First National Financial Income Fund et al.

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Exemption from the requirements in section 4.2(a)(ix) of National Instrument 44-101 Short Form Prospectus Distributions and items 12.1(3) and (4) of Form 44-101F1 Short Form Prospectus to provide separate guarantor disclosure in a prospectus and on an ongoing basis. Income trust to file prospectus for an offering of debentures guaranteed by certain downstream entities (an operating trust, a partnership and the general partner of the partnership). Partnership is the sole operating entity in the income trust structure. None of the income trust, the operating trust or the general partner have any material operations. Prospectus will disclose that income trust has been advised that the credit rating assigned to the debentures is based on the guarantee of the partnership and the inter-creditor agreement to be entered into by the parties. Income trust understands that the guarantees of the operating trust and the general partner were not material to the credit rating. Certain separate guarantor disclosure to be provided by the partnership. Relief granted subject to numerous conditions.

Applicable Legislative Provisions

National Instrument 44-101 Short Form Prospectus Distributions, ss. 4.2(a)(ix), 8.1.

Form 44-101 Short Form Prospectus, items 12.1(3) and (4).

April 19, 2010

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(THE "JURISDICTION")

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

FIRST NATIONAL FINANCIAL INCOME FUND

(THE "FUND"), FIRST NATIONAL FINANCIAL

OPERATING TRUST (THE "TRUST"), FIRST

NATIONAL FINANCIAL LP (THE "PARTNERSHIP")

AND FIRST NATIONAL FINANCIAL GP

CORPORATION (THE "GENERAL PARTNER", AND

TOGETHER WITH THE TRUST, THE PARTNERSHIP

AND THE FUND, THE "FILERS")

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Jurisdiction of the principal regulator (the "Legislation") for relief from the requirements in:

(a) Section 4.2(a)(ix) of National Instrument 44-101 Short Form Prospectus Distributions ("NI 44-101") that the Fund must provide an undertaking to file the periodic and timely disclosure of the Trust, the Partnership and the General Partner (the "Continuous Disclosure Relief");

(b) Item 12.1(3) of Form 44-101F1 Short Form Prospectus to NI 44-101 ("Form 44-101F1") that the Fund provide certain disclosure in the Prospectus on the Trust and General Partner; and

(c) Item 12.1(4) of Form 44-101F1 that the Trust's and the General Partner's earnings coverage ratios under Item 6.1 of Form 44-101F1 must be provided as if such credit supporter were the issuer of the Debentures (together with (b) above, the "Prospectus Relief", and collectively with the Continuous Disclosure Relief, the "Exemptions Sought").

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

(d) the Ontario Securities Commission is the principal regulator for this application; and

(e) 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 Alberta, British Columbia, Manitoba, Saskatchewan, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut.

Furthermore, the principal regulator in the Jurisdiction has received a request from the Filers for a decision that the application and this decision be kept confidential and not be made public until the earlier of: (a) the date on which the Fund is issued a receipt for the preliminary short form prospectus of the Fund in respect of a proposed offering of non-convertible secured debentures of the Fund (the "Debentures"); (b) the date the Filers advise the principal regulator that there is no longer any need for the application and this decision to remain confidential; and (c) the date that is 90 days after the date of this decision (the "Confidentiality Sought").

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:

The First National Entities:

1. The Fund is an unincorporated open-ended limited purpose trust established under the laws of the Province of Ontario pursuant to a declaration of trust dated April 19, 2006, as the same was amended and restated on June 8, 2006.

2. The Trust is an unincorporated, open-ended limited purpose trust established under the laws of the Province of Ontario pursuant to a declaration of trust dated April 19, 2006, as the same was amended and restated on June 8, 2006.

3. The General Partner is a corporation incorporated under the laws of the Province of Ontario.

4. The Partnership is a limited partnership established under the laws of the Province of Ontario pursuant to a limited partnership agreement dated as of April 19, 2006, as the same was amended and restated on June 15, 2006.

5. The Fund holds all of the outstanding interests in the Trust, and also holds all of the Series 1 Notes of the Trust.

6. The Trust holds directly, and indirectly through its interest in the General Partner, a 21.15% interest in the Partnership. The Trust holds a 21.15% interest in the General Partner.

7. The General Partner holds a 0.01% interest in the Partnership.

8. First National Financial Corporation ("FNFC") owns 78.85% of the voting interest in the Fund (through special voting units) and in the Partnership. FNFC holds a 78.85% interest in the General Partner.

