Hydro One Inc. (Re), 2019 CanLII 22221

March 20, 2019

AND

(the Applicant)

AND

(the Parent)

Decision

Background

The principal regulator in the Jurisdiction has received an application from the Applicant for a decision under the securities legislation of the Jurisdiction (the Legislation), granting the Applicant an exemption from the requirements under Item 8 of Item 18.1 of Form 51-102F2 – Annual Information Form (Form 51-102F2), to disclose the executive compensation disclosure information required by Form 51-102F6 – Statement of Executive Compensation (Form 51-102F6) in the Applicant’s completed Form 51-102F2 (Applicant AIF), for so long as:

(a) the Applicant files the executive compensation disclosure required by Form 51-102F6 with respect to the Applicant (the Applicant CD&A Disclosure) as a stand-alone document with the securities regulatory authorities in each of the provinces of Canada no later than 140 days after the end of the Applicant’s most recently completed financial year; and

(b) the Applicant includes in an Applicant AIF in respect of a financial year a notice that the Applicant CD&A Disclosure in respect of that financial year, when filed, is deemed to be incorporated by reference in the Applicant AIF.

(the Exemption Sought).

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

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

(b) the Applicant has provided notice that subsection 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, Prince Edward Island and Newfoundland and Labrador (the Passport Jurisdictions); and

(c) the decision of the principal regulator automatically results in an equivalent decision in the Passport Jurisdictions.

Interpretation

Terms defined in National Instrument 14-101 – Definitions, MI 11-102 and National Instrument 51-102 – Continuous Disclosure Obligations (NI 51-102) have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Applicant.

