Badger Income Fund - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- exemption granted from the requirement to include financial statements in an information circular for certain entities participating in an arrangement -- the information circular will be sent to the Filer's unitholders in connection with a proposed internal reorganization of its subsidiaries -- the arrangement does not contemplate the acquisition of any additional interest in any operating assets or the disposition of any of the Filer's existing interests in operating assets -- certain steps in the proposed internal reorganization are technically significant acquisitions -- unitholders will continue to hold units and the Filer will continue to own the same proportionate interest in the assets upon completion of the reorganization.

Applicable Legislative Provisions

National Instrument 51-102 Continuous Disclosure Obligations, Form 51-102F5 -- Information Circular, Item 14.2.

Citation: Badger Income Fund, 2007 ABASC 77

March 6, 2007

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ALBERTA AND ONTARIO (the Jurisdictions)

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

BADGER INCOME FUND (the Filer)

MRRS DECISION DOCUMENT

Background

1. The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) that the Filer be exempt from the requirements of item 14.2 of Form 51-102F5 -- Information Circular of National Instrument 51-102 -- Continuous Disclosure Obligations (NI 51-102) to include, in respect of a restructuring transaction and certain transactions included therein which are technically significant acquisitions, the following financial statements in a management information circular to be sent in connection with a meeting of securityholders at which the restructuring transaction will be considered:

(a) the financial statements of Badger Income Trust (the Trust);

(b) the financial statements of Badger Daylighting Limited Partnership (Badger LP);

(c) the financial statements of Badger Daylighting Inc. (BDI);

(d) the financial statements of Badger MFC Inc. (MFC);

(e) the financial statements of the company to be formed upon the amalgamation of BDI and MFC (Amalco MFC);

(f) the financial statements of Badger GP Inc. (New GP); and

(g) pro forma financial statements of any of the Filer, the Trust, Badger LP, BDI, MFC, Amalco MFC and New GP giving effect to the restructuring transaction including the certain transactions included therein which are technically significant acquisitions;

(the foregoing collectively referred to herein as the Financial Statement Requirements).

2. The management information circular (the Management Information Circular) of the Filer in respect of which the relief is required is to be sent to the holders (Unitholders) of units (Fund Units) of the Filer in connection with a special meeting of Unitholders expected to be held within the next 12 months (the Meeting) at which Unitholders will consider an arrangement transaction (the Arrangement) of the Filer and its wholly owned subsidiaries.

3. MFC, a corporation to be incorporated under the Business Corporations Act (Alberta) (the ABCA) of which the Filer will be the sole shareholder, will undertake the Arrangement to internally reorganize the direct and indirect subsidiaries of the Filer so that the Filer will directly own 100% of the limited partnership units (Badger LP Units) of Badger LP, which limited partnership conducts the Filer's Canadian business operations, rather than the current organizational structure in which a subsidiary trust, the Trust, owns approximately 29% of the outstanding Badger LP Units and a subsidiary company, BDI, owns approximately 71% of the outstanding Badger LP Units.

Application of Principal Regulator System

4. Under Multilateral Instrument 11-101 Principal Regulator System (MI 11-101) and National Policy 12-201 -- Mutual Reliance Review System for Exemptive Relief Applications:

(a) the Alberta Securities Commission is the principal regulator for the Filer;

(b) the Filer is relying on the exemption in Part 3 of MI 11-101 in all of the provinces and territories in Canada except Alberta and Ontario; and

(c) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

5. Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision unless they are otherwise defined in this decision.

Representations

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

(a) The Filer is an unincorporated open-ended mutual fund trust governed by the laws of the Province of Alberta and created pursuant to a declaration of trust dated February 17, 2004 (the Fund Declaration of Trust).

Badger Income Fund

(b) The Filer's authorized capital consists of an unlimited number of Fund Units. Each Fund Unit represents an equal fractional undivided beneficial interest in any distributions from the Filer and in any net assets of the Filer in the event of termination or winding-up of the Filer. All Fund Units are of the same class with equal rights and privileges. Each Fund Unit is transferable, entitles the holder thereof to participate equally in distributions, including the distributions of net income and net realized capital gains of the Filer and distributions on liquidation, is fully paid and non-assessable and entitles the holder thereof to one vote at all meetings of Unitholders for each Fund Unit held.

(c) The Filer is a reporting issuer in each of the Provinces of Alberta, British Columbia, Ontario and Quebec and is not in default of its obligations as a reporting issuer in any of such Jurisdictions.

(d) As at the date hereof, 10,758,618 Fund Units are issued and outstanding. The Fund Units are listed and posted for trading on the Toronto Stock Exchange (the TSX) under the symbol BAD.UN.

Badger Income Trust

(e) The Trust is an unincorporated open-ended limited purpose trust formed under the laws of the Province of Alberta and created pursuant to a declaration of trust dated as of February 17, 2004 (the Trust Declaration of Trust).

(f) The Filer is the sole beneficiary of the Trust and owns 100% of the outstanding securities of the Trust including all of the outstanding trust units of the Trust (Trust Units) and certain unsecured redeemable subordinated promissory notes of the Trust issued to the Filer from time to time (the Trust Notes).

