Sprott Power Corp.
Headnote
NP 11-203 -- Filer acquiring assets in arm's length transaction and subsequently transferring assets to limited partnership -- related party's interest in limited partnership evidenced by equity securities resulting in Filer not qualifying for downstream transaction exemption -- related party entitlement under equity securities akin to management fees paid under management services agreement -- management services agreement not treated as related party transaction for the purposes of MI 61-101 -- relief granted.
Applicable Legislative Provisions
Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions, ss. 1.1, 9.1, and Part 5.
September 21, 2012
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ONTARIO AND QUÉBEC
(the Jurisdictions)
AND
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF
SPROTT POWER CORP.
(the Filer)
DECISION
Background
The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) that the requirements of Part 5 of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101) not apply with respect to the Transfers (defined below) (the Exemptive Relief Sought).
Interpretation
Terms defined in National Instrument 14-101 Definitions 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 Canada Business Corporations Act.
2. The Filer was incorporated on May 26, 2010.
3. The head and registered office of the Filer is located at Royal Bank Plaza, South Tower, Suite 2700, 200 Bay Street, Toronto, Ontario M5J 2J2.
4. The authorized capital of the Filer consists of an unlimited number of common shares (the Common Shares) and an unlimited number of preferred shares.
5. The Filer and Sprott Power Consulting Limited Partnership (the Manager) entered into a management services agreement on June 14, 2010 pursuant to which the Manager agreed to manage the undertaking and affairs of the Filer and to provide, or cause to be provided, management and administrative services and facilities to the Filer.
6. On January 31, 2011, the Filer amalgamated with a wholly-owned subsidiary of First Asset PowerGen Fund pursuant to a statutory plan of arrangement, and the resulting combined company acquired all of the outstanding units of First Asset PowerGen Fund.
7. The Common Shares are listed for trading on the Toronto Stock Exchange (the TSX) under the symbol "SPZ" and commenced trading on the TSX on February 3, 2011.
8. The Filer is a reporting issuer in every province in Canada (collectively, the Jurisdictions) and, to the best of its knowledge, is not in default of its obligations under securities law in any Jurisdiction.
9. As of September 11, 2012 the Filer has 68,204,970 Common Shares issued and outstanding and no preferred shares outstanding.
10. The Filer is a developer, owner and operator of renewable energy projects.
The Partnerships
11. The Filer holds all of the voting Class A limited partnership units (Class A LP Units) of SP Operating Limited Partnership (the Operating LP). The Operating LP was formed pursuant to the terms of a limited partnership agreement dated as of June 14, 2010 (the Operating LPA) while the Filer was a private issuer. The Operating LP was created to hold acquired operating assets of the Filer.
12. The Filer holds all of the Class A LP Units of SP Development Limited Partnership (the Development LP). The Development LP was formed pursuant to the terms of an amended and restated limited partnership agreement dated as of May 31, 2010 (theDevelopment LPA) while the Filer was a private issuer. The Development LP was created to hold development assets and operating assets developed/built by the Filer.
13. The Operating LP and the Development LP are together referred to herein as the Partnerships and the Operating LPA and the Development LPA are together referred to herein as the Partnership Agreements.
Interest of the Manager in the Partnerships
14. The Manager is the general partner and the holder of non-voting Class B limited partnership units (Class B LP Units) of each of the Operating LP and the Development LP.
15. The Manager, as holder of the Class B LP Units, is entitled to distributions on the Class B LP Units that effectively represent management fees based on the performance of the Partnerships. The balance of the distributable net cash, if any, is distributed to Filer.
16. Upon the occurrence of a "buyout event" (as defined in the Partnership Agreements, and which includes the termination of the Management Services Agreement, a change in control of a Partnership or the dissolution and liquidation of a Partnership), the Manager shall sell its Class B LP Units to Filer for a price equal to either 110% or 90% of the then present value of the Class B LP Units, the exact percentage being dependent upon the cause of termination (the Buyout Amount). For this purpose, the present value of the Class B LP Units is an estimate of the aggregate of all payments to be made by the Partnership on all Class B LP Units based on the property and assets of the Partnership at that time.
17. In the event that a Partnership is dissolved, upon satisfaction of the debts and liabilities of the Partnership, the funds of the Partnership will (i) to the extent that such proceeds are a return of capital contribution, be returned to each partner in direct relation to each partner's capital account, (ii) be applied in satisfaction of the Buyout Amount to the Manager, and (iii) any remaining funds will be returned to Filer.
18. Although the Class B LP Units are a tax efficient manner of paying management fees that could otherwise be payable under a management services agreement, they also technically constitute "equity securities" of each Partnership, as defined in section 1.1 of MI 61-101.
The Proposed Transaction
19. On August 8, 2012, the Filer announced it had entered into an arrangement agreement (the Acquisition) with Wind Canada Investments Ltd. and Shear Wind Inc. (Shear Wind) pursuant to which the Filer will acquire all of the issued and outstanding shares of Shear Wind for an aggregate purchase price of approximately $33 million. Shear Wind owns a portfolio of operating and development assets in Canada.
20. Shear Wind is a reporting issuer in British Columbia, Alberta and Nova Scotia. The common shares of Shear Wind are listed for trading on the TSX Venture Exchange. Shear Wind is not a related party of the Filer, and the Acquisition was negotiated at arm's length.
21. Immediately following the Acquisition, the Filer will transfer (i) the shares of certain subsidiaries of Shear Wind, and (ii) certain of the assets of Shear Wind (together, the Transferred Assets) to Development LP or Operating LP, as applicable (the Transfers), in accordance with the Filer's internal corporate structure described above. The Transferred Assets will be transferred to Development LP or Operating LP, as the case may be, at the same aggregate value as they were purchased pursuant to the Acquisition.
22. The Transfers, including the value at which the Transferred Assets will be transferred to Development LP or Operating LP, will be approved by all of the directors of the Filer who are independent of both the Acquisition and of the Manager.
Related Party Transaction
23. As the Filer is a control person of each of Operating LP and Development LP, each of the Operating LP and Development LP is a "related party" of the Filer within the meaning of MI 61-101. As such, the Transfers will constitute "related party transactions" within the meaning of MI 61-101.
24. The Transfers would constitute "downstream transactions" for the purposes of MI 61-101 but for the fact that the Manager owns 100% of the Class B LP Units of each of Operating LP and Development LP.
Decision
Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Makers under the Legislation is that the Exemptive Relief Sought is granted.