Securities Law & Instruments

Headnote

Multilateral Instrument 11-102 Passport System and National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- exemption granted from the requirement to include financial statements and management's discussion and analysis in an information circular for an entity participating in an arrangement -- the information circular will be sent to the trust's unitholders in connection with a proposed internal reorganization pursuant to which its business operations will be conducted through a corporate entity -- the corporate entity will own, directly or indirectly, all of the existing assets and assume all of the existing liabilities of the Trust and DEL and its sole business will be the current business of the Trust.

Exemption granted from the current annual financial statement and current AIF short form prospectus qualification criteria and the requirement to file a notice declaring its intention to be qualified to file a short form prospectus at least 10 business days prior to the filing of a preliminary short form prospectus -- relief granted as disclosure regarding the predecessor issuer will effectively be the disclosure of the successor issuer -- predecessor issuer is qualified to file a short form prospectus.

Applicable Legislative Provisions

National Instrument 51-102 Continuous Disclosure Obligations, s. 13.1.

Form 51-102F5 Information Circular, Item 14.2.

National Instrument 44-101 Short Form Prospectus Distributions, s. 8.1.

Citation: Daylight Resources Trust, Re, 2010 ABASC 159

April 7, 2010

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ALBERTA AND ONTARIO

(the Jurisdictions)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

DAYLIGHT RESOURCES TRUST (Daylight)

AND DAYLIGHT ENERGY LTD.

(DEL and, together with Daylight, the Filers)

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (the Decision Maker) has received an application from the Filers for a decision under the securities legislation of the Jurisdictions (the Legislation):

(a) exempting Daylight from the requirement under Section 14.2 of Form 51-102F5 Information Circular (the Circular Form) of the Legislation to provide the financial statements of DEL for the financial years ended December 31, 2009, December 31, 2008 and December 31, 2007 (collectively, the Financial Statements) in the management information circular (the Circular) to be prepared by Daylight and delivered to the holders (Daylight Unitholders) of trust units (Daylight Units) in connection with a special meeting (Daylight Meeting) of Daylight Unitholders expected to be held May 6, 2010 for the purposes of considering a plan of arrangement under the Business Corporations Act (Alberta) (the Arrangement) resulting in the internal reorganization of Daylight's trust structure into a corporate structure (the Circular Relief);

(b) exempting Daylight Energy (as defined below) from the qualification criteria for short form prospectus eligibility contained in Subsection 2.2(d) of National Instrument 44-101 Short Form Prospectus Distributions (NI 44-101) following completion of the Arrangement until the earlier of: (i) March 31, 2011; and (ii) the date upon which the corporation resulting from the amalgamation of DEL and 1519008 Alberta Ltd. (AcquireCo) pursuant to the terms of the Arrangement to be known as Daylight Energy Ltd. (Daylight Energy) has filed both its annual financial statements and annual information form for the year ended December 31, 2010 pursuant to NI 51-102 Continuous Disclosure Obligations (NI 51-102) (the Qualification Relief); and

(c) exempting Daylight Energy from the requirement to file a notice declaring its intention to be qualified to file a short form prospectus at least 10 business days prior to the filing of its first preliminary short form prospectus after the notice (the Prospectus Relief).

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

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

(b) the Filers have provided notice that Subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia and Newfoundland; and

(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.

Interpretation

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

Representations

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

DAYLIGHT AND DEL

Daylight

1. Daylight is an unincorporated open-ended limited purpose trust established under the laws of the Province of Alberta pursuant to an amended and restated Trust Indenture dated initially August 16, 2004 and amended and restated on September 21, 2006, as amended from time to time. The principal office of Daylight is located in Calgary, Alberta.

2. Daylight is a reporting issuer or the equivalent under the securities legislation of each of the provinces of Canada (except Prince Edward Island). To its knowledge, Daylight is not in default of securities legislation in any jurisdiction of Canada.

3. The authorized capital of Daylight includes an unlimited number of Daylight Units and special voting units. As at March 30, 2010, there were 174,236,359 Daylight Units and no special voting units outstanding.

