Filed pursuant to General Instruction II.L. of Form F-10; File No. 333-87762
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 14, 2002)
[LOGO]
US$300,000,000
TRANSALTA CORPORATION
6.750% SENIOR NOTES DUE 2012
---------
The notes will bear interest at the rate of 6.750% per year. Interest on the
notes is payable on January 15 and July 15 of each year, beginning on
January 15, 2003. The notes will mature on July 15, 2012. We may redeem some or
all of the notes at any time at the redemption price described in this
prospectus supplement. We will also have the option to redeem the notes in whole
and not in part at 100% of the aggregate principal amount of the notes plus
accrued interest to the date of redemption in the event of certain changes to
Canadian withholding tax laws or the enforcement or interpretation thereof.
The notes will be direct unsecured obligations and will rank equally and
ratably with all of our other unsubordinated and unsecured indebtedness.
--------------
INVESTING IN THE SECURITIES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 42 OF THE ACCOMPANYING PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
WE ARE PERMITTED TO PREPARE THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS IN ACCORDANCE WITH CANADIAN DISCLOSURE REQUIREMENTS WHICH ARE
DIFFERENT FROM THOSE OF THE UNITED STATES. WE PREPARE OUR FINANCIAL STATEMENTS
IN ACCORDANCE WITH CANADIAN GENERALLY ACCEPTED ACCOUNTING PRACTICES, AND THEY
MAY BE SUBJECT TO CANADIAN AUDITING AND AUDITOR INDEPENDENCE STANDARDS. THEY MAY
NOT BE COMPARABLE TO THE FINANCIAL STATEMENTS OF UNITED STATES COMPANIES.
OWNING THE SECURITIES DESCRIBED HEREIN MAY HAVE TAX CONSEQUENCES BOTH IN THE
UNITED STATES AND CANADA. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS MAY NOT DESCRIBE THESE TAX CONSEQUENCES FULLY. YOU SHOULD READ THE
TAX DISCUSSION CONTAINED IN THIS PROSPECTUS SUPPLEMENT.
YOUR ABILITY TO ENFORCE CIVIL LIABILITIES UNDER U.S. FEDERAL SECURITIES LAWS
MAY BE AFFECTED ADVERSELY BECAUSE WE ARE A CANADIAN CORPORATION, SOME OF OUR
OFFICERS AND DIRECTORS AND SOME OF THE EXPERTS NAMED IN THIS PROSPECTUS
SUPPLEMENT ARE RESIDENTS OF CANADA, AND THE MAJORITY OF OUR ASSETS AND
OPERATIONS ARE LOCATED, AND THE MAJORITY OF OUR REVENUES ARE DERIVED, OUTSIDE
THE UNITED STATES.
--------------
PER SENIOR NOTE TOTAL
--------------- --------------
Public Offering Price 99.655% US$298,965,000
Underwriting Commission 0.650% US$ 1,950,000
Proceeds to TransAlta (before expenses) 99.005% US$297,015,000
Interest on the notes will accrue from June 25, 2002 to the date of
delivery.
--------------
The underwriters expect to deliver the notes to purchasers on or about
June 25, 2002.
--------------
JOINT BOOK-RUNNING MANAGERS
MERRILL LYNCH & CO. SALOMON SMITH BARNEY
--------------
CREDIT SUISSE FIRST BOSTON UBS WARBURG
CIBC WORLD MARKETS
RBC CAPITAL MARKETS
SCOTIA CAPITAL
June 20, 2002
[ON THIS PAGE IN THE PROSPECTUS THERE APPEARS A MAP
SHOWING THE LOCATION OF THE COMPANY'S ASSETS AND OPERATIONS IN CANADA,
THE UNITED STATES, MEXICO AND AUSTRALIA.]
IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS
This document is in two parts. The first part is this Prospectus Supplement,
which describes the specific terms of the senior notes we are offering (the
"Notes"). The second part, the base shelf prospectus, gives more general
information. The accompanying base shelf prospectus is referred to as the
"Prospectus" in this Prospectus Supplement.
IF THE DESCRIPTION OF THE NOTES VARIES BETWEEN THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN THIS PROSPECTUS
SUPPLEMENT.
YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT
AND CONTAINED IN OR INCORPORATED BY REFERENCE IN THE PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT MAKING
AN OFFER OF THE NOTES IN ANY JURISDICTION WHERE THE OFFER IS NOT PERMITTED. YOU
SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT
OR CONTAINED IN OR INCORPORATED BY REFERENCE IN THE PROSPECTUS IS ACCURATE AS OF
ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS PROSPECTUS SUPPLEMENT.
In this Prospectus Supplement, all capitalized terms used and not otherwise
defined herein have the meanings provided in the Prospectus. In the Prospectus
and this Prospectus Supplement, unless otherwise specified or the context
otherwise requires, all dollar amounts are expressed in Canadian dollars.
"U.S. dollars" or "US$" means the lawful currency of the United States. Unless
otherwise indicated, all financial information included and incorporated by
reference in the Prospectus and this Prospectus Supplement is determined using
Canadian generally accepted accounting principles ("Canadian GAAP").
"U.S. GAAP" means generally accepted accounting principles in the United States.
Except as set forth under "Description of the Notes" in this Prospectus
Supplement, or "Description of Debt Securities" in the Prospectus, and unless
the context otherwise requires, all references in this Prospectus Supplement to
"TransAlta", the "Corporation", "we", "us" and "our" mean TransAlta Corporation
and its consolidated subsidiaries including any consolidated partnerships of
which the Corporation or any of its subsidiaries are partners.
This Prospectus Supplement is deemed to be incorporated by reference into
the Prospectus solely for the purposes of the offering of the Notes. The
documents that are referred to in the Prospectus under the heading, "Where You
Can Find More Information; Documents Incorporated by Reference" are specifically
incorporated by reference into, and form an integral part of, the Prospectus,
provided that such documents are not incorporated by reference to the extent
that the contents are modified or superseded by a statement contained in this
Prospectus Supplement or in any other subsequently filed document that is also
incorporated by reference in the Prospectus. In addition, the Corporation's
material change report dated May 31, 2002 relating to the Wabamun arbitration
decision filed with the Alberta Securities Commission and with the SEC on
Form 6-K, is specifically incorporated by reference into, and forms an integral
part of, the Prospectus.
ANY STATEMENT CONTAINED IN THE PROSPECTUS, IN THIS PROSPECTUS SUPPLEMENT OR
IN A DOCUMENT INCORPORATED OR DEEMED TO BE INCORPORATED BY REFERENCE INTO THE
PROSPECTUS FOR THE PURPOSE OF THE OFFERING OF THE NOTES SHALL BE DEEMED TO BE
MODIFIED OR SUPERSEDED, FOR THE PURPOSES OF THIS PROSPECTUS SUPPLEMENT, TO THE
EXTENT THAT A STATEMENT CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR IN ANY OTHER
SUBSEQUENTLY FILED DOCUMENT THAT ALSO IS OR IS DEEMED TO BE INCORPORATED BY
REFERENCE IN THE PROSPECTUS MODIFIES OR SUPERSEDES THAT STATEMENT. ANY STATEMENT
SO MODIFIED OR SUPERSEDED SHALL NOT BE DEEMED, EXCEPT AS SO MODIFIED OR
SUPERSEDED, TO CONSTITUTE PART OF THIS PROSPECTUS SUPPLEMENT.
S-2
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
--------
Exchange Rate Information................................... S-4
Special Note Regarding Forward-Looking Statements........... S-4
The Corporation............................................. S-5
Recent Developments......................................... S-5
Consolidated Capitalization................................. S-8
Use of Proceeds............................................. S-9
Selected Consolidated Financial Data........................ S-10
Description of the Notes.................................... S-12
Pro Forma Interest Coverage................................. S-16
Credit Ratings.............................................. S-17
Certain Income Tax Considerations........................... S-18
Underwriting................................................ S-21
Legal Matters............................................... S-22
PROSPECTUS
PAGE
--------
About this Prospectus....................................... 2
Glossary.................................................... 3
Where You Can Find More Information; Documents Incorporated
by Reference.............................................. 3
Special Note Regarding Forward-Looking Statements........... 5
The Corporation............................................. 5
Business of the Corporation................................. 6
Selected Consolidated Financial Data........................ 21
Management.................................................. 23
Use of Proceeds............................................. 23
Interest Coverage........................................... 23
Description of Share Capital................................ 24
Description of Debt Securities.............................. 27
Description of Warrants..................................... 40
Certain Income Tax Considerations........................... 41
Plan of Distribution........................................ 41
Risk Factors................................................ 42
Legal Matters............................................... 48
Experts..................................................... 48
Auditors.................................................... 48
Documents Filed as Part of the Registration Statement....... 48
Enforcement of Civil Liabilities............................ 48
S-3
EXCHANGE RATE INFORMATION
The following table sets forth certain exchange rates based on the noon
buying rate for cable transfers payable in Canadian dollars as certified for
customs purposes by the Federal Reserve Bank of New York (the "noon buying
rate"). These rates are set forth as U.S. dollars per $1.00 and are the inverse
of rates quoted by the Federal Reserve Bank of New York for Canadian dollars per
US$1.00. On June 20, 2002, the inverse of the noon buying rate was US$0.6528
equals $1.00.
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------------- ------------------------------------
2002 2001 2001 2000 1999
---------- ---------- ---------- ---------- ----------
High for period................... US$0.6342 US$0.6697 US$0.6697 US$0.6969 US$0.6925
Low for period.................... US$0.6200 US$0.6336 US$0.6241 US$0.6410 US$0.6535
Rate at end of period............. US$0.6266 US$0.6336 US$0.6279 US$0.6669 US$0.6925
Average rate for the
period (1)...................... US$0.6260 US$0.6511 US$0.6446 US$0.6727 US$0.6746
------------
(1) The average exchange rate on the last day of each month during the
applicable period.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus Supplement and the Prospectus contain both historical and
forward-looking statements within the meaning of Section 27A of the
U.S. Securities Act and Section 21E of the U.S. Exchange Act. These
forward-looking statements are not facts, but only predictions and generally can
be identified by the use of statements that include phrases such as "believe,"
"expect," "anticipate," "intend," "plan," "foresee" or other words or phrases of
similar import. Similarly, statements that describe the Corporation's
objectives, plans or goals also are forward-looking statements. These
forward-looking statements are subject to risks and uncertainties which could
cause actual results to differ materially from those currently anticipated.
Certain factors that could materially affect these forward-looking statements
are described below and can be found in this Prospectus Supplement and the
Prospectus, including under the heading "Risk Factors" in the Prospectus.
Potential investors and other readers are urged to consider these factors
carefully in evaluating the forward-looking statements and are cautioned not to
place undue reliance on these forward-looking statements. The forward-looking
statements included in this document are made only as of the date of this
Prospectus Supplement and the Corporation does not undertake to publicly update
these forward-looking statements to reflect new information, future events or
otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events might or might not occur. The Corporation cannot assure
you that projected results or events will be achieved.
Factors that may adversely impact the Corporation's forward-looking
statements include: (i) the rules and regulations in the various markets in
which the Corporation operates are subject to change; (ii) environmental
requirements and changes in, or liabilities under, these requirements;
(iii) risks under the Alberta PPAs, pursuant to which the Corporation operates
most of its facilities in Alberta, including risks associated with unplanned
outages; (iv) changes in the market prices and availability of fuel supplies
required to generate electricity, and in the price of electricity; (v) risks
relating to the operation of the Corporation's facilities; (vi) currency rate
risk and political uncertainty; (vii) trading risks and counterparty risks; and
(viii) rapid change and competition in the wholesale power industry.
These and additional factors are described in more detail under the heading
"Risk Factors" in the Prospectus and in our Annual Information Form and our
management's discussion and analysis of financial condition and results of
operations incorporated by reference in our Annual Information Form.
S-4
THE CORPORATION
The Corporation and its predecessors have been engaged in the production and
sale of electric energy since 1911. The Corporation is among Canada's largest
non-regulated electric generation and energy marketing companies with over
9,000 MW of generating capacity operating and under construction (of which
approximately 1,400 MW is under construction). The Corporation is focused on
generating electricity in Canada, the United States and Mexico through its
diversified portfolio of facilities fuelled by coal, gas and hydroelectric
power. The Corporation believes that it has positioned itself to capitalize on
opportunities created by the recent deregulation of the Alberta energy market
with its extensive facilities located in Alberta and its experience as a
developer of non-regulated independent power projects since 1992. On January 1,
2001, the Corporation's Alberta coal-fired and hydroelectric generating plants
began operating under the Alberta PPAs which established committed capacity and
electrical energy generation requirements and availability targets to be
achieved by each coal-fired plant, energy and ancillary services obligations for
the hydroelectric plants, and the price at which power would be supplied. The
Corporation also has several gas-fired cogeneration facilities in Ontario which
serve the Ontario market. In addition, the Corporation owns a 1,372 MW
coal-fired plant in Centralia, Washington and plans to build a 248 MW gas-fired
facility on the same site to supply electricity in the U.S. pacific northwest.
The Corporation has two facilities under construction in Mexico with a combined
capacity of 511 MW.
On April 29, 2002, the Corporation completed the sale of its Alberta-based
transmission business to AltaLink, a consortium of companies comprised of SNC
Lavalin Energy, Trans-Elect Inc., the Ontario Teachers' Pension Plan and
Macquarie North America Ltd. The sale was carried out in furtherance of the
Corporation's strategy to focus on developing a portfolio of generation assets
capable of realizing the Corporation's financial objectives. The transmission
business segment was reclassified as a discontinued operation upon the
announcement in July 2001 of the agreement to sell the business.
The Corporation is now organized into two business segments: generation
(which includes the former independent power projects group) and energy
marketing. The generation group is responsible for constructing and managing
power generation facilities. The energy marketing group is responsible for
managing the risks associated with the Corporation's generation assets.
RECENT DEVELOPMENTS
STATE OF CALIFORNIA LAWSUIT
On May 30, 2002, the California Attorney General's Office (the "CAGO")
issued a press release which stated that the CAGO had filed civil complaints in
the state court of California against eight additional wholesale power
companies, including TransAlta. The press release alleges violations of
California's unfair business practices law in connection with rates charged for
wholesale electricity sales. The Corporation believes that it has complied with
all state and U.S. Federal Energy Regulatory Commission, or FERC, requirements
which form the basis of this claim.
WABAMUN ARBITRATION DECISION
On May 23, 2002, the Corporation announced that it has received the
arbitrators' decision with respect to the dispute under the Wabamun PPA. The
dispute arose because of the shut down of Wabamun Unit No. 4 during the period
from January 1, 2001 to June 8, 2001. The arbitrators ruled that the shut down
qualified as a high-impact, low probability event under the FORCE MAJEURE
provisions of the Wabamun PPA. However, the arbitrators concluded that Unit
No. 4 should have been returned to service at an earlier date. Accordingly, the
Corporation has paid to the holder of the Wabamun PPA approximately $30 million
and has refunded approximately an additional $8.5 million to the Balancing
S-5
Pool. The Corporation will take an after tax earnings per share charge of
approximately $0.13 in the second quarter of 2002 as a result of the decision.
U.S. FEDERAL ENERGY REGULATORY COMMISSION INQUIRIES
On May 8, 2002, FERC sent requests for information to all sellers of
wholesale electricity or ancillary services to the California electricity
market, including TransAlta, regarding trading in the Western System
Coordinating Counsel, or WSCC. The FERC request asked recipients whether during
2000 and 2001 they had engaged in any trades involving ten categories of
activities described by the FERC in its request. On May 21, 2002, TransAlta
filed its response to the FERC request. In its response, TransAlta stated that
it had engaged in two of the ten categories of trades which were covered by the
FERC request: (1) export of power purchased through the California Power
Exchange, or the CalPX; and (2) so-called "ricochet" trades. A summary of
TransAlta's response, together with supplemental information, follows:
- EXPORT OF CALIFORNIA POWER -- The total exports by TransAlta of energy
purchased through the CalPX during the period covered by the FERC request
were 17,538 MWh, representing less than 0.06% of TransAlta's total
transaction volume for that period, including Alberta trading. Of these
17,538 MWh, only 16,654 MWh were available for export due to transmission
curtailments. Of these 16,654 MWh, 2,792 MWh were used to meet TransAlta's
commitments in the U.S. pacific northwest and 12,947 MWh were sold in the
spot markets in the U.S. pacific northwest.
- SO-CALLED "RICOCHET" TRADES -- The remaining 915 MWh purchased through the
CalPX and available for export were ultimately resold to the California
Independent System Operator, or ISO, as this buyer offered the highest
price for such energy. The CalPX required its participants to commit to
energy purchases at then current prices, several hours before delivery,
even though the relationship between prices in various markets can change
substantially in the two to four hours between commitment and delivery.
In addition, FERC's request asked respondents to disclose any activities
during the subject period that were similar to the ten categories that FERC
identified in its request. In the interests of full disclosure, TransAlta stated
in its response to FERC that it had engaged in the following activities:
- "WHEELING" POWER THROUGH CALIFORNIA -- This involves importing electricity
into the California market with a simultaneous export, which leaves
California energy-neutral. TransAlta's wheeling-through activities were
predominantly done to move surplus energy from the U.S. southwest through
California into the U.S. pacific northwest.
- RE-CIRCULATING POWER -- This involves moving unutilized energy from
southern California to satisfy underserved load in northern California
using non-ISO transmission capacity. TransAlta recirculated power with the
knowledge, and in some instances at the behest, of the ISO in order to
reduce congestion in the California market.
- EXPORTING AND SWAPPING ENERGY FROM CALIFORNIA -- This involves acquiring
energy in both northern and southern California to export into the
U.S. pacific northwest when energy was available in California at a price
more attractive than the price in the U.S. pacific northwest. Some of this
acquired energy was used by TransAlta to meet firm commitments made in
relation to its facilities in the U.S. pacific northwest when they were
not running.
- PARKING -- This involves the transfer of price risk between the day ahead
market and the bilateral hour-ahead market, if such a price spread exists.
TransAlta believes that parking is an energy-neutral strategy that does
not change the supply/demand balance in California, and that parking does
not raise or set prices.
S-6
TransAlta believes that none of the foregoing strategies are prohibited by
applicable laws, rules or regulations.
On May 21 and May 22, 2002, FERC issued two additional requests for
information, the first addressed to all sellers of wholesale electricity or
ancillary services in the U.S. portion of the WSCC and the second addressed to
all sellers of natural gas in the U.S. portion of the WSCC or Texas. These
requests asked recipients, which included TransAlta, for information regarding
so-called "round-trip" trading activities carried on by the recipient in the
WSCC or Texas during 2000 and 2001. TransAlta filed its responses to these
requests on May 31, 2002 and June 5, 2002, respectively. In its responses,
TransAlta stated that it does not believe it participated in any round-trip
trades during the period in question.
In addition, Reliant Energy Inc. recently issued a release stating that it
engaged in round trip trades in 1999 with Merchant Energy Group of the
Americas, Inc., or MEGA. TransAlta acquired an initial 50% interest in MEGA in
2000. TransAlta contends that no round-trip trading occurred between Reliant
Energy Inc. and MEGA during any period in which TransAlta had an ownership
interest in MEGA.
EPCOR JOINT VENTURE
On May 2, 2002, the Corporation announced that it has entered into a
memorandum of understanding with EPCOR Utilities Inc., or EPCOR, to exclusively
negotiate: (i) the purchase by the Corporation of a 50% interest in EPCOR's
450 MW Genesee 3 facility that is located southwest of Edmonton, Alberta;
(ii) the joint development of the Corporation's proposed 900 MW Keephills
expansion and EPCOR's proposed 450 MW Genesee 4 facility expansion; (iii) the
grant to EPCOR of an option to purchase a 50% interest in the Corporation's
650 MW Sarnia facility; and (iv) the purchase by EPCOR for the multi-year supply
of 50% of the capacity available and the electricity produced as a result of the
recent capacity expansion at the Corporation's Sundance facility. Subject to the
completion of satisfactory due diligence by both parties, definitive agreements
are scheduled to be signed in August 2002. Closing of any transactions will be
subject to certain conditions, including receipt of requisite
regulatory approvals.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2002
On April 18, 2002, the Corporation announced first quarter 2002 earnings
from continuing operations of $40.2 million ($0.24 per share), compared to
$55.9 million ($0.33 per share) for the same period in 2001. Operating cash flow
excluding working capital changes improved from $137.3 million in the first
quarter of 2001 to $171.3 million. Financial results reflect lower power prices
and energy marketing results, which were partially offset by improved plant
operating performance.
S-7
CONSOLIDATED CAPITALIZATION
The following table sets forth the Corporation's consolidated capitalization
as at March 31, 2002, on an actual basis, on a pro forma basis as adjusted to
reflect the sale of the transmission assets and as further adjusted to give
effect to this offering and to the application of the net proceeds as described
under the heading "Use of Proceeds". This table has been prepared in accordance
with Canadian GAAP and should be read in conjunction with the Corporation's
unaudited interim consolidated financial statements as of and for the three
months ended March 31, 2002 and 2001 which have been incorporated by reference
in the Prospectus.
MARCH 31, 2002
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ---------- -----------
(UNAUDITED)
(IN MILLIONS)
Short-term debt:
Bank debt (1)(2).......................................... $ 530.0 $ -- $ --
Commercial paper (2)(3)................................... 222.2 -- --
Current portion of long-term debt......................... 104.4 104.4 104.4
Less cash................................................. (100.3) (100.3) (350.1)
-------- -------- --------
Net short-term debt......................................... 756.3 4.1 (245.7)
-------- -------- --------
Long-term debt:
Debentures, due 2002 to 2033 (4).......................... 1,963.4 1,963.4 1,963.4
Notes payable -- Windsor-Essex facility, due 2002
to 2014 (5)............................................. 64.4 64.4 64.4
Capital lease obligation, due 2004 (6).................... 10.4 10.4 10.4
Preferred securities, due 2048 and 2050 (7)............... 14.1 14.1 14.1
Commercial paper -- US$182.6 million (2)(3)............... 288.8 223.3 --
Bank credit facilities -- Campeche (8).................... 200.5 200.5 200.5
Senior Notes issued hereby (9)............................ -- -- 478.8
-------- -------- --------
2,541.6 2,476.1 2,731.6
Less current portion........................................ (104.4) (104.4) (104.4)
-------- -------- --------
Total long-term debt........................................ 2,437.2 2,371.7 2,627.2
Non-controlling interests (10).............................. 281.6 281.6 281.6
Preferred securities, due 2048 and 2050 (7)................. 452.3 452.3 452.3
Shareholders' equity:
Common shares (11)........................................ 1,185.4 1,185.4 1,185.4
Retained earnings (2)(12)................................. 843.0 943.0 943.0
Cumulative translation adjustment......................... (19.4) (19.4) (19.4)
-------- -------- --------
Total shareholders' equity.................................. 2,009.0 2,109.0 2,109.0
-------- -------- --------
Total capitalization.................................... $5,936.4 $5,218.7 $5,224.4
======== ======== ========
---------------
(1) The Corporation has a $1.2 billion syndicated credit facility, of which the
Corporation has issued banker's acceptances in the amount of $501.2 million
and LIBOR-based loans in the amount of $28.8 million.
(2) The Corporation received $817.7 million from the sale of its transmission
assets and recognized an estimated gain on disposition of $100 million. All
of the proceeds were used to repay bank debt and a portion of the
Corporation's outstanding commercial paper.
(3) Under the Corporation's $600 million commercial paper program, a total of
$511 million in commercial paper was outstanding at March 31, 2002. As part
of its hedging strategy, the Corporation has designated US$182.6 million of
its U.S. dollar commercial paper as a long-term hedge against its net
investment in its U.S. operations.
S-8
(4) The debentures bear interest at fixed rates. TransAlta Utilities
Corporation, a subsidiary of the Corporation, has issued $898.4 million
principal amount of the debentures and has granted a floating charge on its
assets and property as security for repayment of these debentures. The
remainder of the debentures have been issued by the Corporation. Debentures
of $100 million principal amount maturing in 2023 and $50 million principal
amount maturing in 2033 are redeemable at the option of the holders in 2008
and 2009, respectively. Debentures of $150 million principal amount maturing
in 2005 are extendible until 2030 at the option of the holders.
(5) The notes payable are secured by the Windsor-Essex facility and bear
interest at fixed rates and are recourse to the Corporation through a
standby letter of credit.
(6) Certain coal mining capital assets of TransAlta Utilities Corporation have
been provided as collateral for a capital lease obligation. The obligation
bears interest at a fixed rate.
(7) The debt component amount of the preferred securities represents the present
value of the aggregate principal amount of $300 million due in 2048 and
$175 million due in 2050. Interest accretion at the coupon rate is included
in interest expense. Under U.S. GAAP, these preferred securities are
considered to be entirely debt, with no equity component.
(8) In December 2000, the Corporation established a US$133.6 million,
sixteen-year credit facility for the financing of the construction of its
Campeche plant. As at March 31, 2002, the borrowing totalled
US$127.0 million at LIBOR plus 0.875% during construction and LIBOR plus
2.25% upon completion of the construction increasing to LIBOR plus 3.25% by
2016 with step-ups. Upon completion of construction which is expected to
occur in March 2003, 70% of the credit facility will be converted to a fixed
rate of 7.4% through a forward starting swap. During construction, the
Corporation has provided a guarantee to the lenders for the completion of
the plant. Upon completion of construction, the credit facility will be
secured by the Campeche plant.
(9) The U.S. dollar amount has been converted into Canadian dollars based on the
noon buying rate on March 31, 2002.
(10) TransAlta Energy Corporation holds a 50.01% interest in TransAlta
Cogeneration, L.P., an Ontario limited partnership. The remaining 49.99%
interest is held by TransAlta Power, L.P., another Ontario limited
partnership, whose limited partnership units are publicly held.
(11) The Corporation is authorized to issue an unlimited number of voting common
shares without nominal or par value. The Corporation has a share option plan
which currently permits 13.0 million common shares of the Corporation to be
reserved for issuance pursuant to options granted to employees, officers and
directors of the Corporation. As at March 31, 2002, options to purchase
3.8 million common shares were outstanding at prices ranging from $13.12 to
$27.70 per common share.
(12) Under U.S. GAAP, the retained earnings balance was $862.3 million as at
March 31, 2002.
USE OF PROCEEDS
The net proceeds to the Corporation from this offering will be approximately
US$296.4 million after deduction of estimated expenses of the offering and the
underwriting commission. The net proceeds received by the Corporation from the
sale of the Notes will be used for general corporate purposes, including the
repayment of indebtedness and the financing of the Corporation's long-term
investment plan. Pending such application, the net proceeds may be invested in
short-term securities.
S-9
SELECTED CONSOLIDATED FINANCIAL DATA
The Corporation's selected consolidated financial data as at and for each of
the three years ended December 31, 1999, 2000 and 2001 have been derived from
its audited consolidated financial statements, certain of which have been
incorporated by reference in this Prospectus Supplement. The Corporation's
selected consolidated financial data for the three months ended March 31, 2001
and 2002 are derived from its unaudited interim consolidated financial
statements incorporated by reference in this Prospectus Supplement. The interim
financial results reflect all adjustments which, in the opinion of management,
are necessary for a fair statement of the results. Historical and interim
results are not necessarily indicative of the results to be expected in
the future.
