Securities Law & Instruments

Headnote

Section 144 -- application for full revocation of cease trade order -- issuer cease traded due to failure to file with the Commission annual financial statements -- issuer has applied for a full revocation of the cease trade order upon completion of Plan of Arrangement under the Companies' Creditors Arrangement Act -- full revocation granted subject to conditions.

Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, as am., ss. 127, 144.

IN THE MATTER OF

THE SECURITIES ACT,

R.S.O. 1990, CHAPTER S.5, AS AMEMDED

(the Act)

AND

IN THE MATTER OF

MAHALO ENERGY LTD.

ORDER

(Section 144 of the Act)

WHEREAS the securities of Mahalo Energy Ltd. (the Filer) are subject to a temporary cease trade order issued by the Director on June 29, 2010 pursuant to subsections 127(1) and 127(5) of the Act and a further cease trade order issued by the Director on July 12, 2010 pursuant to subsection 127(1) of the Act (together the Ontario CTO), directing that all trading in the securities of the Filer cease until further order by the Director;

AND WHEREAS the Filer has applied to the Ontario Securities Commission (the Commission) for an order pursuant to section 144 of the Act (the Application) for a full revocation of the Ontario CTO.

AND WHEREAS the Filer has represented to the Commission that:

1. The Filer was incorporated under the Business Corporations Act (Alberta) on April 21, 2004.

2. The Filer's head office is located in Calgary, Alberta.

3. The Filer is currently a reporting issuer in the provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Québec (each a Jurisdiction).

4. The Filer has applied for and expects to be granted concurrently with this full revocation order, a decision that the Filer has ceased to be a reporting issuer in each Jurisdiction (the Not a Reporting Issuer Decision). If that decision is granted, the Filer will not be a reporting issuer in any jurisdiction in Canada.

5. The Filer is not in default of any of its obligations as a reporting issuer as of the date hereof, other than the obligation to file: (a) its annual audited financial statements, managements' discussion and analysis and certification of annual filings for the year ended December 31, 2009; (b) interim unaudited financial statements, interim managements' discussion and analysis and certification of interim filings for the interim periods ended March 31, 2010 and June 30, 2010; and (c) the Filer is in default of the following requirements under OSC Rule 13-502 Fees (Rule 13-502): (i) Filer should have filed an applicable form under Rule 13-502 in respect of its year ended December 31, 2009; and (ii) the Filer has not paid the late filing fees in respect of this late filing.

6. The authorized share capital of the Filer consists of an unlimited number of class A common shares (Class A Shares) and an unlimited number of class B common shares (Class B Shares) of which 2,525,000 Class A Shares and 2,525,000 Class B Shares are issued and outstanding as of the date hereof.

7. On May 22, 2009 the Filer was granted protection from its creditors under the Companies' Creditors Arrangement Act (the CCAA) pursuant to an initial order granted by the Court of Queen's Bench of Alberta (the Court) on May 22, 2009 which order has been extended several times (the Initial Order). Alger & Associates Inc. were appointed as monitor under the CCAA. All proceedings against the Filer were stayed pursuant to the Initial Order, the purpose of which is to allow the Filer time to solicit and implement a Court approved Plan of Arrangement (the Plan) under the CCAA.

8. On July 2, 2009, the Filer's former common shares (Common Shares) were delisted from trading on the Toronto Stock Exchange (the TSX) for failure to meet minimum listing requirements and the Common Shares began trading on the NEX board of the TSX Venture Exchange under the symbol "CBM".

9. The Ontario CTO was issued due to the failure of the Filer to file its audited annual financial statements, related management's discussion and analysis and certifications for the year ended December 31, 2009 (the Annual Filings) and interim unaudited financial statements, management's discussion and analysis and certifications for the period ended March 31, 2010 (the Interim Filings).

10. The Filer is also subject to cease trade orders (the Other Cease Trade Orders) in Alberta, British Columbia, Manitoba and Québec for failure to file required filings under applicable securities laws. The Filer has applied for and expects to be granted concurrently with this revocation order, full revocations of the Other Cease Trade Orders (the Other Full Revocation Orders).