9. Pursuant to the terms and conditions of an exchange agreement dated June 15, 2006 among the Fund, the Trust, the Partnership, the General Partner and FNFC, FNFC may indirectly exchange its ownership interest in the Partnership along with a corresponding proportion of its ownership interest in the General Partner, for a proportionate ownership interest in the Fund (the "Exchange Right").

10. Should FNFC fully exercise the Exchange Right, the Fund would, through its control of the Trust, control both the Partnership and the General Partner and the current shareholders of FNFC would control the Fund.

11. As among the Filers, the Partnership is the sole operating entity and none of the Fund, the Trust or the General Partner (except in its capacity as general partner of the Partnership) have any material operations.

12. The Trust does not legally own any assets other than its interests in the Partnership and the General Partner, nor does it have any liabilities other than the Trust's Series 1 Notes issued to the Fund, nor has it provided any guarantees or credit support other than in connection with the Bank Guarantees and Security (as defined and described below).

13. The General Partner (except in its capacity as general partner of the Partnership) does not legally own any assets other than in connection with its de minimis interest in the Partnership, nor does it have any liabilities, nor has it provided any guarantees or credit support other than in connection with the Bank Guarantees and Security.

14. The Fund's annual information form (and other continuous disclosure) contains the disclosure required by applicable law on the business and operations of the Partnership, as if the Partnership was a reporting issuer.

15. Pursuant to an undertaking of the Fund given on June 7, 2006 to the securities commissions or securities regulatory authorities in each of the provinces and territories of Canada (the "Undertaking"), the Fund treats the Partnership as a subsidiary of the Fund in complying with its reporting issuer obligations; and in doing so, while generally accepted accounting principals prohibit the consolidation of financial information of the Partnership and the Fund, and for as long as the Partnership (including any of its significant business interests) represents a significant asset of the Fund, the Fund provides unitholders of the Fund with separate financial statements and management's discussion and analysis for the Partnership (including information about any of its significant business interests) (the "Partnership Financial Information"). The Partnership Financial Information is publically available on the Fund's SEDAR profile.

16. The Fund is in compliance with the Undertaking (other than the filing of annual compliance certificates pursuant to subsection (d) of the Undertaking). The Fund has filed or will file a remedial compliance certificate.

17. The Fund recently announced that it plans to convert from an income trust to a corporate structure, as set out more particularly in its management information circular dated March 31, 2010 (the "Conversion"). It is expected that the Conversion will be effected by way of plan of arrangement (the "Arrangement"). Pursuant to the Arrangement, unitholders of the Fund will receive, for each unit of the Fund ("Unit") held, one common share of First National Financial Inc. ("FNFI") on the effective date of the Arrangement (the "Effective Date") which is expected to occur on or about January 1, 2011. After the Effective Date, FNFI will be listed on the Toronto Stock Exchange under the symbol "FN". In addition, the Fund and the Trust will be dissolved and the current holders of Units (including the holders of publicly traded units, along with FNFC or its successors, the holder of the special voting units) will be the sole shareholders of FNFI. FNFI will be the sole interestholder of both the Partnership and the General Partner. It is anticipated that the board of directors and senior management of FNFI will be comprised of the current directors and senior management of the General Partner, respectively.

18. Following the Conversion, FNFI will control both the General Partner and the Partnership, and accordingly will consolidate the Partnership's and the General Partner's financial information. It is also expected that the exemption in section 13.4 of Form 44-101F1 would be satisfied at such time, and therefore no additional Continuous Disclosure Relief would be required.

19. Following the Conversion, the Trust will be dissolved and will therefore cease to be a credit supporter. As such, relief in respect of the Trust will no longer be applicable.

20. Following the Conversion, the Prospectus Relief will no longer be required, as the Prospectus will have already been filed. The Prospectus will contain the disclosure required by Item 19 of Form 44-101F1 in respect of the relief granted by this decision, the effect of the Conversion on the relief and what continuous disclosure will be provided before and after the Conversion.

The Offering:

21. The Fund intends to offer the Debentures by way of short form prospectus (the "Prospectus") in all the provinces and territories of Canada.

22. It is intended that the Debentures will be guaranteed, jointly and severally, by each of the Trust, the Partnership and the General Partner (the "Debenture Guarantees"). The Debentures will be secured by all present and future undertakings, property and assets of the Fund and all rights and benefits accruing thereunder, and the Guarantees will be secured by all present and future undertakings, property and assets of the Trust, the Partnership and the General Partner and all rights and benefits accruing thereunder (the "Debenture Security", and together with the Debenture Guarantees, the "Debenture Guarantees and Security"). The Debenture Guarantees will constitute "full and unconditional credit support" as defined in National Instrument 41-101.