The Corporation's consolidated financial statements are prepared in
accordance with Canadian GAAP. Canadian GAAP conforms in all material respects
with U.S. GAAP, except as described in note 26 to the Corporation's consolidated
financial statements for the years ended December 31, 2001 and 2000 and the
U.S. GAAP reconciliation for the three months ended March 31, 2002 and 2001,
incorporated by reference in this Prospectus Supplement. The selected
consolidated financial data should be read in conjunction with the Corporation's
audited consolidated annual financial statements and unaudited consolidated
interim financial statements, and the notes thereto, and management's discussion
and analysis of financial condition and results of operations related thereto
incorporated by reference in this Prospectus Supplement.
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- -------------------
1999 2000 2001 2001 2002
-------- --------- --------- -------- --------
(AUDITED) (UNAUDITED)
(IN MILLIONS)
REVENUES................................... $1,123.0 $ 2,802.5 $ 4,927.1 $1,390.6 $1,067.4
Trading purchases.......................... (272.0) (1,202.5) (2,533.7) (684.1) (647.7)
Fuel and purchased power................... (216.6) (655.8) (1,288.7) (411.4) (173.8)
-------- --------- --------- -------- --------
GROSS MARGIN............................... 634.4 944.2 1,104.7 295.1 245.9
OPERATING EXPENSES:
Operations, maintenance and
administration........................... 234.8 349.9 444.5 84.3 87.4
Depreciation and amortization.............. 164.4 205.6 273.6 49.8 56.3
Taxes, other than income taxes............. 21.9 23.9 18.7 7.5 7.0
-------- --------- --------- -------- --------
421.1 579.4 736. 8 141.6 150.7
OPERATING INCOME........................... 213.3 364.8 367.9 153.5 95.2
Other income (expense)..................... -- (1.1) 1.5 (1.5) (2.0)
Foreign exchange gains..................... 1.7 0.1 0.8 0.7 0.6
Net interest expense....................... (65.5) (91.4) (88.1) (33.9) (19.2)
-------- --------- --------- -------- --------
EARNINGS FROM CONTINUING OPERATIONS BEFORE
REGULATORY DECISIONS, INCOME TAXES AND
NON-CONTROLLING INTERESTS................ $ 149.5 $ 272.4 $ 282.1 $ 118.8 $ 74.6
Prior period regulatory decisions.......... -- 44.1 11.0 -- --
-------- --------- --------- -------- --------
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THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- -------------------
1999 2000 2001 2001 2002
-------- --------- --------- -------- --------
(AUDITED) (UNAUDITED)
(IN MILLIONS)
EARNINGS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND NON-CONTROLLING
INTERESTS................................ $ 149.5 $ 316.5 $ 293.1 $ 118.8 $ 74.6
Income taxes............................... 64.7 128.5 89.9 53.0 22.5
Non-controlling interests.................. 30.9 41.6 20.6 6.8 6.4
-------- --------- --------- -------- --------
Earnings from continuing operations........ 53.9 146.4 182.6 59.0 45.7
Earnings from discontinued operations...... 101.7 89.1 45.1 11.7 11.2
Net gain on disposal of discontinued
operations............................... 19.7 266.8 --
Net earnings before extraordinary item..... 175.3 502.3 227.7 70.7 56.9
Extraordinary item......................... -- (209.7) -- -- --
-------- --------- --------- -------- --------
Net earnings............................... 175.3 292.6 227.7 70.7 56.9
Preferred securities distributions, net of
tax...................................... 5.2 12.8 13.1 3.1 5.5
-------- --------- --------- -------- --------
NET EARNINGS APPLICABLE TO COMMON
SHAREHOLDERS............................. $ 170.1 $ 279.8 $ 214.6 $ 67.6 $ 51.4
======== ========= ========= ======== ========
Weighted average common shares outstanding
in the year.............................. 169.5 168.8 168.9 168.6 169.0
BALANCE SHEET DATA (AT PERIOD END):
Current assets............................. $ 615.5 $ 1,803.0 $ 1,432.4 $1,850.9 $1,426.7
Capital assets (net of accumulated
depreciation)............................ 5,031.0 5,277.1 6,124.1 5,351.5 6,280.5
Total assets............................... 6,038.4 7,627.1 7,877.9 7,524.3 8,066.3
Current liabilities........................ 956.3 2,076.4 1,812.2 2,072.6 1,937.0
Long-term debt (excluding current
portion)................................. 1,965.6 2,121.8 2,406.8 2,040.0 2,437.2
Total liabilities.......................... 3,270.0 5,002.7 5,154.6 4,889.5 5,323.4
Non-controlling interests.................. 645.7 375.0 281.0 371.8 281.6
Preferred securities....................... 287.1 292.0 452.6 285.9 452.3
Common shareholders' equity................ 1,835.6 1,957.4 1,989.7 1,977.1 2,009.0
Total shareholders' equity................. 2,122.7 2,249.4 2,442.3 2,263.0 2,461.3
OTHER DATA (UNAUDITED):
Earnings before interest, taxes and
non-controlling interests (1)............ $ 439.6 $ 605.6 $ 466.6 $ 176.8 $ 116.2
Earnings before interest and taxes,
depreciation and amortization (1)........ 765.1 927.3 792.5 242.4 187.1
Cash flow from operating activities before
change in working capital................ 477.7 616.9 624.5 137.3 171.3
Capital expenditures....................... 644.9 795.0 1,246.5 161.4 269.3
Acquisitions............................... 347.6 880.1 9.8 -- --
KEY RATIOS (UNAUDITED):
Cash flow to interest (2).................. 4.0x 4.6x 4.9x 4.7x 5.6x
Cash flow to total debt (3)................ 21% 26% 23% 27% 24%
Total debt to total capitalization (4)..... 46% 50% 53% 46% 55%
---------------
(1) Includes discontinued operations.
(2) Cash flow from operations before changes in working capital and gross
interest expense divided by gross interest expense.
(3) Cash flow from operations before changes in working capital divided by the
two-year average of total debt.
(4) Total debt divided by the sum of total debt, non-controlling interests,
preferred shares, preferred securities and common shareholders' equity.
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DESCRIPTION OF THE NOTES
The following description of the terms of the Notes supplements, and to the
extent inconsistent therewith replaces, the description set forth under the
heading "Description of Debt Securities" in the Prospectus and should be read in
conjunction with such description.
GENERAL
The Notes will be direct unsecured obligations of the Corporation and will
rank equally and ratably with all other unsubordinated and unsecured
indebtedness of the Corporation.
Payment of the principal, premium, if any, and interest on the Notes will be
made in U.S. dollars.
The provisions of the Indenture relating to the payment of additional
amounts in respect of Canadian withholding taxes in certain circumstances
(described under the heading "Description of Debt Securities -- Payment of
Additional Amounts" in the Prospectus) and the provisions of the Indenture
relating to the redemption of Notes in the event of specified changes in
Canadian withholding tax laws or the enforcement or interpretation thereof on or
after the date of this Prospectus Supplement (described under the heading
"Description of The Notes -- Tax Redemption" below) will apply to the Notes.
The Notes will be effectively subordinate to all indebtedness and other
liabilities of the Corporation's subsidiaries, except to the extent the
Corporation is a creditor of such subsidiaries ranking at least PARI PASSU with
such other creditors. As at March 31, 2002, the Corporation's subsidiaries had
approximately $1,173.7 million of liabilities (excluding intercompany
liabilities and trade accounts payable).
The Notes will initially be issued in an aggregate principal amount of
US$300 million and will mature on July 15, 2012. The Notes will bear interest at
the rate of 6.750% per annum from June 25, 2002 or from the most recent date to
which interest has been paid or provided for, payable semi-annually on
January 15 and July 15 of each year, commencing January 15, 2003, to the persons
in whose names the Notes are registered at the close of business on the
preceding January 1 or July 1, respectively. Interest shall be computed assuming
a 360-day year consisting of twelve 30-day months.
The Corporation may from time to time, without the consent of the holders of
the Notes, create and issue additional Notes after this offering. The Notes and
any additional Notes subsequently issued under the Indenture will be treated as
a single class for all purposes under the Indenture (except in respect of the
payment of interest accruing prior to the issue date of the additional Notes and
the first payment of interest following the issue date of the additional Notes),
including, without limitation, waivers, amendments, redemptions and offers
to purchase.
The Notes will not be entitled to the benefits of any sinking fund.
OPTIONAL REDEMPTION
The Notes will be redeemable as a whole or in part, at the option of the
Corporation at any time, at a redemption price equal to the greater of:
(i) 100% of the principal amount of such Notes and (ii) the sum of the present
values of the remaining scheduled payments of principal and interest thereon
(exclusive of interest accrued to the date of redemption) discounted to the
redemption date on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Treasury Rate plus 30 basis points, plus in each
case accrued interest thereon to the date of redemption.
"TREASURY RATE" means, with respect to any redemption date, the rate per
annum equal to the semi-annual equivalent yield to maturity or interpolated (on
a day count basis) of the Comparable Treasury Issue, assuming a price for the
Comparable Treasury Issue (expressed as a percentage of its principal amount)
equal to the Comparable Treasury Price for such redemption date.
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"COMPARABLE TREASURY ISSUE" means the United States Treasury security or
securities selected by an Independent Investment Banker as having an actual or
interpolated maturity comparable to the remaining term of the Notes to be
redeemed that would be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate debt securities
of a comparable maturity to the remaining term of such Notes.
"INDEPENDENT INVESTMENT BANKER" means one of the Reference Treasury Dealers
appointed by the Trustee after consultation with the Corporation.
"COMPARABLE TREASURY PRICE" means, with respect to any redemption date,
(i) the average of the Reference Treasury Dealer Quotations for such redemption
date, after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (ii) if the Trustee obtains fewer than four such Reference
Treasury Dealer Quotations, the average of all such quotations.
"REFERENCE TREASURY DEALER QUOTATIONS" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the
Trustee, of the bid and ask prices for the Comparable Treasury Issue (expressed
in each case as a percentage of its principal amount) quoted in writing to the
Trustee by such Reference Treasury Dealer at 3:30 p.m. New York time on the
third business day preceding such redemption date.
"REFERENCE TREASURY DEALER" means each of Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Salomon Smith Barney Inc., Credit Suisse First Boston
Corporation, UBS Warburg LLC plus one other to be determined by the Corporation,
or their respective affiliates which are primary U.S. Government securities
dealers, and their respective successors; provided, however, that if any of the
foregoing or their respective affiliates shall cease to be a primary
U.S. Government securities dealer in The City of New York (a "Primary Treasury
Dealer"), the Corporation shall substitute therefor another Primary
Treasury Dealer.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Notes to be redeemed.
Unless the Corporation defaults in payment of the redemption price, on and
after the redemption date, interest will cease to accrue on the Notes or
portions thereof called for redemption.
TAX REDEMPTION
The Notes will be subject to redemption at any time, in whole but not in
part, at the option of the Corporation, at a redemption price equal to the
principal amount thereof together with accrued and unpaid interest to the date
fixed for redemption, upon the giving of a notice as described below, if
(1) TransAlta determines that (a) as a result of any change in or amendment to
the laws (or any regulations or rulings promulgated thereunder) of Canada or of
any political subdivision or taxing authority thereof or therein affecting
taxation, or any change in official position regarding application or
interpretation of such laws, regulations or rulings (including a holding by a
court of competent jurisdiction), which change or amendment is announced or
becomes effective on or after the date of this Prospectus Supplement, TransAlta
has or will become obligated to pay, on the next succeeding date on which
interest is due, additional amounts with respect to the Notes as described under
"Payment of Additional Amounts" in the Prospectus; or (b) on or after the date
of this Prospectus Supplement, any action has been taken by any taxing authority
of, or any decision has been rendered by a court of competent jurisdiction in,
Canada or any political subdivision or taxing authority thereof or therein,
including any of those actions specified in (a) above, whether or not such
action was taken or decision was rendered with respect to TransAlta, or any
change, amendment, application or interpretation shall be officially proposed,
which, in any such case, in the written opinion to TransAlta of legal counsel of
recognized standing, will result in TransAlta becoming obligated to pay, on the
next succeeding date on which interest is due, additional amounts with respect
to the Notes and (2) in any such case, TransAlta
S-13
in its business judgment determines that such obligation cannot be avoided by
the use of reasonable measures available to TransAlta; provided however, that
(i) no such notice of redemption may be given earlier than 60 days prior to the
earliest date on which TransAlta would be obligated to pay such additional
amounts were a payment in respect of the Notes then due, and (ii) at the time
such notice of redemption is given, such obligation to pay such additional
amounts remains in effect; and provided further, that any such notice of
redemption shall be given no later than 30 days prior to such redemption.
In the event that TransAlta elects to redeem the Notes pursuant to the
provisions set forth in the preceding paragraph, TransAlta shall deliver to the
Trustee a certificate, signed by an authorized officer, stating that TransAlta
is entitled to redeem the Notes pursuant to their terms.
BOOK-ENTRY SYSTEM
The Depository Trust Company ("DTC") will act as securities depository for
the Notes. The Notes will be issued as fully registered Notes registered in the
name of Cede & Co. (as nominee of DTC). One or more fully registered global
Notes (the "Global Notes") will be issued for each of the Notes, in the
aggregate principal amount of the issue, and will be deposited with DTC. The
provisions set forth under the heading "Description of Debt Securities -- Global
Securities" in the Prospectus will be applicable to the Notes. Accordingly,
beneficial interests in the Notes will be shown on, and transfers of the Notes
will be effected, only through, records maintained by DTC and its Direct and
Indirect Participants (defined below). Except as described under the heading
"Description of Debt Securities -- Registered Global Securities" in the
accompanying Prospectus, owners of beneficial interests in the Registered Global
Securities representing the Notes will not be entitled to receive Notes in
definitive form and will not be considered Holders of Notes under
the Indenture.
The following is based on information furnished by DTC:
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a clearing agency
registered pursuant to the provisions of Section 17A of the U.S. Exchange Act.
DTC holds securities that its participants ("Direct Participants") deposit with
DTC. DTC also facilitates the settlement among participants of notes
transactions, such as transfers and pledges, in deposited notes through
electronic computerized book-entry charges in participants' accounts, thereby
eliminating the need for physical movement of notes certificates. Direct
Participants include:
- securities brokers and dealers;
- banks;
- trust companies;
- clearing corporation; and
- certain other organizations.
DTC is owned by a number of its Direct Participants and by the New York
Stock Exchange, Inc., the American Stock Exchange, Inc., and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("Indirect Participants"). The rules
applicable to DTC and its participants are on file with the SEC.
S-14
Purchases of Notes under the DTC system must be made by or through Direct
Participants, which will receive a credit for the Notes on DTC's records. The
ownership interest of each actual purchaser of Notes represented by the Global
Notes (a "Beneficial Owner") is in turn to be recorded on the Direct and
Indirect Participant's records. Beneficial Owners will not receive written
confirmation from DTC of their purchases but Beneficial Owners are expected to
receive written confirmation providing details of the transaction, as well as
periodic statements of their holdings, from the Direct or Indirect Participants
through which the Beneficial Owners entered into the transaction. Transfers of
ownership interests in the Global Notes representing the Notes are to be
accomplished by entries made on the books of participants acting on behalf of
Beneficial Owners. Beneficial Owners of the Global Notes representing Notes will
not receive certificated Notes representing their ownership interests, except in
the event that use of the book-entry system for the Notes is discontinued or
upon the occurrence of certain other events described in the Prospectus.
To facilitate subsequent transfers, the Global Notes representing Notes
which are deposited with, or on behalf of, DTC are registered in the name of
DTC's nominee, Cede & Co. or such other name as may be requested by an
authorized representative of DTC. The deposit of the Global Notes with DTC and
their registration in the name of Cede & Co. or such other nominee does not
effect any change in beneficial ownership. DTC has no knowledge of the actual
Beneficial Owners of the Global Notes representing the Notes. DTC's records
reflect only the identity of the Direct Participants to whose accounts the Notes
are credited, which may or may not be the Beneficial Owners. The Direct
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote
with respect to the Global Notes representing the Notes. Under its usual
procedures, DTC mails an omnibus proxy (an "Omnibus Proxy") to the Corporation
as soon as possible after the applicable record date. The Omnibus Proxy assigns
Cede & Co.'s consenting or voting rights to those Direct Participants to whose
accounts the Notes are credited on the applicable record date (identified in a
listing attached to the Omnibus Proxy).
Principal and interest payments on the Global Notes representing the Notes
will be made to Cede & Co., or such other nominee as may be requested by an
authorized representative of DTC. DTC's practice is to credit Direct
Participants' accounts on the applicable payment date in accordance with their
respective holdings shown on DTC's records unless DTC has reason to believe that
it will not receive payment on that date. Payments by Direct and Indirect
Participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the account of
customers in bearer form or registered in "street name", and will be the
responsibility of the Direct or Indirect Participant and not of DTC, the Trustee
or the Corporation, subject to any statutory or regulatory requirements as may
be in effect from time to time. Payment of principal and interest to
Cede & Co. (or such other nominee as may be requested by an authorized
representative of DTC) is the responsibility of the Corporation or the Trustee.
Disbursement of these payments to Direct Participants shall be the
responsibility of DTC, and disbursement of these payments to the Beneficial
Owners shall be the responsibility of Direct and Indirect Participants. Neither
the Corporation nor the Trustee will have any responsibility or liability for
disbursements of payments in respect of ownership interest in the Notes by DTC
or the Direct or Indirect Participants or for maintaining or reviewing any
records of DTC or the Direct or Indirect Participants relating to ownership
interests in the Notes or the disbursement of payments in respect of the Notes.
S-15
DTC may discontinue providing its services as depository with respect to the
Notes at any time by giving reasonable notice to the Corporation or the Trustee.
Under these circumstances, and in the event that a successor depository is not
obtained, certificated Notes are required to be printed and delivered. The
Corporation may decide to discontinue use of the system of book-entry transfers
through DTC (or a successor depository). In that event, certificated Notes will
be printed and delivered.
The information in this section concerning DTC and DTC's system has been
obtained from sources that the Corporation believes to be reliable, but the
Corporation takes no responsibility for the accuracy thereof. The information in
this section is subject to any changes to the arrangements between the
Corporation and DTC and any changes to these procedures that may be instituted
unilaterally by DTC.
PRO FORMA INTEREST COVERAGE
The following pro forma coverage ratios have been prepared in accordance
with Canadian securities law requirements and are included in this Prospectus
Supplement in accordance with Canadian disclosure requirements.
The following pro forma interest coverage ratios have been calculated on a
consolidated basis for the respective 12 month periods ended December 31, 2001
and March 31, 2002 and are based on audited financial information, in the case
of the 12 month period ended December 31, 2001, and unaudited financial
information, in the case of the 12 month period ended March 31, 2002. In each
case, the ratios have been calculated after giving effect to the issuance of the
Notes offered hereby and the application of the net proceeds therefrom to repay
short-term indebtedness as described under "Use of Proceeds", but before giving
effect to the sale by the Corporation of its transmission assets. The pro forma
interest coverage ratios set forth below do not purport to be indicative of the
actual interest coverage ratios that would have occurred on the foregoing dates,
nor to be indicative of interest coverage ratios for any future periods. The
ratios have been calculated based on Canadian GAAP.
DECEMBER 31, MARCH 31,
2001 2002
------------- ----------
Interest coverage on long-term debt.................. 2.43 times 2.20 times
Interest coverage on long-term debt is equal to net earnings before interest
on long-term debt and income taxes divided by interest expense on long-term
debt. For purposes of calculating the above ratios, long-term debt includes the
current portion of long-term debt. Additionally, the above ratios have been
calculated without including the annual carrying charges relating to the equity
component of the $175 million aggregate principal amount of 7.50% preferred
securities due April 13, 2048, the $125 million aggregate principal amount of
8.15% preferred securities due December 31, 2048 and the $175 million aggregate
principal amount of 7.75% preferred securities due December 31, 2050 of the
Corporation (collectively, the "Preferred Securities"). If the equity component
of the Preferred Securities was classified as debt, the entire carrying charges
of the Preferred Securities would be included in interest expense. If these
annual carrying charges had been included in the calculations, the interest
coverage would have been 2.05 times for the 12 month period ended December 31,
2001 and 1.80 times for the 12 month period ended March 31, 2002. Under
U.S. GAAP, the Preferred Securities would be classified as debt and the entire
carrying charges of the Preferred Securities would be included in
interest expense.
S-16
CREDIT RATINGS
The Corporation's unsecured long-term debt, which includes the Notes, has
been rated Baa1 by Moody's Investor Services, Inc. ("Moody's") and rated BBB+ by
Standard & Poor's Corporation ("S&P") (collectively, Moody's and S&P are each, a
"Rating Agency"). The Rating Agencies' ratings for debt instruments range from a
high of Aaa to a low of C in the case of Moody's and from a high of AAA to a low
of D in the case of S&P. The rating outlook from the two Rating Agencies
is stable.
According to Moody's rating system, debt securities rated Baa are considered
as medium-grade obligations, i.e. they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such securities
lack outstanding investment characteristics and in fact have speculative
characteristics as well. Numerical modifiers 1, 2 and 3 are applied to each
rating category, with 1 indicating that the obligation ranks in the higher end
of the category, 2 indicating a mid-range ranking and 3 indicating a ranking in
the lower end of the category.
According to the S&P rating system, an obligation rated BBB exhibits
adequate protection parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the obligor to
meet its financial commitment on the obligation. The ratings from AA to B may be
modified by the addition of a plus (+) or minus (-) sign to show relative
standing within the major rating categories.
Credit ratings are intended to provide investors with an independent measure
of credit quality of an issue of securities. The credit ratings accorded to the
debt securities by Moody's or S&P are not recommendations to purchase, hold or
sell the debt securities inasmuch as such ratings do not comment as to the
market price or suitability for a particular investor. There is no assurance the
ratings will remain in effect for any given period or that a rating will not be
revised or withdrawn entirely by a Rating Agency in the future if, in its
judgement, circumstances so warrant.
S-17
CERTAIN INCOME TAX CONSIDERATIONS
THE FOLLOWING SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE,
AND SHOULD NOT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PROSPECTIVE
INVESTOR AND NO REPRESENTATION WITH RESPECT TO THE TAX CONSEQUENCES TO ANY
PARTICULAR INVESTOR IS MADE. ACCORDINGLY, PROSPECTIVE INVESTORS SHOULD CONSULT
WITH THEIR OWN TAX ADVISORS FOR ADVICE WITH RESPECT TO THE INCOME TAX
CONSEQUENCES TO THEM HAVING REGARD TO THEIR OWN PARTICULAR CIRCUMSTANCES,
INCLUDING ANY CONSEQUENCES OF AN INVESTMENT IN THE NOTES ARISING UNDER STATE,
PROVINCIAL OR LOCAL TAX LAWS IN THE UNITED STATES OR CANADA OR TAX LAWS OF
JURISDICTIONS OUTSIDE THE UNITED STATES OR CANADA.
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of McCarthy Tetrault LLP, Calgary, Alberta, Canada, Canadian
counsel to the Corporation, the following summary addresses the material
Canadian federal income tax considerations generally applicable to an initial
purchaser of Notes under this offering (a "Holder") who, for purposes of the
Income Tax Act (Canada) (the "Tax Act") and at all relevant times, is not, and
is not deemed to be, resident in Canada, deals at arm's with the Corporation, is
not an insurer, does not carry on an insurance business in Canada or elsewhere,
holds the Notes as capital property, and does not use or hold, and is not deemed
to use or hold, the Notes in connection with a business carried on in Canada.
For the purposes of the Tax Act, related persons (as defined therein) are deemed
not to deal at arm's length and it is a question of fact whether persons not
related to each other deal at arm's length.
This summary is based on the current provisions of the Tax Act and the
regulations thereunder, the understanding of McCarthy Tetrault LLP of the
current assessing and administrative practices of the Canada Customs and Revenue
Agency (the "CCRA") and all specific proposals to amend the Tax Act and the
regulations thereunder publicly announced by the Minister of Finance (Canada)
before the date of this Prospectus Supplement. This summary does not otherwise
take into account or anticipate changes in the law or in the assessment and
administrative practices of the CCRA, whether by judicial, governmental or
legislative decision or action nor does it take into account tax legislation or
considerations of any province or territory of Canada or any jurisdiction other
than Canada. This summary is of a general nature only and is not intended to be,
and should not be interpreted as, legal or tax advice to any particular Holder
of Notes.
The payment of interest, premium, if any, and principal by the Corporation
to a Holder will not be subject to non-resident withholding tax under the
Tax Act. No other tax on income (including capital gains) will be payable by a
Holder under the Tax Act in respect of the holding, repayment, redemption or
disposition of the Notes, or the receipt of interest, premium, if any, or
principal thereon.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the principal U.S. federal income tax
consequences of the acquisition, ownership and disposition of a Note by an
initial purchaser thereof who is a United States person (as defined below) who
purchases Notes at the issue price set forth on the cover of this Prospectus
Supplement and who will hold the Note as a "capital asset" (a "U.S. Holder")
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code"). This summary is intended for general information only and
does not address all potentially relevant U.S. federal income tax matters.
This summary does not address the tax consequences to U.S. Holders subject
to special provisions of the Code including, without limitation, financial
institutions, tax-exempt organizations, insurance companies, regulated
investment companies, holders subject to the alternative minimum tax, dealers in
securities or foreign currencies, holders holding Notes as a hedge against
currency risks or as part of a
S-18
straddle with other investments or as a part of a "conversion transaction"
within the meaning of Section 1258 of the Code, and holders with a "functional
currency" other than the U.S. dollar and holders who are not U.S. Holders. This
discussion also does not cover any state, local or foreign tax consequences.
This summary is based upon provisions of the Code, regulations, rulings and
judicial decisions in effect on the date hereof, all of which are subject to
change (possibly with retroactive effect) and differing interpretations, so as
to result in U.S. federal income tax consequences different from those
described herein.
As used herein, the term "United States person" means a beneficial owner of
a Note that is (i) an individual citizen or resident of the United States,
(ii) a corporation, partnership or other entity created or organized under the
laws of the United States or any political subdivision thereof, (iii) an estate
the income of which is subject to U.S. federal income tax without regard to its
source, or (iv) a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of the
trust or if the trust has made a valid election to be treated as a United
States person.
PAYMENTS OF INTEREST
Interest on the Notes will generally be taxable to a U.S. Holder as ordinary
income at the time received or accrued, in accordance with such holder's method
of accounting for U.S. federal income tax purposes. Such interest will
constitute income from sources outside the United States and will generally be
treated as "passive" or "financial services" income (or, if Canadian withholding
tax at a rate of 5% or more were to be imposed, as "high withholding tax
interest" income) for purposes of computing the foreign tax credit allowable to
a U.S. Holder.
Payment of interest on the Notes will not be subject to Canadian withholding
tax. See "-- Certain Canadian Federal Income Tax Considerations". If, however,
the interest payments become subject to Canadian withholding taxes as the result
of a change in Canadian tax law, U.S. Holders will be treated for U.S. federal
income tax purposes as having actually received the amount of the taxes withheld
as interest and as having paid that amount to the Canadian taxing authorities.
As a result, the amount of interest income included in gross income by a
U.S. Holder generally will be greater than the amount of cash actually received
by the U.S. Holder. A U.S. Holder may be able, subject to applicable
limitations, to claim a foreign tax credit or take a deduction for Canadian
withholding taxes imposed on interest payments (including withholding taxes
imposed on Additional Amounts).