(g) The Trust is not a reporting issuer in any Jurisdiction.

Badger Daylighting Limited Partnership

(h) Badger LP is a limited partnership formed under the laws of the Province of Alberta pursuant to a limited partnership agreement dated February 17, 2004 (the Badger LP Agreement).

(i) BDI, as the general partner of Badger LP, manages the business and affairs of Badger LP.

(j) Badger LP is entitled to issue an unlimited number of Badger LP Units. The Trust owns approximately 29% of the Badger LP Units and BDI owns approximately 71% of the Badger LP Units.

(k) Badger LP owns and operates the Canadian based hydrovac business of the Filer.

(l) Badger LP is not a reporting issuer in any Jurisdiction.

Badger Daylighting Inc.

(m) BDI is a company formed pursuant to filing of articles of amalgamation pursuant to the ABCA.

(n) The Trust owns 100% of the outstanding securities of BDI including the common shares issued by BDI (the BDI Common Shares) and certain unsecured redeemable subordinated promissory notes of BDI issued to the Trust from time to time (the BDI Notes).

(o) BDI is the general partner of Badger LP. BDI also, through its subsidiaries, owns and operates the United States based hydrovac business of the Filer. As stated earlier, BDI holds approximately 71% of the Badger LP Units. BDI also owns 100% of the shares of Badger Daylighting USA, Inc. (BDUI), a company incorporated in Indiana, which itself owns 100% of the shares of Badger Daylighting Corp. (BDC), a company incorporated in Nevada.

(p) BDI is not a reporting issuer in any Jurisdiction.

Badger MFC Inc.

(q) MFC will be incorporated pursuant to the ABCA prior to the Arrangement for the purpose of participating in the Arrangement.

(r) The authorized capital of MFC will consist of an unlimited number of common shares (MFC Common Shares), Class A non-voting common shares (MFC Class A Shares) and Class B non-voting common shares (MFC Class B Shares). Prior to the Arrangement, all of the issued and outstanding MFC Common Shares will be owned by the Filer and nil MFC Class A shares and nil MFC Class B shares will be issued and outstanding.

(s) Prior to the effective date of the Arrangement (the Effective Date), MFC will not carry on any business.

(t) MFC will not be a reporting issuer in any Jurisdiction.

Badger GP Inc.

(u) New GP will be incorporated pursuant to the ABCA prior to the Arrangement for the purpose of participating in the Arrangement and for the purpose of becoming the new general partner of Badger LP.

(v) Prior to the Arrangement, the sole shareholder of New GP will be BDI which will own all of the issued and outstanding shares, being ninety-nine (99) common shares, of New GP (New GP Common Shares).

(w) Prior to the Effective Date, New GP will not carry on any business.

(x) New GP will not be a reporting issuer in any Jurisdiction.

Details of the Arrangement

(y) The following is a summary of certain of the steps that are anticipated to occur as part of the Arrangement:

(i) The Fund Units held by dissenting Unitholders (Dissenting Unitholders) shall be deemed to have been transferred to the Filer and such Dissenting Unitholders shall cease to have any rights as Unitholders other than the right to be paid the fair value of their Fund Units.

(ii) The Fund Declaration of Trust shall be amended to create "Class A Fund Units" and "Class B Fund Units" and to make such other amendments as may be necessary to facilitate the Arrangement.

(iii) The Trust Declaration of Trust shall be amended to create "Class A Trust Units" and to make such other amendments as may be necessary to facilitate the Arrangement.

(iv) BDI shall transfer its general partnership interest in Badger LP to New GP in exchange for one (1) New GP Common Share.

(v) All of the issued and outstanding BDI Notes shall be satisfied, settled and cancelled in consideration for the issuance to the Trust by BDI of BDI Common Shares.

(vi) With the exception of a certain principal amount of Trust Notes required for a subsequent step in the Arrangement, all of the issued and outstanding Trust Notes shall be satisfied, settled and cancelled in consideration for the issuance to the Filer by the Trust of Trust Units.

(vii) The Filer shall subscribe for, and be issued, a number of MFC Class A Shares.

(viii) The Filer shall distribute to the participating Unitholders (Participating Unitholders) all of the MFC Class A Shares acquired by the Filer.

(ix) The Trust shall transfer to MFC all of the issued and outstanding BDI Common Shares held by the Trust in exchange for MFC issuing to the Trust MFC Class B Shares.

(x) MFC and BDI shall undertake a vertical short form amalgamation under the provisions of ABCA to form "Amalco MFC".

(xi) Amalco MFC will transfer all of its property to the Filer in exchange for:

A. the issuance by the Filer to Amalco MFC of Class A Fund Units; and

B. the assumption of all liabilities of Amalco MFC.

(xii) The Participating Unitholders shall transfer to Amalco MFC all of the Amalco MFC Class A Shares owned by them in consideration for Class A Fund Units, the Trust shall transfer to Amalco MFC all of the Amalco MFC Class B Shares owned by it in consideration for Class A Fund Units, and such Amalco MFC Class A Shares and Amalco MFC Class B Shares so transferred to Amalco MFC shall be cancelled and returned to treasury.