23. It is intended that the Debentures will be direct senior secured obligations of the Fund and will rank equally and rateably, including with respect to security interests, with the indebtedness outstanding from time to time under the Partnership's existing bank credit facility, as it may be modified, amended, restated, replaced or refinanced from time to time (the "Bank Credit Facility"). If the security securing the Bank Credit Facility is released for any reason, including on repayment of the Bank Credit Facility (but other than while the Debenture trustee is enforcing its rights under security securing the Debentures), the Debenture trustee will be required to release the Debenture Security. In the event that the pari passu ranking secured and unsubordinated indebtedness becomes unsecured, the Debentures will become direct unsecured obligations and will rank pari passu with all other unsecured and unsubordinated indebtedness of the Fund.

24. The Trust and General Partner have provided guarantees and granted security to the lenders in connection with the Bank Credit Facility (the "Bank Guarantees and Security").

25. The Fund intends to use the net proceeds of the offering to repay current indebtedness. As the indebtedness is at the Partnership level, following closing of the offering, the Fund intends to lend the net proceeds of the offering to the Trust, which will subsequently lend such amount to the Partnership, and such loans will be evidenced by promissory notes (the "Promissory Notes").

26. While the Fund cannot consolidate the financial statements of the Partnership into its own financial statements, the Prospectus will contain all of the disclosure required by Item 12.1 of Form 44-101F1 in respect of the Partnership, either directly or by the incorporation of documents by reference therein.

27. The General Partner and the Trust each satisfy the requirements of Item 13.4 (a), (b) and (c) of Form 44-101F1.

28. Although the General Partner is not controlled by the Fund, the Fund's publically available disclosure clearly sets out the details of FNFC's control over the Fund, the General Partner and the Partnership. Additionally, upon full exercise of the Exchange Right, the Fund would control the General Partner and the Partnership.

29. The Prospectus will comply with Item 12.1(4) of Form 44-101F1 in respect of the Trust, the General Partner and the Partnership (including providing the information in paragraphs 11, 12, 13 above), other than financial statements, management's discussion and analysis and earnings coverage ratios of each of the Trust and the General Partner.

30. None of the Filers are in default of securities legislation in any jurisdiction.

Undertakings:

31. The Fund and the Trust have provided the principal regulator and the securities regulatory authorities in the other provinces and territories with an undertaking that so long as the Debentures are outstanding and the Conversion has not yet been effected, if condition (e) below is not met, the Trust will provide to the Fund and the Fund will file continuous disclosure documents of the Trust.

32. The Fund and the General Partner have provided the principal regulator and the securities regulatory authorities in the other provinces and territories with an undertaking that so long as the Debentures are outstanding and the Conversion has not yet been effected, if condition (f) below is not met, the General Partner will provide to the Fund and the Fund will file continuous disclosure documents of the General Partner.

33. The Partnership and the General Partner have provided the principal regulator and the securities regulatory authorities in the other provinces and territories with an undertaking that so long as the Debentures are outstanding and the Conversion has not yet been effected, the Partnership will provide and the General Partner will cause the Partnership to provide the Fund with all necessary information so that the Fund can comply with conditions (g) through (m) below.

34. FNFI has provided the principal regulator and the securities regulatory authorities in the other provinces and territories with an undertaking that so long as the Debentures are outstanding and the Conversion has been effected,

(a) if the exemption contained in section 13.4 of Form 44-101F1 is available for use, FNFI will include in its consolidated financial statements the information substantially contained in section 13.4(e)(i) of Form 44-101F1 or the disclosure specified in section 13.4(e)(ii) of Form 44-101F1,

(b) if the exemption contained in section 13.4 of Form 44-101F1 is not available for use, FNFI will comply with conditions (h) through (l) below, and

(c) if the exemption contained in section 13.4 of Form 44-101F1 is not available for use and if condition (f) below is not met, FNFI will file continuous disclosure documents of the General Partner.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemptions Sought are granted provided that:

Prospectus Relief:

(a) the Prospectus contains all the disclosure required by Item 12.1 of Form 44-101F1 in respect of the Partnership, either directly or by the incorporation of documents by reference therein and discloses that the Fund has been advised that the credit rating assigned to the Debentures is based on the Debenture Guarantee of the Partnership and the intercreditor agreement to be entered into by each of the Filers, the Debenture trustee and the agent under the Bank Credit Facility and accordingly, the Fund understands that the Debenture Guarantees of the Trust and the General Partner were not material to such credit rating;

(b) each of the General Partner and the Trust satisfy the conditions set forth in Item 13.4 (a), (b) and (c) of Form 44-101F1;

Continuous Disclosure Relief:

(c) until the Conversion is effected, the Fund will continue to satisfy its obligations pursuant to the Undertaking for financial periods ending before the effective date of the Conversion;

(d) until the Conversion is effected and the Trust is dissolved, the Fund will continue to consolidate the financial statements of the Trust into the Fund's financial statements for financial periods ending before the effective date of the Conversion;

(e) until the Conversion is effected and the Trust is dissolved, so long as the Debentures are outstanding, the Trust shall not have any material operations, nor assets, other than its interests in the Partnership and the General Partner, nor liabilities other than in connection with the Trust's Series 1 Notes issued to the Fund, the Bank Guarantees and Security, the Debenture Guarantees and Security and the Promissory Notes;

(f) until the exemption contained in section 13.4 of Form 44-101F1 is available for use, so long as the Debentures are outstanding, the General Partner (except in its capacity as general partner of the Partnership) shall not have any material operations, nor assets, other than in connection with its de minimus interest in the Partnership, nor liabilities other than in connection with the Bank Guarantees and Security and the Debenture Guarantees and Security;

(g) until the Conversion is effected, the Fund will continue to file audited annual financial statements and related management's discussion and analysis of the Partnership and unaudited interim financial statements and related management's discussion and analysis of the Partnership in accordance with the Undertaking for financial periods ending before the effective date of the Conversion;

(h) until the exemption contained in section 13.4 of Form 44-101F1 is available for use, the Fund or FNFI, as the case may be, will include in its annual information form (for disclosure in respect of financial years ending before the date the exemption is available for use), the same information about the Partnership that the Partnership would be required to disclose in an annual information form, should the Partnership be required to file an annual information form;

(i) until the exemption contained in section 13.4 of Form 44-101F1 is available for use, the Fund or FNFI, as the case may be, will include in its annual information form and management information circular (for disclosure in respect of financial years ending before the date the exemption is available for use), the same executive compensation disclosure about the officers and directors of the Partnership that the Partnership would be required to disclose in an annual information form and management information circular, should the Partnership be required to file an annual information form and management information circular;

(j) until the exemption contained in section 13.4 of Form 44-101F1 is available for use, the Fund or FNFI, as the case may be, will file a business acquisition report in respect of any significant acquisition by the Partnership (for acquisitions completed before the date the exemption was available for use);

(k) until the exemption contained in section 13.4 of Form 44-101F1 is available for use, the Fund or FNFI, as the case may be, will file any material contracts or constating documents of the Partnership (for contracts and documents dated before the date the exemption was available for use) that the Partnership would be required to file under Part 12 of National Instrument 51-102 Continuous Disclosure Obligations ("NI 51-102");

(l) until the exemption contained in section 13.4 of Form 44-101F1 is available for use, the Fund or FNFI, as the case may be, will issue a news release and file a material change report in accordance with Part 7 of NI 51-102 in respect of any material change in the affairs of the Partnership (that occurs before the date the exemption was available for use) that is not also a material change in the affairs of the Fund or FNFI, as the case may be;

(m) until the Conversion is effected, if the Partnership restates its financial statements or financial information, the Fund will comply with section 11.5 of NI 51-102 as though the Partnership were a reporting issuer (for financial periods ending before the effective date of the Conversion);

(n) the Fund or FNFI, as the case may be, will file on SEDAR any material amendments to the Bank Credit Facility and will issue a press release if there are changes to the security granted under the Bank Credit Facility that materially affect the Debenture Security;

(o) after the Conversion, FNFI will file all relevant change of corporate structure documents in connection with the Conversion, as required by applicable securities laws;

(p) after the Conversion, FNFI will file with its consolidated financial statements the information required by section 13.4(e) of Form 44-101F1 for so long as the Debentures are outstanding, and

(q) the Exemptions Sought are granted only with respect to the offering of the Debentures pursuant to the Prospectus.

Furthermore, the decision of the principal regulator is that the Confidentiality Sought is granted.