SALE, EXCHANGE, RETIREMENT OR REDEMPTION OF NOTES
Upon the sale, exchange, retirement, redemption or other taxable disposition
of a Note, a U.S. Holder generally will recognize gain or loss equal to the
difference between the amount realized on such sale, exchange, retirement or
redemption (other than amounts received that are attributable to accrued
interest not previously included in income, which amount will be taxable as
ordinary income) and such U.S. Holder's adjusted tax basis in the Note,
generally, its cost. Such gain or loss generally will constitute capital gain or
loss and will be long-term capital gain or loss if the Note was held by such
U.S. Holder for more than one year. The deductibility of capital losses is
subject to limitations. In the case of a U.S. Holder who is a United States
resident as defined in Section 865 of the Code, any such gain or loss will be
treated as U.S. source, unless it is attributable to an office or other fixed
place of business outside the United States and certain other conditions
are met.
S-19
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply and backup
withholding of U.S. federal income tax (currently at a rate of 30% although
phased-in reductions to this rate will take effect through 2006 at which time,
and through 2010, the rate of backup withholding will be 28% until replaced by a
31% rate beginning in 2011) may be required in respect of principal and interest
paid to certain U.S. Holders of a Note who fail to supply an accurate taxpayer
identification number or fail to establish that they are exempt recipients such
as corporations, financial institutions or foreign persons who comply with
certain certification requirements, or if the Secretary of the Treasury
determines that the holder has not reported all interest and dividend income
required to be shown on its U.S. federal income tax return. The amount of any
backup withholding from a payment to a U.S. Holder generally will be allowed as
a credit against such U.S. Holder's U.S. federal income tax liability and may
entitle such U.S. Holder to a refund, provided that the required information is
furnished to the Internal Revenue Service.
S-20
UNDERWRITING
The Corporation intends to offer the Notes through the underwriters for whom
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon Smith
Barney Inc. (collectively, the "Representatives") are acting as representatives
of the underwriters named below.
Subject to the terms and conditions stated in the underwriting agreement
dated the date of this Prospectus Supplement, each underwriter named below has
agreed to purchase, and the Corporation has agreed to sell to that underwriter,
the principal amount of Notes set forth opposite the underwriter's name.
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
----------- ----------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................... US$105,000,000
Salomon Smith Barney Inc.................................... 105,000,000
Credit Suisse First Boston Corporation...................... 22,500,000
UBS Warburg LLC............................................. 22,500,000
CIBC World Markets Corp..................................... 15,000,000
RBC Dominion Securities Corporation......................... 15,000,000
Scotia Capital (USA) Inc.................................... 15,000,000
--------------
Total............................................. US$300,000,000
==============
The underwriting agreement provides that the obligations of the underwriters
to purchase the Notes included in this offering are subject to approval of legal
matters by counsel and to other conditions. The underwriters are obligated to
purchase all the Notes if they purchase any of the Notes.
The underwriters propose to offer the Notes directly to the public at the
public offering price set forth on the cover page of this Prospectus Supplement
and to dealers at the public offering price less a concession not to exceed
0.400% of the principal amount of the Notes. The underwriters may allow, and
dealers may reallow a concession not to exceed 0.250% of the principal amount of
the Notes on sales to other dealers. After the initial offering of the Notes to
the public, the Representatives may change the public offering price
and concessions.
The following table shows the underwriting commission that the Corporation
is to pay to the underwriters in connection with this offering (expressed as a
percentage of the principal amount of the Notes).
PAID BY TRANSALTA
-----------------
Per Note.................................................... 0.650%
In connection with this offering, the Representatives, on behalf of the
underwriters, may purchase and sell Notes in the open market. These transactions
may include over-allotment, syndicate covering transactions and stabilizing
transactions. Over-allotment involves syndicate sales of the Notes in excess of
the principal amount of the Notes to be purchased by the underwriters in this
offering, which creates a syndicate short position. Syndicate covering
transactions involve purchases of the Notes in the open market after the
distribution has been completed in order to cover syndicate short positions.
Stabilizing transactions consist of certain bids or purchases of the Notes made
for the purpose of preventing or retarding a decline in the market price of the
Notes while the offering is in progress.
S-21
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when the
Representatives, in covering syndicate short positions or making stabilizing
purchases, repurchases Notes originally sold by that syndicate member.
Any of these activities may have the effect of preventing or retarding a
decline in the market price of the Notes. They may also cause the price of the
Notes to be higher than the price that otherwise would exist in the open market
in the absence of these transactions. The underwriters may conduct these
transactions in the over-the-counter market or otherwise. If the underwriters
commence any of these transactions, they may discontinue them at any time.
The Corporation estimates that its total expense for this offering will be
approximately US$600,000 (not including the underwriting commission).
The underwriters have performed investment banking and advisory services for
the Corporation from time to time for which the underwriters have received
customary fees and expenses. The underwriters may, from time to time, engage in
transactions with and perform services for the Corporation in the ordinary
course of their business.
The Corporation has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, or to
contribute to payments the underwriters may be required to make because of any
of those liabilities.
The Notes will not be qualified for sale under the securities laws of Canada
or any province or territory of Canada (other than the Province of Alberta) and
may not be, directly or indirectly, offered, sold or delivered in Canada or to
residents of Canada in contravention of the securities laws of any province or
territory of Canada. Each underwriter has agreed that it will not, directly or
indirectly, offer, sell or deliver any Notes purchased by it in Canada or to
residents of Canada in contravention of the securities laws of any province or
territory of Canada.
Certain of the underwriters are affiliates of banks (the "Banks") which are
lenders to the Corporation and to which the Corporation is presently indebted.
As a consequence of their participation in this offering, the underwriters
affiliated with the Banks will be entitled to share in the underwriting
commission relating to the offering of the Notes. The decision to distribute the
Notes hereunder and the determination of the terms of this offering were made
through negotiations between the Corporation and the underwriters. Although the
Banks did not have any involvement in such decision or determination, a portion
of the net proceeds of this offering may be used to repay indebtedness of the
Corporation to the Banks and certain other lenders. See "Use of Proceeds". As a
result, one or more of the Banks may in the aggregate receive more than 10% of
the net proceeds from the offering of the Notes in the form of the repayment of
such indebtedness. Accordingly, the offering of the Notes is being made pursuant
to Rule 2710(c)(8) of the Conduct Rules of the National Association of
Securities Dealers, Inc.
LEGAL MATTERS
Certain legal matters relating to Canadian law in connection with the
offering of the Notes will be passed upon for the Corporation by McCarthy
Tetrault LLP, Calgary, Alberta, Canada, and certain legal matters relating to
United States law in connection with the offering of the Notes will be passed
upon for the Corporation by Latham & Watkins, New York, New York. In addition,
certain legal matters relating to United States law in connection with the
offering of the Notes will be passed upon for the underwriters by Shearman &
Sterling, Toronto, Ontario, Canada.
The partners and associates of McCarthy Tetrault LLP, as a group
beneficially own, directly or indirectly, less than 1% of the outstanding
securities of any class or series of the Corporation.
S-22
BASE SHELF PROSPECTUS
[LOGO] TRANSALTA CORPORATION
US$1,000,000,000
COMMON SHARES
FIRST PREFERRED SHARES
DEBT SECURITIES
WARRANTS
We may from time to time offer our common shares, first preferred shares,
debt securities or warrants to purchase common shares, first preferred shares,
debt securities or other securities (collectively, the "Securities"), up to a
total initial offering price of US$1,000,000,000 (or its equivalent in Canadian
dollars or any other currency or currency unit used to denominate the
Securities) during the 25 month period that this base shelf prospectus (the
"Prospectus"), including any amendments hereto, remains valid.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") NOR ANY STATE
SECURITIES COMMISSION OR OTHER REGULATORY BODY HAS APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE.
WE ARE PERMITTED TO PREPARE THIS PROSPECTUS IN ACCORDANCE WITH CANADIAN
DISCLOSURE REQUIREMENTS, WHICH ARE DIFFERENT FROM THOSE IN THE UNITED STATES. WE
PREPARE OUR FINANCIAL STATEMENTS IN ACCORDANCE WITH CANADIAN GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ("CANADIAN GAAP"), AND THEY ARE SUBJECT TO CANADIAN
AUDITING AND AUDITOR INDEPENDENCE STANDARDS. AS A RESULT, THEY MAY NOT BE
COMPARABLE TO FINANCIAL STATEMENTS OF UNITED STATES COMPANIES.
OWNING THE SECURITIES MAY SUBJECT YOU TO TAX CONSEQUENCES BOTH IN THE UNITED
STATES AND CANADA. THIS PROSPECTUS MAY NOT DESCRIBE THESE TAX CONSEQUENCES
FULLY. YOU SHOULD READ THE TAX DISCUSSION UNDER "CERTAIN INCOME TAX
CONSIDERATIONS" AND IN ANY APPLICABLE PROSPECTUS SUPPLEMENT.
YOUR ABILITY TO ENFORCE CIVIL LIABILITIES UNDER THE UNITED STATES FEDERAL
SECURITIES LAWS MAY BE AFFECTED ADVERSELY BECAUSE WE ARE INCORPORATED IN CANADA,
MOST OF OUR OFFICERS AND DIRECTORS AND SOME OF THE EXPERTS NAMED IN THIS
PROSPECTUS ARE CANADIAN RESIDENTS, AND MOST OF OUR ASSETS AND THE ASSETS OF
THOSE OFFICERS, DIRECTORS AND EXPERTS ARE LOCATED OUTSIDE OF THE UNITED STATES.
The specific variable terms of any offering of Securities will be set forth
in a shelf prospectus supplement (a "Prospectus Supplement") including, where
applicable: (i) in the case of common shares, the number of shares offered and
the offering price; (ii) in the case of first preferred shares, the designation
of the particular series, the number of shares offered, the offering price, any
voting rights, any rights to receive dividends, any terms of redemption, any
conversion or exchange rights and any other specific terms; (iii) in the case of
debt securities, the specific designation of the debt securities, any limit on
the aggregate principal amount of the debt securities, the currency or currency
unit, the maturity, the offering price, whether payment on the debt securities
will be senior or subordinated to our other liabilities and obligations, whether
the debt securities will bear interest, the interest rate or method of
determining the interest rate, any terms of redemption, any conversion or
exchange rights and any other specific terms; and (iv) in the case of warrants,
the designation, number and terms of the common shares, first preferred shares,
debt securities or other securities purchasable upon exercise of the warrants,
and any procedures that will result in the adjustment of those numbers, the
exercise price, the dates and periods of exercise, and the currency in which the
warrants are issued and any other specific terms. We reserve the right to
include in a Prospectus Supplement specific variable terms pertaining to the
Securities that are not within the options and parameters set forth in this
Prospectus. You should read this Prospectus and any applicable Prospectus
Supplement before you invest.
Our common shares are listed on the New York Stock Exchange (the "NYSE")
under the symbol "TAC" and on The Toronto Stock Exchange (the "TSX") under the
symbol "TA". There is currently no market through which the first preferred
shares, debt securities or warrants to purchase common shares, first preferred
shares, debt securities or other securities may be sold and purchasers may not
be able to resell such securities issued under this Prospectus.
We may sell the Securities to or through underwriters or dealers purchasing
as principals, directly to one or more purchasers pursuant to applicable
statutory exemptions or through agents. See "Plan of Distribution". The
Prospectus Supplement relating to a particular offering of Securities will
identify each underwriter, dealer or agent engaged in connection with the
offering and sale of the Securities, and will set forth the method of
distribution of such Securities, including, to the extent applicable, the
proceeds to us and any fees, discounts or any other compensation payable to
underwriters, dealers or agents and any other material terms of the plan of
distribution.
THE DATE OF THIS PROSPECTUS IS MAY 14, 2002
TABLE OF CONTENTS
PAGE
--------
About this Prospectus....................................... 2
Glossary.................................................... 3
Where You Can Find More Information; Documents Incorporated
by Reference.............................................. 3
Special Note Regarding Forward-Looking Statements........... 5
The Corporation............................................. 5
Business of the Corporation................................. 6
Selected Consolidated Financial Data........................ 21
Management.................................................. 23
Use of Proceeds............................................. 23
Interest Coverage........................................... 23
Description of Share Capital................................ 24
Description of Debt Securities.............................. 27
Description of Warrants..................................... 40
Certain Income Tax Considerations........................... 41
Plan of Distribution........................................ 41
Risk Factors................................................ 42
Legal Matters............................................... 48
Experts..................................................... 48
Auditors.................................................... 48
Documents Filed as Part of the Registration Statement....... 48
Enforcement of Civil Liabilities............................ 48
ABOUT THIS PROSPECTUS
In this Prospectus and in any Prospectus Supplement, unless otherwise
specified or the context otherwise requires, all dollar amounts are expressed in
Canadian dollars. "U.S. dollars" or "US$" means lawful currency of the United
States. Unless otherwise indicated, all financial information included and
incorporated by reference in this Prospectus or included in any Prospectus
Supplement is determined using Canadian GAAP. "U.S. GAAP" means generally
accepted accounting principles in the United States. For a discussion of the
principal differences between our financial information as calculated under
Canadian GAAP and under U.S. GAAP, you should refer to note 26 of our
consolidated annual financial statements and the U.S. GAAP reconciliation to our
unaudited consolidated interim financial statements incorporated by reference
into this Prospectus. Except as set forth under "Description of Debt
Securities", and unless the context otherwise requires, all references in this
Prospectus and any Prospectus Supplement to "TransAlta", the "Corporation",
"we", "us" and "our" mean TransAlta Corporation and its consolidated
subsidiaries including any consolidated partnerships of which the Corporation or
any of its subsidiaries are partners.
This Prospectus provides a general description of the Securities that we may
offer. Each time we sell Securities under this Prospectus, we will provide you
with a Prospectus Supplement that will contain specific information about the
terms of that offering. The Prospectus Supplement may also add, update or change
information contained in this Prospectus. Before investing, you should read both
this Prospectus and any applicable Prospectus Supplement together with
additional information described below under "Where You Can Find More
Information; Documents Incorporated by Reference."
2
GLOSSARY
This Prospectus and any Prospectus Supplement may include the following
terms:
"ALBERTA PPA" means an Alberta government mandated power purchase arrangement;
"GIGAWATT HOUR" or "GWH" means one million kilowatt hours of electrical power;
"KILOWATTS" or "KW" means 1,000 watts of electrical power;
"KILOWATT HOUR" or "KWH" means one hour during which one kilowatt of electrical
power has been continuously produced;
"MEGAWATT" or "MW" means 1,000 kilowatts of electrical power;
"MEGAWATT HOUR" or "MWH" means 1,000 kilowatt hours;
"PPA" means a power purchase agreement having an initial term of five years or
greater;
"WATT" means the scientific unit of electrical power, being the rate of energy
use that gives rise to the production of energy at a rate of one joule per
second; and
"WATT-HOUR" is a measure of energy production or consumption equal to one watt
produced or consumed for one hour.
WHERE YOU CAN FIND MORE INFORMATION;
DOCUMENTS INCORPORATED BY REFERENCE
The following documents of the Corporation, filed with the Alberta
Securities Commission and with the SEC, are specifically incorporated by
reference in, and form an integral part of, this Prospectus provided that such
documents are not incorporated by reference to the extent that their contents
are modified or superseded by a statement contained in this Prospectus or in any
other subsequently filed document that is also incorporated by reference in this
Prospectus:
(a) Consolidated annual financial statements and auditors' report for the
years ended December 31, 2001 and 2000;
(b) Management's discussion and analysis of financial condition and results
of operations for the years ended December 31, 2001 and 2000;
(c) Unaudited consolidated interim financial statements of the Corporation
for the three month periods ended March 31, 2002 and 2001;
(d) Management's discussion and analysis of the financial condition and
results of operations for the three month periods ended March 31, 2002
and 2001;
(e) Annual Information Form of the Corporation dated May 1, 2002 (the
"Annual Information Form");
(f) Management Proxy Circular dated March 14, 2002 prepared in connection
with the Corporation's annual meeting of shareholders held on May 1, 2002
(excluding the sections entitled "Report on Executive Compensation",
"Comparative Shareholder Return" and "Corporate Governance", which shall
be deemed not to be incorporated by reference in this Prospectus);
(g) the first two paragraphs of the Corporation's press release dated
May 2, 2002 relating to the entering into of a memorandum of
understanding with EPCOR Utilities Inc.; and
(h) the reconciliation to U.S. GAAP of the unaudited consolidated interim
financial statements of the Corporation for the three month periods ended
March 31, 2002 and 2001.
Any documents of the type referred to above (other than press releases
(including press releases disseminating financial information) unless indicated
in any applicable Prospectus Supplement) and material change reports (excluding
confidential material change reports) subsequently filed by the Corporation with
the Alberta Securities Commission after the date of this Prospectus and prior to
the termination of the offering of Securities shall be deemed to be incorporated
by reference into this Prospectus. These documents are available through the
internet on the System for Electronic Document Analysis and Retrieval (SEDAR)
which can be accessed at www.sedar.com. In addition, any similar documents filed
on Form 6-K or Form 40-F by the Corporation with the SEC after the date of this
Prospectus shall be deemed to be incorporated by reference into this Prospectus
and the registration statement of which this Prospectus
3
forms a part, if and to the extent expressly provided in such report. The
Corporation's reports on Form 6-K are available on the SEC's website at
www.sec.gov.
ANY STATEMENT CONTAINED IN THIS PROSPECTUS OR IN A DOCUMENT INCORPORATED OR
DEEMED TO BE INCORPORATED BY REFERENCE HEREIN SHALL BE DEEMED TO BE MODIFIED OR
SUPERSEDED FOR PURPOSES OF THIS PROSPECTUS TO THE EXTENT THAT A STATEMENT
CONTAINED HEREIN OR IN ANY OTHER SUBSEQUENTLY FILED DOCUMENT WHICH ALSO IS OR IS
DEEMED TO BE INCORPORATED BY REFERENCE HEREIN MODIFIES OR SUPERSEDES SUCH
STATEMENT. THE MODIFYING OR SUPERSEDING STATEMENT NEED NOT STATE THAT IT HAS
MODIFIED OR SUPERSEDED A PRIOR STATEMENT OR INCLUDE ANY OTHER INFORMATION SET
FORTH IN THE DOCUMENT THAT IT MODIFIES OR SUPERSEDES. THE MAKING OF A MODIFYING
OR SUPERSEDING STATEMENT IS NOT TO BE DEEMED AN ADMISSION FOR ANY PURPOSES THAT
THE MODIFIED OR SUPERSEDED STATEMENT, WHEN MADE, CONSTITUTED A
MISREPRESENTATION, AN UNTRUE STATEMENT OF A MATERIAL FACT OR AN OMISSION TO
STATE A MATERIAL FACT THAT IS REQUIRED TO BE STATED OR THAT IS NECESSARY TO MAKE
A STATEMENT NOT MISLEADING IN LIGHT OF THE CIRCUMSTANCES IN WHICH IT WAS MADE.
ANY STATEMENT SO MODIFIED OR SUPERSEDED SHALL NOT BE DEEMED, EXCEPT AS SO
MODIFIED OR SUPERSEDED, TO CONSTITUTE A PART OF THIS PROSPECTUS.
Upon a new annual information form and related consolidated comparative
annual financial statements and related management's discussion and analysis of
financial condition and results of operations being filed by us with and where
required, accepted by, the applicable securities regulatory authorities during
the currency of this Prospectus, the previous annual information form, the
previous consolidated comparative annual financial statements and related
management's discussion and analysis of financial condition and results of
operations and all interim financial statements and related management's
discussion and analysis of financial condition and results of operations,
material change reports and management proxy circulars filed prior to the
commencement of the Corporation's financial year in which the annual information
form is filed shall be deemed no longer to be incorporated into this Prospectus
for purposes of future offers and sales of Securities under this Prospectus.
A Prospectus Supplement containing the specific terms of any Securities
offered thereunder will be delivered to purchasers of such Securities together
with this Prospectus and will be deemed to be incorporated by reference into
this Prospectus as of the date of the Prospectus Supplement solely for the
purposes of the offering of the Securities covered by that Prospectus
Supplement.
Copies of the documents incorporated herein by reference (other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference in such documents) may be obtained on request without charge from
the Corporate Secretary of TransAlta, 110 - 12th Avenue S.W., Calgary, Alberta,
Canada, T2P 2M1, Telephone (403) 267-7110.
The Corporation has filed with the SEC under the United States Securities
Act of 1933, as amended (the "U.S. Securities Act"), a registration statement on
Form F-10 relating to the Securities and of which this Prospectus is a part.
This Prospectus does not contain all of the information set forth in such
registration statement, certain items of which are contained in the exhibits to
the registration statement as permitted or required by the rules and regulations
of the SEC. See "Documents Filed as Part of the Registration Statement".
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete, and in each
instance, reference is made to the exhibit for a more complete description of
the relevant matter, each such statement being qualified in its entirety by such
reference. Items of information omitted from this Prospectus but contained in
the registration statement may be inspected and copied at the public reference
facilities maintained at the offices of the SEC described below.
The Corporation is subject to the information requirements of the United
States Securities and Exchange Act of 1934, as amended (the "U.S. Exchange
Act"), and in accordance therewith files reports and other information with the
SEC. Under the multi-jurisdictional disclosure system adopted by the United
States and Canada, such reports and other information may be prepared in
accordance with the disclosure requirements of Canada, which requirements are
different from those of the United States. The Corporation is exempt from the
rules under the U.S. Exchange Act prescribing the furnishing and content of
proxy statements, and its officers, directors and principal shareholders are
exempt from the reporting and short-swing profit recovery provisions contained
in Section 16 of the U.S. Exchange Act. Under the U.S. Exchange Act, the
Corporation is not required to publish financial statements as promptly as
United States companies. Such reports and other information may be inspected
without charge, and copied upon payment of prescribed fees, at the public
reference facility maintained by the SEC at 500 West Madison Street, Chicago,
Illinois 60661; and copies of such material may also be obtained from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549
at prescribed rates.
4
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains both historical and forward-looking statements
within the meaning of Section 27A of the U.S. Securities Act and Section 21E of
the U.S. Exchange Act. These forward-looking statements are not facts, but only
predictions and generally can be identified by the use of statements that
include phrases such as "believe," "expect," "anticipate," "intend," "plan,"
"foresee" or other words or phrases of similar import. Similarly, statements
that describe the Corporation's objectives, plans or goals also are
forward-looking statements. These forward-looking statements are subject to
risks and uncertainties which could cause actual results to differ materially
from those currently anticipated. Certain factors that could materially affect
these forward-looking statements are described below and can be found in this
Prospectus, including those factors described under the heading "Risk Factors".
Potential investors and other readers are urged to consider these factors
carefully in evaluating the forward-looking statements and are cautioned not to
place undue reliance on these forward-looking statements. The forward-looking
statements included in this Prospectus are made only as of the date of this
Prospectus and the Corporation does not undertake to publicly update these
forward-looking statements to reflect new information, future events or
otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events might or might not occur. The Corporation cannot assure
you that projected results or events will be achieved.
Factors that may adversely impact the Corporation's forward-looking
statements include: (i) the rules and regulations in the various markets in
which the Corporation operates are subject to change; (ii) environmental
requirements and changes in, or liabilities under, these requirements;
(iii) risks under the Alberta PPAs, pursuant to which the Corporation operates
most of its facilities in Alberta, including risks associated with unplanned
outages; (iv) changes in the market prices and availability of fuel supplies
required to generate electricity, and in the price of electricity; (v) risks
relating to the operation of the Corporation's facilities; (vi) currency rate
risk and political uncertainty; (vii) trading risks and counterparty risks; and
(viii) rapid change and competition in the wholesale power industry.
These and additional factors are described in more detail under "Risk
Factors" and in our Annual Information Form and our management's discussion and
analysis of financial condition and results of operations incorporated by
reference in our Annual Information Form.
THE CORPORATION
The registered office and principal place of business of the Corporation are
at 110 - 12th Avenue S.W., Calgary, Alberta, Canada, T2P 2M1. TransAlta has two
principal operating subsidiaries, each incorporated under the federal laws of
Canada: TransAlta Utilities Corporation and TransAlta Energy Corporation.
5
BUSINESS OF THE CORPORATION
OVERVIEW
The Corporation and its predecessors have been engaged in the production and
sale of electric energy since 1911. The Corporation is among Canada's largest
non-regulated electric generation and energy marketing companies with over
9,000 MW of generating capacity operating and under construction (of which
approximately 1,400 MW is under construction). The Corporation is focused on
generating electricity in Canada, the United States and Mexico through its
diversified portfolio of facilities fuelled by coal, gas and hydroelectric
power. The Corporation believes that it has positioned itself to capitalize on
opportunities created by the recent deregulation of the Alberta energy market
with its extensive facilities located in Alberta and its experience as a
developer of non-regulated independent power projects since 1992. On January 1,
2001, the Corporation's Alberta coal-fired and hydroelectric generating plants
began operating under the Alberta PPAs which established committed capacity and
electrical energy generation requirements and availability targets to be
achieved by each coal-fired plant, energy and ancillary services obligations for
the hydroelectric plants, and the price at which power would be supplied. The
Corporation also has several gas-fired cogeneration facilities in Ontario which
serve the Ontario market. In addition, the Corporation owns a 1,372 MW
coal-fired plant in Centralia, Washington and plans to build a 248 MW gas-fired
facility on the same site to supply electricity in the U.S. pacific northwest.
The Corporation has two facilities under construction in Mexico with a combined
capacity of 511 MW.
On April 29, 2002, the Corporation completed the sale of its Alberta-based
transmission business to AltaLink, a consortium of companies comprised of SNC
Lavalin Energy, Trans-Elect Inc., the Ontario Teachers' Pension Plan and
Macquarie North America Ltd. The sale was carried out in furtherance of the
Corporation's strategy to focus on developing a portfolio of generation assets
capable of realizing the Corporation's financial objectives. The transmission
business segment was reclassified as a discontinued operation upon the
announcement in July 2001 of the agreement to sell the business.
The Corporation is now organized into two business segments: generation
(which includes the former independent power projects group) and energy
marketing. The generation group is responsible for constructing and managing
power generation facilities. The energy marketing group is responsible for
managing the risks associated with the Corporation's generation assets.
BUSINESS STRATEGY
The Corporation is focused on creating shareholder value through prudent
growth while maintaining a strong balance sheet. The Corporation intends to meet
its growth objectives by pursuing a strategy consisting of the following
elements:
FOCUS ON OPERATIONAL EXCELLENCE. The Corporation has set stringent
operational targets for its generation business. The Corporation is working to
reduce its already low production costs and to increase the availability of its
coal-fired and gas-fired plants to an average target of 90%. The performance
standards established by the Corporation for each of its generating units are
based on each unit's unique operating characteristics.
INCREASE GENERATION CAPACITY. The Corporation plans to increase its
generation capacity by at least 1,000 MW per year through to the end of 2005.
The Corporation intends to achieve this objective through a combination of
facility expansions, acquisitions and new development projects. The Corporation
seeks to prudently add generation capacity in markets which display attractive
supply and demand fundamentals and in which it can establish a significant
market presence. The Corporation has identified a number of cost-effective
opportunities to add capacity to its existing facilities, including additions to
its Alberta coal-fired facilities. The Corporation owns, leases or controls
extensive low sulfur coal reserves in Alberta capable of fuelling such
additional capacity. The Corporation has the ability under the Alberta PPAs to
sell such increased capacity into the spot market or directly to customers under
long-term arrangements.