(xiii) All of the remaining outstanding Trust Notes held by the Filer shall be satisfied, settled and cancelled in consideration for the issuance by the Trust to the Filer of Class A Trust Units.

(xiv) The Filer shall distribute the Class A Trust Units received pursuant to the step above to the Participating Unitholders.

(xv) The Trust shall transfer to the Filer the Class A Fund Units and Badger LP Units held by the Trust in consideration for:

A. the issuance by the Filer to the Trust of Class B Fund Units; and

B. the assumption of all liabilities of the Trust

(xvi) The Participating Unitholders shall transfer to the Trust all of the Class A Trust Units owned by them in consideration for Class B Fund Units, such Class A Trust Units so transferred to the Trust shall be cancelled and returned to treasury, the Filer shall transfer to the Trust all but one of the Trust Units owned by it in consideration for Class B Fund Units, and such Class B Fund Units so transferred to the Filer and such Trust Units so transferred to the Trust, shall be cancelled and returned to treasury.

(xvii) The issued and outstanding Fund Units, Class A Fund Units and Class B Fund Units shall be consolidated as Fund Units in such number of Fund Units as were issued and outstanding immediately prior to the Effective Time.

(z) The Arrangement is being undertaken to internally reorganize the direct and indirect subsidiaries of the Filer so that the Filer will directly own 100% of the Badger LP Units, which limited partnership conducts the Filer's Canadian business operations. The rights of Unitholders in respect of the Filer and their relative indirect interests in and to the revenues of the Filer's business will not be affected by the Arrangement. Certain steps in the Arrangement will technically be significant acquisitions under Part 8 of NI 51-102. However, the Arrangement does not contemplate the acquisition of any additional operating assets or the disposition of any of the Filer's existing operating assets.

(aa) Following completion of the Arrangement:

(i) The Filer will own:

A. 100% of the outstanding Badger LP Units;

B. 100% of the outstanding shares of New GP; and

C. 100% of the outstanding shares of BDUI which itself owns 100% of the outstanding shares of BDC;

(ii) New GP will be the general partner of Badger LP and its only asset will be a 0.1% general partnership interest in Badger LP;

(iii) Badger LP will continue to own and operate the Canadian based hydrovac business of the Filer;

(iv) The Trust will have no assets and will eventually be wound up and dissolved; and

(v) Amalco MFC will have no assets and will eventually be wound up and dissolved.

(bb) Following completion of the Arrangement, neither the number of issued and outstanding Fund Units nor the relative holdings of the Fund Units by any Unitholder will be altered as a result of the completion of the Arrangement and the Filer will continue to indirectly own all of its existing operating assets.

(cc) While changes to the financial statements of the Filer will likely be required to reflect the Filer's organizational structure following the Arrangement, the financial position of the Filer will be largely the same as is reflected in the Filer's audited annual consolidated financial statements most recently filed or required to have been filed under Part 4 of NI 51-102 prior to the date of the Management Information Circular and the unaudited interim consolidated financial statements of the Filer most recently filed or required to have been filed under Part 4 of NI 51-102, if any, prior to the date of the Management Information Circular (collectively the Filer Financial Statements).

(dd) The only securities that will be distributed to Unitholders pursuant to the Arrangement will be MFC Class A Shares, Class A Trust Units, Class A Fund Units, Class B Fund Units and the Fund Units resulting from the consolidation of the Class A Fund Units, Class B Fund Units and the then outstanding Fund Units. The MFC Class A Shares to be distributed to Unitholders will only be outstanding for a moment in time during the course of the Arrangement. The MFC Class A Shares will be listed on the TSX for the period of time that they are outstanding. The Class A Trust Units to be distributed to Unitholders will only be outstanding for a moment in time during the course of the Arrangement. The Class A Fund Units, the Class B Fund Units and the Fund Units resulting from the consolidation of the Class A Fund Units, Class B Fund Units and the Fund Units then outstanding are all securities of the Filer itself.

(ee) MFC and New GP will be incorporated solely to give effect to the Arrangement and will not carry on any business prior to the Arrangement. Further, each of MFC and New GP will be direct or indirect wholly-owned subsidiaries of the Filer. Further, following completion of the Arrangement each of Amalco MFC and New GP will be direct or indirect wholly-owned subsidiaries of the Filer.

(ff) The Management Information Circular will include, either directly or via incorporation by reference, prospectus level disclosure for the Filer in accordance with applicable securities legislation including the Filer Financial Statements (which will include the financial results for the Trust, Badger LP and BDI on a consolidated basis for the same periods).

(gg) The Management Information Circular will contain prospectus level disclosure for the Trust, Badger LP, BDI, MFC, Amalco MFC and New GP in accordance with applicable securities legislation (other than the financial statement disclosure required by the Financial Statement Requirement).

Decision

7. The Decision Makers being satisfied that they have jurisdiction to make this decision and that the relevant test under the Legislation has been met. The decision of the Decision Makers is that the Financial Statement Requirements shall not apply to the Management Information Circular, provided the Filer complies with all other requirements of the Legislation, including but not limited to the requirement that the Management Information Circular include or incorporate by reference the Filer Financial Statements.