Securities Law & Instruments


MI 11-102 and NP 11-203 -- business combination -- conversion of publicly traded income fund into corporate entity -- MI 61-101 requires minority approval if conversion is a business combination -- conversion is not a business combination for publicly traded fund, but is technically a business combination for a holding company in the fund's structure -- relief granted to limited partnership from complying with the minority approval requirement provided certain conditions met.

Applicable Legislative Provisions

Multilateral Instrument 11-102 Passport System.

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions.

Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions.

October 4, 2010



ONTARIO (the "Jurisdiction")









(the "Fund" and "EELP", respectively

and, together, the "Filers")



The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction (the "Legislation") that the requirement set out in Section 4.5 of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions ("MI 61-101") that an issuer obtain minority approval for a business combination shall not apply to EELP with respect to the proposed conversion of the Fund to a corporate structure (the "Conversion Transaction") (the foregoing referred to as the "Exemption Sought").

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

(a) the Ontario Securities Commission is the principal regulator for this application (the "Decision Maker"), and

(b) the Filers have provided notice that Section 4.7(1) of Multilateral Instrument 11-102 Passport System ("MI 11-102") is intended to be relied upon in Québec.


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


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

1. The Fund is an unincorporated trust governed by the laws of Alberta. The Fund was established in 1986. The principal office of the Fund is located in Calgary, Alberta.

2. The beneficial interests in the Fund are represented by trust units ("Fund Units"), and the Fund is also authorized to issue a Special Voting Right, described in further detail below. The Fund Units carry a right to receive distributions and an interest in the net assets of the Fund in the event of a termination or winding up of the Fund. The Fund Units are listed on the Toronto Stock Exchange under the trading symbol "ERF.UN" and on the New York Stock Exchange under the symbol "ERF". As of September 30, 2010, there were 176,358,694 issued and outstanding Fund Units.

3. EELP is a limited partnership formed under the laws of Alberta. The general partner of EELP is EnerMark Inc., an Alberta corporation which is indirectly wholly-owned by the Fund.

4. EELP has two classes of limited partnership units: (i) Class A limited partnership units, which represent the voting interests in EELP and all of which are held indirectly by the Fund, and (ii) Class B limited partnership units ("EELP B Units"), which are exchangeable for Fund Units, at any time at the option of the holder and for no additional consideration, on the basis of 0.425 of a Fund Unit for each EELP B Unit. The EELP B Units were originally issued by a subsidiary of Focus Energy Trust ("Focus") to certain shareholders of a private company acquired by Focus in 2006 as an alternative to receiving trust units of Focus, in order to permit such holders to achieve a tax-deferred exchange of securities for Canadian federal income tax purposes. At such time, the EELP B Units were exchangeable on a one-for-one basis into trust units of Focus. However, when the Fund acquired all of the issued and outstanding trust units of Focus in February 2008, on the basis of 0.425 of a Fund Unit for each trust unit of Focus, the exchange ratio for which EELP B Units would be exchanged for Fund Units was similarly adjusted. As of September 30, 2010 there were 4,139,535 EELP B Units issued and outstanding, which are exchangeable into 1,759,302 Fund Units, representing only approximately 1% of the issued and outstanding Fund Units.

5. The Fund has issued the Special Voting Right to Computershare Trust Company of Canada, as voting trustee, on behalf of the holders of EELP B Units, and the Special Voting Right entitles the holder thereof to vote at all meetings of holders of Fund Units together with the holders of Fund Units and represents the number of votes that the holders of EELP B Units would have had they exchanged such units for Fund Units.

6. The EELP B Units are intended to be, to the greatest extent practicable and subject to the exchange ratio for Fund Units, the economic equivalent of Fund Units. Holders are entitled to receive distributions, to the greatest extent practicable, equal to those paid by the Fund to holders of Fund Units. Pursuant to the limited partnership agreement of EELP, holders of EELP B Units do not have voting entitlements at the EELP level, except in very limited circumstances including a transaction where the impact on the EELP B Units is not economically equivalent to the impact on the Fund Units. Under the proposed Conversion Transaction, the economic impact on the EELP B Units is identical to that of the Fund Units and accordingly no separate vote of the holders of EELP B Units is required beyond the voting rights provided by the Special Voting Right to vote together with holders of Fund Units. Accordingly, under the limited partnership agreement of EELP and the related voting and exchange agreement and support agreement, the holders of EELP B Units are to vote together with the holders of Fund Units on the Conversion Transaction.

7. There are 26 registered holders of EELP B Units, including CDS & Co. which holds approximately 67% of the EELP B Units. The EELP B Units are not listed on any exchange and, by their terms, are not transferable except upon their exchange for Fund Units and in certain other very limited circumstances.

8. Both the Fund and EELP are reporting issuers under applicable securities laws in Ontario and Québec (and all other provinces and territories of Canada). As an exchangeable security issuer, EELP is entitled, under Part 13 of National Instrument 51-102 Continuous Disclosure Obligations ("NI 51-102") and related provisions of securities laws, to an exemption from the financial statement and other continuous disclosure requirements of NI 51-102 and certain related requirements of securities laws.

9. The Fund and EELP are now proposing to undertake the Conversion Transaction. Under the Conversion Transaction, the holders of Fund Units and EELP B Units will, if the transaction is approved by such unitholders and certain other conditions are satisfied or waived, exchange their respective units for common shares of a new corporation ("Newco") established by the Fund and which, prior to the Conversion Transaction, will be a wholly-owned subsidiary of the Fund. Upon completion of the Conversion Transaction, Newco will become the successor reporting issuer, and it is intended that the Newco common shares will be listed on the Toronto Stock Exchange and the New York Stock Exchange.

10. The Conversion Transaction will be effected by a plan of arrangement under the Business Corporations Act (Alberta), subject to approval at a meeting of securityholders by a special resolution approved by more than 66 2/3% of votes cast by Fund Unitholders and EELP B Unitholders, voting together as a single class. The Conversion Transaction is also subject to approval by the Alberta Court of Queen's Bench.

11. Under the Conversion Transaction, all holders of Fund Units will receive one common share of Newco and all holders of EELP B Units will receive 0.425 of a common share of Newco, which is identical to the exchange ratio of EELP B Units for Fund Units.

12. The Conversion Transaction will not be a business combination, as defined in MI 61-101, for the Fund and, as such, there will be no requirement for the Fund to obtain a formal valuation or minority approval under MI 61-101 for the Conversion Transaction.

13. In the case of EELP, however, the Conversion Transaction would be a business combination, as it would not be a downstream transaction (as defined in MI 61-101) as EELP would not be a "control person" of Newco and the Conversion Transaction would result in a related party of EELP (Newco), directly or indirectly, acquiring the issuer (EELP).

14. For EELP, the Conversion Transaction would be exempt from the formal valuation requirements of Part 4 of MI 61-101, under Section 4.4(a), since no securities of EELP are listed on the specified markets. However, the Conversion Transaction would subject EELP to the requirement to obtain minority approval for the Conversion Transaction from the holders of "affected securities" of EELP, that is, the holders of EELP B Units, although no minority approval requirement would apply at the Fund level.


The Decision Maker 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 Maker under the Legislation is that the Exemption Sought is granted provided that the conditions of subsections (e)(ii) and (e)(iii) of the definition of "business combination" in Section 1.1 of MI 61-101 are met.

"Naizam Kanji"
Deputy Director, Corporate Finance
Ontario Securities Commission