MANAGE RISK PROFILE. The Corporation intends to develop facilities using a
variety of non-nuclear fuels in diverse markets across North America to mitigate
the price and regulatory risks associated with particular
6
fuels and markets. In connection with its new facilities, the Corporation
intends to either enter into long-term fuel supply contracts that match PPAs or
enter into PPAs that provide a flow-through of fuel costs to the power
purchaser. In addition to the Alberta PPAs, the Corporation typically enters
into staggered short-term contracts and other PPAs to limit its exposure to
price movements and optimize overall returns. The Corporation manages supply
risk from unplanned outages through proper plant maintenance, FORCE MAJEURE
clauses in contracts, insurance, and trading activities. The Corporation will
continue to work towards its objective of having approximately 70% of its output
governed by PPAs. These strategies are intended to enable the Corporation to
achieve positive, stable returns while retaining the flexibility to capture
favorable market opportunities when available.
LEVERAGE ENERGY MARKETING CAPABILITIES. The Corporation will continue to
use energy marketing activities to manage and limit risk exposures from both
financial or physical positions and counterparty risks. The Corporation also
intends to leverage its energy marketing capabilities to identify and gain an
operational understanding of markets with attractive fundamentals to pursue
capacity additions. In addition, the Corporation will continue to seek
transmission access to execute physical trades and capture market opportunities.
See "Business of the Corporation -- Energy Marketing Business".
PURSUE SUSTAINABLE DEVELOPMENT. The Corporation believes that it conducts
its operation and development activities in a socially and environmentally
responsible manner. The Corporation plans to use a combination of new
technology, renewable resources, emissions trading and offsets to reduce its
emissions of greenhouse gas. In Canada, the Corporation has targeted zero net
emissions by 2024. Since establishing this emissions target, the Corporation has
entered into emissions trading arrangements to acquire offsets for over 250,000
tonnes of carbon dioxide. In 2000, the Corporation established a plan to invest
up to $100 million in sustainable development and research. Investments will be
made in new technologies to reduce carbon emissions, to further environmental
offset and credit use, and to develop renewable energy sources. As at March 31,
2002, the Corporation has invested approximately $23 million. Among its other
environmental activities, the Corporation is also developing methods of burning
coal in a more environmentally-friendly and efficient manner.
EXERCISE FINANCIAL DISCIPLINE. The Corporation will continue to exercise
financial discipline in acquiring, developing and operating facilities. This
discipline has enabled the Corporation as a non-regulated generation company to
preserve its investment grade rating. The Corporation views the maintenance of a
strong investment grade rating as important to providing it with ongoing access
to Canadian and international debt capital markets on attractive terms. Access
to equity capital will be achieved through the Corporation's prudent approach to
building its asset portfolio and supported by its TSX and NYSE listings.
Finally, the Corporation exercises portfolio discipline by continually reviewing
the rate of return of each of its assets and pursuing the sale of assets that
are not strategic or do not meet the Corporation's rate of return objectives.
MARKET OPPORTUNITIES
As the largest generator of electricity in Alberta, measured by capacity,
and with generation assets in Ontario, the U.S. pacific northwest, Mexico and
Australia, the Corporation is well-positioned to capitalize on opportunities in
these regions. Alberta, located in Western Canada, is the country's fourth
largest province by population with approximately three million residents
representing 10% of Canada's total population. Alberta consumed approximately
49,403 GWh of electricity in 2001. As at December 31, 2001, the aggregate
installed capacity of generating facilities in Alberta was 11,588 MW.
Ontario is Canada's largest province with approximately 12 million
residents, representing 38% of Canada's total population. Ontario consumed
approximately 150,000 GWh of electricity in 2001. Ontario Power
Generation Inc., the successor to the generation business of Ontario's former
integrated electric utility, controls over two-thirds of Ontario's approximately
30,000 MW of installed capacity, the balance of which is owned by municipal
electric utilities and private independent power producers or industrial
consumers.
7
Power in the U.S. pacific northwest is regulated by the Western Electricity
Coordinating Council ("WECC"). The WECC is the largest of the 10 regions in the
North American Electric Reliability Council and is divided into four subregions,
of which Region 1 includes British Columbia, Alberta, Washington, Oregon, Idaho,
Montana, Utah, western Wyoming and northern Nevada. This subregion is referred
to as the Northwest Power Pool (the "NWPP"). Approximately 323,873 GWh of
electricity was generated in the NWPP in 2001. According to the WECC, as of the
summer 2001, aggregate generating capacity of approximately 75,000 MW was
located in the NWPP.
The Corporation expects that the demand for electricity will continue to
grow in its target markets. In addition to increased demand, the market for
electricity in some of these regions has undergone deregulation. Legislation in
Alberta and Ontario and many states in the United States have mandated the
unbundling of services traditionally provided by vertically integrated utilities
to promote competition in the market for generation, transmission and
distribution of electricity. These regulatory changes have caused some
integrated utilities to sell all or parts of their generation assets. The
Corporation believes that the combination of increased demand for electricity,
deregulation and the increased availability of generation assets provides it
with an opportunity to increase its generation capacity and leverage its energy
marketing capabilities.
In addition, the Corporation believes that the demand for electricity in
Mexico will continue to grow in the next several years due to the rapid rise of
manufacturing activity and increased commercial and consumer consumption. The
Corporation expects that the Government of Mexico's Comision Federal de
Electricidad ("CFE"), the state-owned and operated utility, will offer for
tender more independent power projects that are similar to those of the
Corporation's in Campeche and Chihuahua in order to meet this increase in demand
for electricity.
COMPETITIVE STRENGTHS
The Corporation believes it is well-positioned to achieve its business
strategy due to its numerous competitive strengths, which include the following:
STABLE CASHFLOW BASE. As at March 31, 2002, approximately 90% of the
Corporation's existing aggregate production is contracted with counterparties
that meet the Corporation's risk management criteria. Approximately 63% of the
output is sold under Alberta PPAs, most of which expire from 2013 to 2020 and
are ultimately backed by the "Balancing Pool", an entity established by the
Government of Alberta. The Corporation expects that these Alberta PPAs will
provide a stable, long-term base for its cash flow and earnings. See "Generation
Business -- Alberta -- Alberta PPAs".
OWNERSHIP OR CONTROL OF COAL SUPPLY. The Corporation owns, controls or
leases extensive coal reserves in Alberta which provide a long-term and stable
source of fuel for approximately 85% of its generation capacity in Alberta. The
Corporation also owns a coal mine near its Centralia facility, which currently
provides approximately 70% of the fuel required at the Centralia facility. The
Corporation's mines in Alberta contain some of the cleanest burning coal in
North America, averaging 0.28% sulfur at the Whitewood mine and 0.19% at the
Highvale mine. Coal with lower sulfur content emits less sulfur dioxide
("SO(2)") when it is burned thereby minimizing environmental degradation. By
comparison the sulfur content of coal mined in the Powder River Basin typically
has sulfur content of about 0.45%.
FINANCIAL STRENGTH. The Corporation has investment grade issuer ratings
from Moody's Investor Services, Inc. and Standard & Poor's Corporation. The
Corporation expects that its financial strength will allow it to continue to
prudently take advantage of both acquisition opportunities and development
programs.
GEOGRAPHIC DIVERSITY. The Corporation has a geographically diverse asset
base with assets in Alberta, Ontario, the United States, Mexico and Australia.
MANAGEMENT TEAM. The Corporation's management team has substantial industry
and local markets experience and has successfully transformed the Corporation
from a regulated integrated utility to a deregulated electricity generator.
8
ENERGY MARKETING EXPERTISE. The Corporation's energy marketing group works
to enhance returns from its existing generation base. The energy marketing group
seeks to obtain more favorable pricing for uncommitted electricity, secure fuel
supply on a cost-effective basis and fulfill electricity delivery obligations in
the event of an outage.
GENERATION BUSINESS
The following table summarizes the Corporation's generation facilities
operating and under construction:
CAPACITY OWNERSHIP CONTRACT
REGION FACILITY (MW) (%) FUEL REVENUE SOURCE EXPIRY DATE
------ ------------------------ -------- --------- -------------- ------------------------ ------------
ALBERTA Keephills............... 754 100 Coal Alberta PPA 2020
(20 FACILITIES) Sheerness............... 732 50 Coal Alberta PPA 2020
Sundance................ 2,029 100 Coal Alberta PPA 2020
Wabamun................. 569 100 Coal Alberta PPA 2003
Fort Saskatchewan....... 120 30 Gas PPA 2019
Meridian................ 215 50 Gas PPA 2024
Poplar Creek............ 360 100 Gas Partial output PPA (3) 2024
Hydro assets (1)........ 801 100 Hydro Alberta PPA 2013 to 2020
-----
5,580
=====
ONTARIO Mississauga............. 110 50.01 Gas PPA 2017
(4 FACILITIES) Ottawa Health Services.. 68 50.01 Gas PPA 2012
Windsor-Essex........... 70 50.01 Gas Partial output PPA (4) 2016
Sarnia (2).............. 650 100 Gas Partial output PPA (5) 2022
-----
898
=====
UNITED STATES Centralia............... 1,372 100 Coal Partially contracted (6) --
(4 FACILITIES) Binghamton.............. 55 100 Gas Uncontracted --
Pierce.................. 154 Leased Gas Contracted (6) 2002
Big Hanaford (2)........ 248 100 Gas Uncontracted --
-----
1,829
=====
MEXICO Campeche (2)............ 252 100 Gas and Diesel PPA 2025
(2 FACILITIES) Chihuahua (2)........... 259 100 Gas PPA 2026
-----
511
=====
AUSTRALIA Parkeston............... 110 50 Gas PPA 2016
(2 FACILITIES) Southern Cross.......... 250 85 Gas PPA 2013
-----
360
=====
TOTAL 9,178
=====
------------
(1) Comprised of 13 facilities.
(2) These facilities are currently under construction.
(3) Approximately 200 MW of the total 360 MW capacity are contracted under a
PPA.
(4) Approximately 50 MW of the total 70 MW capacity are contracted under a PPA.
(5) Approximately 160 MW of the total 650 MW capacity are contracted under PPAs.
(6) Under agreements for full or partial output that are for terms of less than
five years.
9
ALBERTA
COAL-FIRED FACILITIES
The following table summarizes the Corporation's Alberta coal-fired
generation facilities:
CAPACITY OWNERSHIP COMMISSIONING
LOCATION PLANT (MW) (%) DATES
-------- ----- -------- --------- -------------
Wabamun Wabamun Unit No. 1.................... 69 100 1958
Wabamun Unit No. 2.................... 67 100 1956
Wabamun Unit No. 3.................... 147 100 1962
Wabamun Unit No. 4.................... 286 100 1968
Sundance Sundance Unit No. 1................... 286 100 1970
Sundance Unit No. 2................... 286 100 1973
Sundance Unit No. 3................... 352 100 1976
Sundance Unit No. 4................... 352 100 1977
Sundance Unit No. 5................... 352 100 1978
Sundance Unit No. 6................... 401 100 1980
Keephills Keephills Unit No. 1.................. 377 100 1983
Keephills Unit No. 2.................. 377 100 1984
Sheerness Sheerness Unit No. 1.................. 366 50 1986
Sheerness Unit No. 2.................. 366 50 1990
-----
TOTAL........................................... 4,084
=====
The Keephills, Sundance and Wabamun facilities are located approximately
70 kilometers west of Edmonton, Alberta. The Sheerness facility, which is
jointly owned by the Corporation and ATCO Power Ltd. ("ATCO Power"), is located
northeast of Calgary, Alberta.
The Corporation's coal-fired plants are all base-load plants, meaning that
they are expected to operate for long periods of time at maximum output.
Availability, being the percentage of time that a plant is operating or
otherwise available for operation, is an important measure of the economic
success of a coal-fired plant. The historical average availability over the past
five years for the Corporation's coal-fired Alberta plant units is as follows:
AVAILABILITY
(%)
-------------------
PLANT HIGH LOW NO. OF UNITS
----- -------- -------- ------------
Keephills................................................. 91.1 88.9 2
Sundance.................................................. 90.4 86.7 6
Wabamun................................................... 89.8 64.1 4
Sheerness................................................. 83.1 81.9 2
The low availability for Wabamun is a result of a shut down from
August 2000 through June 2001 of one of its oldest units caused by cracking in
waterwall tubing. See "Business of the Corporation -- Legal Proceedings".
Fuel for the Corporation's coal-fired facilities is supplied by nearby
surface strip coal mines that are owned, leased or controlled by the
Corporation. The Corporation owns two surface mines in Alberta which supply coal
to its facilities other than Sheerness. The Whitewood mine supplies the Wabamun
plant and the Highvale mine supplies the Sundance and Keephills plants. The
Corporation estimates that as at December 31, 2001 the recoverable coal reserves
contained in these mines are approximately 708 million tonnes which the
Corporation expects will be sufficient to meet the fuel requirements of these
plants for more than 50 years.
Coal for the Sheerness plant is provided from the adjacent Sheerness mine,
which is jointly owned, leased or controlled by the Corporation and ATCO Power.
The Corporation and ATCO Power have executed coal supply agreements with
Luscar Ltd. which owns a portion of the coal reserves and operates the mine, to
supply coal until 2026.
10
On February 5, 2001, the Corporation announced a proposal for a
$1.5 billion, 900 MW expansion at its Keephills facility. On February 12, 2002,
the Corporation received regulatory approval to proceed with the expansion. The
regulatory approval is currently under appeal by a third party. The Corporation
is in the process of updating the feasibility study factoring in the impact of
Alberta's transmission constraints, environmental requirements that may be
imposed by the EUB and market conditions to determine whether to pursue the
expansion. The Corporation currently expects to announce its plans in the second
half of 2002.
GAS-FIRED FACILITIES
The following table summarizes the Corporation's Alberta gas-fired
generation facilities:
CAPACITY OWNERSHIP COMMISSIONING
LOCATION PLANT (MW) (%) DATES
-------- ----- -------- --------- -------------
Lloydminster Meridian...................... 215 50 1999
Fort McMurray Poplar Creek.................. 360 100 2001
Fort Saskatchewan Fort Saskatchewan............. 120 30 1999
---
TOTAL............................................ 695
===
The Meridian plant, a joint venture between the Corporation and Husky Oil
Operations Ltd., sells electricity to Saskatchewan Power Corporation, an agency
of the Province of Saskatchewan, and steam to the Husky Oil Lloydminster
Upgrader.
The Poplar Creek plant provides electricity and steam to Suncor
Energy Inc.'s oil sands project. This 360 MW cogeneration facility became fully
operational in the first quarter of 2001 and delivers approximately 200 MW of
electricity and steam to Suncor. Any surplus power not used by Suncor is also
available for sale by the Corporation.
The Corporation also holds an indirect interest in the 120 MW Fort
Saskatchewan gas-fired combined-cycle cogeneration facility in Alberta. The
Corporation's interest in the Fort Saskatchewan facility is held through
TransAlta Cogeneration, L.P. ("TA Cogen"), an Ontario limited partnership owned
50.01% by TransAlta and 49.99% by TransAlta Power, L.P. ("TA Power"), another
Ontario limited partnership. See "TransAlta Cogeneration, L.P. and TransAlta
Power, L.P."
HYDROELECTRIC FACILITIES
The following table summarizes the Corporation's wholly-owned Alberta
hydroelectric facilities:
CAPACITY COMMISSIONING
LOCATION PLANT (MW)(1) DATES
-------- ----- -------- -------------
Bow River system Horseshoe.................. 14 1911
Kananaskis................. 19 1913, 1951
Ghost...................... 51 1929, 1954
Cascade.................... 36 1942, 1957
Barrier.................... 13 1947
Bearspaw................... 17 1953-54
Pocaterra.................. 15 1955
Interlakes................. 5 1955
Spray...................... 103 1951, 1960
Three Sisters.............. 3 1951
Rundle..................... 50 1951, 1960
North Saskatchewan River system Brazeau.................... 355 1965, 1967
Bighorn.................... 120 1972
---
TOTAL....................................................... 801
===
-------------------
(1) Approximate capacity.
11
The Corporation's hydroelectric facilities are primarily peaking plants,
meaning they are generally only operated during times of peak demand. The
productivity of these facilities is measured by "capacity factor", which is the
ratio of the net electricity generated compared to the electricity that could
have been generated had the plant been operating continuously at full-power. The
Bearspaw, Bighorn, Ghost, Horseshoe and Kananaskis plants have average five-year
capacity factors in excess of 40%, with the Horseshoe plant having the highest
five-year average capacity factor of 71%.
ALBERTA PPAS
All of the Corporation's Alberta coal-fired and hydroelectric facilities
began operating under Alberta PPAs in January 2001.
These Alberta PPAs established committed capacity and electrical energy
generation requirements and availability targets to be achieved by each
coal-fired plant, energy and ancillary services obligations for the
hydroelectric plants, and the price at which power would be supplied. The
Corporation bears the risk or retains the benefit of volume variances (except
for those arising from events considered to be FORCE MAJEURE, in the case of the
coal-fired plants), and any change in costs required to maintain and operate the
facilities.
Under the Alberta PPAs for the coal-fired facilities, the Corporation is
exposed to electricity price risk in the event of an unplanned outage, other
than outages caused by an event of FORCE MAJEURE. In such circumstances, the
Corporation must pay a penalty for the lost production based upon a price equal
to the 30-day trailing average of Alberta's market electricity prices. The
Corporation mitigates this exposure through high-quality operating and
maintenance practices and hedging activities.
The Corporation's hydroelectric facilities are not contracted on a facility
by facility basis, rather facilities are aggregated in a single Alberta PPA
which provides for energy and ancillary services obligations based on hourly
targets. These targeted amounts are established annually and they are met by the
Corporation through physical delivery or third party purchases.
The Corporation's compensation under the Alberta PPAs is based on a pricing
formula which replaces the cost of service regime applicable under historical
utility regulation. Key elements of the pricing formula are the amount of common
equity deemed to form part of the capital structure and the amount of risk
premium attributable to deemed common equity. Common equity is deemed to be 45%
of total capital and the return on equity is set annually at a 4.5% premium over
the rate on a 10 year Government of Canada bond.
The pricing formula includes a provision for site restoration costs of the
coal-fired generating plants. The Alberta PPAs do not provide compensation for
site restoration costs related to the Corporation's hydroelectric facilities.
The Corporation does not anticipate that its hydroelectric facilities will be
dismantled because of the water supply, irrigation, flood control and recreation
related purposes they serve.
The expiry dates for the Corporation's Alberta PPAs, other than the Alberta
PPA for the Wabumun facility, range from 2013 to 2020. The Alberta PPA for the
Wabamun plant expires in 2003. Concurrent with the expiry of each Alberta PPA,
the applicable licenses from Alberta Environment and the Alberta Energy and
Utilities Board (the "EUB") terminate. The Corporation has procured an extension
of the licenses to operate the Wabamun plant until 2010 and intends to procure
extensions of the licenses for the other facilities upon the expiry of their
respective Alberta PPAs. Upon the expiry of the Alberta PPAs, the Corporation
will be able to sell its power output to the Alberta Power Pool and to third
party purchasers through direct sales agreements.
The Alberta PPAs (together with legislation which applies thereto) permit
the Balancing Pool, directly or indirectly as successor to the power purchaser
under the Alberta PPAs, to terminate the Alberta PPAs in certain circumstances.
These termination provisions are similar to those found in some PPAs entered
into by government-related power purchasers. The Corporation will be entitled to
receive a lump sum payment in connection with any such termination, other than a
termination resulting from the Corporation's default. In any event, the
Corporation will thereafter be able to sell the output from any affected
facilities for its own account.
12
ONTARIO
The Corporation's Ontario generating facilities are summarized in the
following table:
CAPACITY OWNERSHIP COMMISSIONING
LOCATION PLANT (MW) (%) DATES
-------- ----- -------- --------- -------------
Sarnia Sarnia Regional(1).................. 650 100 2002
Ottawa Ottawa Health Services.............. 68 50.01 1992
Mississauga Mississauga......................... 110 50.01 1992
Windsor Windsor-Essex....................... 70 50.01 1996
---
TOTAL............................................ 898
===
------------
(1) This facility is currently under construction.
The Ottawa Health Services plant is a combined-cycle cogeneration facility
designed to produce 68 MW of electrical energy. This capacity is sold under a
PPA with the Ontario Electricity Financial Corporation ("OEFC"), an agency of
the Province of Ontario. This agreement expires in 2012. The Ottawa Health
Services plant also provides steam to the member hospitals and treatment centers
of the Ottawa Health Sciences Centre, National Defence Medical Centre and the
Perley and Rideau Veterans' Health Centre.
The Mississauga plant is a combined-cycle cogeneration facility designed to
produce 110 MW of electrical energy. This capacity is contracted under a PPA
with OEFC which expires expires in 2017. The plant also supplies steam,
compressed air, waste water treatment and de-ionized water to the Boeing
Canada Inc. manufacturing facility located adjacent to the Mississauga plant.
The Windsor-Essex plant is a combined-cycle cogeneration facility designed
to produce 70 MW of electrical energy. Currently, 50 MW of the capacity is sold
under a PPA to OEFC. This agreement expires in 2016. The Corporation expects
deregulation to provide additional opportunities to sell additional capacity
into a competitive marketplace. The Windsor-Essex plant also provides steam and
compressed air to Chrysler Canada Ltd.'s mini-van assembly facility in Windsor.
The Corporation's interest in the Mississauga, Ontario Health Services and
Windsor-Essex facilities in Ontario, are held through TA Cogen. See "TransAlta
Cogeneration, L.P. and TransAlta Power, L.P."
The Corporation's 650 MW facility in Sarnia, Ontario is expected to be the
largest cogeneration facility in Canada. The Sarnia facility is comprised of a
440 MW gas-fired facility currently being built by the Corporation and an
existing 210 MW gas-fired plant acquired by the Corporation. The Corporation
anticipates the new 440 MW facility to be commissioned by the fourth quarter of
2002 and in commercial operation during 2003. The combined 650 MW facility will
provide steam and electricity to nearby facilities owned by Dow Chemical
Canada Inc., Bayer Inc., Nova Chemicals (Canada) Ltd. and Sunoco Inc. The
Corporation is committed to sell 25% of the capacity of the Sarnia facility
under PPAs and expects to sell the excess electricity into Ontario's power grid
and potentially the United States, subject to the deregulation of Ontario's
power market and transmission availability. The Corporation is negotiating
conditional power sales contracts and corresponding fuel supply contracts are
presently being negotiated for the uncommitted amount.
13
UNITED STATES
The Corporation's generation facilities in the United States are summarized
in the following table:
CAPACITY OWNERSHIP COMMISSIONING
LOCATION PLANT (MW) (%) DATES
-------- ----- -------- --------- -------------
Centralia, Washington Centralia Unit No. 1..... 670 100 1971
Centralia Unit No. 2..... 702 100 1971
Big Hanaford (1)......... 248 100 N/A
Binghamton, New York Binghamton............... 55 100 1992
Fredrickson, Washington Pierce................... 154 Leased 2001
-----
TOTAL............................................. 1,829
=====
-------------------
(1) This facility is currently under construction.
CENTRALIA
The Corporation owns a two-unit 1,372 MW coal-fired facility and adjacent
mining operations located in Centralia, Washington, approximately 130 kilometers
south of Seattle, Washington.
The Corporation sells power from the Centralia plant into the WECC, and in
particular, the U.S. pacific northwest energy market. Prior to the acquisition
of the Centralia plant and mine, the Corporation signed a number of medium to
long-term energy sales agreements for 87% of the plant's capacity. The
Corporation's target is to sell forward approximately 70% of its projected
output, leaving approximately 30% subject to sales at market prices.
The Centralia mine produces approximately six million tonnes annually, or
approximately 70%, of the Centralia plant's annual coal requirements. The
Centralia mine's permitted coal reserves, being the amount of coal which can be
mined under the existing regulatory approval, are estimated to be 112 million
tonnes as at December 31, 2001, which represents approximately 19 years of
supply at current production levels. The Corporation currently imports the
balance of its coal requirements by rail using coal from the Powder River Basin
provided under short-term contracts.
BIG HANAFORD
On April 10, 2001, the Corporation announced the construction of the Big
Hanaford gas-fired facility in Centralia, Washington, at a cost of
US$210 million. Once completed, the new facility will add 248 MW of electricity
to the U.S. pacific northwest energy market and will raise total capacity at
Centralia from 1,372 MW to 1,620 MW. Construction is expected to be completed by
July 2002.
BINGHAMTON
The Corporation owns a 55 MW gas-fired peaking facility in Binghamton,
New York. This facility was commissioned in 1992 and is located near the
Pennsylvania and New York State borders. The Binghampton facility provides
electricity to the New York Power Pool during periods of high demand.
PIERCE
The Corporation has installed seven simple-cycle gas-fired turbines at a
temporary generation facility located near Fredrickson, Washington. The
Corporation sells all of its output from this 154 MW facility into the WECC
under contracts. The Pierce facility is a short-term project that was designed
to address the energy needs in the U.S. pacific northwest and bridge the energy
gap until new generation becomes available in the region. The turbines are
leased from General Electric and will be returned at the end of 2002.
14
MEXICO
CAMPECHE
On March 22, 2000, the Corporation and CFE entered into a 25-year PPA for
all of the output of the 252 MW dual fuel (gas and diesel), combined-cycle plant
in the State of Campeche, Mexico. The Corporation has also entered into a
related gas transportation agreement with CFE. CFE bears the price risk on fuel
under the PPA. Construction of the Campeche plant began in 2001 and commercial
operations are projected to commence in the first quarter of 2003. In addition
to the PPA and gas transportation agreement, the Corporation has entered into a
corresponding 25-year fuel supply agreement with Pemex Gas y Petro Quimica
Basica.
CHIHUAHUA
On March 8, 2001, TransAlta announced it had won a competitive bid to build
and operate a 259 MW gas fired combined-cycle facility in Chihuahua, Mexico. The
Corporation entered into a 25-year PPA with CFE for all of the output of the
plant. The Corporation has also entered into a related gas transportation
agreement with CFE. CFE bears the price risk on fuel under the PPA. The
Corporation is currently considering a number of firm proposals for natural gas
fuel supply from high quality credit natural gas suppliers. Construction of the
plant began in the third quarter of 2001 and commercial operations are projected
to commence in mid-2003.
AUSTRALIA
The Corporation holds interests in Western Australia consisting of: (i) the
110 MW Parkeston generation facility through a 50/50 joint venture with Normandy
Mining Limited; (ii) a partnership between the Corporation and the Australian
Gas Light Company, under which the Corporation has an 85% interest in the
250 MW Southern Cross gas-fired facility; and (iii) an 8.82% interest in a 1,380
kilometer gas transmission pipeline which delivers natural gas from the
Australian northwest shelf producing area to Western Australia.
TRANSALTA COGENERATION, L.P. AND TRANSALTA POWER, L.P.
The Corporation's interest in the 120 MW Fort Saskatchewan gas-fired
cogeneration facility in Alberta, and the Mississauga, Ontario Health Services
and Windsor-Essex facilities in Ontario, are held through TA Cogen, an Ontario
limited partnership owned 50.01% by TransAlta and 49.99% by TA Power, another
Ontario limited partnership. The Corporation formed TA Cogen in 1998 to directly
or indirectly hold interests in generation facilities capable of producing
stable cash flows that would be distributed to TA Power's unitholders. The
partnership units of TA Power are publicly traded on the TSX.
The Corporation is obligated to purchase all of the units of TA Cogen owned
by TA Power in 2018 at a price equal to the fair market value of the units, for
cash, common shares or a combination thereof.
ENERGY MARKETING BUSINESS
The Corporation's energy marketing group was formed in 1995. The group has
largely been built by internal growth and has offices in Calgary, Alberta,
Portland, Oregon and Annapolis, Maryland.
