaining the reason for the mailed materialbeing solely in relation to Duke Energy and not in relation toExchangeco, such statement to include a reference to the economicequivalency between the Exchangeable Shares and the Duke Energycommon shares and the right to direct voting at Duke Energy'sshareholders' meetings pursuant to the Voting and Exchange TrustAgreement (without taking into account tax effects);
(f)Duke Energy remains the direct or indirect beneficial owner ofall of the issued and outstanding voting securities, including,without limitation, common shares of Exchangeco;
(g)Exchangeco does not issue any securities to the public other thanthe Exchangeable Shares in connection with the Arrangement, andpreferred shares issued to Duke Energy's financial advisors priorto the consummation of the Arrangement; and
3.The Insider Reporting Requirements, and the requirement to filean insider profile under National Instrument 55-102 - Systemfor Electronic Disclosure by Insiders, shall not apply to Exchangecoand each insider of Exchangeco, so long as:(a)such insider of Exchangeco does not receive or have access to,in the ordinary course, information as to material facts or materialchanges concerning Duke Energy before the material facts or materialchanges are generally disclosed; and
(b)such insider of Exchangeco is not a director or senior officerof Duke Energy, or a "major subsidiary" of Duke Energy, as suchterm is defined in National Instrument 55-101 - Exemptions fromCertain Insider Reporting Requirements as if Duke Energy werea reporting issuer.
"PaulMoore" "R.S. Paddon"