Securities Law & Instruments

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions -- issuer proposing to transfer two of its wholly-owned subsidiaries to a related party in exchange for additional securities of the related party -- exemptive relief granted to exempt the issuer from the formal valuation and minority approval requirements in MI 61-101 -- if structure of the related parties were collapsed, transaction would meet the definition of "downstream transaction" in MI 61-101.

Applicable Legislative Provisions

Multilateral Instrument 61-101 Protection of Minority Shareholders in Special Transactions, ss. 5.4, 5.6, 6.3, 8.1, 9.1.

Companion Policy 61-101CP Protection of Minority Shareholders in Special Transactions, s. 3.3.

June 18, 2015

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 ENBRIDGE INC. (THE "FILER")

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") exempting the Filer pursuant to section 9.1 of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions ("MI 61-101") from: (i) the requirement in sections 5.4 and 6.3(1)(d) of MI 61-101 to obtain a formal valuation (as defined in MI 61-101) of certain non-cash assets in connection with the Transaction (as defined below); and (ii) the requirement in sections 5.6 and 8.1 of MI 61-101 for the Filer to obtain minority approval for any related party transaction (as defined in MI 61-101) in connection with the Transaction (as defined below) (collectively, the "Requested Relief").

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

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

(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System ("MI 11-102") is intended to be relied upon in the Province of Québec.

Interpretation

Terms defined in National Instrument 14-101 Definitions, MI 11-102 and MI 61-101 have the same meaning if used in this decision, unless otherwise defined.

Representations

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

1. The Filer is a corporation existing under the laws of Canada.

2. The registered and head office of the Filer is located at 3000, 425 -- 1st Street SW, Calgary, Alberta T2P 3L8.

3. The Filer is a reporting issuer in each of the provinces of Canada and is not currently in default of any applicable requirements under the securities legislation therein.

4. The Filer's authorized share capital consists of an unlimited number of common shares ("Common Shares") and an unlimited number of preference shares, issuable in series (collectively, "Preference Shares").

5. Holders of Common Shares ("Common Shareholders") are entitled to receive notice of, and to attend, all meetings of the holders of Common Shares and are entitled to one vote per Common Share held at all such meetings.

6. Holders of Preference Shares of any series are not entitled to receive notice of, or to attend or vote at, any meeting of the securityholders of the Filer, except as required by law, are not entitled to any dividend other than or in excess of the cumulative preferential cash dividends payable thereon in accordance with their terms and are not entitled to participate in the assets of the Filer on a liquidation, dissolution or winding up of the Filer beyond a prescribed payment amount together with an amount equal to the accrued but unpaid dividends thereon, in each case, as determined in accordance with their terms.

7. The Common Shares are "affected securities" of the Filer for the purposes of MI 61-101.

8. As at May 31, 2015, there were 856,826,034 Common Shares issued and outstanding and the following Preference Shares issued and outstanding: 5,000,000 Series A; 20,000,000 Series B; 18,000,000 Series D; 20,000,000 Series F; 14,000,000 Series H; 8,000,000 Series J; 16,000,000 Series L; 18,000,000 Series N; 16,000,000 Series P; 16,000,000 Series R; 16,000,000 Series 1; 24,000,000 Series 3; 8,000,000 Series 5; 10,000,000 Series 7; 11,000,000 Series 9; 20,000,000 Series 11; 14,000,000 Series 13; and 11,000,000 Series 15.

9. The Common Shares are listed on the Toronto Stock Exchange and the New York Stock Exchange and all of the issued and outstanding Preference Shares are listed on the Toronto Stock Exchange.

10. To the knowledge of the Filer, as at May 31, 2015, there were no holders of Common Shares holding greater than 10 percent of the issued and outstanding Common Shares.

11. Enbridge Income Fund Holdings Inc. ("EIFH") is a corporation existing under the laws of the Province of Alberta.

12. EIFH is a reporting issuer in each of the provinces of Canada.

13. The authorized capital of EIFH consists of an unlimited number of common shares ("EIFH Common Shares"), first preferred shares ("EIFH First Preferred Shares"), issuable in series and limited to one-half of the number of EIFH Common Shares issued and outstanding at the relevant time, and one special voting share ("Special Voting Share").

14. As at May 31, 2015, there were an aggregate of 70,351,000 EIFH Common Shares, no EIFH First Preferred Shares and one Special Voting Share issued and outstanding.

15. The EIFH Common Shares are listed on the Toronto Stock Exchange.

16. Holders of EIFH Common Shares are entitled to receive notice of, and to attend, all meetings of the holders of EIFH Common Shares and are entitled to one vote per EIFH Common Share held at all such meetings.