The energy marketing group derives revenue and earnings from the wholesale
trading of electricity and other energy-related commodities and derivatives. The
group's activities manage and limit risk exposures from both financial or
physical positions and counterparty risks. The group plays a strategic role in
managing risks and optimizing assets by assisting the Corporation in arranging
physical deliveries on contracted power obligations, while seeking to increase
the value of its electricity output.
The key risk control activities of the energy marketing group include credit
review and approval, credit and performance risk measurement and monitoring,
validation of transactions, portfolio valuation and daily portfolio reporting
for the trading activities, including mark-to-market valuation, "value-at-risk"
("VAR") determination, which is a probabilistic measure providing the maximum
potential loss that the Corporation
15
may incur at any given time due to fluctuations in market energy prices, and
application of other risk measurement metrics. The Corporation's policy is to
limit the group's aggregate VAR exposure to $10 million at any point in time.
An important factor in the group's trading success has been its ability to
access transmission capacity, which is necessary in order to be able to take
advantage of price differentials between regional markets. The group's trading
activities also provide market intelligence to improve corporate decision making
and provide entry points to new geographic markets.
With the exception of transmission contracts, the fair value of all energy
trading activities is based on quoted market prices. The Corporation's
transmission trading strategy involves committing to make fixed payments for the
right, but not the obligation, to use electricity transmission. The fair value
of transmission contracts is based on quoted market prices and a spread option
valuation model. The Corporation's transmission contracts outstanding at
March 31, 2002 had a net fair value of $6.8 million. Realized and unrealized
changes in the fair value of energy trading contracts at the end of the first
quarter of 2002, exclusive of hedging transactions, were income of
$27.7 million and a loss of $28.8 million, respectively. There were no changes
in valuation techniques during the quarter.
Maturities of energy trading contracts, exclusive of hedging transactions,
existing at March 31, 2002 over each of the next five years and thereafter is as
follows:
Fair value of contracts at period end
----------------------------------------------------------------------------
(in millions)
2007 AND
TOTAL 2002 2003 2004 2005 2006 THEREAFTER
-------- -------- -------- -------- -------- -------- ----------
Prices actively quoted......................... $(6.9) $(7.9) $(1.2) $(0.1) $(0.1) $(0.1) $ 2.5
Prices based on models or other valuation
methods...................................... 6.8 5.4 1.4 -- -- -- --
----- ----- ----- ----- ----- ----- -----
$(0.1) $(2.5) $ 0.2 $(0.1) $(0.1) $(0.1) $ 2.5
===== ===== ===== ===== ===== ===== =====
RISK MANAGEMENT POLICIES AND PROCEDURES
The Corporation uses a multi-level risk management structure to manage the
Corporation's various risk and energy trading exposures. The Audit and
Environment Committee (the "A&E Committee") of the Corporation's board of
directors oversees corporate-wide risk management by reviewing the Corporation's
overall business risks. The Corporation's Chief Financial Officer reports to the
A&E Committee on at least a quarterly basis and is responsible for ensuring
compliance with the Corporation's financial and commodity risk exposure
management policies and procedures. These policies and procedures include limits
on exposures (commodity prices, insurance, currency, credit and interest rates),
reporting practices and other procedures necessary for the Corporation to manage
and control its financial and commodity exposures. The Corporation's Exposure
Management Committee (the "EM Committee") is responsible for reviewing,
monitoring and reporting on compliance of these financial and commodity risk
exposure management policies and procedures. The EM Committee is chaired by the
Chief Financial Officer and is comprised of the Director of Financial Operations
for each of the Corporation's business units, the Vice-President and Treasurer,
the Vice-President and Comptroller, the Director of Internal Audit, and the
Vice-President of Energy Marketing. The EM Committee is not a committee of the
board of directors of the Corporation and unlike the A&E Committee, does not
report to the board of directors.
ENVIRONMENTAL REGULATION
The Corporation is subject to federal, provincial, state and local
environmental laws, regulations and guidelines concerning the generation and
transmission of electrical and thermal energy and surface mining. The
Corporation is committed to complying with or exceeding regulatory requirements
and to minimizing the environmental impact of its operations. The Corporation
works with governments and the public to develop appropriate frameworks to
protect the environment and, at the same time, achieve economic development.
16
CANADA
In December 1997, the Government of Canada agreed, subject to subsequent
domestic ratification requirements, to a net reduction of emissions of
greenhouse gases from within Canada by 6% from 1990 levels by 2008 to 2012.
Canada's earlier target had been stabilization of such emissions at 1990 levels
by the year 2000. The Corporation is a significant emitter of carbon dioxide, a
greenhouse gas, and has been an active participant in the federal government's
Voluntary Challenge and Registry program. Under that program, the Corporation
has already reduced net emissions of greenhouse gases to below 1990 levels. An
important component of the program is offset projects which, through actions
taken at third-party sites, reduce the Corporation's greenhouse gas emissions on
a net basis. Because of the potential magnitude of the December 1997 commitment
made by the Government of Canada, the Corporation expects that offsets will need
to be a significant component of any national response.
The Corporation's climate change strategy is designed to address the
potential competitive risks to its fossil-fuelled generation plants from future
public policy which could include environmental controls, regulatory regimes,
taxes or charges. The potential for higher electricity prices exists if new
policy does not permit cost-effective, market-based approaches for reducing
greenhouse gas emissions.
The Corporation's climate change strategy contains the following key
components:
- Reducing net emissions by improving the efficiency of the Corporation's
existing operations; developing new high efficiency cogeneration
facilities which produce lower overall emissions; acquiring a diverse
portfolio of greenhouse gas offset projects; purchasing renewable energy;
and promoting energy efficiency initiatives.
- Participating in federal and provincial policy development.
- Developing and testing market-based approaches, such as the trading of
emission reduction credits.
In 2000, the Corporation established a plan to invest up to $100 million in
sustainable development and research. Investments will be made in new
technologies to reduce carbon emissions, to further environmental offset and
credit use, and to develop renewable energy sources. As at March 31, 2002, the
Corporation has invested approximately $23 million. Among its other
environmental activities, the Corporation is also developing methods of burning
coal in a more environmentally-friendly and efficient manner.
UNITED STATES
AIR EMISSIONS GENERALLY. The Corporation's United States facilities are
subject to the federal Clean Air Act and many state laws and regulations
relating to air pollution. The pollutants subject to these laws and regulations
principally include, carbon monoxide ("CO"), SO(2), nitrogen oxides ("NO(x)"),
and particulate matter ("PM") and those contributing to the formation of
ground-level ozone ("O(3)"). As a general matter, the Corporation's generating
facilities emit these pollutants at levels within regulatory requirements.
Prior to the Corporation's acquisition of the Centralia facility, the prior
owners agreed with the regulatory agencies to install scrubbers to reduce
certain pollutants, particularly SO(2) and PM, pursuant to a stipulated
schedule. The Corporation has assumed that obligation and the installation of
the first of the two scrubbers has been completed. The Corporation presently
expects that it will complete this project in accordance with its
legal obligations.
In addition to the regulatory programs described below, further legislative
or administrative amendments to the air pollution regulations are possible,
including multi-pollutant legislation, regulation of green-house gas emissions,
and amendments to the regulations governing the permitting of new or modified
major sources of air pollutants. The Bush Administration's "Clear Skies
Initiative" proposes to reduce NO(x), SO(2), and mercury emissions from new and
existing facilities by approximately 70% through a mandatory "cap-and-trade"
program. Also, although the United States has not joined the international
treaty to reduce greenhouse gas emissions (the "Kyoto Protocols"), significant
international and public pressure to reduce greenhouse gas emissions still
exists and could result in adoption of new regulations applicable to facilities
in
17
the United States. Depending upon the stringency of these and other future
requirements, the potential impact on the Corporation's results of operation
could be significant.
NITROGEN OXIDES/OZONE. Federal and state agencies have adopted rules
limiting the emission of NO(x) and volatile organic compounds ("VOC") from
fossil fuel-fired generating facilities. These new regulations include a more
stringent ambient air quality standard for ground-level ozone (formed by the
reaction of NO(x) and VOC with other compounds) and efforts to reduce the
formation and regional transport of NO(x) in the midwestern and eastern states.
Although these regulations are not anticipated to have a major effect on the
Corporation's existing facilities, they may affect future development plans.
SULFUR DIOXIDE. The acid rain provisions of the Clean Air Act require
substantial reductions in SO(2) emissions through a mandatory "cap and trade"
program for affected electric generating units. Marketable SO(2) allowances were
allocated to certain units that were in operation prior to November 1990. Units,
including new units, that emit SO(2) in excess of their allowances, must buy
excess allowances from other sources. The Corporation currently projects that it
will need to purchase SO(2) allowances for its Centralia operations. These
allowances are readily available on the market.
VISIBILITY IMPAIRMENT AND REGIONAL HAZE. EPA has promulgated regulations
seeking to reduce the impairment of visibility resulting from man-made
pollution. The regulations have been challenged in court. Even if the existing
rules are upheld, the extended compliance dates mean that the rules would not
have an impact on the Corporation until 2012 and beyond. However, this impact
may be significant. EPA's proposed rule defining the best available retrofit
technology ("BART") standard would require some existing facilities to reduce
haze-forming emissions by 90% or more. Depending upon the final versions of the
regulations that are implemented, the scrubbers presently being installed at the
Centralia facility may satisfy the Corporation's BART and Regional Haze
obligations. However, if additional pollution control measures are required, the
cost to the Corporation may be significant. Until the regulations are fully
adopted and all related administrative and judicial challenges are completed,
the precise impact on the Corporation cannot be determined.
PARTICULATES. In July 1997, EPA issued a new and more stringent national
ambient air quality standard for fine particulate matter. Future regulations
implementing the new standards could require further NO(x) and SO(2) reductions
in designated non-attainment areas. Because, EPA's designation of the affected
non-attainment areas was delayed due to litigation and is unlikely to be
completed until 2004 or 2005, the impact, if any, of the new fine particulate
matter standard on the Corporation's facilities can not be determined at this
time.
NEW SOURCE REVIEW COMPLIANCE. As part of a nationwide enforcement effort,
EPA and the U.S. Department of Justice have initiated enforcement actions
against a number of utilities for alleged violations of the Clean Air Act's
New Source Review permitting requirements related to past modifications of
existing coal-fired generating facilities. The recent scrubber installation at
the Centralia facility, which was subject to preconstruction review by the
applicable agencies, should reduce the Corporation's exposure to this
enforcement initiative.
MERCURY. Pursuant to Title III of the Clean Air Act, which requires
technology-based controls of hazardous air pollutant emissions from specific
industrial categories, EPA is under court order to propose a mercury-emissions
rule applicable to coal-fired facilities by December, 2003 and to promulgate a
final rule by December, 2004. Affected facilities must comply with the rule in
December, 2007. At present, the applicable control levels are uncertain, as are
the future costs of compliance.
WATER WITHDRAWALS AND DISCHARGES
The federal Clean Water Act prohibits the discharge of any pollutants,
including heat, contaminated process water or storm water, into any body of
surface water, except in compliance with a discharge permit issued by EPA or a
delegated state agency. All of the Corporation's facilities are presently in
substantial compliance with these permitting obligations. The Corporation's
application for renewal of the Centralia facility and mine's national pollutant
discharge elimination system permit is currently under agency review.
18
The Corporation is not aware of any reason why the permit would not be reissued
on substantially similar terms as the current permit. However, there can be no
assurance that the results will be in accordance with the Corporation's
expectations.
The Centralia facility and the 248-megawatt expansion now under construction
both rely on water withdrawals from the Skookumchuck River. The Centralia coal
mine also impacts tributaries of the Skookumchuck River. The effect of these
operations is being evaluated by the U.S. Fish and Wildlife Service and the
National Marine Fisheries Service for potential impact on certain fish that are
listed (or proposed for listing) as threatened species protected under the
federal Endangered Species Act ("ESA"). If the Corporation's operations are
found to harass or harm these species, the Corporation may be required to obtain
a permit and adopt measures to mitigate or eliminate the adverse impacts. There
can be no assurance that the results of this review will be in accordance with
the Corporation's expectations.
EPA has adopted final rules establishing uniform, minimum technology
requirements on new cooling water intake structures. Similar rules for existing
intake structures were published by EPA in April of 2002. Based upon the
proposed rule, the Corporation does not anticipate that it will be required to
make significant modifications to its existing water intake structures. However,
the precise impact on the Corporation will not be known until the final
regulations are promulgated.
In July 2000, EPA issued final rules for the implementation of the total
maximum daily load ("TMDL") program of the Clean Water Act. The goal of the TMDL
rules is to establish, over the next 15 years, the maximum amounts of various
pollutants that can be discharged into waterways while maintaining compliance
with water quality standards. The establishment of TMDL values may eventually
result in more stringent discharge permit limits that could require the
Corporation's facilities to install additional wastewater treatment, modify
operational practices or implement other wastewater control measures.
Implementation of the TMDL program remains controversial and the impact on the
Corporation, although potentially significant, cannot be determined.
SOLID WASTE AND TOXICS
The Corporation's facilities are subject to the requirements of the Resource
Conservation and Recovery Act and the Comprehensive Environmental Response,
Compensation and Liability Act, along with other federal and state laws and
regulations. The Corporation believes that it is substantially compliant with
these requirements. In connection with the Corporation's acquisition of the
Centralia facility, it assumed certain environmental liabilities, which it does
not believe to be material. The prior owners retained any liabilities associated
with the facility's pre-acquisition offsite disposal practices.
The ash generated by the Corporation's coal-fired generating facilities is
subject to regulation and must be disposed of at sites permitted under state and
local regulations. Regulatory changes seeking to classify coal ash as a
hazardous waste or otherwise restrict its disposal could increase the
Corporation's disposal costs facilities and potentially expose it to greater
liabilities for environmental remediation.
The Corporation's Centralia assets are more than 30 years old, and as a
result contain asbestos insulation and other asbestos containing materials, as
well as lead-based paint. Existing state and federal rules require the proper
management and disposal of these potentially toxic materials. The Corporation
has established plans that call for the proper management of existing asbestos
containing materials and lead-based paint, and for their abatement and disposal
when needed. The cost of these efforts is included in the Corporation's
financial planning.
EMPLOYEES
As of December 31, 2001, the Corporation had approximately 2,768 full and
part-time employees. Approximately 1,600 of the Corporation's employees belong
to labor unions. The Corporation is currently a party to nine different
collective bargaining agreements, with two additional collective bargaining
agreements presently being negotiated with unions that will represent workers at
the Mexican plants. The Corporation expects to conclude these negotiations by
2003. Of its nine existing collective bargaining agreements, the
19
Corporation has recently renewed four of the agreements and anticipates
negotiating renewed agreements with three others in 2002. The two remaining
agreements continue to be in force until 2003.
LEGAL PROCEEDINGS
The Corporation is involved in various litigation and regulatory matters in
connection with its business. Other than the matters described below, the
Corporation does not believe that any of these matters will have a material
adverse effect on the Corporation.
WABAMUN PLANT SHUT DOWN
On August 3, 2000, the 286 MW generating unit at the Wabamun plant ("Unit
No. 4"), the largest generating unit of the plant, was shut down when an
examination of its boiler indicated cracks in waterwall tubing. Unit No. 4 was
shut down until June 2001, when the tubing was replaced and the unit was
recommissioned.
The Corporation was a party to two separate proceedings as a consequence of
the shut down. The first proceeding was a regulatory proceeding under the
Electric Utilities Act (Alberta) (the "EUA") relating to the period from
August 3, 2000 to December 31, 2000. The second proceeding was an arbitration
under the Wabamun PPA relating to the period from January 1, 2001 to June 8,
2001 when Unit No. 4 became fully operational.
EUA REGULATORY PROCEEDING. A hearing before the EUB was held in 2001 to
consider the Corporation's application for relief from certain payment
obligations under the EUA in relation to Unit No. 4. In its decision released in
December 2001, the EUB relieved the Corporation of approximately $11 million of
an $18 million obligation relating to the shut down of Unit No. 4 during 2000.
PPA ARBITRATION. The Corporation and the holder of the Wabamun Alberta PPA
arbitrated the consequences of the shut down of Unit No. 4 during 2001. The
arbitration hearing has been completed and the decision is pending.
The Wabamun PPA contains FORCE MAJEURE provisions which suspend the
obligations of a party during the period that the event of FORCE MAJEURE is
operative. In the event that the shut down of Unit No. 4 is considered not to be
an event of FORCE MAJEURE, the Corporation will be required to make certain
penalty payments mandated by the Wabamun Alberta PPA, which aggregate
approximately $90 million. If the shut down is considered to be an event of
FORCE MAJEURE, the Corporation will not be subjected to any liability. The
Corporation cannot provide any assurance that it will be successful in defending
the claim for penalty payments under the Wabamun Alberta PPA.
20
SELECTED CONSOLIDATED FINANCIAL DATA
The Corporation's selected consolidated financial data as at and for each of
the three years ended December 31, 1999, 2000 and 2001 have been derived from
its audited consolidated financial statements, certain of which have been
incorporated by reference in this Prospectus. The Corporation's selected
consolidated financial data for the three months ended March 31, 2001 and 2002
are derived from its unaudited interim consolidated financial statements
incorporated by reference in this Prospectus. The interim financial results
reflect all adjustments which, in the opinion of management, are necessary for a
fair statement of the results. Historical and interim results are not
necessarily indicative of the results to be expected in the future.
The Corporation's consolidated financial statements are prepared in
accordance with Canadian GAAP. Canadian GAAP conforms in all material respects
with U.S. GAAP, except as described in note 26 to the Corporation's consolidated
financial statements for the years ended December 31, 2001 and 2000 and the
U.S. GAAP reconciliation for the three months ended March 31, 2002 and 2001,
incorporated by reference in this Prospectus. The selected consolidated
financial data should be read in conjunction with the Corporation's audited
consolidated annual financial statements and unaudited consolidated interim
financial statements, and the notes thereto, and management's discussion and
analysis of financial condition and results of operations related thereto
incorporated by reference in this Prospectus.
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- -------------------
1999 2000 2001 2001 2002
-------- --------- --------- -------- --------
(AUDITED) (UNAUDITED)
(IN MILLIONS)
REVENUES........................................ $1,123.0 $ 2,802.5 $ 4,927.1 $1,390.6 $1,067.4
Trading purchases............................... (272.0) (1,202.5) (2,533.7) (684.1) (647.7)
Fuel and purchased power........................ (216.6) (655.8) (1,288.7) (411.4) (173.8)
-------- --------- --------- -------- --------
GROSS MARGIN.................................... 634.4 944.2 1,104.7 295.1 245.9
OPERATING EXPENSES:
Operations, maintenance and administration...... 234.8 349.9 444.5 84.3 87.4
Depreciation and amortization................... 164.4 205.6 273.6 49.8 56.3
Taxes, other than income taxes.................. 21.9 23.9 18.7 7.5 7.0
-------- --------- --------- -------- --------
421.1 579.4 736.8 141.6 150.7
OPERATING INCOME................................ 213.3 364.8 367.9 153.5 95.2
Other income (expense).......................... -- (1.1) 1.5 (1.5) (2.0)
Foreign exchange gains.......................... 1.7 0.1 0.8 0.7 0.6
Net interest expense............................ (65.5) (91.4) (88.1) (33.9) (19.2)
-------- --------- --------- -------- --------
EARNINGS FROM CONTINUING OPERATIONS BEFORE
REGULATORY DECISIONS, INCOME TAXES AND
NON-CONTROLLING INTERESTS..................... 149.5 272.4 282.1 118.8 74.6
Prior period regulatory decisions............... -- 44.1 11.0 -- --
-------- --------- --------- -------- --------
EARNINGS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND NON-CONTROLLING INTERESTS.... 149.5 316.5 293.1 118.8 74.6
Income taxes.................................... 64.7 128.5 89.9 53.0 22.5
Non-controlling interests....................... 30.9 41.6 20.6 6.8 6.4
-------- --------- --------- -------- --------
Earnings from continuing operations............. 53.9 146.4 182.6 59.0 45.7
Earnings from discontinued operations........... 101.7 89.1 45.1 11.7 11.2
Net gain on disposal of discontinued
operations.................................... 19.7 266.8 --
Net earnings before extraordinary item.......... 175.3 502.3 227.7 70.7 56.9
Extraordinary item.............................. -- (209.7) -- -- --
-------- --------- --------- -------- --------
Net earnings.................................... 175.3 292.6 227.7 70.7 56.9
Preferred securities distributions, net of
tax........................................... 5.2 12.8 13.1 3.1 5.5
-------- --------- --------- -------- --------
NET EARNINGS APPLICABLE TO COMMON
SHAREHOLDERS.................................. 170.1 279.8 214.6 67.6 51.4
======== ========= ========= ======== ========
Weighted average common shares outstanding in
the year...................................... 169.5 168.8 168.9 168.6 169.0
21
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- -------------------
1999 2000 2001 2001 2002
-------- --------- --------- -------- --------
(AUDITED) (UNAUDITED)
(IN MILLIONS)
BALANCE SHEET DATA (AT PERIOD END):
Current assets.................................. $ 615.5 $ 1,803.0 $ 1,432.4 $1,850.9 $1,426.7
Capital assets (net of accumulated
depreciation)................................. 5,031.0 5,277.1 6,124.4 7,804.5 6,280.5
Total assets.................................... 6,038.4 7,627.1 7,877.9 7,524.3 8,066.3
Current liabilities............................. 956.3 2,076.4 1,812.2 2,072.6 1,937.0
Long-term debt.................................. 1,965.6 2,121.8 2,406.8 2,040.0 2,437.2
Total liabilities............................... 3,270.0 5,002.7 5,154.6 4,889.5 5,323.4
Non-controlling interests....................... 645.7 375.0 281.0 371.8 281.6
Preferred securities............................ 287.1 292.0 452.6 285.9 452.3
Common shareholders' equity..................... 1,835.6 1,957.4 1,989.7 1,977.1 2,009.0
Total shareholders' equity...................... 2,122.7 2,249.4 2,442.3 2,263.0 2,461.3
OTHER DATA (UNAUDITED):
Earnings before interest, taxes and
non-controlling interests (1)................. $ 439.6 $ 605.6 $ 466.6 $ 176.8 $ 116.2
Earnings before interest and taxes, depreciation
and amortization (1).......................... 765.1 927.3 792.5 242.4 187.1
Cash flow from operating activities before
change in working capital..................... 477.7 616.9 624.5 137.3 171.3
Capital expenditures............................ 644.9 795.0 1,246.5 161.4 269.3
Acquisitions.................................... 347.6 880.1 9.8 -- --
KEY RATIOS (UNAUDITED):
Cash flow to interest (2)....................... 4.0x 4.6x 4.9x 4.7x 5.6x
Cash flow to total debt (3)..................... 21% 26% 23% 27% 24%
Total debt to total capitalization (4).......... 46% 50% 53% 46% 55%
------------
(1) Includes discontinued operations.
(2) Cash flow from operations before changes in working capital and gross
interest expense divided by gross interest expense.
(3) Cash flow from operations before changes in working capital divided by the
two-year average of total debt.
(4) Total debt divided by the sum of total debt, non-controlling interests,
preferred shares, preferred securities and common shareholders' equity.
22
MANAGEMENT
The directors and executive officers of the Corporation are set out below.
NAME POSITION
---- --------
Stephen G. Snyder............. President, Chief Executive Officer and Director
Ian A. Bourne................. Executive Vice President and Chief Financial Officer
James F. Dinning.............. Executive Vice President, Sustainable Development & External Relations
Dawn L. Farrell............... Executive Vice President, Corporate Development
James W. Kemp................. Executive Vice President, Generation
Kenneth S. Stickland.......... Executive Vice President, Legal
John T. Ferguson (1)(2)(3).... Director, Chairman of the Board
Stanley J. Bright (1)......... Director
Roderick S. Deane (1)......... Director
Jack C. Donald (2)............ Director
Gordon D. Giffin.............. Director
Christopher Hampson (1)....... Director
Charles H. Hantho (2)(3)...... Director
Louis D. Hyndman (2)(3)....... Director
Donna S. Kaufman (1)(3)....... Director
John S. Lane (1)(3)........... Director
Luis Vazquez Senties.......... Director
Ralph A. Thrall, Jr. (2)...... Director
------------
(1) Member of Audit and Environment Committee.
(2) Member of Human Resources Committee.
(3) Member of Nominating and Corporate Governance Committee.
USE OF PROCEEDS
Unless otherwise specified in a Prospectus Supplement, the net proceeds from
the sale of the Securities will be used for general corporate purposes,
including the repayment of indebtedness and the financing of the Corporation's
long-term investment plan. The amount of net proceeds to be used for any such
purpose will be set forth in a Prospectus Supplement. The Corporation expects
that it may, from time to time, issue securities (including debt securities)
other than pursuant to this Prospectus.
INTEREST COVERAGE
The following financial ratios have been calculated on a consolidated basis
for the respective 12 month periods ended December 31, 2001 and March 31, 2002
and are based on audited financial information, in the case of the 12 month
period ended December 31, 2001, and unaudited financial information, in the case
of the 12 month period ended March 31, 2002. The following ratios do not give
effect to the issue of any debt securities pursuant to this Prospectus. The
following financial ratios do not purport to be indicative of interest coverage
ratios for any future periods. The financial ratios have been calculated based
on Canadian GAAP.
DECEMBER 31, MARCH 31,
2001 2002
------------- ----------
Interest coverage on long-term debt......................... 2.80 times 2.55 times
Interest coverage on long-term debt is equal to net earnings before interest
on long-term debt and income taxes divided by interest expense on long-term
debt. For purposes of calculating the above ratio, long-term debt includes the
current portion of long-term debt and does not include any amounts with respect
to debt securities that may be issued under this Prospectus. Additionally, the
above ratios have been
23
calculated without including the annual carrying charges relating to the equity
component of the $175 million aggregate principal amount of 7.50% preferred
securities due April 13, 2048, the $125 million aggregate principal amount of
8.15% preferred securities due December 31, 2048 and the $175 million aggregate
principal amount of 7.75% preferred securities due December 31, 2050 of the
Corporation (collectively, the "Preferred Securities"). If the equity component
of the Preferred Securities was classified as debt, the entire carrying charges
of the Preferred Securities would be included in interest expense. If these
annual carrying charges had been included in the calculations, the interest
coverage would have been 2.46 times for the 12 month period ended December 31,
2001 and 2.20 times for the 12 month period ended March 31, 2002. Under
U.S. GAAP, the Preferred Securities would be classified as debt and the entire
carrying charges of the Preferred Securities would be included in
interest expense.
DESCRIPTION OF SHARE CAPITAL
GENERAL
As of the date of this Prospectus, the Corporation's authorized share
capital consists of an unlimited number of common shares and an unlimited number
of first preferred shares, issuable in series. As at March 31, 2002,
168.7 million common shares were outstanding and no first preferred shares
were outstanding.
COMMON SHARES
Each common share of the Corporation entitles the holder thereof to one vote
for each common share held at all meetings of shareholders of the Corporation,
except meetings at which only holders of another specified class or series of
shares are entitled to vote, to receive dividends if, as and when declared by
the board of directors, subject to prior satisfaction of preferential dividends
applicable to any first preferred shares, and to participate ratably in any
distribution of the assets of the Corporation upon a liquidation, dissolution or
winding up, subject to prior rights and privileges attaching to the first
preferred shares. The common shares are not convertible and are not entitled to
any pre-emptive rights. The common shares are not entitled to
cumulative voting.