11. On August 13, 2010, the Filer received partial revocation orders (the Partial Revocation Orders) from each of the Jurisdictions that issued the Other Cease Trade Orders in respect of the following trades (the Transactions) pursuant to the Plan:

(i) the conclusion of a formal investment agreement (theInvestment Agreement) among the Filer, Alpine Capital Corp. (Alpine) and up to 10 investors identified by Alpine (the New Investors);

(ii) under the Investment Agreement and the Plan, the subscription by Alpine and the New Investors for newly created Class A Shares of the Filer for cash consideration;

(iii) the issuance to up to 30 unsecured creditors (the Unsecured Creditors) of the Filer of newly created Class B Shares of the Filer, as part of the settlement of their claims and under section 2.14 of National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106);

(iv) the redemption and cancellation of all of the Filer's issued and outstanding Common Shares for nil consideration; and

(v) the cancelation of all other securities of the Filer for no consideration.

12. The Filer has satisfied every condition of the Partial Revocation Orders.

13. Among other things, the Plan includes the proposal that the Filer apply for: (i) the relief requested in the Not a Reporting Issuer Decision; (ii) the relief requested in this Order; and (iii) the relief requested in the Other Full Revocation Orders.

14. On September 15, 2010, the Filer held a meeting (the Creditors' Meeting) of secured creditors and all other affected creditors of the Filer to consider and vote upon the Plan. At the Creditors Meeting, the Plan was approved unanimously by the affected creditors who voted at the Creditors Meeting which represented 68% in value and 41% in number of the affected creditors.

15. On September 16, 2010 and as extended on October 14, 2010, the Court made a sanction order (the Sanction Order) approving the Plan. Among other things, the Sanction Order provides that the Transactions be completed as part of the Plan.

16. The Filer delisted the Common Shares from the NEX board of the TSX Venture Exchange on October 6, 2010. As a result, no securities of the Filer are traded on a marketplace as defined in National Instrument 21-101 Marketplace Operation.

17. The right of any other security holder of the Filer to challenge the Plan as set out in the Sanction Order expired on November 4, 2010.

18. On November 4, 2010, pursuant to the Plan and as permitted by the Partial Revocation Orders, the Filer completed the Transactions. Specifically, the Filer:

(i) issued 2,525,000 Class A Shares to Alpine and the New Investors for cash consideration of $2,525,000;

(ii) issued 2,525,000 Class B Shares to 30 unsecured creditors for settlement, in part, of their outstanding claims;

(iii) redeemed and cancelled all of the Common Shares for nil consideration; and

(iv) cancelled all other securities of the Filer (other than the Class A Shares and Class B Shares).

19. As a result of the completion of the Transactions, the outstanding securities of the Applicant, including debt securities, are beneficially owned, directly or indirectly, by fewer than 51 security holders in total in Canada and by fewer than 15 security holders in each Jurisdiction other than Alberta where 34 security holders will reside.

20. The issuance of the Class A Shares to Alpine and the New Investors as contemplated by the Investment Agreement and the Plan have closed and, pursuant to an escrow agreement among the Class A Shareholders, Mahalo and Burnet, Duckworth & Palmer LLP, the Class A Shares and the subscription proceeds for such shares have been placed in escrow with Burnet, Duckworth & Palmer LLP with an irrevocable direction that they be released upon receipt of: (i) the Not a Reporting Issuer Decision; (ii) this Order; and (iii) the Other Full Revocation Orders and, provided that, no order, ruling or determination having the effect of ceasing, suspending or restricting trading in any securities of the Filer shall otherwise be outstanding.

21. Once the Not a Reporting Issuer Decision, this Order, and the Other Full Revocation Orders have been issued, the escrow agreement provides that Burnet, Duckworth & Palmer LLP will release the share certificates to the holders of Class A Shares and disburse the subscription proceeds to the Filer. Upon satisfaction of the escrow release conditions, the Plan will be concluded and completed in all respects.

22. Each holder of Class A Shares has consented to the Filer making this application and each holder of Class B Shares has knowledge of this application by virtue of the fact that each of the creditors receiving Class B Shares has voted in favour of the Plan, which contains details pertaining to this order, and was given notice of creditor approval of the Plan pursuant to the Sanction Order.

AND UPON considering the Application and the recommendation of the staff of the Commission;

AND UPON the Director being satisfied to do so would not be prejudicial to the public interest;

IT IS ORDERED, pursuant to section 144 of the Act, that the Ontario CTO is fully revoked as of the date on which the Filer ceases to be a reporting issuer under the Act.

DATED at Toronto this 12th day of November, 2010.

"Jo-Anne Matear"
Assistant Manager, Corporate Finance
Ontario Securities Commission