4. The Daylight Units are listed on the Toronto Stock Exchange (TSX) under the symbol DAY.UN.

5. As at March 30, 2010, Daylight had (i) $53,567,000 principal amount of 8.5% convertible unsecured subordinated debentures, Series B outstanding, (ii) $74,976,000 principal amount of 10% convertible unsecured subordinated debentures, Series C outstanding and (iii) $172,500,000 principal amount of 6.25% convertible unsecured subordinated debentures, Series D outstanding (collectively, the Debentures). The Debentures are currently listed and posted for trading on the TSX.

6. Daylight has filed a "current AIF" and has "current annual financial statements" (as such terms are defined in National Instrument 44-101 Short Form Prospectus Distributions (NI 44-101)) for the financial year ended December 31, 2009.

DEL

7. DEL is a corporation amalgamated under the laws of the Province of Alberta. The principal office of DEL is located in Calgary, Alberta.

8. DEL is wholly-owned by Daylight.

9. DEL is not a reporting issuer in any jurisdiction and to its knowledge, is not in default of applicable securities legislation in any jurisdiction of Canada.

10. The authorized capital of DEL includes an unlimited number of DEL Shares (as defined below) and Class A exchangeable shares. As at March 30, 2010, there were 100 DEL Shares outstanding and no Class A exchangeable shares outstanding.

11. The DEL Shares (as defined below) are not listed or posted for trading on any exchange or quotation and trade reporting system.

ARRANGEMENT

12. As part of the Arrangement, (i) Daylight will be dissolved; (ii) the Daylight Units will be cancelled; (iii) common shares of AcquireCo will be distributed to holders of Daylight Units (Daylight Unitholders) on a one-for-one basis; (iv) the common shares of AcquireCo will continue as common shares (Daylight Energy Common Shares) of Daylight Energy; and (iv) Daylight Energy will own, directly or indirectly, all of the existing assets and assume all of the existing liabilities of Daylight and DEL (including Daylight's outstanding convertible debentures), effectively resulting in the internal reorganization of Daylight's trust structure into a corporate structure.

13. Following the completion of the Arrangement: (i) the sole business of Daylight Energy will be the current business of Daylight; (ii) Daylight Energy would be a reporting issuer or the equivalent under the securities legislation in all of the provinces of Canada (except Prince Edward Island); and (iii) the Daylight Energy Common Shares would, subject to approval by the TSX, be listed on the TSX.

14. The Arrangement does not contemplate the acquisition of any additional operating assets or the disposition of any existing operating assets.

15. Pursuant to Daylight's constating documents and applicable securities laws, the Daylight Unitholders will be required to approve the Arrangement at the Daylight Meeting. The Arrangement must be approved by not less than two-thirds of the votes cast by Daylight Unitholders at the Daylight Meeting. The Daylight Meeting is anticipated to take place May 6, 2010 and the Circular is expected to be mailed in early April 2010.

16. The Arrangement will be a "restructuring transaction" under National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) in respect of Daylight and therefore would require compliance with Section 14.2 of the Circular Form. The Applicant is applying for an exemption pursuant to Section 13.1 of NI 51-102 from the requirement of Section 14.2 of the Circular Form (which requires compliance with National Instrument 41-101 General Prospectus Requirements (NI 41-101) and therefore with Form 41-101F1 Information Required in a Prospectus (Prospectus Form)) that pursuant to Subsection 32.2(1) of the Prospectus Form, the financial statements of DEL for the financial years ended December 31, 2009, December 31, 2008 and December 31, 2007 which include a balance sheet, income statement, statement of retained earnings, and a cash flow statement for each of these years as described in Section 32.2(1) of the Prospectus Form and pursuant to Subsection 32.3(1) of the Prospectus Form (collectively, the Financial Statements) be included in the Circular that would be mailed to the Daylight Unitholders in connection with the Arrangement.