The transfer agent and registrar for the common shares in Canada is
CIBC Mellon Trust Company at its principal transfer office in Vancouver, British
Columbia, Calgary, Alberta, Winnipeg, Manitoba, Toronto, Ontario and Montreal,
Quebec. The transfer agent and registrar for the common shares in the United
States is Mellon Investor Services LLC at its principal office in New York,
New York.
The common shares offered pursuant to this Prospectus may include shares
available for purchase under the Corporation's Dividend Reinvestment and Share
Purchase Plan and any shares issuable upon conversion or exchange of any first
preferred shares or debt securities of any series or upon exercise of any
options or warrants.
FIRST PREFERRED SHARES
The Corporation is authorized to issue an unlimited number of first
preferred shares, issuable in series and, with respect to each series, the board
of directors is authorized to fix the number of shares comprising the series and
determine the designation, rights, privileges, restrictions and conditions
attaching to such shares, subject to certain limitations.
The first preferred shares of all series rank senior to all other shares of
the Corporation with respect to priority in payment of dividends and with
respect to distribution of assets in the event of liquidation, dissolution or
winding up of the Corporation, or a reduction of stated capital. Holders of
first preferred shares are entitled to receive cumulative quarterly dividends on
the subscription price thereof as and when declared by the board of directors at
the rate established by the board of directors at the time of issue of shares of
a series. No dividends may be declared or paid on any other shares of the
Corporation unless all cumulative dividends accrued upon all outstanding first
preferred shares have been paid or declared and set apart. In the event of the
liquidation, dissolution or winding up of the Corporation, or a reduction of
stated capital, no sum shall be paid or assets distributed to holders of other
shares of the Corporation until the
24
holders of first preferred shares shall have been paid the subscription price of
the shares, plus a sum equal to the premium payable on a redemption, plus a sum
equal to the arrears of dividends accumulated on the first preferred shares to
the date of such liquidation, dissolution, winding up, or reduction of stated
capital, as applicable. After payment of such amount, the holders of first
preferred shares shall not be entitled to share further in the distribution of
the assets of the Corporation.
The directors may include in the share conditions attaching to a particular
series of first preferred shares certain voting rights effective upon the
Corporation failing to make payment of six quarterly dividend payments, whether
or not consecutive. These voting rights continue for so long as any dividends
remain in arrears. These voting rights are the right to one vote for each $25 of
subscription price on all matters in respect of which shareholders vote, and
additionally, the right of all series of first preferred shares, voting as a
combined class, to elect two directors of the Corporation if the board of
directors then consists of less than 16 directors, or three directors if the
board of directors consists of 16 or more directors. Otherwise, except as
required by law, the holders of first preferred shares shall not be entitled to
vote or to receive notice of or to attend at any meeting of the shareholders of
the Corporation.
Subject to the share conditions attaching to any particular series providing
to the contrary, the Corporation may redeem first preferred shares of a series,
in whole or from time to time in part, at the redemption price applicable to
each series and the Corporation has the right to acquire any of the first
preferred shares of one or more series by purchase for cancellation in the open
market or by invitation for tenders at a price not to exceed the redemption
price applicable to the series.
The Prospectus Supplement will set forth the following terms relating to the
first preferred shares being offered:
- the maximum number of shares;
- the designation of the series;
- the offering price;
- the annual dividend rate and whether the dividend rate is fixed or
variable, the date from which dividends will accrue, and the dividend
payment dates;
- the price and the terms and conditions for redemption, if any, including
redemption at TransAlta's option or at the option of the holder, including
the time period for redemption, and payment of any accumulated dividends;
- the terms and conditions, if any, for conversion or exchange for shares of
any other class of TransAlta or any other series of first preferred
shares, or any other securities or assets, including the price or the rate
of conversion or exchange and the method, if any, of adjustment;
- whether such first preferred shares will be listed on any securities
exchange;
- the voting rights, if any; and
- any other rights, privileges, restrictions, or conditions.
First preferred shares will be fully paid and nonassessable upon issuance.
The first preferred shares of any series may be represented, in whole or in
part, by one or more global certificates. If first preferred shares are
represented by a global certificate, each global certificate will:
- be registered in the name of a depositary or a nominee of the depositary
identified in the Prospectus Supplement; and
- be deposited with such depositary or nominee or a custodian for
the depositary.
RELATED PARTY ARTICLES PROVISIONS
The Articles of the Corporation contain provisions restricting the ability
of the Corporation to enter into a "Specified Transaction" with a "Major
Shareholder". A Specified Transaction requires the approval of a majority of the
votes cast by holders of voting shares of the Corporation, as well as the
approval of a
25
majority of the votes cast by holders of such shares, excluding any Major
Shareholder. A Major Shareholder generally means the beneficial owner of more
than 20% of the outstanding voting shares of the Corporation. There is a broad
definition of beneficial ownership, and in particular, a person is considered to
beneficially own shares owned by its associates and affiliates, as those terms
are defined in the Articles. Transactions which are considered to be Specified
Transactions include the following: a merger or amalgamation of the Corporation
with a Major Shareholder; the furnishing of financial assistance by the
Corporation to a Major Shareholder; certain sales of assets or provision of
services by the Corporation to a Major Shareholder or vice versa; certain
issuances of securities by the Corporation which increase the proportionate
voting interest of a Major Shareholder; a reorganization or recapitalization of
the Corporation which increases the proportionate voting interest of a Major
Shareholder; and the creation of a class or series of non-voting shares of the
Corporation which has a residual right to participate in earnings of the
Corporation and assets of the Corporation upon dissolution or winding up.
SHAREHOLDER RIGHTS PLAN
The Corporation implemented a shareholder rights plan (the "Rights Plan")
pursuant to a Shareholder Bid Approval Plan Agreement (the "Rights Plan
Agreement") dated as of October 13, 1992 between the Corporation and
CIBC Mellon Trust Company, as amended. The common shareholders of the
Corporation reconfirmed the Rights Plan and approved the amendments to the
Rights Plan Agreement, as set out in the Corporation's Information Circular
dated March 9, 2001, at the May 3, 2001, Annual and Special Meeting
of Shareholders. The following is a summary of certain material provisions of
the Rights Plan Agreement, and does not purport to be complete. For further
particulars, reference should be made to the Rights Plan Agreement.
Pursuant to the Rights Plan Agreement, upon each issuance of a common share
of the Corporation, one right (a "Right") is automatically issued with and
attaches to the common share.
The Rights will separate from the common shares and will be exercisable
eight trading days (or later, if determined by the board of directors) (the
"Separation Time") after a person has acquired beneficial ownership of or
commenced a take-over bid to acquire 20% or more of the common shares, other
than by an acquisition pursuant to a take-over bid permitted by the Rights Plan
(a "Permitted Bid"). The Rights Plan Agreement contains a broad definition of
beneficial ownership, which includes common shares held by associates and
affiliates of a person, as those terms are defined in the Rights Plan Agreement.
The acquisition by any person (an "Acquiring Person") of beneficial ownership of
20% or more of the common shares, other than by way of a Permitted Bid, is
referred to as a "Flip-in Event". Any Rights held by an Acquiring Person will
become void upon the occurrence of a Flip-in Event. Eight trading days after the
occurrence of the Flip-in Event, each Right (other than those held by the
Acquiring Person), will permit the purchase of $160 worth of common shares
for $80.
In order to constitute a Permitted Bid, an offer must be made in compliance
with the Rights Plan and must be made to all shareholders (other than the
offeror), and must be outstanding for a minimum period of 60 days and common
shares tendered pursuant to the offer may not be taken up prior to the expiry of
the 60 day period and only if at such time more than 50% of the common shares
held by shareholders, other than offeror, its affiliates and persons acting
jointly or in concert and certain other persons (the "Independent
Shareholders"), have been tendered to the offer and not withdrawn. If more than
50% of the common shares held by Independent Shareholders are tendered to the
offer within the 60 day period, the offeror must make a public announcement of
that fact and the offer must remain open for deposits of common shares for an
additional 10 business days from the date of such public announcement.
The issue of the Rights is not initially dilutive. Upon a Flip-in Event
occurring and the Rights separating from the common shares, reported earnings
per share on a fully diluted or non-diluted basis may be affected. Holders of
Rights not exercising their Rights upon the occurrence of a Flip-in Event may
suffer substantial dilution.
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DESCRIPTION OF DEBT SECURITIES
In this section, the terms "Corporation" and "TransAlta" refer only to
TransAlta Corporation without its subsidiaries through which it operates. The
following description sets forth certain general terms and provisions of the
debt securities. The Corporation will provide particular terms and provisions of
a series of debt securities and a description of how the general terms and
provisions described below may apply to that series in a Prospectus Supplement.
The debt securities will be issued under an indenture (the "Indenture") to
be entered into between TransAlta and The Bank of New York, as trustee (the
"Trustee"). The Indenture will be subject to and governed by the U.S. Trust
Indenture Act of 1939, as amended. A copy of the form of Indenture has been
filed as an exhibit to the registration statement. The following is a summary of
the Indenture. Whenever there are references to particular provisions of the
Indenture, those provisions are incorporated by reference as part of the
statements made in this Prospectus and are qualified in their entirety by
reference to the Indenture. References in parentheses are to section numbers of
the Indenture.
The Corporation may issue debt securities and incur additional indebtedness
other than through the offering of debt securities pursuant to this Prospectus.
GENERAL
The Indenture does not limit the aggregate principal amount of debt
securities which may be issued under the Indenture. It provides that debt
securities will be in registered or bearer form, may be issued from time to time
in one or more series and may be denominated and payable in U.S. dollars or any
other currency. Material Canadian and United States federal income tax
considerations applicable to any debt securities, and special tax considerations
applicable to the debt securities denominated in a currency or currency unit
other than Canadian or U.S. dollars, will be described in the Prospectus
Supplement relating to the offering of debt securities.
The Prospectus Supplement will set forth the following terms relating to the
debt securities being offered:
- the specific designation and any limit on the aggregate principal amount
of the debt securities;
- the extent and manner, if any, to which payment on or in respect of the
debt securities will be senior or will be subordinated to the prior
payment of other liabilities and obligations of TransAlta;
- the percentage or percentages of principal amount at which the debt
securities will be issued;
- the date or dates on which the principal of (and premium, if any, on) the
debt securities will be payable and the portion (if less than the
principal amount) to be payable upon a declaration of acceleration
of maturity;
- the rate or rates (whether fixed or variable) at which the debt securities
will bear interest, if any (or the manner of calculation thereof) and the
date or dates from which such interest will accrue;
- the dates on which any interest will be payable and the regular record
dates for the payment of interest on debt securities in registered form;
- the place or places where the principal of (and premium, if any) and
interest, if any, on the debt securities will be payable and each office
or agency where the debt securities may be presented for registration of
transfer or exchange;
- the currency or currency unit in which the debt securities are denominated
or in which payment of the principal of (and premium, if any) and
interest, if any, on such debt securities will be payable;
- whether debt securities will be issuable in the form of one or more global
securities and if so the identity of the depository for the
global securities;
- any mandatory or optional sinking fund provisions;
- the period or periods, if any, within which, the price or prices at which,
the currency or currency unit in which, and the terms and conditions upon
which, the debt securities may be redeemed or purchased by TransAlta;
27
- the terms and conditions, if any, upon which TransAlta or the purchaser
may redeem debt securities prior to maturity and the price or prices at
which and the currency or currency unit in which the debt securities
are payable;
- any index used to determine the amount of payments of principal of (and
premium, if any) or interest, if any, on the debt securities;
- the terms, if any, on which the debt securities may be converted or
exchanged for other securities of TransAlta or other entities;
- whether and under what circumstances TransAlta will pay additional amounts
on the debt securities in respect of certain taxes (and the terms of any
such payment) and, if so, whether TransAlta has the right to redeem the
debt securities of any series rather than pay the additional amounts (and
terms of any such right);
- any other terms of the debt securities including covenants and Events of
Default which apply solely to a particular series of debt securities being
offered which do not apply generally to the debt securities, or any
covenants or Events of Default generally applicable to debt securities
which do not apply to a particular series of debt securities;
- whether such debt securities will be listed on any securities exchange;
- whether the debt securities of the series are to be issuable as registered
securities, bearer securities (with or without coupons) or both; and
- if other than denominations of US$1,000 and any integral multiple thereof,
the denominations in which any registered securities of the series shall
be issuable and, if other than the denomination of US$5,000, the
denomination or denominations in which any bearer securities of the series
shall be issuable. (Section 3.1)
Unless otherwise indicated in the applicable Prospectus Supplement, the
Indenture does not afford the holders the right to tender debt securities to
TransAlta for repurchase or provide for any increase in the rate or rates of
interest at which the debt securities will bear interest, in the event TransAlta
should become involved in a highly leveraged transaction or in the event of a
change in control of TransAlta.
Debt securities may be issued under the Indenture bearing no interest or
interest at a rate below the prevailing market rate at the time of issuance, and
may be offered and sold at a discount below their stated principal amount.
(Section 3.1) The Canadian and United States federal income tax consequences and
other special considerations applicable to any such discounted debt securities
or other debt securities offered and sold at par which are treated as having
been issued at a discount for Canadian and/or United States federal income tax
purposes will be described in the applicable Prospectus Supplement.
Unless otherwise indicated in the applicable Prospectus Supplement,
TransAlta may, without the consent of the holders thereof, reopen a previous
issue of a series of debt securities and issue additional debt securities of
such series.
RANKING AND OTHER INDEBTEDNESS
Unless otherwise indicated in an applicable Prospectus Supplement, the debt
securities will be unsecured obligations and will rank equally with all of the
Corporation's other unsecured and unsubordinated indebtedness. TransAlta
conducts a significant amount of its operations through its subsidiaries. As at
March 31, 2002, TransAlta's subsidiaries had outstanding $1,173.7 million
aggregate principal amount of long-term debt. The debt securities issued under
this Prospectus will be structurally subordinated to all existing and future
liabilities, including trade payables and other indebtedness of TransAlta's
subsidiaries. See "Risk Factors" for a further discussion of the consequences of
structural subordination.
FORM, DENOMINATIONS AND EXCHANGE
Debt securities of a series may be issuable solely as registered securities,
solely as bearer securities or as both registered securities and bearer
securities. Registered securities will be issuable in denominations of US$1,000
and integral multiples of US$1,000 and bearer securities will be issuable in
denominations of
28
US$5,000 or, in each case, in such other denominations as may be set out in the
terms of the debt securities of any particular series. (Section 3.2) The
Indenture also provides that debt securities of a series may be issuable in
global form. (Section 3.1) Unless otherwise indicated in the Prospectus
Supplement, bearer securities will have interest coupons attached.
(Section 2.1)
Registered securities of any series will be exchangeable for other
registered securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations. If (but only if)
provided in the Prospectus Supplement, bearer securities (with all unmatured
coupons, except as provided below, and all matured coupons in default) of any
series may be exchanged for registered securities of the same series of any
authorized denominations and of a like aggregate principal amount and tenor. In
such event, bearer securities surrendered in a permitted exchange for registered
securities between a regular record date or a special record date and the
relevant date for payment of interest shall be surrendered without the coupon
relating to such date for payment of interest, and interest will not be payable
on such date for payment of interest in respect of the registered security
issued in exchange for such bearer security, but will be payable only to the
holder of such coupon when due in accordance with the terms of the Indenture.
Unless otherwise specified in the Prospectus Supplement, bearer securities will
not be issued in exchange for registered securities. (Section 3.5)
The applicable Prospectus Supplement may indicate the places to register a
transfer of debt securities. Except for certain restrictions set forth in the
Indenture, no service charge will be made for any registration of transfer or
exchange of the debt securities, but the Corporation may, in certain instances,
require a sum sufficient to cover any tax or other governmental charges payable
in connection with these transactions. (Section 3.5)
The Corporation shall not be required to: (i) issue, register the transfer
of or exchange debt securities of any series during a period beginning at the
opening of business 15 days before any selection of debt securities of that
series to be redeemed and ending at the close of business on (A) if debt
securities of the series are issuable only as registered securities, the day of
mailing of the relevant notice of redemption and (B) if debt securities of the
series are issuable as bearer securities, the day of the first publication of
the relevant notice of redemption or, if debt securities of the series are also
issuable as registered securities and there is no publication, the mailing of
the relevant notice of redemption; (ii) register the transfer of or exchange any
registered security, or portion thereof, called for redemption, except the
unredeemed portion of any registered security being redeemed in part;
(iii) exchange any bearer security selected for redemption, except that, to the
extent provided with respect to such bearer security, such bearer security may
be exchanged for a registered security of that series and like tenor, provided
that such registered security shall be immediately surrendered for redemption
with written instruction for payment consistent with the provisions of the
Indenture; or (iv) issue, register the transfer of or exchange any debt
securities which have been surrendered for repayment at the option of the
holder, except the portion, if any, thereof not to be so repaid. (Section 3.5)
PAYMENT
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of principal of and premium, if any, and interest, if any, on debt securities
(other than global securities) will be made at the office or agency of the
Trustee, at 15 Broad Street, New York, New York 10286, or we can pay principal,
interest and any premium by (i) check mailed or delivered to the address of the
person entitled at the address appearing in the security register of the Trustee
or (ii) wire transfer to an account located in the United States of the person
entitled to receive payments. (Sections 3.7, 10.1 and 10.2)
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of any interest will be made to the persons in whose name the debt securities
are registered at the close of business on the day or days specified by us.
(Section 3.7)
GLOBAL SECURITIES
The registered debt securities of a series may be issued in whole or in part
in global form (a "Global Security") and will be registered in the name of and
be deposited with a depository (the "Depositary"), or its nominee, each of which
will be identified in the Prospectus Supplement. (Section 3.1) Unless and until
29
exchanged, in whole or in part, for debt securities in definitive registered
form, a Global Security, may not be transferred except as a whole by the
Depositary for such Global Security to a nominee of the Depositary, by a nominee
of the Depositary to the Depositary or another nominee of the Depositary or by
the Depositary or any such nominee to a successor of the Depositary or a nominee
of the successor. (Section 3.5)
The specific terms of the depository arrangement with respect to any portion
of a particular series of debt securities to be represented by a Global Security
will be described in the Prospectus Supplement relating to such series. The
Corporation anticipates that the following provisions will apply to all
depository arrangements.
Upon the issuance of a Global Security, the Depositary therefor or its
nominee will credit, on its book entry and registration system, the respective
principal amounts of the debt securities represented by the Global Security to
the accounts of such persons having accounts with such Depositary or its nominee
("participants"). Such accounts shall be designated by the underwriters, dealers
or agents participating in the distribution of the debt securities or by
TransAlta if such debt securities are offered and sold directly by the
Corporation. Ownership of beneficial interests in a Global Security will be
limited to participants or persons that may hold beneficial interests through
participants. Ownership of beneficial interests in a Global Security will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by the Depositary therefor or its nominee (with respect to
interests of participants) or by participants or persons that hold through
participants (with respect to interests of persons other than participants). The
laws of some states in the United States may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
So long as the Depositary for a Global Security or its nominee is the
registered owner of the Global Security, such Depositary or such nominee, as the
case may be, will be considered the sole owner or holder of the debt securities
represented by the Global Security for all purposes under the Indenture. Except
as provided below, owners of beneficial interests in a Global Security will not
be entitled to have debt securities of the series represented by the Global
Security registered in their names, will not receive or be entitled to receive
physical delivery of debt securities of such series in definitive form and will
not be considered the owners or holders thereof under the Indenture.
Any payments of principal, premium, if any, and interest on Global
Securities registered in the name of a Depositary or its nominee will be made to
the Depositary or its nominee, as the case may be, as the registered owner of
the Global Security representing such debt securities. None of TransAlta, the
Trustee or any paying agent for debt securities represented by the Global
Securities will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of the Global Security or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
The Corporation expects that the Depositary for a Global Security or its
nominee, upon receipt of any payment of principal, premium or interest, will
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Security
as shown on the records of such Depositary or its nominee. The Corporation also
expects that payments by participants to owners of beneficial interests in a
Global Security held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in "street name", and will be the
responsibility of such participants.
If a Depositary for a Global Security representing a particular series of
debt securities is at any time unwilling or unable or no longer qualified to
continue as depository and a successor depository is not appointed by TransAlta
within 90 days, the Corporation will issue debt securities of such series in
definitive form in exchange for a Global Security representing such series of
debt securities. Further, if an Event of Default under the Indenture occurs and
is continuing, debt securities of a series in definitive form will be printed
and delivered. In addition, the Corporation may at any time and in its sole
discretion determine not to have debt securities of a series represented by a
Global Security and, in such event, will issue debt securities of a series in
definitive form in exchange for all of the Global Securities representing the
series of debt securities. (Section 3.5)
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DEFINITIONS
The Indenture contains, among others, definitions substantially to the
following effect:
"ATTRIBUTABLE AMOUNT" means with respect to any sale and leaseback transaction
(as defined herein), as at the time of determination, the present value
(discounted at the rate of interest set forth or implicit in the terms of such
lease, compounded annually) of the total obligations of the lessee for rental
payments during the remaining term of the lease included in such sale and
leaseback transaction.
"CONSOLIDATED NET TANGIBLE ASSETS" means all consolidated assets of the
Corporation as shown on the most recent audited consolidated balance sheet of
the Corporation, less the aggregate of the following amounts reflected upon such
balance sheet:
(a) all goodwill, deferred assets, trademarks, copyrights and other similar
intangible assets;
(b) to the extent not already deducted in computing such assets and without
duplication, depreciation, depletion, amortization, reserves and any
other account which reflects a decrease in the value of an asset or a
periodic allocation of the cost of an asset;
(c) minority interests;
(d) current liabilities; and
(e) assets created, developed, constructed or acquired with or in respect of
which Non-Recourse Debt has been incurred, and any and all receivables,
inventory, equipment, chattel paper, intangibles and other rights or
collateral arising from or connected with those assets (including the
shares or other ownership interests of a single purpose entity which
holds only such assets and other rights and collateral arising from or
connected therewith) and to which recourse of the lender of such
Non-Recourse Debt is limited.
"CONSOLIDATED SHAREHOLDERS' EQUITY" means, without duplication, the aggregate
amount of shareholders' equity (including, without limitation, common share
capital, preferred share capital, contributed surplus and retained earnings) of
the Corporation as shown on the most recent audited consolidated balance sheet
of the Corporation, adjusted by the amount by which common share capital,
preferred share capital and contributed surplus has been increased or decreased
(as the case may be) from the date of such balance sheet to the relevant date of
determination, in accordance with Generally Accepted Accounting Principles,
together with the aggregate principal amount of obligations of the Corporation
in respect of Preferred Securities.
"FINANCIAL INSTRUMENT OBLIGATIONS" means obligations arising under:
(a) any interest swap agreement, forward rate agreement, floor, cap or
collar agreement, futures or options, insurance or other similar
agreement or arrangement, or any combination thereof, entered into or
guaranteed by the Corporation where the subject matter of the same is
interest rates or the price, value, or amount payable thereunder is
dependent or based upon the interest rates or fluctuations in interest
rates in effect from time to time (but, for certainty, shall exclude
conventional floating rate debt);
(b) any currency swap agreement, cross-currency agreement, forward
agreement, floor, cap or collar agreement, futures or options, insurance
or other similar agreement or arrangement, or any combination thereof,
entered into or guaranteed by the Corporation where the subject matter of
the same is currency exchange rates or the price, value or amount payable
thereunder is dependent or based upon currency exchange rates or
fluctuations in currency exchange rates in effect from time to time; and
(c) any agreement for the making or taking of any commodity (including
natural gas, oil or electricity), any commodity swap agreement, floor,
cap or collar agreement or commodity future or option or other similar
agreements or arrangements, or any combination thereof, entered into or
guaranteed by the Corporation where the subject matter of the same is any
commodity or the price, value or amount payable thereunder is dependent
or based upon the price of any commodity or fluctuations in the price of
any commodity;
31
to the extent of the net amount due or accruing due by the Corporation
thereunder (determined by marking-to-market the same in accordance with
their terms).
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" means generally accepted accounting
principles which are in effect from time to time in Canada.
"INDEBTEDNESS" means all items of indebtedness in respect of any amounts
borrowed (including obligations with respect to bankers' acceptances and
contingent reimbursement obligations relating to letters of credit and other
financial instruments) and all Purchase Money Obligations which, in accordance
with Generally Accepted Accounting Principles, would be recorded in the
financial statements as at the date as of which Indebtedness is to be
determined, and in any event including, without duplication:
(a) obligations secured by any Security Interest existing on property owned
subject to such Security Interest, whether or not the obligations secured
thereby shall have been assumed; and
(b) guarantees, indemnities, endorsements (other than endorsements for
collection in the ordinary course of business) or other contingent
liabilities in respect of obligations of another person for indebtedness
of that other person in respect of any amounts borrowed by them.
"MATERIAL SUBSIDIARY" means, at any time, a Subsidiary:
(a) the total assets of which represent more than 10% of the total assets of
the Corporation determined on a consolidated basis as shown in the most
recent audited consolidated balance sheet of the Corporation; or
(b) the total revenues of which represent more than 10% of the total
revenues of the Corporation determined on a consolidated basis as shown
in the consolidated income statement of the Corporation for the four most
recent fiscal quarters of the Corporation.
"NON-RECOURSE DEBT" means any Indebtedness incurred to finance the creation,
development, construction or acquisition of assets and any increases in or
extensions, renewals or refundings of any such Indebtedness, provided that the
recourse of the lender thereof or any agent, trustee, receiver or other person
acting on behalf of the lender in respect of such Indebtedness or any judgment
in respect thereof is limited in all circumstances (other than in respect of
false or misleading representations or warranties and customary indemnities
provided with respect to such financings) to the assets created, developed,
constructed or acquired in respect of which such Indebtedness has been incurred
and to any receivables, inventory, equipment, chattel paper, intangibles and
other rights or collateral arising from or connected with the assets so created,
developed, constructed or acquired, (including the shares or other ownership
interests of a single purpose entity which holds only such assets and other
rights and collateral arising from or connected therewith) and to which the
lender has recourse.
"PERMITTED ENCUMBRANCE" means any of the following:
(a) any Security Interest existing as of the date of the first issuance by
the Corporation of debt securities issued pursuant to the Indenture, or
arising thereafter pursuant to contractual commitments entered into prior
to such issuance;
(b) any Security Interest created, incurred or assumed to secure any
Purchase Money Obligation;
(c) any Security Interest created, incurred or assumed to secure any
Non-Recourse Debt;
(d) any Security Interest in favor of any Wholly-owned Subsidiary;
(e) any Security Interest on property of a corporation or its Subsidiaries
which Security Interest exists at the time such corporation is merged
into, or amalgamated or consolidated with the Corporation or such
property is otherwise directly or indirectly acquired by the Corporation,
other than a Security Interest incurred in contemplation of such merger,
amalgamation, consolidation or acquisition;
(f) any Security Interest securing any Indebtedness to any bank or banks or
other lending institution or institutions incurred in the ordinary course
of business and for the purpose of carrying on the same, repayable on
demand or maturing within 12 months of the date when such Indebtedness is
incurred or the date of any renewal or extension thereof;
32
(g) any Security Interest on or against cash or marketable debt securities
pledged to secure Financial Instrument Obligations;
(h) certain Security Interests in respect of liens or other encumbrances,
not related to the borrowing of money, incurred or arising by operation
of law or in the ordinary course of business;
(i) any extension, renewal, alteration or replacement (or successive
extensions, renewals, alterations or replacements) in whole or in part,
of any Security Interest referred to in the foregoing clauses (a)
through (h) inclusive, provided the extension, renewal, alteration or
replacement of such Security Interest is limited to all or any part of
the same property that secured the Security Interest extended, renewed,
altered or replaced (plus improvements on such property) and the
principal amount of the Indebtedness secured thereby is not
increased; and
(j) any other Security Interest if the aggregate amount of Indebtedness
secured pursuant to this clause (j) (together with the Attributable
Amount of any sale and leaseback) does not exceed 20% of Consolidated Net
Tangible Assets.