17. The holder of the Special Voting Share is entitled to receive notice of, and to attend, all annual and special meetings of holders of EIFH Common Shares and is entitled to elect one director to the board of directors of EIFH for so long as the holder beneficially owns or controls, directly or indirectly, between 15 percent and 39 percent of the issued and outstanding EIFH Common Shares, provided that if the holder of the Special Voting Share elects to exercise its right to elect one director, it will not be permitted to exercise the votes attaching to the portion of the EIFH Common Shares held by such holder representing its pro-rata representation on the EIFH board in respect of the election of the remaining directors of EIFH at meetings of holders of EIFH Common Shares.

18. Enbridge Income Fund (the "Fund") is an unincorporated open-ended trust established under the laws of the Province of Alberta on May 22, 2003. The Fund is governed pursuant to an amended and restated trust indenture dated December 17, 2010 (the "Fund Trust Indenture").

19. The head office and registered office of the Fund is located at 3000, 425 -- 1st Street SW, Calgary, Alberta T2P 3L8.

20. The Fund is a reporting issuer in each of the provinces of Canada.

21. The authorized trust units of the Fund consist of an unlimited number of units designated as ordinary units of the Fund pursuant to the Fund Trust Indenture ("Fund Units").

22. As at May 31, 2015, there were 79,851,000 Fund Units issued and outstanding.

23. The Fund Units are not listed on any exchange or marketplace.

24. The Fund has delegated to Enbridge Commercial Trust ("ECT") all of its governance functions pursuant to the Fund Trust Indenture and an amended and restated Fund Delegation Agreement dated December 17, 2010.

25. ECT is an unincorporated trust established under the laws of the Province of Alberta on December 20, 2002. ECT is governed pursuant to an amended and restated trust indenture dated November 13, 2014 (the "ECT Trust Indenture").

26. ECT is not a reporting issuer in any jurisdiction.

27. The authorized trust units of ECT consist of an unlimited number of units designated as common units pursuant to the ECT Trust Indenture ("ECT Common Units") and an unlimited number of units designed as preferred units pursuant to the ECT Trust Indenture ("ECT Preferred Units").

28. As at May 31, 2015, there were 168,854,837 ECT Common Units and 87,665,750 ECT Preferred Units issued and outstanding.

29. The ECT Common Units and ECT Preferred Units are not listed on any exchange or marketplace.

30. The ECT Preferred Units are convertible at any time and from time to time into Fund Units on a 1:1 basis at the option of the holder.

31. Enbridge Income Partners LP ("EIPLP") is a limited partnership established under the laws of the Province of Alberta on December 20, 2002. EIPLP is governed pursuant to an amended and restated limited partnership agreement dated December 17, 2010 (the "LP Agreement").

32. EIPLP is not a reporting issuer in any jurisdiction.

33. The authorized partnership units of EIPLP consist of an unlimited number of class A units ("EIPLP Class A Units") and an unlimited number of class B units ("EIPLP Class B Units").

34. As at May 31, 2015, there were 245,391,503.768 EIPLP Class A Units and no EIPLP Class B Units issued and outstanding.

35. The EIPLP Class A Units and EIPLP Class B Units are not listed on any exchange or marketplace.

36. Enbridge Income Partners GP Inc. ("EIPGP"), a corporation existing under the laws of Canada, is the general partner of EIPLP.

37. The principal and head office of EIPGP is located at Suite 3000, 425 -- 1st Street SW, Calgary, Alberta T2P 3L8.

38. EIPGP is not a reporting issuer in any jurisdiction.

39. The authorized capital of EIPGP consists of an unlimited number of common shares ("EIPGP Common Shares") and an unlimited number of first preferred shares ("EIPGP First Preferred Shares").

40. As at May 31, 2015, there were 486,920 EIPGP Common Shares and no EIPGP First Preferred Shares issued and outstanding.

41. The EIPGP Common Shares are not listed on any exchange or marketplace.

42. As at May 31, 2015, the Filer held an aggregate of 14,002,000 EIFH Common Shares (representing 19.9 percent of the issued and outstanding EIFH Common Shares) and one Special Voting Share.

43. As at May 31, 2015, EIFH held an aggregate of 70,351,000 Fund Units (representing 88.1 percent of the issued and outstanding Fund Units).

44. As at May 31, 2015, the Filer held an aggregate of 9,500,000 Fund Units (representing 11.9 percent of the issued and outstanding Fund Units).

45. As at May 31, 2015, the Fund held an aggregate of 168,854,837 ECT Common Units (representing all of the issued and outstanding ECT Common Units).

46. As at May 31, 2015, the Filer held an aggregate of 87,665,750 ECT Preferred Units (representing all of the issued and outstanding ECT Preferred Units).