17. The Arrangement is being undertaken to reorganize Daylight following the enactment by the federal government of rules in respect of the tax treatment of specified investment flow-through trusts. Pursuant to the Arrangement, Daylight will be reorganized into a public growth oriented oil and gas production, exploration and development corporation that will retain the name "Daylight Energy Ltd." and will own, directly or indirectly, all of the existing assets and assume all of the existing liabilities of Daylight.

18. The rights of Daylight Unitholders and holders of Debentures in respect of Daylight Energy following the Arrangement will be substantially equivalent to the rights the Daylight Unitholders and holders of Debentures currently have in respect of Daylight and DEL, as applicable, and their relative interest in and to the business carried on by Daylight Energy will not be affected by the Arrangement.

19. The only securities that will be distributed to Daylight Unitholders pursuant to the Arrangement will be common shares of AcquireCo, which will continue as Daylight Energy Common Shares.

20. While changes to the consolidated financial statements of Daylight Energy will be required to reflect the organization structure of Daylight and DEL following the Arrangement, the financial position of Daylight Energy will be substantially the same as reflected in Daylight'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 Circular and the unaudited interim consolidated financial statements of Daylight most recently filed or required have been filed under Part 4 of NI 51-102 prior to the date of the Circular. In particular, the entity that exists both before and subsequent to the Arrangement would be substantially the same given the fact that the assets and liabilities of the enterprise, from both an accounting perspective and economic perspective, are not changing based on the Arrangement. However, as the tax structure will be changing from that of an income trust to a corporation, the tax advantages of the income trust structure would be lost.

FINANCIAL STATEMENT DISCLOSURE IN THE CIRCULAR

21. Section 14.2 of the Circular Form requires, among other items, that the Circular contain the disclosure (including financial statements) prescribed under securities legislation and described in the form of prospectus that DEL would be eligible to use immediately prior to the sending and filing of the Circular for a distribution of its securities. Therefore, the Circular must contain the disclosure in respect of DEL prescribed by the Prospectus Form.

22. Subsection 32.2(1) of the Prospectus Form requires Daylight to include certain annual financial statements of DEL in the Circular, including: (i) an income statement, a statement of retained earnings, and a cash flow statement of DEL for each of the financial years ended December 31, 2009, December 31, 2008 and December 31, 2007; and (ii) a balance sheet of DEL as at the end of December 31, 2009 and December 31, 2008.

23. Subsection 4.2(1) of NI 41-101 requires that the financial statements (other than interim financial statements) required to be included in the Circular must be audited in accordance with National Instrument 52-107 Acceptable Accounting Principles, Auditing Standards and Reporting Currency (NI 52-107).

24. The Arrangement will not result in a change in beneficial ownership of the assets and liabilities of Daylight, from both an accounting perspective and an economic perspective. Accordingly, no acquisition will occur as a result of the Arrangement and therefore the significant acquisition financial statement disclosure requirements contained in the Prospectus Form are inapplicable.

25. The Arrangement will be an internal reorganization undertaken without dilution to the Daylight Unitholders or additional debt or interest expense.

EXEMPTIVE RELIEF SOUGHT

Circular Relief

26. The financial statements of Daylight are reported on a consolidated basis, which includes the financial results for DEL. DEL does not report its financial results independently from the consolidated financial statements of Daylight. The Financial Statements, if prepared, would not include the accounts of Daylight. Management, after consulting with Daylight's auditors, believes this would be misleading, since there are transactions between DEL and Daylight that eliminate when consolidation is performed at the trust level. To present the Financial Statements, which would exclude accounts of Daylight, would present the effects of only one side of the financing activities between DEL and Daylight. This would result in significant intra-group balances and intra-group interest expense being reflected on the Financial Statements. Daylight currently has outstanding convertible debentures and pays semi-annual interest on the outstanding debentures. To present DEL excluding the convertible debentures would be potentially misleading as the debentures will be assumed by Daylight Energy under the Arrangement. Additionally, an agreement exists between Daylight and DEL whereby DEL pays a regular royalty to Daylight related to net profits interest from operations. To present the Financial Statements excluding the accounts of Daylight, would present only one side of the intra-group royalty expense. As a result, the presentation of these intra-group transactions, that will be eliminated upon completion of the Arrangement, would present a confusing (and potentially misleading) picture of financial performance.