"PREFERRED SECURITIES" means securities which on the date of issue thereof by
a person:
(a) have a term to maturity of more than 30 years;
(b) rank subordinate to the unsecured and unsubordinated Indebtedness of
such person outstanding on such date;
(c) entitle such person to defer the payment of interest thereon for more
than four years without thereby causing an event of default in respect of
such securities to occur; and
(d) entitle such person to satisfy the obligation to make payments of
deferred interest thereon from the proceeds of the issuance of
its shares.
"PURCHASE MONEY OBLIGATION" means any monetary obligation created or assumed as
part of the purchase price of real or tangible personal property, whether or not
secured, any extensions, renewals, alterations or replacements of any such
obligation, provided that the principal amount of such obligation outstanding on
the date of such extension, renewal, alteration or replacement is not increased
and further provided that any security given in respect of such obligation shall
not extend to any property other than the property acquired in connection with
which such obligation was created or assumed and fixed improvements, if any,
erected or constructed thereon.
"SECURITY INTEREST" means any mortgage, charge, pledge, lien, encumbrance,
assignment by way of security, title retention agreement or other security
interest whatsoever, howsoever created or arising, whether absolute or
contingent, fixed or floating, perfected or not, which secures payment or
performance of an obligation.
"SUBSIDIARY" means, in relation to a person:
(a) any corporation of which at least a majority of the outstanding shares
having by the terms thereof ordinary voting power to elect a majority of
the board of directors of such corporation (irrespective of whether at
the time shares of any other class or classes of such corporation might
have voting power by reason of the happening of any contingency, unless
the contingency has occurred and then only for as long as it continues)
is at the time directly, indirectly or beneficially owned or controlled
by the person or one or more of its Subsidiaries, or the person and one
or more of its Subsidiaries;
(b) any partnership of which the person or one or more of its Subsidiaries,
or the person and one or more of its Subsidiaries: (i) directly,
indirectly or beneficially own or control more than 50% of the income,
capital, beneficial or ownership interests (however designated) thereof;
and (ii) is a general partner, in the case of a limited partnership, or
is a partner that has authority to bind the partnership, in all other
cases; or
(c) any other person of which at least a majority of the income, capital,
beneficial or ownership interests (however designated) are at the time
directly, indirectly or beneficially owned or controlled
33
by the first-mentioned person or one or more of its Subsidiaries, or the
first-mentioned person and one or more of its Subsidiaries.
"WHOLLY-OWNED SUBSIDIARY" means any Subsidiary that the Corporation directly or
indirectly beneficially owns 100% of the outstanding shares having by the terms
thereof ordinary voting power to elect a majority of the board of directors of
such Subsidiary or owns, directly or indirectly, 100% of the income, capital,
beneficial or ownership interests (however designated) thereof.
COVENANTS
The Indenture contains covenants substantially to the following effect:
NEGATIVE PLEDGE
So long as any debt securities remain outstanding the Corporation and its
Subsidiaries will not create, assume or otherwise have outstanding any Security
Interest, except for Permitted Encumbrances, on or over its or their respective
assets (present or future) in respect of any Indebtedness of any person unless,
in the opinion of legal counsel to the Corporation or the Trustee, the
obligations of the Corporation in respect of all debt securities then
outstanding shall be secured equally and ratably therewith. (Section 10.12)
RESTRICTION ON SALES AND LEASEBACKS
The Corporation will not, and will not permit any Subsidiary to, enter into
any sale and leaseback transaction unless the Corporation and its Subsidiaries
comply with this restrictive covenant. A "sale and leaseback transaction"
generally is an arrangement between the Corporation or any Subsidiary and a
bank, insurance company or other lender or investor where the Corporation or any
Subsidiary lease real or personal property which was or will be sold by the
Corporation or any Subsidiary to that lender or investor. The Corporation can
comply with this restrictive covenant if it meets either of the
following conditions:
(a) the sale and leaseback transaction is entered into prior to,
concurrently with or within 270 days after the acquisition, the
completion of construction (including any improvements on an existing
property) or the commencement of commercial operations of the
property; or
(b) the Corporation or its Subsidiaries could otherwise grant a Security
Interest on the property as a Permitted Encumbrance described in
"-- Negative Pledge". (Section 10.10)
MERGERS, CONSOLIDATIONS, AMALGAMATIONS AND SALE OF ASSETS
The Corporation will not enter into any transaction whereby all or
substantially all of its undertaking, property and assets would become the
property of any other person (the "Successor"), whether by reorganization,
consolidation, amalgamation, arrangement, merger, transfer, sale, or
otherwise, unless:
(a) the Successor expressly assumes all of the covenants and obligations of
the Corporation under the Indenture and the transaction otherwise meets
of the requirements of the Indenture;
(b) the entity formed by or continuing from such consolidation or
amalgamation or into which the Corporation is merged or with which the
Corporation enters into such arrangement or the person which acquires or
leases all or substantially all of the Corporation's properties and
assets is organized and existing under the laws of the United States, any
state thereof or the District of Columbia or the laws of Canada or any
province thereof; and
(c) immediately before and after giving effect to such transaction, no event
of default, and no event which, after notice or lapse of time or both,
would become an event of default, shall have happened and be continuing.
(Section 8.1)
If, as a result of any such transaction, any of the properties or assets of
the Corporation or its Subsidiaries become subject to a Security Interest, then,
unless such Security Interest could be created pursuant to the Indenture
provisions described under "Negative Pledge" above without equally and rateably
securing debt securities, the Corporation, simultaneously with or prior to such
transaction, will cause any
34
debt securities of the Corporation then outstanding to be secured equally and
ratably with or prior to the Indebtedness secured by such Security Interest.
(Section 8.4)
In addition to the above conditions, such transaction will, to the
satisfaction of the Trustee, substantially preserve and not impair any of the
rights and powers of the Trustee or of the security holders. Also, no condition
or event will exist as to the Corporation (at the time of such transaction) or
the Successor (immediately after such transaction) and after giving full effect
thereto or immediately after the Successor will become liable to pay the
principal monies, premium, if any, interest and other monies due or which may
become due hereunder, which constitutes or would constitute and Event of Default
under the Indenture.
PAYMENT OF ADDITIONAL AMOUNTS
Unless otherwise specified in an applicable Prospectus Supplement, TransAlta
will, subject to the exceptions and limitations set forth below, pay to the
holder of any debt security who is a non-resident of Canada under the INCOME
TAX ACT (Canada) such additional amounts as may be necessary so that every net
payment on such debt security, after deduction or withholding by TransAlta or
any of its paying agents for or on account of any present or future tax,
assessment or other governmental charge (including penalties, interest and other
liabilities related thereto) imposed by the government of Canada (or any
political subdivision or taxing authority thereof or therein) (collectively,
"Canadian Taxes") upon or as a result of such payment, will not be less than the
amount provided in such debt security or in such coupon to be then due and
payable (and TransAlta will remit the full amount withheld to the relevant
authority in accordance with applicable law). However, TransAlta will not be
required to make any payment of additional amounts:
(a) to any person in respect of whom such taxes are required to be withheld
or deducted as a result of such person not dealing at arm's length with
TransAlta (within the meaning of the INCOME TAX ACT (Canada));
(b) to any person by reason of such person being connected with Canada
(otherwise than merely by holding or ownership of any series of debt
securities or receiving any payments or exercising any rights
thereunder), including without limitation a non-resident insurer who
carries on an insurance business in Canada and in a country other
than Canada;
(c) for or on account of any tax, assessment or other governmental charge
which would not have been so imposed but for: (i) the presentation by the
holder of such debt security or coupon for payment on a date more than
30 days after the date on which such payment became due and payable or
the date on which payment thereof is duly provided for, whichever occurs
later; or (ii) the holder's failure to comply with any certification,
identification, information, documentation or other reporting
requirements if compliance is required by law, regulation, administrative
practice or an applicable treaty as a precondition to exemption from or a
reduction in the rate of deduction or withholding of, any such taxes,
assessment or charge;
(d) for or on account of any estate, inheritance, gift, sales, transfer,
personal property tax or any similar tax, assessment or other
governmental charge;
(e) for or on account of any tax, assessment or other governmental charge
required to be withheld by any paying agent from any payment to a person
on a debt security if such payment can be made to such person without
such withholding by at least one other paying agent the identity of which
is provided to such person;
(f) for or on account of any tax, assessment or other governmental charge
which is payable otherwise than by withholding from a payment on a debt
security; or
(g) for any combination of items (a), (b), (c), (d), (e) and (f);
nor will additional amounts be paid with respect to any payment on a debt
security to a holder who is a fiduciary or partnership or other than the sole
beneficial owner of such payment to the extent such payment would be required by
the laws of Canada (or any political subdivision thereof) to be included in the
income for Canadian federal income tax purposes of a beneficiary or settlor with
respect to such fiduciary or a member of such partnership or a beneficial owner
who would not have been entitled to payment of the additional amounts had such
beneficiary, settlor, member or beneficial owner been the holder of such debt
security. (Section 10.5)
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The Corporation will furnish to the holders of the debt securities, within
30 days after the date of the payment of any Canadian Taxes is due under
applicable law, certified copies of tax receipts or other documents evidencing
such payment.
Wherever in the Indenture there is mentioned, in any context, the payment of
principal (and premium, if any), interest or any other amount payable under or
with respect to a debt security, such mention shall be deemed to include mention
of the payment of additional amounts to the extent that, in such context
additional amounts are, were or would be payable in respect thereof.
(Section 10.5)
TAX REDEMPTION
If and to the extent specified in an applicable Prospectus Supplement, the
debt securities of a series will be subject to redemption at any time, in whole
but not in part, at a redemption price equal to the principal amount thereof
together with accrued and unpaid interest to the date fixed for redemption, upon
the giving of a notice as described below, if (1) TransAlta determines that
(a) as a result of any change in or amendment to the laws (or any regulations or
rulings promulgated thereunder) of Canada or of any political subdivision or
taxing authority thereof or therein affecting taxation, or any change in
official position regarding application or interpretation of such laws,
regulations or rulings (including a holding by a court of competent
jurisdiction), which change or amendment is announced or becomes effective on or
after a date specified in the applicable Prospectus Supplement if any date is so
specified, TransAlta has or will become obligated to pay, on the next succeeding
date on which interest is due, additional amounts with respect to any debt
security of such series as described under "Payment of Additional Amounts" or
(b) on or after a date specified in the applicable Prospectus Supplement, any
action has been taken by any taxing authority of, or any decision has been
rendered by a court of competent jurisdiction in, Canada or any political
subdivision or taxing authority thereof or therein, including any of those
actions specified in (a) above, whether or not such action was taken or decision
was rendered with respect to TransAlta, or any change, amendment, application or
interpretation shall be officially proposed, which, in any such case, in the
written opinion to TransAlta of legal counsel of recognized standing, will
result in TransAlta becoming obligated to pay, on the next succeeding date on
which interest is due, additional amounts with respect to any debt security of
such series and (2) in any such case, TransAlta in its business judgment
determines that such obligation cannot be avoided by the use of reasonable
measures available to TransAlta; PROVIDED HOWEVER, that (i) no such notice of
redemption may be given earlier than 60 or later than 30 days prior to the
earliest date on which TransAlta would be obligated to pay such additional
amounts were a payment in respect of the debt securities then due, and (ii) at
the time such notice of redemption is given, such obligation to pay such
additional amounts remains in effect. (Section 11.8)
In the event that TransAlta elects to redeem the debt securities of such
series pursuant to the provisions set forth in the preceding paragraph,
TransAlta shall deliver to the Trustee a certificate, signed by an authorized
officer, stating that TransAlta is entitled to redeem the debt securities of
such series pursuant to their terms. (Section 11.2)
REDEMPTION
If and to the extent specified in an applicable Prospectus Supplement, the
debt securities of a series will be subject to redemption at the time or times
specified therein, at a redemption price equal to the principal amount thereof
together with accrued and unpaid interest to the date fixed for redemption, upon
the giving of a notice. Notice of redemption of the debt securities of such
series will be given once not more than 60 nor less than 30 days prior to the
date fixed for redemption and will specify the date fixed for redemption.
(Section 11.4)
PROVISION OF FINANCIAL INFORMATION
TransAlta will file with the Trustee, within 15 days after it files them
with the SEC, copies of its annual report and of the information, documents and
other reports (or copies of such portions of any of the foregoing as the SEC may
by rules and regulations prescribe) which TransAlta is required to file with the
SEC pursuant to Section 13 or 15(d) of the U.S. Exchange Act. Notwithstanding
that TransAlta may not be
36
required to remain subject to the reporting requirements of Section 13 or 15(d)
of the U.S. Exchange Act or otherwise report on an annual and quarterly basis on
forms provided for such annual and quarterly reporting pursuant to rules and
regulations promulgated by the SEC, TransAlta will continue to provide the
Trustee (a) within 140 days after the end of each fiscal year, the information
required to be contained in annual reports on Form 20-F or Form 40-F as
applicable (or any successor form); and (b) within 60 days after the end of each
of the first three fiscal quarters of each fiscal year, the information required
to be contained in reports on Form 6-K (or any successor form), which,
regardless of applicable requirements shall, at a minimum, consist of such
information required to be provided in quarterly reports under the laws of
Canada or any province thereof to security holders of a corporation with
securities listed on the TSX, whether or not TransAlta has any of its securities
listed on such exchange. Such information will be prepared in accordance with
Canadian disclosure requirements and Canadian GAAP. (Section 7.5)
EVENTS OF DEFAULT
Unless otherwise specified in the Prospectus Supplement relating to a
particular series of debt securities, the following events are defined in the
Indenture as "Events of Default" with respect to debt securities of any series:
(a) the failure of the Corporation to pay when due the principal of or premium
(if any) on any debt securities; (b) the failure of the Corporation, continuing
for 30 days, to pay any interest due on any debt securities; (c) the breach or
violation of any covenant or condition (other than as referred to in (a) and
(b) above), which continues for a period of 60 days after notice from the
Trustee or from holders of at least 25% in principal amount of all outstanding
debt securities of any series affected thereby (or such longer period as may be
agreed to by the Trustee); (d) the failure of the Corporation or any Subsidiary
to pay when due (after giving effect to any applicable grace periods) any amount
owing in respect of any Indebtedness other than Non-Recourse Debt or the
Corporation or any Subsidiary otherwise defaults in connection with such
Indebtedness, and if such Indebtedness has not matured it shall have been
accelerated, provided that the aggregate principal amount of such Indebtedness
is in excess of the greater of US$75 million and 3% of Consolidated
Shareholders' Equity; (e) the taking or entry of certain judgments or decrees
against the Corporation or any Material Subsidiary for the payment of money in
excess of the greater of US$75 million and 3% of Consolidated Shareholders'
Equity, in the aggregate, if the Corporation or any such Material Subsidiary, as
the case may be, fails to file an appeal or, if the Corporation or such Material
Subsidiary, as the case may be does file an appeal, that judgment or decree is
not and does not remain vacated, discharged or stayed as provided in the
Indenture; (f) certain events of bankruptcy, insolvency or reorganization
involving the Corporation or a Material Subsidiary; or (g) any other Event of
Default provided with respect to debt securities of that series.
If an Event of Default occurs and is continuing with respect to any series
of debt securities, then and in every such case the Trustee or the holders of at
least 25% in aggregate principal amount of the outstanding debt securities of
such affected series may, subject to any subordination provisions thereof,
declare the entire principal amount (or, if the debt securities of that series
are original issue discount debt securities, such portion of the principal
amount as may be specified in the terms of that series) of all debt securities
of such series and all interest thereon to be immediately due and payable.
However, at any time after a declaration of acceleration with respect to any
series of debt securities has been made, but before a judgment or decree for
payment of the money due has been obtained, the holders of a majority in
principal amount of the outstanding debt securities of that series, by written
notice to the Corporation and the Trustee under certain circumstances (which
include payment or deposit with the Trustee of outstanding principal, premium
and interest, unless the Prospectus Supplement applicable to an issue of debt
securities otherwise provides), may rescind and annul such acceleration.
(Section 5.2)
Reference is made to the Prospectus Supplement relating to each series of
debt securities which are original issue discount securities for the particular
provisions relating to acceleration of the maturity of a portion of the
principal amount of such original issue discount securities upon the occurrence
of any Event of Default and the continuation hereof.
The Indenture provides that, subject to the duty of the Trustee during
default to act with the required standard of care, the Trustee shall be under no
obligation to exercise any of its rights and powers under the Indenture at the
request or direction of any of the holders, unless such holders shall have
offered to the
37
Trustee reasonable indemnity. (Section 6.2) Subject to such provisions for
indemnification of the Trustee and certain other limitations set forth in the
Indenture, the holders of a majority in principal amount of the outstanding debt
securities of all series affected by an Event of Default shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee, with respect to the debt securities of all series affected by such
Event of Default. (Section 5.12)
No holder of a debt security of any series will have any right to institute
any proceeding with respect to the Indenture, or for the appointment of a
receiver or a Trustee, or for any other remedy thereunder, unless (a) such
holder has previously given to the Trustee written notice of a continuing Event
of Default with respect to the debt securities of such series affected by such
Event of Default, (b) the holders of at least 25% in aggregate principal amount
of the outstanding debt securities of such series affected by such Event of
Default have made written request, and such holder or holders have offered
reasonable indemnity, to the Trustee to institute such proceeding as Trustee,
and (c) the Trustee has failed to institute such proceeding, and has not
received from the holders of a majority in aggregate principal amount of the
outstanding debt securities of such series affected by such Event of Default a
direction inconsistent with such request, within 60 days after such notice,
request and offer. (Section 5.7) However, such limitations do not apply to a
suit instituted by the holder of a debt security for the enforcement of payment
of the principal of or any premium or interest on such debt security on or after
the applicable due date specified in such debt security. (Section 5.8)
The Corporation will be required to furnish to the Trustee annually a
statement by certain of its officers as to whether or not the Corporation, to
the best of their knowledge, is in compliance with all conditions and covenants
of the Indenture and, if not, specifying all such known defaults.
(Section 10.4)
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Corporation
and the Trustee with the consent of the holders of a majority in principal
amount of the outstanding debt securities of each series issued under the
Indenture affected by such modification or amendment; PROVIDED, HOWEVER, that no
such modification or amendment may, without the consent of the holder of each
outstanding debt security of such affected series: (1) change the stated
maturity of the principal of, or any instalment of interest, if any, on any debt
security; (2) reduce the principal amount of, or the premium, if any, or the
rate of interest, if any, on any debt security; (3) change the place of payment;
(4) change the currency or currency unit of payment of principal of (or premium,
if any) or interest, if any, on any debt security; (5) impair the right to
institute suit for the enforcement of any payment on or with respect to any debt
security; (6) adversely affect any right to convert or exchange any debt
security; (7) reduce the percentage of principal amount of outstanding debt
securities of such series, the consent of the holders of which is required for
modification or amendment of the applicable Indenture or for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults; (8) reduce the voting or quorum requirements relating to meetings of
holders of debt securities; or (9) modify any provisions of the Indenture
relating to the modification and amendment of the Indenture or the waiver of
past defaults or covenants except as otherwise specified in the Indenture.
(Section 9.2) In addition, any amendment to, or waiver of, the provisions of the
Indenture relating to subordination that adversely affects the rights of the
holders of debt securities will require the consent of holders of at least 75%
in aggregate principal amount of such debt securities then outstanding.
The holders of a majority in principal amount of the outstanding debt
securities of any series may on behalf of the holders of all debt securities of
that series waive, insofar as that series is concerned, compliance by the
Corporation with certain restrictive provisions of the Indenture.
(Section 10.13) The holders of a majority in principal amount of outstanding
debt securities of any series may waive any past default under the Indenture
with respect to that series, except a default in the payment of the principal of
(or premium, if any) and interest, if any, on any debt security of that series
or in respect of a provision which under the Indenture cannot be modified or
amended without the consent of the holder of each outstanding debt security of
that series. (Section 5.13) The Indenture or the debt securities may be amended
or supplemented, without the consent of any holder of debt securities, to cure
any ambiguity or inconsistency or to make any change that does not have an
adverse effect on the rights of any holder of debt securities. (Section 9.1)
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DEFEASANCE
The Indenture provides that, at its option, TransAlta will be discharged
from any and all obligations in respect of the outstanding debt securities of
any series upon irrevocable deposit with the Trustee, in trust, of money and/or
government securities which will provide money in an amount sufficient in the
opinion of a nationally recognized firm of independent chartered accountants to
pay the principal of and premium, if any, and each instalment of interest, if
any, on the outstanding debt securities of such series ("Defeasance") (except
with respect to the authentication, transfer, exchange or replacement of debt
securities or the maintenance of a place of payment and certain other
obligations set forth in the Indenture). Such trust may only be established if
among other things (1) TransAlta has delivered to the Trustee an opinion of
counsel in the United States stating that (a) TransAlta has received from, or
there has been published by, the Internal Revenue Service a ruling, or
(b) since the date of execution of the Indenture, there has been a change in the
applicable United States federal income tax law, in either case to the effect
that the holders of the outstanding debt securities of such series will not
recognize income, gain or loss for United States federal income tax purposes as
a result of such Defeasance and will be subject to United States federal income
tax on the same amounts, in the same manner and at the same times as would have
been the case if such Defeasance had not occurred; (2) TransAlta has delivered
to the Trustee an opinion of counsel in Canada or a ruling from the Canada
Customs and Revenue Agency ("CCRA") to the effect that the holders of such
outstanding debt securities of such series will not recognize income, gain or
loss for Canadian federal, provincial or territorial income or other tax
purposes as a result of such Defeasance and will be subject to Canadian federal
or provincial income and other tax on the same amounts, in the same manner and
at the same times as would have been the case had such Defeasance not occurred
(and for the purposes of such opinion, such Canadian counsel shall assume that
holders of the outstanding debt securities of such series include holders who
are not resident in Canada); (3) no Event of Default or event that, with the
passing of time or the giving of notice, or both, shall constitute an Event of
Default shall have occurred and be continuing on the date of such deposit;
(4) TransAlta is not an "insolvent person" within the meaning of the CANADIAN
BANKRUPTCY AND INSOLVENCY ACT; (5) TransAlta has delivered to the Trustee an
opinion of counsel to the effect that such deposit shall not cause the Trustee
or the trust so created to be subject to the United States INVESTMENT COMPANY
ACT OF 1940, as amended; and (6) other customary conditions precedent are
satisfied. TransAlta may exercise its Defeasance option notwithstanding its
prior exercise of its Covenant Defeasance option described in the following
paragraph if TransAlta meets the conditions described in the preceding sentence
at the time TransAlta exercises the Defeasance option.
The Indenture provides that, at its option, unless and until TransAlta has
exercised its Defeasance option described in the preceding paragraph, TransAlta
may omit to comply with covenants, including the covenants described above under
the heading "Covenants", and such omission shall not be deemed to be an Event of
Default under the Indenture and the outstanding debt securities upon irrevocable
deposit with the Trustee, in trust, of money and/or government securities which
will provide money in an amount sufficient in the opinion of a nationally
recognized firm of independent chartered accountants to pay the principal of and
premium, if any, and each instalment of interest, if any, on the outstanding
debt securities ("Covenant Defeasance"). If TransAlta exercises its Covenant
Defeasance option, the obligations under the Indenture other than with respect
to such covenants and the Events of Default other than with respect to such
covenants shall remain in full force and effect. Such trust may only be
established if, among other things, (1) TransAlta has delivered to the Trustee
an opinion of counsel in the United States to the effect that the holders of the
outstanding debt securities will not recognize income, gain or loss for United
States federal income tax purposes as a result of such Covenant Defeasance and
will be subject to United States federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (2) TransAlta has delivered to the Trustee an
opinion of counsel in Canada or a ruling from the CCRA to the effect that the
holders of such outstanding debt securities will not recognize income, gain or
loss for Canadian federal, provincial or territorial income or other tax
purposes as a result of such Covenant Defeasance and will be subject to Canadian
federal or provincial income and other tax on the same amounts, in the same
manner and at the same times as would have been the case had such Covenant
Defeasance not occurred (and for the purposes of such opinion, such Canadian
counsel shall assume that holders of the outstanding debt securities include
holders who are not resident in Canada); (3) no Event of Default or event that,
with the passing of time or the giving of notice,
39
or both, shall constitute an Event of Default shall have occurred and be
continuing on the date of such deposit; (4) TransAlta is not an "insolvent
person" within the meaning of the CANADIAN BANKRUPTCY AND INSOLVENCY ACT;
(5) TransAlta has delivered to the Trustee an opinion of counsel to the effect
that such deposit shall not cause the Trustee or the trust so created to be
subject to the United States INVESTMENT COMPANY ACT OF 1940, as amended; and
(6) other customary conditions precedent are satisfied. (Article 14)
CONSENT TO JURISDICTION AND SERVICE
Under the Indenture, TransAlta irrevocably appoints CT Corporation System,
111 Eighth Avenue, 13th Floor, New York, New York, as its authorized agent for
service of process in any suit or proceeding arising out of or relating to the
debt securities or the Indenture and for actions brought under federal or state
securities laws in any federal or state court located in the City of New York,
and irrevocably submits to such jurisdiction. (Section 1.13)
GOVERNING LAW
The debt securities and the Indenture will be governed by and construed in
accordance with the laws of the State of New York.
DESCRIPTION OF WARRANTS
GENERAL
The Corporation may issue warrants to purchase common shares, first
preferred shares, debt securities or other securities. The Corporation may issue
warrants independently or together with other securities, and warrants sold with
other securities may be attached to or separate from the other securities.
Warrants will be issued under one or more warrant agreements between the
Corporation and a warrant agent that the Corporation will name in the
Prospectus Supplement.
Selected provisions of the warrants and the warrant agreements are
summarized below. This summary is not complete. The statements made in this
Prospectus relating to any warrant agreement and warrants to be issued
thereunder are summaries of certain anticipated provisions thereof are subject
to, and are qualified in their entirety by reference to, all provisions of the
applicable warrant agreement.
The Prospectus Supplement will set forth the following terms relating to the
warrants being offered:
- the designation of the warrants;
- the aggregate number of warrants offered and the offering price;
- the designation, number and terms of the common shares, first preferred
shares, debt securities or other securities purchasable upon exercise of
the warrants, and procedures that will result in the adjustment of
those numbers;
- the exercise price of the warrants;
- the dates or periods during which the warrants are exercisable;
- the designation and terms of any securities with which the warrants
are issued;
- if the warrants are issued as a unit with another security, the date on
and after which the warrants and the other security will be
separately transferable;
- the currency or currency unit in which the exercise price is denominated;
- any minimum or maximum amount of warrants that may be exercised at any
one time;
- whether such warrants will be listed on any securities exchange;
- any terms, procedures and limitations relating to the transferability,
exchange or exercise of the warrants; and
- any other terms of the warrants.
40
Warrant certificates will be exchangeable for new warrant certificates of
different denominations at the office indicated in the Prospectus Supplement.
Prior to the exercise of their warrants, holders of warrants will not have any
of the rights of holders of the securities subject to the warrants.