47. As at May 31, 2015, ECT held 245,366,964.690 EIPLP Class A Units (representing 99.99 percent of the issued and outstanding EIPLP Class A Units.

48. As at May 31, 2015, EIPGP held 24,539.078 EIPLP Class A Units (representing 0.01 percent of the issued and outstanding EIPLP Class A Units.

49. As at May 31, 2015, ECT held 486,920 EIPGP Common Shares (representing all of the issued and outstanding EIPGP Common Shares).

50. EIFH, the Fund, ECT, EIPGP and EIPLP are collectively referred to herein as the "Fund Group".

51. As at May 31, 2015, by virtue of its above-mentioned ownership interests, the Filer held a consolidated economic interest in the Fund Group of approximately 66.4 percent.

52. The Filer and its affiliates manage the day-to-day business of the Fund Group pursuant to management contracts in place between affiliates of the Filer and the Fund Group entities, including a management agreement dated December 17, 2010 between Enbridge Management Services Inc. ("EMSI"), a wholly-owned subsidiary entity (as defined in MI 61-101) of the Filer, and ECT (the "Management Agreement") and an administrative services agreement dated December 17, 2010 between EMSI, ECT and the Fund (the "Administration Agreement").

53. The Filer proposes to transfer the shares of two of its indirect and direct wholly-owned operating subsidiary entities, Enbridge Pipelines Inc. ("EPI") and Enbridge Pipelines (Athabasca) Inc. ("EPA" and, collectively with EPI, the "Assets"), to EIPLP in exchange for cash, securities of EIPLP, the distribution rights referred to in paragraphs 56(d) and (e) below and the assumption by the Fund Group of certain associated debt (all as more particularly described below). The fair market value shall be determined through negotiation between the Filer and a joint special committee (the "Special Committee") of independent members of the board of directors of EIFH and the board of trustees of ECT (the "Transaction").

54. The Assets have a book value of approximately $17 billion and have associated debt in the aggregate amount of approximately $12.5 billion, composed of public debt of EPI and intercompany debt between EPI, EPA and the Filer.

55. It is anticipated that the acquisition price of the Assets will be financed as follows:

(a) the Fund will issue Fund Units to the Filer;

(b) the Fund will use the proceeds from the issuance of the Fund Units to the Filer to subscribe for additional ECT Common Units;

(c) ECT will create a new class of trust units designated as "Class B Units" by the ECT Trust Indenture ("ECT Class B Units"), which will have substantially the same distribution, redemption, conversion and liquidation rights as the ECT Preferred Units;

(d) ECT will use the proceeds from step (b) above to subscribe for EIPLP Class A Units; and

(e) the consideration for the Assets will be comprised of the proceeds from the issuance of EIPLP Class A Units to ECT, the creation and issuance to the Filer and one or more of its affiliates of limited partnership units designated as "Class C Units" by the LP Agreement ("EIPLP Class C Units"), which will entitle the holders thereof to receive distributions from the distributable cash of EIPLP and will be convertible at the option of the holder from time to time into ECT Preferred Units, ECT Class B Units, Fund Units or EIFH Common Shares on a 1:1 basis, the creation and issuance of the EIPLP Class D Units defined and described in paragraph 56(c)(ii) hereof and the creation of the "Special Interest Rights" described in paragraph 56(c)(v) hereof.

56. As part of the Transaction, it is anticipated that:

(a) the ECT Trust Indenture will be amended to provide: (i) the Filer with the right, subject to the maintenance of certain ownership thresholds in the aggregate outstanding equity securities of the Fund Group, to appoint up to seven of the eleven trustees on the board of trustees of ECT; and (ii) that the ECT Preferred Units and ECT Class B Units will be convertible at the option of the holder from time to time into Fund Units or EIFH Common Shares on a 1:1 basis;

(b) the Fund Trust Indenture will be amended to provide that the Fund Units will be convertible at the option of the holder from time to time into EIFH Common Shares on a 1:1 basis;

(c) the LP Agreement will be amended to create:

(i) the EIPLP Class C Units;

(ii) limited partnership units designated as "Class D Units" by the LP Agreement ("EIPLP Class D Units"), which will entitle the holders thereof to receive distributions declared on the EIPLP Class D Units through the issuance of additional EIPLP Class D Units and will be convertible at the option of the holder from time to time at any time from and after January 1 of the year that is four years from the year of issuance into EIPLP Class C Units on a 1:1 basis;

(iii) one limited partnership unit designated as the "Class E Unit" by the LP Agreement, which will entitle the Filer to receive a one-time amount equal to the actual amounts received by EPI as a result of the redemption of the preferred shares of Enbridge Employee Services Canada Inc. held by EPI net of all taxes payable by EPI as a result of the redemption of such preferred shares;