27. The Financial Statements are not relevant to the Daylight Unitholders for the purposes of considering the Arrangement as the financial statements following the completion of the Arrangement would be substantially and materially the same as the consolidated financial statements of Daylight filed in accordance with Part 4 of NI 51-102 prior to the completion of the Arrangement because the financial position of the entity that exists both before and after the Arrangement is substantially the same.

28. The Circular will contain prospectus level disclosure in accordance with the Prospectus Form (other than the Financial Statements) and will contain sufficient information to enable a reasonable securityholder to form a reasoned judgement concerning the nature and effect of the Arrangement including information explaining how the tax position of DEL after the completion of the Arrangement will differ from the existing tax position of Daylight.

Qualification Relief

29. Subsection 2.7(2) of NI 44-101 contains an exemption for successor issuers from the qualification criteria for short form prospectus eligibility contained in Subsection 2.2(d) of NI 44-101, if an information circular relating to the restructuring transaction that resulted in the successor issuer was filed by the successor issuer or an issuer that was a party to the restructuring transaction, and such information circular: (i) complied with applicable securities legislation; and (ii) included disclosure in accordance with Item 14.2 or 14.5 of the Circular Form of the successor issuer. Daylight Energy will be a "successor issuer" (as such term is defined in NI 44-101) as a result of the Arrangement (which, as discussed above, is a restructuring transaction). The Circular will be filed by Daylight (a party to the restructuring transaction), the Circular will comply with applicable securities legislation and the Circular will include the disclosure required by Item 14.2 of the Circular Form, except for the Financial Statements which will not be included in the Circular pursuant to the Circular Relief.

Prospectus Relief

30. Daylight is qualified to file a prospectus in the form of a short form prospectus pursuant to Section 2.2 of NI 44-101 and is deemed to have filed a notice of intention to be qualified to file a short form prospectus under Section 2.8(4) of NI 44-101.

31. The Filers anticipate that Daylight Energy may wish to file a preliminary short form prospectus following the completion of the Arrangement, relating to the offering or potential offering of securities (including common shares, debt securities or subscription receipts) of Daylight Energy.

32. In anticipation of the filing of a preliminary short form prospectus, and assuming the Arrangement has been completed, Daylight Energy intends to file a notice of intention to be qualified to file a short form prospectus (the Notice of Intention) following completion of the Arrangement. In the absence of the Prospectus Relief, Daylight Energy will not be qualified to file a preliminary short form prospectus until 10 business days from the date upon which the Notice of Intention is filed.

33. Pursuant to the qualification criteria set forth in Section 2.2 of NI 44-101 as modified in the Qualification Relief, following the Arrangement, Daylight Energy will be qualified to file a short form prospectus pursuant to NI 44-101.

34. Notwithstanding Section 2.2 of NI 44-101 as modified in the Qualification Relief, Section 2.8(1) of NI 44-101 provides that an issuer is not qualified to file a short form prospectus unless it has filed a notice declaring its intention to be qualified to file a short form prospectus at least 10 business days prior to the issuer filing its first preliminary short form prospectus.

35. The short form prospectus of Daylight Energy will incorporate by reference the documents that would be required to be incorporated by reference under item 11 of Form 44-101F1 in a short form prospectus of Daylight Energy, as modified by the Qualification Relief.

Decision

Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.

The decision of the Decision Makers under the Legislation is that:

(a) the Circular Relief is granted;

(b) the Qualification Relief is granted provided that any short form prospectus filed by Daylight Energy pursuant to NI 44-101 during the currency of the Qualification Relief specifically incorporates by reference the Circular and any financial statements and related management's discussion and analysis of Daylight incorporated by reference into the Circular; and

(c) the Prospectus Relief is granted, provided that at the time Daylight Energy files its Notice of Intention, Daylight Energy meets the requirements of Section 2.2 of NI 44-101, as modified by the Qualification Relief.

"Cheryl McGillivray"
Manager, Corporate Finance