The Applicant is incorporated under the Business Corporations Act (Ontario) (the OBCA). The head office of the Applicant is located at 483 Bay Street, 8th Floor, South Tower, Toronto, Ontario M5G 2P5.
The Applicant is a reporting issuer in each of the provinces of Canada and is a wholly-owned subsidiary of the Parent. The Applicant’s 4.59% unsecured medium term notes due 2043 (Series 29) are listed for trading on the New York Stock Exchange under the symbol “HYDO43”. As such, the Applicant is a reporting issuer but not a “venture issuer” for reporting purposes under applicable Canadian securities laws.
The Applicant’s financial year end is December 31.
The Applicant has various series of non-convertible unsecured medium term notes issued and outstanding that have been distributed to the public via various prospectuses but it is not required to send a Form 51-102F5 – Information Circular (Form 51-102F5) to any of its securityholders.
The Parent is incorporated under the OBCA. The head office of the Parent is located at 483 Bay Street, 8th Floor, South Tower, Toronto, Ontario M5G 2P5. The Parent owns all of the issued and outstanding shares of the Applicant.
The Parent is a reporting issuer in each of the provinces and territories of Canada.
The Parent’s financial year end is December 31.
The common shares of the Parent are listed for trading on the Toronto Stock Exchange under the symbol “H”. As such, the Parent is a reporting issuer but not a “venture issuer” for reporting purposes under applicable Canadian securities laws.
Both the Applicant and Parent are “SEC issuers” as defined in NI 51-102.
Neither the Applicant nor the Parent are in default of securities legislation in any jurisdiction.
Item 18.1 of Form 51-102F2 requires reporting issuers that are not required to send an information circular (an Information Circular) in accordance with NI 51-102 and Form 51-102F5 to any of their securityholders, to disclose in their AIF, in addition to certain other disclosure, the information required under Item 8 of Form 51-102F5, being the executive compensation disclosure required by Form 51-102F6.
Subsection 6.2(a) of NI 51-102 requires reporting issuer that are not venture issuers to file a completed Form 51-102F2 (an AIF) on or before the 90th day after the end of the reporting issuer’s most recently completed financial year. In respect of the Applicant, the applicable filing deadline for the Applicant AIF is the 90th day after the Applicant’s financial year end of December 31. In respect of the Parent, the applicable filing deadline for the Parent’s AIF is the 90th day after the Parent’s financial year end of December 31.
The Applicant is not required to prepare and send an Information Circular to any of its securityholders. Accordingly, absent the Exemption Sought, pursuant to Item 8 of Item 18.1 of Form 51-102F2, the Applicant is required to include the Applicant CD&A Disclosure directly in the Applicant AIF.
Subsections 9.3.1(1) and 9.3.1(2) of NI 51-102 require that, subject to Item 8 of Form 51-102F5, a reporting issuer required to send an Information Circular to a securityholder in accordance with subsection 9.1(2)(a) of NI 51-102 (where proxies are being solicited from registered holders of voting securities and such solicitation is being made by or on behalf of management), must disclose certain executive compensation as required by subsection 9.3.1(1) of NI 51-102 for the periods set out in and in accordance with Form 51-102F6. In the case of the Parent, subsection 9.3.1(2.2) of NI 51-102 requires that the Parent’s executive compensation disclosure be filed not later than 140 days after the end of the issuer’s most recently completed financial year. In respect of the Parent, the applicable filing deadline for the Parent Circular is the 140th day after the Parent’s financial year end of December 31.
The Parent is required to prepare and send an Information Circular to the holders of its common shares and is required to include the executive compensation disclosure required by Form 51-102F6 in the Parent Circular. The Parent usually holds its annual meeting of shareholders in May of each year and historically has filed the Parent Circular with the securities regulatory authorities in each of the provinces and territories between late March and mid April each year in advance of each such meeting of shareholders.
The Board of Directors and the Human Resources Committee of the Applicant are comprised of the same directors as the Board of Directors and the Human Resources Committee of the Parent, respectively, and each of the boards and committees of the Applicant and the Parent hold joint meetings. This allows the Applicant and the Parent to make joint compensation decisions in respect of officers of both corporations and results in the same compensation practices being applied to both corporations. As a result, employees of the Applicant and its subsidiaries participate in the compensation plans of the Parent and the compensation practices of the Applicant largely reflect the compensation practices of the Parent. However, although decisions may be made jointly, they do not result in duplicative compensation paid at both the Applicant and the Parent level. Accordingly, executive compensation disclosure for the Applicant cannot be finalized until it has been determined for the Parent.
Pursuant to National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), both the Applicant and the Parent are required to certify their “annual filings” as defined in NI 52-109 on the later of the dates on which each files its AIF or its annual financial statements and annual management’s discussion and analysis. NI 52-109 requires the AIF to be a completed Form 51-102F2 which, in the case of the Applicant, includes the executive compensation disclosure required by Form 51-102F6 and, in the case of the Parent, does not include the executive compensation disclosure required by Form 51-102F6.
Absent the Exemption Sought, the Applicant must wait until the executive compensation disclosure required by Form 51-102F6 is finalized in order to file the Applicant AIF and file the required certificates under NI 52-109, while the Parent does not. Accordingly, the Applicant must either: (a) delay filing the Applicant AIF to coincide with when the Parent files the Parent Circular (usually in late March); or (b) include executive compensation disclosure in the Applicant AIF before the Parent Circular is filed. The Applicant is also required to certify the executive compensation disclosure forming part of the Applicant AIF at the time the “annual filings” certificate is filed, while the Parent and every other similarly situated reporting issuer does not.
If the Exemption Sought is granted, the Applicant would file the Applicant AIF and file the required certificates under NI 52-109 without the exemptive compensation disclosure required by Form 51-102F6. Accordingly, the Applicant would not need to wait until the executive compensation disclosure required by Form 51-102F6 is finalized and the Applicant would not be required to certify executive compensation disclosure forming part of the Applicant AIF. The Applicant would include in an Applicant AIF a notice that the Applicant CD&A Disclosure, when filed, will be deemed to be incorporated by reference in the Applicant AIF.
The Applicant CD&A Disclosure will be filed as a stand-alone document within 140 days after the end of the Applicant’s most recently completed financial year, which is consistent with the requirements of Section 11.6 of NI 51-102.
The Parent will include in the Parent Circular the executive compensation disclosure required by NI 51-102 in respect of itself and its subsidiaries, including the Applicant.

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 is that the Exemption Sought is granted, for so long as:

(a) the Applicant files the Applicant CD&A Disclosure as a stand-alone document with the securities regulatory authorities in each of the provinces of Canada no later than 140 days after the end of the Applicant’s most recently completed financial year; and

“Michael Balter”

Michael Balter

Manager, Corporate Finance

Ontario Securities Commission