(iv) one limited partnership unit designated as the "Class F Unit" by the LP Agreement, which will entitle the Filer to receive a tax balancing distribution amount each year calculated with reference to tax savings and dividends received by subsidiary entities of EIPLP in certain circumstances; and

(v) rights designated as "Special Interest Rights" in the LP Agreement, which will entitle the holders thereof to receive certain incentive and performance distributions;

(d) an affiliate of the Filer will continue to have a right to receive an incentive fee equal to 25 percent of the amount of distributions that exceed $1.295 per Fund Unit but subject to a specified cap per Fund Unit;

(e) the LP Agreement will be amended to provide the Filer and one or more of its affiliates with:

(i) an incentive distribution right equal to 25 percent of the amount of distributions that exceed a benchmarked amount per EIPLP Class A Unit; and

(ii) a temporary performance distribution right equal to 33 percent of the amount of distributions that exceed a benchmarked amount per EIPLP Class A Unit payable in EIPLP Class D Units;

(f) the ECT Trust Indenture and the Fund Trust Indenture will be amended to provide that the amount of per-unit distributions on the EIPLP Class C Units, ECT Preferred Units, ECT Class B Units and Fund Units will be the same;

(g) the Filer will acquire a majority of the EIPGP Common Shares;

(h) the Filer will continue to manage the day-to-day business of the Fund Group pursuant to management contracts in place between affiliates of the Filer and the Fund Group entities, including amended versions of the Management Agreement and the Administration Agreement; and

(i) the Filer's economic interest in the Fund Group will increase from approximately 66 percent to approximately 89 percent.

57. The Transaction constitutes a related party transaction of the Filer because the Filer is a control person of the Fund, and consequently, of ECT and EIPLP, and therefore each of them is a related party of the Filer under MI 61-101.

58. No insider of the Filer, or other person that has control or influence over the Filer, has a significant ownership interest in any entity (other than the Filer) that has a direct or indirect interest in the Transaction.

59. No shareholders of the Filer have an identifiable interest in any of EIF, ECT or EIPLP, other than in their capacity as shareholders of the Filer.

60. Absent the Requested Relief, if "minority approval" were required for the Filer under MI 61-101 there would be no shareholders to exclude from the vote, except for those directors and senior officers of the Filer and its affiliates who currently serve as directors or senior officers (or the equivalent) of EPI, EPA and those Fund Group entities that are parties to the Transaction. These individuals collectively own Common Shares representing less than one percent of the issued and outstanding Common Shares as at May 31, 2015.

61. All Common Shareholders of the Filer will be treated equally under the Transaction.

62. The Filer and its security holders will continue to maintain a substantial interest in the Assets being transferred through the Filer's interest in the Fund Group following completion of the Transaction. The Filer's economic interest in the Fund Group will increase from approximately 66 percent to approximately 89 percent.

63. The Transaction will be consummated at the fair market value to be negotiated with the Special Committee and will not result in any detriment in the economic value of the Common Shares of the Filer or in an enhancement of economic value to any separate group of Common Shareholders of the Filer.

64. The Filer owns Fund Units and ECT Preferred Units convertible into Fund Units sufficient to control the Fund for the purposes of MI 61-101. The Fund owns all of the voting securities of ECT, which owns all of the voting securities of EIPLP. Accordingly, the Filer is a control person of EIPLP for the purposes of MI 61-101.

65. Each of ECT and EIPLP is a related party of the Filer. ECT owns all of the voting securities of EIPLP. ECT is not a wholly-owned subsidiary of the Filer. The Transaction would constitute a "downstream transaction" for the purposes of MI 61-101 but for the fact that ECT currently owns all of the voting securities of EIPLP.

66. The value of the Transaction consideration, along with all other material details of the Transaction, will be disclosed by the Filer in a material change report filed in compliance with National Instrument 51-102 Continuous Disclosure Obligations and MI 61-101.

Decision

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

The decision of the Principal Regulator under the Legislation is that the Requested Relief is granted, provided that:

(a) neither the Filer nor, to the knowledge of the Filer after reasonable inquiry, any of the Fund Group or any of its affiliates has knowledge of any material information concerning the Filer, the Fund Group or their respective securities that has not been generally disclosed and the material change report includes a statement to this effect, and

(b) there continues to be no insider of the Filer, or other person that has control or influence over the Filer, that has a significant ownership interest in any entity (other than the Filer) that has a direct or indirect interest in the Transaction.

"Naizam Kanji"
Director
Office of Mergers & Acquisitions
Ontario Securities Commission