MODIFICATIONS
The Corporation may amend the warrant agreements and the warrants, without
the consent of the holders of the warrants, to cure any ambiguity, to cure,
correct or supplement any defective or inconsistent provision, or in any other
manner that will not materially and adversely affect the interests of holders of
outstanding warrants. Other amendment provisions shall be as indicated in the
Prospectus Supplement.
ENFORCEABILITY
The warrant agent will act solely as the Corporation's agent. The warrant
agent will not have any duty or responsibility if the Corporation defaults under
the warrant agreements or the warrant certificates. A warrant holder may,
without the consent of the warrant agent, enforce by appropriate legal action on
its own behalf the holder's right to exercise the holder's warrants.
CERTAIN INCOME TAX CONSIDERATIONS
The applicable Prospectus Supplement will describe certain Canadian federal
income tax consequences to an investor who is a non-resident of Canada of
acquiring any Securities offered thereunder, including whether the payments of
dividends on common shares or first preferred shares or payments of principal,
premium, if any, and interest on debt securities will be subject to Canadian
non-resident withholding tax.
The applicable Prospectus Supplement will also describe certain United
States federal income tax consequences of the acquisition, ownership and
disposition of any securities offered thereunder by an initial investor who is a
United States person (within the meaning of the United States Internal Revenue
Code), including, to the extent applicable, any such consequences relating to
debt securities payable in a currency other than the U.S. dollars, issued at an
original issue discount for United States federal income tax purposes or
containing early redemption provisions or other special items.
PLAN OF DISTRIBUTION
The Corporation may sell the Securities to or through underwriters or
dealers and also may sell the Securities directly to purchasers pursuant to
applicable statutory exemptions or through agents.
The distribution of the Securities of any series may be effected from time
to time in one or more transactions at a fixed price or prices, which may be
changed, at market prices prevailing at the time of sale, or at prices related
to such prevailing market prices to be negotiated with purchasers.
In connection with the sale of the Securities, underwriters may receive
compensation from the Corporation or from purchasers of the Securities for whom
they may act as agents in the form of concessions or commissions. Underwriters,
dealers and agents that participate in the distribution of the Securities may be
deemed to be underwriters and any commissions received by them from the
Corporation and any profit on the resale of the Securities by them may be deemed
to be underwriting commissions under the U.S. Securities Act.
The Prospectus Supplement relating to each series of the Securities will
also set forth the terms of the offering of the Securities, including to the
extent applicable, the initial offering price, the proceeds to the Corporation,
the underwriting concessions or commissions, and any other discounts or
concessions to be allowed or re-allowed to dealers. Underwriters with respect to
each series sold to or through underwriters will be named in the Prospectus
Supplement relating to such series.
Under agreements which may be entered into by the Corporation, underwriters,
dealers and agents who participate in the distribution of the Securities may be
entitled to indemnification by the Corporation against certain liabilities,
including liabilities under the U.S. Securities Act.
41
The Securities offered hereby have not been qualified for sale under the
securities laws of any province or territory of Canada and are not being and may
not be offered or sold in Canada in contravention of the securities laws of any
province or territory of Canada. Each underwriter and each dealer participating
in the distribution of any series of the Securities must agree that it will not
offer to sell, directly or indirectly, any such Securities acquired by it in
connection with such distribution, in Canada or to residents of Canada in
contravention of the securities laws of Canada or any province or
territory thereof.
Each series of the Securities will be a new issue of securities with no
established trading market. Unless otherwise specified in a Prospectus
Supplement relating to a series of Securities, the Securities (other than common
shares) will not be listed on any securities exchange. Certain broker-dealers
may make a market in the Securities, but will not be obligated to do so and may
discontinue any market making at any time without notice. No assurance can be
given that any broker-dealer will make a market in the Securities of any series
or as to the liquidity of the trading market, if any, for the Securities of
any series.
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE SECURITIES SHOULD CONSIDER CAREFULLY THE RISK
FACTORS SET FORTH BELOW AS WELL AS THE OTHER INFORMATION CONTAINED AND
INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND THE APPLICABLE PROSPECTUS
SUPPLEMENT BEFORE PURCHASING THE SECURITIES OFFERED HEREBY.
Discussions of certain risks affecting the Corporation in connection with
its business are provided on page 12 of the Annual Information Form under the
heading "Risks of Operations" and in management's discussion and analysis of
financial condition and results of operations on pages 39 to 42 of the Annual
Report of the Corporation for the fiscal year ended December 31, 2001 under the
heading "Risk Factors and Risk Management".
A reference herein to an adverse effect or a material adverse effect on the
Corporation means such an effect on the Corporation on its business, financial
condition, results of operations, or its cash flows, as the context requires.
RISKS RELATING TO THE ELECTRICITY GENERATION MARKET
THE RULES AND REGULATIONS IN THE VARIOUS MARKETS IN WHICH THE CORPORATION
OPERATES ARE SUBJECT TO CHANGE, WHICH MAY NEGATIVELY IMPACT THE CORPORATION.
Certain of the markets in which the Corporation operates and intends to
operate are subject to significant regulatory oversight and control. The
Corporation is not able to predict whether there will be any further changes in
the regulatory environment, including potential regulation of the rates allowed
to be charged and the capital structure of wholesale generating companies such
as the Corporation, or what the ultimate effect changing regulatory environment
will have on its business. Existing market rules and regulations may be revised
or reinterpreted and new laws and regulations may be adopted or become
applicable to the Corporation or its facilities which could have an adverse
effect on the Corporation. The Corporation cannot guarantee that it will be able
to adapt its business in a timely manner in response to any changes in the
regulatory regimes in which it operates, and such failure to adapt could have a
material adverse effect on the Corporation.
Further market rules or regulations that could place a cap on market based
pricing could adversely impact the Corporation. Additionally, any changes in the
rules and regulations of provincial or state public utility commissions or other
regulatory bodies in the other markets in which the Corporation competes or may
compete in the future may adversely affect the Corporation.
MANY OF THE CORPORATION'S ACTIVITIES AND PROPERTIES ARE SUBJECT TO ENVIRONMENTAL
REQUIREMENTS AND CHANGES IN, OR LIABILITIES UNDER, THESE REQUIREMENTS MAY
ADVERSELY AFFECT THE CORPORATION.
The Corporation's operations are subject to extensive federal, provincial,
state and local environmental regulation. To comply with these legal
requirements, the Corporation must spend amounts on environmental monitoring,
pollution control equipment, emission fees and other compliance activities. In
addition, compliance with such laws and regulations might result in restrictions
on some of the Corporation's
42
operations. If the Corporation does not comply with environmental requirements,
regulatory agencies could seek to impose civil, administrative and/or criminal
liabilities on the Corporation, as well as seek to curtail its operations. Under
some statutes, private parties could also seek to impose civil fines or
liabilities for property damage, personal injury and other costs. The
Corporation cannot guarantee that lawsuits will not be commenced or that
administrative actions against its generating facilities will not be commenced
in the future. If an action is filed against the Corporation or its generating
facilities, this could require substantial expenditures to bring the
Corporation's generating facilities into compliance and could have a material
adverse effect on the Corporation.
The Corporation expects to continue to have environmental expenditures in
the future. Stricter standards, greater regulation, increased enforcement by
regulatory authorities, more extensive permitting requirements, an increase in
the number and types of assets operated by the Corporation subject to
environmental regulation and the implementation of the Kyoto Protocols could
increase the amount of these expenditures. Although the scope and extent of new
environmental regulations, permitting requirements and enforcement initiatives,
including their effect on the Corporation's operations, is unclear, they could
materially increase the Corporation's cost of compliance or limit the operation
of some of its facilities.
Some federal, provincial and state environmental laws impose liability for
the investigation and cleanup of contaminated soil, groundwater, and other
environmental media, and for damages to natural resources, on a wide range of
entities that have some relationship to the contamination. These entities may
include, for example, former owners or operators of a contaminated property and
those who arranged for disposal of the contaminants, as well as the current
owner or operator of such property. In general, liability may be imposed even
though the conduct that caused the environmental condition was lawful at the
time it occurred. Such liability may also be imposed jointly and severally (that
is, with each entity subject to full responsibility for the liability involved,
even though there were others who contributed). In addition, environmental
contamination and other environmental conditions can result in claims for
personal injury, property damages, and/or punitive damages. The Corporation owns
or operates properties, and there are also other properties, at which
contamination exists that could result in liability affecting the Corporation.
RISKS RELATING TO THE CORPORATION'S BUSINESS AND OPERATIONS
UNDER THE ALBERTA PPAS, PURSUANT TO WHICH THE CORPORATION OPERATES MOST OF ITS
FACILITIES IN ALBERTA, THE CORPORATION IS SUBJECT TO CERTAIN RISKS, INCLUDING
THE POSSIBILITIES OF PENALTIES FOR UNPLANNED OUTAGES AND THE BURDEN OF INCREASED
COSTS REQUIRED TO MAINTAIN AND OPERATE ITS GENERATION FACILITIES.
On January 1, 2001, the Corporation's Alberta coal-fired and hydroelectric
generating plants began operating under the Alberta PPAs which established
committed capacity and electrical energy generation requirements and
availability targets to be achieved by each coal-fired plant, energy and
ancillary services obligations for the hydroelectric plants, and the price at
which power would be supplied. Under the Alberta PPAs applicable to coal-fired
plants, in the event of an unplanned outage, other than an outage determined to
be caused by FORCE MAJEURE, the Corporation must pay a penalty for the lost
production based upon a price equal to the 30-day trailing average of Alberta
market electricity prices. Consequently, an unplanned outage could have a
material adverse effect on the Corporation.
In addition, because the price at which the Corporation is able to sell its
generation under the Alberta PPAs is fixed, the Corporation bears the full
impact of any increases in its generating costs, which could increase as a
result of a number of factors which are beyond the Corporation's control. A
significant increase in the Corporation's operating costs could have a material
adverse effect on the Corporation. As a result of a shut down of one of its
Wabamun units, the Corporation may be required to make certain penalty payments
mandated by the Wabamun Alberta PPA, which aggregate approximately $90 million.
The Corporation cannot provide any assurance that it will be successful in
defending the claim for penalty payments under the Wabamun Alberta PPA. See
"Business of the Corporation -- Legal Proceedings".
From time to time during the term of the Alberta PPAs, issues may arise
regarding the intended operation of the Alberta PPAs which may require certain
provisions of the Alberta PPAs to be interpreted, and the interpretations given
may not be favorable to the Corporation. In such circumstances, the Corporation
could be adversely affected.
43
CHANGES IN THE MARKET PRICES AND AVAILABILITY OF FUEL SUPPLIES REQUIRED TO
GENERATE ELECTRICITY, AND IN THE PRICE OF ELECTRICITY, MAY ADVERSELY AFFECT THE
CORPORATION.
The Corporation buys natural gas and some of its coal to supply the fuel
needed to generate the electricity that it sells. The Corporation's financial
results would be adversely affected if the cost of fuel that it must buy to
generate electricity increases to a greater degree than the price that it can
obtain for the electricity that it sells. As the Corporation continues the
development, construction and acquisition of power generation projects, a
greater percentage of its revenues may become subject to this commodity price
risk. Several factors affect the price of fuel, many of which are beyond the
Corporation's control, including:
- prevailing market prices for fuel, primarily natural gas, including any
associated transportation costs;
- demand for energy products;
- increases in the supply of energy products in the wholesale power
markets; and
- the extent of fuel transportation capacity or cost of fuel transportation
service into the Corporation's markets.
Changes in any of these factors may increase the Corporation's cost of
producing power or decrease the amount of revenue it receives from the sale of
power, which would adversely affect the Corporation. The price of electricity is
subject to fluctuations and certain of the factors that affect the price of fuel
also affect the price of electricity.
THE CONSTRUCTION AND OPERATION OF THE CORPORATION'S FACILITIES INVOLVES RISKS
THAT MAY ADVERSELY AFFECT THE CORPORATION.
The construction, expansion, refurbishment, maintenance and operation of
power generation facilities involve risks, including breakdown or failure of
equipment or processes, fuel interruption and performance below expected levels
of output or efficiency. Certain of the Corporation's generation facilities,
particularly in Alberta, were constructed many years ago and may require
significant capital expenditures to maintain peak efficiency or to maintain
operations at all. In addition, weather related interference, work stoppages and
other unforeseen problems may disrupt the development and operations of the
Corporation's facilities and may adversely affect the Corporation.
The Corporation has entered into on-going maintenance and service agreements
with the manufacturers of critical equipment. If a manufacturer is unable or
unwilling to provide satisfactory maintenance or warranty support, the
Corporation may have to enter into alternative arrangements with other providers
if it cannot perform the maintenance itself. These arrangements could be more
expensive to the Corporation than its current arrangements and this increased
expense could have a material adverse effect on the Corporation.
While the Corporation maintains spare parts in inventory to replace critical
equipment and maintains insurance for property damage of up to $750 million to
protect against operating risks, these protections may not be adequate to cover
lost revenues or increased expenses and penalties. As a result, the Corporation
may not be able to operate its generation facilities at a level necessary to
comply with sales contracts (including Alberta PPAs), which could result in
significant losses to the Corporation or could limit its ability to produce cash
flows sufficient to enable it to meet its obligations.
The Corporation may be subject to the risk that it is necessary to operate a
plant at a capacity level beyond that which the Corporation has contracted to
provide steam in order to fulfill a contract. In such circumstances the costs to
produce the steam being sold may exceed the revenues derived therefrom.
THE CORPORATION RELIES ON TRANSMISSION LINES THAT IT DOES NOT OWN OR CONTROL,
WHICH MAY HINDER ITS ABILITY TO DELIVER ELECTRICITY.
The Corporation depends on transmission and distribution facilities that are
owned and operated by utilities and other power companies to deliver the
electricity the Corporation generates. Any disruption in
44
transmission would impact the Corporation's ability to sell and deliver
electricity. The inability of the Corporation to effectively sell electricity
would have an adverse effect on the Corporation.
IN CONNECTION WITH NATURAL GAS-FIRED FACILITIES, THE CORPORATION TYPICALLY
DEPENDS UPON A SINGLE NATURAL GAS DISTRIBUTOR.
Delivery of natural gas to each of the Corporation's natural gas-fired
facilities is typically handled by a single gas distributor, usually the natural
gas utility for that location. As a result, the Corporation is subject to the
risk that a natural gas distributor suffers disruptions or curtailments in its
ability to deliver the natural gas or that the Corporation is limited in the
amounts of natural gas it is permitted to request. Any disruptions or
curtailments that are not considered to be FORCE MAJEURE could impact the
Corporation's ability to operate natural gas-fired generating facilities, and as
a result, could materially adversely affect the Corporation.
BECAUSE OF THE CORPORATION'S MULTINATIONAL OPERATIONS, THE CORPORATION IS
SUBJECT TO CURRENCY RATE RISK AND REGULATORY AND POLITICAL RISK.
A significant part of the Corporation's operations, revenues and
expenditures are in U.S., Mexican and Australian currencies. Fluctuations in the
exchange rate between these currencies and the Canadian dollar could have a
negative effect on the Corporation. While the Corporation manages this risk
through its use of hedging instruments, including cross-currency swaps, forward
exchange contracts and foreign currency options, fluctuations in exchange rates
may adversely affect the Corporation. In addition to currency rate risk, the
Corporation's foreign operations may be subject to regulatory and
political risk.
TRADING RISKS MAY HAVE AN ADVERSE IMPACT ON THE CORPORATION.
The Corporation's trading and marketing business frequently involves the
establishment of trading positions in the wholesale energy markets on both a
long-term and short-term basis. To the extent that the Corporation has long
positions in the energy markets, a downturn in the markets is likely to result
in losses from a decline in the value of such long positions. Conversely, to the
extent that the Corporation enters into forward sales contracts to deliver
energy the Corporation does not own, or take short positions in the energy
markets, an upturn in the energy markets is likely to expose the Corporation to
losses as it attempts to cover any short positions by acquiring energy in a
rising market.
In addition, from time to time the Corporation may have a trading strategy
consisting of simultaneously holding a long position and a short position, from
which the Corporation expects to earn a profit based on changes in the relative
value of the two positions. If, however, the relative value of the two positions
changes in a direction or manner the Corporation did not anticipate, it could
realize losses from such a paired position.
If the strategy the Corporation uses to hedge its exposures to these various
risks is not effective, it could incur significant losses. The Corporation's
trading positions are subject to the level of volatility in the energy markets
that, in turn, depends on various factors, including weather in various
geographical areas and short-term supply and demand imbalances, which cannot be
predicted with any certainty. A shift in the energy markets could adversely
affect the Corporation's positions which could also have a material adverse
effect on the Corporation.
IF PURCHASERS OF THE CORPORATION'S ELECTRICITY OR OTHER CONTRACTUAL
COUNTERPARTIES WITH THE CORPORATION DEFAULT ON THEIR OBLIGATIONS, THE
CORPORATION WILL BE MATERIALLY AND ADVERSELY AFFECTED.
While the Corporation seeks to control its exposure to credit risk by
considering the ability of counterparties to fulfill their obligations under the
related contracts, prior to entering into such contracts the Corporation cannot
guarantee that it will be successful in identifying credit worthy customers.
Moreover, while the Corporation seeks to monitor trading activities to ensure
that the credit limits for counterparties are not exceeded, it cannot guarantee
that it will be successful in doing so. If counterparties to the Corporation's
contracts are unable to meet their obligations, the Corporation could suffer a
reduction in revenue which would adversely effect the Corporation.
45
THE WHOLESALE POWER INDUSTRY IS RAPIDLY CHANGING AND BECOMING MORE COMPETITIVE,
WHICH MAY ADVERSELY AFFECT THE CORPORATION.
The trend in the wholesale power industry is toward deregulation, which is
intended to result in increased competition. This increased competition could
reduce price levels across the industry which would negatively impact the
Corporation's ability to sell energy and related products, as well as adversely
affect the Corporation's financial results. In addition, increased competition
may make it more difficult for the Corporation to acquire existing projects and
develop new project opportunities, which would have an adverse effect on
the Corporation.
THE CORPORATION'S PROJECT DEVELOPMENT AND ACQUISITION ACTIVITIES MAY NOT BE
SUCCESSFUL, AND THE CORPORATION MAY NOT BE ABLE TO PURSUE ITS GROWTH STRATEGY.
The Corporation's strategy calls for the development and acquisition of
energy generation assets, a strategy which involves numerous risks. The
Corporation may not be able to identify attractive development or acquisition
opportunities, or complete development or acquisition projects that it
undertakes and as a result, would not be able to execute its growth strategy.
Factors that may adversely impact the Corporation's growth strategy include the
Corporation's ability to obtain required governmental permits and approvals;
cost overruns or delays in development as a result of labor issues, regulatory
delays or restrictions, or other unanticipated events; and changes in fuel and
electricity prices and the Corporation's ability to manage these changes.
Any of these factors could give rise to delays, cost overruns or the
termination of the Corporation's development or acquisition projects.
Furthermore, the Corporation may not enter into or retain all of the agreements
necessary for the Corporation to achieve its anticipated contractual control
over generating facilities. If the Corporation is unable to complete the
development of a generating facility or achieve contractual control over an
energy asset, it may incur additional costs, liquidated damages, or termination
of other project contracts, and it may be unable to recover any previous
investment in the project. In addition, construction delays and contractor
performance shortfalls result in the loss of revenues and may, in turn,
adversely affect the Corporation. The failure to complete construction according
to specifications can result in liabilities, reduced efficiency, higher
operating costs and reduced earnings.
THE CORPORATION MAY HAVE DIFFICULTY RAISING NEEDED CAPITAL IN THE FUTURE, WHICH
COULD SIGNIFICANTLY HARM ITS BUSINESS.
The Corporation will require substantial additional capital to finance its
future growth. Capital expenditures by the Corporation are expected to be at
least $1.0 billion a year for the next few years. Such capital expenditures will
be used to acquire or develop new facilities and expand the Corporation's
existing facilities.
To the extent that the Corporation's sources of cash and cash flow from
operations are insufficient to fund the Corporation's activities, it may need to
raise additional funds. Additional financing may not be available when needed
and, if such financing is available, it may not be available on terms favorable
to the Corporation.
THE CORPORATION MAY BE ADVERSELY AFFECTED IF ITS SUPPLY OF WATER IS IMPAIRED.
Hydroelectric and coal-fired plants require continuous water flow for their
operation. Shifts in weather patterns, run-off and other factors beyond the
control of the Corporation may impair the water flow to the Corporation's
facilities. Any water flow impairment would limit the Corporation's ability to
produce and market electricity from these facilities and could have a material
adverse effect on the Corporation.
IF THE CORPORATION IS UNABLE TO SUCCESSFULLY NEGOTIATE NEW COLLECTIVE BARGAINING
AGREEMENTS WITH ITS UNIONIZED WORKFORCE, AS REQUIRED FROM TIME TO TIME, IT WILL
BE ADVERSELY AFFECTED.
While the Corporation believes it has a good relationship with its unionized
employees, the Corporation cannot guarantee that it will be able to successfully
negotiate or renegotiate its collective bargaining
46
agreements on terms agreeable to the Corporation. Any problems in negotiating
these collective bargaining agreements could lead to higher employee costs and a
work stoppage or strike, which would have a material adverse effect on the
Corporation.
IF THE CORPORATION FAILS TO ATTRACT AND RETAIN KEY PERSONNEL, IT COULD BE
MATERIALLY AND ADVERSELY AFFECTED.
The loss of any of the Corporation's key personnel or its inability to
attract, train, retain and motivate additional qualified management and other
personnel could have a material adverse effect on the Corporation. Competition
for these personnel is intense and there can be no assurance that the
Corporation will be successful in this regard.
INSURANCE COVERAGE MAY NOT BE SUFFICIENT.
The Corporation has insurance for its generation facilities, including
all-risk property damage insurance, commercial general public liability
insurance, boiler and machinery coverage, replacement power and business
interruption insurance in amounts and with deductibles that the Corporation
considers appropriate. The Corporation's insurance coverage may not be available
in the future on commercially reasonable terms nor that the insurance proceeds
that it receives for any loss of or any damage to any of its generation
facilities may be sufficient to permit it to continue to make payments on its
debt, including any debt securities they may be offered under this Prospectus.
In addition, due to the events of September 11, 2001, the Corporation is no
longer insured against losses resulting from terrorist attacks. The Corporation
may suffer significant losses if any of its generation assets were affected by a
terrorist attack because this risk is no longer insured.
THE CORPORATION'S DEBT SECURITIES WILL BE STRUCTURALLY SUBORDINATED TO ANY DEBT
OF ITS SUBSIDIARIES THAT IS CURRENTLY OUTSTANDING OR MAY BE INCURRED IN THE
FUTURE.
The Corporation operates its business through and a majority of its assets
are held by its subsidiaries, including partnerships. The Corporation's results
of operations and ability to service indebtedness, including the debt
securities, are dependent upon the results of operations of its subsidiaries and
the payment of funds by these subsidiaries to it in the form of loans, dividends
or otherwise. The Corporation's subsidiaries will not have an obligation to pay
amounts due pursuant to any debt securities or make any funds available for
payment of debt securities, whether by dividends, interests, loans, advances or
other payments. In addition, the payment of dividends and the making of loans,
advances and other payments to the Corporation by its subsidiaries may be
subject to statutory or contractual restrictions.
In the event of the liquidation of any subsidiary, the assets of the
subsidiary would be used first to repay the indebtedness of the subsidiary,
including trade payables or obligations under any guarantees, prior to being
used to pay the Corporation's indebtedness, including any debt securities. As at
March 31, 2002, the Corporation's subsidiaries had outstanding $1,173.7 million
aggregate principal amount of long-term debt. Such indebtedness and any other
future indebtedness of such subsidiaries would be structurally senior to the
debt securities issued by the Corporation. The Indenture pursuant to which the
debt securities will be issued does not limit the Corporation's ability or the
ability of its subsidiaries to incur additional unsecured indebtedness.
Commencing in 1999, the Corporation implemented a financing strategy whereby all
external capital was raised by the Corporation directly and reinvested in
various subsidiaries as required. From 1999 to March 31, 2002, approximately
$600 million aggregate principal amount of long-term debt and preferred shares
of the subsidiaries was refinanced through external debt issued at the
TransAlta level.
The Corporation's subsidiaries have financed some investments using
non-recourse project financing. Each non-recourse project loan is structured to
be repaid out of cash flow provided by the investment. In the event of a default
under a financing agreement which is not cured, the lenders would generally have
rights to the related assets. In the event of foreclosure after a default, the
Corporation's subsidiary may lose its equity in the asset or may not be entitled
to any cash that the asset may generate. Although a default under a project loan
will not cause a default with respect to the debt securities, it may materially
affect the Corporation's ability to service its outstanding indebtedness,
including the debt securities.
47
LEGAL MATTERS
Unless otherwise specified in the Prospectus Supplement relating to the
Securities, certain legal matters relating to Canadian law will be passed upon
for the Corporation by McCarthy Tetrault LLP, Calgary, Alberta, Canada, and
certain legal matters relating to United States law will be passed upon for the
Corporation by Latham & Watkins, New York, New York. In addition, certain legal
matters relating to United States law will be passed upon for any underwriters,
dealers or agents by Shearman & Sterling, Toronto, Ontario, Canada.
The partners and associates of McCarthy Tetrault LLP, Latham & Watkins and
Shearman & Sterling as a group beneficially own, directly or indirectly, less
than 1% of the outstanding securities of any class or series of
the Corporation.
EXPERTS
The consolidated annual financial statements for the years ended
December 31, 2001 and 2000 incorporated by reference in this Prospectus have
been audited by Ernst & Young LLP, Chartered Accountants, as set forth in their
report included therein and incorporated herein by reference. The financial
statements referred to above are incorporated herein by reference in reliance
upon the report of such firm and upon the authority of such firm as experts in
auditing and accounting.
AUDITORS
The partners of Ernst & Young LLP as a group beneficially own, directly or
indirectly, no securities of any class or series of the Corporation.
DOCUMENTS FILED AS PART OF THE REGISTRATION STATEMENT
The following documents have been filed with the SEC as part of the
Registration Statement of which this Prospectus forms a part: the documents
listed herein under "Where You Can Find More Information; Documents Incorporated
by Reference"; consent of Ernst & Young LLP, Chartered Accountants; certain
powers of attorney; the form of Indenture; and the Statement of Eligibility of
the Trustee on Form T-1.
ENFORCEMENT OF CIVIL LIABILITIES
The Corporation is a Canadian corporation, and the majority of its assets
and operations are located, and the majority of its revenues are derived,
outside the United States. The Corporation has appointed CT Corporation System,
New York, New York, as its agent to receive service of process with respect to
any action brought against it in any federal or state court in the State of
New York arising from this offering. However, it may not be possible for
investors to enforce outside the United States judgments against the Corporation
obtained in the United States in any such actions, including actions predicated
upon the civil liability provisions of the United States federal and state
securities laws. In addition, certain of the directors and officers of the
Corporation are residents of Canada or other jurisdictions outside of the United
States, and all or a substantial portion of the assets of those directors and
officers are or may be located outside the United States. As a result, it may
not be possible for investors to effect service of process within the United
States upon those persons, or to enforce against them judgments obtained in
United States courts, including judgments predicated upon the civil liability
provisions of United Stated federal and state securities laws.
48
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US$300,000,000
TRANSALTA CORPORATION
6.750% SENIOR NOTES DUE 2012
[LOGO]
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PROSPECTUS SUPPLEMENT
JUNE 20, 2002
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MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
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CREDIT SUISSE FIRST BOSTON
UBS WARBURG
CIBC WORLD MARKETS
RBC CAPITAL MARKETS
SCOTIA CAPITAL
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